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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: October 10, 1997
WESTERN MICRO TECHNOLOGY, INC.
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(Exact name of registrant as specified in its charter)
Delaware 0-11560 94-2414428
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(Commission (I.R.S. Employer
(State or Other Jurisdiction File Number identification Number)
of Incorporation)
254 East Hacienda Avenue, Campbell, CA 95008
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(Address of principal executive offices) (Zip Code)
(408) 379-0177
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(Registrant's telephone number,
including area code)
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Item 5. Other Events.
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(a) On September 30, 1997, Western Micro Technology, Inc. (the "Registrant")
executed an amendment, attached hereto as Exhibit 2.1, (the "Third Amendment"),
with the stockholders of Star Management Services, Inc., a Delaware corporation
("Star Management"), modifying certain terms of the proposed acquisition by the
Registrant of the outstanding capital stock of Star Management (the "Star
Acquisition") as set forth in the Stock Purchase Agreement by and among the
Registrant, Star Management, Harvey E. Najim and Carlton Joseph Mertens II
(together, the "Selling Stockholders") dated as of June 4, 1997, attached hereto
as Exhibit 2.2 and incorporated herein by reference (the "Stock Purchase
Agreement") and as amended by the Letter Agreement dated July 22, 1997, the
Amendment to Stock Purchase Agreement dated August 29, 1997 and the Second
Amendment to Stock Purchase Agreement dated September 5, 1997 (filed as Exhibits
2.1 and 2.2, respectively, to the Registrant's Current Report on Form 8-K filed
on September 15, 1997) (said Stock Purchase Agreement as amended the "Amended
Purchase Agreement"). The Third Amendment was signed concurrently with the
closing of the Star Acquisition and superseded in their entirety the Letter
Agreement, Amendment to Stock Purchase Agreement, and Second Amendment to Stock
Purchase Agreement.
On October 1, 1997, the Registrant issued the press release attached
hereto as Exhibit 99.1. The press release related to the Company's announcement
that it had closed the Star Acquisition.
(b) Concurrently with the closing of the Star Acquisition, the Registrant
signed a Note Purchase Agreement, attached hereto as Exhibit 4.1 (the "Note
Purchase Agreement") among: (i) the Registrant, as issuer; (ii) WMT Acquisition
Corp., a Delaware corporation, Savoir Technology Group, Inc., a Delaware
corporation, Star Management, Inet Systems, Inc., a Texas corporation, Star Data
International, a company organized under the laws of the Virgin Islands, Sirius
Investments, Inc., a Nevada corporation and Star Data Systems, a Texas
corporation, as guarantors (together, the "Guarantors"); (iii) Robert Fleming
Inc., a Delaware corporation and Canpartners Investments IV, LLC, a California
limited liability company, as purchasers (together, the "Purchasers"); and (iv)
Canpartners Investments IV, LLC, as agent for the Purchasers (the "Agent").
Pursuant to the Note Purchase Agreement, the Registrant sold Fifteen Million
Seven Hundred Thousand Dollars ($15,700,000) worth of secured notes (the
"Notes") to the Purchasers, granted to the Purchasers warrants to purchase Four
Hundred Thousand (400,000) shares of the Registrant's common stock, and granted
to the Purchasers Ten (10) shares of newly authorized and issued Series B
Preferred Stock with the right to elect a member of the Board of Directors in
the event of a default by the Registrant on the Notes.
Concurrently with the Note Purchase Agreement, the Registrant also
executed: (i) the Registration and Put Rights Agreement among the Registrant and
the Purchasers attached hereto as Exhibit 4.2; (ii) the Guarantor Security and
Pledge Agreement among the Registrant, the Guarantors and the Agent attached
hereto as Exhibit 10.1; (iii) the SMS Subordination and Intercreditor Agreement
among the Registrant, the Selling Stockholders, the Guarantors and the
Purchasers attached hereto as Exhibit 10.2; (iv) the Issuer Security
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and Pledge Agreement between the Registrant and the Agent attached hereto as
Exhibit 10.3; (v) the Warrant Agreement of Western Micro Technology, Inc.
between the Registrant and the Purchasers attached hereto as Exhibit 4.3; (vi)
the Contribution Agreement among the Registrant and the Guarantors attached
hereto as Exhibit 10.4 ; (vii) the Purchase Agreement Assignment between the
Registrant and the Agent attached hereto as Exhibit 10.5; (viii) the Common
Stock Purchase Warrant in favor of Robert Fleming Inc. attached hereto as
Exhibit 4.4; (ix) the Common Stock Purchase Warrant in favor of CanPartners
Investments IV, LLC attached hereto as Exhibit 4.5; (x) the 13.5% Second
Priority Senior Secured Notes Due September 30, 2000 in favor of Robert Fleming
Inc. attached hereto as Exhibit 4.6; (xi) the 13.5% Second Priority Senior
Secured Notes Due September 30, 2000 in favor of CanPartners Investments IV, LLC
attached hereto as Exhibit 4.7; and (xii) the Certificate of Designation,
Preferences and Rights of Series B Preferred Stock of Western Micro Technology,
Inc. attached hereto as Exhibit 3.1.
(c) Concurrently with the closing of the Star Acquisition the Registrant
executed the Amendment #4 to the Inventory and Working Capital Financing
Agreement between the Registrant and IBM Credit Corporation, a Delaware
corporation ("ICC"), attached hereto as Exhibit 10.6 (the "Amendment #4 to
Western IWCF"), to that certain Inventory and Working Capital Financing
Agreement, as amended on December 31, 1996 (the "Western IWCF") among the
Registrant and ICC (filed as Exhibit 10.23 to the Registrant's Annual Report on
Form 10-K filed on March 31, 1997). Pursuant to the Amendment #4 to Western
IWCF, the Registrant obtained an additional loan of Ten Million Dollars
($10,000,000) to consummate the Star Acquisition and granted to ICC a warrant to
purchase One Hundred Thousand (100,000) shares of the Registrant's common stock.
Concurrently with the Amendment #4 to Western IWCF, the Registrant also
executed: (i) the Promissory Note in the amount of Ten Million Dollars
($10,000,000) in favor of ICC attached hereto as Exhibit 4.8; (ii) the Warrant
Agreement of Western Micro Technology, Inc. between the Registrant and ICC
attached hereto as Exhibit 4.9; (iii) the Assumption Agreement among the
Registrant, Star Data Systems, Inc. and ICC attached hereto as Exhibit 10.7;
(iv) the Collateralized Guaranty of Payment between the Registrant and ICC
attached hereto as Exhibit 10.8; (v) the IBM Credit Corporation Subordination
and Intercreditor Agreement among the Registrant, the Guarantors, the Purchasers
and ICC attached hereto as Exhibit 10.9; (vi) the Registration and Put Rights
Agreement between the Registrant and ICC attached hereto as Exhibit 4.10 and
(vii) the Common Stock Purchase Warrant in favor of ICC attached hereto as
Exhibit 4.11.
(d) Also pursuant to the Star Acquisition, Carlton Joseph Mertens II was
elected to the Registrant's board of directors. In his capacity as a Selling
Stockholder of Star Management, Mr. Mertens was a party to the contracts set
forth in Exhibits 2.1, 2.2, 10.2 and 10.5 hereof.
(e) In a separate transaction, on September 19, 1997, the Registrant
consummated the issuance of 1,125,250 Units (the "Units") (each Unit consisting
of two (2) shares of the Registrant's Series A Preferred Stock, par value $0.01
per share, for an aggregate of Two Million Two Hundred Fifty Thousand Five
Hundred (2,250,500) shares, at a purchase price
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of $9.5625 per share, and one (1) Common Stock Purchase Warrant, par value $0.01
per share, for an aggregate of One Million One Hundred Twenty Five Thousand Two
Hundred Fifty (1,125,250) shares, at a purchase price of $.125 per Warrant and
exercisable at a price of $9.6875 per share), at a purchase price of Nineteen
Dollars and Twenty Five Cents ($19.25) per Unit (the "Units"), offered pursuant
to the terms and conditions of: (i) the form of Units Purchase Agreement dated
as of September 19, 1997 between the Registrant and the purchasers of the Units
(the "Unit Purchasers") attached hereto as Exhibit 4.12; (ii) the form of
Registration Rights Agreement dated as of September 19, 1997 among the
Registrant, the Purchasers and Fahnestock & Co. Inc. as placement agent attached
hereto as Exhibit 4.13; (iii) the Form of Common Stock Purchase Warrant in favor
of the Unit Purchasers attached hereto as Exhibit 4.14 and (iv) the Certificate
of Designation, Preferences and Rights of Series A Preferred Stock of Western
Micro Technology, Inc, attached hereto as Exhibit 3.2.
Item 7. Financial Statements and Exhibits.
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(a) Exhibits.
2.1* Third Amendment to Stock Purchase Agreement by and among the
Registrant, Star Management, Harvey Najim and Carlton Joseph
Mertens II dated September 30, 1997. Supplementary
Disclosure Schedules A & B, attached to the Executed Third
Amendment as Exhibits A & B, have been omitted and will be
furnished to the Commission upon request. Schedules to
Exhibit C of this Third Amendment omitted from this report
will be furnished to the Securities and Exchange Commission
upon request.
2.2+ Stock Purchase Agreement by and among the Registrant, Star
Management and the Selling Stockholders dated as of June 4,
1997
3.1 Certificate of Designation, Preferences and Rights of Series
B Preferred Stock of Western Micro Technology, Inc.
3.2 Certificate of Designation, Preferences and Rights of Series
A Preferred Stock of Western Micro Technology, Inc.
4.1 Note Purchase Agreement among the Registrant, the Guarantors
and the Purchasers dated September 30, 1997. Schedules to
this agreement omitted from this report will be furnished to
the Securities and Exchange Commission upon request.
4.2 Registration and Put Rights Agreement among the Registrant
and the Purchasers dated September 30, 1997.
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4.3 Warrant Agreement of Western Micro Technology, Inc. between
the Registrant and the Purchasers dated September 30, 1997.
4.4 Common Stock Purchase Warrant in favor of Robert Fleming
Inc.
4.5 Common Stock Purchase Warrant in favor of CanPartners
Investments IV, LLC.
4.6 13.5% Second Priority Senior Secured Notes Due September 30,
2000 in favor of Robert Fleming Inc.
4.7 13.5% Second Priority Senior Secured Notes Due September 30,
2000 in favor of CanPartners Investments IV, LLC.
4.8 Promissory Note of Registrant in the amount of Ten Million
Dollars ($10,000,000) in favor of ICC dated September 30,
1997.
4.9 Warrant Agreement of Western Micro Technology, Inc. between
the Registrant and ICC dated September 30, 1997.
4.10 Registration and Put Rights Agreement between the Registrant
and ICC.
4.11 Common Stock Purchase Warrant in favor of ICC.
4.12 Form of Units Purchase Agreement dated as of September 19,
1997 between the Registrant and the Unit Purchasers.
4.13 Form of Registration Rights Agreement dated as of September
19, 1997 among the Registrant, the Purchasers and Fahnestock
& Co. Inc. as placement agent.
4.14 Form of Common Stock Purchase Warrant in favor of the Unit
Purchasers.
10.1 Guarantor Security and Pledge Agreement among the
Registrant, the Guarantors and the Agent dated September 30,
1997.
10.2 SMS Subordination and Intercreditor Agreement among the
Registrant, the Selling Stockholders, the Guarantors and the
Purchasers dated September 30, 1997.
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10.3 Issuer Security and Pledge Agreement between the Registrant
and the Agent dated September 30, 1997.
10.4 Contribution Agreement among the Registrant and the
Guarantors dated September 30, 1997.
10.5 Purchase Agreement Assignment between the Registrant and the
Agent dated September 30, 1997.
10.6 Amendment #4 to the Inventory and Working Capital Financing
Agreement dated September 30, 1997.
10.7 Assumption Agreement among the Registrant, Star Data
Systems, Inc. and ICC dated September 30, 1997.
10.8 Collateralized Guaranty of Payment between the Registrant
and ICC dated September 30, 1997.
10.9 IBM Credit Corporation Subordination and Intercreditor
Agreement among the Registrant, the Guarantors, the
Purchasers and ICC dated September 30, 1997.
99.1 Press Release dated October 1, 1997.
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* Confidential Treatment requested pursuant to a request for confidential
treatment filed with the Commission on October 10, 1997. The portions of the
exhibit for which confidential treatment has been requested have been omitted
from the exhibit. The omitted information has been filed separately with the
Commission as part of the confidential treatment request.
+ Filed as Exhibit 2.1 to Amendment No. 2 of the Registrant's Current Report
on Form 8-K filed on July 16, 1997 and incorporated herein by reference.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: October 10, 1997
WESTERN MICRO TECHNOLOGY, INC.
By /s/ James W. Dorst
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James W. Dorst
Chief Financial Officer
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EXHIBIT INDEX
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Exhibit No. Description
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2.1* Third Amendment to Stock Purchase Agreement by and among the
Registrant, Star Management, Harvey Najim and Carlton Joseph Mertens II
dated September 30, 1997. Supplementary Disclosure Schedules A & B,
attached to the Executed Third Amendment as Exhibits A & B, have been
omitted and will be furnished to the Commission upon request.
Schedules to Exhibit C of this Third Amendment omitted from this report
will be furnished to the Securities and Exchange Commission upon
request.
2.2+ Stock Purchase Agreement by and among the Registrant, Star Management,
Harvey E. Najim and the Selling Stockholders dated as of June 4, 1997
3.1 Certificate of Designation, Preferences and Rights of Series B
Preferred Stock of Western Micro Technology, Inc.
3.2 Certificate of Designation, Preferences and Rights of Series A
Preferred Stock of Western Micro Technology, Inc.
4.1 Note Purchase Agreement among the Registrant, the Guarantors and the
Purchasers dated September 30, 1997. Schedules to this agreement
omitted from this report will be furnished to the Securities and
Exchange Commission upon request.
4.2 Registration and Put Rights Agreement among the Registrant and the
Purchasers dated September 30, 1997.
4.3 Warrant Agreement of Western Micro Technology, Inc. between the
Registrant and the Purchasers dated September 30, 1997.
4.4 Common Stock Purchase Warrant in favor of Robert Fleming Inc.
4.5 Common Stock Purchase Warrant in favor of CanPartners Investments IV,
LLC.
4.6 13.5% Second Priority Senior Secured Notes Due September 30, 2000 in
favor of Robert Fleming Inc.
4.7 13.5% Second Priority Senior Secured Notes Due September 30, 2000 in
favor of CanPartners Investments IV, LLC.
4.8 Promissory Note of Registrant in the amount of Ten Million Dollars
($10,000,000) in favor of ICC dated September 30, 1997.
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4.9 Warrant Agreement of Western Micro Technology, Inc. between the
Registrant and ICC dated September 30, 1997.
4.10 Registration and Put Rights Agreement between the Registrant and ICC.
4.11 Common Stock Purchase Warrant in favor of ICC.
4.12 Form of Units Purchase Agreement dated as of September 19, 1997 between
the Registrant and the Unit Purchasers.
4.13 Form of Registration Rights Agreement dated as of September 19, 1997
among the Registrant, the Purchasers and Fahnestock & Co. Inc. as
placement agent.
4.14 Form of Common Stock Purchase Warrant in favor of the Unit Purchasers.
10.1 Guarantor Security and Pledge Agreement among the Registrant, the
Guarantors and the Agent dated September 30, 1997.
10.2 SMS Subordination and Intercreditor Agreement among the Registrant, the
Selling Stockholders, the Guarantors and the Purchasers dated September
30, 1997.
10.3 Issuer Security and Pledge Agreement between the Registrant and the
Agent dated September 30, 1997.
10.4 Contribution Agreement among the Registrant and the Guarantors dated
September 30, 1997.
10.5 Purchase Agreement Assignment between the Registrant and the Agent
dated September 30, 1997.
10.6 Amendment #4 to the Inventory and Working Capital Financing Agreement
dated September 30, 1997.
10.7 Assumption Agreement among the Registrant, Star Data Systems, Inc. and
ICC dated September 30, 1997.
10.8 Collateralized Guaranty of Payment between the Registrant and ICC dated
September 30, 1997.
10.9 IBM Credit Corporation Subordination and Intercreditor Agreement among
the Registrant, the Guarantors, the Purchasers and ICC dated September
30, 1997.
99.1 Press Release dated October 1, 1997.
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____________________
* Confidential Treatment requested pursuant to a request for confidential
treatment filed with the Commission on October 10, 1997. The portions of the
exhibit for which confidential treatment has been requested have been omitted
from the exhibit. The omitted information has been filed separately with the
Commission as part of the confidential treatment request.
+ Filed as Exhibit 2.1 to Amendment No. 2 of the Registrant's Current
Report on Form 8-K filed on July 16, 1997 and incorporated herein by reference.
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EXHIBIT 2.1
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
THIRD AMENDMENT TO STOCK PURCHASE AGREEMENT
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THIS THIRD AMENDMENT TO THE STOCK PURCHASE AGREEMENT (the "Amendment") is
made and entered into as of the 30th day of September, 1997, by and among
WESTERN MICRO TECHNOLOGY, INC., a Delaware corporation and successor in interest
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to Western Micro Technology, Inc., a California corporation ("WMT"), STAR
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MANAGEMENT SERVICES, INC., a Delaware corporation (the "Company"), HARVEY E.
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NAJIM ("Stockholder 1") and CARLTON JOSEPH MERTENS II ("Stockholder 2")
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(Stockholder 1 and Stockholder 2 being hereinafter referred to collectively as
the "Stockholders").
RECITALS:
WHEREAS, WMT, the Company and the Stockholders entered into the Stock
Purchase Agreement dated as of June 4, 1997 (the "Stock Purchase Agreement");
and
WHEREAS, WMT, the Company and the Stockholders have executed a letter
agreement dated July 22, 1997 (the "Extension Letter"), extending the term of
the Stock Purchase Agreement to August 31, 1997 and amending the Stock Purchase
Agreement with respect to certain other matters as set forth therein, including,
without limitation, by increasing the amount payable by WMT in the event of a
termination pursuant to Section 11.2 of the Stock Purchase Agreement to One
Million Dollars ($1,000,000) (the "Termination Fee"); and
WHEREAS, WMT, the Company and the Stockholders have executed an Amendment
to Stock Purchase Agreement dated August 29, 1997, extending the term of the
Stock Purchase Agreement (as amended by the Extension Letter) to September 5,
1997 and amending the Stock Purchase Agreement with respect to certain other
matters as set forth therein (the "First Amendment"); and
WHEREAS, WMT, the Company and the Stockholders have executed a Second
Amendment to Stock Purchase Agreement dated September 5, 1997, extending the
term of the Stock Purchase Agreement (as amended by the Extension Letter and the
First Amendment) to September 30, 1997 and amending the Stock Purchase Agreement
with respect to certain other matters as set forth therein (the "Second
Amendment"); and
WHEREAS, in connection with the execution of the Extension Letter, the
First Amendment and the Second Amendment, WMT has paid the Stockholders One
Million Dollars ($1,000,000), all of which is to be the Termination Fee if the
transactions
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CONFIDENTIAL TREATMENT
contemplated by the Stock Purchase Agreement are not consummated.
WHEREAS, WMT, the Company and the Stockholders desire to enter into this
Agreement to further amend the Stock Purchase Agreement; and
WHEREAS, WMT, the Company and the Stockholders intend that this Agreement
supersede the Extension Letter, the First Amendment and the Second Amendment in
their entirety; and
WHEREAS, WMT, the Company and the Stockholders intend that the Stock
Purchase Agreement, as amended by this Amendment, constitute the final
embodiment of the terms of the Stock Purchase Agreement and shall be executed
concurrently with the Closing; and
WHEREAS, unless otherwise defined herein, terms defined in the Stock
Purchase Agreement are used herein as defined therein:
1. the definition of "Unadjusted Cash Payment" in Section 1 is amended to
read as follows:
""Unadjusted Cash Payment" is defined in this Agreement in Section
2.2(a)(A)."
2. Section 2.2(a) of the Stock Purchase Agreement is hereby amended to
read as follows:
"As consideration for the purchase of the Shares, WMT shall pay an
aggregate amount of (i) Forty-Six Million Fifty-Five Thousand Seven Hundred and
Fifty Dollars ($46,055,750) to be paid in cash by wire transfer in immediately
available funds in three installments, subject to adjustment as provided in
Sections 2.2(c) and 2.5, (ii) 460,000 shares of WMT Common and an amount of One
Million One Hundred and Thirteen Thousand Dollars ($1,113,000) to be paid to
Stockholder 2 in cash by wire transfer in immediately available funds and (iii)
the Earn-Out Payments, if any, as provided in Section 2.6 hereof (collectively,
the "Purchase Price"). Such Purchase Price shall be paid as follows:
(A) at the Closing, an aggregate of Thirty-One Million Fifty-Five
Thousand Seven Hundred and Fifty Dollars ($31,055,750), in cash by wire
transfer in immediately available funds (as unadjusted, the "Unadjusted
Cash Payment"), of which (i) One Million Dollars ($1,000,000) has been
previously paid by WMT and allocated between the Stockholders pro rata in
accordance with their respective ownership of the Company, (ii) Seventeen
Million Seven
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CONFIDENTIAL TREATMENT
Hundred and Ninety-Nine Thousand Seven Hundred and Fifty Dollars
($17,799,750) shall be paid to Stockholder 1 and (iii) Twelve Million Two
Hundred and Fifty-Six Thousand ($12,256,000) shall be paid to Stockholder
2, such amounts to be subject to adjustment as provided in Sections 2(c)
and 2.5 hereof (as adjusted, "Cash Payment");
(B) at the Closing, to Stockholder 2, Four Hundred Sixty Thousand
(460,000) shares (the "WMT Shares") of WMT Common and a cash payment of One
Million One Hundred and Thirteen Thousand Dollars ($1,113,000) to be made
by wire transfer in immediately available funds;
(C) with respect to the Seven Million Five Hundred Thousand
($7,500,000) aggregate amount which was to be paid to the Stockholders on
the first anniversary of the Closing as originally contemplated in Sections
2.2(a)(C) and 2.2(a)(D) of the Stock Purchase Agreement, (i) at the Closing
Stockholder 1 and Stockholder 2 shall be paid Two Million Five Hundred and
Ninety Five Thousand Five Hundred and Seventy Five Dollars ($2,595,575) and
Nine Hundred and Eighteen Thousand and Seven Hundred and Eighty Eight
Dollars ($918,788), respectively (such amounts reflect a discount of 8.5%)
and (ii) on the first anniversary of the Closing, an aggregate of Three
Million Six Hundred Seventy-Five Thousand Dollars ($3,675,000) in cash by
wire transfer in immediately available funds, which shall be allocated as
follows: $1,000,000 to Stockholder 1 and $2,675,000 to Stockholder 2 (the
"Second Installment");
(D) with respect to the Seven Million Five Hundred Thousand
($7,500,000) aggregate amount which was to be paid to the Stockholders on
the second anniversary of the Closing as originally contemplated in
Sections 2.2(a)(C) and 2.2(a)(D) of the Stock Purchase Agreement, (i)at the
Closing Stockholder 1 and Stockholder 2 shall be paid Two Million Three
Hundred and Eighty Four Thousand and Seven Hundred and Eighty Two Dollars
($2,384,782) and Eight Hundred Forty Four Thousand and One Hundred and
Seventy Dollars ($844,170), respectively (such amounts reflect a discount
of 8.5%) and (ii) on the second anniversary of the Closing, an aggregate of
Three Million Six Hundred Seventy-Five Thousand Dollars ($3,675,000) in
cash by wire transfer in immediately available funds, which shall be
allocated as follows: $1,000,000 to Stockholder 1 and $2,675,000 to
Stockholder 2 (the "Third Installment"); and
(E) to the Stockholders, the Earn-out Payment as provided in Section
2.6 hereof."
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CONFIDENTIAL TREATMENT
3. Section 2.2(b) of the Stock Purchase Agreement is hereby amended to
read as follows:
"(b) At the Closing, WMT shall (i) deliver to Stockholder 2 a certificate
representing the WMT Shares and (ii) pay (x) to each Stockholder an amount equal
to his respective portion of the Unadjusted Cash Payment, as adjusted by the
Estimated Adjustment Amount of $3,237,470 allocated $1,651,109.70 to Stockholder
1 and $1,586,360.30 to Stockholder 2 in accordance with SECTION 2.2(C) hereof,
(y) to Stockholder 1 $4,980,357, in accordance with SECTIONS 2.2(A)(C) AND
2.2(A)(D) and (z) to Stockholder 2 $2,875,958, in accordance with SECTIONS
2.2(A)(B), 2.2(A)(C) AND 2.2(A)(D), by wire transfer of immediately available
funds to the account of such Stockholder, written notice of which account shall
have been provided to WMT not less than one (1) business day prior to the
Closing. The aggregate cash payment to be paid to the Stockholders at the
Closing, after giving effect to the Estimated Adjustment Amount, is hereinafter
referred to as the "Estimated Cash Payment." The Second Installment and the
Third Installment are collectively referred to herein as the "Installment
Payments" or "Installments.""
4. The first sentence of Section 2.2(c) is hereby amended to read as
follows:
"(c) As soon as reasonably practical, but in no event later than two (2)
business days prior to the Closing, the Stockholders shall cause a balance sheet
(the "Estimated Closing Balance Sheet") of the Company as of August 31, 1997
(after giving effect to the Spin-Off), which shall set forth on a consolidated
basis, the net assets of the Company (after giving effect to the Spin-off) as of
August 31, 1997 to be calculated and prepared in accordance with generally
accepted accounting principles ("GAAP") (the amount of such net assets as thus
determined shall hereinafter be referred to as the "Estimated Net Assets") and
to be delivered to WMT."
5. Section 2.4(b)(ii) of the Stock Purchase Agreement is hereby amended
to read as follows:
" (ii) a Certificate representing the 460,000 WMT shares to Stockholder
2;"
6. Section 2.7 is hereby amended to read as follows:
"2.7 Failure to Make Timely Payments. In the event that (A) WMT fails to
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pay an Installment or make an Earn-out Payment (each an "Outstanding Obligation"
and collectively, the "Outstanding Obligations") on the applicable Due Date, and
(B) reasonably believes it does not have sufficient working capital
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CONFIDENTIAL TREATMENT
to pay such Outstanding Obligations, and (C) after using all reasonable efforts
cannot obtain the funds necessary to pay any such Outstanding Obligations, WMT
shall execute and deliver to each Stockholder to whom such Outstanding
Obligation is owed on the applicable Due Date with respect to each such
Outstanding Obligation, a subordinated promissory note, in substantially the
form of EXHIBIT J hereto, in the principal amount of the Outstanding Obligation
then owed (each, a "Promissory Note"). Such Promissory Note shall bear simple
interest from the applicable Due Date at a rate per annum equal to eighteen
percent (18%) or the maximum rate allowable by applicable law, whichever is less
(the "Default Rate"). Such Promissory Note shall have a term of six (6) months
from the applicable Due Date, with accrued interest due and payable monthly. To
the extent the Promissory Note has not been paid in full when due, and
conditioned upon payment of all accrued interest on such Promissory Note at such
time, the Promissory Note shall automatically renew for additional six (6) month
periods with accrued interest due (and such renewal being conditioned upon
payment of such interest) monthly. In the event that WMT subsequently obtains
sufficient working capital or is able to obtain the financing necessary to pay
such obligations, WMT shall pay such portion of the amount due under the
Promissory Note as is reasonably possible under the circumstances."
7. Exhibit K (the "Warrant") and Exhibit L (the "Warrant Registration
Rights Agreement") originally attached to the Stock Purchase Agreement and all
references and provisions in the Stock Purchase Agreement to Exhibit K, Exhibit
L, "Warrant" or "Warrant Registration Rights Agreement" (including, but not
limited to, such references in Sections 1, 2.8, 2.9 and 5.2) are hereby deleted
and shall be of no further force or effect.
8. Section 2.8(a), 2.8(h) and the last flush paragraph of Section 2.8 of
the Stock Purchase Agreement are hereby amended to read as follows:
"2.8 Acceleration of Obligations.
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(a) If
(i) a Promissory Note is issued to either Stockholder
pursuant to SECTION 2.7 above and is not paid in full (including
accrued interest) within twelve (12) months of the original date
of issuance,
(ii) WMT fails to timely deliver a Promissory Note to
either Stockholder as required by SECTION 2.7 above,
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CONFIDENTIAL TREATMENT
(iii) WMT materially breaches the covenants set forth in
SECTION 7.9 hereof,
(iv) WMT does not timely pay the Adjustment Amount as set
forth in SECTION 2.55,
(v) WMT fails to timely pay accrued interest, when due, on any
Promissory Note issued pursuant to SECTION 2.7, or
(vi) in the event any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation or other similar
case or proceeding in connection therewith, is filed by WMT or
with respect to WMT by its creditors.
and, after compliance with the procedures and providing the opportunity to cure
as set forth in SECTIONS 2.8(B), (C) and (D) and (E) below, such act or omission
has not been, or cannot be, cured or corrected, each affected Stockholder may,
in his sole discretion, declare all unpaid Installment Payments, Earn-out
Payments and Promissory Notes in default and demand payment pursuant to this
SECTION 2.8(A) by providing WMT with a notice of its intent to so accelerate
such obligations (the "Acceleration Notice"). WMT shall, within thirty (30) days
of the receipt of the Acceleration Notice, pay, in a lump sum, (A) to
Stockholder 1 (if there shall be a default in the obligations to Stockholder 1),
the aggregate amount of $4,550,000 plus accrued interest, if any, on outstanding
Promissory Notes originally issued to Stockholder 1 minus any Installment
Payments or Earn-out Payments or principal payments on Promissory Notes received
by Stockholder 1 or any assignee thereof prior to such date, and to Stockholder
2 (if there shall be a default in the obligations to Stockholder 2), an
aggregate amount equal to $7,800,000 plus accrued interest, if any, on
outstanding Promissory Notes originally issued to Stockholder 2 minus any
Installment Payments or Earn-out Pay Payments or principal payments on
Promissory Notes received by Stockholder 2 or any assignee thereof prior to such
date. Upon such payment, the Installment Payment and the Earn-out Payment, and
any related outstanding Promissory Note, shall be deemed satisfied in full. Such
payments under this SECTION 2.8(A) are in lieu of any further Installment
Payments, Earn-out Payments, payments under the Promissory Notes or other
payments hereunder or thereunder. To the extent any of the Promissory Notes have
been properly assigned prior to such date, payments shall be made to the then
holder or holders of such Promissory Notes of the outstanding principal and
interest thereon in cancellation thereof, and the payments otherwise due
hereunder to Stockholder 1 or Stockholder 2, as the case may be, shall be
-6-
<PAGE>
CONFIDENTIAL TREATMENT
correspondingly reduced on a dollar-for-dollar basis by such payments."
"(h) Concurrent with a Change in Control, WMT shall pay, in a lump sum, (i)
to Stockholder 1, the aggregate amount of $4,550,000 plus accrued interest, if
any on outstanding Promissory Notes originally issued to Stockholder 1 minus any
Installment Payments or Earn-out Payments or principal payments on Promissory
Notes received by Stockholder 1 or any assignee thereof prior to such date, and
(ii) to Stockholder 2, an aggregate amount equal to $7,800,000 plus accrued
interest, if any on outstanding Promissory Notes minus any Installment Payments
or Earn-out Payments or principal payments on Promissory Notes received by
Stockholder 2 or any assignee thereof prior to such date. A "Change in Control"
will be deemed to have occurred upon (A) a sale of substantially all of the
assets of WMT and its subsidiaries, on a consolidated basis, (B) any person
acting alone or together that would constitute a "group" for purposes of section
13d-3 of the Securities Exchange Act of 1934, as amended (the "1934 Act"), as
then in effect, shall acquire beneficial ownership (as defined in Rule 13(d)
under such Act) of more than fifty percent (50%) of the WMT Common or (C) a
merger or consolidation of WMT with another company if the holders of the voting
stock of WMT immediately prior to such merger or consolidation do not own or
control more than fifty percent (50%) of the voting stock of the surviving
corporation. Such payments under this SECTION 2.8(H) are in lieu of any further
Installment Payments, Earn-out Payments, payments under the Promissory Notes or
other payments hereunder or thereunder. To the extent any of the Promissory
Notes have been properly assigned prior to such date, payments shall be made to
the then holder or holders of such Promissory Notes of the outstanding principal
and interest thereon in cancellation thereof, and the payments otherwise due
hereunder to Stockholder 1 or Stockholder 2, as the case may be, shall be
correspondingly reduced on a dollar-for-dollar basis by such payments."
"Notwithstanding anything in this Agreement to the contrary, if the IRA
Agreement is terminated prior to the delivery of an Acceleration Notice, the
Stockholders shall only be entitled to payment, when due, of Earn-out Payments
that had accrued as of the date of such termination and, upon payment of such
accrued amounts, the Earn-out Payments shall be deemed to have been paid in full
for purposes of SECTIONS 2.8(A) and 2.8(H) Without limiting the generality of
the foregoing, for the purposes of SECTIONS 2.8(A) and 2.8(H), upon payment of
such accrued amounts, Stockholder 1 will be deemed to have received $2,550,000
in Earn-out Payments and Stockholder 2 will be deemed to have received
$2,450,000 in Earn-out Payments.
-7-
<PAGE>
CONFIDENTIAL TREATMENT
9. Section 2.9 of the Stock Purchase Agreement is hereby deleted in its
entirety and replaced with "[omitted]".
10. Section 2.11 of the Stock Purchase Agreement is hereby amended to read
as follows :
"2.11 Treatment of Stockholders Equally. The Company shall not
---------------------------------
discriminate among the Stockholders with respect to the timely payment of Earn-
out Payments or Installment Payments or otherwise in connection with the
performance of its obligations under this Section 2. Notwithstanding the
foregoing, in the event that WMT is unable to pay the entire amount due to the
Stockholders with respect to the Second Installment or Third Installment, any
amounts paid by the Company in respect of either such Installment Payments, or
any Promissory Notes issued in lieu thereof, shall be paid equally on a dollar-
for-dollar basis up to the total amount due such Stockholder. For example, if
WMT were only able to pay $1,000,000 on the Second Installment, $500,000 would
be paid to Stockholder 1 and $500,000 to Stockholder 2."
11. Section 6.2(e) of the Stock Purchase Agreement is hereby deleted in
its entirety and shall be of no further force or effect.
12. Section 7.9(a) and 7.9(b) of the Stock Purchase Agreement are hereby
amended to read as follows:
"(a) there will not be any direct or indirect redemption, purchase or other
acquisition of the capital stock of WMT by WMT (other than in connection with
(i) a reincorporation; (ii) the repurchase of unvested stock by WMT in
connection with the termination of employment of WMT employees; (iii) the
redemption or repurchase by WMT of any preferred stock issued by WMT in
connection with the private placement of WMT Series A Preferred Stock issued as
of September 19, 1997 (or to pay any Earn-out Payments, Installment Payments or
Promissory Notes relating thereto); (iv) the redemption or repurchase by WMT of
any Series B preferred stock issued by WMT in conjunction with debt financing
used to finance in whole or in part the transaction contemplated by this Stock
Purchase Agreement; (v) the repurchase of all or any portion of the Put Warrants
pursuant to Section 11 of the Registration and Put Rights Agreement dated as of
September 30 among WMT, Canpartners Investments IV, LLC and Robert Fleming Inc;
or (vi) the repurchase of all or any portion of the Put Warrants pursuant to
Section 11 of the Registration and Put Rights Agreement dated as of September 30
among WMT and IBM Credit Corporation);
(b) there will not be a declaration or payment of any cash dividend or
other non-equity payment in respect of shares of
-8-
<PAGE>
CONFIDENTIAL TREATMENT
capital stock (other than in connection with the declaration or payment of any
cash dividend or other non-equity distribution or non-equity payment made with
respect to the WMT Series A Preferred Stock issued as of September 19, 1997 or
other equity raised for the purpose of financing any Earn-out Payments,
Installment Payments or Promissory Notes relating thereto);"
13. Section 9.3(f)(iii) of the Stock Purchase Agreement is hereby deleted
in its entirety and replaced with "[omitted]".
14. Section 11.1(c) of the Stock Purchase Agreement is hereby amended as
follows:
"(c) by WMT, on the one hand, or the Stockholders, on the other hand, if
the Closing shall not have occurred on or before September 30, 1997 or such
later date as may be mutually agreed upon in writing by the parties."
15. With respect to Section 11.2 of the Stock Purchase Agreement, WMT, the
Company and the Stockholders hereby acknowledge and agree that they are
executing this Amendment immediately prior to the Closing and that, therefore,
Section 11.2 is rendered inapplicable and shall have no further force or effect.
WMT, the Company and the Stockholders further acknowledge and agree that WMT has
previously paid an aggregate amount of One Million Dollars ($1,000,000) to the
Stockholders and that, should the Closing fail to occur (i) such One Million
Dollars ($1,000,000) amount shall constitute full and complete payment of any
Termination Fee which WMT may be obligated to pay under the Stock Purchase
Agreement as amended by this Agreement, (ii) WMT waives any right it may have to
a termination fee from the Company or the Stockholders and (iii) neither WMT, on
the one hand, nor the Company and the Stockholders, on the other hand, shall
have any further obligations to the other, including the return of any amounts
previously paid.
16. WMT agrees to, and does hereby, transfer to the Company all rights to
the name "Business Partner Solutions" and waives any rights it may have to such
name. WMT acknowledges that the Company may commence use of the name "Business
Partner Solutions, Inc." prior to the Closing and consents thereto. WMT will
take such further actions as reasonably necessary to transfer the rights to such
name and enable the Company to use such name in its operations.
17. Exhibit A and Exhibit B to the Stock Purchase Agreement are hereby
supplemented by Exhibit A and Exhibit B attached hereto, respectively.
-9-
<PAGE>
CONFIDENTIAL TREATMENT
18. The IRA Agreement attached as Exhibit F to the Stock Purchase
Agreement is hereby superseded in its entirety by the form of IRA Agreement
attached hereto as Exhibit C.
19. The Promissory Note attached as Exhibit J to the Stock Purchase
Agreement is hereby superseded in its entitety by the form of Promissory Note
attached hereto as Exhibit D.
20. The Stock Purchase Agreement shall remain in full force and effect
without change, except to the extent amended or modified hereby.
21. The Stock Purchase Agreement is hereby amended to include the
following:
"THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AND
INTERCREDITOR AGREEMENT IN FAVOR OF CANPARTNERS INVESTMENTS IV, LLC, A
CALIFORNIA LIMITED LIABILITY COMPANY, AND ROBERT FLEMING INC., A DELAWARE
CORPORATION, WHICH SUBORDINATION AND INTERCREDITOR AGREEMENT CONTAINS CERTAIN
SUBORDINATION PROVISIONS AND IS INCORPORATED HEREIN BY REFERENCE.
NOTWITHSTANDING ANY CONTRARY STATEMENT CONTAINED IN THE WITHIN INSTRUMENT, NO
PAYMENT ON ACCOUNT OF THE PRINCIPAL, PREMIUM, IF ANY, OR INTEREST HEREOF SHALL
BECOME DUE OR BE PAID IN VIOLATION OF THE TERMS OF SUCH SUBORDINATION AND
INTERCREDITOR AGREEMENT."
-10-
<PAGE>
CONFIDENTIAL TREATMENT
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment as of
the date first set forth above.
STAR MANAGEMENT SERVICES, INC.
By /s/ Carlton Joseph Mertens, II
------------------------------
Its President
------------------------------
/s/ Harvey E. Najim
------------------------------
Harvey E. Najim
/s/ Carlton Joseph Mertens II
-----------------------------
Carlton Joseph Mertens II
WESTERN MICRO TECHNOLOGY, INC.
By /s/ James W. Dorst
-------------------------
Its Chief Financial Officer
-------------------------
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<PAGE>
CONFIDENTIAL TREATMENT
CONFIDENTIAL TREATMENT REQUESTED. CONFIDENTIAL PORTIONS OF THIS DOCUMENT HAVE
BEEN REDACTED AND HAVE BEEN SEPARATELY FILED WITH THE COMMISSION.
EXHIBIT C
INDUSTRY REMARKETER AFFILIATE AGREEMENT
---------------------------------------
THIS INDUSTRY REMARKETER AFFILIATE AGREEMENT (this "Agreement"), dated as
of September __, 1997, is made by and between WESTERN MICRO TECHNOLOGY, INC., a
-----------------------------
Delaware corporation ("Western") having offices at 254 East Hacienda Avenue,
Campbell, California 95008 and STAR DATA SYSTEMS, INC. or its successor in
----------------------
interest, a Texas corporation ("SDS"), having offices at 888 Isom Road, San
Antonio, Texas 78216 (Western and SDS are together referred to as "WMT"), and
SIRIUS COMPUTER SOLUTIONS, LTD., a Texas Limited Partnership having offices at
- ------------------------------
the Spectrum Building, 10th Floor, 613 Northwest Loop 410, San Antonio, Texas
78216 ("IRA").
RECITALS:
A. WMT is authorized to market and distribute certain Products, including
IBM Products, to resellers; WMT is authorized and wishes to appoint IRA as a
solution provider affiliate to sell to End-Users the IBM Products it acquires
exclusively from WMT and to engage IRA to sell other non-IBM Products it
acquires from WMT to End-Users; and IRA is willing to serve in such capacities
s.
B. For the consideration and mutual promises set forth in this Agreement,
the parties agree as follows:
1. Definitions. The terms used in this Agreement have the following
-----------
meanings:
1.1 "End User" means anyone, unaffiliated with IRA, who acquires Products
for its own use and not for resale.
1.2 "IBM" means International Business Machines, Inc. and its
subsidiaries.
1.3 "Machine" means an IBM or non-IBM machine, its features, conversions,
upgrades, elements, accessories, cables or any combination of them (provided by
IBM or another OEM to WMT) approved by IBM or another OEM to be provided to IRA.
1.4 "Original Equipment Manufacturer" or "OEM" means an original equipment
manufacturer, including without limitation IBM.
1.5 "Product" means a Machine, Program or Service which WMT has been
authorized to distribute to IRA.
1
<PAGE>
CONFIDENTIAL TREATMENT
1.6 "Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
1.7 "Program" means an IBM or non-IBM licensed program (provided by IBM or
another OEM to WMT) approved by IBM or the other OEM to be provided to IRA.
Program does not include an OEM's licensed internal code.
1.8 "Service" means assistance performed or marketed by WMT, including
without limitation use of a resource (such as a network) approved by IBM to be
provided to IRA.
1.9 "Subsidiary" means with respect to any Person (the "Owner"), any
corporation or other Person of which securities or other interests having the
power to elect a majority of that corporation's or other Person's board of
directors or similar governing body, or otherwise having the power to direct the
business and policies of that corporation or other Person (other than securities
or other interests having such power only upon the happening of a contingency
that has not occurred) are held by the Owner or one or more of its Subsidiaries.
1.10 "Stock Purchase Agreement" means the Stock Purchase Agreement dated
June 4, 1997, by and among Western, Star Management Services, Inc., Harvey E.
Najim and Carlton Joseph Mertens II, as amended.
1.11 "Value Added Enhancement" or "VAE" means the industry specific IBM
approved Application Software Program.
2. Appointment of Industry Remarketer Affiliate. WMT hereby appoints IRA
--------------------------------------------
as one of its industry remarketer affiliates (also referred to as solution
provider affiliates) of IBM Products for marketing and sale to End Users in the
United States and Puerto Rico with IRA's VAEs. This appointment is not exclusive
with respect to WMT and WMT has entered into and reserves the right to enter
into similar agreements with others for the purpose of marketing and
distributing Products. This appointment is exclusive with respect to providing
IBM Products to IRA for resell and IRA agrees to not enter into any similar
arrangement with any others for the purpose of selling IBM Products to End
Users.
3. IRA Obligations.
---------------
3.1 IBM Requirements. IRA shall be subject to any obligations or
----------------
restrictions imposed by IBM under the terms of any applicable agreement between
WMT and IBM, as such terms may change from time to time, or between IRA and IBM,
as such terms may change from time to time, and IRA agrees to be bound by and
comply with any such obligations or restrictions. In particular, and without
limitation, IRA will comply with all IBM
2
<PAGE>
CONFIDENTIAL TREATMENT
requirements set forth in IRA's agreement with IBM, as amended from time to
time.
3.2 Transition Period. During the [***] ([*]) month period immediately
-----------------
following the consummation of the transaction contemplated by the Stock Purchase
Agreement (the "Transition Period"), WMT and IRA will share certain employees
and miscellaneous expenses in accordance with the allocation set forth in the
Schedule that is attached as Exhibit A to this Agreement (the "Cost Sharing
Schedule"). Either party may elect to extend the Transition Period for up to
[*****] ([**]) days upon [*****] ([**]) days prior written notice to the other
party of such extension. Every [*****] ([**]) days during the Transition Period,
the parties will discuss and decide, in good faith, whether any adjustments
should be made to the Cost Sharing Schedule. Each party will pay within [***]
([**]) days of the end of each month the net monthly cost attributable to such
party as shown on the Cost Sharing Schedule.
4. WMT Obligations.
---------------
4.1 Support. WMT will provide telephone support at no charge to up to
-------
[***] ([*]) identified IRA employees. Such employees shall be technical
personnel rather than sales personnel. At the request of IRA, WMT will provide
support to End Users at [*******************************], which, as of the date
of this Agreement, is $[***] per hour. At the direction of IRA, WMT will either
invoice IRA or such End User for WMT's services with respect to such End Users.
If IRA decides to offer monthly support contracts to End Users, then WMT agrees
to provide the services under the contracts entered into by IRA, or enter into
contracts directly with such End Users, as may be elected by IRA. The applicable
charge by WMT to IRA or such End Users, as the case may be, shall be as follows
:
<TABLE>
<CAPTION>
Monthly Support Monthly Support
Charge for Service Charge for 24-Hour
From 8-5 CST on Service,
IBM Product Business Days Only 7 Days a Week
----------- ------------------ -----------------
<S> <C> <C>
9402's $[***] $[***]
9406's $[***] $[***]
</TABLE>
IRA shall be entitled to all proceeds received from End Users in excess of the
above described WMT service charges.
4.2 Personnel Rebate. WMT shall pay to IRA a personnel rebate at a rate of
----------------
$[*****] for each $[*******] of Product purchased by IRA from WMT under this
Agreement as more specifically
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
3
<PAGE>
CONFIDENTIAL TREATMENT
set forth below. The value of the Products purchased by IRA (the "Actual Dollar
Value") shall be calculated based upon WMT's [***************************]. For
purposes of this Agreement, "Net Sales" means[**********************************
********************************************************************************
********************************************************************************
********************************************************************************
*****************************************************]. Within [***] ([**]) days
after the end of each calendar quarter or the termination of this Agreement
pursuant to SECTION 9 hereof, WMT will calculate the Actual Dollar Value of
Products purchased by IRA from WMT during the preceding calendar quarter (or the
Current Calendar quarter in the case of termination) and will pay to IRA the
personnel rebate due for such period based upon such Actual Dollar Value
calculated as follows :
[******************************
***************]
For example, if IRA purchased $[********] of Product during a calendar
quarter, then WMT would pay IRA a $[******] personnel rebate for such quarter.
If IRA purchased an aggregate of $[*********] in Product, then personnel rebates
with respect to such purchases would total $[*******].
5. Delivery and Title.
------------------
5.1 Delivery. Upon receipt of each purchase order by WMT, if the Product
--------
is not then in WMT's inventory, WMT will, as soon as reasonably possible but in
no event later than two (2) days following receipt of such purchase order, place
the order with IBM or other applicable OEM. With respect to Products in WMT's
inventory or after receipt of such products from the applicable OEM, WMT shall
ship such Products, as soon as reasonably possible, F.O.B. WMT's or IBM's or
the other OEM's facility in the continental United States. Such Products shall
be insured by WMT at IRA's cost; provided, however, IRA shall not be obligated
to pay any shipping or insurance charges to the extent such charges are paid by
IBM or other OEM. All Products shall be packaged for shipment in accordance with
WMT's usual and customary practices which shall be reasonably calculated to
provide adequate protection for its Products. The method of shipment and common
carrier shall be selected by IRA.
5.2 Passing of Title. Title to the IBM or other Machines will pass from
----------------
WMT to IRA. IRA shall pass title to the Machines directly to the End User or, if
applicable, to a third party financing institution on behalf of the End User.
IBM and other OEMs do not transfer title to Programs.
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
4
<PAGE>
CONFIDENTIAL TREATMENT
6. Price; Payment.
--------------
6.1 Product Costs; Payment Terms.
----------------------------
(a) IRA shall acquire the Products from WMT at the prices of each such
Product as per Exhibit B to this Agreement (the "Price Schedule"). The prices
set forth on the Price Schedule shall be increased or decreased, as the case may
be, from time to time for the following reasons: (i) to comply with SECTION
6.1(B) below; and (ii) to reflect increases or decreases, as the case may be, in
the OEM's price to WMT.
(B) [********************************************************************
*******************************************************************************
*******************************************************************************
*******************************************************************************
****]
(c) For Products which do not have a price set forth on the Price
Schedule, the cost to IRA shall be based upon a [***] percent ([**]%) gross
margin to WMT.
(d) WMT shall not be responsible for any applicable taxes resulting
exclusively from IRA's purchases of Products under this Agreement, other than
taxes based on WMT's sales or income. Payment of WMT's invoice shall be due
forty-five (45) days after the invoice date.
(e) Any price decrease for a Product as contemplated by SECTION 6.1(A)
above shall be effective on the effective date of the OEM's corresponding price
reduction with respect to such Product. IRA shall receive the benefit of any
such OEM price reduction with respect to any Product covered by such price
reduction that (i) as of the effective date of such OEM price reduction, has
been ordered by IRA and has not been shipped, or has been shipped but not
installed with the End User (and WMT receives the price decrease with respect to
such Product), or (ii) is ordered by IRA subsequent to the effective date of
such OEM price reduction. Any price increase for a Product as contemplated by
SECTION 6.1(A) above shall be effective on the effective date of the OEM's price
increase with respect to such Product.
6.2 Delinquent Payments. If IRA's account becomes delinquent, and the
-------------------
amount of such account is not in dispute, WMT may do one or more of the
following: (a) impose a finance charge, up to the maximum permitted by law, on
the delinquent portion of the balance due; or (b) pursue any other remedy
available at law to collect such delinquent amount.
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
5
<PAGE>
CONFIDENTIAL TREATMENT
7. Arbitration. Any unresolved dispute arising out of or relating to this
-----------
Agreement, any schedule, certificate or other document delivered by any party in
connection with this Agreement or incident to the transactions contemplated
hereby or the breach, inaccuracy, termination or validity hereof or thereof or
otherwise arising out of or relating to the transactions contemplated hereby and
thereby, or any other agreement among them or between any of them, whether
entered into prior to, on or subsequent to the date of this Agreement or those
arising under any federal, state or local law, regulation or ordinance, shall be
determined by binding arbitration in accordance with certain aspects of the then
current Commercial Arbitration Rules of the American Arbitration Association. If
the amount in controversy in the arbitration exceeds Two Hundred Fifty Thousand
Dollars ($250,000), exclusive of interest, attorneys' fees and costs or if the
controversy relates to the termination of this Agreement pursuant to SECTION 9.2
below, the arbitration shall be conducted by a panel of three (3) neutral
arbitrators. Otherwise, the arbitration shall be conducted by a single neutral
arbitrator. The parties shall endeavor to select neutral arbitrators by mutual
agreement. If such agreement cannot be reached within ten (10) business days
after a dispute has arisen which is to be decided by arbitration, any party or
the parties jointly shall request the American Arbitration Association to submit
to each party an identical panel of fifteen (15) persons. Alternate strikes
shall be made to the panel, commencing with the party bringing the claim, until
the name of three (3) persons remain, or one (1) person if the case is to be
heard by a single arbitrator. The parties may, however, by mutual agreement
request the American Arbitration Association to submit additional panels of
possible arbitrators. The person(s) thus remaining shall be the arbitrator(s)
for such arbitration. If three (3) arbitrators are selected, the arbitrators
shall elect a chairperson to preside at all meetings and hearings. If a dispute
is to be resolved by a sole arbitrator in accordance with the terms hereof, or
if the dispute is to be resolved by a panel of three (3) arbitrators as provided
hereinabove, then such sole arbitrator or the chairperson of such panel, as the
case may be, shall be a member of a state bar engaged in the practice of law in
the United States or a retired member of a state or the federal judiciary in the
United States. The award of the arbitrator(s) shall require a majority of the
arbitrators in the case of a panel of arbitrators, shall be in writing and
reasoned, shall be based on the evidence admitted and the substantive law of the
State of Delaware and shall contain an award for each issue and counterclaim.
The award shall be made within thirty (30) days following the close of the final
hearing and the filing of any post-hearing briefs authorized by the
arbitrator(s). The award of the arbitrator(s) shall be final and binding on the
parties hereto and the subject matter. The arbitration shall be
6
<PAGE>
CONFIDENTIAL TREATMENT
governed by the United States Arbitration Act, 9 U.S.C. (S) 1--16, and judgment
upon the award rendered by the arbitrator(s) may be entered by any court having
jurisdiction thereof. The place of arbitration shall be Denver, Colorado. Each
party shall be entitled to inspect and obtain a copy of relevant documents in
the possession or control of the other party and to take depositions of the
other party's employees, agents, representatives and witnesses (including
expert witnesses). All such discovery shall be in accordance with procedures
approved by the arbitrator(s). Unless otherwise provided in the award, each
party shall bear its own costs of discovery. No party shall be entitled to
submit interrogatories to the other parties. All discovery shall be expedited,
consistent with the nature and complexity of the claim or dispute and consistent
with fairness and justice. The arbitrator(s) shall have the power to compel any
party to comply with discovery requests of the other parties and to issue
binding orders relating to any discovery dispute which shall be enforceable in
the same manner as awards. The arbitrator(s) also shall have the power to
impose sanctions for abuse or frustration of the arbitration process, including
without limitation, the refusal to comply with orders of the arbitrator(s)
relating to discovery and compliance with subpoenas. The arbitrator(s) are not
empowered to award damages in excess of actual damages and the IRA and WMT
hereby irrevocably waive any right to recover such damages with respect to any
dispute resolved by arbitration. Each of the parties agrees to participate in
good faith in the arbitration process and take all reasonable actions to
conclude such arbitration as soon as possible.
8. Term. Subject to earlier termination in accordance with SECTION 9 of
----
this Agreement, the term of this Agreement shall commence on the date set forth
above and continue for a period of thirty-six (36) months thereafter at which
time this Agreement will terminate unless otherwise mutually agreed to by
the Parties hereto.
9. Termination.
-----------
9.1 Termination by WMT; Expiration. WMT shall have the right to (a)
------------------------------
terminate this Agreement immediately upon written notice to IRA if WMT is
notified by IBM that IRA no longer meets IBM's guidelines and (b) terminate its
obligation with respect to providing any other OEM's Products to IRA if IRA no
longer meets such OEM's guidelines.
9.2 Termination by IRA. IRA reserves the right to terminate this
------------------
Agreement, upon written notice to WMT if:
7
<PAGE> CONFIDENTIAL TREATMENT
(a) [*******************************************************************
******************************************************************************
****************]
(b) [*******************************************************************
******************************************************************************
******************************************************************************
******************************************************************************
******************************]
(c) if, after a Change of Control (as defined in SECTION 2.8(E) of the
Stock Purchase Agreement) of WMT, [***********] gives IRA notice of its intent
to terminate its distributor agreement with IRA and such notice is not withdrawn
within fifteen (15) business days, or
(d) WMT's contractual relationship with IBM is terminated or expires and
is not renewed, or
(e) if WMT's contractual relationship with IBM is materially modified or
amended with respect to discounts WMT receives as a distributor and such
modification or amendment adversely puts IRA's business at a material
competitive disadvantage (a "Material Modification").
For purposes of this Agreement, a "Material Breach" shall mean a material
breach of this Agreement including, without limitation, (i) WMT's failure to
pass on material rebates, discounts, etc., provided for in Exhibit B to this
Agreement; (ii) WMT unreasonably refusing to accept or process a material or
service order under this Agreement; and (iii) WMT not providing the personnel
rebate set forth in Section 4.2 of this Agreement, in each case in material
breach of the terms of this Agreement and having a material adverse effect on
IRA.
Each party recognizes that the provisions regarding termination of this
Agreement set forth in SECTION 9.2 can impose a severe and unexpected burden on
WMT and that a bona fide dispute can arise as to (i) the proper characterization
for these purposes of acts or omissions constituting a Material Breach of this
Agreement or (ii) whether a Material Modification has occurred. If IRA believes
a Material Breach of this Agree ment or a Material Modification has occurred,
IRA shall give WMT written notice (the "Breach Notice") that a Material Breach
or Material Modification has occurred, describing the acts or omissions
complained of and providing a reasonable description of the action it requires
of WMT to correct and cure such Material Breach (e.g., any actual damages
incurred as a result of such Material Breach) or such Material Modification.
Within five (5) business days of IRA's delivery of such notice, WMT shall
deliver a written notice to IRA of any objections to the
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
8
<PAGE>
CONFIDENTIAL TREATMENT
matters contained in such Breach Notice (the "Objection Notice"). Such Objection
Notice may relate to whether a Material Breach or Material Modification has
occurred, the description of the matter giving rise to the claim of Material
Breach or Material Modification or the actions required of WMT to cure and
correct such Material Breach or Material Modification. The failure of WMT to
deliver the Objection Notice within the required time will constitute WMT's
acceptance of all of the matters described in the Breach Notice and the failure
of WMT to object to any matter stated in such Objection Notice will constitute
WMT's acceptance of the matters not objected to therein. If WMT timely objects
to the matters set forth in such Breach Notice, IRA and WMT shall endeavor for
the ten (10) business day period following receipt of such objection to resolve
such dispute. If at the end of such ten (10) business day period, WMT and IRA
are unable to resolve the disagreements set forth in the Objection Notice, such
dispute shall be resolved by arbitration in accordance with SECTION 7 hereof and
that during the pendency of any such arbitration proceeding, the termination
rights created by such provisions shall be stayed. The arbitrator shall be
instructed to resolve the following matters, and only these matters, to the
extent objected to or raised in the Objection Notice, all of such matters to be
resolved in one proceeding: (i) whether a Material Breach or a Material
Modification has occurred, (ii) with respect to a Material Breach, the validity
of IRA's claim with respect to the acts or omissions complained of in the Breach
Notice; (iii) if the acts or omissions which were the subject of the Breach
Notice have occurred and to the extent such Material Breach or Material
Modification can be cured or corrected, the actions necessary to cure or correct
such Material Breach or Material Modification; (iv) the actual damages incurred
by IRA, if any, with respect to the acts or omissions which were the subject of
the Breach Notice; and (v) the validity and actual damages incurred by WMT with
respect to the claims, if any, properly made by WMT against IRA in the Objection
Notice. WMT shall have a thirty (30) day cure period (five (5) business day cure
period with respect to cash payment or the cure or correction of a Material
Modification) after the matters set forth in the Breach Notice are finally
resolved (whether upon the failure to timely object, mutual agreement by the
parties, or pursuant to the finding of the arbitrator), and to the extent such
Material Modification or other act or omission giving rise to a Material Breach
may be cured or corrected, to take such actions finally determined pursuant to
this section to be necessary to cure or correct such Material Breach or Material
Modification. Whether or not the arbitrator concludes that a Material Breach of
this Agreement can be cured or corrected, the arbitrators as part of the
arbitrators' decision, shall determine the actual damages (which shall not
include any incidental, consequential or special damages) suffered by the
9
<PAGE>
CONFIDENTIAL TREATMENT
IRA (with respect to terminations under clause (a) of SECTION 9.2) and shall
offset against such amount, any actual damages suffered by WMT as a consequence
of a Material Breach of this Agreement by the IRA; provided, however, WMT shall
not be entitled to an offset for such actual damages suffered by WMT unless such
claims are set forth in the Objection Notice and submitted to arbitration
concurrently with all of the matters set forth in the Objection Notice. In
addition to the action finally determined to be necessary to cure or correct
such Material Breach, but without duplication, WMT shall pay, within ten (10)
business days of such final arbitration decision, to IRA the amount of actual
damages, if any, incurred by IRA, net of the offsets described in the preceding
sentence. In the event that WMT fails to take the actions finally determined
hereunder to be necessary to cure or correct the acts or omissions complained of
within the applicable cure period, a Material Breach or Material Modification,
as the case may be, shall be deemed to have occurred and IRA shall be entitled
to terminate this Agreement pursuant to the foregoing sentence without any
further notices (other than the notice of termination), cure periods or
arbitration proceedings set forth in this SECTION 9.2 with respect to whether
WMT properly cured or corrected such Material Breach or Material Modification,
as the case may be, or paid the actual damages as finally determined. If a
Material Breach is determined to have occurred and WMT properly cures or
corrects the Material Breach as permitted hereunder, and thereafter the act or
omission of WMT which gave rise to the claim of Material Breach continues to
occur, then, notwithstanding any provision in this SECTION 9.2 to the contrary,
IRA may terminate this Agreement pursuant to clause (a) of this SECTION 9.2
without complying with the notice, cure and arbitration provisions of this
SECTION 9.2.
9.3 Termination by IRA for Non-Payment of Second and Third Installment or
----------------------------------------------------------------------
Earn-out. Notwithstanding SECTION 9.2 hereof, in the event that WMT fails to
- --------
timely pay on the applicable Due Date (as defined in the Stock Purchase
Agreement) the entire amount due to Harvey E. Najim on the first anniversary of
the Closing pursuant to SECTION 2.2(A)(C) of the Stock Purchase Agreement or the
second anniversary of the Closing pursuant to SECTION 2.2(A)(D) of the Stock
Purchase Agreement or any Earn-out payment due under SECTION 2.6 of the Stock
Purchase Agreement, for any reason whatsoever, the IRA shall thereafter be
entitled to terminate this Agreement with 30 days prior written notice.
Termination under this SECTION 9.3 shall be in addition to any other rights,
payments or remedies to which Harvey E. Najim may be entitled.
9.4 Effect of Termination or Expiration. Upon the expiration or
-----------------------------------
termination of this Agreement, IRA will (a) continue to fulfill its obligations
to End Users and in such a way as not to
10
<PAGE>
CONFIDENTIAL TREATMENT
reflect adversely on WMT or the Products; (b) pay to WMT when due all
outstanding amounts including, but not limited to, any amounts owing under
SECTION 6 hereof within forty-five (45) days of the invoice date. Upon the
expiration or termination of this Agreement, WMT will (a) continue to fulfill
its obligations to End Users and in such a way as not to reflect adversely on
IRA, or the Products and (b) pay IRA all due and outstanding amounts including,
without limitation, any amounts due and owing to IRA under SECTION 4.2 hereof.
10. Confidentiality. WMT acknowledges and agrees that this Agreement is
---------------
being executed in connection with the consummation of the transactions
contemplated by the Stock Purchase Agreement, including the Spin-off (as defined
therein) of the End User Business (as defined therein) of SDS into IRA. Western
and SDS, jointly and severally, agree to use commercially reasonable efforts to
assist IRA to maintain its present business relationship with the End User
customers of SDS prior to the Spin-off for the benefit of IRA. Western and SDS
jointly and severally agree that they will (and will cause each person under
their control to) keep confidential and not use any confidential information or
make available to any others any documents, files, customer lists, price lists,
or other papers or information concerning such End User Business except if
required pursuant to an order of any court or administrative agency or otherwise
required by law.
11. Miscellaneous Provisions.
------------------------
11.1 Independent Contractor. WMT and IRA are independent contractors.
----------------------
Neither party will have any right or authority to act on behalf of the other and
neither party shall represent that it has such right or authority.
11.2 Assignment. IRA agrees not to assign, or otherwise transfer, this
----------
Agreement or its rights under it or delegate its obligations or appoint another
reseller (including a related company) or agent to represent it, without the
consent of WMT which shall not be unreasonably withheld. Any attempt to do
either is void. A transfer of all or part of the ownership interest in IRA by
Harvey E. Najim shall not be deemed an assignment prohibited hereunder. WMT
agrees not to (a) assign, or otherwise transfer, this Agreement or its rights
under it or (b) delegate its obligations or appoint another distributor
(including a related company) or agent to represent it without the consent of
IRA, which shall not be unreasonably withheld; provided, however, with respect
to a Change in Control (as defined in the Stock Purchase Agreement) such consent
may be withheld in IRA's sole discretion. Any attempt to do either is void. A
Change in Control of WMT shall be deemed an assignment and prohibited hereunder,
provided, however, IRA shall be deemed
11
<PAGE>
CONFIDENTIAL TREATMENT
to have consented to such assignment if all of the Installment Payments and
Earn-out Payments or Promissory Notes related thereto due upon a Change in
Control have been paid in accordance with SECTION 2.8(F) of the Stock Purchase
Agreement.
11.3 Severability. If any provision of this Agreement, or the application
------------
thereof, shall for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement, and (if appropriate) such provision to other
persons or circumstances, shall remain in full force and effect and be
interpreted so as best to reasonably effect the intent of the parties hereto.
11.4 Waiver, Amendment, Modification. Any waiver, amendment or other
-------------------------------
modification of this Agreement will not be effective unless in writing and
signed by the party against whom enforcement is sought. The failure by either
party to exercise any of its rights hereunder will not be deemed a waiver of
such rights in the future or a waiver of any other rights under this Agreement.
11.5 Notices. Any notice, approval or other communication required or
-------
permitted under this Agreement between the parties will be given in writing and
will be sent by facsimile, electronic mail or airmail, postage prepaid, to the
address specified above or to any other address that may be designated by prior
notice. Any notice, approval or other communication delivered by facsimile or
electronic mail will be deemed to have been received the day it is sent, as
confirmed by transmission receipt. Any notice, approval or other communication
sent by airmail will be deemed to have been received on the seventh business day
after its date of posting.
11.6 Governing Law. This Agreement will be governed by and interpreted in
-------------
accordance with the laws of the State of Delaware, excluding its conflict of law
principles.
11.7 Entire Agreement. This Agreement constitutes the complete and entire
----------------
statement of all terms, conditions and representations of agreement between WMT
and IRA with respect to the subject matter contained herein and supersedes all
prior oral or written agreements or understandings .
SIRIUS COMPUTER SOLUTIONS, LTD. WESTERN MICRO TECHNOLOGY, INC.
By: Sirius Management, LLC
By ___________________________
By_________________________________ Title ________________________
12
<PAGE>
CONFIDENTIAL TREATMENT
Harvey E. Najim, Manager
STAR DATA SYSTEMS, INC.
By ______________________________
Title ___________________________
13
<PAGE>
CONFIDENTIAL TREATMENT
Exhibit A
Schedule of Sirius/BPS Cost Sharing Arrangement
<TABLE>
<CAPTION>
WMT Employee Department Compensation Benefits Total Split BPS Sirius
<S> <C> <C> <C> <C> <C> <C> <C>
[**********] [*********] [********] [******] [********] [*****] [********] [*******]
[**********] [*********] [*******] [******] [*******] [*****] [*******] [*******]
[********] [**] [*******] [******] [*******] [*****] [*******] [*******]
[******] [**] [*******] [******] [*******] [*****] [*******] [*******]
[********] [**] [*******] [******] [*******] [*****] [*******] [*******]
[**********] [**] [*******] [******] [*******] [*****] [*******] [*******]
[*********] [**] [*******] [******] [*******] [*****] [*******] [*******]
[*********] [**] [*******] [******] [*******] [*****] [*******] [*******]
[********] [*******] [********] [********] [********]
Equipment/Supplies/Space [*******]
[***************************] [********]
[****************************] [*******]
Sirius Computer Solutions Employees
[************] [**********] [*******] [******] [*******] [*****] [*******] [*******]
[*******] [**********] [*******] [******] [*******] [*****] [******] [*******]
[**********] [*******] [******] [*******] [*****] [*******] [*******]
[********] [*******] [******] [*******] [*****] [******] [*******]
[************************] [*******] [*******]
[*************************] [******]
[*************************]
[**************************] [*******]
</TABLE>
NOTE: [************************************************************************]
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
A-1
<PAGE>
CONFIDENTIAL TREATMENT
NOTE: [************************************************************************]
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
A-2
<PAGE>
CONFIDENTIAL TREATMENT
EXHIBIT B
---------
Discount Schedule for Sirius Computer Solutions
-----------------------------------------------
[*****************************************]
<TABLE>
<CAPTION>
[*******
[**********] **************]
- ------------ ---------------
<S> <C>
[********] [***]
[********] [***]
[********] [***]
[********] [***]
[********] [***]
[********] [***]
[********] [***]
[********] [***]
[********] [***]
[********] [***]
[******** [***]
********]
[******** [***]
********]
[********] [***]
[********
***** [***]
*****] [***]
[********] [***]
[********] [************]
[********] [************]
[***************]
- -----------------
[*************] [*************]
[*************] [*************]
[*************] [*************]
[*************] [*************]
[*************] [*************]
[*************] [*************]
[*************] [*************]
[*********** [*************]
**********]
</TABLE>
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
B-1
<PAGE>
CONFIDENTIAL TREATMENT
<TABLE>
<CAPTION>
NON-IBM PRODUCTS:
- ----------------
Current Distributor Cost
------------------------
<S> <C>
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
[************] [***]
</TABLE>
[*******************************************************************************
********************************************************************************
********************************************************************************
*************.]
CONFIDENTIAL MATERIAL REDACTED AND FILED SEPARATELY WITH THE COMMISSION.
B-2
<PAGE>
CONFIDENTIAL TREATMENT
EXHIBIT D
PROMISSORY NOTE
---------------
$__________ San Antonio, Texas
____________, 19__
FOR VALUE RECEIVED, the undersigned __________ (herein called "Maker"),
promises to pay to the order of __________ (herein together with all subsequent
holders hereof called "Holder") at __________, San Antonio, Texas 782__, in
lawful money of the United States of America, the principal sum of __________
($__________), together with interest on the principal balance at the rate
hereinafter provided.
1. From the date of this Promissory Note (this "Note") until the Maturity
Date (as may be extended as provided herein) interest on the principal balance
hereof from time to time remaining unpaid prior to maturity shall accrue at the
lower of (i) a fixed rate per annum equal to eighteen percent (18%) or (ii) the
Maximum Rate, calculated on the basis of actual days elapsed over a year
composed of three hundred sixty-five (365) days, provided, however, that if at
any time the rate of interest specified shall exceed the Maximum Rate, the
interest rate hereunder is automatically limited to the Maximum Rate. As used
herein, the term "Maximum Rate" means the greatest of the rates of interest from
time to time permitted under applicable federal or Texas law. To the extent of
the applicability of Article 5069-1.04, Texas Revised Civil Statutes, as
amended, the Maximum Rate shall be the highest permitted rate based upon the
"indicated (weekly) rate ceiling," but to the extent now or hereafter permitted
by Texas law, Holder may from time to time implement, withdraw and reinstate any
ceiling as an alternative to the indicated rate ceiling, including the right to
reinstate the indicated rate ceiling. Interest on past-due principal and, to
the extent permitted by law, on past-due interest, shall accrue at the lower of
the rates referenced in clauses (i) and (ii) above.
2. Principal and interest on the unpaid principal balance hereof from time
to time outstanding shall be due and payable as follows:
Principal shall be due and payable in full on __________ ("Maturity Date")
[INSERT MATURITY DATE = 6 MONTHS FROM THE DATE OF THIS NOTE]. Accrued
interest shall be due and payable on the last business day of each month.
Automatic Extension of Maturity Date. In the event Maker fails to pay this
------------------------------------
Note in full on the Maturity Date and after using reasonable and good faith
efforts to do so as provided in Section 2.10 of the Stock
-1-
<PAGE>
CONFIDENTIAL TREATMENT
Purchase Agreement (as hereinafter defined), Maker shall, on or before the
Maturity Date, provide Holder with written notice of its inability to pay,
and upon delivery of such notice, the Maturity Date shall be automatically
extended for one (1) successive six (6) month period (such new Maturity
Date being __________) [INSERT DATE WHICH IS TWELVE (12) MONTHS FROM THE
DATE OF THIS NOTE]; provided, however, that for such extension of the
Maturity Date to be effective, Maker shall have timely paid all accrued
interest for each month prior thereto, and shall pay, on the Maturity Date,
all accrued and unpaid interest then outstanding and payable under this
Note. If the Maturity Date is extended as provided for in this paragraph,
all accrued interest shall continue to be paid on a monthly basis and all
principal and accrued and unpaid interest shall be due and payable in full
on __________ [INSERT DATE WHICH IS TWELVE (12) MONTHS FROM THE DATE OF
THIS NOTE]. If on __________ [INSERT DATE WHICH IS TWELVE (12) MONTHS FROM
THE DATE OF THIS NOTE], Maker fails to pay this Note, after using
reasonable and good faith efforts to do so as provided in Section 2.10 of
the Stock Purchase Agreement, Maker shall, on or before ______________
[Insert date which is twelve (12) months from the date of this Note],
provide Holder with written notice of its inability to pay, and upon
delivery of such notice, the Maturity Date shall be automatically extended
for successive six (6) month periods until the earlier to occur of (i) the
date that Holder makes written demand to Maker for payment in full of this
Note or (ii) an Acceleration Notice is delivered pursuant to Section 5(a)
hereof, or (iii) if no demand is made under subsection (i) or (ii)
immediately above, on __________ ("Final Maturity Date"); [INSERT DATE
WHICH IS 4 YEARS FROM THE DATE OF THIS NOTE] provided, however, that for
each such automatic extension of the Maturity Date to be effective, Maker
shall pay accrued interest on a monthly basis and pay, on each applicable
extended Maturity Date, all accrued and unpaid interest then outstanding
and payable under this Note. Unless earlier written demand is made as set
forth above or this Note becomes due and payable prior to the Final
Maturity Date pursuant to Section 5(a) hereof, all principal, and accrued
but unpaid interest due on this Note, shall be due and payable in full on
the Final Maturity Date.
Payment of this Note is secured by the terms, conditions and obligations
contained in that certain Stock Purchase Agreement, as amended (the "Stock
Purchase Agreement") dated June 4, 1997, executed by and among Maker,
Holder, Star Management Services, Inc. and _____________.
-2-
<PAGE>
CONFIDENTIAL TREATMENT
3. Subject to Section 9 hereof, this Note shall be governed by and
construed in accordance with Texas law and applicable federal law. The parties
hereto intend to conform strictly to the applicable usury laws. In no event,
whether by reason of acceleration of the maturity hereof or otherwise, shall the
amount paid or agreed to be paid to Holder for the use, forbearance or detention
of money hereunder or otherwise exceed the maximum amount permissible under
applicable law. If fulfillment of any provision hereof or of any other document
pertaining to the indebtedness evidenced hereby, at the time performance of such
provision shall be due, would involve transcending the limit of validity
prescribed by law, then the obligation to be fulfilled shall be reduced
automatically to the limit of such validity. If Holder shall ever receive
anything of value deemed interest under applicable law which would exceed
interest at the highest lawful rate, an amount equal to any amount which would
have been excessive interest shall be applied to the reduction of the principal
amount owing hereunder in the inverse order of its maturity and not to the
payment of interest, or if such amount which would have been excessive interest
exceeds the unpaid balance of principal hereof, such excess shall be refunded to
Maker. All sums paid or agreed to be paid to Holder for the use, forbearance or
detention of the indebtedness of Maker to Holder shall, to the extent permitted
by applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of such indebtedness so that the amount of interest on account
of such indebtedness does not exceed the maximum permitted by applicable law.
The provisions of this paragraph shall control all existing and future
agreements between Maker and Holder.
4. Right and Obligation to Prepay. Maker may at any time prepay the
------------------------------
principal sum of this Note, or any part thereof, together with accrued and
unpaid interest thereon, without premium or penalty. In the event that Maker at
any time obtains sufficient working capital or is able to obtain alternative
financing (after using reasonable and good faith efforts to do so as provided in
Section 2.10 of the Stock Purchase Agreement) to so repay all or part of this
Note, Maker shall be obligated to prepay such portion of the principal sum
outstanding under this Note, together with accrued and unpaid interest thereon,
as is reasonably possible under the circumstances.
5. (a) If default is made in the payment of either principal or interest
and such default is not cured within the applicable cure period provided in
Section 2.8(c), (d) or (e) of the Stock Purchase Agreement, then Holder shall
have the right and option, without notice or demand, to declare the unpaid
balance of principal and accrued interest, and all other sums owing on this
Note, at once due and payable. If Holder is entitled to deliver an Acceleration
Notice (as defined in the Stock Purchase Agreement) to Maker pursuant to Section
2.8(a) of the Stock Purchase Agreement, Holder shall have the right and option,
without notice or demand (other than delivery of the Acceleration Notice), to
declare the unpaid balance of principal
-3-
<PAGE>
CONFIDENTIAL TREATMENT
and accrued interest, and all other sums owing on this Note, at once due and
payable, such amounts to be paid in accordance with Section 2.8(a) of the Stock
Purchase Agreement; provided, however, such acceleration by Holder shall not
relieve Maker of its obligations to make timely payments of amounts which are
due and owing hereunder prior to the payment period set forth in Section 2.8(a)
of the Stock Purchase Agreement. Notwithstanding any provision in this
Agreement to the contrary, upon a Change in Control (as defined in the Stock
Purchase Agreement), Holder shall have the right and option, without notice or
demand, to declare the unpaid balance of principal and accrued interest, and all
other sums owing on this Note, at once due and payable.
(b) Subject to the notice and cure provisions set forth in Section 2.8 of
the Stock Purchase Agreement, Maker hereby (i) waives demand, presentment for
payment, notice of nonpayment, protest, notice of protest, notice of intent to
accelerate, notice of acceleration and all other notice, filing of suit and
diligence in collecting this Note or enforcing any of its remedies, (ii) agrees
that Holder shall not be required first to institute suit or exhaust its
remedies hereon against Maker or others liable or to become liable hereon or to
enforce its rights against them and (iii) consents to any extension or
postponement of time of payment of this Note and to any other indulgence with
respect hereto without notice thereof to Maker.
If Maker defaults in the payment of any principal or interest due
hereunder, to the extent not prohibited by law, Maker will pay, or reimburse
Holder for, all reasonable costs and expenses, of every character, incurred or
expended thereafter (including, but not limited to, the reasonable fees and
expenses of counsel for Holder) in connection with the collection of the debt
represented hereby; and all reasonable costs of negotiation, preparation,
execution and delivery of any and all amendments, modifications, supplements,
consents, waivers or other documents or writings relating to this Note. In
addition, if Maker defaults on any payment of principal or interest due
hereunder, Maker will pay, or reimburse Holder for, all reasonable costs and
expenses, of every character incurred or expended thereafter in connection with
the proper exercise by Holder of any of its rights and remedies hereunder or at
law.
If Holder erroneously declares that Maker has defaulted on its obligations
hereunder, Holder will pay, or reimburse Maker for, all reasonable costs and
expenses of every character incurred or expended thereafter in connection with
the defense by Maker of any of any claims made by Holder hereunder.
6. The Maker warrants and represents to the Holder, and to all other
holders of any debt evidenced by this Note, that each loan, whether one or more,
evidenced by this Note is and shall be for business, commercial, investment or
other similar purpose and not primarily for personal, family, household or
agricultural use, as such terms are used in Chapter One of Title 79, Texas
Revised Civil Statutes, 1925, as amended.
-4-
<PAGE>
CONFIDENTIAL TREATMENT
7. At any time after the date of this Note, Holder shall have the right to
sell, transfer or assign his interest in all or part of this Note, or the debt
evidenced by this Note, to any relative or spouse of Holder (such relative being
related to the Holder in the second degree), or to a trust, corporation,
partnership or other entity in which all of the beneficial interest is held by
or for such person, persons or the Holder. Except as set forth in the preceding
or following sentence, this Note and the Holder's interest hereunder are not
transferable or assignable other than by will or pursuant to the laws of descent
and distribution. After the expiration of one (1) year after the date of this
Note, Holder shall have the right, exercisable in Holder's sole discretion and
without notice to Maker or any other person, to sell, assign or transfer his
interest in all or part of this Note, or the debt evidenced by this Note. It
shall be a condition to any such transfer that the assignee agree to be bound by
the provisions of this Note, including, without limitation, Sections 5(a), 8, 9
and 10 hereof.
8. Holder acknowledges and agrees that notwithstanding anything to the
contrary contained in this Note or any other agreement or arrangement now
existing or hereafter existing between Holder and Maker, Holder's rights
relating to the repayment of the obligation represented by this Note are
expressly made subject and subordinate to the rights of the following
individuals, corporations, partnerships, trusts, associations or other entities
or organizations, including any government, political subdivision, agency or
instrumentality thereof (the "Senior Creditors") which have loaned or are
expected to lend money or otherwise extend credit to Maker:
(i) IBM Credit Corp, any successor or assign thereof, and/or any
person or entity which enters into one or more working capital lines of
credit with Maker that replaces or is used to repay, in whole or in part,
the working capital line of credit extended by IBM Credit Corp or any
subsequent replacement lines of credit; and
(ii) any financing raised primarily to finance the transactions
contemplated in the Stock Purchase Agreement or obtained in replacement, or
to repay any part of such financing or any subsequent replacement
financing.
Collectively, the loans and other financings referenced in clauses (i) and (ii)
of this Section 8 are referred to herein as the "Senior Debt".
In the event of (a) any insolvency or bankruptcy case or proceeding, or any
receivership, liquidation, reorganization or other similar case or proceeding in
connection therewith, relative to Maker or to its creditors, as such, or to its
assets, or (b) any liquidation, dissolution or other winding up of Maker,
whether voluntary or involuntary and whether or not
-5-
<PAGE>
CONFIDENTIAL TREATMENT
involving insolvency or bankruptcy, or (c) any assignment for the benefit of
creditors or any other marshalling of assets and liabilities of Maker, then and
in any such event the holders of Senior Debt shall be entitled to receive
payment in full of all amounts due or to become due on or in respect of all
Senior Debt in cash before Holder is entitled to receive any payment on account
of principal or interest on this Note from Maker, and to that end the holders of
Senior Debt shall be entitled to receive, for application to the payment
thereof, any payment or distribution of any kind or character, whether in cash,
property or securities, which may be payable or deliverable in respect of this
Note in any case, proceeding, dissolution, liquidation or other winding up or
event.
In the event that, notwithstanding the provisions of the foregoing
paragraph, Holder shall have received any payment or distribution of assets of
Maker of any kind or character (other than such payment or distribution duly
authorized by the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other person making payment or distribution of the
assets of Maker) upon or after the occurrence of an event described in item (a),
(b) or (c) of the immediately preceding paragraph, whether in cash, property or
securities before all Senior Debt is paid in full or payment therefor provided
for, then, and in such event, such payment or distribution shall be paid over or
delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other person making payment or distribution of
assets of Maker for application to the payment of all Senior Debt remaining
unpaid, to the extent necessary to pay all Senior Debt in full, after giving
effect to any concurrent payment or distribution to or for the holders of Senior
Debt.
In the event and during the continuation of any event of default or any
event which, with the giving of notice or the lapse of time, or both, would
constitute an event of default on any Senior Debt, unless and until such event
of default or event which, with the giving of notice or the lapse of time, or
both, would constitute such event of default shall have been cured or waived or
shall have ceased to exist, or in the event any judicial proceeding shall be
pending with respect to any such default, and the holder of such Senior Debt has
given written notice of such default or event of default to Holder, then in each
case no payment shall be made by Maker on account of principal of or interest on
this Note.
In the event that Maker shall make any payment to Holder prohibited by the
provisions of the foregoing paragraph and Holder receives such payment after
receipt by Holder of written notice from the holder of Senior Debt of such
event, then and in such event, such payment shall be paid over and delivered
forthwith to Maker.
-6-
<PAGE>
CONFIDENTIAL TREATMENT
The provisions of this and the immediately five preceding paragraphs are,
and are intended, solely for the purpose of defining the relative rights of
Holder on the one hand and the holders of Senior Debt on the other. Nothing in
this and the immediately five preceding paragraphs or elsewhere in this
Agreement or in this Note is intended to or shall (a) impair, as among Maker,
its creditors other than the holders of Senior Debt and Holder, the obligation
of Maker, which is absolute and unconditional, to pay to Holder the principal of
and interest on this Note as and when the same shall become due and payable in
accordance with its terms; or (b) affect the relative rights against Maker of
Holder and creditors of Maker other than the holders of Senior Debt; or (c)
prevent Holder from exercising all remedies otherwise permitted by applicable
law upon default under this Note, subject to the rights, if any, under this and
the immediately five preceding paragraphs of the holders of Senior Debt to
receive cash, property and securities otherwise payable or deliverable to
Holder. No right of any present or future holder of any Senior Debt to enforce
subordination as herein provided shall at any time in any way be prejudiced or
impaired by any act or failure to act on the part of Maker or by any act or
failure to act, in good faith, by any such holder, or by any noncompliance by
Holder or Maker with the terms and provisions of this and the immediately five
preceding paragraphs, regardless of any knowledge thereof any such holder may
have or be otherwise charged with.
Any payee of Senior Debt shall have the right to rely on the subordination
contained in this Section 8, and Holder agrees to execute and deliver such
further documents and instruments as Maker may reasonably request to effect the
intent of this subordination.
9. Arbitration. Subject to the procedures set forth in Section 2.8 of the
-----------
Stock Purchase Agreement, any dispute which is not first resolved by Maker and
Holder arising out of or relating to this Note shall be determined by binding
arbitration in accordance with certain aspects of the then-current Commercial
Arbitration Rules of the American Arbitration Association. If the amount in
controversy in the arbitration exceeds Two Hundred Fifty Thousand Dollars
($250,000), exclusive of interest, attorneys' fees and costs, the arbitration
shall be conducted by a panel of three (3) neutral arbitrators. Otherwise, the
arbitration shall be conducted by a single neutral arbitrator. The Maker and
Holder shall endeavor to select neutral arbitrators by mutual agreement. If
such agreement cannot be reached within thirty (30) calendar days after a
dispute has arisen which is to be decided by arbitration, the Maker or Holder,
jointly or severally, shall request the American Arbitration Association to
submit to each party an identical panel of fifteen (15) persons. Alternate
strikes shall be made to the panel, commencing with the person
-7-
<PAGE>
CONFIDENTIAL TREATMENT
bringing the claim, until the name of three (3) persons remain, or one (1)
person if the case is to be heard by a single arbitrator. Maker and Holder may,
however, by mutual agreement request the American Arbitration Association to
submit additional panels of possible arbitrators. The person(s) thus remaining
shall be the arbitrator(s) for such arbitration. If three (3) arbitrators are
selected, the arbitrators shall elect a chairperson to preside at all meetings
and hearings. If a dispute is to be resolved by a sole arbitrator in accordance
with the terms hereof, or if the dispute is to be resolved by a panel of three
(3) arbitrators as provided hereinabove, then such sole arbitrator or the
chairperson of such panel, as the case may be, shall be a member of a state bar
engaged in the practice of law in the United States or a retired member of a
state or the federal judiciary in the United States. The award of the
arbitrator(s) shall require a majority of the arbitrators in the case of a panel
of arbitrators, shall be in writing and reasoned, shall be based on the evidence
admitted and the substantive law of the State of Delaware (with respect to all
issues other than the enforceability of and the calculation of interest due on
this Note) and shall contain an award for each issue and counterclaim. The
award shall be made within thirty (30) days following the close of the final
hearing and the filing of any post-hearing briefs authorized by the
arbitrator(s). The award of the arbitrator(s) shall be final and binding on the
Maker and Holder and the successors and assigns thereof. The arbitration shall
be governed by the United States Arbitration Act, 9 U.S.C. (S) 1-16, and
judgment upon the award rendered by the arbitrator(s) may be entered by any
court having jurisdiction thereof. The place of arbitration shall be Denver,
Colorado. Maker and Holder shall be entitled to inspect and obtain a copy of
relevant documents in the possession or control of the other and to take
depositions of the other's employees, agents, representatives and witnesses
(including expert witnesses). All such discovery shall be in accordance with
procedures approved by the arbitrator(s). Unless otherwise provided in the
award, each party shall bear its own costs of discovery. No party shall be
entitled to submit interrogatories to the other parties. All discovery shall be
expedited, consistent with the nature and complexity of the claim or dispute and
consistent with fairness and justice. The arbitrator(s) shall have the power to
compel any party to comply with discovery requests of the other parties and to
issue binding orders relating to any discovery dispute which shall be
enforceable in the same manner as awards. The arbitrator(s) also shall have the
power to impose sanctions for abuse or frustration of the arbitration process,
including without limitation, the refusal to comply with orders of the
arbitrator(s) relating to discovery and compliance with subpoenas. The
arbitrator(s) are not empowered to award damages in excess of actual damages and
the Maker and Holder hereby irrevocably waive any right to recover such damages
with respect
-8-
<PAGE>
CONFIDENTIAL TREATMENT
to any dispute resolved by arbitration and is empowered to award attorneys fees
and costs to the prevailing party.
10. Offset Rights. Maker shall have the right to offset against principal
-------------
otherwise due under this Note any amounts which it is permitted to so offset
pursuant to Section 9.3 of the Stock Purchase Agreement. Such rights shall be
unaffected by assignment of this Note.
UNLESS EXTENDED AS PROVIDED FOR HEREIN, THIS NOTE IS PAYABLE IN FULL ON
__________, 19__. ON __________, 19__, YOU MUST REPAY THE ENTIRE PRINCIPAL
BALANCE OF THE LOAN AND UNPAID INTEREST THEN DUE. EXCEPT AS SET FORTH HEREIN,
HOLDER IS UNDER NO OBLIGATION TO REFINANCE THIS NOTE AT MATURITY.
THIS PROMISSORY NOTE AND THE OTHER DOCUMENTS EXECUTED IN CONNECTION WITH
THE STOCK PURCHASE AGREEMENT REPRESENT THE FINAL AGREEMENT OF THE PARTIES AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AND
INTERCREDITOR AGREEMENT IN FAVOR OF CANPARTNERS INVESTMENTS IV, LLC, A
CALIFORNIA LIMITED LIABILITY COMPANY, AND ROBERT FLEMING INC., A DELAWARE
CORPORATION, WHICH SUBORDINATION AND INTERCREDITOR AGREEMENT CONTAINS CERTAIN
SUBORDINATION PROVISIONS AND IS INCORPORATED HEREIN BY REFERENCE.
NOTWITHSTANDING ANY CONTRARY STATEMENT CONTAINED IN THE WITHIN INSTRUMENT, NO
PAYMENT ON ACCOUNT OF THE PRINCIPAL, PREMIUM, IF ANY, OR INTEREST HEREOF SHALL
BECOME DUE OR BE PAID IN VIOLATION OF THE TERMS OF SUCH SUBORDINATION AND
INTERCREDITOR AGREEMENT.
IN WITNESS WHEREOF, Maker has duly executed this Note as of the date first
above written.
MAKER
-----
_______________________________________
-9-
<PAGE>
Exhibit 3.1
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF
SERIES B PREFERRED STOCK
OF
WESTERN MICRO TECHNOLOGY, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
WESTERN MICRO TECHNOLOGY, INC., a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in Article IV of its
Certificate of Incorporation, and in accordance with the provisions of section
151 of the General Corporation Law of the State of Delaware, its Board of
Directors has adopted the following resolution creating a series of its
Preferred Stock, designated as Series B Preferred Stock:
RESOLVED, that a series of the class of authorized Preferred Stock of
the Corporation be hereby created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof are as follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be designated
----------------------
as "Series B Preferred Stock" (the "Series B Preferred Stock"), and the number
of shares constituting such series shall be Ten (10).
2. DIVIDENDS. The holders of shares of Series B Preferred Stock shall not
---------
be entitled to receive dividends.
3. LIQUIDATION RIGHTS.
------------------
(A) Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of
Series B Preferred Stock shall be entitled to receive out of the assets of the
Corporation, before any payment or distribution shall be made with respect to
any Common Stock and all other equity securities of the Corporation ranking
junior to the Series B Preferred Stock in liquidation preference, securities,
property or cash, or any combination thereof, in an amount equal to $1.00 per
share for each share of Series B Preferred Stock then outstanding (subject to
appropriate adjustments in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares) (the
"LIQUIDATION PREFERENCE").
----------------------
(b) If the assets of the Corporation available for distribution to
the holders of the Series B Preferred Stock and any other securities ranking on
a parity with the Series B Preferred Stock shall be insufficient to permit the
payment of the full preferential amount set
<PAGE>
forth in this Section 3, then all of the assets of the Corporation available for
distribution shall be distributed to the holders of Series B Preferred Stock and
any other securities ranking on a parity with the Series B Preferred Stock in
proportion to the preferential amount each such holder is otherwise entitled to
receive.
(C) The fair market value of any assets of the Corporation and the
proportion of cash and other assets distributed by the Corporation to the
holders of the shares of Series B Preferred Stock shall be reasonably determined
in good faith by the Board of Directors.
(d) A merger or consolidation of the Corporation with another
corporation or a voluntary sale of all or substantially all the assets of the
Corporation principally in exchange for stock and/or securities of another
corporation (any of the foregoing being herein referred to as a "Merger") shall
not be deemed a dissolution, liquidation or winding up of the Corporation,
provided, however, that such event occurs other than as part of a proceeding
under Title 11 of the United States Code or any federal or state law for the
protection of creditors or relief of debtors.
4. VOTING RIGHTS.
-------------
(a) Except as otherwise provided by law or in this Section 4, the holders
of the shares of Series B Preferred Stock shall have no voting rights.
(b) The Corporation has issued notes ("Notes") pursuant to that certain
Note Purchase Agreement dated as of September 30, 1997, by and between the
Corporation and the initial holders of the shares of Series B Preferred Stock
(the "Note Purchase Agreement"), and the initial holders of the shares of Series
B Preferred Stock have purchased such Notes from the Corporation. Upon the
occurrence of an Event of Default (as defined in the Note Purchase Agreement),
the holders of the shares of Series B Preferred Stock shall be entitled
immediately to elect by majority vote one member of the Board of Directors who
shall be in addition to the then current members of the Board of Directors. Any
member of the Board of Directors elected pursuant to this Section 4(b) shall
serve until the Event of Default has been cured or waived, or until the Notes
are no longer outstanding, whichever shall first occur. If the office of any
such additional member of the Board of Directors elected by the holders of the
shares of Series B Preferred Stock becomes vacant by reason of death,
resignation, retirement or otherwise, the holders of the shares of Series B
Preferred Stock may select a successor, who shall hold office for the unexpired
term in respect of which such vacancy occurred.
(c) Absent an Event of Default, the holders of the shares of Series B
Preferred Stock may appoint a person to attend all meetings of the Board of
Directors and of any committee thereof, and such person shall receive notices of
such meetings and all materials prepared for directors in connection therewith.
(d) The Corporation shall not, without the affirmative consent or approval
of the holders representing at least a majority of the outstanding shares of
Series B Preferred Stock, acting separately as one class:
2
<PAGE>
(i) in any manner alter or change the designation, powers,
preferences or rights of, or the qualifications, limitations or
restrictions upon, the Series B Preferred Stock; or
(ii) enter into, or other effect a Merger; provided that the
--------
provisions of this subsection 4(d) shall not be applicable to any such
Merger if:
A. the Corporation is the survivor in the Merger, and the
shares of Series B Preferred Stock will continue to have powers,
preferences or rights, and will be subject to qualifications,
limitations or restrictions, no worse than those contained herein; or
B. the Corporation is not the survivor in the Merger, and the
security of the surviving corporation into which the Series B
Preferred Stock is converted has powers, preferences or rights, and
will be subject to qualifications, limitations or restrictions, no
worse than those contained herein.
Notwithstanding the foregoing, no approval of the holders of the Series B
Preferred Stock shall be required to authorize, create, designate or issue, or
to increase the authorized or outstanding amount of, any shares of any class or
series of the capital stock of the Corporation.
(e) A copy of each notice, proxy statement, annual report and other
communication sent to the holders of Common Stock shall be sent simultaneously
to the holders of the shares of Series B Preferred Stock.
5. REDEMPTION.
----------
At any time after all amounts owed under the Notes, including, without
limitation, principal and interest, have been paid in full, the Corporation may,
at its option, redeem all (but not less than all) of the Series B Preferred
Stock, by payment of an amount equal to the Liquidation Preference. The
Corporation may not redeem the shares of Series B Preferred Stock without the
prior written consent of the holders of the shares of Series A Preferred Stock
at any time that Series A Preferred Stock remains outstanding and, except as
otherwise provided in this Section 5, the Corporation may not redeem the shares
of Series B Preferred Stock without the prior written consent of the holders of
the shares of Series B Preferred Stock.
6. RANKING OF THE SERIES B PREFERRED STOCK.
---------------------------------------
Any stock of any class or classes of the Corporation shall be deemed to
rank:
(a) Prior to the shares of Series B Preferred Stock, either as to
dividends or upon dissolution, liquidation or winding up of the Corporation, if
the holders of such class or classes shall be entitled to the receipt of
dividends or of amounts distributable upon dissolution, liquidation or winding
up of the Corporation, as the case may be, in preference or priority to the
holders of shares of Series B Preferred Stock. For purposes hereof, the Series A
Preferred Stock shall rank senior to the Series B Preferred Stock;
3
<PAGE>
(b) On a parity with the shares of Series B Preferred Stock, either as to
dividends or upon dissolution, liquidation or winding up of the Corporation,
whether or not the dividend rates, dividend payment dates or redemption or
liquidation prices per share or sinking fund provisions, if any, are different
from those of the shares of Series B Preferred Stock, if the holders of such
stock shall be entitled to the receipt of dividends or of amounts distributable
upon dissolution, liquidation or winding up of the Corporation, as the case may
be, in proportion to their respective dividend rates or liquidation prices,
without preference or priority, one over the other, as between the holders of
such stock and the holders of the shares of Series B Preferred Stock; and
(c) Junior to the shares of Series B Preferred Stock, either as to
dividends or upon dissolution, liquidation or winding up of the Corporation, if
such class shall be Common Stock or if the holders of the shares of Series B
Preferred Stock shall be entitled to receipt of dividends or of amounts
distributable upon dissolution, liquidation, winding up of the Corporation, or
upon redemption as the case may be, in preference or priority to the holders of
shares of such class or classes.
IN WITNESS WHEREOF, Western Micro Technology, Inc. has caused this
Certificate of Designation, Preferences and Rights of Series B Preferred Stock
to be duly executed this 30th day of September, 1997.
WESTERN MICRO TECHNOLOGY, INC.
By /s/ James W. Dorst
----------------------------------
James W. Dorst
Chief Financial Officer
4
<PAGE>
Exhibit 3.2
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF
SERIES A PREFERRED STOCK
OF
WESTERN MICRO TECHNOLOGY, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
WESTERN MICRO TECHNOLOGY, INC., a Delaware corporation (the "Corporation"),
certifies that pursuant to the authority contained in Article IV of its
Certificate of Incorporation, and in accordance with the provisions of section
151 of the General Corporation Law of the State of Delaware, its Board of
Directors has adopted the following resolution creating a series of its
Preferred Stock, designated as Series A Preferred Stock:
RESOLVED, that a series of the class of authorized Preferred Stock of
the Corporation be hereby created, and that the designation and amount
thereof and the voting powers, preferences and relative, participating,
optional and other special rights of the shares of such series, and the
qualifications, limitations or restrictions thereof are as follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall be
----------------------
designated as "Series A Preferred Stock" (the "SERIES A PREFERRED STOCK"), and
------------------------
the number of shares constituting such series shall be Two Million Two Hundred
Forty-Two Thousand Five Hundred (2,242,500).
2. DEFINITIONS. The following capitalized terms shall have the meanings
-----------
set forth below:
(a) "CHANGE OF CONTROL" shall have the meaning set forth in Section 4(b)
-----------------
hereof.
(b) The "CLOSING PRICE" for each day shall be the last reported sale price
-------------
regular way or, in case no such reported sale takes place on such day, the
average of the reported closing bid and asked prices regular way, in either case
on the principal national securities exchange or The Nasdaq Stock Market's
National Market on which the security is listed or admitted to trading, or if
not so listed or admitted to trading, the average of the highest reported bid
and lowest reported asked prices as furnished by The Nasdaq Stock Market's
SmallCap Market, or the nearest comparable system, or, in the absence of either,
as determined by the Board of Directors in its good faith discretion.
(c) "COMMISSION" shall mean the Securities and Exchange Commission.
----------
<PAGE>
(d) "COMMON STOCK" shall mean the common stock, par value $0.01 per
------------
share, of the Corporation.
(e) "CONVERSION DATE" shall have the meaning set forth in Section 5(b)
---------------
hereof.
(f) "CONVERSION PRICE" shall have the meaning set forth in Section 5(f)
----------------
hereof.
(g) "CONVERTIBLE SECURITIES" shall have the meaning set forth in Section
----------------------
5(f)(ii)(B) hereof.
(h) The "CURRENT MARKET PRICE" at the date of determination for any
--------------------
security (including, without limitation, Common Stock), shall be deemed to be
the average of the daily Closing Prices for the five (5) business days before
the day in question.
(i) "DIVIDEND RATE" shall have the meaning set forth in Section 3(a)
-------------
hereof.
(j) "JUNIOR STOCK" shall mean the Common Stock and all other equity
------------
securities of the Corporation ranking junior to the Series A Preferred Stock in
respect of the payment of dividends, liquidation preference, voting or
otherwise, as applicable.
(k) "LIQUIDATION PREFERENCE" shall have the meaning set forth in Section
----------------------
4(a) hereof.
(l) "RECORD DATE" shall mean each January 1, April 1, July 1 and October 1
-----------
prior to the applicable dividend payment date.
(m) "REDEMPTION DATE" shall mean the date of the redemption of the Series
---------------
A Preferred Stock pursuant to Section 6 hereof.
(n) "REDEMPTION PRICE" shall have the meaning set forth in Section 6(a)
----------------
hereof.
(o) "REGISTRATION STATEMENT" shall mean a registration statement under the
----------------------
Securities Act covering the shares of Common Stock to be issued upon conversion
of the shares of Series A Preferred Stock.
(p) "RELATED RIGHTS" shall have the meaning set forth in Section
--------------
5(f)(ii)(B) hereof.
(q) "RIGHTS" shall have the meaning set forth in Section 5(f)(ii)(A)
------
hereof.
(r) "SECURITIES" shall have the meaning set forth in Section 5(f)(i)
----------
hereof.
(s) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
--------------
(t) "SERIES A PREFERRED STOCK" shall mean the Series A Preferred Stock,
------------------------
par value $0.01 per share, of the Corporation.
2
<PAGE>
(u) "SPECIAL CONVERSION PRICE DECREASE" shall have the meaning set forth
---------------------------------
in Section 5(j) hereof.
(v) "SPECIAL DIVIDEND" shall have the meaning set forth in Section 3(b)
----------------
hereof.
(w) "SPECIAL DIVIDEND RATE INCREASE" shall have the meaning set forth in
------------------------------
Section 3(d) hereof.
(x) "UNRESTRICTED COMMON STOCK" shall mean shares of Common Stock which
-------------------------
may be sold by the holder thereof without any applicable restrictions on sale or
resale under the Securities Act and the rules promulgated thereunder.
3. DIVIDENDS.
---------
(a) The holders of Series A Preferred Stock shall be entitled to receive,
out of funds legally available therefor, cumulative dividends at a rate per
annum equal to eight percent (8%) of the Liquidation Preference (subject to
appropriate adjustments in the event of any stock dividend, stock split,
combination or other similar recapitalization affecting such shares and subject
further to any Special Dividend Rate Increases (as so adjusted, the "DIVIDEND
--------
RATE")), payable in equal quarterly installments on January 15, April 15, July
- ----
15 and October 15 of each year to holders of record of the Series A Preferred
Stock at the close of business on each Record Date prior to the respective
dividend payment date, payable in preference and priority to any payment of any
dividend on shares of Junior Stock when and as declared by the Board of
Directors. If dividends are not paid in full on the Series A Preferred Stock
and on any other series of Preferred Stock ranking on a parity as to dividends
with the Series A Preferred Stock, all dividends paid upon shares of Series A
Preferred Stock and on such other series of Preferred Stock will be paid pro
rata so that in all cases the amount of dividends paid per share on the Series A
Preferred Stock and on such other series of Preferred Stock bear to each other
the same ratio that accrued and unpaid dividends per share on the shares of the
Series A Preferred Stock and on such other series of Preferred Stock bear to
each other. Unless and until full cumulative dividends are paid on the Series A
Preferred Stock, no dividend (other than stock dividends) may be paid on any
shares of stock which are junior to the Series A Preferred Stock as to payment
of dividends.
(b) A special dividend (the "SPECIAL DIVIDEND") shall be payable on
----------------
September 19, 1998, and each anniversary thereafter, if the Current Market Price
on each such date is less than $9.5625. The Special Dividend shall be payable in
an amount equal to the difference between the Current Market Price and $9.5625,
provided that no Special Dividend may exceed $1.9125. The dollar amounts set
forth in this paragraph (b) shall be subject to appropriate adjustment in the
event of any stock dividend, stock split, combination or other similar
recapitalization affecting the Common Stock or the Series A Preferred Stock.
(c) At the election of the Corporation, each dividend payable pursuant to
this Section 3 shall be paid either in cash or by the issuance of shares of
Unrestricted Common Stock having a Current Market Price as of the applicable
Record Date equal to the dividend; provided, however, that in the event that the
-------- -------
Corporation elects to pay a dividend by issuing shares of
3
<PAGE>
Unrestricted Common Stock, no fractional shares of Unrestricted Common Stock
shall be issued and the Corporation shall pay cash in lieu of any fractional
share to which the holder would otherwise be entitled.
(d) In the event that the Registration Statement has not been declared
effective by the Commission on or prior to January 19, 1998, then commencing
with such date, the Dividend Rate shall be increased by twenty-five (25) basis
points (0.25%) per annum (a "SPECIAL DIVIDEND RATE INCREASE"), for each thirty
-------------------------------
(30) calendar day period (or portion thereof) until the date that the
Registration Statement is declared effective by the Commission, at which time
the Dividend Rate shall automatically decrease to the Dividend Rate in effect
prior to the implementation of such Special Dividend Rate Increase.
4. LIQUIDATION RIGHTS.
------------------
(a) Upon the dissolution, liquidation or winding up of the Corporation,
whether voluntary or involuntary, the holders of the shares of Series A
Preferred Stock shall be entitled to receive out of the assets of the
Corporation, before any payment or distribution shall be made with respect to
any Junior Stock, securities, property or cash, or any combination thereof,
valued as to securities, at the Current Market Price thereof, property, as
determined in the good faith discretion of the Board of Directors, and cash at
the face value thereof, in an amount equal to (x) $9.5625 per share (or, in the
event of a Change of Control (as hereinafter defined), $9.6581 per share) for
each share of Series A Preferred Stock then outstanding (subject to appropriate
adjustments in the event of any stock dividend, stock split, combination or
other similar recapitalization affecting such shares), plus (y) any and all
dividends accrued and unpaid thereon, if any, to the date of final distribution
(the "LIQUIDATION PREFERENCE"). If the assets of the Corporation available for
----------------------
distribution to the holders of the Series A Preferred Stock and any other
securities ranking on a parity with the Series A Preferred Stock shall be
insufficient to permit the payment of the full preferential amount set forth in
this Section 4, then all of the assets of the Corporation available for
distribution shall be distributed to the holders of Series A Preferred Stock and
any other securities ranking on a parity with the Series A Preferred Stock in
proportion to the preferential amount each such holder is otherwise entitled to
receive.
(b) A "CHANGE OF CONTROL" shall mean: (i) a sale, conveyance, exchange or
-----------------
transfer of all or substantially all of the property and assets of the
Corporation, (ii) the sale of all or substantially all of the capital stock of
the Corporation or the merger or consolidation of the Corporation into or with
any other corporation or an affiliate thereof (except if such merger or
consolidation does not result in the transfer of more than fifty percent (50%)
of the voting securities of the Corporation or if such merger or consolidation
is effected solely to change the Corporation's jurisdiction of incorporation);
or (iii) any sale or transfer of any capital stock of the Corporation, following
which more than fifty percent (50%) of the combined voting power of the
Corporation becomes beneficially owned by one person or group acting together.
For purposes of this definition, "group" shall have the meaning as such term is
used in section 13(d)(1) of the Securities Exchange Act of 1934, as amended.
5. CONVERSION. The holders of the Series A Preferred Stock shall have
----------
conversion rights as follows:
4
<PAGE>
(a) Each share of Series A Preferred Stock shall be convertible, at the
option of the holder thereof, at any time and from time to time into the number
of fully paid and non-assessable shares of Common Stock of the Corporation as is
determined by dividing $9.5625 by the Conversion Price in effect at the time of
conversion. The Conversion Price at which shares of Common Stock shall be
deliverable upon conversion of the Series A Preferred Stock shall initially be
$9.5625 per share.
(b) In order for a holder of Series A Preferred Stock to convert shares of
Series A Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates representing such shares of Series A
Preferred Stock, at the office of the transfer agent for the Series A Preferred
Stock, together with written notice that such holder elects to convert all or
any number of the shares of the Series A Preferred Stock represented by such
certificate or certificates. Such notice shall state such holder's name or the
names of the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
reasonably satisfactory to the Corporation, duly executed by the registered
holder or its attorney duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent is referred to herein as the
"CONVERSION DATE." The Corporation shall, as soon as practicable after the
- ----------------
Conversion Date but no later than ten (10) days thereafter, issue and deliver to
such holder, or to its nominee, at such holder's address as shown in the records
of the Corporation or as otherwise instructed in writing by the holder, a
certificate or certificates for the number of whole shares of Common Stock (and
any shares of Series A Preferred Stock represented by the certificate delivered
to the transfer agent by the holder thereof which are not converted into Common
Stock) issuable upon such conversion in accordance with the provisions hereof,
together with cash in lieu of fractional shares calculated in accordance with
paragraph (c) of this Section 5. If less than all of the shares of Series A
Preferred Stock represented by any certificate are converted into shares of
Common Stock, the Corporation shall issue a new Series A Preferred Stock
certificate in the amount of the shares not so converted.
(c) No fractional shares of Common Stock shall be issued upon conversion
of shares of Series A Preferred Stock and the Corporation shall pay cash in lieu
of any fractional share to which the holder would otherwise be entitled.
(d) The Corporation shall at all times when the Series A Preferred Stock
shall be outstanding, reserve and keep available out of its authorized but
unissued stock, for the purpose of effecting the conversion of the Series A
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of Series A Preferred Stock.
(e) All shares of Series A Preferred Stock which shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding, and all rights with respect to such shares shall immediately cease
and terminate on the Conversion Date, except only the right of the holders
thereof to receive shares of Common Stock in exchange therefor and payment of
any declared and unpaid dividends thereon. On the Conversion Date, the shares of
Common Stock issuable upon such conversion shall be deemed to be outstanding,
and the holder
5
<PAGE>
thereof shall be entitled to exercise and enjoy all rights with respect to such
shares of Common Stock. All shares of Series A Preferred Stock tendered for
conversion shall, from and after the Conversion Date, be deemed to have been
retired and cancelled and shall not be reissued as Series A Preferred Stock, and
the Corporation may thereafter take such appropriate action as may be necessary
to reduce accordingly the authorized number of shares of Series A Preferred
Stock.
(f) The initial Conversion Price as stated in paragraph (a) of this
Section 5 shall be subject to adjustment from time to time and such conversion
price as adjusted shall likewise be subject to further adjustment, all as
hereinafter set forth. The term "CONVERSION PRICE" shall mean, as of any time,
----------------
the conversion price of the Series A Preferred Stock at that time, as specified
in paragraph (a) of this Section 5 in case no adjustment shall have been
required, or such conversion price as adjusted pursuant to this paragraph (f) of
this Section 5, as the case may be:
(i) If at any time the Corporation shall issue any shares of Common
Stock or any Convertible Securities, Rights or Related Rights (as herein
defined) (such Convertible Securities, Rights or Related Rights being
hereinafter referred to collectively as "SECURITIES") (other than a
----------
dividend or other distribution payable in Common Stock or such Securities)
for a consideration per share of Common Stock (the consideration in each
case to be determined in the manner provided in (E) and (F) below) less
than the Conversion Price in effect immediately prior to the issuance of
such Common Stock or Securities, then the Conversion Price in effect
immediately prior to each such issuance shall forthwith be decreased to a
Conversion Price, calculated to the nearest cent, obtained by dividing:
(A) an amount equal to the sum of
(1) the total number of shares of Common Stock outstanding plus
the number of shares of Common Stock which would be issued
upon the exercise or conversion of all outstanding
Securities (including the number of shares of Common Stock
into which the outstanding shares of Series A Preferred
Stock are then convertible) immediately prior to such
issuance multiplied by the Conversion Price in effect
immediately prior to such issuance, plus
(2) the consideration received by the Corporation upon such
issuance,
by
(B) the total number of shares of Common Stock outstanding plus the
number of shares of Common Stock which would be issued upon the
exercise or conversion of all outstanding Securities (including
the number of shares of Common Stock into which the outstanding
shares of Series A Preferred Stock are then convertible)
immediately after such issuance (including the number of shares
of Common Stock into which such newly issued Securities are then
convertible).
6
<PAGE>
(ii) For the purpose of any adjustment of the Conversion Price
pursuant to this paragraph (f) of this Section 5, the following provisions
shall be applicable:
(A) In the case of the issuance of options or warrants to purchase or
rights to subscribe for Common Stock (collectively, such
"RIGHTS"), the aggregate maximum number of shares of Common Stock
------
deliverable upon exercise of such Rights shall be deemed to have
been issued at the time such Rights were issued, for a
consideration equal to the consideration (determined in the
manner provided in (E) and (F) below), if any, received by the
Corporation upon the issuance of such Rights, plus the minimum
purchase price provided in such Rights for the Common Stock
covered thereby.
(B) In the case of the issuance of securities by their terms
convertible into or exchangeable for Common Stock (collectively,
such "CONVERTIBLE SECURITIES"), or options or warrants to
----------------------
purchase or rights to subscribe for securities by their terms
convertible into or exchangeable for Common Stock (collectively,
such "RELATED RIGHTS"), the aggregate maximum number of shares of
--------------
Common Stock deliverable upon conversion, exchange or exercise of
any such Convertible Securities or such Related Rights shall be
deemed to have been issued at the time such Convertible
Securities or such Related Rights were issued and for a
consideration equal to the consideration received by the
Corporation upon issuance of such Convertible Securities or such
Related Rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the additional minimum
consideration, if any, to be received by the Corporation upon the
conversion, exchange or exercise of such Convertible Securities
or Related Rights (the consideration in each case to be
determined in the manner provided in (E) and (F) below).
(C) Upon any change in the number of shares of Common Stock
deliverable upon the exercise of such Rights or Related Rights or
upon the conversion, exchange or exercise of such Convertible
Securities or on any change in the minimum purchase price of such
Rights, Related Rights or Convertible Securities other than any
change resulting from the anti-dilution provisions of such
Rights, Related Rights or Convertible Securities, the Conversion
Price shall forthwith be readjusted to such Conversion Price as
would have been in effect had the adjustment that was made upon
the issuance of such Rights, Related Rights or Convertible
Securities not converted, exchanged or exercised prior to such
change been made on the basis of such change, but no further
adjustment shall be made for the actual issuance of Common Stock
upon the exercise or conversion of any such Right, Related Right
or Convertible Security.
(D) Upon the expiration of any such Rights, Related Rights or
Convertible Securities, the Conversion Price shall forthwith be
readjusted to such
7
<PAGE>
Conversion Price as would have been obtained had the adjustment
made upon the issuance of such Rights or Related Rights or the
issuance of any such Convertible Securities been made upon the
basis of the issuance of only the number of shares of Common
Stock actually issued upon the exercise of such Rights or Related
Rights or the conversion, exchange or exercise of any such
Convertible Securities.
(E) In the case of the issuance of such Common Stock or Securities
for cash, the consideration shall be deemed to be the amount of
cash paid therefor.
(F) In the case of the issuance of such Common Stock or Securities
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
value thereof as determined in good faith by the Board of
Directors of the Corporation.
(G) In the event of any adjustment to the Conversion Price resulting
from the issuance of any Securities, no further adjustment shall
be made for the actual issuance of Common Stock upon the exercise
or conversion of any such Securities.
(iii) Anything to the contrary contained in this paragraph (f) of
Section 5 notwithstanding, no adjustment shall be made in the Conversion
Price as a result of or pursuant to (1) the granting of any Right or
Related Right, or the issuance of Common Stock to, officers, employees or
directors of, or consultants to, the Corporation, pursuant to any
agreement, plan or arrangement approved by the Board of Directors of the
Corporation, (2) a provision in any existing agreement between the
Corporation and any third party in respect of an acquisition by the
Corporation in which all or a portion of the consideration in connection
with such acquisition is payable by the issuance of shares of Common Stock
or Securities, (3) the issuance of warrants in connection with any
subordinated debt or other financing or refinancing undertaken in
connection with the acquisition of Star Management Services, Inc., (4) the
conversion of shares of Series A Preferred Stock or (5) the exercise of any
option or warrant currently outstanding.
(g) In case the Corporation shall effect a reorganization, shall merge
with or consolidate into another corporation, or shall sell, transfer or
otherwise dispose of all or substantially all of its property, assets or
business and, pursuant to the terms of such reorganization, merger,
consolidation or disposition of assets, shares of stock or other securities,
property or assets of the Corporation, successor or transferee or an affiliate
thereof are to be received by or distributed to the holders of Common Stock,
then each holder of Series A Preferred Stock shall be provided with written
notice from the Corporation informing each holder of Series A Preferred Stock of
the terms of such reorganization, merger, consolidation or disposition of assets
and of the record date thereof for any distribution pursuant thereto, at least
thirty (30) days in advance of such record date, and each holder of Series A
Preferred Stock shall have, in addition to the rights provided for herein, the
right to receive, at the holder's election, either (i) upon conversion of such
Series A Preferred Stock, the number of shares of stock or other securities,
property or assets of the Corporation, successor or transferee or affiliate
thereof or cash receivable by the
8
<PAGE>
holders of the Common Stock upon or as a result of such reorganization, merger,
consolidation or disposition of assets or (ii) the securities into which the
shares of Series A Preferred Stock are converted, upon, or as a result of such
reorganization, merger, consolidation or disposition of assets. The provisions
of this paragraph (g) of this Section 5 shall similarly apply to successive
reorganizations, mergers, consolidations or dispositions of assets.
(h) If the Corporation shall effect a subdivision of the outstanding
shares of Common Stock, the Conversion Price then in effect immediately before
such subdivision shall be proportionately decreased. If the Corporation shall
combine the outstanding shares of Common Stock, the Conversion Price then in
effect immediately before the combination shall be proportionately increased.
If the Corporation shall make or issue a dividend or other distribution
payable in securities, then and in each such event provision shall be made so
that the holders of shares of the Series A Preferred Stock shall receive upon
conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities that they would have received had
their Series A Preferred Stock been converted into Common Stock on the date of
such event and had they thereafter during the period from the date of such event
to and including the Conversion Date, retained such securities receivable by
them as aforesaid during such period giving effect to all adjustments called for
during such period under this paragraph, with respect to the rights of the
holders of the Series A Preferred Stock.
(i) In case the Corporation shall distribute to the holders of Common
Stock evidences of indebtedness issued by the Corporation or assets (excluding
cash dividends) then, in each such case, immediately following the record date
fixed for the determination of the holders of Common Stock entitled to receive
such distribution, the Conversion Price in effect thereafter shall be determined
by multiplying the Conversion Price in effect immediately prior to such record
date by a fraction (i) the numerator of which shall be an amount equal to (A)
the Current Market Price of one share of Common Stock immediately prior to the
record date less (B) the difference between the Current Market Price of one
share of Common Stock immediately prior to such record date and the Current
Market Price of one share of Common Stock five days after such record date and
(ii) the denominator of which shall be the Current Market Price of one share of
Common Stock immediately prior to such record date; provided, however, that the
Conversion Price shall not be increased as a result of this paragraph (i) of
Section 5. Such adjustment shall become effective as of the opening of business
on the business day following the record date for the determination of
stockholders entitled to such distribution.
(j) In addition to any other adjustments to the Conversion Price as
provided in this Section 5, if the Registration Statement has not been declared
effective by the Commission on or prior to January 19, 1998, then commencing
with such date, the Conversion Price shall be decreased by $0.25 (the "SPECIAL
-------
CONVERSION PRICE DECREASE") for each thirty (30) calendar day period (or portion
- -------------------------
thereof) until the Registration Statement is declared effective by the
Commission. The Conversion Price shall not be returned to the Conversion Price
in effect prior to the Special Conversion Price Decrease upon effectiveness of
the Registration Statement.
(k) Whenever the Conversion Price shall be adjusted as provided in this
Section 5, the Corporation shall forthwith file, at the office of the transfer
agent for the Series A Preferred Stock, at the principal office of the
Corporation or at such other place as may be designated by
9
<PAGE>
the Corporation, a statement, certified by the chief financial officer of the
Corporation, showing in detail the facts requiring such adjustment and the
Conversion Price that shall be in effect after such adjustment. The Corporation
shall also cause a copy of such statement to be sent by first class mail,
postage prepaid, to each holder of record of Series A Preferred Stock at such
holder's address as shown in the records of the Corporation.
(l) If a state of facts shall occur which, without being specifically
controlled by the provisions of this Section 5, would not fairly protect the
conversion rights of the holders of the Series A Preferred Stock in accordance
with the essential intent and principles of such provisions, then the Board of
Directors of the Corporation shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such conversion rights.
6. REDEMPTION.
----------
(a) The Corporation may, at its option, redeem the Series A Preferred
Stock, in whole or in part, (i) at any time or from time to time after September
19, 1998 and prior to September 19, 2001 in the event that the Current Market
Price of the Common Stock as determined on each of the thirty (30) trading days
prior to the date notice of the redemption is first given is at least one
hundred fifty percent (150%) of the Conversion Price in effect on that same date
and the daily trading volume of the Common Stock for at least twenty-five (25)
of the thirty (30) trading days prior to the date notice of redemption is first
given is at least 125,000 shares, or (ii) at any time or from time to time on or
after September 19, 2001, and in either such case to the extent funds are
legally available therefor, at a redemption price equal to, in the case of (i)
above, the Liquidation Preference then in effect or, in the case of (ii) above,
at the Liquidation Preference plus an eight percent (8%) redemption premium (the
"REDEMPTION PRICE") together with any accrued and unpaid dividends thereon to
----------------
the date fixed for redemption. To the extent that a redemption is effected by
the Corporation with respect to a portion of the outstanding Series A Preferred
Stock, such redemption shall be effected pro rata on the basis of the
--- ----
outstanding shares of Series A Preferred Stock.
(b) No redemption shall be made pursuant to this Section 6 and no sum
shall be set aside for any such redemption when the terms or provisions of any
indenture or agreement of the Corporation, including any agreement relating to
its indebtedness, specifically prohibits such redemption or setting aside for
redemption or when such redemption or setting aside for redemption would
constitute (after notice or lapse of time or otherwise) a breach of or a default
under any such indenture or agreement.
7. PROCEDURE FOR REDEMPTION.
------------------------
(a) In the event the Corporation shall redeem shares of Series A Preferred
Stock, notice of such redemption shall be given by first class mail, postage
prepaid, mailed not less than sixty (60) days prior to the Redemption Date, to
each holder of record of the shares to be redeemed at such holder's address as
the same appears on the share register of the Corporation. Each such notice
shall include the Redemption Date, the Redemption Price, the place or places
where certificates for such shares are to be surrendered for payment of the
Redemption
10
<PAGE>
Price, a statement that dividends on the shares to be redeemed will
cease to accrue on the Redemption Date and if the redemption is pursuant to
clause (i) of Section 6(a) hereof, a certificate of the chief financial officer
of the Corporation to the effect that the Current Market Price of the Common
Stock as determined on each of the thirty (30) trading days prior to the date
notice of the redemption is first given was at least one hundred fifty percent
(150%) of the Conversion Price in effect on that same date and the daily trading
volume of the Common Stock for at least twenty-five (25) of the thirty (30)
trading days prior to the date notice of redemption is first given was at least
125,000 shares.
(b) Notice having been mailed as aforesaid, from and after the Redemption
Date (unless default shall be made by the Corporation in providing money for the
payment of the Redemption Price of the shares called for redemption), dividends
on the shares of Series A Preferred Stock so called for redemption shall cease
to accrue, and said shares shall no longer be deemed to be outstanding and shall
have the status of authorized but unissued shares of Preferred Stock, and shall
not be reissued as shares of Series A Preferred Stock and all rights of the
holders thereof as stockholders of the Corporation with respect to said shares
(except the right to receive from the Corporation the Redemption Price and
accrued but unpaid dividends) shall cease. Upon surrender in accordance with
said notice of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer, if the Board of Directors of the Corporation shall so
require and the notice shall so state), such shares shall be redeemed by the
Corporation at the Redemption Price as aforesaid.
(c) Anything in this Section 7 to the contrary notwithstanding, the holder
of shares of Series A Preferred Stock to be redeemed in accordance with this
Section shall have the right, exercisable at any time up to the close of
business on the Redemption Date (unless the Corporation is legally prohibited
from redeeming such shares on such date, in which event such right shall be
exercisable until the removal of such legal disability), to convert all or any
part of such shares to be redeemed as herein provided into shares of Common
Stock pursuant to Section 5 hereof.
8. VOTING.
------
(a) In addition to any rights provided by applicable law, the holders of
the Series A Preferred Stock shall be entitled to vote on all matters as to
which holders of Common Stock shall be entitled to vote, in the same manner and
with the same effect as such holders of Common Stock, voting together with the
holders of the Common Stock as a single class. A holder of shares of Series A
Preferred Stock shall be entitled to such number of votes as shall equal the
aggregate number of shares of Common Stock which such holder would receive upon
the deemed conversion of all shares of Series A Preferred Stock held by such
holder; provided that voting rights shall not extend to a fractional share
resulting from the deemed conversion of all shares of Series A Preferred Stock
held by such holder of Series A Preferred Stock.
(b) The Corporation shall not, without the affirmative consent or approval
of the holders representing at least sixty-six and two-thirds percent (66-2/3%)
of the outstanding shares of Series A Preferred Stock, acting separately as one
class:
11
<PAGE>
(i) in any manner authorize, create or issue any class or series of
capital stock or any securities convertible into or exchangeable for, or
having optional rights to purchase, any class or series of capital stock,
in any such case ranking, as to payment of dividends, liquidation
preference, voting or otherwise, senior to the Series A Preferred Stock;
(ii) in any manner alter or change the designation, powers,
preferences or rights of, or the qualifications, limitations or
restrictions upon, the Series A Preferred Stock; or
(iii) reclassify the shares of Common Stock or any other shares of
Junior Stock hereafter created into shares of any class or series of
capital stock ranking, as to payment of dividends, liquidation preference,
voting or otherwise, senior to the Series A Preferred Stock.
IN WITNESS WHEREOF, Western Micro Technology, Inc. has caused this
Certificate of Designation, Preferences and Rights of Series A Preferred Stock
to be duly executed this 18th day of September, 1997.
WESTERN MICRO TECHNOLOGY, INC.
By /s/ James W. Dorst
---------------------------
James W. Dorst
Chief Financial Officer
12
<PAGE>
EXECUTION COPY
NOTE PURCHASE AGREEMENT
DATED AS OF SEPTEMBER 30, 1997
AMONG
WESTERN MICRO TECHNOLOGY, INC.,
AS ISSUER
WMT ACQUISITION CORP.
SAVOIR TECHNOLOGY GROUP, INC.
STAR MANAGEMENT SERVICES, INC.
INET SYSTEMS, INC.
STAR DATA INTERNATIONAL
SIRIUS INVESTMENTS, INC.
STAR DATA SYSTEMS, INC.
AS GUARANTORS
AND
ROBERT FLEMING INC. AND
CANPARTNERS INVESTMENTS IV, LLC
AS PURCHASERS
AND
CANPARTNERS INVESTMENTS IV, LLC,
AS AGENT FOR THE PURCHASERS
__________________________
$15,700,000
SECOND PRIORITY SENIOR SECURED NOTES
DUE 2000
__________________________
<PAGE>
TABLE OF CONTENTS
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Page
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<S> <C>
RECITALS.................................................................................... 1
ARTICLE I
DEFINITIONS AND INTERPRETATION.................................................... 2
Section 1.01. Certain Defined Terms............................................ 2
Section 1.02. Computation of Time Periods...................................... 16
Section 1.03. Accounting Terms................................................. 17
Section 1.04. References to this Agreement..................................... 17
Section 1.05. Miscellaneous Terms.............................................. 17
ARTICLE II
THE NOTES......................................................................... 17
Section 2.01. Sale and Purchase of Notes....................................... 17
Section 2.02. Registration of Notes............................................ 17
Section 2.03. Transfer and Exchange of Notes................................... 18
Section 2.04. Replacement of Notes............................................. 19
Section 2.05. Payments on Notes................................................ 19
Section 2.06. Optional Put..................................................... 20
Section 2.07. Mandatory Offers to Repurchase the Notes......................... 20
Section 2.08. Optional Prepayments of the Notes................................ 23
Section 2.09. Purchases of Notes............................................... 24
Section 2.10. Tender of Notes to Pay Warrant Exercise Price.................... 24
ARTICLE III
GUARANTEE OF NOTES................................................................ 24
Section 3.01. Agreement of Guaranty............................................ 24
Section 3.02. Guaranty Irrevocable............................................. 25
Section 3.03. Certain Waivers.................................................. 26
Section 3.04. Certain California Law Waivers................................... 26
Section 3.05. Limitations on Subrogation....................................... 27
Section 3.06. Limit on Amount of Guaranty...................................... 27
Section 3.07. Certain Mergers and Consolidations............................... 28
Section 3.08. Release of Guaranty under Certain Circumstances.................. 28
Section 3.09. Subordination of Certain Indebtedness............................ 28
Section 3.10. Guarantors' Indemnity............................................ 29
Section 3.11. No Duty of Inquiry............................................... 29
Section 3.12. No Duty to Provide Data to Guarantors............................ 29
Section 3.13. Rights Cumulative................................................ 29
Section 3.14. Certain Waivers Regarding Interest Accruals...................... 29
Section 3.15. Continuation of Guaranty......................................... 29
Section 3.16. Continuing Guaranty.............................................. 30
</TABLE>
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ARTICLE IV
CLOSING............................................................................... 30
Section 4.01. Closing of Purchase and Sale of Notes................................ 30
Section 4.02. Additional Conditions to Closing..................................... 30
ARTICLE V
REPRESENTATIONS AND WARRANTIES........................................................ 34
Section 5.01. Representation and Warranties of the Obligors........................ 34
Section 5.02. Representations of the Purchasers.................................... 42
ARTICLE VI
REPORTING AND AFFIRMATIVE COVENANTS................................................... 42
Section 6.01. Financial and Business Information................................... 42
Section 6.02. Officer's Certificate................................................ 44
Section 6.03. Inspection........................................................... 45
Section 6.04. Compliance with Law.................................................. 45
Section 6.05. Insurance............................................................ 45
Section 6.06. Maintenance of Properties............................................ 46
Section 6.07. Payment of Taxes and Claims.......................................... 47
Section 6.08. Corporate Existence, etc............................................. 47
Section 6.09. Maintenance of Books and Records..................................... 47
Section 6.10. Maintenance of Line of Business...................................... 47
Section 6.11. Private Placement Numbers............................................ 47
Section 6.12. Liens................................................................ 47
Section 6.13. Rule 144............................................................. 48
Section 6.14. Use of Proceeds...................................................... 48
Section 6.15. Right to Provide Financing.............................................. 48
Section 6.16. Further Assurances; Security Interests............................... 49
Section 6.17. Additional Wholly-Owned Subsidiaries................................. 50
Section 6.18. Interest Rate Contract............................................... 50
Section 6.19. Lien Schedule........................................................ 50
ARTICLE VII
NEGATIVE COVENANTS................................................................... 50
Section 7.01. Limitation on Certain Transactions Between the Issuer and Related
Persons...................................................................... 50
Section 7.02. Merger, Consolidation, etc.......................................... 50
Section 7.03. Limitation on Asset Sales........................................... 50
Section 7.04. Restricted Payments and Investments................................. 51
Section 7.05. Limitation on Additional Indebtedness............................... 51
Section 7.06. Limitation on Creation of Liens..................................... 52
Section 7.07. Rank of Future Indebtedness......................................... 52
Section 7.08. Creation of Subsidiaries; Additional Guarantors..................... 52
Section 7.09. Receivables......................................................... 53
Section 7.10. Bank Accounts....................................................... 53
Section 7.11. Restrictions on Sale and Issuance of Capital Stock.................. 53
</TABLE>
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<TABLE>
<S> <C>
Section 7.12. Limitation on Security Interest Restrictions............................. 53
Section 7.13. Fixed Charge Coverage Ratio Test......................................... 54
Section 7.14. Minimum EBITDA Test...................................................... 54
Section 7.15. Minimum Consolidated Net Worth........................................... 54
Section 7.16. Maximum Capital Expenditures............................................. 54
Section 7.17. Amendments to the IBM Facility........................................... 54
Section 7.18. Amendments to the Acquisition Agreement.................................. 54
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES............................................................ 54
Section 8.01. Events of Default........................................................ 54
Section 8.02. Remedies on Event of Default, Etc........................................ 57
ARTICLE IX
THE AGENT................................................................................. 59
Section 9.01. Appointment.............................................................. 59
Section 9.02. Nature of Duties......................................................... 59
Section 9.03. Rights, Exculpation, Etc................................................ 60
Section 9.04. Reliance................................................................ 60
Section 9.05. Indemnification.......................................................... 61
Section 9.06. Successor Agents......................................................... 61
Section 9.07. Relations Among Holders.................................................. 62
Section 9.08. Concerning the Collateral and the Transaction Documents.................. 62
ARTICLE X
SUBORDINATION............................................................................. 63
Section 10.01. Notes Subordinated to Senior Debt......................................... 63
ARTICLE XI
MISCELLANEOUS............................................................................. 63
Section 11.01. Expenses, etc............................................................. 63
Section 11.02. Survival of Representations and Warranties; Entire Agreement.............. 64
Section 11.03. Amendment and Waiver...................................................... 64
Section 11.04. Notices................................................................... 65
Section 11.05. Reproduction of Documents................................................. 66
Section 11.06. Confidential Information.................................................. 67
Section 11.07. Transfers of Notes........................................................ 68
Section 11.08. Successors and Assigns.................................................... 68
Section 11.09. Severability.............................................................. 68
Section 11.10. Construction.............................................................. 68
Section 11.11. Counterparts.............................................................. 68
Section 11.12. Governing Law............................................................. 68
Section 11.14. Indemnification........................................................... 69
Section 11.15 Maximum Rate.............................................................. 70
</TABLE>
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NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT (as the same may be amended, supplemented
or otherwise modified from time to time, this "AGREEMENT") is entered into as of
September 30, 1997 by and among (i) WESTERN MICRO TECHNOLOGY, INC., a Delaware
corporation (the "ISSUER"), (ii) ROBERT FLEMING INC., a Delaware corporation,
and CANPARTNERS INVESTMENTS IV, LLC, a California limited liability company
(collectively "PURCHASERS"), (iii) CANPARTNERS INVESTMENTS IV, LLC, a California
limited liability company ("CANPARTNERS"), in its capacity as agent for the
Holders (as defined below) (in such capacity, the "AGENT"), and (iv) WMT
ACQUISITION CORP. a California corporation ("WMT"), SAVOIR TECHNOLOGY GROUP,
INC., a Delaware corporation ("STG"), STAR MANAGEMENT SERVICES, INC., a Delaware
corporation ("SMS"), INET SYSTEMS, INC., a Texas corporation ("INET"), STAR DATA
INTERNATIONAL, a company organized under the laws of the Virgin Islands
("SDI"), SIRIUS INVESTMENTS, INC., a Nevada corporation ("SII"), and STAR DATA
SYSTEMS, INC. a Texas corporation ("SDS")(collectively, "GUARANTORS").
RECITALS
WHEREAS, the Issuer desires to sell and the Purchasers desire to
purchase in each case on the terms and conditions set forth in this Agreement,
secured notes issued by the Issuer in an aggregate principal amount of
$15,700,000, which notes shall be in substantially the form of Exhibit A
---------
attached hereto and made a part hereof (together with any such notes issued in
substitution or replacement therefor pursuant to Sections 2.03 and 2.04,
------------- ----
respectively, of this Agreement, the "NOTES");
WHEREAS, the Purchasers have required as a condition, among others, to
their purchase of the Notes that each Wholly-Owned Subsidiary as of the date
hereof, and each other Person that becomes a Wholly-Owned Subsidiary of Issuer
after the date of this Agreement unconditionally guarantee the prompt and
complete payment and performance of the Issuer's obligations under the Notes,
this Agreement and the other Note Documents; and
WHEREAS, to provide assurance for the repayment of the Notes, the
Issuer and the Guarantors will provide or will cause to be provided to the
Purchasers, a security interest in the Collateral and a pledge of the Pledged
Securities pursuant to the applicable Security Agreement;
WHEREAS, concurrently with the issuance of the Notes, the Issuer has
agreed to issue to the Purchasers warrants to purchase 400,000 shares of the
Issuer's common stock (the "WARRANTS") on substantially the terms set forth in
the Warrant Agreement of even date herewith by and among the Issuer and the
Purchasers (the "WARRANT AGREEMENT");
WHEREAS, each Purchaser shall acquire fifty percent (50%) of the Notes
and fifty percent (50%) of the Warrants.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and each of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.01. CERTAIN DEFINED TERMS. As used herein, the following
terms have the respective meanings set forth below or set forth in the Section
hereof following such term:
"ACQUISITION" means the purchase by the Issuer of one hundred percent
(100%) of the outstanding stock of SMS, pursuant to the Acquisition Agreement
between the Issuer and the SMS Sellers and the documents related thereto.
"ACQUISITION AGREEMENT" means the Stock Purchase Agreement of June 9,
1997, by and among the SMS Sellers, the Issuer and SMS.
"ACQUISITION AGREEMENT ASSIGNMENT" means the assignment of the
Acquisition Agreement of even date herewith between the Issuer and the Agent, as
the same may be amended, supplemented or otherwise modified from time to time.
"AFFILIATE" means, at any time, and with respect to any Person, any
other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such Person. As used in this definition, "CONTROL" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. Unless the context otherwise clearly
requires, any reference to an "Affiliate" is a reference to an Affiliate of the
Issuer.
"AGENT" is defined in the preamble to this Agreement.
"AGREEMENT" is defined in the preamble to this Agreement.
"ASSET SALE" means, with respect to a Person, in one transaction or a
series of related transactions, directly or indirectly (or having the effect,
result or consequence of) (a) any conveyance, sale, lease, transfer, assignment
or other disposition of, any of its property, business or assets or (b) any
issuance sale, assignment, transfer or other disposition of shares of Capital
Stock of a Subsidiary (other than to Issuer or a Wholly Owned Subsidiary)
provided, however, that the Obligors shall not be deemed to have made an Asset
- -----------------
Sale to the extent that: (i) in the ordinary course of business, any Obligor
shall convey, sell, lease, transfer, assign or otherwise dispose of any asset
acquired and held for resale in the ordinary course of business; (ii) any
Obligor shall sell damaged, worn out or other obsolete property in the ordinary
course of business; (iii) any Obligor shall convey, sell, transfer, assign or
otherwise dispose of assets to Issuer or any Subsidiary, and such assets are
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subject to the security interest created by the Security Agreements to which
such transferee is a party; or (iv) any Obligor shall convey, sell, lease,
transfer, assign or otherwise dispose of assets or rights if the aggregate
proceeds to the Obligors from all such actions in this clause do not exceed
$100,000 in any transaction or series of related transactions. The conveyance,
sale, lease, transfer, assignment or other disposition of all or substantially
all of the assets of Issuer and its Subsidiaries, taken as a whole, shall be
governed by the provisions of Section 7.02 hereof, as applicable, and shall not
------------
constitute an Asset Sale.
"BANKRUPTCY CODE" means Title 11 of the United States Code (11 U.S.C.
(S)(S) 101 et seq.).
-- ---
"BANKRUPTCY LAW" means Title 11, U.S. Code or any similar federal or
state law now or hereafter in effect for the relief, supervision, conservation,
reorganization or liquidation of debtors or for the benefit of creditors.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day
on which commercial banks in Los Angeles, California are required or authorized
to be closed.
"CANPARTNERS" is defined in the preamble to this Agreement.
"CAPITAL EXPENDITURES" means, for any period, the aggregate of all
expenditures (whether payable in cash or other Property or accrued as a
liability (but without duplication)) during such period that, in conformity with
GAAP, are required to be included in or reflected by the Issuer's or any of its
Subsidiaries' fixed assets accounts as reflected in any of their respective
balance sheets; provided, however, (i) Capital Expenditures shall include,
-----------------
whether or not such a designation would be in conformity with GAAP, (A) that
portion of Capital Leases which is capitalized on the consolidated balance sheet
of the Issuer and its Subsidiaries and (B) expenditures for Equipment which is
purchased simultaneously with the trade-in of existing Equipment owned by the
Issuer or any of its Subsidiaries, to the extent the gross purchase price of the
purchased Equipment exceeds the book value of the Equipment being traded in at
such time; and (ii) Capital Expenditures shall exclude, whether or not such a
designation would be in conformity with GAAP, expenditures made in connection
with the replacement or restoration of Property, to the extent reimbursed or
financed from insurance or condemnation proceeds not constituting Net Cash
Proceeds.
"CAPITAL LEASE" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"CAPITAL STOCK" means, with respect to any Person, any and all shares,
interests, participations, rights or other equivalents (however designated) of
capital stock of such Person (if a corporation) or any and all similar ownership
interests in a Person (other than a corporation) whether now outstanding or
issued after the date of this Agreement.
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"CASH FLOW PERIOD" means the period commencing on the Closing Date and
ending on December 31, 1997, and, as separate periods, each calendar year of the
Issuer thereafter.
"CHANGE OF CONTROL" means the occurrence of one or more of the
following events after the date hereof:
(a) a sale, lease, license, transfer, conveyance or other
disposition, in one or a series of related transactions, of all or substantially
all of the assets of Issuer and its Subsidiaries, taken as a whole, to any
Person or group (as such term is used in Section 13(d)(3) of the Exchange Act);
(b) the dissolution or liquidation of Issuer or any of its
Subsidiaries, or Issuer or any of its Subsidiaries or its directors or
stockholders shall take any action to dissolve or liquidate Issuer or any of its
Subsidiaries;
(c) the acquisition by any Person or group (within the meaning of
Rule 13d-5 under the Exchange Act, as in effect on the Closing Date) of
beneficial ownership, directly or indirectly, through a purchase, merger,
consolidation or other acquisition transaction of 50% or more of the total
voting power of all issued and outstanding shares of the capital stock (i) of
the Issuer entitled to vote generally in the election of directors or (ii) of
the surviving Person (if the Issuer is not the surviving entity in a merger
permitted by Section 7.02) entitled to vote in the election of directors,
------------
managers or trustees of such other Person; or
(d) the election or appointment within any consecutive twelve (12)
month period of directors constituting a majority of the board of directors who
were not directors at the beginning of such period.
"CLOSING" is defined in Section 4.01.
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"CLOSING DATE" is defined in Section 4.01.
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"CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and the rules and regulations promulgated thereunder from time to time.
"COLLATERAL" means "Collateral" as defined in the Issuer Security and
Pledge Agreement and "Collateral" as defined in the Guarantor Security and
Pledge Agreement.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means (i) the common shares of the Issuer, $0.01 par
value, as set forth in the Certificate of Incorporation of the Issuer and (ii)
any securities issued in respect of or exchange for the securities described in
clause (i) pursuant to a stock dividend, stock split, recapitalization, merger
or reclassification.
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"CONFIDENTIAL INFORMATION" is defined in Section 11.06.
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"CONSOLIDATED NET INCOME" means, for any period, the aggregate of the
net income (or loss) of the Issuer and its Subsidiaries on a consolidated basis
determined in accordance with GAAP, provided that there shall be excluded from
--------
such net income (or loss) (to the extent otherwise included therein): (i) the
net income (or loss) of any other Person which is not a Wholly-Owned Subsidiary
or is accounted for by the Issuer by the equity method of accounting (except to
the extent of the amount of any dividends or distributions paid to the Issuer or
a Wholly-Owned Subsidiary during such period), (ii) all gains or losses,
realized in connection with any Asset Sale, (iii) all other income or gains or
losses from extraordinary items, in each case determined in accordance with
GAAP, and (iv) the net income of any Person acquired in a pooling of interests
transaction for any period prior to the date of acquisition.
"CONSOLIDATED NET WORTH" means, as of any date of determination for
any Person, the stockholders' equity of such Person and its Subsidiaries on a
consolidated basis determined in accordance with GAAP.
"CONTRIBUTION AGREEMENT" means the Contribution Agreement of even date
herewith between the Guarantors and the Agent, as the same may be amended,
supplemented or otherwise modified from time to time.
"DEFAULT" means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.
"DEFAULT RATE" means that rate of interest that is 1.375% per month.
"EBITDA" means (i) the Consolidated Net Income (or loss) of the
Issuer, plus (ii) depreciation and amortization expense for such period, plus
---- ----
(iii) federal, state and local income (or equivalent) taxes accrued for such
period, plus (iv) total interest expense for such period (including amortization
----
of capitalized Indebtedness issuance costs), whether paid or accrued (including
the interest component of Capital Leases), including all commissions, discounts
and other fees and charges owed with respect to letters of credit, plus (v) non
----
cash-charges and extraordinary, unusual or non-recurring losses for early
extinguishment of Indebtedness for such period, minus (vi) extraordinary,
-----
unusual or non-recurring gains for such period, in each case determined in
accordance with GAAP and, in the case of clauses (ii) through (vi), to the
extent included in the determination of Consolidated Net Income for such period.
"EBITDA FLOOR" shall mean for the fourth quarter of 1997, $3,730,000;
for the first quarter of 1998, $3,995,000; for the second quarter of 1998,
$3,535,000; for the third quarter of 1998, $2,940,000; for the fourth quarter of
1998, $3,630,000; for the first quarter of 1999, $4,345,000; for the second
quarter of 1999, $4,570,000; for the third quarter of 1999, $4,525,000; for the
fourth quarter of 1999, $5,490,000; for the first quarter of 2000, $4,910,000;
for the second quarter of 2000, $5,240,000; and for the third quarter of 2000,
$5,435,000.
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"ENVIRONMENTAL LAWS" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"EQUITY INTEREST" means the legal or beneficial ownership of all or a
portion of the equity of a Person, including but not limited to preferred or
common stock, options, warrants or rights to acquire stock, interests in a
limited liability company, trusts, interests in a general or limited partnership
or interests in other Persons, however denominated.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with any Obligor
under section 414 of the Code.
"EVENT OF DEFAULT" is defined in Section 8.01.
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"EXCESS CASH FLOW" means for any Cash Flow Period (without
duplication), an amount equal to the Issuer's consolidated (i) EBITDA, plus (ii)
----
the net reduction, if any, in Working Capital during such period, minus (iii)
-----
extraordinary gains on Asset Sales during such period, minus (iv) the net
-----
increase, if any, in Working Capital during such period, minus (v) federal,
-----
state and local income (or equivalent) taxes paid in cash, minus (vi) Capital
-----
Expenditures paid in cash during such period, minus (vii) any expenses paid in
-----
cash during such period and relating to restructuring charges which payments do
not otherwise operate as a reduction to Working Capital, minus (viii) interest
-----
expense paid in such period, including, without limitation, the interest
component of all Capital Leases, all commissions, fees and discounts with
respect to letters of credit and other Indebtedness, but excluding any original
issue discount, interest paid in kind or amortized debt discount to the extent
included in determining interest expense, minus (ix) prepayments paid in cash
-----
pursuant to Section 2.06 and Section 2.07 (other than prepayments made pursuant
------------ ------------
to Section 2.07(a)) and, minus (x) scheduled amortization of the principal
---------------- -----
portion of all other Indebtedness of the Issuer and its Subsidiaries during such
period.
"EXCHANGE ACT" means the Securities Exchange Act of 1934.
"EXTRAORDINARY FUNDING" means any disbursement to Issuer or any
Wholly-Owned Subsidiary in connection with the incurrence of indebtedness (if
permitted hereunder) or the procurement of equity financing by such entity.
"FAIR MARKET VALUE" means, with respect to any asset of the Issuer or
any of its Subsidiaries, the value of the consideration obtainable in a sale of
such asset in the open market, assuming a sale by a willing seller to a willing
purchaser dealing at arm's length and arranged in an
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orderly manner over a reasonable period of time, each having reasonable
knowledge of the nature and characteristics of such asset, neither being under
any compulsion to act, determined by the Issuer in good faith, provided, that if
--------
the book value of the assets being sold is in excess of $100,000 and such sale
is not made in the ordinary course of business of the applicable Person, such
determination shall be evidenced by a resolution of the board of directors of
the Issuer.
"FIXED CHARGE COVERAGE RATIO" means, for any period and with respect
to the Issuer and its Subsidiaries on a consolidated basis, the ratio of (a) (i)
EBITDA for such period, minus, (ii) federal, state and local income (or
-----
equivalent) taxes accrued during such period, minus (iii) Capital Expenditures
-----
paid in cash during such period, to (b) the sum of (i) scheduled principal
payments of Indebtedness paid or payable during such period, plus (ii) total
----
interest expense accrued for such period (including the interest component of
Capital Leases), including all commissions, discounts and other fees and charges
owed with respect to letters of credit, in each case determined in accordance
with GAAP.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States of America, as applied by the Issuer and
its Subsidiaries on a consistent basis.
"GOVERNING DOCUMENTS" means , with respect to any corporation, limited
liability company or partnership (a) the articles/certificate of incorporation
(or the equivalent formation documents) of such corporation or limited liability
company, (b) the partnership agreement executed by the partners in the
partnership, (c) the by-laws (or the equivalent organizational documents) of the
corporation, limited liability company or partnership and (d) any document
setting forth the designation, amount and/or relative rights, limitations and
preferences of any class or series of such corporation's capital stock or such
limited liability company's or partnership's equity or ownership interests.
"GOVERNING LAW" means the law of the State of California excluding
choice-of-law principles of the law of such State that would require the
application of the laws of a jurisdiction other than such State.
"GOVERNMENTAL AUTHORITY" means (a) the government of (i) the United
States of America or any State or other political subdivision thereof, or (ii)
any jurisdiction in which any Obligor conducts all or any part of its business,
or which asserts jurisdiction over any properties of such Obligor, or (b) any
entity exercising executive, legislative, judicial, regulatory or administrative
functions of, or pertaining to, any such government.
"GUARANTOR" and "GUARANTORS" is defined in the preamble to this
Agreement; provided, however, that no Person shall be a Guarantor after such
-----------------
time as it has been released from its guaranty of the Notes pursuant to the
provisions of this Agreement.
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<PAGE>
"GUARANTOR SECURITY AND PLEDGE AGREEMENT" means the Guarantor Security
and Pledge Agreement of even date herewith among the Guarantors and the Agent,
as the same may be amended, supplemented or otherwise modified from time to
time.
"GUARANTY OBLIGATION" means, with respect to any Person, any
obligation (except the endorsement in the ordinary course of business of
negotiable instruments for deposit or collection) of such Person guaranteeing or
in effect guaranteeing any indebtedness, dividend or other obligation of any
other Person in any manner, whether directly or indirectly, including (without
limitation) obligations incurred through an agreement, contingent or otherwise,
by such Person: (a) to purchase such indebtedness or obligation or any property
constituting security therefor; (b) to advance or supply funds (i) for the
purchase or payment of such indebtedness or obligation, or (ii) to maintain any
working capital or other balance sheet condition or any income statement
condition of any other Person or otherwise to advance or make available funds
for the purchase or payment of such indebtedness or obligation; (c) to lease
properties or to purchase properties or services primarily for the purpose of
assuring the owner of such indebtedness or obligation of the ability of any
other Person to make payment of the indebtedness or obligation; or (d) otherwise
to assure the owner of such indebtedness or obligation against loss in respect
thereof. The amount of any Guaranty Obligation shall be deemed to be an amount
equal to the stated or determined amount of any primary obligation in respect of
which such Guaranty Obligation is made (or, if less, the maximum amount of such
primary obligation for which such Person may be liable pursuant to the terms of
the instrument evidencing such Guaranty Obligation) or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"GUARANTY" means, with respect to any Wholly-Owned Subsidiary its
guaranty of the Notes and all of its obligations thereunder as set forth in
Article III hereof.
"HAZARDOUS MATERIAL" means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
"HIGHEST LAWFUL RATE" means, at any given time during which any
Obligations shall be outstanding hereunder, the maximum nonusurious interest
rate that at any time or from time to time may be contracted for, taken,
reserved, charged or received on the Obligations, under the laws of the State of
California (or the law of any other jurisdiction whose laws may be mandatorily
applicable notwithstanding other provisions of this Agreement and the other Note
Documents), or under applicable federal laws which may presently or hereafter be
in effect and which allow a higher maximum nonusurious interest rate than under
the laws of the State of California (or such other jurisdiction's) law, in any
case after taking into account, to the extent permitted by applicable law, any
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<PAGE>
and all relevant payments or charges under this Agreement and any other Note
Documents executed in connection herewith, and any available exemptions,
exceptions and exclusions.
"HOLDER" means, with respect to any Note, the Purchaser thereof or any
assignee of such Purchaser.
"IBM" means IBM Credit Corporation.
"IBM FACILITY" means that certain Inventory and Working Capital
Financing Agreement dated December 1, 1996 between IBM and Issuer, as the same
has been heretofore and may be hereafter amended, supplemented or modified, for
a $75 million revolving credit facility (the "Revolving Loan") and a $10 million
term loan (the "Acquisition Loan") including all Guaranties and security
agreements relating thereto.
"IBM INTERCREDITOR AGREEMENT" means that certain Subordination and
Intercreditor Agreement among IBM, Agent, Issuer, WMT, STG, SMS, INET, SDI, SII,
and SDS of even date herewith.
"INDEBTEDNESS" with respect to any Person means, at any time, without
duplication, (a) its liabilities for borrowed money and its redemption
obligations in respect of mandatorily redeemable Preferred Stock; (b) its
liabilities for the deferred purchase price of Property acquired by such Person
(excluding accounts payable arising in the ordinary course of business but
including all liabilities created or arising under any conditional sale or other
title retention agreement with respect to any such Property); (c) all
liabilities appearing on its balance sheet in accordance with GAAP in respect of
Capital Leases; (d) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it has assumed or
otherwise become liable for such liabilities); (e) all its liabilities in
respect of letters of credit or instruments serving a similar function issued or
accepted for its account by banks and other financial institutions (whether or
not representing obligations for borrowed money); (f) all monetary obligations
or liabilities owed by any Obligor under the IBM Facility or the Acquisition
Agreement; and (g) any Guaranty Obligation of such Person with respect to
liabilities of a type described in any of clauses (a) through (f) hereof.
"INSOLVENCY EVENT" means any of the events described in paragraphs (h)
and (j) of Section 8.01.
------------
"INTEREST RATE AGREEMENT" means any interest rate protection or hedge
agreement, including without limitation, interest rate futures, options, swap,
floors and cap agreements.
"INVESTMENT" means, with respect to any Person, (i) any purchase or
other acquisition by that Person of securities, or of a beneficial interest in
securities, issued by any other Person, (ii) any purchase by that Person of all
or substantially all of the assets of a business conducted by another Person,
and (iii) any loan, advance (other than deposits with financial institutions
available for withdrawal on demand, prepaid expenses, accounts receivable,
advances to employees and similar
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<PAGE>
items made or incurred in the ordinary course of business) or capital
contribution by that Person to any other Person, including all Indebtedness owed
to such Person arising from a sale of property by such Person other than in the
ordinary course of its business. The amount of any Investment shall be the
original cost of such Investment, plus the cost of all additions thereto less
the amount of any return of capital or principal to the extent such return is in
cash with respect to such Investment without any adjustments for increases or
decreases in value or write-ups, write-downs or write-offs with respect to such
Investment.
"ISSUER" is defined in the preamble to this Agreement.
"ISSUER SECURITY AND PLEDGE AGREEMENT" means the Issuer Security and
Pledge Agreement of even date herewith between the Issuer and the Agent, as the
same may be amended, supplemented or otherwise modified from time to time.
"LIEN" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of such Person (including in the case of
stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"LINE OF BUSINESS" means the sale of commercial multi-user computer
systems and related products, software and services and the distribution of mid-
range computer systems and related equipment, software and services.
"MATERIAL" means material in relation to the business, operations,
financial condition, assets, properties or prospects of the Issuer and its
Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, operations, financial condition, assets, properties or prospects of
the Issuer and its Subsidiaries taken as a whole, or (b) the ability of any
Obligor to perform its Material obligations under this Agreement, the Notes or
the other Note Documents, or (c) the validity or enforceability of this
Agreement, the Notes or the other Note Documents.
"MULTIEMPLOYER PLAN" means any Plan that is a "multiemployer plan" (as
such term is defined in section 4001(a)(3) of ERISA).
"NET CASH PROCEEDS" means, with respect to any Asset Sale or
Extraordinary Funding, the aggregate amount of cash consideration received by
the Issuer or any of its Subsidiaries in connection with such Asset Sale or
Extraordinary Funding after deduction of all reasonable and customary fees,
costs and expenses (including payment of unassumed liabilities relating to such
Asset Sale within thirty (30) days of such Asset Sale and any portion of the
proceeds which the Issuer determines should be reserved for post-closing
adjustments until such post-closing adjustment
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<PAGE>
reserves are no longer reserved) directly incurred by the Issuer or such
Subsidiary in connection therewith.
"NET WORTH FLOOR" means (i) for the year ended December 31, 1997, $31
million; (ii) for the year ended December 31, 1998, $35 million; and (iii) for
the year ended December 31, 1999, $41 million.
"NOTE DOCUMENTS" means, collectively, this Agreement, the Notes, the
Warrants, the Warrant Agreement, the Registration Rights Agreement, the Security
Agreements, the Contribution Agreement and all other documents, agreements,
instruments, opinions and certificates now or hereafter delivered in connection
herewith or therewith (other than the Acquisition Agreement and the documents
related thereto).
"NOTES" is defined in the recitals to this Agreement.
"OBLIGATIONS" means all present and future obligations and liabilities
of any Obligor arising under or in connection with any Note Document, due or to
become due to any Holder or any other Person entitled to indemnification
pursuant to Section 11.13, or (to the extent permitted by the Note Documents)
-------------
any of their respective successors, transferees or assigns, and shall include,
without limitation, (i) unpaid principal and interest under the Notes (including
interest accruing on or after the occurrence of an Insolvency Event, whether or
not allowed as a claim in any proceeding relating to the Insolvency Event), (ii)
fees, expenses and indemnification and expense reimbursement obligations arising
under any of the Note Documents, and (iii) the obligations of the Guarantors
arising under Article III of this Agreement.
-----------
"OBLIGOR" means the Issuer or any Guarantor and "OBLIGORS" means the
Issuer and all of the Guarantors.
"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of any Obligor whose responsibilities extend to
the subject matter of such certificate.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"PERMITTED BUSINESS INVESTMENTS" means (i) any Investments in a
Guarantor or in any Person that becomes a Wholly-Owned Subsidiary as a result of
such Investment so long as such Person becomes, at the time of the Investment,
and remains, a Guarantor, (ii) loans and advances to officers, directors and
employees of the Issuer and the Guarantors for travel, entertainment and moving
and other relocation expenses made in direct furtherance and in the ordinary
course of business, (iii) Investments and payments to any employee, officer or
director of the Issuer or the Guarantors pursuant to Plans or compensation
arrangements entered into in the ordinary course of business and approved by the
Board of Directors of the Issuer or such Guarantor or payments, contributions or
transactions relating to such Plans, (iv) to the extent that no Default or Event
of
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Default then exists or would result therefrom, Investments in any Person to
the extent the consideration paid consists solely of Common Stock of the Issuer
and the consideration received for such Common Stock of the Issuer becomes part
of the Collateral, and (v) to the extent that no Default or Event of Default
then exists or would result therefrom, the acquisition of capital stock,
obligations or securities of (A) a Guarantor or (B) a Person that is engaged
primarily in a business described in the definition of Line of Business and
after giving effect to the Investment becomes a Guarantor; provided, that the
--------
aggregate principal amount of loans, advances and Investments made pursuant to
clauses (ii) and (iii) above shall not exceed $250,000 at any time outstanding.
"PERMITTED INVESTMENTS" means (i) marketable direct obligations issued
or unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,
(ii) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof, (iii) commercial paper or other corporate short term
obligations of corporations, the commercial paper of which has, at the time of
acquisition, no less than a BBB rating obtainable from Standard & Poor's Rating
Group (a division of McGraw-Hill, Inc.) or a Baa3 rating from Moody's Investor's
Service, Inc., (iv) demand deposits, certificates of deposit (including
Eurodollar certificates of deposit) or bankers' acceptances issued by commercial
banks, savings and loans or other financial institutions organized under the
laws of the United States of America or any state thereof or the District of
Columbia, each having capital and surplus of, in the case of any such
institution organized under the laws of the United States or any political
subdivision thereof, not less than $100,000,000 or, in the case of any such
institution organized under the laws of any foreign jurisdiction, not less than
$500,000,000 ("QUALIFYING BANKS"), (v) repurchase agreements and reverse
repurchase agreements with Qualifying Banks, (vi) money market funds organized
under the laws of the United States of America or any state thereof and
administered by securities dealers of recognized national standing, (vii) any
Investment in Persons that are Wholly-Owned Subsidiaries of the Issuer; (viii)
negotiable instruments endorsed for deposit or collection or similar instruments
in the ordinary course of business, (ix) any Investment outstanding on the date
of this Agreement, as set forth on Schedule 1.01-A, and any extension, renewal,
---------------
refinancing or deferral of such Investment provided that such extension,
renewal, refinancing or deferral does not increase the amount of such Investment
outstanding on the date of such extension, renewal, refinancing or deferral and
(x) Permitted Business Investments.
"PERMITTED LIENS" means (i) Liens (other than Liens arising under
ERISA or any Environmental Laws) for taxes, assessments or governmental charges
or claims which are not yet delinquent or which are being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted
and if a reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor; (ii) statutory Liens of
landlords and carriers', warehousemen's, mechanics', suppliers', materialmen's,
repairmen's or other like Liens arising in the ordinary course of business and
with respect to amounts not yet delinquent or being contested in good faith by
appropriate process of law, if a reserve or other appropriate provision, if any,
as shall be required by GAAP shall have been made therefor; (iii) purchase money
mortgages, pledges or other Liens upon, or obligations under Capital Leases
related to, any property acquired by a Person
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<PAGE>
to effect the acquisition of such property, including, without limitation, Liens
incurred, assumed or taken subject to in connection with the acquisition of
inventory or other goods used in the ordinary course of business of such Person,
any industrial development bonds issued in connection with the acquisition of
facilities, related letters of credit and Liens securing such letters of credit;
provided, however, that no such mortgage, pledge, Lien or Capital Lease
obligation shall extend to or cover any other property; (iv) Liens (other than
Liens imposed under ERISA) incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security; (v) Liens incurred or deposits made to secure
the performance of tenders, bids, leases, statutory obligations, surety and
appeal bonds, government contracts, performance and return-of-money bonds and
other obligations of like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money) and deposits made
in the ordinary course of business to secure liability for premiums to insurance
carriers; (vi) attachment or judgment Liens not giving rise to a Default or an
Event of Default; (vii) easements, rights-of-way, restrictions and other similar
charges or encumbrances not interfering with the ordinary conduct of the
business of any Obligor; (viii) leases or subleases granted to others not
interfering in any material respect with the ordinary conduct of the business of
any Obligor; (ix) Liens securing Indebtedness of a Person at the time such
Person is acquired by or becomes a Subsidiary of the Issuer (whether by merger,
consolidation or otherwise), to the extent such Indebtedness is permitted under
this Agreement; (x) Liens in favor of collecting or payor banks having a right
of setoff, revocation, refund or chargeback with respect to money or instruments
of any Obligor on deposit with or in possession of such bank; (xi) additional
Liens securing other Indebtedness permitted hereby encumbering Property having a
fair market value not in excess of $100,000 at any one time; (xii) any renewal
of or substitution for any of the foregoing, provided that such renewed or
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substituted Liens do not encumber Property other than that encumbered by the
original Lien; (xiii) all liens created, or hereafter created, in connection
with the IBM Facility as in effect as of the Closing Date; (xiv) Liens place
upon machinery and equipment used in the ordinary course of business to secure
all or a portion of the purchase price thereof; (xv) Liens arising from
precautionary UCC financing statement filings regarding operating leases entered
into by the Issuer or any of its Subsidiaries in the ordinary course of
business; and (xvi) Liens arising out of conditional sale, title retention,
consignment or similar arrangements for the sale of goods entered into by the
Issuer or any of its Subsidiaries in the ordinary course of business in
accordance with the past practices of the Issuer or such Subsidiary.
"PERSON" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"PLAN" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by any Obligor or any ERISA Affiliate or
with respect to which any Obligor or any ERISA Affiliate may have any liability.
"PLEDGED SECURITIES" means all of the issued and outstanding Equity
Interests of the Subsidiaries that are not subject to a Security Interest
Restriction.
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<PAGE>
"PLEDGORS" means those Obligors identified on Schedule 5.01(f)(ii).
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"PREFERRED STOCK" means any class of capital stock of a corporation
that is preferred over any other class of capital stock of such corporation as
to the payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation.
"PROPERTY" or "PROPERTIES" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.
"PURCHASERS" OR "PURCHASER" means collectively, as of the Closing
Date, each Person a signatory hereto as a Purchaser and, at any other given
time, each Person which is a party hereto as a Purchaser.
"REDEMPTION PERCENTAGE" means the applicable percentage set forth in
the first sentence of Section 2.08(a).
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement of even date herewith between the Issuer and the Purchasers, as the
same may be amended, supplemented or otherwise modified from time to time.
"RELATED PERSON" means any Affiliate of the Issuer or any officer,
employee, director or stockholder of the Issuer or any Affiliate, or any "member
of the immediate family" of any of the foregoing (as such term is defined in
Item 404 of Regulation S-K).
"REQUIRED HOLDERS" means, at any time, the Holders of more than fifty
percent in principal amount of the Notes at the time outstanding (exclusive of
Notes then owned by the Issuer or any of its Related Persons).
"REQUIREMENT OF LAW" means (a) the Governing Documents of a Person,
(b) any law, treaty, rule, regulation, order or determination of an arbitrator,
court or other Governmental Authority or (c) any franchise, license, lease,
permit, certificate, authorization, qualification, easement, right of way, right
or approval binding on a Person or any of its property.
"RESPONSIBLE OFFICER" means any Senior Financial Officer and any other
officer of any Obligor with responsibility for the administration of the
relevant portion of this Agreement or any Note Document.
"SERIES A PREFERRED STOCK" means that certain Series A Preferred Stock
of the Company, par value $0.01 per share issued on or about September 19, 1997.
"SERIES B PREFERRED STOCK" means the Series B Preferred Stock of the
Issuer, as set forth in the Issuer's Certificate of Incorporation.
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<PAGE>
"SECURITIES" means the Notes, the Warrants and the Common Stock of the
Issuer issuable upon exercise of the Warrants.
"SECURITIES ACT" means the Securities Act of 1933.
"SECURITY AGREEMENTS" means (a) the Issuer Security and Pledge
Agreement, (b) the Guarantor Security and Pledge Agreement, and (c) the
Acquisition Agreement Assignment.
"SECURITY INTEREST RESTRICTION" means, as applicable, "Security
Interest Restriction" as defined in the Issuer Security and Pledge Agreement or
"Security Interest Restriction" as defined in the Guarantor Security and Pledge
Agreement.
"SECURITY PROPERTY" means with respect to the Issuer, "Security
Property" as defined in the Issuer Security and Pledge Agreement, and with
respect to each Guarantor, "Security Property" as defined in the Guarantor
Security and Pledge Agreement.
"SENIOR DEBT" means, without duplication, (i) the principal of and
interest on (including, whether or not allowed by law, interest accruing after
the filing of a petition initiating any proceedings pursuant to or under any
Bankruptcy Law) and all other amounts owing with respect to all Indebtedness
under the IBM Facility, (ii) guarantees by the Issuer of Indebtedness under, or
the joint and several obligations of the Issuer of any Indebtedness under, the
IBM Facility and the obligation to pay fees, expenses and other amounts due to
the lenders thereunder and, whether or not allowed by law, interest accruing
thereunder after the filing of a petition initiating any proceedings pursuant to
or under any Bankruptcy Law, and any guarantees by the Issuer of any
Indebtedness or other obligations of any Subsidiary that is a party to the IBM
Facility and the obligation to pay fees, expenses and other amounts due
thereunder.
"SENIOR FINANCIAL OFFICER" means, with respect to any Obligor, the
chief financial officer, principal accounting officer, treasurer or comptroller
of such Obligor.
"SMS INTERCREDITOR AGREEMENT" means that certain intercreditor
agreement among the Purchasers, Issuer, the SMS Sellers, WMT, STG, SMS, INET,
SDI, SII, and SDS.
"SMS OBLIGATIONS" means those obligations of up to $7,500,000 owed by
the Issuer to the SMS Sellers pursuant to the Acquisition Agreement, which SMS
Obligations are expressly subordinated to the Notes pursuant to the SMS
Intercreditor Agreement.
"SMS SELLERS" means Harvey E. Najim and Carlton Joseph Mertens II.
"SUBORDINATED DEBT" means, without duplication, (i) the principal of
and interest on (including, whether or not allowed by law, interest accruing
after the filing of a petition initiating any proceedings pursuant to or under
any Bankruptcy Law) and all other amounts owing with respect to all Indebtedness
under the SMS Obligations, (ii) guarantees by the Issuer of Indebtedness under,
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<PAGE>
or the joint and several obligations of the Issuer of any Indebtedness under,
the SMS Obligations and the obligation to pay fees, expenses and other amounts
due to the lenders thereunder and, whether or not allowed by law, interest
accruing thereunder after the filing of a petition initiating any proceedings
pursuant to or under any Bankruptcy Law, and any guarantees by the Issuer of any
Indebtedness or other obligations of any Subsidiary that is a party to the SMS
Obligations and the obligation to pay fees, expenses and other amounts due
thereunder.
"SUBSIDIARY" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to control or elect a majority of the directors (or Persons
performing similar functions) of such entity, and any partnership, trust,
limited liability company or joint venture if more than a 50% interest in the
profits or capital thereof is owned by such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries. Unless the
context otherwise clearly requires, any reference to a "Subsidiary" is a
reference to a Subsidiary of the Issuer.
"TRANSACTION DOCUMENTS" means, collectively, (a) the Note Documents
and (b) the Acquisition Agreement and the documents related thereto.
"UCC" means the Uniform Commercial Code as in effect in the State of
California on the date of execution of this Agreement.
"UNPAID PRINCIPAL AMOUNT" means, as to the Notes in the aggregate,
$15,700,000 less the aggregate amount of all payments of principal made by the
Issuer on the Notes (excluding payments made as premium and payments made as
interest). The Unpaid Principal Amount of each Note shall be similarly defined.
"WARRANT AGREEMENT" is defined in the recitals to this Agreement.
"WARRANTS" is defined in the Recitals to this Agreement.
"WHOLLY-OWNED SUBSIDIARY" means each of WMT, STG, SMS, INET, SDI, SII,
and SDS, and, at any time and so long as, any Subsidiary one hundred percent
(100%) of all of the equity interests (except directors' qualifying shares) and
voting interests of which are owned by any one or more of the Issuer and the
Issuer's other Wholly-Owned Subsidiaries at such time.
"WORKING CAPITAL" means, as at any date of determination, the excess,
if any of (i) the Issuer's consolidated current assets, except cash over (ii)
the Issuer's consolidated current liabilities, except current maturities of the
Obligations as of such date and all accrued interest as of such date.
SECTION 1.02. COMPUTATION OF TIME PERIODS. In this Agreement, in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and
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<PAGE>
including" and the words "to" and "until" each mean "to but excluding". Periods
of days referred to in this Agreement shall be counted in calendar days unless
Business Days are expressly prescribed. Any period determined hereunder by
reference to a month or months or year or years shall end on the day in the
relevant calendar month in the relevant year, if applicable, immediately
preceding the date numerically corresponding to the first day of such period,
provided, that if such period commences on the last day of a calendar month (or
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on a day for which there is no numerically corresponding day in the calendar
month during which such period is to end), such period shall, unless otherwise
expressly required by the other provisions of this Agreement, end on the last
day of the calendar month.
SECTION 1.03. ACCOUNTING TERMS. For purposes of this Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP.
SECTION 1.04. REFERENCES TO THIS AGREEMENT. The words "hereof",
"herein", "hereunder" and similar terms when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and article, section, subsection, clause, schedule and exhibit
references herein are references to articles, sections, subsections, clauses,
schedules and exhibits to this Agreement unless otherwise specified.
SECTION 1.05. MISCELLANEOUS TERMS. All terms defined in this
Agreement in the singular shall have comparable meanings when used in the
plural, and vice versa, unless otherwise specified. The term "including" is by
---- -----
way of example and not limitation. A Default or an Event of Default shall
"continue" or be "continuing" until such Default or Event of Default has been
waived in accordance with Section 11.03. A reference to a statute, ordinance,
-------------
code or other Requirement of Law includes rules, regulations or guidance
promulgated thereunder and consolidations, amendments, re-enactments or
replacements of, or successors to, any of them. A reference to a Person
includes a reference to the Person's executors, administrators, successors,
substitutes and assigns.
ARTICLE II
THE NOTES
SECTION 2.01. SALE AND PURCHASE OF NOTES. Subject to the terms and
conditions of this Agreement, the Issuer will issue and sell to the Purchasers
and the Purchasers will purchase from the Issuer, at the Closing provided for in
Section 4.01, Notes in the principal amount of $15,700,000 at the purchase price
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of $15,000,000, with the $700,000 portion constituting original issue discount
fully earned upon funding.
SECTION 2.02. REGISTRATION OF NOTES. The Issuer hereby acknowledges
and makes the Notes a registered obligation for United States withholding tax
purposes. The Issuer shall be the registrar for the Notes (the "REGISTRAR")
with full power of substitution. In the event the Registrar becomes unable or
unwilling to act as registrar under this Agreement, the Issuer shall reasonably
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<PAGE>
designate a successor Registrar. Each Holder who is a foreign person, by its
acceptance of its Note(s), hereby agrees to provide the Issuer with a completed
Internal Revenue Service Form W-8 (Certificate of Foreign Status) or a
substantially similar form for such Holder, participants or other affiliates who
are holders of beneficial interests in the Notes. Notwithstanding any contrary
provision contained in this Agreement or any of the other Note Documents,
neither the Notes nor any interests therein may be sold, transferred,
hypothecated, participated or assigned to any Person except upon satisfaction of
the conditions specified in this Section 2.02. Each Holder, by its acceptance
------------
of its Note(s), agrees to be bound by the provisions of this Section 2.02 and to
------------
indemnify and hold harmless the Registrar against any and all loss or liability
arising from the disposition by such Holder of the Notes or any interest therein
in violation of this Section 2.02. The Registrar shall keep at its principal
------------
executive office (or an office or agency designated by it by notice to the last
registered Holder) a ledger, in which, subject to such reasonable regulations as
it may prescribe, but at its expense (except as specified below), it shall
provide for the registration and transfer of the Notes. No sale, transfer,
hypothecation, participation or assignment of any Note or any interest therein
shall be effective for any purpose until it shall be registered on the books of
the Registrar to be maintained for such purpose. In the event of a sale,
transfer, hypothecation, participation or assignment of any Note or any interest
therein, the Holder of such Note prior to such sale, transfer, hypothecation,
participation or assignment of such Note or any interest therein shall provide
Issuer with notice of such transaction at the time of such transaction. The
Registrar shall record the transfer of the Notes on the books maintained for
this purpose upon receipt by the Registrar at the office or agency designated by
the Registrar of (a) a written assignment of the Note(s) being assigned (or the
applicable interest therein), (b) funds sufficient to pay any transfer taxes
payable upon the making of such transfer as well as the cost of reviewing the
documents presented to the Registrar, and (c) such evidence of due execution as
the Registrar shall reasonably require. The Registrar shall record the transfer
of the Notes on the books maintained for such purpose at the cost and expense of
the assignee.
SECTION 2.03 TRANSFER AND EXCHANGE OF NOTES.
(a) The Holders understand and agree that the Notes have not been
registered under the Securities Act or the securities laws of any state, and
that they may be sold or otherwise disposed of only in one or more transactions
registered under the Securities Act or, where applicable, pursuant to an
exemption from the registration requirements of the Securities Act and, where
applicable, the securities laws of any state. The Holders understand and agree
that each Note or certificate representing the Notes shall bear the following
legends:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS
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<PAGE>
(b) Subject to the requirements of clause (a) above, upon surrender of
any Note at the principal executive office of the Issuer for registration of
transfer or exchange (and in the case of a surrender for registration of
transfer, duly endorsed or accompanied by a written instrument of transfer
reasonably acceptable to the Issuer, duly executed by the registered Holder of
such Note or its attorney duly authorized in writing and accompanied by the
address for notices of each transferee of such Note or part thereof), the Issuer
shall execute and deliver, at the Issuer's expense (except as provided below),
one or more new Notes (as requested by the Holder thereof) in exchange therefor,
in an aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as such
Holder may request and shall be substantially in the form of Exhibit A. Each
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such new Note shall be dated and bear interest from the date to which interest
shall have been paid on the surrendered Note or dated the date of the
surrendered Note if no interest shall have been paid thereon. The Issuer may
require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of Notes. Notes shall not be
transferred in denominations of less than $10,000, provided that if necessary to
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enable the registration of transfer by a Holder of its entire holding of Notes,
one Note may be in a denomination of less than $10,000. Any Holder, by its
acceptance of a Note registered in its name (or the name of its nominee), shall
be deemed to have made the representation set forth in Section 5.02 (other than
------------
Section 5.02(d)) to the extent applicable. The number of Holders may not exceed
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one hundred (100) at any given time.
SECTION 2.04. REPLACEMENT OF NOTES. Upon receipt by the Issuer of
notice from any Holder of the ownership of and the loss, theft, destruction or
mutilation of any Note held by such Holder, and
(a) in the case of loss, theft or destruction, a lost note indemnity
agreement reasonably satisfactory to the Issuer and the Holder, or
(b) in the case of mutilation, upon surrender and cancellation thereof
and, to the extent reasonably necessary, a lost note indemnity agreement
reasonably satisfactory to the Issuer and the Holder,
the Issuer at its own expense shall execute and deliver, in lieu thereof, a new
Note, dated and bearing interest from the date to which interest shall have been
paid on such lost, stolen, destroyed or mutilated Note or dated the date of such
lost, stolen, destroyed or mutilated Note if no interest shall have been paid
thereon.
SECTION 2.05 PAYMENTS ON NOTES.
(a) Place of Payment; Surrender. Payments of principal, interest and
---------------------------
other amounts becoming due and payable on the Notes or under the Note Documents
shall be made by the method and to the address or account specified with respect
to any Holder by such method and at such address or account as such Holder shall
have from time to time specified to each Obligor in
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<PAGE>
writing for such purpose, without the presentation or surrender of such Note or
the making of any notation thereon, except that upon written request of any
Obligor made concurrently with or promptly after payment or prepayment in full
of any Note, the Holder of such Note shall surrender it for cancellation,
reasonably promptly after any such request, to the Obligors at the Issuer's
principal executive office. Prior to any sale or other disposition of any Note
by any Holder or its nominee, such Holder will, at its election, either endorse
thereon the amount of principal paid thereon and the last date to which interest
has been paid thereon or surrender such Note to the Issuer in exchange for a new
Note or Notes pursuant to Section 2.03.
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(b) Payments Due on Non-Business Days. Anything in this Agreement or
---------------------------------
the Notes to the contrary notwithstanding, any payment of principal of or
interest on any Note that is due on a date other than a Business Day shall be
made on the next succeeding Business Day without including the additional days
elapsed in the computation of the interest payable on such next succeeding
Business Day.
SECTION 2.06. OPTIONAL PUT. The Holders may on or after February 15,
2000, and on 45 days' prior written notice, put to the Issuer for redemption at
any time and from time to time on or after March 31, 2000 (or if such day is not
a Business Day, the next succeeding Business Day) 50% of the aggregate principal
amount of the Notes then held by each Holder at a redemption price of 100% of
principal amount, plus accrued interest to the redemption date. The put notice
shall specify the amount of Notes to be put and a date and time for payment. The
Notes shall be redeemed at the Issuer's principal place of business. Upon
receipt of such notice the Issuer immediately shall take all steps as shall be
necessary to redeem and retire the Notes tendered for redemption. To the extent
that a Holder does not put 50% of its Notes to the Issuer, the other Holders
(with the prior written consent of any Holder which does not put its Notes to
the Issuer) may cause the Issuer to redeem an additional portion of their Notes
provided that the Issuer may not be required to redeem more than 50% of the
outstanding Notes pursuant to this Section 2.06.
SECTION 2.07. MANDATORY OFFERS TO REPURCHASE THE NOTES.
(a) Offer to Prepay Notes upon a Change of Control. Promptly and in
----------------------------------------------
any event within five Business Days after the occurrence of any Change of
Control, the Issuer shall give written notice of such transaction or event to
each Holder, which notice shall state the date of such Change of Control, shall
describe such Change of Control in reasonable detail and shall contain an offer
to prepay all Notes at the price specified below on the date therein specified
(the "CHANGE OF CONTROL PREPAYMENT DATE"), which shall be a Business Day not
less than 20 nor more than 30 days after the date of such notice. Each Holder
shall have the option to sell to the Issuer, and the Issuer hereby agrees to
repurchase as provided herein, any or all of the Notes then owned by such
Holder, at a purchase price equal to 107% of the Unpaid Principal Amount
thereof, together with accrued interest thereon to and including the Change of
Control Prepayment Date. Such option may be exercised by each Holder by written
notice to the Issuer given not later than 10 days prior to the Change of Control
Prepayment Date, specifying the aggregate principal amount of Notes which such
Holder intends to sell to the Issuer. On or before the Change of Control
Prepayment Date, each Holder
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<PAGE>
which has accepted the Issuer's offer to repurchase the Notes shall deliver to
the Issuer the Notes to be repurchased hereunder on such date against payment by
the Issuer in full in immediately available funds of the purchase price therefor
specified herein; provided that, notwithstanding its exercise of the option
--------
herein provided, any such Holder may at any time prior to the Change of Control
Prepayment Date waive in whole or in part, by written notice to the Issuer, its
right to sell to the Issuer the Notes to be repurchased on such Change of
Control Prepayment Date.
(b) Offer to Prepay Notes upon an Insurance Event. Promptly and in
---------------------------------------------
any event within five Business Days after the collection of any proceeds of
insurance as provided in Section 6.05(d) hereof (an "INSURANCE EVENT"), the
---------------
Issuer shall give written notice of such event to each Holder, which notice
shall state the date of such Insurance Event, shall describe such Insurance
Event in reasonable detail and shall contain an offer to prepay on the date
therein specified such of the Notes as may be purchased with all of the proceeds
from the Insurance Event, (an "INSURANCE EVENT OFFER"). The purchase price
shall equal the Redemption Percentage of the Unpaid Principal Amount of the
Notes to be purchased, together with accrued interest thereon to and including
the Insurance Event Purchase Date, as may be purchased with such proceeds from
the Insurance Event. The date of the purchase (the "INSURANCE EVENT PURCHASE
DATE") shall be no sooner than 20 nor later than 30 days after the Insurance
Event. Each Holder shall have the option to sell to the Issuer, and the Issuer
hereby agrees to repurchase as provided herein, such of the Notes then owned by
such Holder as may be purchased on the terms described herein.
Such option may be exercised by each Holder by written notice to the
Issuer given not later than 10 days prior to the Insurance Event Purchase Date,
specifying the aggregate principal amount of Notes which such Holder intends to
sell to the Issuer. On or before the Insurance Event Purchase Date, each Holder
which has accepted the Issuer's offer to repurchase the Notes shall deliver to
the Issuer the Notes to be repurchased hereunder on such date against payment
by the Issuer in full in immediately available funds of the purchase price
therefor specified herein; provided that, notwithstanding its exercise of the
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option herein provided, any such holder may at any time prior to the Insurance
Event Purchase Date waive in whole or in part, by written notice to the Issuer,
its right to sell to the Issuer the Notes to be repurchased. On the Insurance
Event Purchase Date the Issuer shall pay to each such Holder in full in
immediately available funds the purchase price for such Holder's Notes specified
herein. Promptly following the Insurance Event Purchase Date, the Issuer shall
deliver to each Holder electing to accept the Insurance Event Offer a new Note
equal in principal amount to any unpurchased portion of the Note surrendered by
such Holder. To the extent the Insurance Event Offer is not fully subscribed to
by holders of the Notes, first such tendered Notes shall be paid for in full to
the extent possible with the available proceeds from the Insurance Event and
then any remaining proceeds from the Insurance Event may be retained by the
Issuer.
(c) Offer to Prepay Notes upon an Asset Sale or other Extraordinary
---------------------------------------------------------------
Funding. Promptly and in any event within five Business Days after the
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occurrence of any Asset Sale or Extraordinary Funding, the Issuer shall give
written notice of such transaction or event to each Holder, which notice shall
state the date of such Asset Sale or Extraordinary Funding, shall describe such
Asset Sale or Extraordinary Funding in reasonable detail and shall contain an
offer to prepay on
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<PAGE>
the date therein specified such of the Notes as may be purchased with all of the
Net Cash Proceeds of such Asset Sale or Extraordinary Funding (an "ASSET SALE
OFFER"). The purchase price shall equal the Redemption Percentage of the Unpaid
Principal Amount of the Notes to be purchased, together with accrued interest
thereon to and including the Asset Sale Purchase Date, as may be purchased with
such Net Cash Proceeds. The date of the purchase (the "ASSET SALE PURCHASE
DATE") shall be no sooner than 20 nor later than 30 days after the Asset Sale or
Extraordinary Funding, as applicable. Each Holder shall have the option to sell
to the Issuer, and the Issuer hereby agrees to repurchase as provided herein,
such of the Notes then owned by such Holder as may be purchased on the terms
described herein.
Such option may be exercised by each Holder by written notice to the
Issuer given not later than 10 days prior to the Asset Sale Purchase Date,
specifying the aggregate principal amount of Notes which such Holder intends to
sell to the Issuer. On or before the Asset Sale Purchase Date, each Holder
which has accepted the Issuer's offer to repurchase the Notes shall deliver to
the Issuer the Notes to be repurchased hereunder on such date against payment
by the Issuer in full in immediately available funds of the purchase price
therefor specified herein; provided that, notwithstanding its exercise of the
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option herein provided, any such holder may at any time prior to the Asset Sale
Purchase Date waive in whole or in part, by written notice to the Issuer, its
right to sell to the Issuer the Notes to be repurchased. On the Asset Sale
Purchase Date the Issuer shall pay to each such Holder in full in immediately
available funds the purchase price for such holder's Notes specified herein.
Promptly following the Asset Sale Purchase Date, the Issuer shall deliver to
each Holder electing to accept the Asset Sale Offer a new Note equal in
principal amount to any unpurchased portion of the Note surrendered by such
Holder. To the extent the Asset Sale Offer is not fully subscribed to by
holders of the Notes, first such tendered Notes shall be paid for in full to the
extent possible with the available Net Cash Proceeds and then any remaining Net
Cash Proceeds may be retained by the Issuer or Subsidiary.
(d) Excess Cash Flow. Within ninety (90) days after the end of each
----------------
Cash Flow Period, the Issuer shall (a) calculate Excess Cash Flow for such Cash
Flow Period and (b) make an offer to repurchase the Redemption Percentage of the
Unpaid Principal Amount of each Note as may be paid with such Excess Cash Flow
(the "EXCESS CASH FLOW OFFER"). Such repurchase will be applied to reduce the
Unpaid Principal Amount of each of the Notes of each Holder on a pro rata basis.
The purchase price shall equal the Redemption Percentage of the Unpaid
Principal Amount of the Notes to be purchased, together with accrued interest
thereon to and including the Excess Cash Flow Purchase Date, as may be purchased
with such Net Cash Proceeds. The date of the purchase (the "EXCESS CASH FLOW
PURCHASE DATE") shall be no sooner than 20 nor later than 30 days after the date
of the Excess Cash Flow Offer. Each Holder shall have the option to sell to the
Issuer, and the Issuer hereby agrees to repurchase as provided herein, such of
the Notes then owned by such Holder as may be purchased on the terms described
herein.
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<PAGE>
Such option may be exercised by each Holder by written notice to the
Issuer given not later than 10 days prior to the Excess Cash Flow Purchase Date,
specifying the aggregate principal amount of Notes which such Holder intends to
sell to the Issuer. On or before the Excess Cash Flow Purchase Date, each
Holder which has accepted the Issuer's offer to repurchase the Notes shall
deliver to the Issuer the Notes to be repurchased hereunder on such date
against payment by the Issuer in full in immediately available funds of the
purchase price therefor specified herein; provided that, notwithstanding its
--------
exercise of the option herein provided, any such holder may at any time prior to
the Excess Cash Flow Purchase Date waive in whole or in part, by written notice
to the Issuer, its right to sell to the Issuer the Notes to be repurchased. On
the Excess Cash Flow Purchase Date the Issuer shall pay to each such Holder in
full in immediately available funds the purchase price for such holder's Notes
specified herein. Promptly following the Excess Cash Flow Purchase Date, the
Issuer shall deliver to each Holder electing to accept the Excess Cash Flow
Offer a new Note equal in principal amount to any unpurchased portion of the
Note surrendered by such Holder. To the extent the Excess Cash Flow Offer is not
fully subscribed to by holders of the Notes, first such tendered Notes shall be
paid for in full to the extent possible with the available Net Cash Proceeds and
then any remaining Excess Cash Flow may be retained by the Issuer or Subsidiary.
(e) Application of Section 2.07(b), (c) and (d). Prior to the
-------------------------------------------
application of Sections 2.07(b), (c) or (d), the Issuer must use Excess Cash
Flow and the proceeds from an Asset Sale or Extraordinary Funding or an
Insurance Event to retire in full the Acquisition Loan, and thereafter such
funds shall be applied as set forth above.
SECTION 2.0 OPTIONAL PREPAYMENTS OF THE NOTES.
(a) Notice of Prepayment; Prepayment Amount. The Issuer may, at its
---------------------------------------
option, upon notice provided below, prepay all, or from time to time any part
of, the Notes, at the following Redemption Percentages of the Unpaid Principal
Amount thereof: 107% on or after September 30, 1997; 106% on or after September
30, 1998; and 105% on or after September 30, 1999. The Issuer will give each
Holder of Notes written notice of each optional prepayment under this Section
-------
2.08 not less than 30 days and not more than 60 days prior to the date fixed for
- ----
such prepayment. Each such notice shall specify such date, the aggregate
principal amount of the Notes to be prepaid on such date, the principal amount
of each Note held by such Holder to be prepaid (determined in accordance with
Section 2.08(b)), and the interest to be paid on the prepayment date with
- ---------------
respect to such principal amount being prepaid, provided, however, that if a
Change of Control should occur within 90 days of an optional prepayment under
this Section 2.08, then to the extent the Redemption Percentage pursuant to
which the prepayment was made was less than 107%, in addition to complying with
Section 2.07(a) with respect to any Notes outstanding, the Issuer promptly after
the Change of Control shall pay to the former Holders of all Notes prepaid the
difference between 107% and the Redemption Percentage paid times the Unpaid
Principal Amount of the Notes prepaid.
(b) Allocation of Partial Prepayments. In the case of each partial
---------------------------------
prepayment of the Notes under Section 2.07(b), (c) or (d) or this Section 2.08,
--------------------------- ------------
the principal amount of the Notes to be prepaid shall be allocated among all of
the Notes at the time outstanding in proportion, as nearly
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as practicable, to the respective Unpaid Principal Amounts of each Holder
thereof not theretofore called for prepayment, with adjustments, to the extent
practicable, to compensate for any prior payments not made exactly in such
proportion, but so that Notes remaining outstanding after the prepayment are in
the authorized denominations specified in this Agreement.
(c) Maturity; Surrender, etc. In the case of each prepayment of Notes
-------------------------
pursuant to this Section 2.08, the principal amount of each Note to be prepaid
------------
shall mature and become due and payable on the date fixed for such prepayment,
together with interest on such principal amount accrued to such date. From and
after such date, unless the Issuer shall fail to pay such principal amount when
so due and payable, together with the interest thereon as aforesaid, interest on
such principal amount shall cease to accrue. Any Note paid or prepaid in full
shall be surrendered to the Issuer, for the benefit of the Issuer, and canceled
and shall not be reissued, and no Note shall be issued in lieu of any prepaid
principal amount of any Note.
SECTION 2.09. PURCHASES OF NOTES. No Obligor will and will not
permit any Affiliate to purchase, redeem, prepay or otherwise acquire, directly
or indirectly, any of the outstanding Notes except upon the payment or
prepayment of the Notes in accordance with the terms of this Agreement and the
Notes (including any offer or right to purchase the Notes pursuant to Sections
--------
2.07 or 2.08). Each Obligor will promptly cancel all Notes acquired by it or any
- ------------
Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to
any provision of this Agreement or otherwise and no Notes may be issued in
substitution or exchange for any such Notes (except to the limited extent set
forth in Section 2.07 or 2.08).
--------------------
SECTION 2.10. TENDER OF NOTES TO PAY WARRANT EXERCISE PRICE. Each of
the Obligors agrees that the Notes may be used, and credited at the principal
amount thereof (or portion surrendered for this purpose) together with accrued
interest to the date of exercise, by the Holders in making payment of the
exercise price of the Warrants in lieu of cash.
ARTICLE III
GUARANTEE OF NOTES
SECTION 3.01. AGREEMENT OF GUARANTY. In order to induce the
Purchasers to purchase the Notes, the Guarantors hereby jointly and severally
irrevocably and unconditionally guarantee as primary obligors and not merely as
sureties, the due and punctual payment in full of all Obligations when the same
shall become due, whether at stated maturity, by acceleration, demand or
otherwise (including amounts that would become due but for the operation of the
automatic stay under Section 362(a) of the Bankruptcy Code or a stay granted
under Section 105 of the Bankruptcy Code, and including interest accruing on and
after the filing of any petition in bankruptcy or of reorganization of the
obligor whether or not post filing interest is allowed in such proceeding). The
term "Obligations" is used herein in its most comprehensive sense and includes
any and all obligations of Issuer now or hereafter made, incurred or created,
whether absolute or contingent, liquidated or unliquidated, whether due or not
due, and however arising under or in connection with any Note.
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<PAGE>
SECTION 3.02. GUARANTY IRREVOCABLE. Each Guarantor agrees that its
obligations hereunder are irrevocable, absolute, independent and unconditional
and to the maximum extent permitted by Governing Law, shall not be affected by
any circumstance which constitutes a legal or equitable discharge of a guarantor
or surety other than payment in full of the Obligations. In furtherance of the
foregoing and without limiting the generality thereof, each Guarantor agrees to
the maximum extent permitted by Governing Law, as follows: (a) this Guaranty is
a guaranty of payment when due and not of collectibility; (b) the Holders of
Notes may from time to time, without notice or demand and without affecting the
validity or enforceability of this Guaranty or giving rise to any limitation,
impairment or discharge of any Guarantor's liability hereunder, (i) renew,
extend, accelerate or otherwise change the time, place, manner or terms of
payment of the Obligations, (ii) settle, compromise, release or discharge, or
accept or refuse any offer of performance with respect to, or substitutions for,
the Obligations or any agreement relating thereto and/or subordinate the payment
of the same to the payment of any other obligations, (iii) request and accept
other guaranties of the Obligations and take and hold security for the payment
of this Guaranty or the Obligations, (iv) release, exchange, compromise,
subordinate or modify, with or without consideration, any security for payment
of the Obligations, any other guaranties of the Obligations, or any other
obligation of any Person (including any other Guarantor) with respect to the
Obligations, (v) enforce and apply any security now or hereafter held by or for
the benefit of the Holders of Notes in respect of this Guaranty or the
Obligations and direct the order or manner of sale thereof, or exercise any
other right or remedy that the Holders of the Notes may have against any such
security, as the Holders of the Notes in their discretion may determine
consistent with any applicable security agreement, including foreclosure on any
such security pursuant to one or more judicial or nonjudicial sales, whether or
not every aspect of any such sale is commercially reasonable, and (vi) exercise
any other rights available to any of them under any of the Transaction
Documents, at law or in equity; and (c) this Guaranty and the obligations of
Guarantors hereunder shall be valid and enforceable and shall not be subject to
any limitation, impairment or discharge for any reason (other than payment in
full of the Obligations), including without limitation the occurrence of any of
the following, whether or not any Guarantor shall have had notice or knowledge
of any of them: (i) any failure to assert or enforce or agreement not to assert
or enforce, or the stay or enjoining, by order of court, by operation of law or
otherwise, of the exercise or enforcement of, any claim or demand or any right,
power or remedy with respect to the Obligations or any agreement relating
thereto, or with respect to any other guaranty of or security for the payment of
the Obligations, (ii) any waiver, amendment or modification of, or any consent
to departure from, any of the terms or provisions (including without limitation
provisions relating to events of default) of any of the Transaction Documents or
any agreement or instrument executed pursuant thereto, or of any other guaranty
or security for the Obligations, (iii) the Obligations, or any agreement
relating thereto, at any time being found to be illegal, invalid or
unenforceable in any respect, (iv) the application of payments received from any
source to the payment of indebtedness other than the Obligations, even though
the Holders of the Notes might have elected to apply such payment to any part or
all of the Obligations, (v) any failure to perfect or continue perfection of a
security interest in any collateral which secures any of the Obligations, (vi)
any defenses, set-offs or counterclaims which any Obligor may allege or assert
against any Holder of Notes in respect of the Obligations, including but not
limited to failure of consideration, breach of warranty, payment, statute of
frauds, statute of limitations, accord and
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<PAGE>
satisfaction and usury, and (vii) any other act or thing or omission, or delay
to do any other act or thing, which may or might in any manner or to any extent
vary the risk of any Guarantor as an obligor in respect of the Obligations.
SECTION 3.03. CERTAIN WAIVERS. Each Guarantor hereby waives to the
maximum extent permitted by Governing Law, for the benefit of the Holders: (a)
any right to require the Holders, as a condition of payment or performance by
such Guarantor, to (i) proceed against the Issuer, any other guarantor
(including any other Guarantor) of the Obligations or any other Person, (ii)
proceed against or exhaust any security held from the Issuer, any other
guarantor (including any other Guarantor) of the Obligations or any other
Person, (iii) proceed against or have resort to any balance of any deposit
account or credit on the books of any of the Holders in favor of the Issuer or
any other Person, or (iv) pursue any other remedy in the power of the Holders
whatsoever; (b) any defense arising by reason of the incapacity, lack of
authority or any disability or other defense of the Issuer including, without
limitation, any defense based on or arising out of the lack of validity or the
unenforceability of the Obligations or any agreement or instrument relating
thereto or by reason of the cessation of the liability of the Issuer from any
cause other than payment in full of the Obligations; (c) any defense based upon
any statute or rule of law which provides that the obligation of a surety must
be neither larger in amount nor in other respects more burdensome than that of
the principal; (d) any defense based upon the Holders' errors or omissions in
the administration of the Obligations, except behavior which amounts to bad
faith; (e) (i) any principles or provisions of law, statutory or otherwise,
which are or might be in conflict with the terms of this Guaranty and any legal
or equitable discharge of such Guarantor's obligations hereunder, (ii) the
benefit of any statute of limitations affecting such Guarantor's liability
hereunder or the enforcement hereof, (iii) any rights to set-offs, recoupments
and counterclaims, and (iv) promptness, diligence and any requirement that the
Holders protect, secure, perfect or insure any security interest or lien or any
property subject thereto; (f) notices, demands, presentments, protests, notices
of protest, notices of dishonor and notices of any action or inaction, including
acceptance of this Guaranty, notices of default under this Agreement or the
Notes or any agreement or instrument related thereto, notices of any renewal,
extension or modification of the Obligations or any agreement related thereto,
notices of any extension of credit to the Issuer and notices of any of the
matters referred to in the preceding paragraph and any right to consent to any
thereof; and (g) any defenses or benefits that may be derived from or afforded
by law which limit the liability of or exonerate guarantors or sureties, or
which may conflict with the terms of this Guaranty.
SECTION 3.04. CERTAIN CALIFORNIA LAW WAIVERS. As used in this
Section 3.04, any reference to "the principal" includes the Issuer, and any
- ------------
reference to "the creditor" includes the Holders of Notes. In accordance with
Section 2856 of the California Civil Code (if the same shall be found to be
applicable notwithstanding Section 11.12): (i) each Guarantor waives any and
-------------
all rights and defenses available to such Guarantor by reason of Sections 2787
to 2855, inclusive, 2899 and 3433 of the California Civil Code, including
without limitation any and all rights or defenses such Guarantor may have by
reason of protection afforded to the principal with respect to any of the
Obligations, or to any other guarantor (including any other Guarantor) of any of
the Obligations with respect to any of such guarantor's obligations under its
guaranty, in either case pursuant to the
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<PAGE>
antideficiency or other laws of the State of California limiting or discharging
the principal's indebtedness or such guarantor's obligations, including without
limitation Section 580a, 580b, 580d, or 726 of the California Code of Civil
Procedure; and (ii) each Guarantor waives all rights and defenses arising out of
an election of remedies by the creditor, even though that election of remedies,
such as a nonjudicial foreclosure with respect to security for any Obligation,
has destroyed such Guarantor's rights of subrogation and reimbursement against
the principal by the operation of Section 580d of the California Code of Civil
Procedure or otherwise; and even though that election of remedies by the
creditor, such as nonjudicial foreclosure with respect to security for an
obligation of any other guarantor of any of the Obligations, has destroyed such
Guarantor's rights of contribution against such other guarantor. No other
provision of this Guaranty shall be construed as limiting the generality of any
of the covenants and waivers set forth in this paragraph. As provided in Section
-------
11.12 below, this Guaranty shall be governed by, and shall be construed and
- -----
enforced in accordance with, the internal laws of the State of California,
without regard to conflicts of laws principles. This Section 3.04 is included
------------
solely out of an abundance of caution, and shall not be construed to mean that
any of the above-referenced provisions of California law are in any way
applicable to this Guaranty or to any of the Obligations.
SECTION 3.05. LIMITATIONS ON SUBROGATION. Until the Obligations
shall have been paid in full, each Guarantor shall withhold exercise of (a) any
claim, right or remedy, direct or indirect, that such Guarantor now has or may
hereafter have against the Issuer or any of its assets in connection with this
Guaranty or the performance by such Guarantor of its obligations hereunder, in
each case whether such claim, right or remedy arises in equity, under contract,
by statute (including without limitation under California Civil Code Section
2847, 2848 or 2849 or similar statutes of other states), under common law or
otherwise and including without limitation (i) any right of subrogation,
reimbursement or indemnification that such Guarantor now has or may hereafter
have against the Issuer, (ii) any right to enforce, or to participate in, any
claim, right or remedy that any Holder of Notes now has or may hereafter have
against the Issuer, and (iii) any benefit of, and any right to participate in,
any collateral or security now or hereafter held by or for the benefit of the
Holders of Notes, and (b) any right of contribution such Guarantor may have
against any other guarantor (including any other Guarantor) of any of the
Obligations. Each Guarantor further agrees that, to the extent the agreement to
withhold the exercise of its rights of subrogation, reimbursement,
indemnification and contribution as set forth herein is found by a court of
competent jurisdiction to be void or voidable for any reason, any rights of
subrogation, reimbursement or indemnification such Guarantor may have against
the Issuer or against any collateral or security, and any rights of contribution
such Guarantor may have against any such other guarantor, shall be junior and
subordinate to any rights the Holders of Notes may have against the Issuer, to
all right, title and interest the Holders of Notes may have in any such
collateral or security, and to any right the Holders of Notes may have against
such other guarantor.
SECTION 3.06. LIMIT ON AMOUNT OF GUARANTY. Each Guarantor confirms
that it is the intention of all such parties that the guarantee by such
Guarantor pursuant to this Guaranty does not constitute a fraudulent transfer or
conveyance for purposes of the Bankruptcy Code, the Uniform Fraudulent
Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or
state law.
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<PAGE>
To effectuate the foregoing intention, each Guarantor hereby irrevocably agrees
that the obligations of such Guarantor under this Guaranty shall be limited to
the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Guarantor on the date of determination and after
giving effect to any collections from or payments made by or on behalf of any
other Guarantor in respect of the obligations of such other Guarantor under its
Guaranty, result in the obligations of such Guarantor under this Guaranty not
constituting such fraudulent transfer or conveyance.
SECTION 3.07. CERTAIN MERGERS AND CONSOLIDATIONS.
(a) Nothing contained in this Agreement or in any Note shall prevent
any consolidation or merger of a Guarantor with or into the Issuer or another
Guarantor or shall prevent any sale or conveyance of the property of a Guarantor
as an entirety or substantially as an entirety, to the Issuer or another
Guarantor. Upon any such consolidation, merger, sale or conveyance, the
Guaranty given by such Guarantor shall no longer have any force or effect.
(b) No Guarantor may merge or consolidate with or into a corporation
or corporations other than the Issuer or another Guarantor or sell or convey its
property as an entirety or substantially as an entirety to a corporation other
than the Issuer or another Guarantor.
SECTION 3.08. RELEASE OF GUARANTY UNDER CERTAIN CIRCUMSTANCES. Upon
the sale or other disposition of all or substantially all of the assets of any
Guarantor, by way of merger, consolidation or otherwise, or a sale or other
disposition of all of the Capital Stock of any Guarantor, to an entity which is
not a Guarantor and which sale or disposition is in compliance with Section 7.02
------------
hereof, then such Guarantor (in the event of a sale or other disposition, by way
of a merger, consolidation or otherwise, of all of the Capital Stock of such
Guarantor) or the corporation acquiring the property (in the event of a sale or
other disposition of all or substantially all of the assets of such Guarantor)
shall be released from and relieved of any obligations under this Guaranty
without any further action required on the part of the Holders of the Notes;
provided, however, that any such termination shall occur only to the extent that
- -----------------
all obligations of such Guarantor under all of its guarantees of, and under all
of its pledges of assets or other security interests which secure, any other
Indebtedness of the Issuer remaining outstanding as a liability of the Issuer
following such sale or disposition, shall also terminate upon such release, sale
or transfer; and provided, further, that if such event constitutes an Asset
-----------------
Sale, the Net Cash Proceeds of such an Asset Sale will be applied in accordance
with Section 2.07 of this Agreement. The Issuer shall deliver an appropriate
------------
instrument evidencing such release to the Holders of the Notes. Any Guarantor
not so released remains liable for the full amount of all Obligations.
SECTION 3.09. SUBORDINATION OF CERTAIN INDEBTEDNESS. Any
Indebtedness of the Issuer now or hereafter held by any Guarantor is hereby
subordinated in right of payment to the Obligations, and any such indebtedness
of the Issuer to such Guarantor collected or received by such Guarantor after an
Event of Default has occurred and is continuing shall be held in trust for the
Holders of the Notes and shall forthwith be paid over to the Holders of the
Notes to be credited and applied against the Obligations.
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<PAGE>
SECTION 3.10. GUARANTORS' INDEMNITY. The Guarantors jointly and
severally agree to pay, or cause to be paid, on demand, and to save the Holders
of Notes harmless against liability for, any and all costs and expenses
(including fees and disbursements of counsel and allocated costs of internal
counsel) incurred or expended by the Holders of Notes in connection with the
enforcement of or preservation of any rights under this Article III.
-----------
SECTION 3.11. NO DUTY OF INQUIRY. It is not necessary for the
Holders of Notes to inquire into the capacity or powers of any Guarantor or the
Issuer or the officers, directors or any agents acting or purporting to act on
behalf of any of them.
SECTION 3.12. NO DUTY TO PROVIDE DATA TO GUARANTORS. The Holders of
Notes shall have no obligation to disclose or discuss with any Guarantor its
assessment, or any Guarantor's assessment, of the financial condition of the
Issuer. Each Guarantor has adequate means to obtain information from the Issuer
on a continuing basis concerning the financial condition of the Issuer and its
ability to perform its obligations under this Agreement, the Notes and the other
Transaction Documents, and each Guarantor assumes the responsibility for being
and keeping informed of the financial condition of the Issuer and of all
circumstances bearing upon the risk of nonpayment of the Obligations. Each
Guarantor hereby waives and relinquishes any duty on the part of the Holders of
Notes to disclose any matter, fact or thing relating to the business, operations
or conditions of the Issuer now known or hereafter known by the Holders of
Notes.
SECTION 3.13. RIGHTS CUMULATIVE. The rights, powers and remedies
given to the Holders of Notes by this Article III are cumulative and shall be in
addition to and independent of all rights, powers and remedies given to the
Holders of Notes by virtue of any statute or rule of law or in this Agreement,
any Note or any of the other Transaction Documents between any Guarantor and the
Holders of Notes or between the Issuer and the Holders of Notes. Any
forbearance or failure to exercise, and any delay by the Holders of Notes in
exercising, any right, power or remedy hereunder shall not impair any such
right, power or remedy or be construed to be a waiver thereof, nor shall it
preclude the further exercise of any such right, power or remedy.
SECTION 3.14. CERTAIN WAIVERS REGARDING INTEREST ACCRUALS. Each
Guarantor acknowledges and agrees that any interest on any portion of the
Obligations which accrues after the commencement of any proceeding, voluntary or
involuntary, involving the bankruptcy, insolvency, receivership, reorganization,
liquidation or arrangement of the Issuer (or, if interest on any portion of the
Obligations ceases to accrue by operation of law by reason of the commencement
of said proceeding, such interest as would have accrued on such portion of the
Obligations if said proceeding had not been commenced) shall be included in the
Obligations because it is the intention of Guarantors and the Holders of Notes
that the Obligations which are guarantied by Guarantors pursuant to this
Agreement should be determined without regard to any rule of law or order which
may relieve the Issuer of any portion of such Obligations.
SECTION 3.15. CONTINUATION OF GUARANTY. In the event that all or any
portion of the Obligations are paid by the Issuer, the obligations of the
Guarantors hereunder shall continue and remain in full force and effect or be
reinstated, as the case may be, in the event that all or any part of
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such payment(s) are rescinded or recovered directly or indirectly from the
Holders of Notes as a preference, fraudulent transfer or otherwise, and any such
payments which are so rescinded or recovered shall constitute Obligations for
all purposes under this Article III.
-----------
SECTION 3.16. CONTINUING GUARANTY. This Guaranty set forth in this
Article III is a continuing guaranty and shall be binding upon each Guarantor
- -----------
and, except as expressly provided herein, its respective successors and assigns,
and each Guarantor hereby irrevocably waives any right (including without
limitation any such right arising under California Civil Code Section 2815 and
under any similar statutes of other states) to revoke the Guaranty contained in
this Article III as to future transactions giving rise to any Obligations. The
-----------
Guaranty contained in this Article III shall inure to the benefit of the Holders
-----------
of Notes and their respective successors and assigns.
ARTICLE IV
CLOSING
SECTION 4.01. CLOSING OF PURCHASE AND SALE OF NOTES. The sale and
purchase of the Notes to be purchased by the Purchasers shall occur at such
place and time as the Issuer and the Purchasers may mutually agree (the
consummation of such sale and purchase being referred to herein as the "CLOSING"
and the date on which the Closing occurs being referred to herein as the
"CLOSING DATE"). At the Closing the Issuer will deliver to each Purchaser the
Notes in the form of a single Note (or such greater number of Notes in
denominations of at least $10,000 as the Purchasers may request) dated the date
of the Closing and registered in each Purchaser's name (or in the name of such
Purchaser's nominee), against delivery by such Purchaser to each Obligor or its
order of immediately available funds in the amount of the purchase price
therefor by wire transfer of immediately available funds to an account or
accounts specified by the Issuer in a written notice to the Purchasers. If at
the Closing the Issuer shall fail to tender such Notes to the Purchasers as
provided above in this Section 4.01, or any of the other conditions specified in
------------
Section 4.02 shall not have been fulfilled to the Purchasers' satisfaction, the
- ------------
Purchasers shall, at their election, be relieved of all further obligations
under this Agreement, without thereby waiving any rights the Purchasers may have
by reason of such failure or such nonfulfillment.
SECTION 4.02. ADDITIONAL CONDITIONS TO CLOSING. The Purchasers'
obligation to purchase and pay for the Notes to be sold to it at the Closing is
subject to the fulfillment to the Purchasers' satisfaction, prior to or at the
Closing, of the following conditions:
(a) Delivery of Note Documents. The Purchasers shall have received on
--------------------------
or before the Closing Date all of the following, each duly executed and
acknowledged where appropriate and in form and substance satisfactory to the
Purchasers:
(i) this Agreement and the Notes, together with all Schedules
hereto which shall be true, complete and correct as of the Closing Date;
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(ii) the Warrants issued to the Purchasers, the Warrant
Agreement and the Registration Rights Agreement;
(iii) a flow of funds memorandum, including a "Statement of
Sources and Uses of the Proceeds of the Notes";
(iv) the IBM Intercreditor Agreement;
(v) the SMS Intercreditor Agreement;
(vi) the Acquisition Agreement Assignment;
(vii) the Contribution Agreement;
(ix) the Series B Preferred Stock; and
(x) for each deposit account currently maintained by any
Obligor, an agreement notifying the applicable institution at which such account
is maintained of the security interest in such account granted by the applicable
Obligor to Agent, for the benefit of Agent and the ratable benefit of the
Holders, pursuant to the applicable Security Agreement.
(b) Delivery of Corporate Documents. On or before the Closing Date,
-------------------------------
the Purchasers shall have received:
(i) an Officer's Certificate of each Obligor, dated the Closing
Date, certifying that the conditions specified in Sections 4.01, and 4.02 have
------------- ----
been fulfilled; and
(ii) a certificate of the Secretary or Assistant Secretary of
each Obligor, certifying as to (A) the resolutions of the Obligor's board of
directors authorizing the execution, delivery and performance of the Transaction
Documents to which the Obligor is a party; (B) the names, incumbency, and
signatures of the officers of the Obligor, authorized to execute, deliver and
perform such documents, and (C) the accuracy and currency of such Obligor's
Governing Documents.
(c) Opinions of Counsel.
-------------------
(i) The Purchasers shall have received favorable legal opinions
from Pillsbury Madison & Sutro, counsel for the Obligors, in form acceptable to
Purchasers (and the Obligors hereby instruct their counsel to deliver such
opinion to the Purchasers);
(ii) Cox & Smith and Pillsbury Madison & Sutro LLP each will
have furnished to the Purchasers at Closing a letter or other evidence
satisfactory to the Purchaser stating that the Purchasers are entitled to rely
on the opinion letters of Cox & Smith and Pillsbury Madison
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<PAGE>
& Sutro LLP rendered in connection with the Acquisition Agreement and the
transactions contemplated thereby as if Purchasers were original addressees
thereof.
(d) No Material Adverse Change. No material adverse change shall have
--------------------------
occurred with respect to the business, operations, performance, assets,
properties, condition (financial or otherwise), or prospects of the Issuer taken
as a whole from December 31, 1996.
(e) Security and Other Documentation. On or prior to the Closing Date
--------------------------------
the Purchasers shall have received fully executed copies of (i) the Issuer
Security and Pledge Agreement together with Pledged Securities with appropriate
undated stock powers executed in blank; (ii) the Guarantor Security and Pledge
Agreements, together with Pledged Securities with appropriate undated stock
powers executed in blank; and (iii) appropriate UCC-1 financing statements
relating to the Collateral.
(f) Performance of Material Agreements; Security Interests in
---------------------------------------------------------
Collateral. On or prior to the Closing Date, the Purchasers shall have received
- ----------
evidence satisfactory to them that each Obligor has sufficient right, title and
interest in and to the Collateral and other assets which it purports to own
(including appropriate licenses and copyright), as set forth in its financial
statements and in other documents presented to the Purchasers to enable each
such Obligor to perform the Material Agreements, as set forth on Schedule
--------
5.01(d)(ii), to which each Obligor is a party and as to each Obligor to grant to
- -----------
the Agent for the benefit of the Agent and the Holders the security interests
contemplated by the Transaction Documents, and that all financing statements,
and other filings under applicable law necessary to provide the Agent for the
benefit of the Agent and the Holders with a perfected security interest (junior
only to the lien of the IBM Facility) in the Pledged Securities and the
Collateral have been filed or delivered to the Agent in satisfactory form for
filing.
(g) The Acquisition.
---------------
(i) The Purchasers shall be satisfied in all material respects
(A) with the terms, form and substance of the Acquisition and the Acquisition
Agreement and the documents executed or delivered in connection therewith,
including, without limitation, the resolutions with respect to the Acquisition
adopted by the respective boards of directors of the Issuer and SMS, (B) that
the parties to the Acquisition have complied with all Requirements of Law in
connection with the Acquisition, (C) that all conditions precedent to, and all
consents necessary to permit, the Acquisition pursuant to the Acquisition
Agreement shall have been satisfied or delivered, or waived with the prior
written consent of the Purchasers, and (D) that all Liens encumbering the assets
being purchased in the Acquisition have been terminated (other than Permitted
Liens);
(ii) Substantially simultaneously with the consummation of the
transactions contemplated by this Agreement, the Issuer shall have acquired the
capital stock of SMS pursuant to the Acquisition Agreement in compliance with
all applicable Requirements of Law; and
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<PAGE>
(iii) The SMS Sellers shall have executed and delivered to
Purchasers the SMS Intercreditor Agreement.
(h) Litigation. Except as disclosed on Schedule 4.02(h) hereof, no
---------- ----------------
litigation, inquiry, injunction or restraining order shall be pending, entered
or threatened which in the Purchasers' good faith judgment could reasonably be
expected to materially and adversely affect (i) the assets, operations,
business or condition (financial or otherwise) of the Issuer or its Subsidiaries
as a whole, (ii) the ability of the Obligors to perform their respective
Material Obligations hereunder or (iii) the rights and remedies of the Holders.
(i) UCC Searches. The Agent shall have received UCC searches
------------
satisfactory to it indicating that no other filings (other than in connection
with Permitted Liens) with regard to the Collateral are of record in any
jurisdiction in which it shall be necessary or desirable for the Agent to make a
UCC filing in order to obtain a perfected security interest in the Collateral.
(j) Representations and Warranties. The representations and
------------------------------
warranties of the Obligors in the Note Documents shall be correct when made and
at the time of the Closing.
(k) Performance; No Default. The Obligors shall have performed and
-----------------------
complied with all agreements and conditions contained in the Transaction
Documents required to be performed or complied with by it prior to or at the
Closing and after giving effect to the issue and sale of the Notes (and the
application of the proceeds thereof as contemplated by Section 5.01(s)) no
---------------
Default or Event of Default shall have occurred and be continuing.
(l) No Legal Impediments. No law, regulation, order, judgment or
--------------------
decree of any Governmental Authority shall, and the Purchasers shall not have
received any notice that litigation is pending or threatened which is likely to,
enjoin, prohibit or restrain the consummation of the transactions evidenced by
the Transaction Documents.
(m) Due Diligence. The Purchasers shall have completed to their
-------------
satisfaction their due diligence of the Obligors, including a review of final
financial projections prepared by the Issuer pro forma for the Acquisition and
the revised board presentation and opinion prepared by Alliant Partners.
(n) Payment of Expenses. The Issuer shall have paid to the Purchasers
-------------------
on or before the Closing Date fees, charges and disbursements of the Purchasers
and the Purchasers' counsel to the extent reflected in statements of the
Purchasers and such counsel rendered to the Obligors at least one Business Day
prior to the Closing.
(o) Series A Preferred Stock. The Issuer shall have issued the Series
------------------------
A Preferred Stock (including a portion thereof of between $2.5 million to $4.5
million of liquidation value to the Purchasers upon their election) and shall
have received net proceeds of at least $15 million in exchange therefor.
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<PAGE>
(p) IBM Facility. The IBM Facility shall have been completed and
------------
funded on terms satisfactory to the Purchasers.
(q) Satisfactory Collateral. The Purchasers shall be satisfied that
-----------------------
they have received security interests in all Property and a Pledge of all the
issued and outstanding stock of the Guarantors except to the extent that such
Property or stock is subject to a Security Interest Restriction.
(r) Other Documents. The Purchasers shall have received such other
---------------
documentation as the Purchasers may reasonably request.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. REPRESENTATION AND WARRANTIES OF THE OBLIGORS. Each of
the Obligors jointly and severally represents and warrants to the Holders as
follows:
(a) Organization; Power and Authority. Each Obligor is a corporation
---------------------------------
or limited partnership duly organized, validly existing and in good standing
under the laws of its jurisdiction of formation, and is duly qualified as a
foreign entity and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. Each
Obligor has the power and authority to own or hold under lease the properties it
purports to own or hold under lease, to transact the business it transacts and
proposes to transact, to execute and deliver the Transaction Documents to which
it is a party and to perform the provisions thereof.
(b) Authorization, etc. Each of the Transaction Documents has been
------------------
duly authorized by all necessary corporate action on the part of each Obligor
which is a party thereto, and such Transaction Documents constitute, and upon
execution and delivery thereof each Note will constitute, a legal, valid and
binding obligation of such Obligor enforceable against such Obligor in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
(c) Disclosure. This Agreement, the Note Documents, the documents,
----------
certificates or other writings delivered to the Holders by or on behalf of the
Obligors in connection with the transactions contemplated hereby and the
financial statements described in Section 5.01(g), do not contain any Material
---------------
misstatement or Material omission except such as have been corrected in writing
and delivered to the Holders. Except as described in Schedule 5.01(c), since
----------------
December 31, 1996, there has been no change in the financial condition,
operations, business, properties, or prospects of
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<PAGE>
any Obligor or any Subsidiary except changes that individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
There is no fact known to any Obligor that could reasonably be expected to have
a Material Adverse Effect that has not been set forth herein or in the other
documents, certificates and other writings delivered to the Holders by or on
behalf of such Obligor specifically for use in connection with the transactions
contemplated hereby.
(d) Defaults; Agreements.
--------------------
(i) Defaults. Except for such violations and defaults as would
not, individually or in the aggregate, have a Material Adverse Effect, neither
Issuer nor any of the Subsidiaries is in violation of its charter or by-laws or
in default in the performance, observance or fulfillment of any obligation,
agreement or condition contained in any bond, debenture, note or any other
evidence of indebtedness or in any other agreement, indenture or instrument
Material to Issuer and its Subsidiaries, to which Issuer or any of its
Subsidiaries is a party or by which Issuer or any of its Subsidiaries or their
respective property is bound. There exists no condition that constitutes a
Default or Event of Default under any of the Transaction Documents.
(ii) Agreements. Schedule 5.01(d)(ii) is a true and complete
--------------------
listing as of the date of this Agreement of all "Material Agreements" which
includes (i) all agreements relating to Indebtedness of Issuer and its
Subsidiaries, including without limitation all credit agreements, indentures and
other agreements related to any Indebtedness for borrowed money of any of the
Obligors other than the Transaction Documents, (ii) all Material joint venture,
partnership or limited liability company agreements to which any of the Obligors
is a party, (iii) all agreements for the sale of goods or services to, or
purchase of goods or services from, the Issuer's ten largest suppliers and ten
largest customers (on a consolidated basis) for each of 1996 and the first six
months of 1997, and (iv) all other contractual arrangements which are Material
to any Obligor, including but not limited to, guaranties and employment
agreements. The Obligors have delivered or made available to the Purchasers a
true and complete copy of each Material Agreement described on Schedule
--------
5.01(d)(ii), including all exhibits and schedules.
- -----------
(e) Permits; Licenses. Except as would not, individually or in the
-----------------
aggregate, have a Material Adverse Effect, each of Issuer and each of its
Subsidiaries (a) has all permits, licenses, franchises and authorizations of
governmental or regulatory authorities ("PERMITS"), including, without
limitation, under any applicable laws regulating the conduct of the insurance
business or Environmental Laws, material to the ownership, leasing and operation
of its properties and the conduct of its business and (b) has fulfilled and
performed all of its material obligations with respect to such Permits and no
event has occurred that allows, or after notice or lapse of time would allow,
revocation or termination thereof or results or would result in any other
material impairment of the rights of the holder of any such Permit. Such
Permits contain no restrictions that are materially burdensome to Issuer or any
of its Subsidiaries. Schedule 5.01(e) lists all Permits which are Material to
----------------
the Issuer and its Subsidiaries, and true and complete copies of all such
Permits have been made available to the Purchasers.
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<PAGE>
(f) Ownership of Pledged Securities.
-------------------------------
(i) Schedule 5.01(f)(i) contains (i) a diagram indicating the
-------------------
corporate structure of the Issuer, its Subsidiaries and any other Person which
the Issuer or any of its Subsidiaries holds a direct or indirect partnership,
joint venture or other equity interest and indicates the nature of such interest
with respect to each Person included in such diagram; and (ii) accurately sets
forth (A) the correct legal name of such Person, the jurisdiction of its
organization and the jurisdiction in which it is qualified to transact business
as a foreign corporation or otherwise, (B) the authorized, issued and
outstanding shares or interests of each class of equity securities of the Issuer
and each of its Subsidiaries and the ownership of such shares or interests
indicating the Security Interest Restrictions with respect to such shares or
interests and (C) the Pledged Securities of each Obligor.
(ii) The Pledged Securities are owned by the Persons specified
on Schedule 5.01(f)(ii). All of the Pledged Securities are duly authorized,
--------------------
validly issued, fully paid and non-assessable, and are owned and held by the
Pledgors, free and clear of any liens, encumbrances, or security interests
whatsoever other than those created pursuant to the Note Documents or applicable
securities laws. Except as set forth on Schedule 5.01(f)(ii)(a), for the Issuer
-----------------------
and Schedule 5.01(f)(ii)(b) for the other Obligors, there are no outstanding
-----------------------
registration rights, rights of first refusal, antidilution rights, or rights,
warrants, options, or agreements to purchase or otherwise acquire any shares of
the stock or securities or obligations of any kind convertible into any shares
of capital stock, of any shares, of the Obligors or any of their Subsidiaries.
All rights, including those set forth on Schedule 5.01(f)(ii)(a) and Schedule
----------------------- --------
5.01(f)(ii)(b), to adjust the purchase price of any shares of stock, or the
- --------------
exercise price of any warrants, options, or agreements to purchase or otherwise
acquire any shares of the stock or securities of the Obligors have been duly and
validly waived. The registration rights set forth on Schedule 5.01(f)(ii)(a)
-----------------------
and Schedule 5.01(f)(ii)(b) do not conflict with or preempt any registration
-----------------------
rights granted to the Agent or the Purchasers pursuant to the Transaction
Documents. Schedule 5.01(f)(ii)(c) lists all options, warrants or other rights
-----------------------
to acquire equity securities of any Subsidiary of the Issuer that is not an
Obligor, including the class of securities to which such rights pertain, the
exercise price, expiration date, holders thereof and registration rights
pertaining thereto. Except as set forth on such schedule, Schedule
--------
5.01(f)(ii)(a) and Schedule 5.01(f)(ii)(b) there are no options, warrants or
- -------------- -----------------------
other rights, agreements, arrangements or commitments of any character relating
to the issued or unissued capital stock of the Issuer or any of its Subsidiaries
or obligating the Issuer or any of its Subsidiaries to issue or sell any shares
of capital stock of, or other equity interests in, the Issuer or any of its
subsidiaries. True, correct and complete copies of the forms of all options,
warrants, rights, agreements, arrangements or commitments identified in the
schedule have been delivered to Purchasers. Except as disclosed in such
schedule, there are no obligations, contingent or otherwise, of the Issuer or
any of its Subsidiaries to repurchase, redeem or otherwise acquire any shares of
Issuer stock or the capital stock of any subsidiary or to provide funds to or
make any Investment (in the form of a loan, capital contribution, guaranty or
otherwise) in any such Subsidiary or any other entity.
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<PAGE>
(g) Financial Statements. The Obligors have delivered to the
--------------------
Purchasers copies of (i) the final audited consolidated financial statements of
the Issuer and its Subsidiaries for the year ending December 31, 1996, (ii)
unaudited statements of the Issuer for the quarter ending June 30, 1997, and
(iii) unaudited interim monthly statements of SMS prepared on a pro forma basis
after giving effect to the Acquisition for November 1996 through August 1997;
provided that no schedules or notes have been provided for those statements
- --------
referred to in items (ii) and (iii) of this sentence. All of said financial
statements (including in each case the related schedules and notes) fairly
present in all material respects the consolidated financial position of the
Issuer and its Subsidiaries as of the respective dates specified in such
Schedule and the consolidated results of their operations and cash flows for the
respective periods so specified and have been prepared in accordance with GAAP
consistently applied throughout the periods involved except as set forth in the
notes thereto (subject, in the case of any interim financial statements, to
normal year-end adjustments).
(h) Security Interest; Other Security. This Agreement and the other
---------------------------------
Transaction Documents, when executed and delivered and, upon the purchase of the
Notes by the Purchasers, will create and grant to the Agent for the benefit of
the Agent and the Holders (upon (i) the filing of the appropriate UCC-1
financing statements, and (ii) delivery of the Pledged Securities with
appropriate stock powers to the Purchasers) valid and perfected security
interests (junior only to the lien of the IBM Facility) in the Collateral and
the Pledged Securities in existence on the Closing Date as to which security
interests may be perfected by such filings or delivery, subject only to
Permitted Liens.
(i) Places of Business. The chief executive office of each Obligor
------------------
is, on the Closing Date, as set forth on Schedule 5.01(i) hereto, which offices
----------------
in the United States are the places where each Obligor is "located" for the
purpose of the UCC and the Uniform Commercial Code in effect in any State in
which any Obligor is so located. All of the places where each Obligor keeps the
records concerning the Collateral on the date hereof or regularly keeps any
goods included in the Collateral on the date hereof are also listed on Schedule
--------
5.01(i) hereto.
- -------
(j) Compliance with Laws, Other Instruments, etc. The execution,
--------------------------------------------
delivery and performance by each Obligor of the Transaction Documents to which
it is a party will not (i) contravene, result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any property
of such Obligor under, any indenture, mortgage, deed of trust, loan, purchase or
credit agreement relating to the borrowing of money, any material lease or any
other Material Agreement to which such Obligor is bound or by which such Obligor
or any of its properties may be bound or affected, (ii) conflict with or result
in a breach of any of the terms, conditions or provisions of any order,
judgment, decree, or ruling of any court, arbitrator or Governmental Authority
applicable to such Obligor or (iii) violate any provision of any Requirement of
Law (including, without limitation, laws regulating the corporate practice of
medicine) applicable to such Obligor.
(k) Governmental Authorizations, etc. No consent, approval or
--------------------------------
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by any Obligor of this Agreement or the Notes.
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<PAGE>
(l) Litigation; Observance of Agreements, Statutes and Orders.
---------------------------------------------------------
(i) Except as disclosed in Schedule 4.02(h), there are no
----------------
actions, suits or proceedings pending or, to the knowledge of any Obligor,
threatened against or affecting such Obligor in any court or before any
arbitrator of any kind or before or by any Governmental Authority that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
(ii) None of the Obligors is in default under any term of any
Material Agreement or any other agreement or instrument to which it is a party
or by which it is bound, or any order, judgment, decree or ruling of any court,
arbitrator or Governmental Authority or is in violation of any applicable
Requirement of Law (including without limitation Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
(m) Taxes. Each Obligor has filed all tax returns that are required
-----
to have been filed in any jurisdiction, and have paid all taxes shown to be due
and payable on such returns and all other taxes and assessments levied upon them
or their properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent,
except for any taxes and assessments (i) the amount of which is not individually
or in the aggregate Material or (ii) the amount, applicability or validity of
which is currently being contested in good faith by appropriate proceedings and
with respect to which each Obligor, as the case may be, has established adequate
reserves in accordance with GAAP. No Obligor knows of any basis for any other
tax or assessment that could reasonably be expected to have a Material Adverse
Effect. The Federal income tax liabilities of each Obligor have been paid for
all fiscal years up to and including the fiscal year ended December 31, 1996.
(n) Title to Property; Leases. Each Obligor has good and marketable
-------------------------
title to its assets and properties that individually or in the aggregate are
Material, all of which are listed on Schedule 5.01(n), in each case free and
----------------
clear of Liens (other than Liens permitted by this Agreement). All leases that
individually or in the aggregate are Material are valid and subsisting and are
in full force and effect in all material respects. No Obligor owns any real
property.
(o) Collateral. Schedule 5.01(o) accurately sets forth (i) the
---------- ----------------
Collateral of the Issuer and each Subsidiary, indicating the Security Interest
Restriction, if any, with respect to such Collateral, and (ii) the Security
Property of each Obligor.
(p) Licenses, Permits, etc. Except as disclosed in Schedule 5.01(p),
----------------------- ----------------
each Obligor owns or possesses the right to use all licenses, permits,
franchises, authorizations, patents, copyrights, service marks, trademarks and
trade names, or rights thereto, that individually or in the aggregate are
Material, without known conflict with the rights of others other than rights of
licensors with respect to those items that are subject to such licenses.
(q) Compliance with ERISA.
---------------------
-38-
<PAGE>
(i) Each Obligor and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for such
instances of noncompliance as have not resulted in and could not reasonably be
expected to result in a Material Adverse Effect. No Obligor or any ERISA
Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to employee benefit plans
(as defined in Section 3 of ERISA), and no event, transaction or condition has
occurred or exists that could reasonably be expected to result in the incurrence
of any such liability by any Obligor or any ERISA Affiliate, or in the
imposition of any Lien on any of the rights, properties or assets of any Obligor
or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to
such penalty or excise tax provisions or to Section 401(a)(29) or 412 of the
Code, other than such liabilities or Liens as would not be individually or in
the aggregate Material.
(ii) The present value of the aggregate benefit liabilities
under each of the Plans (other than Multiemployer Plans), determined as of the
end of such Plan's most recently ended plan year on the basis of the actuarial
assumptions specified for funding purposes in such Plan's most recent actuarial
valuation report, did not exceed the aggregate current value of the assets of
such Plan allocable to such benefit liabilities. The term "BENEFIT LIABILITIES"
has the meaning specified in Section 4001 of ERISA and the terms "CURRENT VALUE"
and "PRESENT VALUE" have the meaning specified in Section 3 of ERISA.
(iii) No Obligor or any ERISA Affiliates have incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities) under
section 4201 or 4204 of ERISA in respect of Multiemployer Plans that
individually or in the aggregate are Material.
(iv) The expected postretirement benefit obligation (determined
as of the last day of each Obligor's most recently ended fiscal year in
accordance with Financial Accounting Standards Board Statement No. 106, without
regard to liabilities attributable to continuation coverage mandated by section
4980B of the Code) of each Obligor is not Material.
(v) The Obligors' execution and delivery of this Agreement and
the issuance and sale of the Notes hereunder will not involve any transaction
that is subject to the prohibitions of section 406 of ERISA or in connection
with which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the
Code.
(r) Private Offering by each Obligor. None of the Obligors or anyone
--------------------------------
acting on their behalf has offered the Securities or any similar securities for
sale to, or solicited any offer to buy any of the same from, or otherwise
approached or negotiated in respect thereof with, any person other than
institutional investors. None of the Obligors or anyone acting on its behalf
has taken, or will take, any action that would subject the initial issuance or
sale of the Securities to the registration requirements of Section 5 of the
Securities Act.
(s) Use of Proceeds; Margin Regulations. The Obligors will apply the
-----------------------------------
proceeds of the sale of the Notes to partially finance the Acquisition, to pay
costs and expenses incurred by the
-39-
<PAGE>
Obligors in connection with the Transaction Documents and for working capital.
No part of the proceeds from the sale of the Notes hereunder will be used,
directly or indirectly, for the purpose of buying or carrying any margin stock
within the meaning of Regulation G of the Board of Governors of the Federal
Reserve System (12 CFR 207), or for the purpose of buying or carrying or trading
in any securities under such circumstances as to involve each Obligor in a
violation of Regulation X of said Board (12 CFR 224) or to involve any broker or
dealer in a violation of Regulation T of said Board (12 CFR 220). As used in
this Section, the terms "MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING" shall
have the meanings assigned to them in said Regulation G.
(t) Existing Indebtedness; Future Liens.
-----------------------------------
(i) Schedule 5.01(t)(i) sets forth a complete and correct list
-------------------
of all outstanding Indebtedness of each Obligor as of the Closing Date. None of
the Obligors is in default in the payment of any principal or interest on any
Indebtedness of such Obligor and no event or condition exists with respect to
any Indebtedness of such Obligor that would permit (or that with notice or the
lapse of time, or both, would permit) one or more Persons to cause such
Indebtedness to become due and payable before its stated maturity or before its
regularly scheduled dates of payment.
(ii) Except as disclosed in Schedule 5.01(t)(ii), (A) none of
--------------------
the Obligors has agreed or consented to cause or permit in the future (upon the
happening of a contingency or otherwise) any of its property, whether now owned
or hereafter acquired, to be subject to a Lien other than a Permitted Lien, and
(B) there are no Liens on any of the property of the Obligors.
(u) Foreign Assets Control Regulations, etc. Neither the sale of the
----------------------------------------
Notes by the Issuer hereunder nor their use of the proceeds thereof will violate
the Trading with the Enemy Act, as amended, or any of the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended) or any enabling legislation or executive order relating
thereto.
(v) Status under Certain Statutes. None of the Obligors is subject to
-----------------------------
regulation under the Investment Issuer Act of 1940, as amended, the Public
Utility Holding Issuer Act of 1935, as amended, the Interstate Commerce Act, as
amended, or the Federal Power Act, as amended.
(w) Environmental Matters. None of the Obligors has knowledge of any
---------------------
claim or has received any notice of any claim, and no proceeding has been
instituted raising any claim against such Obligor or any of their respective
real properties now or formerly owned, leased or operated by any of them or
other assets, alleging any damage to the environment or violation of any
Environmental Laws, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect. Except as otherwise disclosed
to the Purchasers in writing,
(i) none of the Obligors has knowledge of any facts which would
give rise to any claim, public or private, of violation of Environmental Laws or
damage to the environment
-40-
<PAGE>
emanating from, occurring on or in any way related to real properties now or
formerly owned, leased or operated by any of them or to other assets or their
use, except, in each case, such as could not reasonably be expected to result in
a Material Adverse Effect; and
(ii) all buildings on all real properties now owned, leased or
operated by each Obligor is in compliance with applicable Environmental Laws,
except where failure to comply could not reasonably be expected to result in a
Material Adverse Effect.
(x) Labor Matters. There is (a) no unfair labor practice complaint
-------------
pending against any Obligor or, to the best knowledge of such Obligor,
threatened against it, before the National Labor Relations Board or any state or
local labor relations board, and no grievance or arbitration proceeding arising
out of or under any collective bargaining agreement is so pending against such
Obligor or, to the best knowledge of such Obligor, threatened against it and (b)
no strike, labor dispute, slowdown or stoppage pending against any Obligor or,
to the best knowledge of such Obligor, threatened against it, except for such
actions specified in clause (a) or (b) above which, singly or in the aggregate,
will have or could reasonably be expected to have a Material Adverse Effect.
(y) Certificate of Incorporation and By-Laws The Issuer has
----------------------------------------
heretofore furnished to Purchasers a complete and correct copy of its
Certificate of Incorporation and By-Laws as most recently restated and
subsequently amended to date. Such Certificate of Incorporation and By-Laws are
in full force and effect. The Issuer is not in violation of any of the
provisions of its Certificate of Incorporation or By-Laws.
(z) Capitalization The authorized capital stock of the Issuer
--------------
consists of (i) 25,000,000 shares of Common Stock and (ii) 10,000,000 shares of
Preferred Stock, of which 2,242,500 shares of Series A Preferred Stock have been
authorized and designated. As of September 26, 1997, (i) 4,850,655 shares of
Common Stock were issued and outstanding, all of which are validly issued, fully
paid and nonassessable, and no shares of Common Stock were held in treasury,
(ii) no shares of Common Stock were held by Subsidiaries of the Issuer and (iii)
approximately 715,594 shares of Common Stock were reserved for future issuance
pursuant to outstanding stock options or warrants (collectively, the "Issuer
------
Stock Plans"). As of September 26, 1997, 2,242,500 shares of Series A Preferred
- -----------
Stock were issued and outstanding, all of which are validly issued, fully paid
and nonassessable, and no shares of Preferred Stock (including Series A and B
Preferred Stock) were held in treasury. As of September 26, 1997 no Preferred
Stock other than Series A Preferred Stock was issued and outstanding.
(aa) Solvency. After giving effect to the transactions contemplated
--------
by the Transaction Documents, (a) the fair market value of the assets of each
Obligor is in excess of the total amount of its liabilities (including, without
limitation, contingent liabilities); (b) the present fair saleable value of the
assets of each Obligor is greater than its probable liability on its existing
debts as such debts become absolute and matured; (c) each Obligor is then able
and expects to be able to pay its debts (including, without limitation,
contingent debts and other commitments) as they mature;
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and (d) each Obligor has capital sufficient to carry on its business as
conducted and as proposed to be conducted.
SECTION 5.02. REPRESENTATIONS OF THE PURCHASERS. Each Purchaser
represents and warrants to the Issuer as follows:
(a) No Registration. The Securities are not registered under the
---------------
Securities Act or any state securities laws; it understands that the offering
and sale of the Securities are intended to be exempt from registration under the
Securities Act, by virtue of Section 4(2) and the provisions of Regulation D
promulgated thereunder, based, in part, upon the representations, warrantees and
agreements contained in this Agreement; and such Purchaser understands that the
Securities will bear a legend to that effect.
(b) Accredited Investor. With respect to the transaction evidenced by
-------------------
this Agreement and the Securities, such Purchaser is an accredited investor
within the meaning of Regulation D under the Securities Act, and it has such
knowledge and experience in financial, tax and business matters so as to enable
it to utilize the information provided to it and other sources of information
(including this Agreement) to evaluate the merits and risks of an Investment in
the Securities and to make an informed investment decision with respect thereto.
(c) Purchase for Investment; Legend. Such Purchaser is acquiring the
-------------------------------
Securities solely for its own account for investment and not with a view to
resale or distribution. Such Purchaser acknowledges that a restrictive legend
substantially in the form set forth in Section 2.03 will be placed on the
------------
security.
(d) Authorization, etc. This Agreement, the Warrant Agreement and the
-------------------
Registration Rights Agreement have been duly authorized, executed and delivered
by such Purchaser.
(e) ERISA Matters. In connection with its purchase of the Notes and
-------------
the Warrants, none of the funds being used by such Purchaser to purchase the
Notes and the Warrants include "plan assets" as such term is defined in ERISA.
ARTICLE VI
REPORTING AND AFFIRMATIVE COVENANTS
Each Obligor covenants that so long as any of the Notes are
outstanding:
SECTION 6.01. FINANCIAL AND BUSINESS INFORMATION. The Obligors shall
deliver to each Holder of Notes:
(a) Annual Statements. Within 90 days after the end of each fiscal
-----------------
year of the Issuer, duplicate copies of the Issuer's Annual Report on Form 10-K
for such fiscal year (together
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with the Issuer's annual report to shareholders, if any, prepared pursuant to
Rule 14a-3 under the Exchange Act) prepared in accordance with the requirements
therefor and filed with the Commission.
(b) Quarterly Statements. Within 45 days after the end of the first
--------------------
three quarters of each fiscal year, copies of the Issuer's Quarterly Report on
Form 10-Q prepared in compliance with the requirements therefor and filed with
the Commission.
(c) Board Reports. Upon written request of any Holder, such Holder
-------------
shall receive copies of all reports and analysis as Issuer provides to its
Board of Directors or any committee thereof or to its stockholders from time to
time.
(d) Annual Budget. Upon written request of any Holder, such Holder
-------------
shall receive, as soon as practicable and in any event within 90 days of the
Closing hereunder and by March 1 of each fiscal year of the Issuer thereafter, a
plan, operating budget and financial forecast for the next succeeding fiscal
year of the Issuer, including, without limitation, (i) a forecasted consolidated
and consolidating balance sheet and statement of income of the Issuer and its
Subsidiaries and a consolidated and consolidating statement of cash flows of the
Issuer for each fiscal quarter and year, (ii) a consolidated and consolidating
forecasted statement of income and a balance sheet of the Issuer and its
Subsidiaries and a consolidated and consolidating statements of cash flows of
the Issuer and its Subsidiaries for each fiscal quarter of such fiscal year, and
(iii) the amount of forecasted capital expenditures for such fiscal year of the
Issuer and its Subsidiaries (except that consolidating financial information
will be delivered only to the extent and in the form customarily prepared and
available to the Issuer). The budgets shall include projected revenues,
expenses, and EBITDA data and such other data as Holders may request setting
forth the breakdown between the SMS business unit and the other business units
of the Issuer, in a format similar to the monthly, quarterly and annual reports
provided to the Holders hereunder.
(e) SEC and Other Reports. Within five (5) days of their becoming
---------------------
available, each other financial statement, report, notice or proxy statement
sent by any Obligor to public securities Holders generally, and each regular or
periodic report, each registration statement (without exhibits except as
expressly requested by such Holder), and each prospectus and all amendments
thereto filed by such Obligor with the Commission and of all press releases and
other statements made available generally by such Obligor to the public
concerning developments that are Material to the Issuer;
(f) Notice of Default or Event of Default. Promptly, and in any event
-------------------------------------
within five Business Days after a Responsible Officer of any Obligor becoming
aware of the existence of any Default or Event of Default or that any Person has
given any notice or taken any action with respect to a claimed default hereunder
or that any Person has given any notice or taken any action with respect to a
claimed default of the type referred to in Section 8.01(g), a written notice
---------------
specifying the nature and period of existence thereof and what action such
Obligor is taking or proposes to take with respect thereto;
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(g) Notices from Governmental Authority. Promptly, and in any event
-----------------------------------
within 30 days of receipt thereof, copies of any notice to any Obligor from any
Federal or state Governmental Authority relating to any order, ruling, statute
or other law or regulation that could reasonably be expected to have a Material
Adverse Effect; and
(h) Other Reports. Upon the request of any Holder, with reasonable
-------------
promptness, copies of any documents or reports to IBM from Issuer.
(i) Requested Information. From time to time, with reasonable
---------------------
promptness, such additional financial statements and information with respect to
the financial condition of the Issuer and its Subsidiaries as Holders may
reasonably request, including, without limitation and without further request,
(i) any financial statements or reports (including comment letters to
management) furnished to the Issuer or its Subsidiaries by its independent
certified public accountants, (ii) to the extent not already furnished pursuant
to this Agreement, all financial statements, certificates, reports and other
information furnished by the Issuer and its Subsidiaries to any bank pursuant to
any agreement, and (iii) all significant press releases issued by or on behalf
of the Issuer or its Subsidiaries. Finally, the Issuer shall provide such
information concerning the operations of the Issuer and its Subsidiaries as
Holders may from time to time reasonably request in writing, and upon reasonable
advance notice permit representatives of each Holder (i) such access during
normal business hours (and in a manner which will not be disruptive to the
business and operations of the Issuer) to the properties, books and records of
the Issuer and its Subsidiaries, and (ii) to discuss the affairs, accounts and
finances of the Issuer and its Subsidiaries with the financial and management
personnel of the Issuer and its Subsidiaries and with their independent
certified public accountants (and the Issuer authorizes such independent public
accountants to discuss the Issuer's or any Subsidiaries' financial matters with
the Holders and their representatives); provided, however, that the Issuer shall
not be obligated to provide access to any information that it reasonably
considers to be a trade secret or similar confidential information unless
Holders provide assurances in writing that they will maintain the
confidentiality of the information. Holders will consult with the Issuer
regarding the strategy and logistics of their visits and inspections in order to
minimize the costs of, and disruptions arising from, such visits and
inspections. All such information shall be treated by Holders as confidential.
SECTION 6.02. OFFICER'S CERTIFICATE. The documents delivered to a
Holder of Notes pursuant to Section 6.01(a) hereof shall be accompanied by a
---------------
certificate of a Senior Financial Officer of each Obligor setting forth:
(a) Covenant Compliance. The information (including detailed
-------------------
calculations) required in order to establish whether the Obligors were in
compliance with the requirements of Sections 7.05, 7.06, 7.13 through 7.16, 13,
-------------------------------------------
14, 15 and 16, inclusive, during the quarterly or annual period covered by the
- -------------
statements then being furnished (including with respect to each such Section,
where applicable, the calculations of the maximum or minimum amount, ratio or
percentage, as the case may be, permissible under the terms of such Sections,
and the calculation of the amount, ratio or percentage then in existence); and
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(b) Event of Default. A statement that such officer has reviewed the
----------------
relevant terms hereof and has made, or caused to be made, under his or her
supervision, a review of the transactions and conditions of Obligors from the
beginning of the quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review shall not have
disclosed the existence during such period of any condition or event that
constitutes a Default or an Event of Default or, if any such condition or event
existed or exists (including, without limitation, any such event or condition
resulting from the failure of any Obligor to comply with any Environmental Law),
specifying the nature and period of existence thereof and what action such
Obligor shall have taken or proposes to take with respect thereto.
SECTION 6.03. INSPECTION. Each Obligor shall permit the
representatives of each Holder, at the expense of the applicable Obligor, to
visit and inspect any of the offices or Properties of such Obligor during normal
business hours and upon reasonable notice, to examine all their respective books
of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers and independent public accountants (and by this
provision each Obligor authorizes said accountants to discuss the affairs,
finances and accounts of such Obligor), all as often as may be requested.
SECTION 6.04. COMPLIANCE WITH LAW. Each Obligor will comply with all
Requirements of Law to which each of them is subject, including, without
limitation, Environmental Laws, and will obtain and maintain in effect all
licenses, certificates, permits, franchises and other governmental
authorizations necessary to the ownership of its properties or to the conduct of
its business, in each case to the extent necessary to ensure that non-compliance
with such Requirements of Law or failures to obtain or maintain in effect such
licenses, certificates, permits, franchises and other governmental
authorizations could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
SECTION 6.05. INSURANCE. Each Obligor shall:
(a) Keep its assets which are of an insurable character insured (to
the extent and for the time periods consistent with normal industry practices)
by financially sound and reputable insurers against loss, business interruption,
or damage by fire, explosion, theft or other hazards which are included under
extended coverage in amounts not less than the insurable value of the property
insured or such lesser amounts, and with such self-insured retention or
deductible levels, as are consistent with normal industry practices;
(b) Maintain with financially sound and reputable insurers, insurance
against other hazards and risks and liability to Persons and property to the
extent and in the manner customary for companies in similar businesses;
(c) Upon the request of any Holder, will render to such Holder a
statement of insurance in such detail as such Holder may reasonably request as
to all such insurance coverage.
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(d) (i) Provide within 30 days after the Closing and shall
thereafter maintain a "key man" life insurance policy on the life of P. Scott
Munro, its Chief Executive Officer, or such other person as may be selected by
the Purchasers, in the principal amount of $7,850,000 which shall thereafter be
no less than fifty percent (50%) of the Unpaid Principal Amount of the Notes for
the benefit of the Holders to provide for the early redemption of the Notes or,
if previously redeemed, for the use by the Issuer.
(ii) Provide within 30 days after the Closing and shall
thereafter maintain a "key man" life insurance policy on the life of Joseph
Mertens, its President, or such other person as may be selected by the
Purchasers, in the principal amount of $7,850,000 which shall thereafter be no
less than fifty percent (50%) of the Unpaid Principal Amount of the Notes for
the benefit of the Holders to provide for the early redemption of the Notes or,
if previously redeemed, for the use by the Issuer.
(e) Within 30 days after the Closing cause each certificate and
policy relating to Property damage, to contain an endorsement, in form and
substance acceptable to the Agent, showing loss payable to the Agent, for the
benefit of the Holders, and, if required by the Agent, naming the Agent as an
additional insured under such policy. Each certificate and policy relating to
coverage other than the foregoing shall, if required by the Agent, contain an
endorsement naming the Agent as an additional insured under such policy. Such
endorsement or an independent instrument furnished to the Agent shall provide
that the insurance companies will give the Agent at least thirty (30) days'
written notice before any such policy or policies of insurance shall be altered
adversely to the interests of the Holders or canceled and that no act, whether
willful or negligent, or default of the Issuer, any of its Subsidiaries or any
other Person shall affect the right of the Agent to recover under such policy or
policies of insurance in case of loss or damage. In the event the Issuer or any
of its Subsidiaries, at any time or times hereafter shall fail to obtain or
maintain any of the policies or insurance required herein or to pay any premium
in whole or in part relating thereto, then the Agent, without waiving or
releasing any obligations or resulting Event of Default hereunder, may at any
time or times thereafter (but shall be under no obligation to do so) obtain and
maintain such policies of insurance and pay such premiums and take any other
action with respect thereto which the Agent deems advisable. All sums so
disbursed by the Agent shall be part of the Obligations, payable as provided in
this Agreement.
SECTION 6.06. MAINTENANCE OF PROPERTIES. Each Obligor will maintain
and keep, or cause to be maintained and kept, their respective properties in
normal working order and condition (other than ordinary wear and tear) such
that, in the reasonable judgment of such Obligor, the business carried on in
connection therewith may be properly conducted at all times, provided that this
--------
Section shall not prevent such Obligor from discontinuing the operation and the
maintenance of any of its properties if such discontinuance is desirable in the
conduct of its business and such Obligor has concluded that such discontinuance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
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SECTION 6.07. PAYMENT OF TAXES AND CLAIMS. Each Obligor will and
will cause each of its Subsidiaries to file all tax returns required to be filed
in any jurisdiction and to pay and discharge all taxes shown to be due and
payable on such returns and all other taxes, assessments, governmental charges,
or levies imposed on them or any of their properties, assets, income or
franchises, to the extent such taxes and assessments have become due and payable
and before they have become delinquent and all claims for which sums have become
due and payable that have or might become a Lien on properties or assets of any
Obligor, provided that none of the Obligors need pay any such tax or assessment
--------
or claims if the amount, applicability or validity thereof is contested by such
Obligor on a timely basis in good faith and in appropriate proceedings, and such
Obligor has established adequate reserves therefor in accordance with GAAP on
the books of such Obligor or the nonpayment of all such taxes and assessments in
the aggregate could not reasonably be expected to have a Material Adverse
Effect.
SECTION 6.08. CORPORATE EXISTENCE, ETC. Each Obligor will at all
times preserve and keep in full force and effect its corporate existence. Each
Obligor will at all times preserve and keep in full force and effect the
corporate existence and all rights and franchises of such Obligor unless, in the
good faith judgment of such Obligor, the termination of or failure to preserve
and keep in full force and effect such corporate existence, right or franchise
could not, individually or in the aggregate, have a Material Adverse Effect.
SECTION 6.09. MAINTENANCE OF BOOKS AND RECORDS. Each Obligor will
make and keep books, records and accounts in which full, true and correct
entries in accordance with GAAP and all Requirements of Law are made of all
dealings and transactions in relation to its business and activities.
SECTION 6.10. MAINTENANCE OF LINE OF BUSINESS. Each Obligor will,
and will cause its Subsidiaries to, devote substantially all of their respective
time to, and deploy substantially all of their respective Material assets owned
or used by such Obligor or Subsidiary in, the Line of Business as conducted by
the Obligors on the date of this Agreement and businesses reasonably related
thereto.
SECTION 6.11. PRIVATE PLACEMENT NUMBERS. At the request of any
Holder, the Issuer shall assist such Holder in obtaining a Private Placement
number ("CUSIP NUMBER") issued by Standard & Poor's CUSIP Service Bureau (in
cooperation with the Securities Valuation Office of the National Association of
Insurance Commissioners) for the Notes. The costs of obtaining a CUSIP Number
following such request by any Holder shall be shared equally between the Issuer,
on the one hand, and the requesting Holders, on the other hand, provided that
the Issuer shall no be obligated to spend more than $5,000 hereunder.
SECTION 6.12. LIENS. The Obligors shall defend the Collateral
against any and all Liens howsoever arising, other than Permitted Liens, and in
any event defend against any attempted foreclosure.
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SECTION 6.13. RULE 144. In order to permit the holders of Notes,
Warrants and Warrant Shares (as defined in the Warrant Agreement) to sell the
same, if they so desire, pursuant to Rule 144 promulgated by the Commission (or
any successors to such rules), the Issuer will comply with all rules and
regulations of the Commission applicable in connection with the use of Rule 144
(or any successors thereto), including the timely filing of all reports with the
Commission and the provision of any information regarding the Issuer in order to
enable such holders, if they so elect, to utilize Rule 144, and the Issuer will
cause any restrictive legends to be removed and any transfer restrictions to be
rescinded with respect to any sale of Notes, Warrants and Warrant Shares which
is exempt from registration under the 1933 Act pursuant to Rule 144. Upon the
request of any Holder of Notes, Warrants and Warrant Shares, the Issuer will
deliver to such holder a written statement verifying that it has complied with
such requirement.
SECTION 6.14. USE OF PROCEEDS. The Obligors will apply the proceeds
of the sale of the Notes to partially finance the Acquisition, to pay costs and
expenses incurred by the Obligors in connection with the Transaction Documents
and for working capital. No part of the proceeds from the sale of the Notes
hereunder will be used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System (12 CFR 207), or for the purpose of
buying or carrying or trading in any securities under such circumstances as to
involve each Obligor in a violation of Regulation X of said Board (12 CFR 224)
or to involve any broker or dealer in a violation of Regulation T of said Board
(12 CFR 220).
SECTION 6.15. RIGHT TO PROVIDE FINANCING. For so long as the Notes
are outstanding, and subject to the restrictions contained herein, the Issuer
shall provide to the Holders a right of first refusal to provide any debt
financing for the Issuer or its Subsidiaries (other than the following
categories of financings to which this Section 6.15 shall not apply:
sale/leaseback and lease financings; accounts receivables, asset based and
inventory secured senior financing, receivables factorings (including
forfeiting) and sales of receivables; purchase money financing and capital lease
financing of equipment or fixed assets from the sellers thereof; financings
secured by real property mortgages;) or private equity financings of any sort
for the Issuer or its Subsidiaries (collectively a "Financing"). If the Issuer
desires in good faith to engage in a Financing, the Issuer shall first notify
the Holders and in good faith negotiate with them the terms of the Financing
desired. If the parties are unable to negotiate mutually acceptable terms in a
reasonable amount of time given the needs of the Issuer, the Issuer may seek a
bona fide Financing proposal from a third party and upon receiving the same
shall deliver a written notice thereof to the Holders (the "Notice"). The Notice
shall contain a description of the proposed Financing and all of the terms
thereof and the parties thereto, including the proposed closing arrangements.
The Notice shall be accompanied by a copy of the bona fide third party offer for
the Financing. During the period ending thirty (30) days after the Notice is
delivered to the Holders, the Holders, or any of them may, by written notice to
the Issuer, agree to provide the Financing on the terms described in the Notice.
In the event that the Holders do not agree to provide the Financing, the Issuer
shall have the right to accept the third party Financing on the terms (such as
interest, maturity date, dividend rate, redemption date, etc.) described in the
Notice (or terms more
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favorable to the Issuer), but shall not have the right to accept
Financing on any other terms without providing the Holders another opportunity
to provide the same as set forth herein.
SECTION 6.16 FURTHER ASSURANCES; SECURITY INTERESTS.
(a) Upon the request of the Holders, the Obligors shall duly execute
and deliver, or cause to be duly executed and delivered, at the cost and expense
of the Obligors, such further instruments as may be appropriate in the
reasonable judgment of the Holders to carry out the provisions and purposes of
this Agreement and the other Transaction Documents.
(b) Upon the request of the Agent, the Obligors shall promptly
execute and deliver, or cause to be duly executed and delivered, at the cost and
expense of the Obligors, such further instruments as may be appropriate in the
reasonable judgment of the Holders to provide the Agent for the benefit of the
Agent and the Holders a perfected Lien (junior only to the lien of the IBM
Facility) in the Collateral and any and all documents (including without
limitation, the execution, amendment or supplementation of any financing
statement and continuation statement or other statement) for filing under the
provisions of the UCC and the rules and regulations thereunder, or any other
statute, rule or regulation of any applicable foreign, federal, state or local
jurisdiction, and perform or cause to be performed such other ministerial acts
which are necessary, from time to time, in order to grant and maintain in favor
of the Agent for the benefit of the Agent and the Holders the security interest
in the Collateral contemplated hereunder and under the other Transaction
Documents.
(c) The Obligors shall promptly undertake to deliver or cause to be
delivered to the Holders from time to time such other documentation, consents,
authorizations and approvals in form and substance reasonably satisfactory to
the Holders, as the Holders shall deem reasonably necessary or advisable to
perfect or maintain the Liens of the Holders.
(d) In the event that the IBM Facility is amended, supplemented or
modified subsequent to Amendment #4 To The Inventory Working Capital Financing
Agreement dated as of September 30, 1997 between IBM and Issuer to add to the
collateral granted to IBM therein, the Obligors shall promptly execute and
deliver, or cause to be duly executed and delivered, at the cost and expense of
the Obligors, such further instruments as may be appropriate in the reasonable
judgment of the Holders to provide the Agent for the benefit of the Agent and
the Holders a perfected Lien (junior only to the lien of the IBM Facility) in
such additional collateral and any and all documents (including without
limitation, the execution, amendment or supplementation of any financing
statement and continuation statement or other statement) for filing under the
provisions of the UCC and the rules and regulations thereunder, or any other
statute, rule or regulation of any applicable foreign, federal, state or local
jurisdiction, and perform or cause to be performed such other ministerial acts
which are necessary, from time to time, in order to grant and maintain in favor
of the Agent for the benefit of the Agent and the Holders a security interest in
such additional collateral as contemplated hereunder and under the other
Transaction Documents.
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SECTION 6.17 ADDITIONAL WHOLLY-OWNED SUBSIDIARIES. Any Wholly-Owned
Subsidiary which is formed or acquired by any Obligor ( as permitted under the
terms of this Agreement subsequent to the date hereof) shall become a Guarantor
hereunder and shall execute such documents in connection therewith as shall be
required by the Agent.
SECTION 6.18 INTEREST RATE CONTRACT. Within sixty (60) days of the
Closing, Issuer shall obtain, and shall thereafter cause to be maintained for so
long as the Notes are outstanding one or more Interest Rate Contracts in form an
substance acceptable to the Holders providing for an interest rate hedge
covering no less than 50% of the Issuer's exposure to an interest rate increase
under the IBM Facility.
SECTION 6.19 LIEN SCHEDULE. On or before October 17, 1997, Issuer
shall update and deliver to Holders a new Schedule 5.01(t)(ii) with respect to
the matters set forth in Section 5.01(t)(ii)(B), which Schedule shall confirm
the accuracy of the representation made in the Schedule 5.01(t)(ii) delivered at
the Closing.
ARTICLE VII
NEGATIVE COVENANTS
Each Obligor covenants that so long as any of the Notes are
outstanding:
SECTION 7.01 LIMITATION ON CERTAIN TRANSACTIONS BETWEEN THE ISSUER
AND RELATED PERSONS. The Issuer shall not enter into, and shall not permit any
Subsidiary to enter into, directly or indirectly, any agreement, and shall not
renew or permit any Subsidiary to renew any existing agreement, relating to the
sale, purchase or lease of any assets, property or services with any Related
Person unless the Holders shall have made a determination to approve the
transaction and provided, further, that this Section 7.01 shall not restrict
-------- ------- ------------
compensation arrangements with full-time employees of the Issuer or its
Subsidiaries that have been approved by the Board of the Issuer.
SECTION 7.02 MERGER, CONSOLIDATION, ETC. The Issuer shall not, in a
single transaction or through a series of related transactions, consolidate with
or merge with or into any other Person or, sell, assign, convey, transfer, lease
or otherwise dispose of ("TRANSFER") all or substantially all of its properties
and assets to any other Person or group of affiliated Persons or permit its
Subsidiaries to enter into any such transaction or transactions if such
transaction or transactions, in the aggregate, would result in a sale of all or
substantially all of the assets of the Issuer and its Subsidiaries; provided
--------
that so long as all Obligations are repaid in full at the closing thereof (at
the amounts set forth in Section 2.08 hereof) and as a condition thereto in
connection with such Transfer, such Transfer shall be permitted; provided
--------
further that any Wholly-Owned Subsidiary may consolidate with or merge with or
- -------
into any other Wholly-Owned Subsidiary.
SECTION 7.03 LIMITATION ON ASSET SALES. Neither the Issuer nor any
of its Subsidiaries shall make an Asset Sale unless
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(a) the applicable Obligor complies with the provisions of Section
-------
2.07 (c) and Section 2.07(e); and
- -------- ---------------
(b) the total proceeds thereof must consist of cash or debt assumed
by a transferee; and
(c) the Asset Sale must be at Fair Market Value.
SECTION 7.04 RESTRICTED PAYMENTS AND INVESTMENTS. No Obligor shall,
directly or indirectly, (a) make any Investment other than a Permitted
Investment, or (b) declare or pay any dividend (other than dividends payable
solely in common stock of such Obligor or dividends by the Issuer on the Series
A Preferred Stock payable in Series A Preferred Stock, provided, that no Default
--------
or Event of Default shall have occurred and be continuing at the time, or shall
occur as a result, of any of the payments above) on, or make any payment on
account of, or set apart assets for a sinking or other analogous fund for, the
purchase, redemption, defeasance, retirement or other acquisition of, any shares
of any class of capital stock of any Obligor or any warrants, options or rights
to purchase any such capital stock, whether now or hereafter outstanding, or
make any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of an Obligor or any of its
Subsidiaries (each a "RESTRICTED PAYMENT"); provided, however, that, to the
-------- -------
extent permitted by Governing Law any Subsidiary of an Issuer may make
Restricted Payments to the Issuer; provided, further, that the Issuer may
-------- --------
purchase either assets or capital stock with Common Stock so long as no Default
of Event of Default shall have occurred and be continuing at the time, or shall
occur as a result of such purchase after giving pro forma effect to such
---------
purchase.
Notwithstanding the foregoing, the above limitation shall not prevent
(a) the consummation of the Acquisition; (b) the purchase, redemption,
acquisition or retirement of any shares of capital stock of the Issuer in
exchange for, or out of the net proceeds of the substantially concurrent sale
(other than to a Guarantor) of, other shares of stock of the Issuer; and (c)
purchases of common stock by the Issuer or a trust pursuant to any employee
stock ownership or similar employee benefit plan of the Issuer that has been
approved by the Board of Directors of the Issuer.
SECTION 7.05 LIMITATION ON ADDITIONAL INDEBTEDNESS. No Obligor
shall, directly or indirectly, create, incur, issue, assume, guarantee or in any
other manner become liable for, contingently or otherwise, or become responsible
for (including through any merger or consolidation to which such Obligor is a
party or through any other acquisition of any Wholly-Owned Subsidiary or of any
Person thereby becoming a Wholly-Owned Subsidiary) the payment of (collectively,
an "incurrence"), any obligations in respect of any Indebtedness or Guaranty,
except (a) Indebtedness evidenced by the Notes and the Guarantors' Guaranty with
respect thereto; (b) the IBM Facility and the SMS Obligations outstanding on the
Closing Date; (c) Indebtedness of any Obligor to any other Obligor, provided,
---------
however that the notes evidencing such Indebtedness are pledged to the Agent for
- -------
the benefit of the Agent and the Holders; (d) Indebtedness in respect of
performance bonds, surety bonds and letters of credit issued for the purpose of
supporting performance obligations of such Obligor provided in the ordinary
course of such Obligor's business, and any refinancings thereof; (e)
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Indebtedness arising from agreements providing for reasonable indemnification,
adjustment of purchase price or similar obligations, or from guarantees, letters
of credit, surety bonds or performance bonds securing any obligation of an
Obligor which has been incurred or assumed in connection with the disposition of
any business, assets of Subsidiary for the purpose of financing such
acquisition, to the extent permitted by this Agreement; (f) Indebtedness that is
incurred to acquire Permitted Liens; (g) Indebtedness that is set forth on
Schedule 5.01(t)(i); (h) Indebtedness under operating leases (i.e., leases that
are not considered Capital Leases); (i) Indebtedness incurred to refinance at
the same or lower principal amount any Indebtedness described in subsections
7.05(c)-(h); and (j) Indebtedness other than described in subsections 7.05(a)-
(i) not in excess of $50,000. Notwithstanding the foregoing sentence, the
aggregate amount of the obligations incurred in respect of any Indebtedness or
Guaranty by all Obligors which constitute Senior Debt shall not exceed
$95,000,000 (the "MAXIMUM SENIOR DEBT AMOUNT"), provided, however, that the
-------- -------
Maximum Senior Debt Amount shall be reduced on a dollar for dollar basis as the
commitment amount under the Revolving Loan portion of the IBM Facility is
reduced or the amount outstanding under the Acquisition Loan portion of the IBM
Facility is reduced, and the aggregate amount of the obligations incurred in
respect of any Indebtedness or Guaranty by all Obligors which constitute
Subordinated Debt shall not exceed $7,500,000 (the "MAXIMUM SUBORDINATED DEBT
AMOUNT"), provided, however, that the Maximum Subordinated Debt Amount shall be
-------- -------
reduced on a dollar for dollar basis by payments made by Issuer which reduce the
principal amount outstanding under the SMS Obligations.
SECTION 7.06 LIMITATION ON CREATION OF LIENS. No Obligor shall,
directly or indirectly create, incur, assume or suffer to exist any Lien in or
on any right, title or interest to or in any of its properties or assets, except
for (a) Liens existing as of the date of this Agreement and expressly identified
and described in Schedule 5.01(t)(ii) hereto, and any renewals and extensions
--------------------
thereof that secure Indebtedness not greater in amount than the lesser of the
amount of Indebtedness secured by such Liens on the date hereof or on the date
of such renewal or extension; (b) Liens granted after the date of this Agreement
on any assets or Capital Stock of an Obligor created in favor of the Holders of
the Notes; and (c) Permitted Liens.
SECTION 7.07 RANK OF FUTURE INDEBTEDNESS. No Obligor shall incur,
create, issue, assume, guarantee or acknowledge any agreement with respect to
(i) any Indebtedness which is senior in right of payment to the Obligations
(other than the IBM Facility, and provided that the foregoing shall not prohibit
the incurrence of Indebtedness permitted by the terms of this Agreement which is
secured by a Permitted Lien), (ii) any other Indebtedness unless such
Indebtedness is permitted by Section 7.05 and by its terms is subordinate in
------------
right of payment to the Obligations, or (iii) any Indebtedness (other than
Indebtedness between Obligors permitted by Section 7.05) which is structurally
------------
senior to or pari passu in right of payment to the Obligations.
SECTION 7.08 CREATION OF SUBSIDIARIES; ADDITIONAL GUARANTORS.
Except as provided in Section 7.04, no Obligor shall, directly or indirectly,
------------
form or acquire any Subsidiaries, provided, however, an Obligor may form or
-----------------
acquire Subsidiaries, if (i) the applicable Obligor gives the Agent written
notice thereof at least 30 Business Days prior to the consummation of such
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formation or acquisition (the "CONSUMMATION DATE"), (ii) in the case of an
acquisition of a Subsidiary, the applicable Obligor shall deliver, together with
such notice, (A) to the extent available, the most recent annual and monthly
Financial Statements for such Subsidiary which would have been required to be
delivered if such Subsidiary had been an original party to this Agreement which
shall be audited to the extent available (it being understood that no Obligor
shall have any obligation to cause any Financial Statements to be prepared), and
(B) a pro forma consolidated balance sheet for the Issuer, giving effect to such
Acquisition and any proposed extensions of credit to such Subsidiary on the
Consummation Date, (iii) promptly upon the Agent's reasonable request therefor,
the applicable Obligor shall deliver any documentation pertaining to such
Subsidiary and the Obligor and such Subsidiary, taken as a whole and (iv) on or
before the Consummation Date, such new Subsidiary shall become an Obligor
hereunder, all of the Capital Stock of such Subsidiary is owned by an Obligor
and the certificates representing 100% of the shares of Capital Stock of such
Subsidiary becomes part of the Pledged Securities under the Guarantor Security
and Pledge Agreement and are delivered to the Agent together with stock powers
for each such certificate executed in blank, and to the extent that no Default
or Event of Default then exists or would result from such acquisition. The
Issuer shall cause each inactive Subsidiary that is Wholly-Owned Subsidiary and
that becomes active after the date hereof to become an Obligor hereunder,
appropriate UCC-1 financing statements executed by such Subsidiary and to the
extent the stock of such Subsidiary has not previously been pledged to the
Agent, a Guarantor Security and Pledge Agreement supplement duly executed by the
appropriate Obligor accompanied by the stock certificates of such Subsidiary
together with undated stock powers executed in blank.
SECTION 7.09 RECEIVABLES. None of the Obligors shall sell, discount
or otherwise dispose of notes, accounts receivable or other obligations owing to
any Obligor except for the purpose of collection in the ordinary course of
business.
SECTION 7.10 BANK ACCOUNTS. The Issuer shall not and shall not
permit any of its Subsidiaries to establish or maintain any deposit account into
which collections and proceeds of Collateral are deposited other than those
identified as existing on the Closing Date and disclosed on Schedule 7.10
-------------
attached hereto.
SECTION 7.11 RESTRICTIONS ON SALE AND ISSUANCE OF CAPITAL STOCK.
None of the Guarantors shall issue any Capital Stock (except that any such
Guarantor may issue its Capital Stock to its sole stockholder if such Capital
Stock becomes Pledged Securities pursuant to the Security Agreements). In
addition, neither the Issuer nor any Subsidiary shall sell or issue, directly or
indirectly, any Capital Stock of any Subsidiary of the Issuer (other than to
Holders), unless (a) such sale or transfer satisfies all of the requirements for
a valid Asset Sale under this Agreement and (b) after giving effect to such sale
or transfer, no Obligor beneficially owns any Capital Stock of such former
Guarantor.
SECTION 7.12 LIMITATION ON SECURITY INTEREST RESTRICTIONS. No
Obligor shall, directly or indirectly create, incur, assume or suffer to exist
any Security Interest Restriction on any right, title or interest to or in any
of its properties or assets, except for (a) the Security Interest
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Restrictions existing as of the date of this Agreement and expressly identified
and described in Schedule 5.01(o) hereto, and (b) Permitted Liens.
----------------
SECTION 7.13 FIXED CHARGE COVERAGE RATIO TEST. For each fiscal
quarter in 1997, the Fixed Charge Coverage Ratio shall not be less than 1.0 to
1. At the end of each fiscal quarter of 1998 the Fixed Charge Coverage Ratio
from January 1, 1998 through the end of such fiscal quarter shall be at least
1.15 to 1. For each fiscal quarter ending March 31, 1999 and thereafter, the
Fixed Charge Coverage Ratio for the current and immediately prior three fiscal
quarters shall be at least 1.20 to 1.
SECTION 7.14 MINIMUM EBITDA TEST. For each fiscal quarter the
Notes are outstanding, the Issuer shall not permit the EBITDA to be less than
the EBITDA Floor, and a Responsible Officer shall certify to the Holders, within
45 days of the end of each quarter, that the Minimum EBITDA Test has been met.
SECTION 7.15 MINIMUM CONSOLIDATED NET WORTH. The Issuer shall not
permit its Consolidated Net Worth, determined at the last day of each fiscal
year after the date hereof, to be less than an amount equal to the Net Worth
Floor applicable to such date.
SECTION 7.16 MAXIMUM CAPITAL EXPENDITURES. Capital Expenditures for
the Issuer and its Subsidiaries shall not exceed $225,000 for the fourth quarter
of 1997, and $2.8 million for calendar year 1998, $3.3 million for calendar year
1999 and $3.5 million for calendar year 2000 on a consolidated basis for each
calendar year.
SECTION 7.17 AMENDMENTS TO THE IBM FACILITY. Issuer shall not
consent to any amendment or modification to the IBM Facility without the prior
written consent of the Holders.
SECTION 7.18 AMENDMENTS TO THE ACQUISITION AGREEMENT. Issuer shall
not consent to any amendment or modification to the Acquisition Agreement
without the prior written consent of the Holders.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
SECTION 8.01 EVENTS OF DEFAULT. An "EVENT OF DEFAULT" shall exist
if any of the following conditions or events shall occur and be continuing:
(a) any Obligor defaults in the payment of any principal on any Note
when the same becomes due and payable, whether at maturity or at a date fixed
for prepayment or by declaration or otherwise; or
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(b) any Obligor defaults in the payment of any interest on any Note
or any other amount due under this Agreement or under the Security Agreements in
full, for more than five Business Days after the same becomes due and payable;
or
(c) any Obligor defaults in the performance of or compliance with any
term contained in Article VII or in Sections 6.04, 6.05, 6.08, 6.10, 6.14 or
----------- ----------------------------------------
6.15; or
- ----
(d) any Obligor defaults in the performance of or compliance with any
term contained in Article VI (other than those contained in Sections 6.04, 6.05,
---------- --------------------
6.08, 6.10, 6.14 or 6.15) and such default is not remedied within 10 Business
- ------------------------
Days after the earlier of (i) a Responsible Officer of such Obligor obtaining
actual knowledge of such default and (ii) such Obligor receiving written notice
of such default from any Holder of a Note (any such written notice to be
identified as a "notice of default" and to refer specifically to this paragraph
(c) of Section 8.01); or
------------
(e) any Obligor defaults in the performance of or compliance with any
term contained herein (other than those referred to in paragraphs (a), (b) (c)
and (d) of this Section 8.01) and such default is not remedied within 30 days
------------
after the earlier of (i) a Responsible Officer of such Obligor obtaining actual
knowledge of such default and (ii) such Obligor receiving written notice of such
default from any Holder of a Note (any such written notice to be identified as a
"notice of default" and to refer specifically to this paragraph (d) of Section
-------
8.01); or
- ----
(f) any representation or warranty made in writing by or on behalf of
any Obligor or by any officer of any Obligor in any of the Note Documents or in
any writing furnished in connection with the transactions contemplated hereby
proves to have been false or incorrect in any material respect on the date as of
which made; or
(g) (i) any Obligor is in default (as principal or as guarantor or
other surety) in the payment of any principal of or premium or make-whole amount
or interest on any Indebtedness that is outstanding in an aggregate principal
amount of at least $100,000 beyond any period of grace provided with respect
thereto, or (ii) any Obligor is in default in the performance of or compliance
with any term of any evidence of any Indebtedness in an aggregate outstanding
principal amount of at least $100,000 or of any mortgage, indenture or other
agreement relating thereto or any other condition exists, and as a consequence
of such default or condition such Indebtedness has become, or has been declared
(or one or more Persons are entitled to declare such Indebtedness to be), due
and payable before its stated maturity or before its regularly scheduled dates
of payment, or (iii) as a consequence of the occurrence or continuation of any
event or condition (other than the passage of time or the right of the Holder of
Indebtedness to convert such Indebtedness into equity interests), (x) any
Obligor has become obligated to purchase or repay Indebtedness before its
regular maturity or before its regularly scheduled dates of payment in an
aggregate outstanding principal amount of at least $100,000, or (y) one or more
Persons have the right to require any Obligor so to purchase or repay such
Indebtedness; or
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<PAGE>
(h) if there shall occur a cancellation of, or Default under, any
agreement entered into by the Issuer or its Subsidiaries in connection with, or
as a result of, the Acquisition; or
(i) any Obligor (i) is generally not paying, or admits in writing its
inability to pay, its debts as they become due, (ii) files, or consents by
answer or otherwise to the filing against it of, a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy, insolvency, reorganization,
moratorium or other similar law of any jurisdiction, (iii) makes a general
assignment for the benefit of its creditors, (iv) consents to the appointment of
a custodian, receiver, trustee or other officer with similar powers with respect
to it or with respect to any substantial part of its property, (v) is
adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for
the purpose of any of the foregoing; or
(j) any Transaction Document shall, for any reason, not be or shall
cease to be in full force and effect except as provided herein or therein or
shall be declared null and void or any Transaction Documents shall not give or
shall cease to give the Holders the Liens, rights, powers and privileges with
respect to the Collateral purported to be created thereby in favor of the
Holders superior to and prior to the rights of all third Persons (except to the
extent expressly permitted herein or therein) other than by actions of the
Holders, provided that no such defect in the Transaction Documents shall give
--------
rise to an Event of Default under this clause unless such defect or failure
shall affect Collateral that is or should be subject to a Lien in favor of the
Holders having an aggregate value in excess of $50,000; or
(k) a court or governmental authority of competent jurisdiction
enters an order appointing, without consent by the applicable Obligor, a
custodian, receiver, trustee or other officer with similar powers with respect
to it or with respect to any substantial part of its property, or constituting
an order for relief or approving a petition for relief or reorganization or any
other petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of any Obligor, or any such petition shall be filed
against any Obligor and such petition shall not be dismissed within 60 days; or
(l) a final judgment or judgments for the payment of money
aggregating in excess of $100,000 are rendered against one or more of the
Obligors and which judgments are not, within 60 days after entry thereof,
bonded, discharged or stayed pending appeal, or are not discharged within 60
days after the expiration of such stay; or
(m) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a waiver of
such standards or extension of any amortization period is sought or granted
under section 412 of the Code, (ii) a notice of intent to terminate any Plan
shall have been or is reasonably expected to be filed with the PBGC or the PBGC
shall have instituted proceedings under ERISA section 4042 to terminate or
appoint a trustee to administer any Plan or the PBGC shall have notified any
Obligor or any ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate "amount of unfunded benefit liabilities"
(within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined
in
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<PAGE>
accordance with Title IV of ERISA, shall exceed $500,000, (iv) any Obligor or
any ERISA Affiliate shall have incurred or is reasonably expected to incur any
liability pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, (v) any Obligor or
any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) any Obligor
establishes or amends any employee welfare benefit plan that provides post-
employment welfare benefits in a manner that would increase the liability of
such Obligor thereunder; and any such event or events described in clauses (i)
through (vi) above, either individually or together with any other such event or
events, could reasonably be expected to have a Material Adverse Effect. As
used in this Section 8.01(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
---------------
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms
in Section 3 of ERISA; or
(n) if SMS does not comply with the terms of the SMS Intercreditor
Agreement; or
(o) if IBM does not comply with the terms of the IBM Intercreditor
Agreement.
SECTION 8.02 REMEDIES ON EVENT OF DEFAULT, ETC.
(a) Acceleration.
------------
(i) If an Event of Default with respect to any Obligor
described in paragraph (i) or (k) of Section 8.01 (other than an Event of
------------
Default described in clause (i) of paragraph (i) or described in clause (vi) of
paragraph (i) by virtue of the fact that such clause encompasses clause (i) of
paragraph (i)) has occurred, all the Notes then outstanding shall automatically
become immediately due and payable.
(ii) If any Event of Default described in paragraph (a) or (b)
of Section 8.01 has occurred and is continuing, any Holder or Holders of Notes
------------
at the time outstanding affected by such Event of Default may at any time, at
its or their option, by notice or notices to each Obligor, declare all the Notes
held by it or them to be immediately due and payable.
(iii) If any other Event of Default has occurred and is
continuing, the Agent upon written request of the Required Holders may at any
time at its option, by notice or notices to each Obligor, declare all the Notes
then outstanding to be immediately due and payable.
Upon any Notes becoming due and payable under this Section 8.02,
------------
whether automatically or by declaration, such Notes will forthwith mature and
the entire Unpaid Principal Amount of such Notes times the applicable Redemption
Percentage, plus all accrued and unpaid interest thereon (to the full extent
permitted by Governing Law), shall all be immediately due and payable, in each
and every case without presentment, demand, protest or further notice, all of
which are hereby waived.
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(b) Series B Preferred Stock Election of a Member of the Board of
-------------------------------------------------------------
Directors. If any Default or Event of Default has occurred the holders of the
- ---------
Series B Preferred Stock of the Issuer shall be entitled pursuant to the terms
thereof, immediately to elect one member of the Board of Directors of the
Issuer who shall be in addition to the regular members of the Board of Directors
elected by holders of the Common Stock and other classes of Preferred Stock.
(c) Other Remedies. If any Default or Event of Default has occurred
--------------
and is continuing, and irrespective of whether any Notes have become or have
been declared immediately due and payable under Section 8.02(a), the Agent,
---------------
pursuant to directions of the Required Holders, may proceed to protect and
enforce the rights of such Holder by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any agreement
contained herein or in any Note, or for an injunction against a violation of any
of the terms hereof or thereof, or in aid of the exercise of any power granted
hereby or thereby or by law or otherwise.
(d) Rescission. At any time after any Notes have been declared due
----------
and payable pursuant to clause (a)(i) or (a)(ii) of Section 8.02, the Agent upon
------------
written request of the Required Holders, by written notice to each Obligor, may
rescind and annul any such declaration and its consequences if (a) each Obligor
has paid all overdue interest on the Notes, all principal of any Notes that are
due and payable and are unpaid other than by reason of such declaration, all
interest on such overdue principal and (to the extent permitted by Governing
Law) any overdue interest in respect of the Notes, at the Default Rate, (b) all
Events of Default and Defaults, other than non-payment of amounts that have
become due solely by reason of such declaration, have been cured or have been
waived pursuant to Section 10.03, and (c) no judgment or decree has been entered
-------------
for the payment of any monies due pursuant hereto or to the Notes. No
rescission and annulment under this Section 8.02(c) will extend to or affect any
---------------
subsequent Event of Default or Default or impair any right consequent thereon.
(e) No Waivers or Election of Remedies, Expenses, etc. No course of
--------------------------------------------------
dealing and no delay on the part of any Holder of any Note in exercising any
right, power or remedy shall operate as a waiver thereof or otherwise prejudice
such Holder's rights, powers or remedies. No right, power or remedy conferred
by this Agreement or by any Note upon any Holder thereof shall be exclusive of
any other right, power or remedy referred to herein or therein or now or
hereafter available at law, in equity, by statute or otherwise. Without
limiting the obligations of each Obligor under Section 9.01, each Obligor will
------------
pay to the Holder of each Note on demand such further amount as shall be
sufficient to cover all costs and expenses of such Holder incurred in any
enforcement or collection under this Section 8.02, including, without
------------
limitation, reasonable attorneys' fees, expenses and disbursements.
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ARTICLE IX
THE AGENT
SECTION 9.01 APPOINTMENT.
(a) Each Purchaser hereby designates and appoints Canpartners as the
Agent of such Purchaser under this Agreement, and each Purchaser hereby
irrevocably authorizes the Agent to take such action on its behalf under the
provisions of this Agreement and the Transaction Docu ments and to exercise
such powers as are set forth herein or therein together with such other powers
as are reasonably incidental thereto. The Agent agrees to act as such on the
express conditions contained in this Article IX.
----------
(b) The provisions of this Article IX are solely for the benefit of
----------
the Agent and the Holders and neither the Issuer nor any Subsidiary of the
Issuer shall have any rights to rely on or enforce any of the provisions hereof
(other than as expressly set forth in Section 9.06). In per forming its
------------
functions and duties under this Agreement, the Agent shall act solely as agent
of the Holders and does not assume and shall not be deemed to have assumed any
obligation or relationship of agency, trustee or fiduciary with or for the
Issuer or any Affiliate of the Issuer. The Agent may perform any of its duties
hereunder, or under the other Transaction Documents, by or through its agents or
employees.
SECTION 9.02 NATURE OF DUTIES. The Agent shall not have any duties
or responsibilities except those expressly set forth in this Agreement or in the
Transaction Documents. The duties of the Agent shall be mechanical and
administrative in nature. The Agent shall not have by reason of this Agreement
a fiduciary relationship in respect of any Holder. Nothing in this Agreement or
any of the Transaction Documents, expressed or implied, is intended to or shall
be construed to impose upon the Agent any obligations in respect of this
Agreement or any of the other Transaction Documents except as expressly set
forth herein or therein. Each Holder shall make its own independent
investigation of the financial condition and affairs of the Issuer and
Affiliates in connection with the purchase of the Notes hereunder and shall make
its own appraisal of the creditworthiness of the Issuer and Guarantors initially
and on a continuing basis, and the Agent shall not have any duty or
responsibility, either initially or on a continuing basis, to provide any Holder
with any credit or other information with respect thereto (except for reports
required to be delivered by the Agent under the terms of this Agreement). If
the Agent seeks the consent or approval of the Holders to the taking or
refraining from taking of any action hereunder, the Agent shall send notice
thereof to each Holder. The Agent shall promptly notify each Holder at any time
that the Holder so required hereunder has instructed the Agent to act or refrain
from acting pursuant hereto. As to any matters not expressly provided for by
this Agreement (including, without limitation, enforcement or collection of the
Notes or any amount payable when due) or the other Transaction Documents, the
Agent shall not be required to exercise any discretion or take any action.
Notwithstanding the foregoing, the Agent shall be required to act or refrain
from acting (and shall be fully protected in so acting or refraining from
acting) upon the instructions of the Required Holders (unless the instructions
or consent of a greater percentage of Holders are required hereunder or
thereunder) and
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such instructions shall be binding upon all Holders of Notes; provided, however,
-------- -------
the Agent shall not be required to take any action which (i) the Agent
reasonably believes will expose it to personal liability unless the Agent
receives an indemnification satisfactory to it from the Holders with respect to
such action or (ii) is contrary to this Agreement, the other Transaction
Documents or Governing Law. All payments, reports and notices to be made or
delivered by the Issuer shall be paid or delivered to the Holders and the Agent.
SECTION 9.03 RIGHTS, EXCULPATION, ETC.
(a) Liabilities; Responsibilities. None of the Agent, any Affiliate
-----------------------------
of the Agent, or any of their respective officers, directors, employees or
agents shall be liable to any Holder for any action taken or omitted by them
hereunder or under any of the Transaction Documents, or in connection therewith,
except that no Person shall be relieved of any liability imposed by law for
gross negligence or willful misconduct. The Agent shall not be liable for any
apportionment or distribution of payments made by it in good faith, if any, and
if any such apportionment or distribution is subsequently determined to have
been made in error the sole recourse of any Holder to whom payment was due, but
not made, shall be to recover from other Holders any payment in excess of the
amount to which they are determined to have been entitled. The Agent shall not
be responsible to any Holder for any recitals, statements, representations or
warranties herein or for the execution, effectiveness, genuineness, validity,
legality, enforceability, collectibility, or sufficiency of this Agreement or
any of the other Transaction Documents or the transactions contemplated thereby,
or for the financial condition of the Issuer or any of its Affiliates or the
Guarantors. The Agent shall not be required to make any inquiry concerning
either the performance or observance of any of the terms, provisions or
conditions of this Agreement or any of the other Transaction Documents or the
financial condition of the Issuer or any of its Affiliates or the Guarantors, or
the existence or possible existence of any potential Event of Default or Event
of Default.
(b) Right to Request Instructions. The Agent may at any time request
-----------------------------
instructions from the Holders with respect to any actions or approvals which by
the terms of any of the Transaction Documents the Agent is permitted or required
to take or to grant, and the Agent shall be absolutely entitled to refrain from
taking any action or to withhold any approval and shall not be under any
liability whatsoever to any Person for refraining from any action or withholding
any approval under any of the Transaction Documents until it shall have received
such instructions from those Holders from whom the Agent is required to obtain
such instructions for the pertinent matter in accordance with the Transaction
Documents. Without limiting the generality of the foregoing, no Holder shall
have any right of action whatsoever against the Agent as a result of the Agent
acting or refraining from acting under the Transaction Documents in accordance
with the instructions of the Required Holders or, where required by the express
terms of this Agreement, a greater proportion of the Holders.
SECTION 9.04 RELIANCE. The Agent shall be entitled to rely upon any
written notices, statements, certificates, orders or other documents or any
telephone message believed by it in good faith to be genuine and correct and to
have been signed, sent or made by the proper Person, and with
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respect to all matters pertaining to this Agreement or any of the Transaction
Documents and its duties hereunder or thereunder, upon advice of legal counsel
(including counsel for the Issuer), independent public accountants and other
experts selected by it.
SECTION 9.05. INDEMNIFICATION. To the extent that the Agent is
required to be reimbursed and indemnified by the Issuer but is not reimbursed
and indemnified by the Issuer, the Holders will reimburse and indemnify the
Agent for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against it in any way relating to or arising out of the Transaction Documents or
any action taken or omitted by the Agent under the Transaction Documents, in
proportion to each Holders pro rata share of the Notes; provided that Issuer
shall have no obligation to indemnify the Agent for any and all liabilities
described in this Section 9.05 which result from the gross negligence or willful
misconduct of the Agent. The obligations of the Holders under this Section 9.05
------------
shall survive the payment in full of the Obligations and all other Obligations
and the termination of this Agreement.
SECTION 9.06. SUCCESSOR AGENTS.
(a) Resignation. The Agent may resign from the performance of all its
-----------
functions and duties hereunder at any time by giving at least thirty (30)
Business Days' prior written notice to the Issuer and the Holders. Such
resignation shall take effect upon the acceptance by a successor Agent of
appointment pursuant to this Section 9.06.
------------
(b) Appointment by Required Holders. Upon any such notice of
-------------------------------
resignation, the Required Holders shall have the right to appoint a successor
Agent selected from among the Holders which appointment shall be subject to the
prior written approval of the Issuer (which may not be unreasonably withheld,
and shall not be required upon the occurrence and during the continuance of an
Event of Default).
(c) Appointment by Retiring Agent. If a successor Agent shall not
-----------------------------
have been appointed within the thirty (30) Business Day period provided in
clause (a) of this Section 9.06, the retiring Agent, with the consent of the
- ---------- ------------
Issuer (which may not be unreasonably withheld, and shall not be required upon
the occurrence and during the continuance of an Event of Default), shall then
appoint a successor Agent who shall serve as Agent until such time, if any, as
the Required Holders appoint a successor Agent as provided above.
(d) Rights of the Successor and Retiring Agents. Upon the acceptance
-------------------------------------------
of any appointment as Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring Agent's resignation hereunder as Agent, the provisions of this Article
-------
IX shall inure to its benefit as to any actions taken or omitted to be taken by
- --
it while it was the Agent under this Agreement.
-61-
<PAGE>
SECTION 9.07. RELATIONS AMONG HOLDERS. Each Purchaser agrees that it
will not take any legal action, nor institute any actions or proceedings,
against the Issuer or any other Obligor hereunder or with respect to any
Collateral, without the prior written consent of the Required Holders. Without
limiting the generality of the foregoing, no Holder may accelerate or otherwise
enforce its portion of the Obligations, except in accordance with Section 8.02.
------------
SECTION 9.08. CONCERNING THE COLLATERAL AND THE TRANSACTION
DOCUMENTS.
(a) Authority. Each Purchaser authorizes and directs the Agent to
---------
enter into the Transaction Documents relating to the Collateral for the benefit
of the Holders. Each Purchaser agrees that any action taken by the Agent or the
Required Holders (or, where required by the express terms of this Agreement, a
greater proportion of the Holders) in accordance with the provisions of this
Agreement or the other Transaction Documents, and the exercise by the Agent or
the Required Holders (or, where so required, such greater proportion) of the
powers set forth herein or therein, together with such other powers as are
reasonably incidental thereto, shall be authorized and binding upon all of the
Holders. Without limiting the generality of the foregoing, the Agent shall have
the sole and exclusive right and authority to (i) act as the disbursing and
collecting agent for the Holders with respect to all payments and collections
arising in connection with the Transaction Documents relating to the collection
of the Collateral and proceeds therefrom; (ii) execute and deliver each
Transaction Document relating to the Collateral and accept delivery of each such
agreement delivered by the Issuer, any of its Subsidiaries or Guarantors a party
thereto; (iii) act as collateral agent for the Holders for purposes of the
perfection of all security interests and Liens created by such agreements and
all other purposes stated therein; provided, however, the Agent hereby appoints,
-------- -------
authorizes and directs the Holders to act as collateral sub-agent for the Agent
for purposes of the perfection of all security interests and Liens; (iv) manage,
supervise and otherwise deal with the Collateral; (v) take such action as is
necessary or desirable to maintain the perfection and priority of the security
interests and liens created or purported to be created by the Transaction
Documents; and (vi) except as may be otherwise specifically restricted by the
terms of this Agreement or any other Transaction Document, exercise all remedies
given to the Agent or the Holders with respect to the Collateral under the
Transaction Documents relating thereto, Governing Law or otherwise.
(b) Release of Collateral.
---------------------
(i) Each Purchaser hereby directs, in accordance with the terms
of this Agreement, the Agent to release any Lien held by the Agent for the
benefit of the Holders:
(A) against all of the Collateral, upon final and
indefeasible payment in full of the Obligations and termination of this
Agreement;
(B) against any part of the Collateral sold or disposed of
by the Issuer or any of its Subsidiaries, if such sale or disposition is
permitted by Section 7.02 and 7.03 or is otherwise consented to by the
---------------------
Required Holders, as certified to the Agent by the Issuer in an Officer's
Certificate; and/or
-62-
<PAGE>
(C) against any part of the Collateral consisting of a
promissory note, upon final and indefeasible payment in full of the
Indebtedness evidenced thereby.
(ii) Each Purchaser hereby directs the Agent to execute and
deliver or file such termination and partial release statements and do such
other things as are necessary to release Liens to be released pursuant to this
Section 9.08(b) promptly upon the effectiveness of any such release.
- ---------------
ARTICLE X
SUBORDINATION
SECTION 10.01. NOTES SUBORDINATED TO SENIOR DEBT. Notwithstanding any
other provision contained herein, the Issuer covenants and agrees and each
Holder of the Notes, by his acceptance thereof likewise covenants and agrees,
that all Notes shall be issued subject to the provisions of the IBM
Intercreditor Agreement, which agreement shall be binding upon each Holder, and
each Person holding any Security, whether upon original issue or upon transfer,
assignment or exchange thereof accepts and agrees that the payment of the
principal of, interest on and any other claims of the Holders of Notes in
respect of the Notes by the Issuer shall, to the extent and in the manner set
forth in the IBM Intercreditor Agreement, be subordinated and junior in right of
payment to the prior indefeasible payment in full, in cash or cash equivalents,
of Senior Debt.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. EXPENSES, ETC. Whether or not the transactions
contemplated hereby are consummated, each Obligor agrees, jointly and severally
to pay all costs and expenses (including reasonable attorneys' fees of a special
counsel and, if reasonably required, local or other counsel) incurred by the
Holders of a Note in connection with such transactions and in connection with
any amendments, waivers or consents under or in respect of this Agreement or the
Notes (whether or not such amendment, waiver or consent becomes effective),
including, without limitation: (a) the costs and expenses incurred in enforcing
or defending (or determining whether or how to enforce or defend) any rights
under this Agreement or the Notes or in responding to any subpoena or other
legal process or informal investigative demand issued in connection with this
Agreement or the Notes, or by reason of being a Holder of any Note, and (b) the
costs and expenses, including financial advisors' fees, incurred in connection
with the insolvency or bankruptcy of any Obligor or in connection with any work-
out or restructuring of the transactions contemplated hereby and by the Notes.
Each Obligor will pay, and will save each Holder harmless from, all claims in
respect of any fees, costs or expenses if any, of brokers and finders (other
than those retained by such Holder). The obligations of each Obligor under this
Section 11.01 will survive the payment or transfer of any Note, the enforcement,
- -------------
amendment or waiver of any provision of this Agreement or the Notes, and the
termination of this Agreement.
-63-
<PAGE>
SECTION 11.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT. All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Notes, the purchase or transfer
by any Holder of any Note or portion thereof or interest therein and the payment
of any Note, and may be relied upon by any subsequent Holder of a Note,
regardless of any investigation made at any time by or on behalf of any Holder.
All statements contained in any certificate or other instrument delivered by or
on behalf of each Obligor pursuant to this Agreement shall be deemed
representations and warranties of each Obligor under this Agreement. Subject to
the preceding sentence, this Agreement and the Notes embody the entire agreement
and understanding between each Holder and each Obligor and supersede all prior
agreements and understandings relating to the subject matter hereof.
SECTION 11.03. AMENDMENT AND WAIVER.
(a) Requirements.
------------
(i) This Agreement, the Notes and the other Transaction
Documents may be amended, and the observance of any term hereof or thereof or of
the Notes may be waived (either retroactively or prospectively), with (and only
with) the written consent of each Obligor and the Required Holders, except that
no amendment or waiver of any of the provisions of Sections 2.01, 4.01, 4.02 or
----------------------------
11.07 hereof, or any defined term relating to such sections (as it is used
- -----
therein), will be effective as to any Holder unless consented to by such Holder
in writing, and no such amendment or waiver may, without the written consent of
all Holders affected thereby, subject to the provisions of Section 8.02 relating
------------
to acceleration or rescission, change the amount or time of any prepayment or
payment of principal of, or reduce the rate or change the time of payment or
method of computation of interest on, the Notes, change the percentage of the
principal amount of the Notes the Holders of which are required to consent to
any such amendment or waiver, or amend any of Sections 8.01(a), 8.01(b), 8.02,
-------------------------------
11.03 or 11.06.
- --------------
(ii) Any amendment, modification, termination, waiver or consent
with respect to any of the following provisions of this Agreement shall be
effective only by a written agreement, signed by each Holder:
(A) release of any Guarantor of the Obligations or all or a
substantial portion of the Collateral (except as provided in Section 9.08(b)),
---------------
(B) waiver of any Event of Default described in Section
-------
8.01.
- ----
(b) Agent Authority. The Agent may, but shall have no obligation to,
---------------
with the written concurrence of any Holder, execute amendments, modifications,
waivers or consents on behalf of that Holder. Notwithstanding anything to the
contrary contained in this Section 11.03, no amendment, modification, waiver or
-------------
consent shall affect the rights or duties of the Agent under this Agreement or
the other Transaction Documents, unless made in writing and signed by the Agent
in addition to the Holders required above to take such action.
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<PAGE>
(c) Delivery of Amendments, Waivers, etc. Each Obligor will deliver
-------------------------------------
executed or true and correct copies of each amendment, waiver or consent
effected pursuant to the provisions of this Section 11.03 to each Holder of
-------------
outstanding Notes promptly following the date on which it is executed and
delivered by, or receives the consent or approval of, the requisite Holders of
Notes.
(d) Payment. Each Obligor will not directly or indirectly pay or
-------
cause to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, or grant any security, to any Holder of Notes as
consideration for or as an inducement to the entering into by any Holder of
Notes of any waiver or amendment of any of the terms and provisions hereof
unless such remuneration is concurrently paid, or security is concurrently
granted, on the same terms, ratably to each Holder of Notes then outstanding
even if such Holder did not consent to such waiver or amendment.
(e) Binding Effect, etc. Any amendment or waiver consented to as
-------------------
provided in this Section 11.03 applies equally to all Holders of Notes and is
-------------
binding upon them and upon each future Holder of any Note and upon each Obligor
without regard to whether such Note has been marked to indicate such amendment
or waiver. No such amendment or waiver will extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or waived
or impair any right consequent thereon. No course of dealing between each
Obligor and the Holder of any Note nor any delay in exercising any rights
hereunder or under any Note shall operate as a waiver of any rights of any
Holder of such Note.
(f) Notes held by each Obligor, etc. Solely for the purpose of
--------------------------------
determining whether the Holders of the requisite percentage of the aggregate
principal amount of Notes then outstanding approved or consented to any
amendment, waiver or consent to be given under this Agreement or the Notes, or
have directed the taking of any action provided herein or in the Notes to be
taken upon the direction of the Holders of a specified percentage of the
aggregate principal amount of Notes then outstanding, Notes directly or
indirectly owned by each Obligor or any of its Affiliates shall be deemed not to
be outstanding.
SECTION 11.04. NOTICES. All notices and communications provided for
hereunder shall be in writing and sent by telecopy if the sender on the same day
sends a confirming copy of such notice by a recognized overnight delivery
service (charges prepaid), or by registered or certified mail with return
receipt requested (postage prepaid), or by a recognized overnight delivery
service (with charges prepaid). Any such notice must be sent to the following
addresses (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 11.04):
-------------
(a) if to any Obligor, to the care of:
Western Micro Technology, Inc.
254 E. Hacienda Avenue
Campbell, CA 95008
Attention: James W. Dorst
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<PAGE>
Telecopier: (408) 341-4768
with a copy to:
Pillsbury Madison & Sutro
2700 Sand Hill Road
Menlo Park, CA 94025-7087
Attention: Katharine Martin, Esq.
Telecopier: (415) 233-4545
(b) if to the Agent, to the care of:
Canyon Partners Incorporated
9665 Wilshire Boulevard
Beverly Hills, California 90212
Attention: Scott A. Imbach
Telecopier: (310) 247-2701
with a copy to:
Robert Fleming Inc.
320 Park Avenue, 11th Floor
New York, New York 10022
Attention: Michael E. Rowe
Telecopier: (212) 508-3679
with a copy to:
Sidley & Austin
555 West Fifth Street
Los Angeles, California 90013
Attention: Gary J. Cohen, Esq.
Telecopier: (213) 896-6600
(c) if to any other Holder, to its address shown on the Note register
to be maintained by the Issuer, on behalf of the Issuer, pursuant to Section
-------
2.02.
- ----
Notices under this Section 11.04 will be deemed given only when actually
-------------
received.
SECTION 11.05. REPRODUCTION OF DOCUMENTS. This Agreement and all
documents relating thereto, including, without limitation, (a) consents, waivers
and modifications that may hereafter be executed, (b) documents received by the
Purchasers at the Closing (except the Notes themselves), and (c) financial
statements, certificates and other information previously or hereafter
-66-
<PAGE>
furnished to any Holder, may be reproduced by the Holders by any photographic,
photostatic, microfilm, microcard, miniature photographic or other similar
process and each Holder may destroy any original document so reproduced. Each
Obligor agrees and stipulates that, to the extent permitted by Governing Law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by any Holder in the
regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence. This
Section 11.05 shall not prohibit each Obligor or any other Holder of Notes from
- -------------
contesting any such reproduction to the same extent that it could contest the
original, or from introducing evidence to demonstrate the inaccuracy of any such
reproduction.
SECTION 11.06. CONFIDENTIAL INFORMATION. For the purposes of this
Section 11.06, "CONFIDENTIAL INFORMATION" means information delivered to any
- -------------
Holder by or on behalf of each Obligor in connection with the transactions
contemplated by or otherwise pursuant to this Agreement that is proprietary in
nature and that was clearly marked or labeled or otherwise adequately identified
when received by such Holder as being confidential information of each Obligor,
provided that such term does not include information that (a) was publicly known
- --------
to any Holder prior to the time of such disclosure, (b) subsequently becomes
publicly known through no act or omission by any Holder or any Person acting on
behalf of any Holder, (c) otherwise becomes known to any Holder other than
through disclosure by each Obligor or its representatives or (d) constitutes
financial statements delivered to any Holder under Section 6.01 that are
------------
otherwise publicly available. Each Holder will maintain the confidentiality of
such Confidential Information in accordance with procedures adopted by such
Holder in good faith to protect confidential information of third parties
delivered to such Holder, provided that each Holder may deliver or disclose
--------
Confidential Information to its (i) directors, officers, employees, agents,
attorneys and affiliates (to the extent such disclosure reasonably relates to
the administration of the investment represented by its Notes), (ii) financial
advisors and other professional advisors who agree to hold confidential the
Confidential Information substantially in accordance with the terms of this
Section 11.06, (iii) any other Holder of any Note, (iv) any Person to which such
- -------------
Holder sells or offers to sell such Note or any part thereof or any
participation therein (if such Person has agreed in writing prior to its receipt
of such Confidential Information to be bound by the provisions of this Section
-------
11.06), (v) any Person from which such Holder offers to purchase any security of
- -----
each Obligor (if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this Section 11.06),
-------------
(vi) any federal or state regulatory authority having jurisdiction over such
Holder, (vii) any nationally recognized rating agency that requires access to
information about such Holder's investment portfolio or (viii) any other Person
to which such delivery or disclosure may be necessary or appropriate (w) to
effect compliance with any Requirement of Law applicable to such Holder, (x) in
response to any subpoena or other legal process, (y) in connection with any
litigation to which such Holder is a party or (z) if an Event of Default has
occurred and is continuing, to the extent such Holder may reasonably determine
such delivery and disclosure to be necessary or appropriate in the enforcement
or for the protection of the rights and remedies under such Holder's Notes and
this Agreement. Each Holder of a Note, by its acceptance of a Note, will be
deemed to have agreed to be bound by and to be entitled to the benefits of this
Section 11.06 as though it were a party to this Agreement. On
- -------------
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<PAGE>
reasonable request by each Obligor in connection with the delivery to any Holder
of a Note of information required to be delivered to such Holder under this
Agreement or requested by such Holder (other than a Holder that is a party to
this Agreement or its nominee), such Holder will enter into an agreement with
each Obligor embodying the provisions of this Section 11.06.
-------------
SECTION 11.07. TRANSFERS OF NOTES. Subject to the requirements of
Section 2.02(a), the Purchasers and any subsequent Holder shall have the right
- ---------------
to transfer the Notes held by any such Person to any other Person, by written
notice to each Obligor, which notice shall be signed by both the Purchasers and
such transferee, shall contain such transferee's agreement to be bound by this
Agreement and the Notes shall contain a confirmation by such transferee of the
accuracy with respect to it of the representations set forth in Section 5.02.
------------
As a condition to any transfer of a Note, the Issuer may require appropriate
documentation to evidence compliance with applicable securities laws, including
an opinion of counsel with respect thereto. Upon receipt of such notice,
wherever the word "Purchaser" or "Holder" is used in this Agreement (other than
in this Section 11.07), such word shall be deemed to refer to such transferee in
-------------
lieu of the Purchaser or such Holder, as the case may be. No transfer of any
Note shall relieve the transferring Holder of its obligations under Section
-------
11.06.
- -----
SECTION 11.08. SUCCESSORS AND ASSIGNS. All covenants and other
agreements contained in this Agreement by or on behalf of any of the parties
hereto bind and inure to the benefit of their respective successors and assigns
(including, without limitation, any subsequent Holder of a Note) whether so
expressed or not.
SECTION 11.09. SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by law)
not invalidate or render unenforceable such provision in any other jurisdiction.
SECTION 11.10. CONSTRUCTION. Each covenant contained herein shall be
construed (absent express provision to the contrary) as being independent of
each other covenant contained herein, so that compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to excuse
compliance with any other covenant. Where any provision herein refers to action
to be taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such Person.
SECTION 11.11. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of which
together shall constitute one instrument. Each counterpart may consist of a
number of copies hereof, each signed by less than all, but together signed by
all, of the parties hereto.
SECTION 11.12. GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with, and the rights of the parties shall be governed by,
the law of the State of
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<PAGE>
California excluding choice-of-law principles of the law of such State that
would require the application of the laws of a jurisdiction other than such
State.
SECTION 11.13. WAIVER OF RIGHT TO TRIAL BY JURY. OBLIGORS AND HOLDERS
WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION
(a) ARISING UNDER THIS AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO
HEREIN OR DELIVERED IN CONNECTION HEREWITH, OR (b) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE OBLIGORS AND THE HOLDERS WITH
RESPECT TO THIS AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO HEREIN
OR DELIVERED IN CONNECTION HEREWITH IN EACH CASE WHETHER SOUNDING IN CONTRACT OR
TORT OR OTHERWISE, OBLIGORS AND HOLDERS AGREE AND CONSENT THAT ANY SUCH CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A
JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OF A
COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF
OBLIGORS AND HOLDERS TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. OBLIGORS AND
HOLDERS ACKNOWLEDGE THAT THEY HAVE HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL
REGARDING THIS SECTION THAT THEY FULLY UNDERSTAND ITS TERMS, CONTENT AND EFFECT,
AND THAT THEY VOLUNTARILY AND KNOWINGLY AGREE TO THE TERMS OF THIS SECTION.
SECTION 11.14. INDEMNIFICATION. The Issuer hereby indemnifies and
agrees to defend and hold harmless each Holder and its directors, officers,
agents, employees and counsel from and against any and all losses, claims,
damages, liabilities, deficiencies, judgments or expenses incurred by any of
them (except to the extent that it is finally judicially determined to have
resulted from its own gross negligence or willful misconduct) arising out of or
by reason of (a) any actual or proposed use by any Issuer or any other Person of
the proceeds of the Notes, (b) any litigation, investigations, claims or
proceedings which arise out of or are in any way related to (i) the Note
Documents or the transactions contemplated hereby or (ii) any aspect of the
Acquisition or any transaction arising under or relating to the Transaction
Documents, including, without limitation, amounts paid in settlement, court
costs and the fees and disbursements of counsel incurred in connection with any
such litigation, investigation, claim or proceeding or any advice rendered in
connection with any of the foregoing and (c) any remedial or other action taken
by an Obligor or any of the Holders in connection with compliance by any
Obligor, or any of its properties, with any federal, state or local
environmental laws, acts, rules, regulations, orders, directions, ordinances,
criteria or guidelines. Without limiting any provision of this Agreement, it is
the express intention of the parties hereto that each Person indemnified
hereunder shall be indemnified and held harmless against any and all losses,
liabilities, claims or damages arising out of or resulting from the sole or
concurrent negligence of such Person. Without prejudice to the survival of any
other Obligations of the Obligors hereunder and under the other Note Documents,
the Obligations of each Obligor under this Section 11.13 will survive the
-------------
payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement or the Notes, and the termination of this Agreement.
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<PAGE>
SECTION 11.15. MAXIMUM RATE. Notwithstanding anything to the contrary
contained elsewhere in this Agreement or in any other Note Document, the
Obligors and the Holders hereby agree that all agreements among them under this
Agreement and the other Note Documents, whether now existing or hereafter
arising and whether written or oral, are expressly limited so that in no
contingency or event whatsoever shall the amount paid, or agreed to be paid, to
any Holder for the use, forbearance, or detention of the money loaned to the
Issuer and evidenced hereby or thereby or for the performance or payment of any
covenant or obligation contained herein or therein, exceed the Highest Lawful
Rate. If due to any circumstance whatsoever, fulfillment of any provisions of
this Agreement or any of the other Note Documents at the time performance of
such provision shall be due shall exceed the Highest Lawful Rate, then,
automatically, the obligation to be fulfilled shall be modified or reduced to
the extent necessary to limit such interest to the Highest Lawful Rate, and if
from any such circumstance any Holder should ever receive anything of value
deemed interest by Governing Law which would exceed the Highest Lawful Rate,
such excessive interest shall be applied to the reduction of the principal
amount then outstanding hereunder or on account of any other then outstanding
Obligations and not to the payment of interest, or if such excessive interest
exceeds the principal unpaid balance then outstanding hereunder and such other
then outstanding Obligations, such excess shall be refunded to the Issuer. All
sums paid or agreed to be paid to any Holder for the use, forbearance, or
detention of the Obligations and other Indebtedness of the Issuer to the
Holders, to the extent permitted by Governing Law, shall be amortized, prorated,
allocated and spread throughout the full term of such Indebtedness, until
payment in full thereof, so that the actual rate of interest on account of all
such Indebtedness does not exceed the Highest Lawful Rate throughout the entire
term of such Indebtedness. The terms and provisions of this Section 11.14 shall
-------------
control every other provision of this Agreement and all agreements among the
Obligors and the Holders.
* * *
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
<TABLE>
<CAPTION>
ISSUER: AGENT:
- ------- ------
<S> <C>
WESTERN MICRO TECHNOLOGY, INC., CANPARTNERS INVESTMENTS IV, LLC,
a Delaware corporation a California limited liability company
By: /s/ James W. Dorst By: /s/ Scott A. Imbach
-------------------------- --------------------------------
James W. Dorst Scott A. Imbach
Chief Financial Officer Attorney-In-Fact
PURCHASERS:
- ----------
CANPARTNERS INVESTMENTS IV, LLC, ROBERT FLEMING INC.,
a California limited liability company a Delaware corporation
By: /s/ Scott A. Imbach By: /s/ Arthur Levy
--------------------------------------- ----------------------------------
Scott A.Imbach Name: Arthur Levy
Attorney-in-Fact Title: Vice Chairman
GUARANTORS:
___________
WMT ACQUISITION CORP., SAVOIR TECHNOLOGY GROUP, INC.,
a California corporation, a Delaware corporation,
By: /s/ James W. Dorst By: /s/ James W.Dorst
-------------------------------------- ----------------------------------
James W.Dorst James W.Dorst
Chief Financial Officer Chief Financial Officer
STAR MANAGEMENT SERVICES, INC., INET SYSTEMS, INC.,
a Delaware corporation, a Texas corporation,
By: /s/ Carlton Joseph Mertens, II By: /s/ Carlton Joseph Mertens, II
-------------------------------------- ---------------------------------
Carlton Joseph Mertens II Carlton Joseph Mertens II
President President
</TABLE>
SIGNATURE PAGE 1 OF 2
<PAGE>
STAR DATA INTERNATIONAL
a company organized under the laws of the
Virgin Islands
By: /s/ Carlton Joseph Mertens II
--------------------------------
Carlton Joseph Mertens II
President
SIGNATURE PAGE 2 OF 2
<PAGE>
SIRIUS INVESTMENTS,INC.; STAR DATA SYSTEMS, INC.,
a Nevada corporation a Texas corporation
By: /s/ Carlton Joseph Mertens II By: /s/ Carlton Joseph Mertens II
-------------------------------- -------------------------------
Carlton Joseph Mertens II Carlton Joseph Mertens II
President President
ADD'L SUBS SIGNATURE PAGE 3
<PAGE>
EXHIBIT A
FORM OF THE NOTE
----------------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
THIS NOTE IS SUBJECT TO THE TERMS OF A SUBORDINATION AND
INTERCREDITOR AGREEMENT IN FAVOR OF IBM CREDIT CORPORATION, WHICH
SUBORDINATION AND INTERCREDITOR AGREEMENT CONTAINS CERTAIN
SUBORDINATION PROVISIONS AND IS INCORPORATED HEREIN BY REFERENCE.
NOTWITHSTANDING ANY CONTRARY STATEMENT CONTAINED IN THIS NOTE, NO
PAYMENT ON ACCOUNT OF THE PRINCIPAL, PREMIUM, IF ANY, OR INTEREST
HEREOF SHALL BECOME DUE OR BE PAID EXCEPT IN ACCORDANCE WITH THE
TERMS OF SUCH SUBORDINATION AND INTERCREDITOR AGREEMENT.
WESTERN MICRO TECHNOLOGY, INC.,
Issuer
13.5% SECOND PRIORITY SENIOR SECURED NOTES DUE SEPTEMBER 30, 2000
No. 1 September __, 1997
$[________]
FOR VALUE RECEIVED, the undersigned, WESTERN MICRO TECHNOLOGY, INC., a
Delaware corporation (the "ISSUER") hereby promises to pay to
______________________, or registered assigns, the principal sum of _______
DOLLARS ($_______) on September 30, 2000, with interest (computed on the basis
of a 360-day year of twelve 30-day months) (a) on the unpaid balance thereof at
the rate of 1.125% per month from the date hereof, payable monthly, on the 1st
day of each month, commencing with November 1, 1997, until the principal hereof
shall have become due and payable, and (b) to the extent permitted by law on any
overdue payment (including any overdue prepayment) of principal and any overdue
payment of interest (as defined in the Agreement (as defined below)), payable
monthly as aforesaid (or, at the option of the registered Holder (as defined in
the Agreement) hereof, on demand), at a rate per annum from time to time equal
to the Default Rate (as defined in the Agreement).
EXHIBIT A - 1
<PAGE>
Payments of principal of and interest on this Note are to be made in
lawful money of the United States of America by the method and to the address or
account specified with respect to the holder hereof pursuant to Section 2.05 of
the Agreement.
This Note is one of a duly authorized issue of Notes of the Issuer
designated as its 13.5% Second Priority Senior Secured Notes Due September 30,
2000 (herein called the "Notes"), limited in aggregate principal amount to
$15,700,000 issued and to be issued under a Note Purchase Agreement dated as of
September 30, 1997 among Issuer, Robert Fleming Inc. and Canpartners Investments
IV, LLC as Purchasers, Canpartners Investments IV, LLC, as Agent for the
Purchasers, and WMT Acquisition Corp., Savoir Technology Group, Inc., Star
Management Services, Inc., Inet Systems, Inc., Star Data International, Sirius
Investments, Inc., and Star Data Systems, Inc. (herein called the "Agreement"),
to which Agreement and all Agreements supplemental thereto reference is hereby
made for a statement of the respective rights, thereunder of the Issuer, the
holders of Senior Debt and the Holders of the Notes. Pursuant to the Agreement,
the Holders of Notes are also entitled to the benefits of a Security and Pledge
Agreement, dated September 30, 1997 between the Issuer and the Agent thereunder.
The terms of the Notes include those stated in the Agreement. The Notes are
subject to all such terms, and holders are referred to the Agreement for a
statement of such terms. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to such terms in the Agreement.
The Issuer hereby acknowledges and makes this Note a registered
obligation for United States withholding tax purposes. The Issuer shall be the
registrar for this Note (the "REGISTRAR") with full power of substitution. In
the event the Registrar becomes unable or unwilling to act as registrar for this
Note, the Issuer shall reasonably designate a successor Registrar. If the
Holder is a foreign person, by its acceptance of this Note, the Holder hereby
agrees to provide the Issuer with a completed Internal Revenue Service Form W-8
(Certificate of Foreign Status) or a substantially similar form for such Holder,
participants or other affiliates who are holders of beneficial interests in this
Note. Notwithstanding any contrary provision contained in this Note or any of
the other Note Documents (as defined in the Agreement), neither this Note nor
any interests herein may be sold, transferred, hypothecated, participated or
assigned to any Person (as defined in the Agreement) except upon satisfaction of
the conditions specified in this paragraph. The Holder, by its acceptance of
this Note, agrees to be bound by the provisions of this paragraph and to
indemnify and hold harmless the Registrar against any and all loss or liability
arising from the disposition by the Holder of this Note or any interest herein
in violation of this paragraph. The Registrar shall keep at its principal
executive office (or an office or agency designated by it by notice to the last
registered Holder) a ledger, in which, subject to such reasonable regulations as
it may prescribe, but at its expense (except as specified below), it shall
provide for the registration and transfer of this Note. No sale, transfer,
hypothecation, participation or assignment of this Note or any interest herein
shall be effective for any purpose until it shall be registered on the books of
the Registrar to be maintained for such purpose. The Registrar shall record the
transfer of this Note on the books maintained for this purpose upon receipt by
the Registrar at the office or agency designated by the Registrar of (a) a
written assignment of this Note (or the applicable interest herein), (b) funds
sufficient to pay any transfer taxes payable upon the making of such transfer as
well as the cost of reviewing the documents presented to the Registrar, and (c)
such evidence of due execution as the Registrar shall
EXHIBIT A - 2
<PAGE>
reasonably require. The Registrar shall record the transfer of this Note on the
books maintained for such purpose at the cost and expense of the assignee.
This Note is subject to prepayment, in whole or from time to time in
part, at the times and on the terms specified in that certain Agreement, but not
otherwise.
If an Event of Default, as defined in the Agreement, occurs and is
continuing, the principal of this Note may be declared or otherwise become due
and payable in the manner, at the price and with the effect provided in the
Agreement.
Issuer, for itself and its successors and assigns, hereby: (i) waives
demand, presentment for payment, notice of nonpayment, protest, notice of
protest, notice of intent to accelerate, notice of acceleration and all other
notice, filing of suit and diligence in collecting this Note or enforcing any of
its remedies, (ii) agrees that Holder shall not be required first to institute
suit or exhaust its remedies hereon against Issuer or others liable or to become
liable hereon or to enforce its rights against them and (iii) consents to any
extension or postponement of time of payment of this Note and to any other
indulgence with respect hereto without notice thereof to Issuer. This Note, and
the terms, conditions and provisions hereof, may not be changed, modified,
amended or terminated except as provided in the Agreement.
This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of California
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State ("Governing
Law").
Notwithstanding anything to the contrary contained elsewhere in this
Note or in any other Note Document, the Issuer and the Holder of this Note
hereby agree that all agreements among them under this Note and the other Note
Documents, whether now existing or hereafter arising and whether written or
oral, are expressly limited so that in no contingency or event whatsoever shall
the amount paid, or agreed to be paid, to the Holder for the use, forbearance,
or detention of the money loaned to the Issuer and evidenced hereby or thereby
or for the performance or payment of any covenant or obligation contained herein
or therein, exceed the Highest Lawful Rate (as defined below). If due to any
circumstance whatsoever, fulfillment of any provision of this Note or any of the
other Note Documents at the time performance of such provision shall be due
shall exceed the Highest Lawful Rate, then, automatically, the obligation to be
fulfilled shall be modified or reduced to the extent necessary to limit such
interest to the Highest Lawful Rate, and if from any such circumstance the
Holder should ever receive anything of value deemed interest by Governing Law
which would exceed the Highest Lawful Rate, such excessive interest shall be
applied to the reduction of the principal amount then outstanding hereunder or
on account of any other then outstanding Obligations (as defined in the
Agreement) and not to the payment of interest, or if such excessive interest
exceeds the principal unpaid balance then outstanding hereunder and such other
then outstanding Obligations, such excess shall be refunded to the Issuer. All
sums paid or agreed to be paid to the Holder for the use, forbearance, or
detention of the Obligations and other Indebtedness of the Issuer to the Holder,
to the extent permitted by Governing Law, shall be amortized, prorated,
allocated and spread throughout the full term of such Indebtedness, until
payment in full thereof, so
EXHIBIT A - 3
<PAGE>
that the actual rate of interest on account of all such Indebtedness does not
exceed the Highest Lawful Rate throughout the entire term of such Indebtedness.
For purposes of this paragraph, "HIGHEST LAWFUL RATE" means, at any given time
during which any Obligations shall be outstanding hereunder, the maximum
nonusurious interest rate that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Obligations
evidenced by this Note, under the laws of the State of California (or the law of
any other jurisdiction whose laws may be mandatorily applicable notwithstanding
other provisions of this Note and the other Note Documents), or under applicable
federal laws which may presently or hereafter be in effect and which allow a
higher maximum nonusurious interest rate than under the laws of the State of
California (or such other jurisdiction's law), in any case after taking into
account, to the extent permitted by applicable law, any and all relevant
payments or charges under this Note and any other Note Documents and any
available exemptions, exceptions and exclusions. The terms and provisions of
this paragraph shall control every other provision of this Note and all
agreements between the Issuer and the Holder.
IN WITNESS WHEREOF, the Issuer has executed this Note on the date
first written above.
WESTERN MICRO TECHNOLOGY, INC.,
a Delaware corporation
By: ____________________________
P. Scott Munro
President
EXHIBIT A -4
<PAGE>
CANYON/FLEMING
EXECUTION COPY
REGISTRATION AND PUT RIGHTS AGREEMENT
dated as of September 30, 1997
among
WESTERN MICRO TECHNOLOGY, INC.
a Delaware corporation
and
THE HOLDERS OF REGISTRABLE SECURITIES
REFERRED TO HEREIN
<PAGE>
REGISTRATION AND PUT RIGHTS AGREEMENT
Registration and Put Rights Agreement (this "Agreement") dated as of
September 30, 1997, among Western Micro Technology, Inc., a Delaware corporation
(the "Company") and Canpartners Investments IV, LLC, a California limited
liability company, and Robert Fleming Inc., a Delaware corporation (collectively
the "Holders"), the holders of securities of the Company.
RECITALS
--------
WHEREAS, pursuant to that certain Note Purchase Agreement dated
September 30, 1997, by and between the Company and the Holders (the "Note
Purchase Agreement"), the Holders received the warrants exercisable to acquire
400,000 shares of common stock from the Company ("Warrants"); and
WHEREAS, the parties hereto hereby desire to set forth the Holders'
rights and the Company's obligations to cause the registration pursuant to the
Securities Act of 1933 of the shares of common stock received or receivable upon
the exercise of the Warrants;
NOW, THEREFORE, in consideration of the agreement by the Holders to
provide the benefits under the Note Purchase Agreement and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1. Agreements and Representations of the Company.
---------------------------------------------
1.1. The Company represents and warrants to the Holders that
it has the requisite power and authority to execute, deliver and carry out this
Agreement and has taken all necessary action to approve this Agreement and to
authorize the execution, delivery and performance of this Agreement. This
Agreement has been duly and properly executed and delivered by the Company and
constitutes the legally valid and binding obligation of the Company, enforceable
against it in accordance with its terms.
Section 2. Definitions and Usage
---------------------
As used in this Agreement:
2.1. Definitions
-----------
Agent. "Agent" means the principal placement agent on an
-----
agented placement of Registrable Securities.
-1-
<PAGE>
Commission. "Commission" shall mean the Securities and
----------
Exchange Commission. Common Stock. "Common Stock" shall mean (i) the common
stock, $0.01 par value, of the Company, and (ii) shares of capital stock of the
Company issued by the Company in respect of or in exchange for shares of such
common stock in connection with any stock dividend or distribution, stock split-
up, recapitalization, recombination or exchange by the Company generally of
shares of such common stock. Continuously Effective. "Continuously Effective,"
with respect to a specified registration statement, shall mean that it shall not
cease to be effective and available for Transfers of Registrable Securities
thereunder for longer than either (i) any ten (10) consecutive business days, or
(ii) an aggregate of fifteen (15) business days during any calendar year during
the period specified in the relevant provision of this Agreement.
Common Stock. "Common Stock" shall mean (i) the common stock,
------------
$0.01 par value, of the Company, and (ii) shares of capital stock of the Company
issued by the Company in respect of or in exchange for shares of such common
stock dividend or distribution, stock split-up, recapitalization recombination
or exchange by the Company generally of shares of common stock.
Demand Registration. "Demand Registration" shall have the
-------------------
meaning set forth in Section 4.1.
Demanding Holders. "Demanding Holders" shall have the meaning
-----------------
set forth in Section 4.1.
Exchange Act. "Exchange Act" shall mean the Securities
------------
Exchange Act of 1934, as amended and the rules and regulations promulgated
thereunder.
Holders. "Holders" shall mean Canpartners Investments IV, LLC,
-------
and Robert Fleming Inc., and Transferees of such Persons' Registrable Securities
with respect to the rights that such Transferees shall have acquired in
accordance with Section 9, at such times as such Persons shall have beneficial
---------
or record ownership of Registrable Securities.
Majority of the Holders. A "Majority of the Holders" means
-----------------------
those Holders holding at any time a majority of the Registrable Securities and
Transferees of such Persons' Registrable Securities with respect to the rights
that such Transferees shall have acquired in accordance with Section 9, at such
times as such Persons shall have beneficial or record ownership of Registrable
Securities.
Person. "Person" shall mean any individual, corporation,
------
partnership, joint venture, association, joint-stock company, limited liability
company, trust, unincorporated organization or government or other agency or
political subdivision thereof.
Piggyback Registration. "Piggyback Registration" shall have
----------------------
the meaning set forth in Section 3.
-2-
<PAGE>
Piggyback Shelf Registration. "Piggyback Shelf Registration"
----------------------------
shall have the meaning set forth in Section 3.
Put Option. "Put Option" shall have the meaning set forth in
----------
Section 11.
Register, Registered and Registration. "Register,"
-------------------------------------
"registered," and "registration" shall refer to a registration effected by
preparing and filing a registration statement or similar document in compliance
with the Securities Act, and the declaration or ordering by the Commission of
effectiveness of such registration statement or document.
Registrable Securities. "Registrable Securities" shall mean,
----------------------
subject to Section 9 and Section 12.2: (i) the Shares owned by Holders on the
--------- -------------
date hereof, and owned by a Holder on the date of determination, (ii) any shares
of Common Stock or other securities issued or issuable upon the conversion or
exercise of the Warrant or issued as a dividend or other distribution with
respect to, or in exchange by the Company generally for, or in replacement by
the Company generally of, such Shares; and (iii) any securities issued in
exchange for Shares in any merger or reorganization of the Company; provided,
--------
however, that Registrable Securities shall not include any Shares which have
- -------
theretofore been registered and sold pursuant to the Securities Act or which
have been sold to the public pursuant to Rule 144 or any similar rule
promulgated by the Commission pursuant to the Securities Act, and, provided
--------
further, the Company shall have no obligation under Sections 3 and 4 to register
- -------- ----------------
any Registrable Securities of a Holder if the Company shall deliver to the
Holders requesting such registration an opinion of counsel reasonably
satisfactory to such Holders and its counsel to the effect that the proposed
sale or disposition of all of the Registrable Securities for which registration
was requested does not require registration under the Securities Act for any
sales or dispositions of such shares within the period set forth in Rule 144(e),
currently three (3) months. For purposes of this Agreement, a Person will be
deemed to be a holder of Registrable Securities whenever such Person has the
then-existing right to acquire such Registrable Securities (by conversion,
subscription or otherwise), whether or not such acquisition has actually been
effected.
Registrable Securities then outstanding. "Registrable
---------------------------------------
Securities then outstanding" shall mean, with respect to a specified
determination date, the Registrable Securities owned by all Holders on such
date.
Registration Expenses. "Registration Expenses" shall have the
---------------------
meaning set forth in Section 7.1.
Registration Rights Agreement means that certain Registration
-----------------------------
Rights Agreement entered into between certain parties in connection with the
Units Purchase Agreement and the issuance of the Series A Preferred Stock,
Common Stock Purchase Warrants, and the Placement Agent Warrants in connection
therewith.
-3-
<PAGE>
Securities Act. "Securities Act" shall mean the Securities Act
--------------
of 1933, as amended and the rules and regulations promulgated thereunder.
Selling Holders. "Selling Holders" shall mean, with respect to
---------------
a specified registration pursuant to this Agreement, Holders whose Registrable
Securities are included in such registration.
Series A Preferred Stock. The Series A Preferred Stock, par
------------------------
value $0.01 per share, of the Company issued and sold as part of the Units
Purchase Agreement.
Shares. "Shares" shall mean the shares of Common Stock
------
acquired on exercise of a Warrant.
Shelf Registration. The Initial Shelf Registration or a
------------------
Subsequent Shelf Registration pursuant to the Registration Rights Agreement.
Transfer. "Transfer" shall mean and include the act of
selling, giving, transferring, creating a trust (voting or otherwise), assigning
or otherwise disposing of (other than pledging, hypothecating or otherwise
transferring as security) (and correlative words shall have correlative
meanings); provided however, that any transfer or other disposition upon
foreclosure or other exercise of remedies of a secured creditor after an event
of default under or with respect to a pledge, hypothecation or other transfer as
security shall constitute a "Transfer".
Underwriters' Representative. "Underwriters' Representative
----------------------------
shall mean the managing underwriter, or, in the case of a co-managed
underwriting, the managing underwriter designated as the Underwriters'
Representative by the co-managers.
Units Purchase Agreement means the Units Purchase Agreement
------------------------
dated as of September 19, 1997 by and between the Company and the Purchasers
listed therein.
Violation. "Violation" shall have the meaning set forth in
---------
Section 8.1
- -----------
Warrant. "Warrant" means any of the Warrants issued pursuant
-------
to the Warrant Agreement dated as of September 30, 1997 by and between the
Company and the Holders.
2.2. Usage
-----
(i) References to a Person are also references to its
assigns and successors in interest (by means of merger, consolidation or sale of
all or substantially all the assets of such Person or otherwise, as the case may
be).
-4-
<PAGE>
(ii) References to Registrable Securities "owned" by a
Holder shall include Registrable Securities beneficially owned by such Person
but which are held of record in the name of a nominee, trustee, custodian, or
other agent, but shall exclude shares of Common Stock held by a Holder in a
fiduciary capacity for customers of such Person.
(iii) References to a document are to it as amended, waived
and otherwise modified from time to time and references to a statute or other
governmental rule are to it as amended and otherwise modified from time to time
(and references to any provision thereof shall include references to any
successor provision).
(iv) References to Sections or to Schedules or Exhibits
are to sections hereof or schedules or exhibits hereto, unless the context
otherwise requires.
(v) The definitions set forth herein are equally
applicable both to the singular and plural forms and the feminine, masculine and
neuter forms of the terms defined.
(vi) The term "including" and correlative terms shall be
deemed to be followed by "without limitation" whether or not followed by such
words or words of like import.
(vii) The term "hereof" and similar terms refer to this
Agreement as a whole.
(viii) The "date of" any notice or request given pursuant to
this Agreement shall be determined in accordance with Section 15.
Section 3. Piggyback Registrations.
3.1. Company agrees that it shall include the Registrable
Securities in the Initial Shelf Registration or Subsequent Shelf Registration it
files pursuant to the terms of the Registration Rights Agreement (a "Piggyback
Shelf Registration"). The Company agrees that it shall maintain the Shelf
Registration Continuously Effective with respect to such Registrable Securities
for so long as there are any Registrable Securities then outstanding, and that
the provisions of Sections 5 through 10 hereof shall apply with respect to such
Shelf Registration.
3.2. If all of the Registrable Securities are not included
in a Shelf Registration that is Continuously Effective pursuant to Section 3.1
hereof, and if at any time the Company proposes to register (including for this
purpose a registration effected by the Company for holders of the Company's
securities other than the Holders) securities under the Securities Act in
connection with the public offering solely for cash on Form S-1, S-2 or S-3 (or
any replacement or successor forms), the Company shall promptly give each Holder
of Registrable Securities written notice of such registration (a "Piggyback
Registration"). Upon
-5-
<PAGE>
the written request of each Holder given within 20 days following the date of
such notice, the Company shall cause to be included in such registration
statement and use all reasonable efforts to be registered under the Securities
Act all the Registrable Securities that each such Holder shall have requested to
be registered. The Company shall have the absolute right to withdraw or cease to
prepare or file any registration statement for any offering referred to in this
Section 3 without any obligation or liability to any Holder.
- ---------
3.3. Each Holder shall be entitled to have its Registrable
Securities included in an unlimited number of Piggyback Registrations pursuant
to this Section 3.
---------
Section 4. Demand Registration.
-------------------
4.1.
(i) If all of the Registrable Securities are not included
in a Shelf Registration that is Continuously Effective pursuant to Section 3.1
hereof within one hundred twenty (120) days from the date hereof, or if at any
time thereafter all of the Holders' Registrable Securities are not covered by a
Continuously Effective registration statement, the Holders of at least 25% of
the Registrable Securities may make a written request to the Company (the
"Demanding Holders"), that the Company cause there to be filed with the
Commission a registration statement meeting the requirements of the Securities
Act (a "Demand Registration"), and each Demanding Holder shall be entitled to
have included therein (subject to Section 4.6) all or such number of such
-----------
Demanding Holder's Registrable Securities, as the Demanding Holder shall request
in writing; provided, however, that no request may be made pursuant to this
-------- -------
Section 4.1 if within six (6) months prior to the date of such request a
- -----------
registration statement pursuant to this Section 4.1 shall have been declared
-----------
effective by the Commission. Any request made pursuant to this Section 4.1 shall
-----------
be addressed to the attention of the Secretary of the Company, and shall specify
the number of Registrable Securities to be registered, the intended methods of
disposition thereof and that the request is for a Demand Registration pursuant
to this Section 4.1(i). The Holders shall be entitled to no more than four
--------------
Demand Registrations.
(ii) The Company shall be entitled to postpone for up to
ninety (90) days the filing of any registration statement otherwise required to
be prepared and filed pursuant to this Section 4.1, if the Board determines, in
-----------
its good faith reasonable judgment (with the concurrence of the managing
underwriter, if any), that such registration and the Transfer of Registrable
Securities contemplated thereby would materially interfere with, or require
premature disclosure of, any financing, acquisition or reorganization involving
the Company or any of its wholly owned subsidiaries and the Company promptly
gives the Demanding Holders notice of such determination; provided, however,
-------- -------
that the Company shall not have postponed pursuant to this Section 4.1(ii) the
---------------
filing of any other registration statement otherwise required to be prepared and
filed pursuant to this Section 4.1 during the twelve (12) month period ended on
-----------
the date of the relevant request pursuant to Section 4.1(i).
--------------
-6-
<PAGE>
(iii) Whenever the Company shall have received a demand
pursuant to Section 4.1(i) to effect the registration of any Registrable
--------------
Securities, the Company shall promptly give written notice of such proposed
registration to all Holders. Any such Holder may, within twenty (20) days after
receipt of such notice, request in writing that all of such Holder's Registrable
Securities, or any portion thereof designated by such Holder, be included in the
registration.
(iv) Subject to Section 4.6, in connection with an
-----------
underwritten offering, the Company and, with the approval of the Company, other
holders of Common Stock (other than Holders) shall be given the opportunity to
include shares of Common Stock in such offering ("Other Included Shares").
4.2. Following receipt of a request for a Demand
Registration, the Company shall:
(i) File the registration statement with the Commission as
promptly as practicable, and shall use all reasonable efforts to have the
registration declared effective under the Securities Act as soon as reasonably
practicable, in each instance giving due regard to the need to prepare current
financial statements, conduct due diligence and complete other actions that are
reasonably necessary to effect a registered public offering.
(ii) Use all reasonable efforts to keep the registration
statement Continuously Effective for up to two hundred seventy (270) days or
until such earlier date as of which all the Registrable Securities under the
registration statement shall have been disposed of in the manner described in
the Registration Statement, or such earlier time as the Company would not have
any obligation to include the Registrable Securities that have not been disposed
of in the manner described in the Registration Statement in a registration
pursuant to Section 4 or Section 3 pursuant to the definition of "Registrable
--------- ---------
Securities." Notwithstanding the foregoing, if for any reason the effectiveness
of a registration pursuant to this Section 4 is suspended or, in the case of a
---------
Demand Registration, postponed as permitted by Section 4.1(ii), the foregoing
--------------
period shall be extended by the aggregate number of days of such suspension or
postponement.
4.3. The Company shall be obligated to effect no more than
a total of four Demand Registrations. For purposes of the preceding sentence,
registration shall not be deemed to have been effected (i) unless a registration
statement with respect thereto has become effective, (ii) if after such
registration statement has become effective, such registration or the related
offer, sale or distribution of Registrable Securities thereunder is interfered
with by any stop order, injunction or other order or requirement of the
Commission or other governmental agency or court for any reason not attributable
to the Selling Holders and such interference is not thereafter eliminated, or
(iii) if the conditions to closing specified in the underwriting agreement, if
any, entered into in connection with such registration are not satisfied or
waived, other than by reason of a failure on the part of the Selling Holders. If
the Company shall have complied with its obligations under this Agreement, a
right to a Demand
-7-
<PAGE>
Registration pursuant to this Section 4 shall be deemed to have been satisfied
---------
upon the earlier of the date as of which all of the Registrable Securities
included therein shall have been disposed of pursuant to the Registration
Statement or the date as of which such Demand Registration shall have been
Continuously Effective for a period of two hundred seventy (270) days. Any
Demand Registration Statement which, after filing with the Commission is
withdrawn by the Holders, shall be deemed to have been effective in determining
the number of Demand Registrations the Company is obligated to effect hereunder.
4.4. A registration pursuant to this Section 4 shall be on
---------
such appropriate registration form of the Commission as shall (i) be selected by
the Company and be reasonably acceptable to the Demanding Holders and (ii)
permit the disposition of the Registrable Securities in accordance with the
intended method or methods of disposition specified in the request pursuant to
Section 4.1(i).
- --------------
4.5. If any registration pursuant to Section 4 involves an
---------
underwritten offering (whether on a "firm," "best efforts" or "all reasonable
efforts" basis or otherwise), or an agented offering, the Demanding Holders
shall have the right to select the underwriter or underwriters and manager or
managers to administer such underwritten offering or the placement agent or
agents for such agented offering; provided, however, that each Person so
-------- -------
selected shall be reasonably acceptable to the Company.
4.6. Whenever the Company shall effect a registration
pursuant to this Section 4 in connection with an underwritten offering by one or
---------
more Selling Holders of Registrable Securities: if the Underwriters'
Representative or Agent advises each such Selling Holder in writing that, in its
opinion, the amount of securities requested to be included in such offering
(whether by Selling Holders or by other Persons) exceeds the amount which can be
sold in such offering within a price range acceptable to the Demanding Holders,
securities shall be included in such offering and the related registration, to
the extent of the amount which can be sold within such price range, and shall be
allocated: first on a pro rata basis based on the number of shares, with
-----
registration rights, of Common Stock they own or have a right to purchase upon
exercise of Common Stock warrants or options or conversions of Series A
Preferred Stock among all Selling Holders and the holders of registration rights
pursuant to those certain registration rights agreements entered into by the
Company with IBM Credit Corporation, the holders of its Series A Preferred Stock
and the Common Stock warrants issued in conjunction therewith, the Placement
Agents employed by the Company in connection with the sale of such Series A
Preferred Stock and Common Stock Warrants and Carlton Joseph Mertens II and
holders of Common Stock issued in connection with an acquisition completed prior
to the date hereof and who have requested inclusion in such registration and
second by the Company and third by other holders with respect to the Other
- ------ -----
Included Shares, provided, however, that, so that such allocation shall not
operate to reduce the aggregate number of Registerable Securities and other
securities to be included in such registration, if the Selling Holder or other
selling securityholder does not request inclusion of the maximum number of
Registrable Securities and other securities allocated to him pursuant to the
above-described procedure, the remaining portion of his allocation shall be
reallocated among those
-8-
<PAGE>
other selling securityholders whose allocations did not satisfy their requests
pro rata, and this procedure shall be repeated until all of the other securities
which may be included in the registration on behalf of the Holder and other
selling securityholders have been so allocated.
Section 5. Registration Procedures. Whenever required under Section
----------------------- -------
3 or Section 4 to effect the registration of any Registrable Securities, the
- - ---------
Company shall, as expeditiously as practicable:
5.1. Prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use all reasonable
efforts to cause such registration statement to become effective; provided,
--------
however, that before the initial filing of such registration statement, the
- -------
Company shall furnish to one firm of counsel for the Selling Holders (selected
by the Demanding Holders, if any) a copy of such registration statement in the
form substantially as proposed to be filed with the Commission at least four (4)
business days prior to filing for review and comment by such counsel.
5.2. Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act and rules thereunder with respect to the
disposition of all securities covered by such registration statement. If the
registration is for an underwritten offering, the Company shall amend the
registration statement or supplement the prospectus whenever required by the
terms of the underwriting agreement entered into pursuant to Section 6.2. The
-----------
Company shall amend the registration statement or supplement the prospectus so
that it will remain current and in compliance with the requirements of the
Securities Act for the period after its effective date during which the Demand
Registration is to be kept Continuously Effective by the Company pursuant to
Section 4.2(ii), and if during such period any event or development occurs as a
- -----------
result of which the registration statement or prospectus contains a misstatement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, the Company
shall promptly notify each Selling Holder, amend the registration statement or
supplement the prospectus so that each will thereafter comply with the
Securities Act and furnish to each Selling Holder of Registrable Securities such
amended or supplemented prospectus, which each such Holder shall thereafter use
in the Transfer of Registrable Securities covered by such registration
statement. Pending such amendment or supplement each such Holder shall cease
making offers or Transfers of Registrable Securities pursuant to the prior
prospectus. In the event that any Registrable Securities included in a
registration statement subject to, or required by, this Agreement remain unsold
at the end of the period during which the Company is obligated to use all
reasonable efforts to maintain the effectiveness of such registration statement,
the Company may file a post-effective amendment to the registration statement
for the purpose of removing such Securities from registered status .
5.3. Furnish to each Selling Holder of Registrable
Securities, without charge, such number of copies of the registration statement,
any pre-effective or post-effective
-9-
<PAGE>
amendment thereto, the prospectus, including each preliminary prospectus and any
amendments or supplements thereto, in each case in conformity with the
requirements of the Securities Act and the rules thereunder, and such other
related documents as any such Selling Holder may reasonably request in order to
facilitate the disposition of Registrable Securities owned by such Selling
Holder.
5.4. Use all reasonable efforts (i) to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such states or jurisdictions as shall be
reasonably requested by the Underwriters' Representative or Agent (as
applicable, or if inapplicable, the Demanding Holders) and (ii) to obtain the
withdrawal of any order suspending the effectiveness of a registration
statement, or the lifting of any suspension of the qualification (or exemption
from qualification) of the offer and transfer of any of the Registrable
Securities in any jurisdiction, at the earliest possible moment; provided,
--------
however, that the Company shall not be required in connection therewith or as a
- -------
condition thereto to qualify to do business or to file a general consent to
service of process in any such state or jurisdiction.
5.5. In the event of any underwritten or agented offering,
enter into and perform the Company's obligations under an underwriting or agency
agreement (including indemnification and contribution obligations of
underwriters or agents), in usual and customary form, with the managing
underwriter or underwriters of or agents for such offering. The Company shall
also cooperate with the Demanding Holders and the Underwriters' Representative
or Agent for such offering in the marketing of the Registrable Securities,
including making available the Company's officers, accountants, counsel,
premises, books and records for such purpose, but the Company shall not be
required to incur any material out-of-pocket expense pursuant to this sentence.
5.6. Promptly notify each Selling Holder of any stop order
issued or threatened to be issued by the Commission in connection therewith (and
take all reasonable actions required to prevent the entry of such stop order or
to remove it if entered).
5.7. Make generally available to the Company's security
holders copies of all periodic reports, proxy statements, and other information
referred to in Section 12.1 and an earnings statement satisfying the provisions
------------
of Section 11(a) of the Securities Act no later than 90 days following the end
of the 12-month period beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of each registration
statement filed pursuant to this Agreement.
5.8. Make available for inspection by any Selling Holder,
any underwriter participating in such offering and the representatives of such
Selling Holder and Underwriter (but not more than one firm of counsel to such
Selling Holders), all financial and other information as shall be reasonably
requested by them, and provide the Selling Holder, any underwriter participating
in such offering and the representatives of such Selling Holder and Underwriter
the opportunity to discuss the business affairs of the Company with its
-10-
<PAGE>
principal executives and independent public accountants who have certified the
audited financial statements included in such registration statement, in each
case all as necessary to enable them to exercise their due diligence
responsibility under the Securities Act; provided, however, that information
-------- -------
that the Company determines, in good faith, to be confidential and which the
Company advises such Person in writing, is confidential shall not be disclosed
unless such Person signs a confidentiality agreement reasonably satisfactory to
the Company or the related Selling Holder of Registrable Securities agrees to be
responsible for such Person's breach of confidentiality on terms reasonably
satisfactory to the Company .
5.9. Use the Company's commercially reasonable efforts to
obtain a so-called "comfort letter" from its independent public accountants, and
legal opinions of counsel to the Company addressed to the Selling Holders, in
customary form and covering such matters of the type customarily covered by such
letters, and in a form that shall be reasonably satisfactory to Demanding
Holders. The Company shall furnish to each Selling Holder a signed counterpart
of any such comfort letter or legal opinion. Delivery of any such opinion or
comfort letter shall be subject to the recipient furnishing such written
representations or acknowledgments as are customarily provided by selling
shareholders who receive such comfort letters or opinions.
5.10. Provide and cause to be maintained a transfer agent
and registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement.
5.11. Use all reasonable efforts to cause the Registrable
Securities covered by such registration statement (i) if the Common Stock is
then listed on a securities exchange or included for quotation in a recognized
trading market, to continue to be so listed or included for a reasonable period
of time after the offering, and (ii) to be registered with or approved by such
other United States or state governmental agencies or authorities as may be
necessary by virtue of the business and operations of the Company to enable the
Selling Holders of Registrable Securities to consummate the disposition of such
Registrable Securities.
5.12. Use the Company's reasonable efforts to provide a
CUSIP number for the Registrable Securities prior to the effective date of the
first registration statement including Registrable Securities.
5.13. Take such other actions as are reasonably required in
order to expedite or facilitate the disposition of Registrable Securities
included in each such registration.
Section 6. Holders' Obligations. It shall be a condition
--------------------
precedent to the obligations of the Company to take any action pursuant to this
Agreement with respect to the Registrable Securities of any Selling Holder of
Registrable Securities that such Selling Holder shall:
-11-
<PAGE>
6.1. Furnish to the Company such information regarding such
Selling Holder, the number of the Registrable Securities owned by it, and the
intended method of disposition of such securities as shall be required to effect
the registration of such Selling Holder's Registrable Securities, and to
cooperate with the Company in preparing such registration.
6.2. If applicable, agree to sell their Registrable
Securities to the underwriters at the same price and on substantially the same
terms and conditions as the Company or the other Persons on whose behalf the
registration statement was being filed have agreed to sell their securities, and
to execute the underwriting agreement agreed to by the Demanding Holders (in the
case of a registration under Section 4), or the Company and the Selling Holders
---------
(in the case of a registration under Section 3).
---------
Section 7. Expenses of Registration. Expenses in connection with
------------------------
registrations pursuant to this Agreement shall be allocated and paid as follows:
7.1. With respect to each Demand Registration, the
Company shall bear and pay all expenses incurred in connection with any
registration, filing, or qualification of Registrable Securities with respect to
such Demand Registration for each Selling Holder (which right may be assigned to
any Person to whom Registrable Securities are Transferred as permitted by
Section 9), including all registration, filing and The Nasdaq Stock Market's
- ---------
National Market fees, all fees and expenses of complying with securities or blue
sky laws, all word processing, duplicating and printing expenses, messenger and
delivery expenses, the reasonable fees and disbursements of counsel for the
Company, and of the Company's independent public accountants, including the
expenses of "cold comfort" letters required by or incident to such performance
and compliance, and the reasonable fees and disbursements of one firm of counsel
for the Selling Holders of Registrable Securities (selected by Demanding Holders
owning a majority of the Registrable Securities owned by Demanding Holders to be
included in a Demand Registration) (the "Registration Expenses"), but excluding
underwriting discounts and commissions relating to Registrable Securities (which
shall be paid on a pro rata basis by the Selling Holders) .
7.2. The Company shall bear and pay all Registration
Expenses incurred in connection with any Piggyback Registrations or Piggyback
Shelf Registration pursuant to Section 3 for each Selling Holder (which right
---------
may be Transferred to any Person to whom Registrable Securities are Transferred
as permitted by Section 9), but excluding underwriting discounts and commissions
---------
relating to Registrable Securities (which shall be paid on a pro rata basis by
the Selling Holders of Registrable Securities).
7.3. Any failure of the Company to pay any Registration
Expenses as required by this Section 7 shall not relieve the Company of its
---------
obligations under this Agreement.
-12-
<PAGE>
Section 8. Indemnification; Contribution. If any Registrable
-----------------------------
Securities are included in a registration statement under this Agreement,
including a Shelf Registration:
8.1. To the extent permitted by applicable law, the Company
shall indemnify and hold harmless each Selling Holder, each Person, if any, who
controls such Selling Holder within the meaning of the Securities Act, and each
officer, director, partner, employee, agent and consultant of such Selling
Holder and such controlling Person, against any and all losses, claims, damages,
liabilities and expenses (joint or several), including attorneys' fees and
disbursements and expenses of investigation, incurred by such party pursuant to
any actual or threatened action, suit, proceeding or investigation, or to which
any of the foregoing Persons may become subject under the Securities Act, the
Exchange Act or other federal or state laws, insofar as such losses, claims,
damages, liabilities and expenses arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation"):
(i) Any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein, or any amendments
or supplements thereto;
(ii) The omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading; or
(iii) Any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any applicable state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
applicable state securities law;
provided, however, that the indemnification required by this Section 8.1 shall
- -------- ------- -----------
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or expense if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or expense to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished to the Company by the indemnified party expressly for use in
connection with such registration; provided, further, that the indemnity
-------- -------
agreement contained in this Section 8 shall not apply to any underwriter to the
---------
extent that any such loss is based on or arises out of an untrue statement or
alleged untrue statement of a material fact, or an omission or alleged omission
to state a material fact, contained in or omitted from any preliminary
prospectus if the final prospectus shall correct such untrue statement or
alleged untrue statement, or such omission or alleged omission, and a copy of
the final prospectus has not been sent or given to such person at or prior to
the confirmation of sale to such person if such underwriter was under an
obligation to deliver such final prospectus and failed to do so. The Company
shall also indemnify underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers, directors, agents and employees and each person who controls such
persons (within the meaning of Section 15 of the Securities
-13-
<PAGE>
Act or Section 20 of the Exchange Act) to the same extent as provided above with
respect to the indemnification of the Selling Holders.
8.2. To the extent permitted by applicable law, each Selling
Holder shall indemnify and hold harmless the Company, each of its directors,
each of its officers who shall have signed the registration statement, each
Person, if any, who controls the Company within the meaning of the Securities
Act, any other Selling Holder, any controlling Person of any such other Selling
Holder and each officer, director, partner, and employee of such other Selling
Holder and such controlling Person, against any and all losses, claims, damages,
liabilities and expenses (joint and several), including attorneys' fees and
disbursements and expenses of investigation, incurred by such party pursuant to
any actual or threatened action, suit, proceeding or investigation, or to which
any of the foregoing Persons may otherwise become subject under the Securities
Act, the Exchange Act or other federal or state laws, insofar as such losses,
claims, damages, liabilities and expenses arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Selling Holder expressly for use in connection with such
registration; provided, however, that the indemnification required by this
-------- -------
Section 8.2 shall not apply to amounts paid in settlement of any such loss,
- -----------
claim, damage, liability or expense if settlement is effected without the
consent of the relevant Selling Holder of Registrable Securities, which consent
shall not be unreasonably withheld.
8.3. Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, suit, proceeding,
- ---------
investigation or threat thereof made in writing for which such indemnified party
may make a claim under this Section 8, such indemnified party shall deliver to
---------
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
-------- -------
have the right to retain its own counsel, with the fees and disbursements and
expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time following the commencement of any such action, if
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
-------
8 but shall not relieve the indemnifying party of any liability that it may have
- -
to any indemnified party otherwise than pursuant to this Section 8. Any fees and
---------
expenses incurred by the indemnified party (including any fees and expenses
incurred in connection with investigating or preparing to defend such action or
proceeding) shall be paid to the indemnified party, as incurred, within thirty
(30) days of written notice thereof to the indemnifying party (regardless of
whether it is ultimately determined that an indemnified party is not entitled to
indemnification hereunder). Any such indemnified party shall have the right to
employ
-14-
<PAGE>
separate counsel in any such action, claim or proceeding and to participate in
the defense thereof, but the fees and expenses of such counsel shall be the
expenses of such indemnified party unless (i) the indemnifying party has agreed
to pay such fees and expenses or (ii) the indemnifying party shall have failed
to promptly assume the defense of such action, claim or proceeding or (iii) the
named parties to any such action, claim or proceeding (including any impleaded
parties) include both such indemnified party and the indemnifying party, and
such indemnified party shall have been advised by counsel that there may be one
or more legal defenses available to it which are different from or in addition
to those available to the indemnifying party and that the assertion of such
defenses would create a conflict of interest such that counsel employed by the
indemnifying party could not faithfully represent the indemnified party (in
which case, if such indemnified party notifies the indemnifying party in writing
that it elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such action, claim or proceeding on behalf of such indemnified party, it being
understood, however, that the indemnifying party shall not, in connection with
any one such action, claim or proceeding or separate but substantially similar
or related actions, claims or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys (together with
appropriate local counsel) at any time for all such indemnified parties, unless
in the reasonable judgment of such indemnified party a conflict of interest may
exist between such indemnified party and any other of such indemnified parties
with respect to such action, claim or proceeding, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels). No indemnifying party shall be liable to an
indemnified party for any settlement of any action, proceeding or claim without
the written consent of the indemnifying party, which consent shall not be
unreasonably withheld.
8.4. If the indemnification required by this Section 8 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities or expenses referred to in this
Section 8:
- ---------
(i) The indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by reference to,
among other things, whether any Violation has been committed by, or relates to
information supplied by, such indemnifying party or indemnified parties, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such Violation. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
Section 8.1 and Section 8.2, any legal or other fees or expenses reasonably
- ----------- -----------
incurred by such party in connection with any investigation or proceeding.
-15-
<PAGE>
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 8.4 were determined by pro
-----------
rata allocation or by any other method of allocation which does not take into
account the equitable considerations referred to in Section 8.4(i). No Person
--------------
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
8.5. If indemnification is available under this Section 8, the
---------
indemnifying parties shall indemnify each indemnified party to the full extent
provided in this Section 8 without regard to the relative fault of such
---------
indemnifying party or indemnified party or any other equitable consideration
referred to in Section 8.4.
-----------
8.6. The obligations of the Company and the Selling Holders of
Registrable Securities under this Section 8 shall survive the completion of any
---------
offering of Registrable Securities pursuant to a registration statement under
this Agreement, and otherwise.
Section 9. Transfer of Registration Rights. Rights with respect to
-------------------------------
Registrable Securities may be Transferred as follows: (i) the rights of a Holder
to require a Demand Registration pursuant to Section 4 may be Transferred to any
---------
Person in connection with the Transfer to such Person by such Holder of at least
1,000 shares or share equivalents of Registrable Securities, and (ii) the rights
of a Holder to participate in a Piggyback or Piggyback Shelf Registration
pursuant to Section 3 or a Put pursuant to Section 11 may be Transferred by such
--------- ----------
Holder to any Person in connection with the Transfer of Registrable Securities
to such Person, in all cases, if (x) any such Transferee that is not a party to
this Agreement shall have executed and delivered to the Secretary of the Company
a properly completed agreement substantially in the form of Exhibit A, and (y)
---------
the Transferor shall have delivered to the Secretary of the Company, no later
than 15 days following the date of the Transfer, written notification of such
Transfer setting forth the name of the Transferor, name and address of the
Transferee, and the number of Registrable Securities which shall have been so
Transferred.
Section 10. Holdback. Each Holder entitled pursuant to this Agreement
--------
to have Registrable Securities included in a registration statement prepared
pursuant to this Agreement, if so requested by the Underwriters' Representative
or Agent in connection with an offering of any Registrable Securities, shall not
effect any public sale or distribution of shares of Common Stock or any
securities convertible into or exchangeable or exercisable for shares of Common
Stock, including a sale pursuant to Rule 144 under the Securities Act (except as
part of such underwritten or agented registration), during the 5-day period
prior to, and during such period as the Underwriter's Representative or Agent
may request, not to exceed a period of 180 days, beginning on, the date such
registration statement is declared effective under the Securities Act by the
Commission, provided that such Holder is timely notified of such effective date
--------
in writing by the Company or such Underwriters' Representative or Agent. In
order to enforce the foregoing covenant, the Company shall be entitled to impose
-16-
<PAGE>
stop-transfer instructions with respect to the Registrable Securities of each
Holder until the end of such period.
Section 11. Put Option. If the Company has not Registered all of the
----------
Registrable Securities in accordance with Section 3 hereof within one hundred
---------
twenty (120) days from the date hereof, or if at any time thereafter all of the
Holders' Registrable Securities are not then included in a Continuously
Effective registration statement, then, for such time as the Registrable
Securities are not so included, the Holders shall have an option ("Put Option")
to cause the Company to repurchase all or any portion of the Warrants (the "Put
Warrants") for a price (the "Put Price") equal to (i) the difference between the
Warrant Exercise Price and the highest reported offer price for the Company's
Common Stock on the principal exchange or market on which the Company's Common
Stock then trades during such period of time (ii) multiplied by the number of
Warrants put. The notice ("Put Notice") shall be delivered by the Holder or
Holders who elect to exercise the Put Option, in writing, to the Company at its
principal place of business, attention Corporate Secretary, in accordance with
Section 15.2. The Put Notice shall specify, in addition to the number of Put
- ------------
Warrants, the maximum offered price of the Company's Common Stock, the date on
which such maximum offered price occurred, and the calculation of the Put Price
for the Put Warrant to be purchased by the Company pursuant to the terms hereof.
Within fifteen (15) days of the notice, the Company shall notify the electing
Holders of a date and time (which shall be no more than twenty five (25) days
after the Company's receipt of the Put Notice) on which the Put Warrants shall
be delivered to the Company at its principal place of business against payment
by bank check, cashiers' check or wire transfer of the Put Price. In lieu of a
cash payment, the Company may pay the Put Price by means of a promissory note on
terms and conditions no less favorable than the notes issued to certain Holders
pursuant to the Note Purchase Agreement dated September 30, 1997, but having a
maturity no greater than such notes.
Section 12. Covenants of the Company. The Company hereby agrees and
------------------------
and covenant as follows:
12.1. The Company shall file as and when applicable, on a
timely basis, all reports required to be filed by it under the Exchange Act. If
the Company is not required to file reports pursuant to the Exchange Act, upon
the request of any Holder of Registrable Securities, the Company shall make
publicly available the information specified in Rule 144 of the Securities Act,
and take such further action as may be reasonably required from time to time and
as may be within the reasonable control of the Company, to enable the Holders to
Transfer Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144 under the
Securities Act or any similar rule or regulation hereafter adopted by the
Commission.
12.2. The Company shall not, directly or indirectly, (x) enter
into any merger, consolidation or reorganization in which the Company shall not
be the surviving corporation or (y) Transfer or agree to Transfer all or
substantially all the Company's assets, unless prior to such merger,
consolidation, reorganization or asset Transfer, the surviving
-17-
<PAGE>
corporation or the Transferee, respectively, shall have agreed in writing to
assume the obligations of the Company under this Agreement, and for that purpose
references hereunder to "Registrable Securities" shall be deemed to include the
securities which the Holders of Registrable Securities would be entitled to
receive in exchange for Registrable Securities pursuant to any such merger,
consolidation or reorganization.
12.3. The Company shall not grant to any Person (other than a
Holder of Registrable Securities) any registration rights with respect to
securities of the Company, or enter into any agreement, that would be
inconsistent with the terms of this Agreement.
Section 13. Amendment, Modification and Waivers; Further Assurances.
-------------------------------------------------------
(i) This Agreement may be amended with the consent of the
Company, and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company shall
have obtained the written consent of Holders owning Registrable Securities
possessing a Majority of the Registrable Securities then outstanding to such
amendment, action or omission to act.
(ii) No waiver of any terms or conditions of this Agreement
shall operate as a waiver of any other breach of such terms and conditions or
any other term or condition, nor shall any failure to enforce any provision
hereof operate as a waiver of such provision or of any other provision hereof.
No written waiver hereunder, unless it by its own terms explicitly provides to
the contrary, shall be construed to effect a continuing waiver of the provisions
being waived and no such waiver in any instance shall constitute a waiver in any
other instance or for any other purpose or impair the right of the party against
whom such waiver is claimed in all other instances or for all other purposes to
require full compliance with such provision.
(iii) Each of the parties hereto shall execute all such
further instruments and documents and take all such further action as any other
party hereto may reasonably require in order to effectuate the terms and
purposes of this Agreement.
Section 14. Assignment; Benefit. This Agreement and all of the
-------------------
provisions hereof shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, assigns, executors, administrators or
successors; provided, however, that except as specifically provided herein with
-------- -------
respect to certain matters, neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned or delegated by the Company
without the prior written consent of Holders owning Registrable Securities
possessing a majority in number of the Registrable Securities outstanding on the
date as of which such delegation or assignment is to become effective. A Holder
may Transfer its rights with respect to requiring Demand Registrations and
Piggyback Registrations hereunder to a successor in interest to the Registrable
Securities owned by such assignor only as permitted by Section 9.
---------
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<PAGE>
Section 15. Miscellaneous.
-------------
15.1. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING
REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
15.2. Notices. All notices and requests given pursuant to
-------
this Agreement shall be in writing and shall be made by hand-delivery, first-
class mail (registered or certified, return receipt requested), confirmed
facsimile or overnight air courier guaranteeing next business day delivery to
the relevant address specified on Schedule I to this Agreement or in the
----------
relevant agreement in the form of Exhibit A whereby such party became bound by
---------
the provisions of this Agreement. Except as otherwise provided in this
Agreement, the date of each such notice and request shall be deemed to be, and
the date on which each such notice and request shall be deemed given shall be:
at the time delivered, if personally delivered or mailed; when receipt is
acknowledged, if sent by facsimile; and the next business day after timely
delivery to the courier, if sent by overnight air courier guaranteeing next
business day delivery.
15.3. Entire Agreement; Integration. This Agreement
-----------------------------
supersedes all prior agreements between or among any of the parties hereto with
respect to the subject matter contained herein and therein, and such agreements
embody the entire understanding among the parties relating to such subject
matter.
15.4. Injunctive Relief. Each of the parties hereto
-----------------
acknowledges that in the event of a breach by any of them of any material
provision of this Agreement, the aggrieved party may be without an adequate
remedy at law. Each of the parties therefore agrees that in the event of such a
breach hereof the aggrieved party may elect to institute and prosecute
proceedings in any court of competent jurisdiction to enforce specific
performance or to enjoin the continuing breach hereof. By seeking or obtaining
any such relief, the aggrieved party shall not be precluded from seeking or
obtaining any other relief to which it may be entitled.
15.5. Section Headings. Section headings are for convenience
----------------
of reference only and shall not affect the meaning of any provision of this
Agreement.
15.6. Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall be an original, and all of which
shall together constitute one and the same instrument. All signatures need not
be on the same counterpart.
15.7. Severability. If any provision of this Agreement shall
------------
be invalid or unenforceable, such invalidity or unenforceability shall not
affect the validity and enforceability of the remaining provisions of this
Agreement, unless the result thereof would
-19-
<PAGE>
be unreasonable, in which case the parties hereto shall negotiate in good faith
as to appropriate amendments hereto.
15.8. Filing. A copy of this Agreement and of all amendments
------
thereto shall be filed at the principal executive office of the Company and with
the transfer agent for the Common Stock of the Company.
15.9. Termination. This Agreement may be terminated at any
-----------
time by a written instrument signed by the parties hereto. Unless sooner
terminated in accordance with the preceding sentence, this Agreement (other than
Section 8 hereof) shall terminate in its entirety at the earlier of (i) such
- ---------
date as there shall be no Registrable Securities outstanding or (ii) the eighth
anniversary of the date hereof, provided that any shares of Common Stock
--------
previously subject to this Agreement shall not be Registrable Securities
following the sale of any such shares in an offering registered pursuant to this
Agreement.
15.10. Attorneys' Fees. In any action or proceeding brought to
---------------
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees (including any fees incurred in any appeal) in
addition to its costs and expenses and any other available remedy.
15.11. No Third Party Beneficiaries. Nothing herein expressed
----------------------------
or implied is intended to confer upon any person, other than the parties hereto
or their respective permitted assigns, successors, heirs and legal
representatives, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
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<PAGE>
IN WITNESS WHEREOF the undersigned have executed this Registration and
Put Rights Agreement as of the date first written above.
HOLDERS:
- -------
ROBERT FLEMING INC.,
a Delaware corporation
By: /s/ Arthur Levy
------------------
Name: Arthur Levy
Title: Vice Chairman
CANPARTNERS INVESTMENTS IV, LLC,
a California limited liability company
By: /s/ Scott A. Imbach
-------------------
Scott A. Imbach
Attorney-In-Fact
THE COMPANY:
- -----------
WESTERN MICRO TECHNOLOGY, INC.,
a Delaware corporation
By: /s/ James W. Dorst
-------------------------------
James W. Dorst
Chief Financial Officer
SIGNATURE PAGE 1 OF 1
<PAGE>
EXHIBIT A
to Registration
Rights Agreement
AGREEMENT TO BE BOUND
BY THE REGISTRATION AND PUT RIGHTS AGREEMENT
The undersigned, being the transferee of ______ shares of the common
stock, $.01 par value per share [or describe other capital stock received in
exchange for such common stock] (the "Registrable Securities"), of Western Micro
Technology, Inc., a Delaware corporation (the "Company"), as a condition to the
receipt of such Registrable Securities, acknowledges that matters pertaining to
the registration of such Registrable Securities is governed by the Registration
and Put Rights Agreement dated as of September 30, 1997 initially among the
Company and the Holders referred to therein (the "Agreement"), and the
undersigned hereby (1) acknowledges receipt of a copy of the Agreement, and (2)
agrees to be bound as a Holder by the terms of the Agreement, as the same has
been or may be amended from time to time.
Agreed to this __ day of ______________, ____________.
_________________________________
_________________________________*
_________________________________*
*Include address for notices.
EXHIBIT A-1
<PAGE>
SCHEDULE I
TO REGISTRATION AND PUT RIGHTS AGREEMENT
HOLDER:
Rober Fleming Inc.
Address: 320 Park Avenue, 11th Floor
New York, NY 10022
Attention: Michael E. Rowe
Telecopy: 212/508-3679
Canpartners Investments IV, LLC
Address: c/o Canyon Partners Incorporated
9665 Wilshire Boulevard, Suite 200
Beverly Hills, California 90212
Attention: Scott A. Imbach
Telecopy: 310/247-2701
COMPANY:
Western Micro Technology, Inc.
Address: 254 E. Hacienda Ave.
Campbell, CA 95008
Attention: Chief Financial Officer
Telecopy: 408/341-4768
SCHEDULE I - PAGE 1
<PAGE>
Exhibit 4.3
EXECUTION COPY
______________________________________________________________________________
WARRANT AGREEMENT OF
WESTERN MICRO TECHNOLOGY, INC.
400,000 SHARES
Dated as of September 30, 1997
______________________________________________________________________________
COMMON STOCK PURCHASE WARRANT
<PAGE>
WARRANT AGREEMENT dated as of September 30, 1997, between Western Micro
Technology, Inc., a Delaware corporation (the "Company"), the Company as Warrant
Agent, and Canpartners Investments IV, LLC and Robert Fleming Inc., a Delaware
corporation (collectively the "Warrant Holder" or "Holder").
WHEREAS, pursuant to that certain Note Purchase Agreement dated as of
September 30, 1997, by and between the Company and the Holder (the "Note
Purchase Agreement"), the Holder has purchased Notes issued by the Company (the
"Notes") and is to receive warrants to acquire shares of Common Stock from the
Company; and
WHEREAS, the Company proposes to issue at closing (the "Closing") of the
Note Purchase Agreement the Common Stock Purchase Warrants as hereinafter
described (the "Warrants") exercisable to purchase four hundred thousand shares
of its Common Stock, $0.01 par value ("Common Stock") (the shares of Common
Stock issuable on exercise of the Warrants being referred to herein as the
"Warrant Shares"), in favor of Warrant Holder.
In consideration of the benefits and services provided to the Company by
the grantor of the Warrant Holder, and for the purpose of defining the terms and
provisions of all of the Warrants and the respective rights and obligations
thereunder of the Company and the Holder, the Company and the Warrant Holder
hereby agree as follows:
SECTION 1. TRANSFERABILITY AND FORM OF THE WARRANTS.
A. REGISTRATION. The Warrants shall be numbered and shall be
registered on the books of the Company maintained at the principal office of the
Company at 254 East Hacienda Avenue, Campbell, California 95008 (the "Warrant
Register"). The Company shall be entitled to treat the Holders of the Warrants
as the owners in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrants on the
part of any other person, and shall not be liable for any Company registration
or transfer of the Warrants which is registered or to be registered in the name
of a fiduciary or the nominee of a fiduciary unless made with the actual
knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration of transfer, or with such knowledge of such facts
that its participation therein amounts to bad faith.
B. TRANSFER RESTRICTIONS. The Warrants are freely transferable,
subject to applicable securities laws restrictions. The holder of any Warrants
so transferred shall continue to be bound by this Agreement. However, the
minimum denomination of any Warrant hereunder shall be a Warrant exchangeable
for 1,000 Warrant Shares.
1.3 TRANSFER-GENERAL. Subject to the terms hereof,
the Warrants shall be transferable only on the books of the Company maintained
at its principal office upon delivery thereof duly endorsed by the Holder or by
its duly authorized attorney or representative, or accompanied by proper
evidence of succession, assignment or authority to transfer. In all cases of
transfer by an attorney, the original power of attorney, duly approved, or a
copy
-1-
<PAGE>
thereof, duly certified, shall be deposited and remain with the Company. In case
of transfer by executors, administrators, guardians or other legal
representatives, duly authenticated evidence of their authority shall be
produced, and may be required to be deposited and to remain with the Company in
its discretion. Upon any registration of transfer, the Company shall countersign
and deliver new Warrants to the Persons entitled thereto. The Company or the
Warrant Agent may require the payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any such transfer.
1.4 NOTICES OF CORPORATE ACTIONS. In the event of: (a) any taking
by the Company of a record of the holders of the Common Stock for the purpose of
determining the holders thereof who are entitled to receive any dividend or
distribution, or any right to subscribe for, purchase or otherwise acquire any
shares of capital stock of any class or any other securities, (b) any capital
reorganization of the Company, any reclassification or recapitalization of the
capital stock of the Company or any consolidation or merger involving the
Company and any other Person or any transfer or other disposition of all or
substantially all the assets of the Company to another Person; (c) any voluntary
or involuntary dissolution, liquidation or winding-up of the Company, or (d) any
amendment of the Certificate of Incorporation of the Company, the Company shall
mail to each Warrant Holder in accordance with the provisions of Section 12
hereof a notice specifying (i) the date or expected date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right and (ii)
the date or expected date on which any such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, disposition, dissolution,
liquidation or winding-up is to take place, the time, if any such time is to be
fixed, as of which the holders of record of Common Stock shall be entitled to
exchange their shares of Common Stock for the securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, disposition, dissolution, liquidation or
winding-up and a description in reasonable detail of the transaction. Such
notice shall be mailed to the extent practicable at least thirty (30), but not
more than ninety (90) days prior to the date therein specified. In the event
that the Company at any time sends any notice to the holders of its Common
Stock, it shall concurrently send a copy of such notice to each Warrant
Holder.
1.5 FORM OF THE WARRANTS. The text of the Warrants and of the
form of election to purchase Warrant Shares (the "Purchase Form") shall be
substantially as set forth in Exhibit A attached hereto. The Exercise Price (as
defined in and determined in accordance with the provisions of Sections 2 and 6
hereof) and the number of Warrant Shares issuable upon exercise of the Warrant
is subject to adjustment upon the occurrence of certain events, all as
hereinafter provided. The Warrant shall be executed on behalf of the Company by
its Chairman of the Board, its Chief Executive Officer, President, Chief
Financial Officer, or one of its Vice Presidents, and attested by its Secretary
or an Assistant Secretary.
The Warrants shall be dated as of the date of countersignature thereof
by the Company either upon initial issuance or upon transfer.
-2-
<PAGE>
SECTION 2. TERMS OF THE WARRANTS; EXERCISE OF THE WARRANTS; EXERCISE
PRICE, ETC.
2.1 TERM OF THE WARRANTS/VESTING. Subject to the terms of this
Agreement, the Holder shall have the right, which may be exercised from time to
time until a date seven (7) years from the Closing, to purchase from the Company
the number of fully paid and nonassessable Warrant Shares which the Holder may
at the time be entitled to purchase on exercise of such Warrant. The Warrant
shall vest in full at Closing. If the last day for the exercise of the Warrant
shall not be a business day, then the Warrant may be exercised on the next
succeeding business day.
2.2 EXERCISE OF THE WARRANTS. The Warrants may be exercised upon
surrender to the Company, at its principal office, of the certificate evidencing
the particular Warrant to be exercised, together with the Purchase Form on the
reverse thereof duly completed and executed, and upon payment to the Company of
the Exercise Price, for the number of Warrant Shares in respect of which such
Warrant is then exercised. Upon partial exercise, a Warrant certificate for the
unexercised portion shall be delivered to the Holder. Payment of the aggregate
Exercise Price shall be made as provided in Section 2.3 below.
Subject to Section 3 hereof, upon such surrender of a Warrant, a
completed Purchase Form, and payment of the Exercise Price as aforesaid, the
Company shall issue and cause to be delivered with all reasonable dispatch to or
upon the written order of the Holder and in such name or names as the Holder may
designate, a certificate or certificates for the number of full Warrant Shares
so purchased upon the exercise of the particular Warrant, together with an
additional whole share in respect of any fractional Warrant Share otherwise
issuable upon such surrender. Such certificate or certificates shall be deemed
to have been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such Warrant Shares as of the date
of the surrender of the particular Warrant, completed Purchase Form, and payment
of the Exercise Price, as aforesaid; provided, however, that if, at the date of
surrender of the particular Warrant, completed Purchase Form, and payment of
such Exercise Price, the transfer books for the Warrant Shares or other class of
stock purchasable upon the exercise of the particular Warrant shall be closed,
the certificates for the Warrant Shares in respect of which the particular
Warrant is then exercised shall be issuable as of the date on which such books
shall next be opened (whether before or after the Expiration Date) and until
such date the Company shall be under no duty to deliver any certificate for such
Warrant Shares; provided, further, that the transfer books of record, unless
otherwise required by law, shall not be closed at any one time for a period
longer than 20 calendar days.
2.3 PAYMENT OF THE EXERCISE PRICE. Payment of the Exercise Price
shall be made at the option of the Holder by one or more of the following
methods: (i) by delivery of cash, or a certified or official bank check in the
amount of such Exercise Price, (ii) by instructing the Company to withhold a
number of Warrant Shares then issuable upon exercise of the particular Warrant
with an aggregate Fair Value (as defined in Section 7 hereof) equal
-3-
<PAGE>
to such Exercise Price (the "Share Withholding Option"), (iii) by surrender to
the Company of Notes in principal amount plus accrued interest equal to the
applicable Exercise Price, or (iv) by surrendering to the Company shares of
Common Stock previously acquired by the Holder with an aggregate Fair Value
equal to such Exercise Price, or any combination of foregoing. In the event of
any withholding of Warrant Stock or surrender of Common Stock pursuant to clause
(ii) or (iv) above where the number of shares whose Fair Value is equal to the
Exercise Price is not a whole number, the number of shares withheld by or
surrendered to the Company shall be rounded down to the nearest whole share.
2.4 COMPLIANCE WITH GOVERNMENT REGULATIONS. Holder acknowledges
that none of the Warrants or Warrant Shares has been registered under the Act,
and may be sold or disposed of in the absence of such registration only pursuant
to an exemption from such registration and in accordance with this Agreement.
The Warrants and Warrant Shares will bear a legend to the following effect:
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). NO SALE OR OTHER DISPOSITION OR PLEDGE OF THESE
SECURITIES OR THE SECURITIES UNDERLYING THESE SECURITIES CAN BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING
THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY OR A
NO ACTION LETTER OR INTERPRETIVE OPINION OF THE STAFF OF THE
SECURITIES AND EXCHANGE COMMISSION THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE ACT."
2.5 EXERCISE PRICE. The price per share at which Warrant Shares
shall be purchasable upon exercise of the Warrant (the "Exercise Price") shall
be $7.50 per share, subject to adjustment pursuant to Section 6 hereof.
2.6 EXERCISE PRICE RESET. In the event that on any anniversary of
the date of this Agreement during the term of the Warrants, the average of the
closing bid price for the ten (10) Trading Days prior to such anniversary is
less than the Exercise Price of the Warrants then in effect, then the Exercise
Price of the Warrants shall be reset to 87.5% of the average of the closing bid
prices for such ten (10) Trading Day period. In the event that the Common Stock
of the Company is no longer publicly traded on any such anniversary date, then
in lieu of the ten (10) Trading Day average of the closing bid prices, the Fair
Value of the Common Stock shall be used.
SECTION 3. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of the Warrants and Warrant
Shares upon the exercise of any of the Warrants; provided, however, that the
Company shall not be required to pay any tax or taxes which may be payable in
respect of any transfer involved in the issue or
-4-
<PAGE>
delivery of the Warrants or certificates for Warrant Shares in a name other than
that of the Holder of the particular Warrant.
SECTION 4. MUTILATED OR MISSING WARRANTS. In case the Warrant shall be
mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and substitution for the Warrant lost, stolen or destroyed, a new
Warrant certificate of like tenor and representing an equivalent right or
interest; but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction of the particular Warrant certificate
and indemnity or bond, if requested, also reasonably satisfactory to them. An
applicant for such substitute Warrant certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe.
SECTION 5. RESERVATION OF WARRANT SHARES.
5.1 RESERVATION OF WARRANT SHARES. There have been reserved, and
the Company shall at all times keep reserved, out of its authorized shares of
Common Stock, a number of shares of Common Stock sufficient to provide for the
exercise of the rights of purchase represented by the outstanding Warrants. The
transfer agent for the Common Stock ("Transfer Agent"), and every subsequent
transfer agent for any shares of the Company's capital stock issuable upon the
exercise of any of the rights of purchase aforesaid will be and are hereby
irrevocably authorized and directed at all times until the Expiration Date to
reserve such number of authorized shares as shall be requisite for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrant. The Company covenants that all Warrant Shares which may be issued upon
exercise of the Warrant will, upon issue, be fully paid, nonassessable, free of
preemptive rights in any third party and free from all taxes, liens, charges and
security interests with respect to the issue thereof. The Company will supply
such Transfer Agent and any subsequent transfer agent with duly executed stock
certificates for such purpose and will itself provide or otherwise make
available any cash which may be payable as provided in Section 8 of this
Agreement. The Company will furnish to such Transfer Agent a copy of all notices
of adjustments, and certificates related thereto, transmitted to each Holder.
The particular Warrant surrendered in the exercise of the rights thereby
evidenced shall be canceled by the Company.
5.2 CANCELLATION OF THE WARRANTS. In the event the Company shall
purchase a Warrant, or otherwise acquire any of the Warrants, the particular
Warrant shall be canceled and retired.
SECTION 6. ADJUSTMENT OF THE EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
The number and kind of securities purchasable upon the exercise of the Warrant
and the Exercise Price shall be subject to adjustment from time to time upon the
happening of certain events, as hereinafter defined.
-5-
<PAGE>
6.1 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS.If at any time
the Company shall:
(1) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, additional shares of Common Stock,
(2) subdivide its shares of Common Stock outstanding into a larger
number of shares of such Common Stock, or
(3) combine its shares of Common Stock outstanding into a smaller
number of shares of such Common Stock,
then the number of Warrant Shares shall be adjusted so that the Warrant Holder
thereafter will be entitled to receive the number of shares of Common Stock that
such Warrant Holder would have owned immediately following such action had the
Warrant been exercised immediately prior thereto, and the Exercise Price of the
Warrant shall be adjusted to equal the product of the Exercise Price in effect
immediately prior to such event multiplied by a fraction the numerator of which
is equal to the number of Warrant Shares purchasable upon the exercise of the
Warrant immediately prior to such adjustment, and the denominator of which is
equal to the number of Warrant Shares purchasable immediately thereafter, and
thereafter the provisions of this Warrant Agreement shall apply with like effect
to such additional or reclassified shares.
6.2 RIGHTS OFFERINGS AND OFFERINGS OF COMMON STOCK.
(a) In the event that the Company issues rights, options or
warrants to all holders of its Common Stock in respect of its Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a price
per share less than the Fair Value per share (determined as provided below) of
the Common Stock on the date fixed for the determination of stockholders
entitled to receive such rights, options or warrants, the Exercise Price in
effect at the opening of business on the day following the date fixed for such
determination shall be decreased by multiplying such Exercise Price by a
fraction of which the numerator shall be the number of shares of Common Stock
Outstanding at the close of business on the date fixed for such determination
plus the number of shares of Common Stock which the aggregate of the offering
price of the total number of shares of Common Stock so offered for subscription
or purchase would purchase at such Fair Value and the denominator shall be the
number of shares of Common Stock Outstanding at the close of business on the
date fixed for such determination plus the number of shares of Common Stock so
offered for subscription or purchase, such decrease to become effective
immediately after the opening of business on the day following the date fixed
for such determination. To the extent that shares of Common Stock are not
delivered after the expiration of such rights, options or warrants, the Exercise
Price shall be readjusted (but only with regard to any Warrant exercised after
such expiration) to the Exercise
-6-
<PAGE>
Price that would be in effect had the adjustment made upon the issuance of such
rights, options or warrants been made upon the basis of delivery of only the
number of shares of Common Stock actually issued. The Company will not issue any
rights, options or warrants in respect of shares of Common Stock held in the
treasury of the Company. The foregoing provisions of this Section 6.2 shall not
apply to any rights issued to holders of Common Stock that are not currently
exercisable and shall not apply until such time that such rights become
exercisable.
(b) In case the Company shall issue shares of Common Stock, Stock
Purchase Rights or Convertible Securities, for a price per share of Common
Stock, in the case of the issuance of Common Stock, or for a price per share of
Common Stock initially deliverable upon conversion or exchange of such
securities less than Fair Value per share of Common Stock on the date the
Company fixed the offering, conversion or exchange price of such additional
shares, the Exercise Price in effect at the opening of business on the day
following the date fixed for such determination shall be decreased by
multiplying such Exercise Price by a fraction of which the numerator shall be
the number of shares of Common Stock Outstanding at the close of business on the
date fixed for such determination plus the number of shares of Common Stock
which the aggregate of the offering price of the total number of shares of
Common Stock so offered for subscription or purchase would purchase at such Fair
Value and the denominator shall be the number of shares of Common Stock
Outstanding at the close of business on the date fixed for such determination
plus the number of shares of Common Stock so offered for subscription or
purchase, such decrease to become effective immediately after the opening of
business on the day following the date fixed for such determination. Such
adjustment shall be made whenever such shares, Stock Purchase Rights or
Convertible Securities are issued, and shall become effective immediately after
the effective date of such event retroactive to the record date, if any, for
such event. To the extent that shares of Common Stock are not delivered after
the expiration of such Stock Purchase Rights or the Convertible Securities are
not converted, the Exercise Price shall be readjusted (but only with regard to
any Warrant exercised after such expiration) to the Exercise Price that would be
in effect had the adjustment made upon the issuance of such Stock Purchase
Rights or Convertible Securities been made upon the basis of delivery of only
the number of shares of Common Stock actually issued.
6.3 OTHER DISTRIBUTIONS. In case the Company shall, by dividend
or otherwise, distribute to all holders of its Common Stock cash, evidences of
indebtedness, shares of any class of capital stock or any other property or
rights (including securities, but excluding (i) any dividend or distribution
referred to in Section 6.1, and (ii) any merger or consolidation or other
transactions to which Section 6.4 applies), then, in such event, upon the
exercise of the Warrant, the Holder shall receive from the Company, in addition
to the shares of Common Stock to which the Holder is entitled, any cash,
evidences of indebtedness, shares of any class of capital stock or any other
property distributed by the Company with respect to the shares of Common Stock
as to which the exercised Warrant pertains, and until such exercise the Company
shall retain the cash, evidences of indebtedness, shares of any class of capital
stock, or other property or rights so distributed in trust for the benefit of
the Holder.
-7-
<PAGE>
Upon the expiration of any such unexercised Warrant, to the extent not
exercised, the property held in trust shall be released to the Company or its
designee.
In the event of a distribution by the Company to holders of its shares
of Common Stock of stock of a subsidiary or securities convertible into or
exercisable for such stock, then in lieu of an adjustment in the number of
Shares purchasable upon the exercise of any of the Warrants, the Holder of any
of the Warrants, upon the exercise thereof at any time after such distribution,
shall be entitled to receive from the Company, such subsidiary or both, as the
Company shall determine, the stock or other securities to which such Holder
would have been entitled if such Holder had exercised the particular Warrant
immediately prior thereto, all subject to further adjustment as provided in this
Section 6.
6.4 REORGANIZATION, RECLASSIFICATION, MERGER,CONSOLIDATION OR
DISPOSITION OF ASSETS.
(a) In case the Company shall reorganize its capital, reclassify
its capital stock, consolidate or merge with or into another corporation (where
the Company is not the surviving corporation or where there is any change
whatsoever in, or distribution with respect to, the outstanding Common Stock of
the Company), or sell, transfer or otherwise dispose of all or substantially all
of its property, assets or business to another corporation and, pursuant to the
terms of such reorganization, reclassification, merger, consolidation or
disposition of assets, (i) shares of common stock of the successor or acquiring
corporation or of the Company (if it is the surviving corporation) or (ii) any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants, options, or other subscription or purchase rights) in
addition to or in lieu of common stock of the successor or acquiring corporation
are to be received by or distributed to the holders of Common Stock of the
Company who are holders immediately prior to such transaction, then the Holder
of the Warrants shall have the right thereafter to receive from the Company,
upon exercise of the applicable Warrant, the number of shares of common stock of
the successor or acquiring corporation or of the Company, if it is the surviving
corporation, and other property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets
by a holder of the number of shares of Common Stock for which the Warrants are
exercisable immediately prior to such event and until such exercise the Company
shall retain the cash, evidences of indebtedness, shares of any class of capital
stock, or other property or rights so received in trust for the benefit of the
Holder. If the Warrant is exercised in such event, the aggregate Exercise Price
otherwise payable for the shares of Common Stock transferable upon exercise of
the Warrant shall be allocated among the shares of common stock and other
property receivable as a result of such reorganization, reclassification,
merger, consolidation or disposition of assets in proportion to the respective
fair market values of such shares of common stock and other property as
determined in good faith by the Holder and the Company, if necessary. Upon the
expiration of any such unexercised Warrant, to the extent not exercised, the
property held in trust shall be released to the Company or its designee.
-8-
<PAGE>
(b) In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring corporation
(if other than the Company) shall expressly assume the due and punctual
observance and performance of each and every covenant and condition of this
Agreement to be performed and observed by the Company and all the obligations
and liabilities hereunder. For purposes of this Section 6.4, "common stock of
the successor or acquiring corporation" shall include stock of such corporation
of any class that is not preferred as to dividends or assets over any other
class of stock of such corporation and that is not subject to redemption and
shall also include any evidences of indebtedness, shares of stock or other
securities that are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 6.4 shall similarly
apply to successive reorganizations, reclassification, mergers, consolidations
or disposition of assets.
6.5 ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. Upon any
adjustment of the Exercise Price as provided in Section 6.2 hereof, the Holder
shall thereafter be entitled to purchase upon the exercise of the Warrant, at
the Exercise Price resulting from such adjustment, the number of shares of
Common Stock obtained by multiplying the Exercise Price in effect immediately
prior to such adjustment by the number of shares of Common Stock transferable on
the exercise hereof immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment.
6.6 DETERMINATION OF CONSIDERATION. For purposes of Section 6.2
hereof, the consideration received and/or receivable by the Company in
connection with the issuance, sale, grant or exercise of additional shares of
Common Stock, Stock Purchase Rights or Convertible Securities, irrespective of
the accounting treatment of such consideration, shall be valued as follows:
(1) SECURITIES OR OTHER PROPERTY. In the case of securities or
other property, the fair market value thereof as of the date immediately
preceding such issuance, sale, grant or exercise as determined in good faith by
the Board of Directors of the Company which determination shall be conclusive
absent manifest error.
(2) DIVIDENDS IN SECURITIES. In case the Company shall declare a
dividend or make any other distribution upon any stock of the Company payable in
either case in Common Stock or Convertible Securities, such Common Stock or
Convertible Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold without
consideration.
(3) MERGER, CONSOLIDATION OR SALE OF ASSETS. In case any shares
of Common Stock, Stock Purchase Rights or Convertible Securities shall be issued
in connection with any merger or consolidation in which the Company is the
surviving corporation, the amount of consideration therefor shall be deemed to
be the fair value of such portion of the assets and business of the non-
surviving corporation attributable to such Common Stock, Stock
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<PAGE>
Purchase Rights or Convertible Securities, as is determined in good faith by the
Board of Directors of the Company which determination shall be conclusive absent
manifest error.
6.7 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION.
The following provisions shall be applicable to the adjustments provided for
pursuant to this Section 6:
(A) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by this
Section 6 shall be made whenever and as often as any specified event requiring
such an adjustment shall occur. For the purpose of any such adjustment, any
specified event shall be deemed to have occurred at the close of business in New
York on the date of its occurrence.
(B) FRACTIONAL INTERESTS. In computing adjustments under this
Section 6, fractional interests in Common Stock shall be taken into account to
the nearest 1/100th of a share.
(C) WHEN ADJUSTMENT NOT REQUIRED.
(1) If the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or
distribution to which the provisions of Section 6 would apply, but
shall, thereafter and before the distribution to stockholders
thereof, legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment shall be required by
reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled .
(2) In case the Company shall sell or issue shares of Common Stock or
Stock Purchase Rights in the following situations:
(i) to, officers, directors, consultants or employees
of the Company pursuant to a plan approved by the Company's
shareholders or Board of Directors at a price not less than 85% of
the Fair Value of the Company's Common Stock in an amount (taking
into account all prior sales or issuances excluded pursuant to
this clause (i)) not greater than 5% of the total number of shares
of Common Stock Outstanding; or
(ii) pursuant to a provision in any existing agreement
between the Company and any third party in respect of an
acquisition by the Company in which all or a portion of the
consideration in connection with such acquisition is payable by
the issuance of shares of Common Stock or Stock Purchase Rights;
or
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<PAGE>
(iii) to holders of the Company's Series A Preferred
Stock, $0.01 par value, issued on September 19, 1997, as dividends
thereon or upon conversion thereof; or
(iv) to any Person upon the exercise of any Stock Purchase
Right outstanding on the date hereof; or
(v) to IBM Credit Corporation upon exercise of its warrant
dated September 30, 1997, for the purchase of 100,000 shares of
the Company's Common Stock,
there shall be no adjustment in the Exercise Price or the number of Warrant
Shares either upon the initial issuance of such securities or upon the
exercise or conversion thereof.
(D) MAXIMUM EXERCISE PRICE. Except with respect to mechanical
adjustments pursuant to Section 6.1 above, at no time shall the Exercise Price
per share of Common Stock exceed the amount set forth in Section 2.5 of this
Agreement, as adjusted pursuant to Section 2.6.
(E) CERTAIN LIMITATIONS. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction that, by reason
of any adjustment under Section 6 above, would cause the Exercise Price to be
less than the par value of the Common Stock, if any, unless the Company first
reduces the par value of the Common Stock to be less than the Exercise Price
that would result from such transaction.
(F) NOTICE OF ADJUSTMENTS. Whenever the number of shares of Common
Stock for which the Warrants are exercisable or the Exercise Price shall be
adjusted pursuant to this Section 6, the Company forthwith shall prepare a
certificate to be executed by either the chief executive or chief financial
officer of the Company setting forth, in reasonable detail, the event requiring
the adjustment and the method by which such adjustment was calculated,
specifying the number of shares of Common Stock for which the Warrants are
exercisable and (if such adjustment was made pursuant to Section 6.3) describing
the number and kind of any other shares of stock or other property for which the
Warrants are exercisable, and any related change in the Exercise Price, after
giving effect to such adjustment or change. The Company shall promptly deliver a
signed copy of such certificate to the Holder in accordance with Section 12. The
Company shall keep at its principal office copies of all such certificates and
cause the same to be available for inspection at said office during normal
business hours by any Holder or any prospective transferee of any Warrants
designated by a Holder thereof.
(G) INDEPENDENT APPLICATION. Except as otherwise provided herein, all
subsections of this Section 6 are intended to operate independently of one
another (but without duplication). If an event occurs that requires the
application of more than one subsection, all applicable subsections shall be
given independent effect without duplication.
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<PAGE>
6.8 RIGHT OF FIRST REFUSAL. As used in this Section 6.8, the term
"Holder's Ratio" means the sum of the number of shares of Common Stock of the
Company, plus the number of shares of Common Stock of the Company underlying the
Warrants, plus the number of shares of Common Stock of the Company underlying
Stock Purchase Rights, held by a Holders or its assigns, divided by the number
of shares of Common Stock of the Company Outstanding from time to time. The
Company agrees that if at any time while a Holder holds shares of Common Stock
of the Company or Warrants, if the Company desires to sell or issue shares of
Common Stock or Stock Purchase Rights of the Company (excluding shares of Common
Stock issuable after the date hereof pursuant to Stock Purchase Rights of the
Company existing on the date hereof, or shares issuable in connection with the
matters listed in Section 6.7(c)(2)), then the Company shall first notify all
the Holders of the terms of such proposed sale and issuance and permit the
Holders to acquire on the same terms and conditions (which need only include
monetary terms and conditions and not need include any terms and conditions
which cannot be matched by the Holders) an amount equal to the number of shares
of Common Stock or Stock Purchase Rights proposed to be issued or sold times the
Holder's Ratio. The Holders shall have ten (10) Business Days after receipt of
such notice to elect by notice to the Company in writing whether to purchase
such shares of Common Stock or such Stock Purchase Rights, and may withdraw
their election by notice to the Company at any time up to two (2) Business Days
prior to the closing of the offer. After the ten (10) Business Day period has
expired, the Company shall have up to ninety (90) days (or such longer time as
may be reasonable necessary in the event the proposed issuance is pursuant to a
public offering of shares of Common Stock or Stock Purchase Rights) to complete
the sale of any such shares of Common Stock or Stock Purchase Rights, provided
that if the Company later desires to change the terms of such sale or issuance
in any material respect it shall first reoffer such shares of Common Stock or
Stock Purchase Rights to the Holders pursuant to the procedures set forth
herein.
The Right of First Refusal set forth in this Section may only be
transferred in connection with a transfer of the Warrants or Warrant Shares and
shall terminate with respect to any of the Holders' shares after such shares
have been sold pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission or pursuant to Rule 144
under the Act, and shall in no event continue beyond the term of the Warrants.
SECTION 7. DEFINITIONS.
As used in this Warrant Agreement, the following terms shall have
the following respective meanings:
ACT shall mean the Securities Act of 1933, as amended.
BUSINESS DAY shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in New
York or California.
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<PAGE>
CLOSING means the closing of the Note Purchase Agreement.
COMMON STOCK means the Common Stock of the Company, $0.01 par
value per share, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the Company
of any other class (regardless of how denominated) issued to the holders of
shares of any Common Stock upon any reclassification thereof which is also not
preferred as to dividends or liquidation over any other class of stock of the
Company and which is not subject to redemption and (ii) shares of common stock
of any successor or acquiring corporation (as defined in Section 6.4 hereof)
received by or distributed to the holders of Common Stock of the Company in the
circumstances contemplated by Section 6.4 hereof.
CONVERTIBLE SECURITIES shall mean evidences of indebtedness,
shares of stock or other securities that are convertible into or exchangeable
for, with or without payment of additional consideration in cash or property,
shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.
CURRENT MARKET PRICE shall mean as of any specified date the
average of the Daily Market Price of the Common Stock of the Company for the
twenty (20) consecutive Trading Days immediately preceding such date. The "Daily
Market Price" for each such Trading Day shall be the closing price of the Common
Stock on the principal stock exchange or market on which such stock is actually
traded.
FAIR VALUE means, per share of Common Stock as of any specified
date, (i) if the Common Stock is publicly traded on such date, the Current
Market Price per share or (ii) if the Common Stock is not publicly traded on
such date, the fair market value per share of Common Stock shall be agreed upon
in good faith between the Holders and the Company.
NOTE PURCHASE AGREEMENT means the Note Purchase Agreement
between the Holder and the Company for the purchase of $15.7 million of Notes of
the Company dated September 30, 1997.
OUTSTANDING shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued and outstanding shares of Common Stock, except shares then owned or
held by or for the account of the Company or any Subsidiary thereof.
PERSON shall mean any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, incorporated
organization, association, corporation, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
-13-
<PAGE>
PREEMPTIVE RIGHT means a right of a stockholder to preempt or
to purchase before others a new issue of shares in proportion to one's present
interest in the Company.
STOCK PURCHASE RIGHTS shall mean any options, warrants or other
securities or rights to subscribe to or exercisable for the purchase of shares
of Common Stock or Convertible Securities, whether or not immediately
exercisable.
TRADING DAY means any day that the principal stock exchange or
market on which the securities of the Company are traded is open for trading.
SECTION 8. FRACTIONAL INTERESTS. The Company shall not be required to
issue fractional Warrant Shares on the exercise of the Warrant. If any fraction
of a Warrant Shares would, except for the provisions of this Section 8, be
issuable on the exercise of the Warrant (or specified portion thereof), the
Company shall round up such share to an additional whole share of Common Stock.
SECTION 9. NO RIGHTS AS STOCKHOLDER; NOTICES TO HOLDER. Nothing contained
in either this Agreement or the Warrant shall be construed as conferring upon
the Holder or its permitted transferees the right to vote or to receive
dividends or to consent to or receive notice as a stockholder in respect of any
meeting of stockholders for the election of directors of the Company or any
other matter, or any rights whatsoever as a stockholder of the Company.
SECTION 10. INSPECTION OF WARRANT AGREEMENT. The Company shall keep copies
of this Agreement and any notices given or received hereunder available for
inspection by the Holder during normal business hours at its principal office.
SECTION 11. IDENTITY OF TRANSFER AND WARRANT AGENT. Forthwith upon the
appointment of any subsequent transfer agent for the Common Stock or Warrant
Agent, or any other shares of the Company's capital stock issuable upon the
exercise of the Warrant, the Company will notify the Holder of the name and
address of such subsequent transfer agent.
SECTION 12. NOTICES. Any notice pursuant to this Agreement by any Holder to
the Company, shall be in writing and shall be mailed first class, postage
prepaid, or delivered to the Company at its office at 254 East Hacienda Avenue,
Campbell, California 95008.
Each party hereto may from time to time change the address to which notices
to it are to be delivered or mailed hereunder by notice in writing to the other
party. Any notice mailed pursuant to this Agreement by the Company or the
Warrant Agent to the Holder shall be in writing and shall be mailed first class,
postage prepaid, or delivered to the Holder at its address on the books of the
Warrant Agent.
SECTION 13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without giving
effect to principles of
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<PAGE>
conflict of laws. The parties hereto agree to submit to the jurisdiction of the
United States District Court for the Central District of California and the
jurisdiction of any court of the State of California located in Los Angeles
County in any action or proceeding arising out of or relating to this Agreement.
SECTION 14. SUCCESSORS. All the covenants and provisions of this Agreement
by or for the benefit of the Company or the Warrant Agent shall bind and inure
to the benefit of their respective successors and assigns hereunder.
SECTION 15. MERGER OR CONSOLIDATION OF THE COMPANY. So long as the Warrant
remains outstanding, the Company will not merge or consolidate with or into, or
sell, transfer or lease all or substantially all of its property to, any other
corporation unless the successor or purchasing corporation, as the case may be
(if not the Company), shall expressly assume, by supplemental agreement, the due
and punctual performance and observance of each and every covenant and condition
of this Agreement to be performed and observed by the Company.
SECTION 16. AMENDMENTS AND WAIVERS. This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the Company
and a majority of the Holders (by number of shares). Either the Company or any
Holder may, by an instrument in writing, waive compliance by the other party
with any term or provision of this Agreement on the part of such other party
hereto to be performed or complied with. The waiver by any such party of a
breach of any term or provision of this Agreement shall not be construed as a
waiver by any other party or of any subsequent breach.
SECTION 17. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation, other than the Company and the
Holder, any legal or equitable right, remedy or claim under this Agreement, but
this Agreement shall be for the sole and exclusive benefit of the Company and
the Holder.
SECTION 18. AGREEMENT IN CONFIDENCE. This Agreement and its terms and the
relationship between the Company and the Warrant Holder and its principals shall
be kept confidential by the Warrant Holder and its affiliates and by Company and
its affiliates and will not be disclosed by either of them except to the extent
that as a matter of law it must be disclosed by either party in any document
filed with any government agency or authority and available for public
inspection or as may be required to be disclosed in connection with the
Company's sale of its capital stock or assets or its merger, reorganization,
consolidation or similar event.
SECTION 19. CAPTIONS. The captions of the Sections of this Agreement have
been inserted for convenience only and shall have no substantive effect.
SECTION 20. COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute but one and the same instrument.
-15-
<PAGE>
* * *
-16-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed as of the day, month and year first above written.
THE COMPANY, AND
AS THE WARRANT AGENT:
WESTERN MICRO TECHNOLOGY, INC.,
a Delaware corporation
By: /s/ James W. Dorst
-------------------------------
James W. Dorst
Chief Financial Officer
THE WARRANT HOLDERS:
Canpartners Investments IV, LLC as to 50% Robert Fleming Inc. as to 50%
CANPARTNERS INVESTMENTS IV, LLC, ROBERT FLEMING INC.
a California limited liability company a Delaware corporation
/s/ Scott A. Imbach /s/ Arthur Levy
By: ---------------------------------- By: -------------------------------
Scott A. Imbach Name: Arthur Levy
Attorney-In-Fact Title: Vice Chairman
c/o Canyon Partners Incorporated c/o Robert Fleming Inc.
9665 Wilshire Boulevard, Suite 200 320 Park Avenue, 11th Floor
Beverly Hills, California 90212 New York, NY 10022
Attention: Scott A. Imbach Attention: Michael E. Rowe
phone: (310) 247-2700 phone: (212) 508-3672
fax: (310) 247-2701 fax: (212) 508-3679
SIGNATURE PAGE 1 OF 1
<PAGE>
EXHIBIT A
No. ___ ________ Shares
COMMON STOCK PURCHASE WARRANT
Void After 5:00 P.M.
Pacific Daylight Time on September 30, 2004
THIS CERTIFIES THAT, for value received, _________________________, the
registered holder of this Common Stock Purchase Warrant (the "Warrant") or
permitted assigns (the "Holder"), is entitled to purchase from Western Micro
Technology, Inc., a Delaware corporation (the "Company"), at any time until
September 30, 2004 (the "Expiration Date"), at the purchase price per share
of $7.50 (the "Exercise Price"), the number of shares of Common Stock of the
Company (the "Common Stock") which is equal to the number of Shares set forth
above. The number of shares purchasable upon exercise of this Warrant and
the Exercise Price per share shall be subject to adjustment from time to time
as set forth in the Warrant Agreement referred to below.
This Warrant is issued under and in accordance with a Warrant Agreement
dated as of September 30, 1997, between the Company and the Warrant Holder and
is subject to the terms and provisions contained in the Warrant Agreement, to
all of which the Holder of this Warrant by acceptance hereof consents. A copy of
the Warrant Agreement may be obtained for inspection by the Holder hereof upon
written request to the Company.
This Warrant may be exercised in whole or in part by presentation of this
Warrant with the Purchase Form annexed hereto duly executed and simultaneous
payment of the Exercise Price (subject to adjustment) at the principal office
of the Company at 254 East Hacienda Avenue, Campbell, California 95008.
Payment of such price shall be made at the option of the Holder hereof in
cash or by certified or official bank check or otherwise as set forth in the
Warrant Agreement, including in the form of a "net exercise." Terms relating
to exercise of this Warrant is set forth more fully in the Warrant Agreement.
This Warrant may be exercised in whole or in part. Upon partial exercise, a
Warrant certificate for the unexercised portion shall be delivered to the
Holder. No fractional shares will be issued upon the exercise of this Warrant
but the Company shall round up to a whole share any fractional share issuable
upon the exercise of this Warrant. This Warrant is transferable only in limited
circumstances as described in the Warrant Agreement at the office of the Company
in Campbell, California, in the manner and subject to the limitations set forth
in the Warrant Agreement.
EXHIBIT A - 1
<PAGE>
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). NO SALE OR OTHER DISPOSITION OR PLEDGE OF THESE
SECURITIES OR THE SECURITIES UNDERLYING THESE SECURITIES CAN BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING
THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY OR A
NO ACTION LETTER OR INTERPRETIVE OPINION OF THE STAFF OF THE
SECURITIES AND EXCHANGE COMMISSION THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE ACT."
The Holder hereof may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented hereby, or to the
transfer hereof on the books of the Company. Any notice to the contrary
notwithstanding, and until such transfer on which books, the Company may treat
the Holder hereof as the owner for all purposes.
This Warrant does not entitle any Holder hereof to any of the rights of a
stockholder of the Company.
This Warrant shall not be valid or obligatory for any purpose until it
shall have been countersigned by the Company.
WESTERN MICRO TECHNOLOGY, INC.,
a Delaware corporation
By________________________________
James W. Dorst
Chief Financial Officer
Attest________________________________
James W. Dorst
Assistant Secretary
DATED: As of September 30, 1997
EXHIBIT A - 2
<PAGE>
PURCHASE FORM
Mailing Address
______________________________________ _____________________________________
______________________________________ _____________________________________
______________________________________ _____________________________________
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant for, and to purchase thereunder, _____________
shares of the stock provided for therein, and tenders herewith payment of the
purchase price in full in the form of cash or by cashier's check in the amount
of $______________.
The undersigned requests that certificates for such shares be issued in the
name of:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please Print Name, Address and Social Security No.)
DATED: _____________________________
Name of Warrant holder or Permitted Assignee:
________________________________________________________________________________
Address:
________________________________________________________________________________
________________________________________________________________________________
Signature:______________________________________________________________________
Signature Guaranteed: Note: The above signature must correspond with the name
as written upon the face of this Warrant in every
particular, without alteration or enlargement or
any change whatever, unless this Warrant has been
assigned.
PURCHASE FORM - 1
<PAGE>
Exhibit 4.4
No. A1 200,000 Shares
COMMON STOCK PURCHASE WARRANT
Void After 5:00 P.M.
Pacific Daylight Time on September 30, 2004
THIS CERTIFIES THAT, for value received, Robert Fleming Inc., a Delaware
corporation, the registered holder of this Common Stock Purchase Warrant (the
"Warrant") or permitted assigns (the "Holder"), is entitled to purchase from
Western Micro Technology, Inc., a Delaware corporation (the "Company"), at any
time until September 30, 2004 (the "Expiration Date"), at the purchase price per
share of Seven Dollars and Fifty Cents ($7.50) (the "Exercise Price"), the
number of shares of Common Stock of the Company (the "Common Stock") which is
equal to the number of Shares set forth above. The number of shares purchasable
upon exercise of this Warrant and the Exercise Price per share shall be subject
to adjustment from time to time as set forth in the Warrant Agreement referred
to below.
This Warrant is issued under and in accordance with a Warrant Agreement
dated as of September 30, 1997, between the Company and the Warrant Holder and
is subject to the terms and provisions contained in the Warrant Agreement, to
all of which the Holder of this Warrant by acceptance hereof consents. A copy
of the Warrant Agreement may be obtained for inspection by the Holder hereof
upon written request to the Company.
This Warrant may be exercised in whole or in part by presentation of this
Warrant with the Purchase Form on the reverse side hereof duly executed and
simultaneous payment of the Exercise Price (subject to adjustment) at the
principal office of the Company at 254 East Hacienda Avenue, Campbell,
California 95008. Payment of such price shall be made at the option of the
Holder hereof in cash or by certified or official bank check or otherwise as set
forth in the Warrant Agreement, including in the form of a "net exercise."
Terms relating to exercise of this Warrant is set forth more fully in the
Warrant Agreement.
This Warrant may be exercised in whole or in part. Upon partial exercise,
a Warrant Certificate for the unexercised portion shall be delivered to the
Holder. No fractional shares will be issued upon the exercise of this Warrant
but the Company shall round up to a whole share any fractional shares issuable
upon the exercise of the Warrant. This Warrant is transferable only in limited
circumstances as described in this Warrant Agreement at the office of the
Company in Campbell, California, in the manner and subject to the limitations
set forth in the Warrant Agreement.
-1-
<PAGE>
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR
OTHER DISPOSITION OR PLEDGE OF THESE SECURITIES OR THE SECURITIES
UNDERLYING THESE SECURITIES CAN BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY OR A NO ACTION LETTER OR INTERPRETIVE
OPINION OF THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT."
The Holder hereof may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented hereby, or to the
transfer hereof on the books of the Company. Any notice to the contrary
notwithstanding, and until such transfer on which books, the Company may treat
the Holder hereof as the owner for all purposes.
This Warrant does not entitle any Holder hereof to any of the rights of a
stockholder of the Company.
This Warrant shall not be valid or obligatory for any purpose until it
shall have been countersigned by the Company.
WESTERN MICRO TECHNOLOGY, INC.,
a Delaware corporation
By: /s/ James W. Dorst
----------------------------------
James W. Dorst
Chief Financial Officer
Attest:
/s/ James W. Dorst
- -------------------------------
James W. Dorst
Assistant Secretary
DATED: As of September 30, 1997
-2-
<PAGE>
PURCHASE FORM
Mailing Address
____________________________________ ________________________________________
____________________________________ ________________________________________
____________________________________ ________________________________________
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant for, and to purchase thereunder,_____________
shares of the stock provided for therein, and tenders herewith payment of the
purchase price in full in the form of cash or by cashier's check in the amount
of $______________.]
The undersigned requests that certificates for such shares be issued in the
name of:
_____________________________________ ________________________________________
_____________________________________ ________________________________________
_____________________________________ ________________________________________
(Please Print Name, Address and Social Security No.)
DATED:___________
Name of Warrant holder or Permitted Assignee:
________________________________________________________________________________
Address:
________________________________________________________________________________
________________________________________________________________________________
Signature:______________________________________________________________________
Signature Guaranteed: Note: The above signature must correspond with the name
as written upon the face of this Warrant
Certificate in every particular, without
alteration or enlargement or any change whatever,
unless this Warrant has been assigned.
-3-
<PAGE>
Exhibit 4.5
No. A2 200,000 Shares
COMMON STOCK PURCHASE WARRANT
Void After 5:00 P.M.
Pacific Daylight Time on September 30, 2004
THIS CERTIFIES THAT, for value received, Canpartners Investments IV, LLC, a
California limited liability company, the registered holder of this Common Stock
Purchase Warrant (the "Warrant") or permitted assigns (the "Holder"), is
entitled to purchase from Western Micro Technology, Inc., a Delaware corporation
(the "Company"), at any time until September 30, 2004 (the "Expiration Date"),
at the purchase price per share of Seven Dollars and Fifty Cents ($7.50) (the
"Exercise Price"), the number of shares of Common Stock of the Company (the
"Common Stock") which is equal to the number of Shares set forth above. The
number of shares purchasable upon exercise of this Warrant and the Exercise
Price per share shall be subject to adjustment from time to time as set forth in
the Warrant Agreement referred to below.
This Warrant is issued under and in accordance with a Warrant Agreement
dated as of September 30, 1997, between the Company and the Warrant Holder and
is subject to the terms and provisions contained in the Warrant Agreement, to
all of which the Holder of this Warrant by acceptance hereof consents. A copy
of the Warrant Agreement may be obtained for inspection by the Holder hereof
upon written request to the Company.
This Warrant may be exercised in whole or in part by presentation of this
Warrant with the Purchase Form on the reverse side hereof duly executed and
simultaneous payment of the Exercise Price (subject to adjustment) at the
principal office of the Company at 254 East Hacienda Avenue, Campbell,
California 95008. Payment of such price shall be made at the option of the
Holder hereof in cash or by certified or official bank check or otherwise as set
forth in the Warrant Agreement, including in the form of a "net exercise."
Terms relating to exercise of this Warrant is set forth more fully in the
Warrant Agreement.
This Warrant may be exercised in whole or in part. Upon partial exercise,
a Warrant Certificate for the unexercised portion shall be delivered to the
Holder. No fractional shares will be issued upon the exercise of this Warrant
but the Company shall round up to a whole share any fractional shares issuable
upon the exercise of the Warrant. This Warrant is transferable only in limited
circumstances as described in this Warrant Agreement at the office of the
Company in Campbell, California, in the manner and subject to the limitations
set forth in the Warrant Agreement.
-1-
<PAGE>
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). NO SALE OR OTHER DISPOSITION OR PLEDGE OF THESE
SECURITIES OR THE SECURITIES UNDERLYING THESE SECURITIES CAN BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING
THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY OR A
NO ACTION LETTER OR INTERPRETIVE OPINION OF THE STAFF OF THE
SECURITIES AND EXCHANGE COMMISSION THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE ACT."
The Holder hereof may be treated by the Company and all other
persons dealing with this Warrant as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented
hereby, or to the transfer hereof on the books of the Company. Any
notice to the contrary notwithstanding, and until such transfer on
which books, the Company may treat the Holder hereof as the owner for
all purposes.
This Warrant does not entitle any Holder hereof to any of the rights of a
stockholder of the Company.
This Warrant shall not be valid or obligatory for any purpose until it
shall have been countersigned by the Company.
WESTERN MICRO TECHNOLOGY, INC.,
a Delaware corporation
By /s/ James W. Dorst
---------------------------------
James W. Dorst
Chief Financial Officer
Attest:
/s/ James W. Dorst
- -------------------------------------
James W. Dorst
Assistant Secretary
DATED: As of September 30, 1997
-2-
<PAGE>
PURCHASE FORM
Mailing Address
___________________________________ ________________________________________
___________________________________ ________________________________________
___________________________________ ________________________________________
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant for, and to purchase thereunder,
_______________ shares of the stock provided for therein, and tenders herewith
payment of the purchase price in full in the form of cash or by cashier's check
in the amount of $______________.
The undersigned requests that certificates for such shares be issued in the
name of:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please Print Name, Address and Social Security No.)
DATED:_________________
Name of Warrant holder or Permitted Assignee:
________________________________________________________________________________
Address:
________________________________________________________________________________
________________________________________________________________________________
Signature:______________________________________________________________________
Signature Guaranteed: Note: The above signature must correspond with the
name as written upon the face of this Warrant
Certificate in every particular, without
alteration or enlargement or any change
whatever, unless this Warrant has been assigned.
-3-
<PAGE>
Exhibit 4.6
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
THIS NOTE IS SUBJECT TO THE TERMS OF A SUBORDINATION AND
INTERCREDITOR AGREEMENT IN FAVOR OF IBM CREDIT CORPORATION, WHICH
SUBORDINATION AND INTERCREDITOR AGREEMENT CONTAINS CERTAIN
SUBORDINATION PROVISIONS AND IS INCORPORATED HEREIN BY REFERENCE.
NOTWITHSTANDING ANY CONTRARY STATEMENT CONTAINED IN THIS NOTE, NO
PAYMENT ON ACCOUNT OF THE PRINCIPAL, PREMIUM, IF ANY, OR INTEREST
HEREOF SHALL BECOME DUE OR BE PAID EXCEPT IN ACCORDANCE WITH THE
TERMS OF SUCH SUBORDINATION AND INTERCREDITOR AGREEMENT.
WESTERN MICRO TECHNOLOGY, INC.,
Issuer
13.5% SECOND PRIORITY SENIOR SECURED NOTES DUE SEPTEMBER 30, 2000
No. 1 September 30, 1997
$7,850,000
FOR VALUE RECEIVED, the undersigned, WESTERN MICRO TECHNOLOGY, INC., a
Delaware corporation (the "ISSUER") hereby promises to pay to ROBERT FLEMING
INC., a Delaware corporation, or registered assigns, the principal sum of SEVEN
MILLION EIGHT HUNDRED FIFTY THOUSAND DOLLARS ($7,850,000) on September 30, 2000,
with interest (computed on the basis of a 360-day year of twelve 30-day months)
(a) on the unpaid balance thereof at the rate of 1.125% per month from the date
hereof, payable monthly, on the 1st day of each month, commencing with November
1, 1997, until the principal hereof shall have become due and payable, and (b)
to the extent permitted by law on any overdue payment (including any overdue
prepayment) of principal and any overdue payment of interest (as defined in the
Agreement (as defined below)), payable monthly as aforesaid (or, at the option
of the registered Holder (as defined in the Agreement) hereof, on demand), at a
rate per annum from time to time equal to the Default Rate (as defined in the
Agreement).
-1-
<PAGE>
Payments of principal of and interest on this Note are to be made in lawful
money of the United States of America by the method and to the address or
account specified with respect to the holder hereof pursuant to Section 2.05 of
the Agreement.
This Note is one of a duly authorized issue of Notes of the Issuer
designated as its 13.5% Second Priority Senior Secured Notes Due September 30,
2000 (herein called the "Notes"), limited in aggregate principal amount to
$15,700,000 issued and to be issued under a Note Purchase Agreement dated as of
September 30, 1997 among Issuer, Robert Fleming Inc. and Canpartners Investments
IV, LLC as Purchasers, Canpartners Investments IV, LLC, as Agent for the
Purchasers, and WMT Acquisition Corp., Savoir Technology Group, Inc., Star
Management Services, Inc., Inet Systems, Inc., Star Data International, Sirius
Investments, Inc., and Star Data Systems, Inc. (herein called the "Agreement"),
to which Agreement and all Agreements supplemental thereto reference is hereby
made for a statement of the respective rights, thereunder of the Issuer, the
holders of Senior Debt and the Holders of the Notes. Pursuant to the Agreement,
the Holders of Notes are also entitled to the benefits of a Security and Pledge
Agreement, dated September 30, 1997 between the Issuer and the Agent thereunder.
The terms of the Notes include those stated in the Agreement. The Notes are
subject to all such terms, and holders are referred to the Agreement for a
statement of such terms. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to such terms in the Agreement.
The Issuer hereby acknowledges and makes this Note a registered obligation
for United States withholding tax purposes. The Issuer shall be the registrar
for this Note (the "REGISTRAR") with full power of substitution. In the event
the Registrar becomes unable or unwilling to act as registrar for this Note, the
Issuer shall reasonably designate a successor Registrar. If the Holder is a
foreign person, by its acceptance of this Note, the Holder hereby agrees to
provide the Issuer with a completed Internal Revenue Service Form W-8
(Certificate of Foreign Status) or a substantially similar form for such Holder,
participants or other affiliates who are holders of beneficial interests in this
Note. Notwithstanding any contrary provision contained in this Note or any of
the other Note Documents (as defined in the Agreement), neither this Note nor
any interests herein may be sold, transferred, hypothecated, participated or
assigned to any Person (as defined in the Agreement) except upon satisfaction of
the conditions specified in this paragraph. The Holder, by its acceptance of
this Note, agrees to be bound by the provisions of this paragraph and to
indemnify and hold harmless the Registrar against any and all loss or liability
arising from the disposition by the Holder of this Note or any interest herein
in violation of this paragraph. The Registrar shall keep at its principal
executive office (or an office or agency designated by it by notice to the last
registered Holder) a ledger, in which, subject to such reasonable regulations as
it may prescribe, but at its expense (except as specified below), it shall
provide for the registration and transfer of this Note. No sale, transfer,
hypothecation, participation or assignment of this Note or any interest herein
shall be effective for any purpose until it shall be registered on the books of
the Registrar to be maintained for such purpose. The Registrar shall record the
transfer of this Note on the books maintained for this purpose upon receipt by
the Registrar at the office or agency designated by the Registrar of (a) a
written assignment of this Note (or the applicable interest herein), (b) funds
sufficient to pay any transfer
-2-
<PAGE>
taxes payable upon the making of such transfer as well as the cost of reviewing
the documents presented to the Registrar, and (c) such evidence of due execution
as the Registrar shall reasonably require. The Registrar shall record the
transfer of this Note on the books maintained for such purpose at the cost and
expense of the assignee.
This Note is subject to prepayment, in whole or from time to time in part,
at the times and on the terms specified in that certain Agreement, but not
otherwise.
If an Event of Default, as defined in the Agreement, occurs and is
continuing, the principal of this Note may be declared or otherwise become due
and payable in the manner, at the price and with the effect provided in the
Agreement.
Issuer, for itself and its successors and assigns, hereby: (i) waives
demand, presentment for payment, notice of nonpayment, protest, notice of
protest, notice of intent to accelerate, notice of acceleration and all other
notice, filing of suit and diligence in collecting this Note or enforcing any of
its remedies, (ii) agrees that Holder shall not be required first to institute
suit or exhaust its remedies hereon against Issuer or others liable or to become
liable hereon or to enforce its rights against them and (iii) consents to any
extension or postponement of time of payment of this Note and to any other
indulgence with respect hereto without notice thereof to Issuer. This Note, and
the terms, conditions and provisions hereof, may not be changed, modified,
amended or terminated except as provided in the Agreement.
This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of California
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State ("Governing
Law").
Notwithstanding anything to the contrary contained elsewhere in this Note
or in any other Note Document, the Issuer and the Holder of this Note hereby
agree that all agreements among them under this Note and the other Note
Documents, whether now existing or hereafter arising and whether written or
oral, are expressly limited so that in no contingency or event whatsoever shall
the amount paid, or agreed to be paid, to the Holder for the use, forbearance,
or detention of the money loaned to the Issuer and evidenced hereby or thereby
or for the performance or payment of any covenant or obligation contained herein
or therein, exceed the Highest Lawful Rate (as defined below). If due to any
circumstance whatsoever, fulfillment of any provision of this Note or any of the
other Note Documents at the time performance of such provision shall be due
shall exceed the Highest Lawful Rate, then, automatically, the obligation to be
fulfilled shall be modified or reduced to the extent necessary to limit such
interest to the Highest Lawful Rate, and if from any such circumstance the
Holder should ever receive anything of value deemed interest by Governing Law
which would exceed the Highest Lawful Rate, such excessive interest shall be
applied to the reduction of the principal amount then outstanding hereunder or
on account of any other then outstanding Obligations (as defined in the
Agreement) and not to the payment of interest, or if such excessive interest
exceeds the principal unpaid
-3-
<PAGE>
balance then outstanding hereunder and such other then outstanding Obligations,
such excess shall be refunded to the Issuer. All sums paid or agreed to be paid
to the Holder for the use, forbearance, or detention of the Obligations and
other Indebtedness of the Issuer to the Holder, to the extent permitted by
Governing Law, shall be amortized, prorated, allocated and spread throughout the
full term of such Indebtedness, until payment in full thereof, so that the
actual rate of interest on account of all such Indebtedness does not exceed the
Highest Lawful Rate throughout the entire term of such Indebtedness. For
purposes of this paragraph, "HIGHEST LAWFUL RATE" means, at any given time
during which any Obligations shall be outstanding hereunder, the maximum
nonusurious interest rate that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Obligations
evidenced by this Note, under the laws of the State of California (or the law of
any other jurisdiction whose laws may be mandatorily applicable notwithstanding
other provisions of this Note and the other Note Documents), or under applicable
federal laws which may presently or hereafter be in effect and which allow a
higher maximum nonusurious interest rate than under the laws of the State of
California (or such other jurisdiction's law), in any case after taking into
account, to the extent permitted by applicable law, any and all relevant
payments or charges under this Note and any other Note Documents and any
available exemptions, exceptions and exclusions. The terms and provisions of
this paragraph shall control every other provision of this Note and all
agreements between the Issuer and the Holder.
IN WITNESS WHEREOF, the Issuer has executed this Note on the date first
written above.
WESTERN MICRO TECHNOLOGY, INC.,
a Delaware corporation
By: /s/ James W. Dorst
------------------------------
James W. Dorst
Chief Financial Officer
-4-
<PAGE>
Exhibit 4.7.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS.
THIS NOTE IS SUBJECT TO THE TERMS OF A SUBORDINATION AND
INTERCREDITOR AGREEMENT IN FAVOR OF IBM CREDIT CORPORATION, WHICH
SUBORDINATION AND INTERCREDITOR AGREEMENT CONTAINS CERTAIN
SUBORDINATION PROVISIONS AND IS INCORPORATED HEREIN BY REFERENCE.
NOTWITHSTANDING ANY CONTRARY STATEMENT CONTAINED IN THIS NOTE, NO
PAYMENT ON ACCOUNT OF THE PRINCIPAL, PREMIUM, IF ANY, OR INTEREST
HEREOF SHALL BECOME DUE OR BE PAID EXCEPT IN ACCORDANCE WITH THE
TERMS OF SUCH SUBORDINATION AND INTERCREDITOR AGREEMENT.
WESTERN MICRO TECHNOLOGY, INC.,
Issuer
13.5% SECOND PRIORITY SENIOR SECURED NOTES DUE SEPTEMBER 30, 2000
No. 2 September 30, 1997
$7,850,000
FOR VALUE RECEIVED, the undersigned, WESTERN MICRO TECHNOLOGY, INC., a
Delaware corporation (the "ISSUER") hereby promises to pay to Canpartners
Investments IV, LLC, a California limited liability company or registered
assigns, the principal sum of SEVEN MILLION EIGHT HUNDRED FIFTY THOUSAND DOLLARS
($7,850,000) on September 30, 2000, with interest (computed on the basis of a
360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the
rate of 1.125% per month from the date hereof, payable monthly, on the 1st day
of each month, commencing with November 1, 1997, until the principal hereof
shall have become due and payable, and (b) to the extent permitted by law on any
overdue payment (including any overdue prepayment) of principal and any overdue
payment of interest (as defined in the Agreement (as defined below)), payable
monthly as aforesaid (or, at the option of the registered Holder (as defined in
the Agreement) hereof, on demand), at a rate per annum from time to time equal
to the Default Rate (as defined in the Agreement).
-1-
<PAGE>
Payments of principal of and interest on this Note are to be made in lawful
money of the United States of America by the method and to the address or
account specified with respect to the holder hereof pursuant to Section 2.05 of
the Agreement.
This Note is one of a duly authorized issue of Notes of the Issuer
designated as its 13.5% Second Priority Senior Secured Notes Due September 30,
2000 (herein called the "Notes"), limited in aggregate principal amount to
$15,700,000 issued and to be issued under a Note Purchase Agreement dated as of
September 30, 1997 among Issuer, Robert Fleming Inc. and Canpartners Investments
IV, LLC as Purchasers, Canpartners Investments IV, LLC, as Agent for the
Purchasers, and WMT Acquisition Corp., Savoir Technology Group, Inc., Star
Management Services, Inc., Inet Systems, Inc., Star Data International, Sirius
Investments, Inc., and Star Data Systems, Inc. (herein called the "Agreement"),
to which Agreement and all Agreements supplemental thereto reference is hereby
made for a statement of the respective rights, thereunder of the Issuer, the
holders of Senior Debt and the Holders of the Notes. Pursuant to the Agreement,
the Holders of Notes are also entitled to the benefits of a Security and Pledge
Agreement, dated September 30, 1997 between the Issuer and the Agent thereunder.
The terms of the Notes include those stated in the Agreement. The Notes are
subject to all such terms, and holders are referred to the Agreement for a
statement of such terms. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to such terms in the Agreement.
The Issuer hereby acknowledges and makes this Note a registered obligation
for United States withholding tax purposes. The Issuer shall be the registrar
for this Note (the "REGISTRAR") with full power of substitution. In the event
the Registrar becomes unable or unwilling to act as registrar for this Note, the
Issuer shall reasonably designate a successor Registrar. If the Holder is a
foreign person, by its acceptance of this Note, the Holder hereby agrees to
provide the Issuer with a completed Internal Revenue Service Form W-8
(Certificate of Foreign Status) or a substantially similar form for such Holder,
participants or other affiliates who are holders of beneficial interests in this
Note. Notwithstanding any contrary provision contained in this Note or any of
the other Note Documents (as defined in the Agreement), neither this Note nor
any interests herein may be sold, transferred, hypothecated, participated or
assigned to any Person (as defined in the Agreement) except upon satisfaction of
the conditions specified in this paragraph. The Holder, by its acceptance of
this Note, agrees to be bound by the provisions of this paragraph and to
indemnify and hold harmless the Registrar against any and all loss or liability
arising from the disposition by the Holder of this Note or any interest herein
in violation of this paragraph. The Registrar shall keep at its principal
executive office (or an office or agency designated by it by notice to the last
registered Holder) a ledger, in which, subject to such reasonable regulations as
it may prescribe, but at its expense (except as specified below), it shall
provide for the registration and transfer of this Note. No sale, transfer,
hypothecation, participation or assignment of this Note or any interest herein
shall be effective for any purpose until it shall be registered on the books of
the Registrar to be maintained for such purpose. The Registrar shall record the
transfer of this Note on the books maintained for this purpose upon receipt by
the Registrar at the office or agency designated by the Registrar of (a) a
written assignment of this Note (or the applicable interest herein), (b) funds
sufficient to pay any transfer
-2-
<PAGE>
taxes payable upon the making of such transfer as well as the cost of reviewing
the documents presented to the Registrar, and (c) such evidence of due execution
as the Registrar shall reasonably require. The Registrar shall record the
transfer of this Note on the books maintained for such purpose at the cost and
expense of the assignee.
This Note is subject to prepayment, in whole or from time to time in part,
at the times and on the terms specified in that certain Agreement, but not
otherwise.
If an Event of Default, as defined in the Agreement, occurs and is
continuing, the principal of this Note may be declared or otherwise become due
and payable in the manner, at the price and with the effect provided in the
Agreement.
Issuer, for itself and its successors and assigns, hereby: (i) waives
demand, presentment for payment, notice of nonpayment, protest, notice of
protest, notice of intent to accelerate, notice of acceleration and all other
notice, filing of suit and diligence in collecting this Note or enforcing any of
its remedies, (ii) agrees that Holder shall not be required first to institute
suit or exhaust its remedies hereon against Issuer or others liable or to become
liable hereon or to enforce its rights against them and (iii) consents to any
extension or postponement of time of payment of this Note and to any other
indulgence with respect hereto without notice thereof to Issuer. This Note, and
the terms, conditions and provisions hereof, may not be changed, modified,
amended or terminated except as provided in the Agreement.
This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of California
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State ("Governing
Law").
Notwithstanding anything to the contrary contained elsewhere in this Note
or in any other Note Document, the Issuer and the Holder of this Note hereby
agree that all agreements among them under this Note and the other Note
Documents, whether now existing or hereafter arising and whether written or
oral, are expressly limited so that in no contingency or event whatsoever shall
the amount paid, or agreed to be paid, to the Holder for the use, forbearance,
or detention of the money loaned to the Issuer and evidenced hereby or thereby
or for the performance or payment of any covenant or obligation contained herein
or therein, exceed the Highest Lawful Rate (as defined below). If due to any
circumstance whatsoever, fulfillment of any provision of this Note or any of the
other Note Documents at the time performance of such provision shall be due
shall exceed the Highest Lawful Rate, then, automatically, the obligation to be
fulfilled shall be modified or reduced to the extent necessary to limit such
interest to the Highest Lawful Rate, and if from any such circumstance the
Holder should ever receive anything of value deemed interest by Governing Law
which would exceed the Highest Lawful Rate, such excessive interest shall be
applied to the reduction of the principal amount then outstanding hereunder or
on account of any other then outstanding Obligations (as defined in the
Agreement) and not to the payment of interest, or if such excessive interest
exceeds the principal unpaid
-3-
<PAGE>
balance then outstanding hereunder and such other then outstanding Obligations,
such excess shall be refunded to the Issuer. All sums paid or agreed to be paid
to the Holder for the use, forbearance, or detention of the Obligations and
other Indebtedness of the Issuer to the Holder, to the extent permitted by
Governing Law, shall be amortized, prorated, allocated and spread throughout the
full term of such Indebtedness, until payment in full thereof, so that the
actual rate of interest on account of all such Indebtedness does not exceed the
Highest Lawful Rate throughout the entire term of such Indebtedness. For
purposes of this paragraph, "HIGHEST LAWFUL RATE" means, at any given time
during which any Obligations shall be outstanding hereunder, the maximum
nonusurious interest rate that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Obligations
evidenced by this Note, under the laws of the State of California (or the law of
any other jurisdiction whose laws may be mandatorily applicable notwithstanding
other provisions of this Note and the other Note Documents), or under applicable
federal laws which may presently or hereafter be in effect and which allow a
higher maximum nonusurious interest rate than under the laws of the State of
California (or such other jurisdiction's law), in any case after taking into
account, to the extent permitted by applicable law, any and all relevant
payments or charges under this Note and any other Note Documents and any
available exemptions, exceptions and exclusions. The terms and provisions of
this paragraph shall control every other provision of this Note and all
agreements between the Issuer and the Holder.
IN WITNESS WHEREOF, the Issuer has executed this Note on the date first
written above.
WESTERN MICRO TECHNOLOGY, INC.,
a Delaware corporation
By /s/ James W. Dorst
------------------------------------
James W. Dorst
Chief Financial Officer
-4-
<PAGE>
Exhibit 4.8
PROMISSORY NOTE
---------------
U.S. $10,000,000.00 Dated: September 30, 1997
FOR VALUE RECEIVED, the undersigned WESTERN MICRO TECHNOLOGY, INC., a
Delaware Corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
IBM CREDIT CORPORATION (the "Holder"), for the Acquisition Loan as such term is
defined in Amendment # 4 to the IWCF the principal amount of TEN MILLION DOLLARS
($10,000,000.00) in four installments on the last day of March and September,
commencing March 31, 1998 and ending on September 30, 1999, in the respective
amounts set forth below opposite the scheduled date for such principal payment:
<TABLE>
<CAPTION>
Amount of Principal
Installment Due Date
------------------- --------
<S> <C>
$2,500,000.00 March 31, 1998
$2,500,000.00 September 30, 1998
$3,000,000.00 March 31, 1999
$2,000,000.00 September 30, 1999
</TABLE>
In addition to payment of the principal, the Borrower shall pay interest on
the principal amount hereof from time to time outstanding from the date thereof
until such principal amount is paid in full. Interest is payable monthly in
arrears, on the last day of each month during the term hereof and on the final
day when such principal amount becomes due. Interest is payable at the Prime
Rate (as such term is defined below) plus two percent (2%) per annum.
When used herein, Prime Rate shall mean, as of the date of determination
the average of the rates of interest announced by Citibank N.A., Chase Manhattan
Bank and Bank of America National Trust & Savings Association as their prime or
base rate, as of the last Business Day of the calendar month immediately
preceding the date of determination, whether or not such announced rates are the
actual rates charged by such banking institutions to their most credit-worthy
borrowers.
The term "Business Day" means a day of the year on which banks are not
required or authorized to close in New York City.
ARTICLE I
---------
TERMS OF PAYMENT
----------------
-1-
<PAGE>
SECTION 1.01 Prepayments. (a) The Borrower may, upon at least five
-----------
Business Days' notice to the Holder stating the proposed date and principal
amount of the prepayment, prepay this Note in whole or in part, with accrued
interest to the date of such prepayment on the amount prepaid, provided that
--------
each partial prepayment shall be in a principal amount not less than $100,000
and shall be applied to the principal installments of this Note in the inverse
order of their maturities.
(b) In the event of any public offering or private placement of additional
shares of Borrower (but excluding the private placement of Series A preferred
stock offered in connection with the Star Acquisition), all payments under this
Promissory Note accelerate and any remaining principal and outstanding interest
is immediately due and payable.
SECTION 1.02 Payments and Computations. The Borrower shall make each
-------------------------
payment under this Promissory Note not later than 2:00 P.M. (New York City time)
on the day when due in U.S. dollars to the Holder at its address referred to in
Section 6.02 .
(a) All computations of interest shall be made by the Holder on the basis
of a year of 360 days for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest is
payable.
(b) Whenever any payment shall be stated to be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of
payment of interest.
(c) If all or a portion of the principal amount of this Note shall not be
paid when due (whether at stated maturity, by acceleration or otherwise), the
unpaid amount thereof shall accrue a late charge (the "Late Charge") in lieu of
the regular interest as set forth above. Such Late Charge shall be computed
from and including the date such amount was due and payable and including the
date IBM Credit receives payment thereof. The Late Charge shall accrue at a per
annum rate equal to the lesser of (i) the Prime Rate plus 6-1/2% or (ii) the
highest rate from time to time permitted by applicable law.
ARTICLE II
----------
CONDITIONS
----------
SECTION 2.01 Conditions Precedent to Effective Date. The
--------------------------------------
-2-
<PAGE>
effectiveness of this Note is subject to the conditions precedent that
(a) The representations and warranties contained in Section 3.01 of this
Note and in Section 6 of the Inventory and Working Capital Financing Agreement
between Borrower and Holder dated December 31, 1996, as amended (the "IWCF") are
correct on and as of the date hereof, as though made on and as of such date; and
(b) No event has occurred and is continuing which constitutes an Event of
Default (as defined in Section 5 of this Note, or Section 9 of the IWCF) or
would constitute an Event of Default but for the requirement that notice be
given or time elapse or both; and (c) the Holder shall have received such other
approvals, opinions or documents as the Holder may reasonably request; and
(c) Borrower has consummated the Star Acquisition and will use the funds
designated as the Acquisition Loan solely for such acquisition.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES
------------------------------
SECTION 3.01 Representations and Warranties of the Borrower. The Borrower
----------------------------------------------
represents and warrants as follows:
(a) The Borrower is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
(b) The execution, delivery and performance by the Borrower of this Note
have been duly authorized by all necessary corporate action, and do not
contravene any applicable statute, law or regulation or any order of ruling of
any court or governmental entity.
(c) No authorization or approval or other action by, and no notice to or
filing with, any governmental authority or regulatory body is required for the
due execution, delivery and performance by the Borrower of this Note.
(d) This Note is the legal, valid and binding obligation of the Borrower
enforceable against the Borrower in accordance with its terms.
(e) There is no pending or threatened action or proceeding affecting the
Borrower before any court, governmental agency or
-3-
<PAGE>
arbitrator, which may materially adversely affect the financial condition or
operations of the Borrower or which purports to affect the legality, validity or
enforceability of this Note.
(f) No information, exhibit or report furnished by the Borrower to the
Holder in connection with the negotiation of this Note or pursuant to the terms
of this Note contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statements contained therein not
misleading.
ARTICLE IV
----------
COVENANTS OF THE BORROWER
-------------------------
SECTION 4.01. Affirmative Covenants. So long as any amount under this
---------------------
Note shall remain unpaid, the Borrower will, unless the Holder shall otherwise
consent in writing:
(a) Preservation of Existence, Etc. Preserve and maintain its lawful
------------------------------
existence as a corporation and, to the extent necessary for the operation of its
business, preserve and maintain its rights, licenses, permits and franchises.
(b) Compliance with Laws, Etc. Comply in all material respects with all
-------------------------
applicable laws, rules, regulations and orders, and such compliance shall
include, without limitation, paying before the same become delinquent all taxes,
assessments and governmental charges imposed upon it or upon its property except
to the extent contested in good faith.
(c) Reporting Requirements. Furnish to the Holder:
----------------------
(i) Financial Statements in accordance with and as such term is
defined in the IWCF, and as soon as possible and in any event within five
days after the occurrence of each Event of Default (as defined in Section
5.01 herein) and each event which, with the giving of notice or lapse of
time, or both, would constitute an Event of Default, continuing on the date
of such statement, a statement of the Borrower setting forth details of
such Event of Default or event and the action which the Borrower has taken
and proposes to take with respect thereto;
(ii) promptly after the commencement thereof, notice of all actions
and proceedings before any court, governmental
-4-
<PAGE>
agency or arbitrator affecting the Borrower, which could materially
adversely affect the financial condition, properties or operations of the
Borrower;
(iii) such other information respecting the condition or operations,
financial or otherwise, of the Borrower as the Holder may from time to time
reasonably request.
SECTION 4.02. Negative Covenants. So long as any amount under this Note
------------------
shall remain unpaid, the Borrower will not, without the written consent of the
Holder.
(a) Liens, Etc. Create or suffer to exist any lien, security interest or
----------
other charge or encumbrance, or any other type of preferential arrangement, upon
or with respect to the Collateral (as defined in the IWCF), whether now owned or
hereafter acquired, or assign any right to receive income arising from the
Collateral, in each case to secure any debt of any person or entity, other than
Permitted Liens as defined in Section 1 of the IWCF.
(b) Debt. Create or suffer to exist, any debt other than Permitted
----
Indebtedness as defined in Section 1 of the IWCF.
ARTICLE V
---------
EVENTS OF DEFAULT
-----------------
SECTION 5.01. Events of Default. If any of the following events ("Events
-----------------
of Default") shall occur and be continuing:
(a) The Borrower shall fail to pay any installment of principal of, or
interest on, this Note within 5 days after such principal or interest shall
become due; or
(b) Any representation or warranty made by the Borrower under or in
connection with this Note shall prove to have been incorrect in any material
respect when made; or
(c) The Borrower shall fail to perform or observe any term, covenant or
agreement contained in this Note, unless such term, covenant or agreement has
been waived in writing by Holder.
(d) The Borrower shall generally not pay its debts as such debts become
due, or shall admit in writing its inability to pay its debts generally, or
shall make a general assignment for the benefit of creditors; or any proceeding
shall be instituted by or
-5-
<PAGE>
against the Borrower seeking to adjudicate it a bankrupt or insolvent, or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief, or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for it or for any substantial part of its
property and, in the case of any such proceeding instituted against it (but not
instituted by it), either such proceeding shall remain undismissed or unstayed
for a period of 45 days, or any of the actions sought in such proceeding
(including, without limitation, the entry of an order for relief against, or the
appointment of a receiver, trustee, custodian or other similar official for it
or for any substantial part of its property) shall occur; or the Borrower shall
take any corporate action to authorize any of the actions set forth above in
this subsection; or
(e) An aggregate of any and all judgments or orders for the payment of
money in excess of $100,000 shall be rendered against the Borrower and either
(i) enforcement proceedings shall have been commenced by any creditor upon such
judgment or order or (ii) there shall be any period of 10 consecutive days
during which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect; or
(f) Any material provision of the IWCF shall for any reason cease to be
valid and binding on the Borrower; or
(g) The IWCF shall for any reason (other than pursuant to the terms
thereof) cease to create a valid and perfected first priority security interest
in any of the collateral purported to be covered thereby; provided, however,
-------- -------
that, as provided in Section 4.02 of this Note, the Holder shall (i) allow the
creation of first priority purchase money liens or purchase money security
interests upon or in any property acquired or held by the Borrower in the
ordinary course of business to secure the purchase price of such property or to
secure indebtedness incurred solely for the purpose of financing the acquisition
of such property; and (ii) allow other Permitted Liens; or
(h) The Borrower defaults in any material respect under the IWCF; or
(i) There shall occur any material adverse change in the business condition
(financial or otherwise), operations, organization (except for the anticipated
Star Acquisition and any other organization change agreed to in writing by
Holder)
-6-
<PAGE>
performance, properties or prospects of the Borrower; or
(j) The dissolution of the Borrower;
Then in any such event, the Holder may, by notice to the Borrower, declare
this Note, all interest thereon and all other amounts payable under this Note to
be forthwith due and payable, whereupon this Note, all such interest and all
such amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower; provided, however, that in the event of an actual or
deemed entry of an order for relief with respect to the Borrower under the
United States Bankruptcy Code, this Note, all such interest and all such amount
shall automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Borrower.
ARTICLE VI
----------
MISCELLANEOUS
-------------
SECTION 6.01. Amendments, Etc. No amendment or waiver of any provision of
---------------
this Note, nor consent to any departure by the Borrower here from, shall in any
event be effective unless the same shall be in writing and signed by the Holder
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
SECTION 6.02. Notices, Etc. All notices and other communications provided
------------
for hereunder shall be in writing and shall be mailed or delivered by hand or by
Federal Express or other reputable overnight courier, if to the Borrower, at its
address at 245 East Hacienda Avenue, Campbell, CA 95008 to the Attention of:
Chief Financial Officer and if to the Holder, at its address at 5000 Executive
Parkway, Suite 450, San Ramon, CA 94583, to the Attention of: Remarketer
Financing Center Manager or, as to each party, at such other address as shall be
designated by such party in a written notice to the other party. All such
notices and communications shall be effective (i) if mailed, upon receipt or
five days after mailing, whichever is earlier, or (ii) if delivered, upon
delivery.
SECTION 6.03. No Waiver; Remedies. No failure on the part of the Holder
-------------------
to exercise, and no delay in exercising, any right under this Note or under the
IWCF shall operate as a waiver thereof; nor shall any single or partial exercise
of any such right prelude any other or further exercise thereof of the
-7-
<PAGE>
exercise of any other right. The remedies provided in this Note and the IWCF
are cumulative and not exclusive of any remedies provided by law.
SECTION 6.04. Accounting Terms. All accounting terms not specifically
----------------
defined herein shall be construed in accordance with generally accepted
accounting principles, unless otherwise indicated herein, consistent with those
applied in the preparation of the financial information referred to in Section
3.01(f).
SECTION 6.05. Costs, Expenses and Taxes. The Borrower agrees to pay on
-------------------------
demand all losses, costs and expenses, if any (including reasonable counsel fees
and expenses), in connection with the enforcement (whether through negotiations,
legal proceedings or otherwise) of this Note, including, without limitation,
reasonable counsel fees and expenses in connection with the enforcement of
rights under this Section 6.05.
SECTION 6.06. Right to Set-off. Upon the occurrence and during the
----------------
continuance of any Event of Default the Holder is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all payments (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by the Holder
to or for the credit or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under this Note or the
IWCF, whether or not the Holder shall have made any demand under this Note or
the IWCF and although such obligations may be unmatured. The Holder agrees
promptly to notify the Borrower after any such set-off and application, provided
that the failure to give such notice shall not affect the validity of such set-
off and application. The rights of the Holder under this Section are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which the Holder may have.
SECTION 6.07. Binding Effect. This Note shall be binding upon and inure
--------------
to the benefit of the Borrower and the Holder and their respective successors
and assigns, except that the Borrower shall not have the right to assign its
rights hereunder or any interest herein without the prior written consent of the
Holder.
SECTION 6.08. Severability. Any provision of this Note which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or
-8-
<PAGE>
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
SECTION 6.09. Submission to Jurisdiction; Waivers. TO INDUCE HOLDER TO
-----------------------------------
ACCEPT THIS NOTE, THE BORROWER HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(a) SUBMITS ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS NOTE AND ANY OTHER AGREEMENT, OR FOR THE RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NONEXCLUSIVE GENERAL
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND ANY FEDERAL DISTRICT
COURT IN THE STATE OF NEW YORK AND ALL APPELLATE COURTS THEREFROM.
(b) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREINAFTER HAVE TO THE VENUE
OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME.
(c) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE
EFFECTIVE BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO THE BORROWER AT ITS
ADDRESS SET FORTH IN THIS NOTE OR AT SUCH OTHER ADDRESS OF WHICH HOLDER SHALL
HAVE BEEN NOTIFIED PURSUANT THERETO.
(d) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OR
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN
ANY OTHER JURISDICTION.
(e) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY
HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN THIS
SUBSECTION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.
SECTION 6.10. Waiver of Jury Trial. THE BORROWER HEREBY, AND HOLDER BY
--------------------
ITS ACCEPTANCE OF THIS NOTE, IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING (INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH THE
BORROWER AND HOLDER ARE PARTIES AS TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY
OUT OF THIS NOTE OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION
HEREWITH.
SECTION 6.11. This Note is secured by the "Collateral" as provided in the
IWCF. Reference is hereby made to the IWCF for a description of the assets in
which a security interest has been
-9-
<PAGE>
granted, the nature and extent of the security, the term and conditions upon
which the security interest was granted and the rights of the holder of this
Note in respect thereof.
SECTION 6.12. Evidence of the Obligation. This Note is not intended to
--------------------------
effect a novation or compromise of the obligations of the Borrower (or any other
Person) pursuant to the IWCF. The IWCF remains in full force and effect in
accordance with its terms.
IN WITNESS WHEREOF, the Borrower has executed this Note, as of the date
first above written.
For:
WESTERN MICRO TECHNOLOGY, INC., a Delaware
corporation
By: /s/ James W. Dorst
--------------------------------------
Name: James W. Dorst
------------------------------------
Title: CFO
-----------------------------------
-10-
<PAGE>
Exhibit 4.9
______________________________________________________________________________
WARRANT AGREEMENT OF
WESTERN MICRO TECHNOLOGY, INC.
100,000 SHARES
Dated as of September 30, 1997
______________________________________________________________________________
COMMON STOCK PURCHASE WARRANT
<PAGE>
WARRANT AGREEMENT dated as of September 30, 1997, between Western Micro
Technology, Inc., a Delaware corporation (the "Company"), the Company as Warrant
Agent, and IBM Credit Corporation (the "Warrant Holder" or "Holder").
WHEREAS, pursuant to that certain Inventory and Working Capital Agreement
Amendment #4 dated as of September 30, 1997, by and between the Company and the
Holder, the Holder has agreed to provide the Company with an acquisition loan
(the "Acquisition Loan"); and
WHEREAS, in partial consideration for making the Acquisition Loan, the
Holder is to receive warrants to acquire shares of Common Stock of the Company;
and
WHEREAS, the Company proposes to issue at closing (the "Closing") of the
Acquisition Loan the Common Stock Purchase Warrants as hereinafter described
(the "Warrants") exercisable to purchase one hundred thousand (100,000) shares
of its Common Stock, $0.01 par value ("Common Stock") (the shares of Common
Stock issuable on exercise of the Warrants being referred to herein as the
"Warrant Shares"), in favor of Warrant Holder.
In consideration of the benefits and services provided to the Company by
the grantor of the Warrant Holder, and for the purpose of defining the terms and
provisions of all of the Warrants and the respective rights and obligations
thereunder of the Company and the Holder, the Company and the Warrant Holder
hereby agree as follows:
SECTION 1. TRANSFERABILITY AND FORM OF THE WARRANTS.
1.1 REGISTRATION. The Warrants shall be numbered and shall be
registered on the books of the Company maintained at the principal office of the
Company at 254 East Hacienda Avenue, Campbell, California 95008 (the "Warrant
Register"). The Company shall be entitled to treat the Holders of the Warrants
as the owners in fact thereof for all purposes and shall not be bound to
recognize any equitable or other claim to or interest in such Warrants on the
part of any other person, and shall not be liable for any Company registration
or transfer of the Warrants which is registered or to be registered in the name
of a fiduciary or the nominee of a fiduciary unless made with the actual
knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration of transfer, or with such knowledge of such facts
that its participation therein amounts to bad faith.
1.2 TRANSFER RESTRICTIONS. The Warrants are freely transferable,
subject to applicable securities laws restrictions. The holder of any Warrants
so transferred shall continue to be bound by this Agreement. However, the
minimum denomination of any Warrant hereunder shall be a Warrant exchangeable
for 1,000 Warrant Shares.
1.3 TRANSFER-GENERAL. Subject to the terms hereof, the Warrants
shall be transferable only on the books of the Company maintained at its
principal office upon
- 1 -
<PAGE>
delivery thereof duly endorsed by the Holder or by its duly authorized attorney
or representative, or accompanied by proper evidence of succession, assignment
or authority to transfer. In all cases of transfer by an attorney, the original
power of attorney, duly approved, or a copy thereof, duly certified, shall be
deposited and remain with the Company. In case of transfer by executors,
administrators, guardians or other legal representatives, duly authenticated
evidence of their authority shall be produced, and may be required to be
deposited and to remain with the Company in its discretion. Upon any
registration of transfer, the Company shall countersign and deliver new Warrants
to the Persons entitled thereto. The Company or the Warrant Agent may require
the payment of a sum sufficient to cover any tax or governmental charge that may
be imposed in connection with any such transfer.
1.4 NOTICES OF CORPORATE ACTIONS. In the event of: (a) any taking
by the Company of a record of the holders of the Common Stock for the purpose of
determining the holders thereof who are entitled to receive any dividend or
distribution, or any right to subscribe for, purchase or otherwise acquire any
shares of capital stock of any class or any other securities, (b) any capital
reorganization of the Company, any reclassification or recapitalization of the
capital stock of the Company or any consolidation or merger involving the
Company and any other Person or any transfer or other disposition of all or
substantially all the assets of the Company to another Person; (c) any voluntary
or involuntary dissolution, liquidation or winding-up of the Company, or (d) any
amendment of the Certificate of Incorporation of the Company, the Company shall
mail to each Warrant Holder in accordance with the provisions of Section 12
hereof a notice specifying (i) the date or expected date on which any such
record is to be taken for the purpose of such dividend, distribution or right,
and the amount and character of such dividend, distribution or right and (ii)
the date or expected date on which any such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, disposition, dissolution,
liquidation or winding-up is to take place, the time, if any such time is to be
fixed, as of which the holders of record of Common Stock shall be entitled to
exchange their shares of Common Stock for the securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
consolidation, merger, transfer, disposition, dissolution, liquidation or
winding-up and a description in reasonable detail of the transaction. Such
notice shall be mailed to the extent practicable at least thirty (30), but not
more than ninety (90) days prior to the date therein specified. In the event
that the Company at any time sends any notice to the holders of its Common
Stock, it shall concurrently send a copy of such notice to each Warrant Holder.
1.5 FORM OF THE WARRANTS. The text of the Warrants and of the form
of election to purchase Warrant Shares (the "Purchase Form") shall be
substantially as set forth in Exhibit A attached hereto. The Exercise Price (as
defined in and determined in accordance with the provisions of Sections 2 and 6
hereof) and the number of Warrant Shares issuable upon exercise of the Warrant
is subject to adjustment upon the occurrence of certain events, all as
hereinafter provided. The Warrant shall be executed on behalf of the Company by
its Chairman of the Board, its Chief Executive Officer, President, Chief
Financial Officer, or one of its Vice Presidents, and attested by its Secretary
or an Assistant Secretary.
- 2 -
<PAGE>
The Warrants shall be dated as of the date of countersignature thereof
by the Company either upon initial issuance or upon transfer.
SECTION 2. TERMS OF THE WARRANTS; EXERCISE OF THE WARRANTS; EXERCISE
PRICE, ETC.
2.1 TERM OF THE WARRANTS/VESTING. Subject to the terms of this
Agree ment, the Holder shall have the right, which may be exercised from time to
time until a date seven (7) years from the Closing, to purchase from the Company
the number of fully paid and nonassessable Warrant Shares which the Holder may
at the time be entitled to purchase on exercise of such Warrant. The Warrant
shall vest in full at Closing. If the last day for the exercise of the Warrant
shall not be a business day, then the Warrant may be exercised on the next
succeeding business day.
2.2 EXERCISE OF THE WARRANTS. The Warrants may be exercised upon
surrender to the Company, at its principal office, of the certificate evidencing
the particular Warrant to be exercised, together with the Purchase Form on the
reverse thereof duly completed and executed, and upon payment to the Company of
the Exercise Price, for the number of Warrant Shares in respect of which such
Warrant is then exercised. Upon partial exercise, a Warrant certificate for the
unexercised portion shall be delivered to the Holder. Payment of the aggregate
Exercise Price shall be made as provided in Section 2.3 below.
Subject to Section 3 hereof, upon such surrender of a Warrant, a
completed Purchase Form, and payment of the Exercise Price as aforesaid, the
Company shall issue and cause to be delivered with all reasonable dispatch to or
upon the written order of the Holder and in such name or names as the Holder may
designate, a certificate or certificates for the number of full Warrant Shares
so purchased upon the exercise of the particular Warrant, together with an
additional whole share in respect of any fractional Warrant Share otherwise
issuable upon such surrender. Such certificate or certificates shall be deemed
to have been issued and any person so designated to be named therein shall be
deemed to have become a holder of record of such Warrant Shares as of the date
of the surrender of the particular Warrant, a completed Purchase Form, and
payment of the Exercise Price, as aforesaid; provided, however, that if, at the
-------- -------
date of surrender of the particular Warrant, a completed Purchase Form, and
payment of such Exercise Price, the transfer books for the Warrant Shares or
other class of stock purchasable upon the exercise of the particular Warrant
shall be closed, the certificates for the Warrant Shares in respect of which the
particular Warrant is then exercised shall be issuable as of the date on which
such books shall next be opened (whether before or after the Expiration Date)
and until such date the Company shall be under no duty to deliver any
certificate for such Warrant Shares; provided, further, that the transfer books
-------- -------
of record, unless otherwise required by law, shall not be closed at any one time
for a period longer than 20 calendar days.
2.3 PAYMENT OF THE EXERCISE PRICE. Payment of the Exercise Price
shall be made at the option of the Holder by one or more of the following
methods: (i) by delivery of
- 3 -
<PAGE>
cash, or a certified or official bank check in the amount of such Exercise
Price, (ii) by instructing the Company to withhold a number of Warrant Shares
then issuable upon exercise of the particular Warrant with an aggregate Fair
Value (as defined in Section 7 hereof) equal to such Exercise Price (the "Share
Withholding Option"), (iii) by surrender to the Company of Notes in principal
amount plus accrued interest equal to the applicable Exercise Price, or (iv) by
surrendering to the Company shares of Common Stock previously acquired by the
Holder with an aggregate Fair Value equal to such Exercise Price, or any
combination of foregoing. In the event of any withholding of Warrant Stock or
surrender of Common Stock pursuant to clause (ii) or (iv) above where the number
of shares whose Fair Value is equal to the Exercise Price is not a whole number,
the number of shares withheld by or surrendered to the Company shall be rounded
down to the nearest whole share.
2.4 COMPLIANCE WITH GOVERNMENT REGULATIONS. Holder acknowledges that
none of the Warrants or Warrant Shares has been registered under the Act, and
may be sold or disposed of in the absence of such registration only pursuant to
an exemption from such registration and in accordance with this Agreement. The
Warrants and Warrant Shares will bear a legend to the following effect:
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR OTHER
DISPOSITION OR PLEDGE OF THESE SECURITIES OR THE SECURITIES UNDERLYING
THESE SECURITIES CAN BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY OR A NO ACTION LETTER OR INTERPRETIVE OPINION OF THE STAFF OF THE
SECURITIES AND EXCHANGE COMMISSION THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE ACT."
2.5 EXERCISE PRICE. The price per share at which Warrant Shares
shall be purchasable upon exercise of the Warrant (the "Exercise Price") shall
be $7.50 per share, subject to adjustment pursuant to Section 6 hereof.
2.6 EXERCISE PRICE RESET. In the event that on any anniversary of
the date of this Agreement during the term of the Warrants, the average of the
closing bid price for the ten (10) Trading Days prior to such anniversary is
less than the Exercise Price of the Warrants then in effect, then the Exercise
Price of the Warrants shall be reset to 87.5% of the average of the closing bid
prices for such ten (10) Trading Day period. In the event that the Common Stock
of the Company is no longer publicly traded on any such anniversary date, then
in lieu of the ten (10) Trading Day average of the closing bid prices, the Fair
Value of the Common Stock shall be used.
SECTION 3. PAYMENT OF TAXES. The Company will pay all documentary stamp
taxes, if any, attributable to the initial issuance of the Warrants and Warrant
Shares upon the
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<PAGE>
exercise of any of the Warrants; provided, however, that the Company shall not
-------- -------
be required to pay any tax or taxes which may be payable in respect of any
transfer involved in the issue or delivery of the Warrants or certificates for
Warrant Shares in a name other than that of the Holder of the particular
Warrant.
SECTION 4. MUTILATED OR MISSING WARRANTS. In case the Warrant shall be
mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and substitution for the Warrant lost, stolen or destroyed, a new
Warrant certificate of like tenor and representing an equivalent right or
interest; but only upon receipt of evidence reasonably satisfactory to the
Company of such loss, theft or destruction of the particular Warrant certificate
and indemnity or bond, if requested, also reasonably satisfactory to them. An
applicant for such substitute Warrant certificate shall also comply with such
other reasonable regulations and pay such other reasonable charges as the
Company may prescribe.
SECTION 5. RESERVATION OF WARRANT SHARES.
5.1 RESERVATION OF WARRANT SHARES. There have been reserved, and
the Company shall at all times keep reserved, out of its authorized shares of
Common Stock, a number of shares of Common Stock sufficient to provide for the
exercise of the rights of purchase represented by the outstanding Warrants. The
transfer agent for the Common Stock ("Transfer Agent"), and every subsequent
transfer agent for any shares of the Company's capital stock issuable upon the
exercise of any of the rights of purchase aforesaid will be and are hereby
irrevocably authorized and directed at all times until the Expiration Date to
reserve such number of authorized shares as shall be requisite for such purpose.
The Company will keep a copy of this Agreement on file with the Transfer Agent
and with every subsequent transfer agent for any shares of the Company's capital
stock issuable upon the exercise of the rights of purchase represented by the
Warrant. The Company covenants that all Warrant Shares which may be issued upon
exercise of the Warrant will, upon issue, be fully paid, nonassessable, free of
preemptive rights in any third party and free from all taxes, liens, charges and
security interests with respect to the issue thereof. The Company will supply
such Transfer Agent and any subsequent transfer agent with duly executed stock
certificates for such purpose and will itself provide or otherwise make
available any cash which may be payable as provided in Section 8 of this
Agreement. The Company will furnish to such Transfer Agent a copy of all notices
of adjustments, and certificates related thereto, transmitted to each Holder.
The particular Warrant surrendered in the exercise of the rights thereby
evidenced shall be canceled by the Company.
5.2 CANCELLATION OF THE WARRANTS. In the event the Company shall
purchase a Warrant, or otherwise acquire any of the Warrants, the particular
Warrant shall be canceled and retired.
SECTION 6. ADJUSTMENT OF THE EXERCISE PRICE AND NUMBER OF WARRANT SHARES.
The number and kind of securities purchasable upon the exercise of the Warrant
and the
- 5 -
<PAGE>
Exercise Price shall be subject to adjustment from time to time upon the
happening of certain events, as hereinafter defined.
6.1 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any time
the Company shall:
(1) take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend payable in, or other distribution
of, additional shares of Common Stock,
(2) subdivide its shares of Common Stock outstanding into a larger
number of shares of such Common Stock, or
(3) combine its shares of Common Stock outstanding into a smaller
number of shares of such Common Stock,
then the number of Warrant Shares shall be adjusted so that the Warrant Holder
thereafter will be entitled to receive the number of shares of Common Stock that
such Warrant Holder would have owned immediately following such action had the
Warrant been exercised immediately prior thereto, and the Exercise Price of the
Warrant shall be adjusted to equal the product of the Exercise Price in effect
immediately prior to such event multiplied by a fraction the numerator of which
is equal to the number of Warrant Shares purchasable upon the exercise of the
Warrant immediately prior to such adjustment, and the denominator of which is
equal to the number of Warrant Shares purchasable immediately thereafter, and
thereafter the provisions of this Warrant Agreement shall apply with like effect
to such additional or reclassified shares.
6.2. RIGHTS OFFERINGS AND OFFERINGS OF COMMON STOCK.
(a) In the event that the Company issues rights, options or warrants
to all holders of its Common Stock in respect of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock at a price per share less
than the Fair Value per share (determined as provided below) of the Common Stock
on the date fixed for the determination of stockholders entitled to receive such
rights, options or warrants, the Exercise Price in effect at the opening of
business on the day following the date fixed for such determination shall be
decreased by multiplying such Exercise Price by a fraction of which the
numerator shall be the number of shares of Common Stock Outstanding at the close
of business on the date fixed for such determination plus the number of shares
of Common Stock which the aggregate of the offering price of the total number of
shares of Common Stock so offered for subscription or purchase would purchase at
such Fair Value and the denominator shall be the number of shares of Common
Stock Outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, such decrease to become effective immediately after
the opening of business on the day following the date fixed for such
determination. To the extent that shares of Common
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<PAGE>
Stock are not delivered after the expiration of such rights, options or
warrants, the Exercise Price shall be readjusted (but only with regard to any
Warrant exercised after such expiration) to the Exercise Price that would be in
effect had the adjustment made upon the issuance of such rights, options or
warrants been made upon the basis of delivery of only the number of shares of
Common Stock actually issued. The Company will not issue any rights, options or
warrants in respect of shares of Common Stock held in the treasury of the
Company. The foregoing provisions of this Section 6.2 shall not apply to any
rights issued to holders of Common Stock that are not currently exercisable and
shall not apply until such time that such rights become exercisable.
(b) In case the Company shall issue shares of Common Stock, Stock
Purchase Rights or Convertible Securities, for a price per share of Common
Stock, in the case of the issuance of Common Stock, or for a price per share of
Common Stock initially deliverable upon conversion or exchange of such
securities less than Fair Value per share of Common Stock on the date the
Company fixed the offering, conversion or exchange price of such additional
shares, the Exercise Price in effect at the opening of business on the day
following the date fixed for such determination shall be decreased by
multiplying such Exercise Price by a fraction of which the numerator shall be
the number of shares of Common Stock Outstanding at the close of business on the
date fixed for such determination plus the number of shares of Common Stock
which the aggregate of the offering price of the total number of shares of
Common Stock so offered for subscription or purchase would purchase at such Fair
Value and the denominator shall be the number of shares of Common Stock
Outstanding at the close of business on the date fixed for such determination
plus the number of shares of Common Stock so offered for subscription or
purchase, such decrease to become effective immediately after the opening of
business on the day following the date fixed for such determination. Such
adjustment shall be made whenever such shares, Stock Purchase Rights or
Convertible Securities are issued, and shall become effective immediately after
the effective date of such event retroactive to the record date, if any, for
such event. To the extent that shares of Common Stock are not delivered after
the expiration of such Stock Purchase Rights or the Convertible Securities are
not converted, the Exercise Price shall be readjusted (but only with regard to
any Warrant exercised after such expiration) to the Exercise Price that would be
in effect had the adjustment made upon the issuance of such Stock Purchase
Rights or Convertible Securities been made upon the basis of delivery of only
the number of shares of Common Stock actually issued.
6.3 OTHER DISTRIBUTIONS. In case the Company shall, by dividend or
otherwise, distribute to all holders of its Common Stock cash, evidences of
indebtedness, shares of any class of capital stock or any other property or
rights (including securities, but excluding (i) any dividend or distribution
referred to in Section 6.1, and (ii) any merger or consolidation or other
transactions to which Section 6.4 applies), then, in such event, upon the
exercise of the Warrant, the Holder shall receive from the Company, in addition
to the shares of Common Stock to which the Holder is entitled, any cash,
evidences of indebtedness, shares of any class of capital stock or any other
property distributed by the Company with respect to the shares of Common Stock
as to which the exercised Warrant pertains, and until such
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<PAGE>
exercise the Company shall retain the cash, evidences of indebtedness, shares of
any class of capital stock, or other property or rights so distributed in trust
for the benefit of the Holder. Upon the expiration of any such unexercised
Warrant, to the extent not exercised, the property held in trust shall be
released to the Company or its designee.
In the event of a distribution by the Company to holders of its shares
of Common Stock of stock of a subsidiary or securities convertible into or
exercisable for such stock, then in lieu of an adjustment in the number of
Shares purchasable upon the exercise of any of the Warrants, the Holder of any
of the Warrants, upon the exercise thereof at any time after such distribution,
shall be entitled to receive from the Company, such subsidiary or both, as the
Company shall determine, the stock or other securities to which such Holder
would have been entitled if such Holder had exercised the particular Warrant
immediately prior thereto, all subject to further adjustment as provided in this
Section 6.
6.4 REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
DISPOSITION OF ASSETS.
(a) In case the Company shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another corporation (where the
Company is not the surviving corporation or where there is any change whatsoever
in, or distribution with respect to, the outstanding Common Stock of the
Company), or sell, transfer or otherwise dispose of all or substantially all of
its property, assets or business to another corporation and, pursuant to the
terms of such reorganization, reclassification, merger, consolidation or
disposition of assets, (i) shares of common stock of the successor or acquiring
corporation or of the Company (if it is the surviving corporation) or (ii) any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants, options, or other subscription or purchase rights) in
addition to or in lieu of common stock of the successor or acquiring corporation
are to be received by or distributed to the holders of Common Stock of the
Company who are holders immediately prior to such transaction, then the Holder
of the Warrants shall have the right thereafter to receive from the Company,
upon exercise of the applicable Warrant, the number of shares of common stock of
the successor or acquiring corporation or of the Company, if it is the surviving
corporation, and other property receivable upon or as a result of such
reorganization, reclassification, merger, consolidation or disposition of assets
by a holder of the number of shares of Common Stock for which the Warrants are
exercisable immediately prior to such event and until such exercise the Company
shall retain the cash, evidences of indebtedness, shares of any class of capital
stock, or other property or rights so received in trust for the benefit of the
Holder. If the Warrant is exercised in such event, the aggregate Exercise Price
otherwise payable for the shares of Common Stock transferable upon exercise of
the Warrant shall be allocated among the shares of common stock and other
property receivable as a result of such reorganization, reclassification,
merger, consolidation or disposition of assets in proportion to the respective
fair market values of such shares of common stock and other property as
determined in good faith by the Holder and the Company, if necessary. Upon the
expiration of any such
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<PAGE>
unexercised Warrant, to the extent not exercised, the property held in trust
shall be released to the Company or its designee.
(b) In case of any such reorganization, reclassification, merger,
consolidation or disposition of assets, the successor or acquiring corporation
(if other than the Company) shall expressly assume the due and punctual
observance and performance of each and every covenant and condition of this
Agreement to be performed and observed by the Company and all the obligations
and liabilities hereunder. For purposes of this Section 6.4, "common stock of
the successor or acquiring corporation" shall include stock of such corporation
ration of any class that is not preferred as to dividends or assets over any
other class of stock of such corporation and that is not subject to redemption
and shall also include any evidences of indebtedness, shares of stock or other
securities that are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 6.4 shall similarly
apply to successive reorganizations, reclassification, mergers, consolidations
or disposition of assets.
6.5 ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE. Upon any adjustment
of the Exercise Price as provided in Section 6.2 hereof, the Holder shall
thereafter be entitled to purchase upon the exercise of the Warrant, at the
Exercise Price resulting from such adjustment, the number of shares of Common
Stock obtained by multiplying the Exercise Price in effect immediately prior to
such adjustment by the number of shares of Common Stock transferable on the
exercise hereof immediately prior to such adjustment and dividing the product
thereof by the Exercise Price resulting from such adjustment.
6.6 DETERMINATION OF CONSIDERATION. For purposes of Section 6.2
hereof, the consideration received and/or receivable by the Company in
connection with the issuance, sale, grant or exercise of additional shares of
Common Stock, Stock Purchase Rights or Convertible Securities, irrespective of
the accounting treatment of such consideration, shall be valued as follows:
(1) SECURITIES OR OTHER PROPERTY. In the case of securities or other
property, the fair market value thereof as of the date immediately preceding
such issuance, sale, grant or exercise as determined in good faith by the Board
of Directors of the Company which determination shall be conclusive absent
manifest error.
(2) DIVIDENDS IN SECURITIES. In case the Company shall declare a
dividend or make any other distribution upon any stock of the Company payable in
either case in Common Stock or Convertible Securities, such Common Stock or
Convertible Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold without
consideration.
(3) MERGER, CONSOLIDATION OR SALE OF ASSETS. In case any shares of
Common Stock, Stock Purchase Rights or Convertible Securities shall be issued in
connection
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<PAGE>
with any merger or consolidation in which the Company is the surviving
corporation, the amount of consideration therefor shall be deemed to be the fair
value of such portion of the assets and business of the non-surviving
corporation attributable to such Common Stock, Stock Purchase Rights or
Convertible Securities, as is determined in good faith by the Board of Directors
of the Company which determination shall be conclusive absent manifest error.
6.7 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS SECTION.
The following provisions shall be applicable to the adjustments provided for
pursuant to this Section 6:
(A) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by this
Section 6 shall be made whenever and as often as any specified event requiring
such an adjustment shall occur. For the purpose of any such adjustment, any
specified event shall be deemed to have occurred at the close of business in New
York on the date of its occurrence.
(B) FRACTIONAL INTERESTS. In computing adjustments under this Section
6, fractional interests in Common Stock shall be taken into account to the
nearest 1/100th of a share.
(C) WHEN ADJUSTMENT NOT REQUIRED.
(1) If the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or
distribution to which the provisions of Section 6 would apply, but
shall, thereafter and before the distribution to stockholders thereof,
legally abandon its plan to pay or deliver such dividend or
distribution, then thereafter no adjustment shall be required by
reason of the taking of such record and any such adjustment previously
made in respect thereof shall be rescinded and annulled.
(2) In case the Company shall sell or issue shares of Common Stock or
Stock Purchase Rights in the following situations:
(i) to, officers, directors, consultants or employees of
the Company pursuant to a plan approved by the Company's
shareholders or Board of Directors at a price not less than 85%
of the Fair Value of the Company's Common Stock in an amount
(taking into account all prior sales or issuances excluded
pursuant to this clause (i)) not greater than 5% of the total
number of shares of Common Stock Outstanding; or
(ii) pursuant to a provision in any existing agreement
between the Company and any third party in respect of an
acquisition by the Company in which all or a portion of the
consideration in
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<PAGE>
connection with such acquisition is payable by the issuance of
shares of Common Stock or Stock Purchase Rights; or
(iii) to holders of the Company's Series A Preferred Stock,
$0.01 par value, issued on September 19, 1997, as dividends
thereon or upon conversion thereof; or
(iv) to any Person upon the exercise of any Stock Purchase
Right outstanding on the date hereof; or
(v) to Canpartners Investments IV, LLC and Robert Fleming
Inc., a Delaware corporation, upon exercise of their warrant
dated September 30, 1997, for the purchase of 400,000 shares of
the Company's Common Stock,
there shall be no adjustment in the Exercise Price or the number of Warrant
Shares either upon the initial issuance of such securities or upon the
exercise or conversion thereof.
(d) MAXIMUM EXERCISE PRICE. Except with respect to mechanical
adjustments pursuant to Section 6.1 above, at no time shall the Exercise Price
per share of Common Stock exceed the amount set forth in Section 2.5 of this
Agreement, as adjusted pursuant to Section 2.6.
(e) CERTAIN LIMITATIONS. Notwithstanding anything herein to the
contrary, the Company agrees not to enter into any transaction that, by reason
of any adjustment under Section 6 above, would cause the Exercise Price to be
less than the par value of the Common Stock, if any, unless the Company first
reduces the par value of the Common Stock to be less than the Exercise Price
that would result from such transaction.
(f) NOTICE OF ADJUSTMENTS. Whenever the number of shares of Common
Stock for which the Warrants are exercisable or the Exercise Price shall be
adjusted pursuant to this Section 6, the Company forthwith shall prepare a
certificate to be executed by either the chief executive or chief financial
officer of the Company setting forth, in reasonable detail, the event requiring
the adjustment and the method by which such adjustment was calculated,
specifying the number of shares of Common Stock for which the Warrants are
exercisable and (if such adjustment was made pursuant to Section 6.3) describing
the number and kind of any other shares of stock or other property for which the
Warrants are exercisable, and any related change in the Exercise Price, after
giving effect to such adjustment or change. The Company shall promptly deliver
a signed copy of such certificate to the Holder in accordance with Section 12.
The Company shall keep at its principal office copies of all such certificates
and cause the same to be available for inspection at said office during normal
business hours by any Holder or any prospective transferee of any Warrants
designated by a Holder thereof.
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<PAGE>
(g) INDEPENDENT APPLICATION. Except as otherwise provided herein, all
subsections of this Section 6 are intended to operate independently of one
another (but without duplication). If an event occurs that requires the
application of more than one subsection, all applicable subsections shall be
given independent effect without duplication.
6.8 RIGHT OF FIRST REFUSAL. As used in this Section 6.8, the term
"Holder's Ratio" means the sum of the number of shares of Common Stock of the
Company, plus the number of shares of Common Stock of the Company underlying the
Warrants, plus the number of shares of Common Stock of the Company underlying
Stock Purchase Rights, held by a Holders or its assigns, divided by the number
of shares of Common Stock of the Company Outstanding from time to time. The
Company agrees that if at any time while a Holder holds shares of Common Stock
of the Company or Warrants, if the Company desires to sell or issue shares of
Common Stock or Stock Purchase Rights of the Company (excluding shares of Common
Stock issuable after the date hereof pursuant to Stock Purchase Rights of the
Company existing on the date hereof, or shares issuable in connection with the
matters listed in Section 6.7(c)(2)), then the Company shall first notify all
the Holders of the terms of such proposed sale and issuance and permit the
Holders to acquire on the same terms and conditions (which need only include
monetary terms and conditions and not need include any terms and conditions
which cannot be matched by the Holders) an amount equal to the number of shares
of Common Stock or Stock Purchase Rights proposed to be issued or sold times the
Holder's Ratio. The Holders shall have ten (10) Business Days after receipt of
such notice to elect by notice to the Company in writing whether to purchase
such shares of Common Stock or such Stock Purchase Rights, and may withdraw
their election by notice to the Company at any time up to two (2) Business Days
prior to the closing of the offer. After the ten (10) Business Day period has
expired, the Company shall have up to ninety (90) days (or such longer time as
may be reasonable necessary in the event the proposed issuance is pursuant to a
public offering of shares of Common Stock or Stock Purchase Rights) to complete
the sale of any such shares of Common Stock or Stock Purchase Rights, provided
that if the Company later desires to change the terms of such sale or issuance
in any material respect it shall first reoffer such shares of Common Stock or
Stock Purchase Rights to the Holders pursuant to the procedures set forth
herein.
The Right of First Refusal set forth in this Section may only be
transferred in connection with a transfer of the Warrants or Warrant Shares and
shall terminate with respect to any of the Holders' shares after such shares
have been sold pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission or pursuant to Rule 144
under the Act, and shall in no event continue beyond the term of the Warrants.
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<PAGE>
SECTION 7. DEFINITIONS.
As used in this Warrant Agreement, the following terms shall have the
following respective meanings:
ACT shall mean the Securities Act of 1933, as amended.
ACQUISITION LOAN means the loan between the Holder and the
Company made pursuant to that certain Inventory and Working Capital Agreement
Amendment #4 dated as of September 30, 1997.
BUSINESS DAY shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in New
York or California.
CLOSING means the closing of the Acquisition Loan.
COMMON STOCK means the Common Stock of the Company, $0.01 par
value per share, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the Company
of any other class (regardless of how denominated) issued to the holders of
shares of any Common Stock upon any reclassification thereof which is also not
preferred as to dividends or liquidation over any other class of stock of the
Company and which is not subject to redemption and (ii) shares of common stock
of any successor or acquiring corporation (as defined in Section 6.4 hereof)
received by or distributed to the holders of Common Stock of the Company in the
circumstances contemplated by Section 6.4 hereof.
CONVERTIBLE SECURITIES shall mean evidences of indebtedness,
shares of stock or other securities that are convertible into or exchangeable
for, with or without payment of additional consideration in cash or property,
shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.
CURRENT MARKET PRICE shall mean as of any specified date the
average of the Daily Market Price of the Common Stock of the Company for the
twenty (20) consecutive Trading Days immediately preceding such date. The "Daily
Market Price" for each such Trading Day shall be the closing price of the Common
Stock on the principal stock exchange or market on which such stock is actually
traded.
FAIR VALUE means, per share of Common Stock as of any specified
date, (i) if the Common Stock is publicly traded on such date, the Current
Market Price per share or (ii) if the Common Stock is not publicly traded on
such date, the fair market value per share of Common Stock shall be agreed upon
in good faith between the Holders and the Company.
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<PAGE>
OUTSTANDING shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued and outstanding shares of Common Stock, except shares then owned or
held by or for the account of the Company or any Subsidiary there of.
PERSON shall mean any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, incorporated
organization, association, corporation, institution, public benefit corporation,
entity or government (whether federal, state, county, city, municipal or
otherwise, including, without limitation, any instrumentality, division, agency,
body or department thereof).
PREEMPTIVE RIGHT means a right of a stockholder to preempt or
to purchase before others a new issue of shares in proportion to one's present
interest in the Company.
STOCK PURCHASE RIGHTS shall mean any options, warrants or other
securities or rights to subscribe to or exercisable for the purchase of shares
of Common Stock or Convertible Securities, whether or not immediately
exercisable.
TRADING DAY means any day that the principal stock exchange or
market on which the securities of the Company are traded is open for trading.
SECTION 8. FRACTIONAL INTERESTS. The Company shall not be required to
issue fractional Warrant Shares on the exercise of the Warrant. If any fraction
of a Warrant Shares would, except for the provisions of this Section 8, be
issuable on the exercise of the Warrant (or specified portion thereof), the
Company shall round up such share to an additional whole share of Common Stock.
SECTION 9. NO RIGHTS AS STOCKHOLDER; NOTICES TO HOLDER. Nothing contained
in either this Agreement or the Warrant shall be construed as conferring upon
the Holder or its permitted transferees the right to vote or to receive
dividends or to consent to or receive notice as a stockholder in respect of any
meeting of stockholders for the election of directors of the Company or any
other matter, or any rights whatsoever as a stockholder of the Company.
SECTION 10. INSPECTION OF WARRANT AGREEMENT. The Company shall keep copies
of this Agreement and any notices given or received hereunder available for
inspection by the Holder during normal business hours at its principal office.
SECTION 11. IDENTITY OF TRANSFER AND WARRANT AGENT. Forthwith upon the
appointment of any subsequent transfer agent for the Common Stock or Warrant
Agent, or any other shares of the Company's capital stock issuable upon the
exercise of the Warrant, the Company will notify the Holder of the name and
address of such subsequent transfer agent.
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<PAGE>
SECTION 12. NOTICES. Any notice pursuant to this Agreement by any Holder
to the Company, shall be in writing and shall be mailed first class, postage
prepaid, or delivered to the Company at its office at 254 East Hacienda Avenue,
Campbell, California 95008.
Each party hereto may from time to time change the address to which notices
to it are to be delivered or mailed hereunder by notice in writing to the other
party. Any notice mailed pursuant to this Agreement by the Company or the
Warrant Agent to the Holder shall be in writing and shall be mailed first class,
postage prepaid, or delivered to the Holder at its address on the books of the
Warrant Agent.
SECTION 13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without giving
effect to principles of conflict of laws. The parties hereto agree to submit to
the jurisdiction of the United States District Court for the Northern District
of California and the jurisdiction of any court of the State of California
located in Santa Clara County in any action or proceeding arising out of or
relating to this Agreement.
SECTION 14. WAIVER OF JURY TRIAL. EACH OF THE COMPANY AND THE HOLDER
HEREBY IRREVOCABLY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
(INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH THE COMPANY AND THE HOLDER ARE
PARTIES AS TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT
OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT EXECUTED IN CONNECTION HEREWITH.
SECTION 15. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 16. MERGER OR CONSOLIDATION OF THE COMPANY. So long as the Warrant
remains outstanding, the Company will not merge consolidate with or into, or
sell, transfer or lease all or substantially all of its property to, any other
corporation unless the successor or purchasing corporation, as the case may be
(if not the Company), shall expressly assume, by supplemental agreement, the due
and punctual performance and observance of each and every covenant and condition
of this Agreement to be performed and observed by the Company.
SECTION 17. AMENDMENTS AND WAIVERS. This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the Company
and a majority of the Holders (by number of shares). Either the Company or any
Holder may, by an instrument in writing, waive compliance by the other party
with any term or provision of this Agreement on the part of such other party
hereto to be performed or complied with. The waiver by any such party of a
breach of any term or provision of this Agreement shall not be construed as a
waiver by any other party or of any subsequent breach.
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<PAGE>
SECTION 18. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation, other than the Company and the
Holder, any legal or equitable right, remedy or claim under this Agreement, but
this Agreement shall be for the sole and exclusive benefit of the Company and
the Holder.
SECTION 19. AGREEMENT IN CONFIDENCE. This Agreement and its terms and the
relationship between the Company and the Warrant Holder and its principals shall
be kept confidential by the Warrant Holder and its affiliates and by Company and
its affiliates and will not be disclosed by either of them except to the extent
that as a matter of law it must be disclosed by either party in any document
filed with any government agency or authority and available for public
inspection or as may be required to be disclosed in connection with the
Company's sale of its capital stock or assets or its merger, reorganization,
consolidation or similar event.
SECTION 20. CAPTIONS. The captions of the Sections of this Agreement have
been inserted for convenience only and shall have no substantive effect .
SECTION 21. COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute but one and the same instrument.
* * *
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed as of the day, month and year first above written.
THE COMPANY, AND
AS THE WARRANT AGENT:
WESTERN MICRO TECHNOLOGY, INC.,
a Delaware corporation
By: /s/ James W. Dorst
--------------------------
James W. Dorst
Chief Financial Officer
THE WARRANT HOLDER:
IBM CREDIT CORPORATION
By: /s/ Tracey Wyatt
---------------------------------
Title: Remarketer Loan Manager
---------------------------------
SIGNATURE PAGE 1 OF 1
<PAGE>
EXHIBIT A
No. ___ ________ Shares
COMMON STOCK PURCHASE WARRANT
Void After 5:00 P.M.
Pacific Daylight Time on September 30, 2004
THIS CERTIFIES THAT, for value received, IBM Credit Corporation, the
registered holder of this Common Stock Purchase Warrant (the "Warrant") or
permitted assigns (the "Holder"), is entitled to purchase from Western Micro
Technology, Inc., a Delaware corporation (the "Company"), at any time until
September 30, 2004 (the "Expiration Date"), at the purchase price per share of
$7.50 (the "Exercise Price"), the number of shares of Common Stock of the
Company (the "Common Stock") which is equal to the number of Shares set forth
above. The number of shares purchasable upon exercise of this Warrant and the
Exercise Price per share shall be subject to adjustment from time to time as set
forth in the Warrant Agreement referred to below.
This Warrant is issued under and in accordance with a Warrant Agreement
dated as of September 30, 1997, between the Company and the Warrant Holder and
is subject to the terms and provisions contained in the Warrant Agreement, to
all of which the Holder of this Warrant by acceptance hereof consents. A copy
of the Warrant Agreement may be obtained for inspection by the Holder hereof
upon written request to the Company.
This Warrant may be exercised in whole or in part by presentation of this
Warrant with the Purchase Form annexed hereto duly executed and simultaneous
payment of the Exercise Price (subject to adjustment) at the principal office of
the Company at 254 East Hacienda Avenue, Campbell, California 95008. Payment of
such price shall be made at the option of the Holder hereof in cash or by
certified or official bank check or otherwise as set forth in the Warrant
Agreement, including in the form of a "net exercise." Terms relating to exercise
of this Warrant is set forth more fully in the Warrant Agreement.
This Warrant may be exercised in whole or in part. Upon partial exercise,
a Warrant certificate for the unexercised portion shall be delivered to the
Holder. No fractional shares will be issued upon the exercise of this Warrant
but the Company shall round up to a whole share any fractional share issuable
upon the exercise of this Warrant. This Warrant is transferable only in limited
circumstances as described in the Warrant Agreement at the office of the Company
in Campbell, California, in the manner and subject to the limitations set forth
in the Warrant Agreement.
EXHIBIT A-1
<PAGE>
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR OTHER
DISPOSITION OR PLEDGE OF THESE SECURITIES OR THE SECURITIES UNDERLYING
THESE SECURITIES CAN BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY OR A NO ACTION LETTER OR INTERPRETIVE OPINION OF THE STAFF OF THE
SECURITIES AND EXCHANGE COMMISSION THAT SUCH REGISTRATION IS NOT REQUIRED
UNDER THE ACT."
The Holder hereof may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented hereby, or to the
transfer hereof on the books of the Company. Any notice to the contrary
notwithstanding, and until such transfer on which books, the Company may treat
the Holder hereof as the owner for all purposes.
This Warrant does not entitle any Holder hereof to any of the rights of a
stockholder of the Company.
This Warrant shall not be valid or obligatory for any purpose until it
shall have been countersigned by the Company.
WESTERN MICRO TECHNOLOGY, INC.,
a Delaware corporation
By ___________________________
James W. Dorst
Chief Financial Officer
Attest __________
James W. Dorst
Assistant Secretary
DATED: As of September 30, 1997
EXHIBIT A-2
<PAGE>
PURCHASE FORM
Mailing Address
__________________________________ ______________________________________
__________________________________ ______________________________________
__________________________________ ______________________________________
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant for, and to purchase thereunder,
_______________ shares of the stock provided for therein, and tenders herewith
payment of the purchase price in full in the form of cash or by cashier's check
in the amount of $______________.
The undersigned requests that certificates for such shares be issued in the
name of:
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Please Print Name, Address and Social Security No.)
DATED: __________________
Name of Warrant holder or Permitted Assignee:
_____________________________________________________________________________
Address:
____________________________________________________________________________
____________________________________________________________________________
Signature:__________________________________________________________________
Signature Guaranteed:Note: The above signature must correspon with the name as
written upon the face of this Warrant in every
particular, without alteration or enlargement or any
change whatever, unless this Warrant has been
assigned.
PURCHASE FORM-1
<PAGE>
Exhibit 4.10
REGISTRATION AND PUT RIGHTS AGREEMENT
dated as of September 30, 1997
among
WESTERN MICRO TECHNOLOGY, INC.
a Delaware corporation
and
THE HOLDERS OF REGISTRABLE SECURITIES
REFERRED TO HEREIN
<PAGE>
REGISTRATION AND PUT RIGHTS AGREEMENT
REGISTRATION AND PUT RIGHTS AGREEMENT (this "Agreement") dated as of
September 30, 1997, by and between Western Micro Technology, Inc., a Delaware
corporation (the "Company") and IBM Credit Corporation, a Delaware corporation,
the holder of securities of the Company.
RECITALS
WHEREAS, pursuant to that certain Warrant Agreement dated September
30, 1997, by and between the Company and IBM Credit Corporation, IBM Credit
Corporation received the warrants exercisable to acquire 100,000 shares of
common stock from the Company ("Warrants"); and
WHEREAS, the parties hereto hereby desire to set forth IBM Credit
Corporation's rights and the Company's obligations to cause the registration
pursuant to the Securities Act of 1933 of the shares of common stock received or
receivable upon the exercise of the Warrants;
NOW, THEREFORE, in consideration of the agreement by IBM Credit
Corporation to provide the benefits under the Inventory and Working Capital
Agreement dated December 31, 1996 (the "IWCF") and that certain Promissory Note
of even date therewith and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
Section 1. Agreements and Representations of the Company.
---------------------------------------------
1.1. The Company represents and warrants to IBM Credit
Corporation that it has the requisite power and authority to execute, deliver
and carry out this Agreement and has taken all necessary action to approve this
Agreement and to authorize the execution, delivery and performance of this
Agreement. This Agreement has been duly and properly executed and delivered by
the Company and constitutes the legally valid and binding obligation of the
Company, enforceable against it in accordance with its terms.
Section 2. Definitions and Usage
---------------------
As used in this Agreement:
2.1 Definitions.
-----------
Agent. "Agent" means the principal placement agent on an
-----
agented placement of Registrable Securities.
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<PAGE>
Commission. "Commission" shall mean the Securities and Exchange
----------
Commission.
Common Stock. "Common Stock" shall mean (i) the common stock,
------------
$0.01 par value, of the Company, and (ii) shares of capital stock of the Company
issued by the Company in respect of or in exchange for shares of such common
stock in connection with any stock dividend or distribution, stock split-up,
recapitalization, recombination or exchange by the Company generally of shares
of such common stock.
Continuously Effective. "Continuously Effective," with respect
----------------------
to a specified registration statement, shall mean that it shall not cease to be
effective and available for Transfers of Registrable Securities thereunder for
longer than either (i) any ten (10) consecutive business days, or (ii) an
aggregate of fifteen (15) business days during any calendar year during the
period specified in the relevant provision of this Agreement.
Demand Registration. "Demand Registration" shall have the
--------------------
meaning set forth in Section 4.1.
Demanding Holders. "Demanding Holders" shall have the meaning
-----------------
set forth in Section 4.1.
Exchange Act. "Exchange Act" shall mean the Securities Exchange
------------
Act of 1934, as amended and the rules and regulations promulgated thereunder.
Holders. "Holders" shall mean IBM Credit Corporation and
-------
Transferees of such Persons' Registrable Securities with respect to the rights
that such Transferees shall have acquired in accordance with Section 9, at such
times as such Persons shall have beneficial or record ownership of Registrable
Securities.
Majority of the Holders. A "Majority of the Holders" means
-----------------------
those Holders holding at any time a majority of the Registrable Securities and
Transferees of such Persons' Registrable Securities with respect to the rights
that such Transferees shall have acquired in accordance with Section 9, at such
times as such Persons shall have beneficial or record ownership of Registrable
Securities.
Note Purchase Agreement. "Note Purchase Agreement" shall have
-----------------------
the meaning set forth in the Recitals.
---------
Person. "Person" shall mean any individual, corporation,
------
partnership, joint venture, association, joint-stock company, limited liability
company, trust, unincorporated organization or government or other agency or
political subdivision thereof.
Piggyback Registration. "Piggyback Registration" shall have the
----------------------
meaning set forth in Section 3 .
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<PAGE>
Put Option. "Put Option" shall have the meaning set forth in
----------
Section 11.
Register, Registered and Registration. "Register,"
-------------------------------------
"registered," and "registration" shall refer to a registration effected by
preparing and filing a registration statement or similar document in compliance
with the Securities Act, and the declaration or ordering by the Commission of
effectiveness of such registration statement or document.
Registrable Securities. "Registrable Securities" shall mean,
----------------------
subject to Section 9 and Section 12.2: (i) the Shares owned by Holders on the
--------- ------------
date hereof, and owned by a Holder on the date of determination, (ii) any shares
of Common Stock or other securities issued or issuable upon the conversion or
exercise of the Warrant or issued as a dividend or other distribution with
respect to, or in exchange by the Company generally for, or in replacement by
the Company generally of, such Shares; and (iii) any securities issued in
exchange for Shares in any merger or reorganization of the Company; provided,
--------
however, that Registrable Securities shall not include any Shares which have
- -------
theretofore been registered and sold pursuant to the Securities Act or which
have been sold to the public pursuant to Rule 144 or any similar rule
promulgated by the Commission pursuant to the Securities Act, and, provided
--------
further, the Company shall have no obligation under Sections 3 and 4 to register
- ------- ----------------
any Registrable Securities of a Holder if the Company shall deliver to the
Holders requesting such registration an opinion of counsel reasonably
satisfactory to such Holders and its counsel to the effect that the proposed
sale or disposition of all of the Registrable Securities for which registration
was requested does not require registration under the Securities Act for any
sales or dispositions of such shares within the period set forth in Rule 144(e),
currently three (3) months. For purposes of this Agreement, a Person will be
deemed to be a holder of Registrable Securities whenever such Person has the
then-existing right to acquire such Registrable Securities (by conversion,
subscription or otherwise), whether or not such acquisition has actually been
effected.
Registrable Securities then outstanding. "Registrable
---------------------------------------
Securities then outstanding" shall mean, with respect to a specified
determination date, the Registrable Securities owned by all Holders on such
date.
Registration Expenses. "Registration Expenses" shall have the
---------------------
meaning set forth in Section 7.1.
-----------
Registration Rights Agreement means that certain Registration
-----------------------------
Rights Agreement entered into between certain parties in connection with the
Units Purchase Agreement and the issuance of the Series A Preferred Stock,
Common Stock Purchase Warrants, and Placement Agent Warrants in connection
therewith.
Securities Act. "Securities Act" shall mean the Securities Act
--------------
of 1933, as amended and the rules and regulations promulgated thereunder.
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<PAGE>
Selling Holders. "Selling Holders" shall mean, with respect to
---------------
a specified registration pursuant to this Agreement, Holders whose Registrable
Securities are included in such registration.
Series A Preferred Stock. The Series A Preferred Stock, par
------------------------
value $0.01 per share, of the Company issued and sold as part of the Units
Purchase Agreement.
Shares. "Shares" shall mean the shares of Common Stock acquired
------
on exercise of a Warrant.
Shelf Registration. The Initial Shelf Registration or a
------------------
Subsequent Shelf Registration pursuant to the Registration Rights Agreement.
Transfer. "Transfer" shall mean and include the act of selling,
--------
giving, transferring, creating a trust (voting or otherwise), assigning or
otherwise disposing of (other than pledging, hypothecating or otherwise
transferring as security) (and correlative words shall have correlative
meanings); provided however, that any transfer or other disposition upon
foreclosure or other exercise of remedies of a secured creditor after an event
of default under or with respect to a pledge, hypothecation or other transfer as
security shall constitute a "Transfer".
Underwriters' Representative. "Underwriters' Representative
------------
shall mean the managing underwriter, or, in the case of a co-managed
underwriting, the managing underwriter designated as the Underwriters'
Representative by the co-managers.
Units Purchase Agreement means the Units Purchase Agreement
------------------------
dated as of September 19, 1997 by and between the Company and the Purchasers
listed therein.
Violation. "Violation" shall have the meaning set forth in
---------
Section 8.1.
Warrant. "Warrant" means any of the Warrants issued pursuant to
-------
the Warrant Agreement dated as of September 30, 1997 by and between the Company
and the Holders.
2.2. Usage.
-----
(i) References to a Person are also references to its
assigns and successors in interest (by means of merger, consolidation or sale of
all or substantially all the assets of such Person or otherwise, as the case may
be).
(ii) References to Registrable Securities "owned" by a
Holder shall include Registrable Securities beneficially owned by such Person
but which are held of record in the name of a nominee, trustee, custodian, or
other agent, but shall exclude shares of Common Stock held by a Holder in a
fiduciary capacity for customers of such Person.
-4-
<PAGE>
(iii) References to a document are to it as amended, waived
and otherwise modified from time to time and references to a statute or other
governmental rule are to it as amended and otherwise modified from time to time
(and references to any provision thereof shall include references to any
successor provision).
(iv) References to Sections or to Schedules or Exhibits are
to sections hereof or schedules or exhibits hereto, unless the context otherwise
requires.
(v) The definitions set forth herein are equally
applicable both to the singular and plural forms and the feminine, masculine and
neuter forms of the terms defined.
(vi) The term "including" and correlative terms shall be
deemed to be followed by "without limitation" whether or not followed by such
words or words of like import.
(vii) The term "hereof" and similar terms refer to this
Agreement as a whole.
(viii) The "date of" any notice or request given pursuant
to this Agreement shall be determined in accordance with Section 15.
Section 3. Piggyback Registrations.
-----------------------
3.1. The Company agrees that it shall include the
Registrable Securities in the Initial Shelf Registration or Subsequent Shelf
Registration it files pursuant to the terms of the Registration Rights Agreement
(a "Piggyback Shelf Registration"). The Company agrees that it shall maintain
the Shelf Registration Continuously Effective with respect to such Registrable
Securities for so long as there are any Registrable Securities then outstanding,
and that the provisions of Sections 5 through 10 hereof shall apply with respect
to such Shelf Registration.
3.2. If all of the Registrable Securities are not included in
a Shelf Registration that is Continuously Effective pursuant to Section 3.1
hereof, and if at any time the Company proposes to register (including for this
purpose a registration effected by the Company for holders of the Company's
securities other than the Holders) securities under the Securities Act in
connection with the public offering solely for cash on Form S-1, S-2 or S-3 (or
any replacement or successor forms), the Company shall promptly give each Holder
of Registrable Securities written notice of such registration (a "Piggyback
Registration"). Upon the written request of each Holder given within 20 days
following the date of such notice, the Company shall cause to be included in
such registration statement and use all reasonable efforts to be registered
under the Securities Act all the Registrable Securities that each such Holder
shall have requested to be registered. The Company shall have the absolute right
to
-5-
<PAGE>
withdraw or cease to prepare or file any registration statement for any offering
referred to in this Section 3 without any obligation or liability to any Holder.
---------
3.3. Each Holder shall be entitled to have its Registrable
Securities included in an unlimited number of Piggyback Registrations pursuant
to this Section 3.
---------
Section 4. Demand Registration.
-------------------
4.1.
(i) If all of the Registrable Securities are not included
in a Shelf Registration that is Continuously Effective pursuant to Section 3.1
hereof within one hundred twenty (120) days from the date hereof, or if at any
time thereafter all of the Holders' Registrable Securities are not covered by a
Continuously Effective registration statement, the Holders of at least 25% of
the Registrable Securities may make a written request to the Company (the
"Demanding Holders"), that the Company cause there to be filed with the
Commission a registration statement meeting the requirements of the Securities
Act (a "Demand Registration"), and each Demanding Holder shall be entitled to
have included therein (subject to Section 4.6) all or such number of such
-----------
Demanding Holder's Registrable Securities, as the Demanding Holder shall request
in writing; provided, however, that no request may be made pursuant to this
-------- -------
Section 4.1 if within six (6) months prior to the date of such request a
- -----------
registration statement pursuant to this Section 4.1 shall have been declared
-----------
effective by the Commission. Any request made pursuant to this Section 4.1 shall
-----------
be addressed to the attention of the Secretary of the Company, and shall specify
the number of Registrable Securities to be registered, the intended methods of
disposition thereof and that the request is for a Demand Registration pursuant
to this Section 4.1(i). The Holders shall be entitled to no more than four
--------------
Demand Registrations.
(ii) The Company shall be entitled to postpone for up to
ninety (90) days the filing of any registration statement otherwise required to
be prepared and filed pursuant to this Section 4.1, if the Board determines, in
-----------
its good faith reasonable judgment (with the concurrence of the managing
underwriter, if any), that such registration and the Transfer of Registrable
Securities contemplated thereby would materially interfere with, or require
premature disclosure of, any financing, acquisition or reorganization involving
the Company or any of its wholly owned subsidiaries and the Company promptly
gives the Demanding Holders notice of such determination; provided, however,
-------- -------
that the Company shall not have postponed pursuant to this Section 4.1(ii) the
---------------
filing of any other registration statement otherwise required to be prepared and
filed pursuant to this Section 4.1 during the twelve (12) month period ended on
-----------
the date of the relevant request pursuant to Section 4.1(i).
(iii) Whenever the Company shall have received a demand
pursuant to Section 4.1(i) to effect the registration of any Registrable
--------------
Securities, the Company shall promptly give written notice of such proposed
registration to all Holders. Any such Holder may, within twenty (20) days after
receipt of such notice, request in writing that all of such
-6-
<PAGE>
Holder's Registrable Securities, or any portion thereof designated by such
Holder, be included in the registration.
(iv) Subject to Section 4.6, in connection with an
-----------
underwritten offering, the Company and, with the approval of the Company, other
holders of Common Stock (other than Holders) shall be given the opportunity to
include shares of Common Stock in such offering ("Other Included Shares").
4.2. Following receipt of a request for a Demand
Registration, the Company shall:
(i) File the registration statement with the Commission as
promptly as practicable, and shall use all reasonable efforts to have the
registration declared effective under the Securities Act as soon as reasonably
practicable, in each instance giving due regard to the need to prepare current
financial statements, conduct due diligence and complete other actions that are
reasonably necessary to effect a registered public offering.
(ii) Use all reasonable efforts to keep the registration
statement Continuously Effective for up to two hundred seventy (270) days or
until such earlier date as of which all the Registrable Securities under the
registration statement shall have been disposed of in the manner described in
the Registration Statement, or such earlier time as the Company would not have
any obligation to include the Registrable Securities that have not been disposed
of in the manner described in the Registration Statement in a registration
pursuant to Section 4 or Section 3 pursuant to the definition of "Registrable
--------- ---------
Securities." Notwithstanding the foregoing, if for any reason the effectiveness
of a registration pursuant to this Section 4 is suspended or, in the case of a
---------
Demand Registration, postponed as permitted by Section 4.1(ii), the foregoing
--------------
period shall be extended by the aggregate number of days of such suspension or
postponement.
4.3. The Company shall be obligated to effect no more than a
total of four Demand Registrations. For purposes of the preceding sentence,
registration shall not be deemed to have been effected (i) unless a registration
statement with respect thereto has become effective, (ii) if after such
registration statement has become effective, such registration or the related
offer, sale or distribution of Registrable Securities thereunder is interfered
with by any stop order, injunction or other order or requirement of the
Commission or other governmental agency or court for any reason not attributable
to the Selling Holders and such interference is not thereafter eliminated, or
(iii) if the conditions to closing specified in the underwriting agreement, if
any, entered into in connection with such registration are not satisfied or
waived, other than by reason of a failure on the part of the Selling Holders. If
the Company shall have complied with its obligations under this Agreement, a
right to a Demand Registration pursuant to this Section 4 shall be deemed to
---------
have been satisfied upon the earlier of the date as of which all of the
Registrable Securities included therein shall have been disposed of pursuant to
the Registration Statement or the date as of which such Demand Registration
shall have been Continuously Effective for a period of two hundred seventy (270)
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<PAGE>
days. Any Demand Registration Statement which, after filing with the Commission
is withdrawn by the Holders, shall be deemed to have been effective in
determining the number of Demand Registrations the Company is obligated to
effect hereunder.
4.4. A registration pursuant to this Section 4 shall be on
---------
such appropriate registration form of the Commission as shall (i) be selected by
the Company and be reasonably acceptable to the Demanding Holders and (ii)
permit the disposition of the Registrable Securities in accordance with the
intended method or methods of disposition specified in the request pursuant to
Section 4.1(i).
- --------------
4.5. If any registration pursuant to Section 4 involves an
---------
underwritten offering (whether on a "firm," "best efforts" or "all reasonable
efforts" basis or otherwise), or an agented offering, the Demanding Holders
shall have the right to select the underwriter or underwriters and manager or
managers to administer such underwritten offering or the placement agent or
agents for such agented offering; provided, however, that each Person so
-------- -------
selected shall be reasonably acceptable to the Company.
4.6. Whenever the Company shall effect a registration
pursuant to this Section 4 in connection with an underwritten offering by one or
---------
more Selling Holders of Registrable Securities: if the Underwriters'
Representative or Agent advises each such Selling Holder in writing that, in its
opinion, the amount of securities requested to be included in such offering
(whether by Selling Holders or by other Persons) exceeds the amount which can be
sold in such offering within a price range acceptable to the Demanding Holders,
securities shall be included in such offering and the related registration, to
the extent of the amount which can be sold within such price range, and shall be
allocated: first on a pro rata basis based on the number of shares, with
-----
registration rights, of Common Stock they own or have a right to purchase upon
exercise of Common Stock warrants or options or conversions of Series A
Preferred Stock among all Selling Holders and the holders of registration rights
pursuant to those certain registration rights agreements entered into by the
Company with IBM Credit Corporation, the holders of its Series A Preferred Stock
and the Common Stock warrants issued in conjunction therewith, the Placement
Agents employed by the Company in connection with the sale of such Series A
Preferred Stock and Common Stock Warrants and Carlton Joseph Mertens II and
holders of Common Stock issued in connection with an acquisition completed prior
to the date hereof and who have requested inclusion in such registration and
second by the Company and third by other holders with respect to the Other
- ------ -----
Included Shares, provided, however, that, so that such allocation shall not
operate to reduce the aggregate number of Registerable Securities and other
securities to be included in such registration, if the Selling Holder or other
selling securityholder does not request inclusion of the maximum number of
Registrable Securities and other securities allocated to him pursuant to the
above-described procedure, the remaining portion of his allocation shall be
reallocated among those
other selling securityholders whose allocations did not satisfy their requests
pro rata, and this procedure shall be repeated until all of the other securities
which may be included in the registration on behalf of the Holder and other
selling securityholders have been so allocated.
-8-
<PAGE>
Section 5. Registration Procedures. Whenever required under Section
----------------------- -------
3 or Section 4 to effect the registration of any Registrable Securities, the
- - ---------
Company shall, as expeditiously as practicable:
5.1. Prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use all reasonable
efforts to cause such registration statement to become effective; provided,
--------
however, that before the initial filing of such registration statement, the
- -------
Company shall furnish to one firm of counsel for the Selling Holders (selected
by the Demanding Holders, if any) a copy of such registration statement in the
form substantially as proposed to be filed with the Commission at least four (4)
business days prior to filing for review and comment by such counsel.
5.2. Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Securities Act and rules thereunder with respect to the
disposition of all securities covered by such registration statement. If the
registration is for an underwritten offering, the Company shall amend the
registration statement or supplement the prospectus whenever required by the
terms of the underwriting agreement entered into pursuant to Section 6.2. The
-----------
Company shall amend the registration statement or supplement the prospectus so
that it will remain current and in compliance with the requirements of the
Securities Act for the period after its effective date during which the Demand
Registration is to be kept Continuously Effective by the Company pursuant to
Section 4.2(ii), and if during such period any event or development occurs as a
- ---------------
result of which the registration statement or prospectus contains a misstatement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, the Company
shall promptly notify each Selling Holder, amend the registration statement or
supplement the prospectus so that each will thereafter comply with the
Securities Act and furnish to each Selling Holder of Registrable Securities such
amended or supplemented prospectus, which each such Holder shall thereafter use
in the Transfer of Registrable Securities covered by such registration
statement. Pending such amendment or supplement each such Holder shall cease
making offers or Transfers of Registrable Securities pursuant to the prior
prospectus. In the event that any Registrable Securities included in a
registration statement subject to, or required by, this Agreement remain unsold
at the end of the period during which the Company is obligated to use all
reasonable efforts to maintain the effectiveness of such registration statement,
the Company may file a post-effective amendment to the registration statement
for the purpose of removing such Securities from registered status .
5.3. Furnish to each Selling Holder of Registrable
Securities, without charge, such number of copies of the registration statement,
any pre-effective or post-effective amendment thereto, the prospectus, including
each preliminary prospectus and any amendments or supplements thereto, in each
case in conformity with the requirements of the Securities Act and the rules
thereunder, and such other related documents as any such Selling
-9-
<PAGE>
Holder may reasonably request in order to facilitate the disposition of
Registrable Securities owned by such Selling Holder.
5.4. Use all reasonable efforts (i) to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such states or jurisdictions as shall be
reasonably requested by the Underwriters' Representative or Agent (as
applicable, or if inapplicable, the Demanding Holders) and (ii) to obtain the
withdrawal of any order suspending the effectiveness of a registration
statement, or the lifting of any suspension of the qualification (or exemption
from qualification) of the offer and transfer of any of the Registrable
Securities in any jurisdiction, at the earliest possible moment; provided,
--------
however, that the Company shall not be required in connection therewith or as a
- -------
condition thereto to qualify to do business or to file a general consent to
service of process in any such state or jurisdiction.
5.5. In the event of any underwritten or agented offering,
enter into and perform the Company's obligations under an underwriting or agency
agreement (including indemnification and contribution obligations of
underwriters or agents), in usual and customary form, with the managing
underwriter or underwriters of or agents for such offering. The Company shall
also cooperate with the Demanding Holders and the Underwriters' Representative
or Agent for such offering in the marketing of the Registrable Securities,
including making available the Company's officers, accountants, counsel,
premises, books and records for such purpose, but the Company shall not be
required to incur any material out-of-pocket expense pursuant to this sentence.
5.6. Promptly notify each Selling Holder of any stop order
issued or threatened to be issued by the Commission in connection therewith (and
take all reasonable actions required to prevent the entry of such stop order or
to remove it if entered).
5.7. Make generally available to the Company's security
holders copies of all periodic reports, proxy statements, and other information
referred to in Section 12.1 and an earnings statement satisfying the provisions
of Section 11(a) of the Securities Act no later than 90 days following the end
of the 12-month period beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of each registration
statement filed pursuant to this Agreement.
5.8. Make available for inspection by any Selling Holder, any
underwriter participating in such offering and the representatives of such
Selling Holder and Underwriter (but not more than one firm of counsel to such
Selling Holders), all financial and other information as shall be reasonably
requested by them, and provide the Selling Holder, any underwriter participating
in such offering and the representatives of such Selling Holder and Underwriter
the opportunity to discuss the business affairs of the Company with its
principal executives and independent public accountants who have certified the
audited financial statements included in such registration statement, in each
case all as necessary to enable them to exercise their due diligence
responsibility under the Securities Act; provided,
--------
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<PAGE>
however, that information that the Company determines, in good faith, to be
- -------
confidential and which the Company advises such Person in writing, is
confidential shall not be disclosed unless such Person signs a confidentiality
agreement reasonably satisfactory to the Company or the related Selling Holder
of Registrable Securities agrees to be responsible for such Person's breach of
confidentiality on terms reasonably satisfactory to the Company .
5.9. Use the Company's commercially reasonable efforts to
obtain a so-called "comfort letter" from its independent public accountants, and
legal opinions of counsel to the Company addressed to the Selling Holders, in
customary form and covering such matters of the type customarily covered by such
letters, and in a form that shall be reasonably satisfactory to Demanding
Holders. The Company shall furnish to each Selling Holder a signed counterpart
of any such comfort letter or legal opinion. Delivery of any such opinion or
comfort letter shall be subject to the recipient furnishing such written
representations or acknowledgments as are customarily provided by selling
shareholders who receive such comfort letters or opinions.
5.10. Provide and cause to be maintained a transfer agent
and registrar for all Registrable Securities covered by such registration
statement from and after a date not later than the effective date of such
registration statement.
5.11. Use all reasonable efforts to cause the Registrable
Securities covered by such registration statement (i) if the Common Stock is
then listed on a securities exchange or included for quotation in a recognized
trading market, to continue to be so listed or included for a reasonable period
of time after the offering, and (ii) to be registered with or approved by such
other United States or state governmental agencies or authorities as may be
necessary by virtue of the business and operations of the Company to enable the
Selling Holders of Registrable Securities to consummate the disposition of such
Registrable Securities.
5.12. Use the Company's reasonable efforts to provide a
CUSIP number for the Registrable Securities prior to the effective date of the
first registration statement including Registrable Securities.
5.13. Take such other actions as are reasonably required in
order to expedite or facilitate the disposition of Registrable Securities
included in each such registration.
Section 6. Holders' Obligations. It shall be a condition
--------------------
precedent to the obligations of the Company to take any action pursuant to this
Agreement with respect to the Registrable Securities of any Selling Holder of
Registrable Securities that such Selling Holder shall:
6.1. Furnish to the Company such information regarding such
Selling Holder, the number of the Registrable Securities owned by it, and the
intended method of disposition of such securities as shall be required to effect
the registration of such Selling
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<PAGE>
Holder's Registrable Securities, and to cooperate with the Company in preparing
such registration.
6.2. If applicable, agree to sell their Registrable Securities to
the underwriters at the same price and on substantially the same terms and
conditions as the Company or the other Persons on whose behalf the registration
statement was being filed have agreed to sell their securities, and to execute
the underwriting agreement agreed to by the Demanding Holders (in the case of a
registration under Section 4), or the Company and the Selling Holders (in the
---------
case of a registration under Section 3).
---------
Section 7. Expenses of Registration. Expenses in connection with
------------------------
registrations pursuant to this Agreement shall be allocated and paid as
follows:
7.1. With respect to each Demand Registration, the Company shall
bear and pay all expenses incurred in connection with any registration, filing,
or qualification of Registrable Securities with respect to such Demand
Registration for each Selling Holder (which right may be assigned to any Person
to whom Registrable Securities are Transferred as permitted by Section 9),
---------
including all registration, filing and The Nasdaq Stock Market's National Market
fees, all fees and expenses of complying with securities or blue sky laws, all
word processing, duplicating and printing expenses, messenger and delivery
expenses, the reasonable fees and disbursements of counsel for the Company, and
of the Company's independent public accountants, including the expenses of "cold
comfort" letters required by or incident to such performance and compliance, and
the reasonable fees and disbursements of one firm of counsel for the Selling
Holders of Registrable Securities (selected by Demanding Holders owning a
majority of the Registrable Securities owned by Demanding Holders to be included
in a Demand Registration) (the "Registration Expenses"), but excluding
underwriting discounts and commissions relating to Registrable Securities (which
shall be paid on a pro rata basis by the Selling Holders).
7.2. The Company shall bear and pay all Registration Expenses
incurred in connection with any Piggyback Registrations or Piggyback Shelf
Registration pursuant to Section 3 for each Selling Holder (which right may be
---------
Transferred to any Person to whom Registrable Securities are Transferred as
permitted by Section 9), but excluding underwriting discounts and commissions
---------
relating to Registrable Securities (which shall be paid on a pro rata basis by
the Selling Holders of Registrable Securities).
7.3. Any failure of the Company to pay any Registration Expenses
as required by this Section 7 shall not relieve the Company of its obligations
---------
under this Agreement.
Section 8. Indemnification; Contribution. If any Registrable
-----------------------------
Securities are included in a registration statement under this Agreement,
including a Shelf Registration:
-12-
<PAGE>
8.1. To the extent permitted by applicable law, the Company
shall indemnify and hold harmless each Selling Holder, each Person, if any, who
controls such Selling Holder within the meaning of the Securities Act, and each
officer, director, partner, employee, agent and consultant of such Selling
Holder and such controlling Person, against any and all losses, claims, damages,
liabilities and expenses (joint or several), including attorneys' fees and
disbursements and expenses of investigation, incurred by such party pursuant to
any actual or threatened action, suit, proceeding or investigation, or to which
any of the foregoing Persons may become subject under the Securities Act, the
Exchange Act or other federal or state laws, insofar as such losses, claims,
damages, liabilities and expenses arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation"):
(i) Any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein, or any amendments
or supplements thereto;
(ii) The omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading; or
(iii) Any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any applicable state securities law or any
rule or regulation promulgated under the Securities Act, the Exchange Act or any
applicable state securities law;
provided, however, that the indemnification required by this Section 8.1 shall
- -------- ------- -----------
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or expense if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or expense to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished to the Company by the indemnified party expressly for use in
connection with such registration; provided, further, that the indemnity
-------- -------
agreement contained in this Section 8 shall not apply to any underwriter to the
extent that any such loss is based on or arises out of an untrue statement or
alleged untrue statement of a material fact, or an omission or alleged omission
to state a material fact, contained in or omitted from any preliminary
prospectus if the final prospectus shall correct such untrue statement or
alleged untrue statement, or such omission or alleged omission, and a copy of
the final prospectus has not been sent or given to such person at or prior to
the confirmation of sale to such person if such underwriter was under an
obligation to deliver such final prospectus and failed to do so. The Company
shall also indemnify underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, their
officers, directors, agents and employees and each person who controls such
persons (within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act) to the same extent as provided above with respect to the
indemnification of the Selling Holders.
-13-
<PAGE>
8.2. To the extent permitted by applicable law, each Selling
Holder shall indemnify and hold harmless the Company, each of its directors,
each of its officers who shall have signed the registration statement, each
Person, if any, who controls the Company within the meaning of the Securities
Act, any other Selling Holder, any controlling Person of any such other Selling
Holder and each officer, director, partner, and employee of such other Selling
Holder and such controlling Person, against any and all losses, claims, damages,
liabilities and expenses (joint and several), including attorneys' fees and
disbursements and expenses of investigation, incurred by such party pursuant to
any actual or threatened action, suit, proceeding or investigation, or to which
any of the foregoing Persons may otherwise become subject under the Securities
Act, the Exchange Act or other federal or state laws, insofar as such losses,
claims, damages, liabilities and expenses arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Selling Holder expressly for use in connection with such
registration; provided, however, that the indemnification required by this
-------- -------
Section 8.2 shall not apply to amounts paid in settlement of any such loss,
- -----------
claim, damage, liability or expense if settlement is effected without the
consent of the relevant Selling Holder of Registrable Securities, which consent
shall not be unreasonably withheld.
8.3. Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, suit, proceeding,
- ---------
investigation or threat thereof made in writing for which such indemnified party
may make a claim under this Section 8, such indemnified party shall deliver to
---------
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
-------- -------
have the right to retain its own counsel, with the fees and disbursements and
expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time following the commencement of any such action, if
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
-------
8 but shall not relieve the indemnifying party of any liability that it may have
- -
to any indemnified party otherwise than pursuant to this Section 8. Any fees and
---------
expenses incurred by the indemnified party (including any fees and expenses
incurred in connection with investigating or preparing to defend such action or
proceeding) shall be paid to the indemnified party, as incurred, within thirty
(30) days of written notice thereof to the indemnifying party (regardless of
whether it is ultimately determined that an indemnified party is not entitled to
indemnification hereunder). Any such indemnified party shall have the right to
employ separate counsel in any such action, claim or proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be the expenses of such indemnified party unless (i) the indemnifying
party has agreed to pay such fees and expenses or (ii) the
-14-
<PAGE>
indemnifying party shall have failed to promptly assume the defense of such
action, claim or proceeding or (iii) the named parties to any such action, claim
or proceeding (including any impleaded parties) include both such indemnified
party and the indemnifying party, and such indemnified party shall have been
advised by counsel that there may be one or more legal defenses available to it
which are different from or in addition to those available to the indemnifying
party and that the assertion of such defenses would create a conflict of
interest such that counsel employed by the indemnifying party could not
faithfully represent the indemnified party (in which case, if such indemnified
party notifies the indemnifying party in writing that it elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action, claim or
proceeding on behalf of such indemnified party, it being understood, however,
that the indemnifying party shall not, in connection with any one such action,
claim or proceeding or separate but substantially similar or related actions,
claims or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (together with appropriate local
counsel) at any time for all such indemnified parties, unless in the reasonable
judgment of such indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
action, claim or proceeding, in which event the indemnifying party shall be
obligated to pay the fees and expenses of such additional counsel or counsels).
No indemnifying party shall be liable to an indemnified party for any settlement
of any action, proceeding or claim without the written consent of the
indemnifying party, which consent shall not be unreasonably withheld.
8.4. If the indemnification required by this Section 8 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities or expenses referred to in this
Section 8:
- ---------
(i) The indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party and indemnified parties in connection with the actions
which resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by reference to,
among other things, whether any Violation has been committed by, or relates to
information supplied by, such indemnifying party or indemnified parties, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such Violation. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
Section 8.1 and Section 8.2, any legal or other fees or expenses reasonably
- ----------- -----------
incurred by such party in connection with any investigation or proceeding.
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 8.4 were determined by pro
-----------
rata allocation or by any
-15-
<PAGE>
other method of allocation which does not take into account the equitable
considerations referred to in Section 8.4(i). No Person guilty of fraudulent
--------------
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
8.5. If indemnification is available under this Section 8, the
---------
indemnifying parties shall indemnify each indemnified party to the full extent
provided in this Section 8 without regard to the relative fault of such
---------
indemnifying party or indemnified party or any other equitable consideration
referred to in Section 8.4.
-----------
8.6. The obligations of the Company and the Selling Holders of
Registrable Securities under this Section 8 shall survive the completion of any
---------
offering of Registrable Securities pursuant to a registration statement under
this Agreement, and otherwise.
Section 9. Transfer of Registration Rights. Rights with respect to
-------------------------------
Registrable Securities may be Transferred as follows: (i) the rights of a Holder
to require a Demand Registration pursuant to Section 4 may be Transferred to any
---------
Person in connection with the Transfer to such Person by such Holder of at least
1,000 shares or share equivalents of Registrable Securities, and (ii) the rights
of a Holder to participate in a Piggyback or Piggyback Shelf Registration
pursuant to Section 3 or a Put pursuant to Section 11 may be Transferred by such
--------- ----------
Holder to any Person in connection with the Transfer of Registrable Securities
to such Person, in all cases, if (x) any such Transferee that is not a party to
this Agreement shall have executed and delivered to the Secretary of the Company
a properly completed agreement substantially in the form of Exhibit A, and (y)
---------
the Transferor shall have delivered to the Secretary of the Company, no later
than 15 days following the date of the Transfer, written notification of such
Transfer setting forth the name of the Transferor, name and address of the
Transferee, and the number of Registrable Securities which shall have been so
Transferred.
Section 10. Holdback. Each Holder entitled pursuant to this Agreement
--------
to have Registrable Securities included in a registration statement prepared
pursuant to this Agreement, if so requested by the Underwriters' Representative
or Agent in connection with an offering of any Registrable Securities, shall not
effect any public sale or distribution of shares of Common Stock or any
securities convertible into or exchangeable or exercisable for shares of Common
Stock, including a sale pursuant to Rule 144 under the Securities Act (except as
part of such underwritten or agented registration), during the 5-day period
prior to, and during such period as the Underwriter's Representative or Agent
may request, not to exceed a period of 180 days, beginning on, the date such
registration statement is declared effective under the Securities Act by the
Commission, provided that such Holder is timely notified of such effective date
--------
in writing by the Company or such Underwriters' Representative or Agent. In
order to enforce the foregoing covenant, the Company shall be entitled to impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder until the end of such period.
-16-
<PAGE>
Section 11. Put Option If the Company has not Registered all of the
----------
Registrable Securities in accordance with Section 3 hereof within one hundred
---------
twenty (120) days from the date hereof, or if at any time thereafter all of the
Holders' Registrable Securities are not then included in a Continuously
Effective registration statement, then, for such time as the Registrable
Securities are not so included, the Holders shall have an option ("Put Option")
to cause the Company to repurchase all or any portion of the Warrants (the "Put
Warrants") for a price (the "Put Price") equal to (i) the difference between the
Warrant Exercise Price and the highest reported offer price for the Company's
Common Stock on the principal exchange or market on which the Company's Common
Stock then trades during such period of time (ii) multiplied by the number of
Warrants put. The notice ("Put Notice") shall be delivered by the Holder or
Holders who elect to exercise the Put Option, in writing, to the Company at its
principal place of business, attention Corporate Secretary, in accordance with
Section 15.2. The Put Notice shall specify, in addition to the number of Put
- ------------
Warrants, the maximum offered price of the Company's Common Stock, the date on
which such maximum offered price occurred, and the calculation of the Put Price
for the Put Warrant to be purchased by the Company pursuant to the terms hereof.
Within fifteen (15) days of the notice, the Company shall notify the electing
Holders of a date and time (which shall be no more than twenty five (25) days
after the Company's receipt of the Put Notice) on which the Put Warrants shall
be delivered to the Company at its principal place of business against payment
by bank check, cashiers' check or wire transfer of the Put Price. In lieu of a
cash payment, the Company may pay the Put Price by means of a promissory note on
terms and conditions no less favorable than the notes issued to certain Holders
pursuant to the Note Purchase Agreement dated September 30, 1997, but having a
maturity no greater than such notes.
Section 12. Covenants of the Company. The Company hereby agrees and
------------------------
covenants as follows:
12.1. The Company shall file as and when applicable, on a timely
basis, all reports required to be filed by it under the Exchange Act. If the
Company is not required to file reports pursuant to the Exchange Act, upon the
request of any Holder of Registrable Securities, the Company shall make publicly
available the information specified in Rule 144 of the Securities Act, and take
such further action as may be reasonably required from time to time and as may
be within the reasonable control of the Company, to enable the Holders to
Transfer Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by Rule 144 under the
Securities Act or any similar rule or regulation hereafter adopted by the
Commission.
12.2. Company shall not, directly or indirectly, (x) enter into
any merger, consolidation or reorganization in which the Company shall not be
the surviving corporation or (y) Transfer or agree to Transfer all or
substantially all the Company's assets, unless prior to such merger,
consolidation, reorganization or asset Transfer, the surviving corporation or
the Transferee, respectively, shall have agreed in writing to assume the
obligations of the Company under this Agreement, and for that purpose references
hereunder to "Registrable Securities" shall be deemed to include the securities
which the Holders of
-17-
<PAGE>
Registrable Securities would be entitled to receive in exchange for Registrable
Securities pursuant to any such merger, consolidation or reorganization.
12.3. The Company shall not grant to any Person (other than a
Holder of Registrable Securities) any registration rights with respect to
securities of the Company, or enter into any agreement, that would be
inconsistent with the terms of this Agreement.
Section 13. Amendment, Modification and Waivers; Further Assurances.
-------------------------------------------------------
(i) This Agreement may be amended with the consent of the
Company, and the Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by it, only if the Company shall
have obtained the written consent of Holders owning Registrable Securities
possessing a Majority of the Registrable Securities then outstanding to such
amendment, action or omission to act.
(ii) No waiver of any terms or conditions of this Agreement
shall operate as a waiver of any other breach of such terms and conditions or
any other term or condition, nor shall any failure to enforce any provision
hereof operate as a waiver of such provision or of any other provision hereof.
No written waiver hereunder, unless it by its own terms explicitly provides to
the contrary, shall be construed to effect a continuing waiver of the provisions
being waived and no such waiver in any instance shall constitute a waiver in any
other instance or for any other purpose or impair the right of the party against
whom such waiver is claimed in all other instances or for all other purposes to
require full compliance with such provision.
(iii) Each of the parties hereto shall execute all such further
instruments and documents and take all such further action as any other party
hereto may reasonably require in order to effectuate the terms and purposes of
this Agreement.
Section 14 Assignment; Benefit. This Agreement and all of the
-------------------
provisions hereof shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, assigns, executors, administrators or
successors; provided, however, that except as specifically provided herein with
respect to certain matters, neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned or delegated by the Company
without the prior written consent of Holders owning Registrable Securities
possessing a majority in number of the Registrable Securities outstanding on the
date as of which such delegation or assignment is to become effective. A Holder
may Transfer its rights with respect to requiring Demand Registrations and
Piggyback Registrations hereunder to a successor in interest to the Registrable
Securities owned by such assignor only as permitted by Section 9.
---------
-18-
<PAGE>
Section 15. Miscellaneous
-------------
15.1. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING
REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
15.2. Notices. All notices and requests given pursuant to this
-------
Agreement shall be in writing and shall be made by hand-delivery, first-class
mail (registered or certified, return receipt requested), confirmed facsimile or
overnight air courier guaranteeing next business day delivery to the relevant
address specified on Schedule I to this Agreement or in the relevant agreement
----------
in the form of Exhibit A whereby such party became bound by the provisions of
---------
this Agreement. Except as otherwise provided in this Agreement, the date of each
such notice and request shall be deemed to be, and the date on which each such
notice and request shall be deemed given shall be: at the time delivered, if
personally delivered or mailed; when receipt is acknowledged, if sent by
facsimile; and the next business day after timely delivery to the courier, if
sent by overnight air courier guaranteeing next business day delivery.
15.3. Entire Agreement; Integration. This Agreement supersedes
-----------------------------
all prior agreements between or among any of the parties hereto with respect to
the subject matter contained herein and therein, and such agreements embody the
entire understanding among the parties relating to such subject matter.
15.4. Injunctive Relief. Each of the parties hereto acknowledges
-----------------
that in the event of a breach by any of them of any material provision of this
Agreement, the aggrieved party may be without an adequate remedy at law. Each of
the parties therefore agrees that in the event of such a breach hereof the
aggrieved party may elect to institute and prosecute proceedings in any court of
competent jurisdiction to enforce specific performance or to enjoin the
continuing breach hereof. By seeking or obtaining any such relief, the aggrieved
party shall not be precluded from seeking or obtaining any other relief to which
it may be entitled.
15.5 Section Headings. Section headings are for convenience of
----------------
reference only and shall not affect the meaning of any provision of this
Agreement.
15.6. Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which shall be an original, and all of which shall
together constitute one and the same instrument. All signatures need not be on
the same counterpart.
15.7. Severability. If any provision of this Agreement shall be
------------
invalid or unenforceable, such invalidity or unenforceability shall not affect
the validity and enforceability of the remaining provisions of this Agreement,
unless the result thereof would
-19-
<PAGE>
be unreasonable, in which case the parties hereto shall negotiate in good faith
as to appropriate amendments hereto.
15.8. Filing. A copy of this Agreement and of all amendments
------
thereto shall be filed at the principal executive office of the Company and with
the transfer agent for the Common Stock of the Company.
15.9. Termination. This Agreement may be terminated at any time
-----------
by a written instrument signed by the parties hereto. Unless sooner terminated
in accordance with the preceding sentence, this Agreement (other than Section 8
---------
hereof) shall terminate in its entirety at the earlier of (i) such date as there
shall be no Registrable Securities outstanding or (ii) the eighth anniversary of
the date hereof, provided that any shares of Common Stock previously subject to
--------
this Agreement shall not be Registrable Securities following the sale of any
such shares in an offering registered pursuant to this Agreement.
15.10 Attorneys' Fees. In any action or proceeding brought to
---------------
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees (including any fees incurred in any appeal) in
addition to its costs and expenses and any other available remedy.
15.11. No Third Party Beneficiaries. Nothing herein expressed or
----------------------------
implied is intended to confer upon any person, other than the parties hereto or
their respective permitted assigns, successors, heirs and legal representatives,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement.
15.12. Jury Trial Waiver. EACH OF IBM CREDIT AND THE COMPANY
-----------------
HEREBY IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING
(INCLUDING ANY COUNTERCLAIM) OF ANY TYPE IN WHICH IBM CREDIT AND THE COMPANY
INITIATE AS TO ALL MATTERS ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT
OR ANY DOCUMENT, INSTRUMENT OR AGREEMENT IN CONNECTION HEREWITH.
-20-
<PAGE>
IN WITNESS WHEREOF the undersigned have executed this Registration and
Put Rights Agreement as of the date first written above.
Holders:
- -------
IBM Credit Corporation,
a Delaware corporation
By: /s/ Tracey M. Wyatt
--------------------------
Name: Tracey M. Wyatt
Title: Remarketer Loan Manager
The Company:
- -----------
Western Micro Technology, Inc.,
a Delaware corporation
By: /s/ James W. Dorst
--------------------------
James W. Dorst
Chief Financial Officer
SIGNATURE PAGE 1 OF 1
<PAGE>
EXHIBIT A
to Registration
Rights Agreement
AGREEMENT TO BE BOUND
BY THE REGISTRATION AND PUT RIGHTS AGREEMENT
The undersigned, being the transferee of ______ shares of the common
stock, $.01 par value per share [or describe other capital stock received in
exchange for such common stock] (the "Registrable Securities"), of Western Micro
Technology, Inc., a Delaware corporation (the "Company"), as a condition to the
receipt of such Registrable Securities, acknowledges that matters pertaining to
the registration of such Registrable Securities is governed by the Registration
and Put Rights Agreement dated as of September 30, 1997 initially among the
Company and the Holders referred to therein (the "Agreement"), and the
undersigned hereby (1) acknowledges receipt of a copy of the Agreement, and (2)
agrees to be bound as a Holder by the terms of the Agreement, as the same has
been or may be amended from time to time.
Agreed to this __ day of ______________, ____________.
_________________________________
_________________________________*
_________________________________*
*Include address for notices.
EXHIBIT A - 1
<PAGE>
SCHEDULE I
TO REGISTRATION AND PUT RIGHTS AGREEMENT
HOLDER:
IBM Credit Corporation
Address: 5000 Executive Parkway, Suite 450
San Ramon, CA 94583
Attn: Remarketer Financing Center Manager
Telecopy: (510) 2
COMPANY:
WESTERN MICRO TECHNOLOGY, INC,
Adress: 254 E. Hacienda Ave.
Campbell, CA 95008
Attention: Cheif Financial Officer
Telecopy: 408/341-4768
SCHEDULE I - PAGE 1
<PAGE>
Exhibit 4.11
No. CW-1 100,000 Shares
COMMON STOCK PURCHASE WARRANT
Void After 5:00 P.M.
Pacific Daylight Time on September 30, 2004
THIS CERTIFIES THAT, for value received, IBM Credit Corporation, the
registered holder of this Common Stock Purchase Warrant (the "Warrant") or
permitted assigns (the "Holder"), is entitled to purchase from Western Micro
Technology, Inc., a Delaware corporation (the "Company"), at any time until
September 30, 2004 (the "Expiration Date"), at the purchase price per share of
$7.50 (the "Exercise Price"), the number of shares of Common Stock of the
Company (the "Common Stock") which is equal to the number of Shares set forth
above. The number of shares purchasable upon exercise of this Warrant and the
Exercise Price per share shall be subject to adjustment from time to time as set
forth in the Warrant Agreement referred to below.
This Warrant is issued under and in accordance with a Warrant Agreement
dated as of September 30, 1997, between the Company and the Warrant Holder and
is subject to the terms and provisions contained in the Warrant Agreement, to
all of which the Holder of this Warrant by acceptance hereof consents. A copy
of the Warrant Agreement may be obtained for inspection by the Holder hereof
upon written request to the Company.
This Warrant may be exercised in whole or in part by presentation of this
Warrant with the Purchase Form annexed hereto duly executed and simultaneous
payment of the Exercise Price (subject to adjustment) at the principal office of
the Company at 254 East Hacienda Avenue, Campbell, California 95008. Payment of
such price shall be made at the option of the Holder hereof in cash or by
certified or official bank check or otherwise as set forth in the Warrant
Agreement, including in the form of a "net exercise." Terms relating to
exercise of this Warrant is set forth more fully in the Warrant Agreement.
This Warrant may be exercised in whole or in part. Upon partial exercise,
a Warrant certificate for the unexercised portion shall be delivered to the
Holder. No fractional shares will be issued upon the exercise of this Warrant
but the Company shall round up to a whole share any fractional share issuable
upon the exercise of this Warrant. This Warrant is transferable only in limited
circumstances as described in the Warrant Agreement at the office of the Company
in Campbell, California, in the manner and subject to the limitations set forth
in the Warrant Agreement.
-1-
<PAGE>
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO SALE OR
OTHER DISPOSITION OR PLEDGE OF THESE SECURITIES OR THE SECURITIES
UNDERLYING THESE SECURITIES CAN BE EFFECTED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT RELATING THERETO OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY OR A NO ACTION LETTER OR INTERPRETIVE
OPINION OF THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT."
The Holder hereof may be treated by the Company and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented hereby, or to the
transfer hereof on the books of the Company. Any notice to the contrary
notwithstanding, and until such transfer on which books, the Company may treat
the Holder hereof as the owner for all purposes.
This Warrant does not entitle any Holder hereof to any of the rights of a
stockholder of the Company.
This Warrant shall not be valid or obligatory for any purpose until it
shall have been countersigned by the Company.
WESTERN MICRO TECHNOLOGY, INC., a Delaware
corporation
By /s/ James W. Dorst
-----------------------------
James W. Dorst
Chief Financial Officer
Attest:
/s/ James W. Dorst
- ----------------------------
James W. Dorst
Assistant Secretary
DATED: As of September 30, 1997
-2-
<PAGE>
PURCHASE FORM
Mailing Address
_________________________________________ _____________________________________
_________________________________________ _____________________________________
_________________________________________ _____________________________________
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant for, and to purchase thereunder, ____________
shares of the stock provided for therein, and tenders herewith payment of the
purchase price in full in the form of cash or by cashier's check in the amount
of $___________.
The undersigned requests that certificates for such shares be issued in the
name of:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please Print Name, Address and Social Security No.)
DATED: ______________________
Name of Warrant holder or Permitted Assignee:
________________________________________________________________________________
Address:
________________________________________________________________________________
________________________________________________________________________________
Signature:______________________________________________________________________
Signature Guaranteed: Note: The above signature must correspond with the name
as written upon the face of this Warrant in every
particular, without alteration or enlargement or
any change whatever, unless this Warrant has been
assigned.
-3-
<PAGE>
Exhibit 4.12
================================================================================
------------------------------------------------------------------------------
UNITS PURCHASE AGREEMENT
WESTERN MICRO TECHNOLOGY, INC.
SEPTEMBER 19, 1997
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TABLE OF CONTENTS
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ARTICLE I - DEFINITIONS.................................................... 1
SECTION 1.1 Definitions.......................................... 1
SECTION 1.2 Accounting Terms..................................... 5
ARTICLE II - AUTHORIZATION AND SALE OF UNITS............................... 5
SECTION 2.1 Authorization of Units............................... 5
SECTION 2.2 Purchase and Sale of Units........................... 5
SECTION 2.3 The Closing.......................................... 5
SECTION 2.4 Expenses............................................. 5
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 6
SECTION 3.1 Organization, Standing, etc.......................... 6
SECTION 3.2 Authorization and Execution.......................... 6
SECTION 3.3 Governmental Authorizations.......................... 6
SECTION 3.4 Non-Contravention.................................... 7
SECTION 3.5 Capitalization....................................... 7
SECTION 3.6 Litigation........................................... 8
SECTION 3.7 Investment Company................................... 8
SECTION 3.8 SEC Reports; Financial Statements; Private Placement
Memorandum........................................... 9
SECTION 3.9 No Material Adverse Changes, etc..................... 10
SECTION 3.10 Title to Properties; Encumbrances; Leases............ 10
SECTION 3.11 Tax Matters.......................................... 10
SECTION 3.12 Permits and Other Operating Rights................... 11
SECTION 3.13 Labor Difficulties................................... 11
SECTION 3.14 Environmental Matters................................ 11
SECTION 3.15 Insurance............................................ 11
SECTION 3.16 Transactions with Affiliates......................... 12
SECTION 3.17 Finders or Brokers................................... 12
SECTION 3.18 Solicitation......................................... 12
SECTION 3.19 Registration Rights.................................. 12
SECTION 3.20 Disclosure........................................... 12
SECTION 3.21 ERISA................................................ 12
SECTION 3.22 Stabilization........................................ 13
SECTION 3.23 Intellectual Property................................ 13
SECTION 3.24 Accounting Controls.................................. 13
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF PURCHASERS.................. 13
SECTION 4.1 Private Placement.................................... 13
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ARTICLE V - DELIVERIES BY THE COMPANY...................................... 16
SECTION 5.1........................................................... 16
ARTICLE VI - DELIVERIES BY THE PURCHASERS.................................. 16
SECTION 6.1........................................................... 16
ARTICLE VII - COVENANTS.................................................... 16
SECTION 7.1 Furnishing of Information............................ 16
SECTION 7.2 Use of Proceeds...................................... 17
SECTION 7.3 Legends; Opinions Requirement........................ 17
SECTION 7.4 Register of Securities............................... 18
SECTION 7.5 Removal of Legend.................................... 18
SECTION 7.6 Rule 144............................................. 19
SECTION 7.7 Nasdaq............................................... 19
SECTION 7.8 Right to Nominate a Member of the Board of Directors. 19
ARTICLE VIII - MISCELLANEOUS............................................... 19
SECTION 8.1 Notices.............................................. 19
SECTION 8.2 Amendment; Waiver.................................... 20
SECTION 8.3 Survival of Representations and Warranties........... 20
SECTION 8.4 Severability......................................... 21
SECTION 8.5 Successors and Assigns............................... 21
SECTION 8.6 Entire Agreement..................................... 21
SECTION 8.7 Choice of Law........................................ 21
SECTION 8.8 Counterparts......................................... 21
SECTION 8.9 Arbitration.......................................... 21
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TABLE OF EXHIBITS
Exhibit
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A Form of Certificate of Designation
B Form of Common Stock Purchase Warrant
C Form of Confidential Purchaser Questionnaire
D Form of Registration Rights Agreement
E Form of Subscription Agreement
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UNITS PURCHASE AGREEMENT
------------------------
THIS UNITS PURCHASE AGREEMENT, dated as of September 19, 1997, by and among
WESTERN MICRO TECHNOLOGY, INC., a Delaware corporation (the "COMPANY"), and the
-------
Purchasers who have executed Subscription Agreements,
W I T N E S S E T H:
-------------------
WHEREAS, the Company proposes to sell, and the Purchasers desire to
purchase, Units issued by the Company,
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties agree as follows:
ARTICLE
DEFINITIONS
-----------
SECTION 1.1 DEFINITIONS. As used in this Agreement, and unless the
-----------
context requires a different meaning, the following terms have the meanings
indicated:
"AFFILIATE" means, with respect to any Person, any Person that, directly or
---------
indirectly, controls, is controlled by or is under common control with such
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlled by" and "under common control
with"), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities, by
contract or otherwise.
"AGREEMENT" means this Agreement, as the same may be amended in accordance
---------
with its terms.
"BALANCE SHEET" means the unaudited condensed consolidated balance sheet of
-------------
the Company and its Subsidiaries as of June 30, 1997.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day on
------------
which commercial banks in the City of New York, Borough of Manhattan, are
authorized, required or permitted by law to close.
"CAPITAL STOCK" of any Person means any and all shares, interests,
-------------
participations or other equivalents (however designated) of capital stock and
warrants, options and similar rights to acquire such capital stock.
"CERCLA" means the Comprehensive Environmental Response, Compensation, and
------
Liability Act of 1980, as amended.
<PAGE>
"CERTIFICATE OF DESIGNATION" means the Certificate of Designation for the
--------------------------
Series A Preferred Stock, substantially in the form of EXHIBIT A hereto.
"CLOSING" and "CLOSING DATE" have the meanings set forth in SECTION 2.3
------- ------------
hereof.
"CODE" means the Internal Revenue Code of 1986, as amended.
----
"COMMISSION" means the Securities and Exchange Commission or any successor
----------
thereto.
"COMMON STOCK" means the common stock, par value $0.01 per share, of the
------------
Company.
"COMMON STOCK PURCHASE WARRANT" means a warrant exercisable to purchase
-----------------------------
shares of Common Stock, substantially in the form of EXHIBIT B hereto.
"COMMON WARRANTS" means Common Stock Purchase Warrants.
---------------
"CONFIDENTIAL PURCHASER QUESTIONNAIRE" means the Confidential Purchaser
------------------------------------
Questionnaire executed by each Purchaser, in the form attached as EXHIBIT C
hereto.
"ENVIRONMENTAL LAWS" means all laws and regulations relating to pollution
------------------
or protection of the environment, including laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the Commission thereunder.
"FINANCIAL STATEMENTS" shall have the meaning set forth in SECTION 3.8
--------------------
hereof.
"GOVERNMENTAL BODY" means any Federal, state, municipal, local or other
-----------------
governmental body, department, commission, board, bureau, agency or
instrumentality, political subdivision or taxing authority, domestic or foreign.
"INTELLECTUAL PROPERTY RIGHTS" means all intellectual and other intangible
----------------------------
property, including without limitation, all copyrights, computer programs, know-
how, patents, service marks and trademarks, whether registered or not.
"LIEN" means any mortgage, pledge, security interest, encumbrance, lien or
----
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof, any sale of
receivables with recourse against the seller or any other person except account
debtors, any filing or agreement to file a financing statement as debtor under
the
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Uniform Commercial Code or any similar statute of any jurisdiction other
than to reflect ownership by a third party of property leased to the Company or
its Subsidiaries under a lease which is not in the nature of a conditional sale
or title retention agreement).
"MATERIAL ADVERSE EFFECT" shall have the meaning provided in SECTION 3.1
-----------------------
hereof.
"PERMIT" means all permits, licenses, orders, approvals, franchises,
------
registrations and any other authorizations of any Governmental Body.
"PERSON" means an individual or a corporation, partnership, trust,
------
incorporated or unincorporated association, joint venture, joint stock company,
government (or an agency or political subdivision thereof) or other entity of
any kind.
"PLACEMENT AGENT" means Fahnestock & Co. Inc.
---------------
"PLACEMENT AGENT AGREEMENT" means the Placement Agent Agreement, dated
-------------------------
August 1, 1997, as amended, by and between the Company and the Placement Agent.
"PLACEMENT AGENT WARRANT" means the warrant to be issued at the Closing to
-----------------------
the Placement Agent to purchase such number of shares of Common Stock equal to
five percent (5%) of the aggregate number of Shares sold by the Company pursuant
to this Agreement, in the form mutually agreed on by the Placement Agent and the
Company.
"PLAN" means (i) any "employee benefit plan" within the meaning of section
----
3(3) of ERISA, (ii) any profit sharing, pension, deferred compensation, bonus,
stock option, stock purchase, other stock-based, severance, parachute, change in
control, retainer, consulting, health, welfare or incentive plan, agreement or
arrangement, whether legally binding or not, (iii) any plan or policy providing
for "fringe benefits" to employees, including but not limited to, vacation, paid
holidays, personal leave, employee discount, educational benefit or similar
programs, or (iv) any employment agreement.
"PREFERRED STOCK" means the preferred stock, par value $0.01 per share, of
---------------
the Company.
"PRIVATE PLACEMENT MEMORANDUM" means the Private Placement Memorandum of
----------------------------
the Company with respect to the offering of the Units dated September 11, 1997
(together with any exhibits thereto), as it may be amended or supplemented.
"PURCHASER" means each Person (other than the Company) who executes a
---------
counterpart of this Agreement, either directly or by execution of a Subscription
Agreement.
"REQUIREMENT OF LAW" means any statute, law, ordinance, rule, regulation,
------------------
order, decree, judicial or administrative decision or directive.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement
-----------------------------
among the Company and each Purchaser, of even date herewith, substantially in
the form attached as EXHIBIT D hereto.
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"RESTRICTED SECURITIES" means Shares or shares of Common Stock into which
---------------------
the Shares are convertible, or Common Warrants or shares of Common Stock
receivable upon exercise of the Common Warrants, which may not be publicly sold
or transferred without registration under the Securities Act.
"SEC REPORTS" means all forms, reports and documents filed by the Company
-----------
with the Commission pursuant to the Securities Act and the Exchange Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the Commission thereunder.
"SERIES A PREFERRED STOCK" means the Series A Preferred Stock of the
------------------------
Company, having terms substantially as set forth in the Certificate of
Designation.
"SHARES" means shares of the Series A Preferred Stock.
------
"SHELF REGISTRATION" has the meaning set forth in the Registration Rights
------------------
Agreement.
"STATE" means each of the states of the United States, the District of
-----
Columbia and the Commonwealth of Puerto Rico.
"SUBSCRIPTION AGREEMENT" means a Subscription Agreement executed by the
----------------------
Company and a Purchaser, substantially in the form attached as EXHIBIT E hereto.
"SUBSIDIARY" means, with respect to any Person, any corporation or other
----------
entity of which a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person.
"TAXES" means all taxes of any kind, including, without limitation, those
-----
on, or measured by or referred to as income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, environmental,
customs duties, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, ad valorem, import
or export duties, sales, use, transfer, registration, value added, alternative,
estimated or any other tax of any kind whatsoever, including any interest,
penalty, fine or addition thereto, whether disputed or not, of any Governmental
Body.
"TAX RETURNS" means any report, return, estimate, declaration, information
-----------
return or statement of any nature (including any amendments thereto) filed or
required to be filed with a Governmental Body by the Company and its
Subsidiaries with respect to Taxes including, where permitted or required,
combined or consolidated returns for any group of entities that includes the
Company and its Subsidiaries.
"TRANSACTION DOCUMENTS" means, collectively, this Agreement, the Common
---------------------
Stock Purchase Warrant, the Registration Rights Agreement, the Placement Agent
Agreement, the Placement Agent Warrant, the Subscription Agreements and the
Investor Questionnaires, and any
4
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other instrument, certificate, agreement or other document executed or delivered
in connection with any such document.
"UNITS" means the Units issued and sold pursuant to this Agreement, each
-----
Unit consisting of two shares of Series A Preferred Stock and one Common Stock
Purchase Warrant.
SECTION 2.1. ACCOUNTING TERMS. All accounting terms used herein and not
----------------
expressly defined in this Agreement shall have the respective meanings given to
them in accordance with generally accepted accounting principles applied on a
consistent basis.
ARTICLE II
AUTHORIZATION AND SALE OF UNITS
-------------------------------
SECTION 2.2 AUTHORIZATION OF UNITS. The Company has authorized the
----------------------
issuance and sale of up to 1,125,250 Units, each Unit consisting of two shares
of Series A Preferred Stock having the powers, preferences and rights, and the
qualifications, limitations and restrictions set forth in the Certificate of
Designation, and one Common Stock Purchase Warrant.
SECTION 2.3 PURCHASE AND SALE OF UNITS. In reliance upon the
--------------------------
representations and warranties of the Company contained herein and subject to
the satisfaction of the terms and conditions set forth herein, each Purchaser
hereby agrees, severally but not jointly, that it will purchase such number of
Units as set forth in the Purchaser's Subscription Agreement and, subject to the
terms and conditions set forth herein, the Company hereby agrees to sell such
Units to such Purchaser. The purchase price shall be $19.25 per Unit (the
"PURCHASE PRICE").
- ---------------
SECTION 2.3 THE CLOSING.
-----------
(a) The purchase and sale of the Units will take place at one or more
closings (each a "CLOSING") at the offices of Fahnestock & Co. Inc., 110 Wall
-------
Street, 10th Floor, New York, New York 10005. The date of any Closing is
referred to herein as the "CLOSING DATE."
------------
(b) At the Closing, the Company shall deliver to each Purchaser, against
payment of the Purchase Price therefor, a certificate representing the number of
Shares and a Common Stock Purchase Warrant, which together form the components
of the Units purchased by such Purchaser from the Company. Each such security
shall be registered in the name of such Purchaser or such nominee name as the
Purchaser shall have designated in writing to the Company.
SECTION 2.4 EXPENSES. The Company will pay all expenses of shipping the
--------
securities (in each case, including insurance expenses, if any) issued pursuant
to this Agreement to such place as any Purchaser shall request. Any Tax on the
issuance of any such securities shall be paid by the Company.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
The Company represents and warrants to each Purchaser that, except as set
forth in the Private Placement Memorandum:
SECTION 3.1 ORGANIZATION, STANDING, ETC. Each of the Company and its
----------------------------
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite corporate power and authority to own its assets and to carry on its
business as presently conducted and is duly qualified as a foreign corporation
to do business, and is in good standing, in each jurisdiction where the nature
of the properties owned or leased by it, or the nature of its activities makes
such qualification and good standing necessary, except where the absence of such
qualification or good standing would not have a material adverse effect on the
condition (financial or otherwise), properties, assets, liabilities, business,
results of operations or prospects of the Company and its Subsidiaries taken as
a whole (a "MATERIAL ADVERSE EFFECT"). The Company has all requisite power and
-----------------------
authority (x) to execute, deliver and perform its obligations under this
Agreement and each of the other Transaction Documents, (y) to issue the Series A
Preferred Stock and the Common Stock Purchase Warrants, in the manner and for
the purpose contemplated by this Agreement and (z) to execute, deliver and
perform its obligations under all other agreements and instruments executed and
delivered by it pursuant to or in connection with this Agreement or any of the
other Transaction Documents.
SECTION 3.2 AUTHORIZATION AND EXECUTION. The execution, delivery and
---------------------------
performance of this Agreement and each of the other Transaction Documents by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action on the part of the Company. Each Transaction Document
constitutes a legal, valid and binding agreement of the Company enforceable
against the Company in accordance with its terms (except as enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting the rights of creditors generally,
equitable principles (whether considered in an action at law or in equity) which
provide, among other things, that the remedies of specific performance and
injunctive and other forms of equitable relief are subject to equitable defenses
and to the discretion of the court before which any proceedings therefor may be
brought, and limitations imposed upon the specific enforceability of the
indemnification provisions in the Registration Rights Agreement under certain
circumstances under state or federal law or court decisions concerning
indemnification of a party against liability for its own wrongful or negligent
acts or where such indemnification is contrary to public policy).
SECTION 3.3 GOVERNMENTAL AUTHORIZATIONS. Except for any required filings
---------------------------
pursuant to federal and applicable state securities laws, the execution and
delivery by the Company of this Agreement and each other Transaction Document
and the issuance of and sale of the Series A Preferred Stock and the Common
Stock Purchase Warrants by the Company, do not, and the consummation of the
transactions contemplated hereby and thereby will not, require any approval,
consent, waiver or authorization of, or filing or registration with, any
Governmental
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Body or third Person. The Company has made or will make all filings required by
federal and applicable state securities laws in connection with the offering of
the Units.
SECTION 3.4 NON-CONTRAVENTION. The Company is not in violation or default
-----------------
of any provision of its Articles of Incorporation (including the Certificate of
Designation) or By-Laws, nor is any Subsidiary in violation or default of any
provision of comparable organizational documents. Neither the Company nor any
of its Subsidiaries is in violation or default under any provision, instrument,
judgment, order, writ, decree, contract or agreement to which it is a party or
by which it is bound or of any Requirement of Law applicable to the Company or
its Subsidiaries, which violation or default could result in a Material Adverse
Effect. To the Company's knowledge neither the Company nor any of its
Subsidiaries has received any notification of any asserted past or present
failure by the Company or any Subsidiary to comply with any Requirement of Law.
The execution, delivery and performance of this Agreement and each of the other
Transaction Documents, the consummation of the transactions contemplated hereby
and thereby (including, without limitation, the use of the proceeds from the
sale of the Shares) will not contravene or result in any such violation or be in
conflict with or constitute a default under (or an event which, with notice or
lapse of time, or both would conflict with or constitute or result in a default
under) any such provision, instrument, judgment, order, writ, decree, contract
or agreement or require any consent, waiver or approval thereunder, or
constitute an event that results in the creation of any Lien upon any assets of
the Company or any of its Subsidiaries.
SECTION 3.5 CAPITALIZATION.
--------------
(a) The authorized Capital Stock of the Company consists of Thirty-Five
Million (35,000,000) shares, consisting of Twenty-Five Million (25,000,000)
shares of Common Stock, of which 4,825,776 shares are issued and outstanding,
and Ten Million (10,000,000) shares of Preferred Stock, none of which are issued
and outstanding. Upon the issuance of the Shares to the Purchasers, these will
be the only shares of Series A Preferred Stock issued and outstanding and having
the rights, preferences and privileges specified in the Certificate of
Designation and no other shares of Preferred Stock will be then issued and
outstanding. The Company has reserved (i) the number of shares of Common Stock
equal to the number of Shares to be sold to the Purchasers for issuance upon
conversion of the Series A Preferred Stock, (ii) the number of shares of Common
Stock to be received by the Purchasers upon exercise of the Common Stock
Purchase Warrants, and (iii) the number of shares of Common Stock equal to ten
percent (10%) of the number of Units to be sold to the Purchasers, for issuance
in connection with the exercise of the Placement Agent Warrant. There are no
outstanding securities of the Company convertible into or evidencing the right
to purchase or subscribe for any shares of capital stock of the Company, there
are no outstanding or authorized options, warrants, calls, subscriptions,
subscription rights, commitments or any other agreements of any character
obligating the Company to issue any shares of its Capital Stock or any
securities convertible into or evidencing the right to purchase or subscribe for
any shares of such stock, and there are no agreements or understandings with
respect to the voting, sale, transfer or registration of any shares of Capital
Stock of the Company, other than the Registration Rights Agreement. No
outstanding options, warrants or other securities exercisable for or convertible
into shares of Capital Stock of the
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Company require anti-dilution adjustments by reason of the consummation of the
transactions contemplated hereby.
(b) The issued and outstanding shares of Capital Stock of the Company are
duly authorized, validly issued, fully paid and nonassessable. The shares of
Series A Preferred Stock and the Common Stock Purchase Warrants to be issued
pursuant to this Agreement, and the shares of Common Stock issuable upon
conversion of the Series A Preferred Stock and upon exercise of the Common Stock
Purchase Warrants, will be, upon receipt by the Company of the consideration
therefor, validly issued, fully paid and nonassessable, free and clear of all
Liens, other than any created by the holder thereof, and assuming that the
representations and warranties of the Purchasers in Article IV hereof are true
and correct, issued in compliance with all applicable federal and state
securities laws, as presently in effect.
(c) The Company's Subsidiaries are Savoir Technology Group, Inc., a
Delaware corporation, and Target Solutions, Inc., a California corporation. The
outstanding shares of Capital Stock of each Subsidiary are validly issued, fully
paid and nonassessable and all such shares represented as being owned by the
Company are owned by it free and clear of all Liens. There are no outstanding
securities of any Subsidiary convertible into or evidencing the right to
purchase or subscribe for any shares of Capital Stock of any Subsidiary, there
are no outstanding or authorized options, warrants, calls, subscriptions,
subscription rights, commitments or any other agreements of any character
obligating any Subsidiary to issue any shares of its Capital Stock or any
securities convertible into or evidencing the right to purchase or subscribe for
any shares of such stock, and there are no agreements or understandings with
respect to the voting, sale, transfer or registration of any shares of Capital
Stock of any Subsidiary. Other than the Subsidiaries, the Company does not own
or hold, directly or indirectly, any Capital Stock or equity security of, or any
equity interest in, any corporation, partnership or other business entity.
SECTION 3.6 LITIGATION. There is no action, suit, proceeding or
----------
investigation pending or, to the knowledge of the Company, threatened against
the Company or any of its Subsidiaries, nor is there any basis for the
foregoing. No action, suit, proceeding or investigation questions the validity
of the Transaction Documents or the right of the Company to enter into them, or
to consummate the transactions contemplated hereby or thereby, or could
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect on the Company. Neither the Company nor any of its Subsidiaries
is a party or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or governmental agency or instrumentality, which could
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect on the Company. There is no material action, suit, proceeding or
investigation by the Company or any of its Subsidiaries currently pending or
that the Company or any of its Subsidiaries intends to initiate.
SECTION 3.7 INVESTMENT COMPANY. The Company is not and, after giving
------------------
effect to the sale and issuance of the Series A Preferred Stock and the Common
Stock Purchase Warrants pursuant to this Agreement, will not be, an "investment
company" or a company "controlled" by an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
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SECTION 3.8 SEC REPORTS; FINANCIAL STATEMENTS; PRIVATE PLACEMENT
----------------------------------------------------
MEMORANDUM.
- -----------
(a) Since January 1, 1994, the Company has filed all SEC Reports required
to be filed by it pursuant to the federal securities laws and the rules and
regulations thereunder, all of which have complied with all applicable
requirements of the Securities Act and the Exchange Act. None of the SEC
Reports filed since January 1, 1994, including in each such case without
limitation the Financial Statements (hereinafter defined) or schedules included
therein, at the time filed, or if subsequently amended, at the time so amended,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
(b) The consolidated balance sheets and the related consolidated
statements of operations, shareholders' equity and changes in financial position
(including the related notes thereto) of the Company and its Subsidiaries
included in the Private Placement Memorandum and the SEC Reports (the "FINANCIAL
---------
STATEMENTS"), present fairly the consolidated financial position of the Company
- ----------
and its Subsidiaries as of their respective dates, and for the periods presented
therein, all in conformity with generally accepted accounting principles applied
on a consistent basis throughout the periods involved (subject, in the case of
the unaudited interim financial statements, to normal year-end adjustments), and
except that the quarterly financial statements do not contain all of the
footnote disclosures required by generally accepted accounting principles and
historical pro-forma information in the Private Placement Memorandum and the SEC
Reports have not been prepared in accordance with generally accepted accounting
principles. Except as set forth in the Balance Sheet, the Company and its
Subsidiaries have no liabilities, contingent or otherwise, that would be
required to be reflected in financial statements prepared in accordance with
generally accepted accounting principles, other than liabilities incurred in the
ordinary course of business subsequent to June 30, 1997. The Company maintains
and will continue to maintain a standard system of accounting established and
administered in accordance with generally accepted accounting principles. The
books and records of the Company accurately reflect in all material respects the
transactions to which the Company or any of its Subsidiaries is a party or by
which any of their properties are subject or bound, and such books and records
have been properly maintained.
(c) The Private Placement Memorandum does not contain any untrue statement
of a material fact or omit to state any material fact necessary to make the
statements contained therein, in the light of the circumstances under which they
were made, not misleading, and there is no fact presently known to the Company
which has not been disclosed in the Private Placement Memorandum which would
have a Material Adverse Effect or materially adversely affects the ability of
the Company and its Subsidiaries to perform, in any material respect, its
present or future obligations under this Agreement or any of the other
Transaction Documents; provided, however, that the Company makes no
-------- -------
representations or warranties as to information contained in or omitted from the
Private Placement Memorandum in reliance upon, and in conformity with, written
information furnished to the Company by the Placement Agent specifically for use
in the preparation thereof.
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SECTION 3.9 NO MATERIAL ADVERSE CHANGES, ETC.. Subsequent to the date of
---------------------------------
the Balance Sheet, there has not been any material adverse change in the
business, property or assets described or referred to in the Private Placement
Memorandum, or the results of operations, condition (financial or otherwise),
earnings, or business prospects of the Company and its Subsidiaries taken as a
whole, any transaction (including any acquisition of, or agreement to acquire,
any of the assets or stock of any other business) which is material to the
Company and its Subsidiaries taken as a whole, any obligation, direct or
contingent, incurred by the Company or any of its Subsidiaries which is material
to the Company and its Subsidiaries taken as a whole, any change in the Capital
Stock or outstanding indebtedness of the Company or any of its Subsidiaries
which is material to the Company and its Subsidiaries taken as a whole, or any
dividend or distribution of any kind declared, paid or made on the Capital Stock
of the Company or its Subsidiaries. The Company and its Subsidiaries have no
material contingent obligations which are not disclosed in the Private Placement
Memorandum.
SECTION 3.10 TITLE TO PROPERTIES; ENCUMBRANCES; LEASES. The Company and its
-----------------------------------------
Subsidiaries have good and marketable title to all material tangible assets and
properties described in the Private Placement Memorandum, free and clear of any
Liens. There are no existing agreements, options, commitments or rights with,
of or to any Person to acquire any of the assets or properties of the Company of
any of its Subsidiaries or any interest therein except for those entered into
the ordinary course of business. The Company and its Subsidiaries occupy their
leased properties under valid and binding leases conforming in all material
respects to the description thereof set forth in the Private Placement
Memorandum or incorporated by reference therein.
SECTION 3.11 TAX MATTERS.
-----------
(a) The Company and its Subsidiaries have filed all Tax Returns required
to be filed by applicable laws in respect of all periods up through and
including the Closing. All Tax Returns were true, complete and correct in all
material respects and filed on a timely basis (including any extensions of time
within which to file any Tax Return to which the Company and its Subsidiaries
are entitled). The Company and its Subsidiaries have paid all Taxes that are
due, or claimed or asserted by any taxing authority to be due, from the Company
and its Subsidiaries for the periods covered by the Tax Returns or otherwise due
and payable up through and including the Closing, except for any taxes which are
being protested in good faith by the Company and its Subsidiaries in accordance
with the procedures specified by the appropriate taxing authority.
(b) The Company and its Subsidiaries have established on the Company's
books and records reserves adequate to pay all Taxes not yet due and payable
(which include Taxes in respect of periods ending on or before the Closing which
have not been paid).
(c) There are no Liens outstanding against any of the assets, properties
or business of the Company and its Subsidiaries that arose in connection with
the failure or alleged failure to pay any Taxes.
10
<PAGE>
SECTION 3.12 PERMITS AND OTHER OPERATING RIGHTS. The Company possesses all
----------------------------------
material licenses, clearances, authorizations and Permits from Governmental
Bodies or other third Persons necessary or required to conduct its business as
now being conducted. Each such license, clearance, authorization and Permit is
currently valid and effective in accordance with its terms and there is not any
existing default or threatened termination, revocation or limitation of any such
license, clearance, authorization or Permit by the Governmental Body or other
third Person issuing or authorizing the same.
SECTION 3.13 LABOR DIFFICULTIES. The Company and its Subsidiaries are and
------------------
have been in material compliance with all applicable laws respecting employment
and employment practices, terms and conditions of employment and wages and
hours, including, without limitation, any such laws respecting employment
discrimination and occupational safety and health requirements, and the Company
and its Subsidiaries have not been charged with any violation nor, to the
Company's knowledge, are under investigation with respect to any claims of
unfair labor practices or of violations of the Requirements of Law relating to
occupational health, safety and terms and conditions of employment. There is not
pending, or to the knowledge of the Company, threatened, any labor dispute,
strike or work stoppage or slow down involving the current employees of the
Company. No actions, claims, proceedings or investigations relating to
employment have been brought, are pending (other than any that have been filed
but with respect to which service of process has not been made upon the Company)
or, to the Company's knowledge, are threatened, by or before any Governmental
Body including, without limitation, the National Labor Relations Board or the
Equal Employment Opportunity Commission. The Company believes that its
relationships with its employees are good. Neither the Company nor any of the
Subsidiaries is, nor have any of them been, a party to, nor are any of them
engaged in discussions contemplating, any collective bargaining agreement.
SECTION 3.14 ENVIRONMENTAL MATTERS. The Company and its Subsidiaries have
---------------------
not been, and are not, in material violation of any federal, state or local
Environmental Laws applicable to it or its business, assets or properties, or
any material limitations, restrictions, conditions, standards, obligations or
timetables contained in any Environmental Law or any Requirement of Law issued,
entered, promulgated or approved thereunder. No notice or action alleging such
violation is pending or, to the Company's knowledge, threatened, and no past or
present condition or practice of the businesses conducted by the Company would
prevent continued compliance with applicable Permits or give rise to any common
law or statutory liability or otherwise form the basis of any claim, action or
proceeding with respect to the Company or any of its Subsidiaries involving any
pollutant or hazardous, toxic or dangerous material or waste. The Company and
its Subsidiaries have no material liability, present or past, under CERCLA
including, without limitation, as the result of its ownership or operation of
any "facility" as defined in CERCLA, or its arrangement for disposal, treatment
or transport of "hazardous substances," also as defined in CERCLA or petroleum
products or by-products.
SECTION 3.15 INSURANCE. The Company and its Subsidiaries maintain insurance
---------
of the types and in amounts generally deemed adequate for their respective
businesses and consistent with insurance coverage maintained by similar
companies in similar businesses, all of which insurance is in full force and
effect.
11
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SECTION 3.16 TRANSACTIONS WITH AFFILIATES. There is no outstanding note
----------------------------
payable to, or account receivable from, or advance by the Company to, and the
Company is not otherwise a creditor of, or with respect to, any Affiliate or
shareholder of the Company, no outstanding note payable from, or account
payable from or advance to the Company from, and the Company is not otherwise a
debtor of, any Affiliate or shareholder of the Company, and no contract,
agreement, obligation or arrangement between the Company and any Affiliate or
shareholder of the Company. No Affiliate or shareholder of the Company owns any
material asset, tangible or intangible, which is used in the business of the
Company. Neither the Company nor any Affiliate has any direct or indirect
interest in any competitor, supplier or customer of the Company or in any Person
with whom the Company is doing business.
SECTION 3.17 FINDERS OR BROKERS. No broker, investment banker, financial
------------------
advisor, finder, intermediary or other Person, other than the Placement Agent
(the fees and expenses of which will be paid by the Company pursuant to the
Placement Agent Agreement) and Jim Joyce (whose fees and expenses will be paid
by the Company), is entitled to any broker's, finder's, financial advisor's or
other similar fee or commission in connection with the transactions contemplated
by this Agreement or by any of the other Transaction Documents.
SECTION 3.18 SOLICITATION. Assuming the accuracy of the representations
------------
and warranties of the Purchasers as contained herein and of the Placement Agent
as contained in the Placement Agent Agreement, no form of general solicitation
or general advertising within the meaning of Rule 502(i) under the Securities
Act was used by the Company or any other Person acting on behalf of the Company
in connection with the offer and sale of the Units, neither the Company nor any
of its Subsidiaries has taken or will take, and neither the Company nor any of
its Subsidiaries has authorized or will authorize any Person to take, any action
which would require registration of the offer and sale of the Units to the
Purchasers pursuant to this Agreement under the Securities Act, and it is not
necessary in connection with the offer and sale of the Units to register the
Units, the Shares or the Common Warrants under the Securities Act.
SECTION 3.19 REGISTRATION RIGHTS. Except as set forth in the Registration
-------------------
Rights Agreement, no Person has the right to include any securities in any Shelf
Registration described in the Registration Rights Agreement. Upon issuance of
the Series A Preferred Stock and the Common Stock Purchase Warrants, each
Purchaser will have the registration rights set forth in the Registration Rights
Agreement.
SECTION 3.20 DISCLOSURE. Neither this Agreement nor any other Transaction
----------
Document, or any schedule or exhibit hereto or thereto, contains any untrue
statement of a material fact or omits to state a material fact required to be
contained therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. There
are no facts known to the Company (which for purposes of this SECTION 3.20 shall
include only the executive officers or directors of the Company) that could
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect, that have not been set forth in the Private Placement
Memorandum.
SECTION 3.21 ERISA. Each Plan which the Company or any Subsidiary has
-----
established or maintained or to which the Company or any Subsidiary is required
to contribute
12
<PAGE>
is in compliance in all material respects with all applicable provisions of
ERISA and the Code, and the rules and regulations thereunder, except where
failure to so comply would not have a Material Adverse Effect. There have been
no "prohibited transactions" under ERISA with respect to the Plans which would
result in any material liability to the Company or any Subsidiary under ERISA or
the Code. Neither the Company nor any Subsidiary has incurred any material
"accumulated funding deficiency" within the meaning of ERISA or incurred any
material liability to the Pension Benefit Guaranty Corporation (the "PBGC") in
connection with a Plan (or other class of benefit which the PBGC has elected to
insure) established or maintained by the Company or any Subsidiary.
SECTION 3.22 STABILIZATION. Neither the Company nor any Subsidiary has
-------------
taken, and each of the Company and the Subsidiaries will use their respective
best efforts to cause each of their respective officers, directors and
Affiliates not to take, directly or indirectly, any action designed to or
which has constituted or which would reasonably be expected to cause or result
in, stabilization or manipulation under the Exchange Act of the price of any
Capital Stock of the Company.
SECTION 3.23 INTELLECTUAL PROPERTY. The rights of the Company and its
---------------------
Subsidiaries in all of their respective Intellectual Property Rights are free
and clear of any Liens. No person is using any Intellectual Property Right of
the Company or any Subsidiary in any manner that infringes upon the lawful
rights of the Company or any Subsidiary; the Company and each Subsidiary has the
lawful right to use such Intellectual Property Rights; to the Company's and each
Subsidiary's knowledge, no such use infringes upon the rights of any other
person; and neither the Company nor any Subsidiary has received any notice of
any claim of any other person relating to such Intellectual Property Rights,
except that the Company has been advised by a competitor that the Company's use
of the names "International Data Products" and "IDP" infringes upon the
competitor's Intellectual Property Rights, and the Company has orally agreed to
cease the use of such names within the next several months.
SECTION 3.24 ACCOUNTING CONTROLS. The Company maintains a system of
-------------------
internal accounting controls sufficient to provide reasonable assurance that
transactions are executed in accordance with management's general or specific
authorization; transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting principles
and to maintain accountability for assets; access to assets is permitted only
in accordance with management's general or specific authorization; and the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASERS
--------------------------------------------
SECTION 4.1 PRIVATE PLACEMENT.
-----------------
(a) Each Purchaser understands and agrees with the Company that the offer
and sale of the Units is intended to be exempt from registration under the
Securities Act by virtue
13
<PAGE>
of the provisions of section 4(2) of the Securities Act and Rule 506 promulgated
by the Commission thereunder and there is no existing public or other market for
the Units, the Shares or the Common Warrants, and there can be no assurance that
any Purchaser will be able to sell or dispose of such Purchaser's Shares or
Common Warrants.
(b) Each Purchaser represents and warrants to the Company that:
(i) the Shares and Common Warrants to be acquired by it pursuant to
this Agreement are being acquired for its own account and without a view to
the distribution or resale of such Shares and Common Warrants or any
interest therein; provided that the provisions of this Section shall not
--------
prejudice any Purchaser's right at all times to sell or otherwise dispose
of all or any part of the Shares or Common Warrants so acquired by such
Purchaser or shares of Common Stock into which the Shares are convertible
or for which the Common Warrants are exercisable pursuant to a registration
under the Securities Act or an exemption from such registration available
under the Securities Act;
(ii) such Purchaser is an "Accredited Investor" as such term is
defined in Regulation D promulgated by the Commission under the Securities
Act;
(iii) such Purchaser is not a broker or dealer (as defined in sections
3(a)(4) and 3(a)(5) of the Exchange Act), member of a national securities
exchange, or person associated with a broker or dealer as defined in
section 3(a)(18) of the Exchange Act, other than a business entity
controlling or under common control with such broker, dealer, member or
associated person;
(iv) the execution, delivery and performance of this Agreement is
within such Purchaser's powers (corporate or otherwise) and has been duly
authorized by all requisite action (corporate or otherwise);
(v) such Purchaser has such knowledge and experience in financial
and business matters so as to be capable of evaluating the merits and risks
of its investment in the Shares and the Common Warrants and such Purchaser
is capable of bearing the economic risks of such investment and is able to
bear a complete loss of its investment in the Shares and the Common
Warrants;
(vi) such Purchaser has been furnished with a copy of the Private
Placement Memorandum. In evaluating the suitability of an investment in the
Shares and the Common Warrants, the Purchaser has not relied upon any
representations or other information (whether oral or written) made by or
on behalf of the Company other than as set forth in the Private Placement
Memorandum, the SEC Reports, this Agreement and the other Transaction
Documents;
14
<PAGE>
(vii) such Purchaser has adequate means of providing for his current
needs and personal contingencies and has no need for liquidity in his
investment in the Company;
(viii) such Purchaser confirms that the Company has made available to
Purchaser the opportunity to ask questions of, and receive answers from,
the Company concerning the Company and the activities of the Company as
described in the Private Placement Memorandum;
(ix) such Purchaser has been advised that this offering has not been
registered with, or reviewed by, the Commission as this offering is
intended to be a non-public offering pursuant to section 4(2) of the
Securities Act or Regulation D promulgated by the Commission thereunder.
Purchaser understands that no securities administrator of any state has
made any finding or determination relating to the fairness of this
investment and that no securities administrator of any state has
recommended or endorsed, or will recommend or endorse, the offering of the
Units. Purchaser represents that Purchaser's Shares and Common Warrants are
being purchased for Purchaser's own account, for investment purposes only
and not with a view towards distribution or resale to others. Purchaser
will not attempt to sell, transfer, assign, pledge or otherwise dispose of
all or any portion of the Shares or the Common Warrants unless they are
registered under the Securities Act or unless in the opinion of counsel
satisfactory to the Company an exemption from such registration is
available;
(x) such Purchaser acknowledges that no general solicitation or
general advertising (including communications published in any newspaper,
magazine or other broadcast) has been received by him and that no public
solicitation or advertisement with respect to the offering of the Units has
been made to him;
(xi) such Purchaser has relied solely upon the advice of his own tax
and legal advisors with respect to the tax and other legal aspects of this
investment; and
(xii) such Purchaser's overall commitment to investments which are
not readily marketable is not disproportionate to his net worth; his
investment in the Company will not cause such overall commitment to become
excessive; and he can afford to bear the loss of his entire investment in
the Company.
15
<PAGE>
ARTICLE V
DELIVERIES BY THE COMPANY
-------------------------
SECTION 5.1 At the Closing, the Company shall have delivered to each
Purchaser the following:
(a) a copy of the Certificate of Designation certified by the Secretary of
State of the State of Delaware;
(b) the Subscription Agreement, duly executed and delivered by the
Company;
(c) an opinion of Pillsbury Madison & Sutro LLP, counsel to the Company,
in form and substance satisfactory to counsel for the Purchasers;
(d) a certificate representing the Shares which form a part of the Units
purchased by such Purchaser; and
(e) a Common Stock Purchase Warrant which form a part of the Units
purchased by such Purchaser.
ARTICLE VI
DELIVERIES BY THE PURCHASERS
----------------------------
SECTION 6.1 At the Closing, each Purchaser shall have delivered to the
Company the following:
(a) an Investor Questionnaire, duly executed by such Purchaser;
(b) a Subscription Agreement, duly executed and delivered by such
Purchaser; and
(c) the Purchase Price for the Units as provided in SECTION 2.2 hereof.
ARTICLE VII
COVENANTS
---------
SECTION 7.1 FURNISHING OF INFORMATION. So long as any Shares or Common
-------------------------
Warrants remain issued and outstanding, and upon the request of any holder of
Shares or Common Warrants, the Company will furnish to such holder any documents
filed by the Company pursuant to section 13, 14 or 15(d) of the Exchange Act,
and any annual, quarterly or other reports furnished to the Company's public
security holders and such additional information regarding the financial
position or business of the Company as such holder may reasonably request;
provided that if the Company is not subject to the requirements of section 13,
- --------
14 or 15(d) of the Exchange Act, the Company will promptly furnish to each such
holder:
16
<PAGE>
(a) as soon as available and in any event within one hundred twenty (120)
days after the end of the Company's fiscal year, a copy of the audited
consolidated balance sheet of the Company and its Subsidiaries as at the end of
such fiscal year and the related audited statements of operations, shareholders'
equity and cash flows, in each case in reasonable detail setting forth
comparative figures for the preceding fiscal year, accompanied by an opinion of
an independent public accounting firm of nationally recognized standing selected
by the Company, which opinion shall state that such accounting firm's audit was
conducted in accordance with generally accepted auditing standards, and all such
financial statements shall be prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
reflected therein except as stated therein;
(b) as soon as available and in any event within sixty (60) days after the
end of each of the first three quarters of each fiscal year of the Company, a
copy of the unaudited condensed consolidated balance sheet of the Company and
its Subsidiaries as at the end of each such period and the related unaudited
condensed consolidated statements of operations, shareholders' equity and cash
flows of the Company and its Subsidiaries for such period and for the elapsed
period in such fiscal year, in each case in reasonable detail and stating in
comparative form the figures as of the end of and for the comparable periods of
the preceding fiscal year, and all such financial statements shall be prepared
in accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods reflected therein except as stated
therein and shall be accompanied by a certificate of the Company's chief
financial officer to such effect; and
(c) each financial statement delivered pursuant to this SECTION 7.1 shall
be accompanied by a brief informal narrative description of material business
and financial trends and developments and significant transactions that have
occurred in the appropriate period or periods covered thereby similar to the
Management's Discussion and Analysis required by Item 303 of Regulation S-K
under the Exchange Act.
SECTION 7.2 USE OF PROCEEDS. The proceeds from the issuance and sale of the
---------------
Units by the Company pursuant to this Agreement will be used as contemplated in
the Private Placement Memorandum under the caption "Use of Proceeds."
SECTION 7.3 LEGENDS; OPINIONS REQUIREMENT. Each Purchaser hereby agrees
-----------------------------
with the Company as follows:
The certificates evidencing the Series A Preferred Stock and each
certificate issued in transfer thereof, will bear the following legend and any
applicable legend required by any other Transaction Document:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT SUCH
REGISTRATION, EXCEPT UPON DELIVERY TO THE COMPANY OF SUCH EVIDENCE AS
MAY BE SATISFACTORY TO COUNSEL FOR THE COMPANY TO THE EFFECT
17
<PAGE>
THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR ANY RULE
OR REGULATION PROMULGATED THEREUNDER."
The Common Stock Purchase Warrants will bear the following legend and any
applicable legend required by any other Transaction Document:
"THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT."
If such Purchaser desires to sell or otherwise dispose of all or any part
of the Series A Preferred Stock or any Common Stock Purchase Warrant, or any
shares of Common Stock issuable upon conversion and/or exercise thereof, owned
by it under an exemption from registration under the Securities Act, and if
requested by the Company, such Purchaser shall deliver to the Company an opinion
of counsel, which may be counsel for the Company, that such exemption is
available.
SECTION 7.4 REGISTER OF SECURITIES. The Company or its duly appointed agent
----------------------
shall maintain separate registers for the Series A Preferred Stock and for the
Common Stock Purchase Warrants, in which it shall register the issue and sale of
all such securities. All transfers of such securities shall be recorded on the
register maintained by the Company or its agent, and the Company shall be
entitled to regard the registered holder of such securities as the actual holder
of the securities so registered until the Company or its agent is required to
record a transfer of such securities on its register. Subject to SECTION 7.3
hereof, the Company or its agent shall be required to record any such transfer
when it receives such security to be transferred duly and properly endorsed by
the registered holder thereof or by its attorney duly authorized in writing.
SECTION 7.5 REMOVAL OF LEGEND. Any legend endorsed on a certificate
-----------------
pursuant to SECTION 7.3 hereof, and any stop transfer instructions and record
notations with respect thereto shall be removed and the Company shall issue a
certificate without such legend to the holder thereof at such time as a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, such securities
shall have been distributed to the public pursuant to Rule 144 (or any successor
provision) promulgated by the Commission under the Securities Act, or such
securities are otherwise sold in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under section 4(1)
thereof so that all transfer restrictions with respect to such securities are
removed upon the consummation of such sale and the seller of such securities
provides the Company an opinion of counsel (which may be counsel for the
Company), which shall be in form and content reasonably satisfactory to the
Company, to the effect that such securities in the hands of the
18
<PAGE>
purchaser thereof are freely transferable without restriction or registration
under the Securities Act in any public or private transaction.
SECTION 7.6 RULE 144. The Company agrees to timely file the reports
--------
required to be filed by it under the Securities Act and the Exchange Act, to the
extent required from time to time to enable each Purchaser to sell shares of
Series A Preferred Stock and the shares of Common Stock into which the Series A
Preferred Stock may be converted and the Common Stock Purchase Warrants and the
shares of Common Stock issuable upon exercise of the Common Stock Purchase
Warrants, without registration under the Securities Act within the limitation of
the exemptions provided in Rule 144 promulgated under the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission. Upon the request of any Purchaser, the
Company will deliver a written statement as to whether it has complied with such
requirements.
SECTION 7.7 NASDAQ. The Company agrees to use its reasonable efforts to
------
maintain the listing of its Common Stock on The Nasdaq Stock Market's National
Market.
SECTION 7.8 RIGHT TO NOMINATE A MEMBER OF THE BOARD OF DIRECTORS. Promptly
----------------------------------------------------
after the Closing, the Company agrees that the holders of a majority of the
Series A Preferred Stock may designate one (1) person for appointment to the
Company's Board of Directors. If there is no vacancy on the Board of Directors,
the Company shall increase the size of the Board of Directors to enable such
person to become a director. Thereafter, so long as any shares of Series A
Preferred Stock are outstanding, at each election of the Company's directors a
majority of the holders of the Company's Series A Preferred Stock shall have the
right to nominate one (1) person for election to the Board of Directors. All
directors shall be elected by all of the holders of the Common Stock and the
Series A Preferred Stock, voting as a single class.
ARTICLE
MISCELLANEOUS
-------------
SECTION 8.1 NOTICES. All notices, advises and communications to be given
-------
or otherwise made to any party to this Agreement shall be deemed to be
sufficient if contained in a written instrument delivered in person, sent by air
courier or sent by first class registered or certified mail, postage prepaid,
addressed to such party at the address set forth below or at such other address
as may hereafter be designated in writing by the addressee to the other parties
listed below:
If to the Company:
Western Micro Technology, Inc.
254 East Hacienda Avenue
Campbell, California 95008
Attn: Chief Executive Officer
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<PAGE>
with a copy to:
Pillsbury Madison & Sutro LLP
2700 Sand Hill Road
Menlo Park, California 94025-7020
Attn: Jorge del Calvo, Esq.
If to any Purchaser:
At the address set forth on the Purchaser's
Subscription Agreement.
with a copy to:
Fahnestock & Co. Inc.
110 Wall Street
New York, New York 10005
Attn: Henry Williams
and
Kohrman Jackson & Krantz P.L.L.
20th Floor
One Cleveland Center
Cleveland, Ohio 44114
Attn: Marc C. Krantz, Esq.
All such notices, advises and communications shall be deemed to have been
received, in the case of personal delivery, on the date of such delivery, in
the case of delivery by air courier, on the business day following the day of
dispatch and in the case of mailing, on the third business day following such
mailing.
SECTION 8.2 AMENDMENT; WAIVER. Neither this Agreement nor any provision
-----------------
hereof may be amended, modified, supplemented or waived, except by a written
instrument executed by the Company and the Purchasers holding a majority in
interest of the Series A Preferred Stock and Common Stock Purchase Warrants
issued and sold pursuant to this Agreement and the shares of Common Stock
issuable upon conversion or exercise thereof.
SECTION 8.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
------------------------------------------
and warranties made in, pursuant to or in connection with this Agreement shall
survive the execution and delivery of this Agreement, any investigation at any
time made by or on behalf of any Purchaser, and the sale and purchase of the
Series A Preferred Stock and the Common Stock Purchase Warrants and payment
therefor until the end of the applicable statute of limitations period.
20
<PAGE>
SECTION 8.4 SEVERABILITY. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
SECTION 8.5 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
----------------------
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors and assigns of the parties hereto; provided, that the provisions
--------
hereof shall not inure to the benefit of any successor or assign of any
Purchaser except in connection with transfers made by a Purchaser to a trustee
or a family member, in each case solely for or in connection with estate
planning purposes. No party hereto may delegate its obligations under this
Agreement without the prior written consent of the other parties hereto.
SECTION 8.6 ENTIRE AGREEMENT. This Agreement and the other documents
----------------
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subject matter hereof and
thereof and supersede and cancel all prior representations, alleged warranties,
statements, negotiations, undertakings, letters, acceptances, understandings,
contracts and communications, whether verbal or written, among the parties
hereto and thereto or their respective agents with respect to or in connection
with the subject matter hereof.
SECTION 8.7 CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED THEREIN BY AND AMONG RESIDENTS OF SUCH STATE.
SECTION 8.8 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
SECTION 8.9 ARBITRATION. Any dispute arising out of any matter involving
-----------
this Agreement shall be submitted to binding and non-appealable arbitration
before the JAMS/Endispute ("JAMS") and pursuant to the JAMS rules then in
----
effect. If the parties to the arbitration are unable to agree on an arbitrator,
an arbitrator will be selected pursuant to the JAMS rules then in effect. Any
such arbitration shall be held in New York, New York. The arbitrator so
selected must enforce the terms of this Agreement and must rule in accordance
with the choice of law specified in SECTION 8.7 of this Agreement. Judgment
upon any award rendered by the arbitrator may be entered in any court having
jurisdiction. The prevailing party in any
21
<PAGE>
such arbitration will be entitled to an award of its reasonable attorneys' fees
and expenses in connection with such arbitration and enforcement of any award or
relief granted therein.
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the
date written above.
COMPANY
-------
WESTERN MICRO TECHNOLOGY, INC.
By
__________________________
James W. Dorst
Chief Financial Officer
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<PAGE>
Exhibit 4.13
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of September 19, 1997, by and among WESTERN MICRO TECHNOLOGY, INC., a
------------------------------
Delaware corporation (the "Company"), the persons who are "Purchasers" within
the meaning of and as defined in the Units Purchase Agreement dated as of
September 19, 1997, by and among the Company and such persons (the "Units
Purchase Agreement"), and FAHNESTOCK & CO. INC., as placement agent (the
---------------------
"Placement Agent").
In order to induce the Purchasers to enter into the Units Purchase
Agreement, the Company has agreed to provide the registration rights set forth
in this Agreement. The execution of this Agreement is a condition to the
Closing under the Units Purchase Agreement.
The parties hereby agree as follows:
1. Definitions.
-----------
Capitalized terms used herein without definition shall have their
respective meanings set forth in the Units Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
(a) Advice: See the last paragraph of Section 4 hereof.
------
(b) Affiliate: "Affiliate" means, with respect to any specified Person,
---------
(i) any other Person directly or indirectly controlling or controlled by, or
under direct or indirect common control with, such specified Person or (ii) any
officer or director of such other Person. For purposes of this definition, the
term "control" (including the terms "controlling," "controlled by" and "under
common control with") of a Person means the possession, direct or indirect, of
the power (whether or not exercised) to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract, or otherwise.
(c) Certificate of Designation: The Certificate of Designation,
--------------------------
Preferences and Rights of Series A Preferred Stock, as it may be amended from
time to time, as filed with the Secretary of State of the State of Delaware.
(d) Commission: The Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
(e) Common Stock: The shares of common stock, par value $0.01 per share,
------------
of the Company issuable or issued upon conversion of the Series A Preferred
Stock or upon exercise of any Common Stock Purchase Warrant or Placement Agent
Warrant and any common stock issued with respect thereto upon any stock
dividend, split or similar event.
<PAGE>
(f) Common Stock Purchase Warrant: The warrant exercisable to purchase
-----------------------------
shares of Common Stock, issued and sold as part of a Unit pursuant to the Units
Purchase Agreement.
(g) Effectiveness Date: The date that is one hundred twenty (120) days
------------------
after the date of the initial Closing under the Units Purchase Agreement.
(h) Effectiveness Period: See Section 2(a) hereof.
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(i) Exchange Act: The Securities Exchange Act of 1934, as amended, and the
------------
rules and regulations of the Commission promulgated thereunder.
(j) Filing Date: The date that is sixty (60) days after the date of the
-----------
initial Closing under the Units Purchase Agreement.
(k) Initial Shelf Registration: See Section 2(a) hereof.
--------------------------
(l) Losses: See Section 6(a) hereof.
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(m) Placement Agent Warrant: A Common Stock purchase warrant by and
-----------------------
between the Company and the Placement Agent, dated as of the date hereof.
(n) Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, including, without
limitation, with respect to the terms of the offering of any portion of the
Registrable Securities covered by such Registration Statement and all other
amendments and supplements to the prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such prospectus.
(o) Registrable Securities: The Common Stock issuable upon conversion of
----------------------
the Series A Preferred Stock, or upon exercise of any Common Stock Purchase
Warrant or Placement Agent Warrant, upon original issuance thereof and at all
times subsequent thereto, until, in the case of any such share of Common Stock,
(i) it is effectively registered under the Securities Act and disposed of in
accordance with the Registration Statement covering it, (ii) it is salable by
the holder thereof pursuant to Rule 144 within any three month period without
limitations on volume or (iii) it is distributed to the public pursuant to Rule
144.
(p) Registration Expenses: See Section 5 hereof.
---------------------
(q) Registration Statement: Any registration statement of the Company
----------------------
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
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<PAGE>
(r) Rule 144: Rule 144 promulgated by the Commission under the Securities
--------
Act as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the Commission.
(s) Rule 415: Rule 415 as promulgated by the Commission under the
--------
Securities Act, as such rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission.
(t) Securities Act: The Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated by the Commission thereunder.
(u) Series A Preferred Stock: The Series A Preferred Stock, par value
------------------------
$0.01 per share, of the Company issued and sold as part of a Unit pursuant to
the Units Purchase Agreement.
(v) Shelf Registration: Either the Initial Shelf Registration or a
------------------
Subsequent Shelf Registration, as appropriate.
(w) Special Counsel: Kohrman Jackson & Krantz P.L.L., or such other
---------------
special counsel to the holders of the Registrable Securities as shall be
specified by the holders of a majority in aggregate principal amount of the
Registrable Securities, the fees and expenses of which will be paid by the
Company pursuant to Section 5 hereof. There shall be only one Special Counsel.
(x) Subsequent Shelf Registration: See Section 2(b) hereof.
-----------------------------
(y) Units: The Units issued and sold pursuant to the Units Purchase
-----
Agreement, each Unit consisting of two shares of Series A Preferred Stock and
one Common Stock Purchase Warrant.
(z) Units Purchase Agreement: See the first paragraph of this Agreement.
------------------------
2. Registration.
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(a) The Company shall prepare and file with the Commission a Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415
covering the resale from time to time by the holders thereof of all of the
Registrable Securities (the "Initial Shelf Registration"). The Initial Shelf
Registration shall be on Form S-3 or another appropriate form permitting
registration of such Registrable Securities for resale by such holders. The
Company shall use all reasonable efforts to cause the Initial Shelf Registration
to be filed with the Commission on or before the Filing Date and to be declared
effective under the Securities Act on or prior to the Effectiveness Date and to
keep the Initial Shelf Registration continuously effective under the Securities
Act until the date that is two (2) years (or for such other time period as shall
be specified in Rule 144(k) as the holding period required for termination of
certain restrictions on sales of restricted securities by persons other than
affiliates) from the date of the last Closing under the Units Purchase Agreement
(the "Effectiveness Period"), or such shorter period ending when (i) all
Registrable Securities covered by the Initial Shelf Registration have been sold,
or (ii) a Subsequent Shelf Registration covering all of the Registrable
Securities
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<PAGE>
has been declared effective under the Securities Act, or (iii) there cease to be
outstanding any Registrable Securities.
(b) If the Initial Shelf Registration or any Subsequent Shelf Registration
ceases to be effective for any reason at any time during the Effectiveness
Period (other than because of the sale of all of the securities registered
thereunder), the Company shall use all reasonable efforts to obtain the prompt
withdrawal of any order suspending the effectiveness thereof, and in any event
shall within thirty (30) days of such cessation of effectiveness amend the Shelf
Registration in a manner reasonably expected to obtain the withdrawal of the
order suspending the effectiveness thereof, or file an additional "shelf"
Registration Statement pursuant to Rule 415 covering all of the Registrable
Securities (a "Subsequent Shelf Registration"). If a Subsequent Shelf
Registration is filed, the Company shall use all reasonable efforts to cause the
Subsequent Shelf Registration to be declared effective as soon as practicable
after such filing and to keep such Registration Statement continuously effective
until the end of the Effectiveness Period.
(c) The Company shall supplement and amend the Shelf Registration or
Subsequent Shelf Registration, as the case may be, if required by the rules,
regulations or instructions applicable to the registration form used by the
Company for such Shelf Registration, if required by the Securities Act, or if
reasonably requested by the holders of a majority in aggregate principal amount
of the Registrable Securities.
3. Liquidated Damages.
------------------
(a) The parties hereto agree that the holders of Registrable Securities
will suffer damages and that it would not be feasible to ascertain the extent of
such damages with precision, if the Initial Shelf Registration has not become
effective on or prior to the Effectiveness Date. Accordingly, should the
Initial Shelf Registration not be declared effective on or prior to the
Effectiveness Date, the Company agrees to pay, as liquidated damages, and not as
a penalty (the "Liquidated Damages Amount"):
(i) to each holder of Series A Preferred Stock, an amount
equal to one-quarter of one percent per annum (25 basis points)
of the Liquidation Preference for each share of Series A
Preferred Stock held by such holder; provided, that such
liquidated damages will increase by an additional one-quarter of
one percent per annum (25 basis points) at each thirty (30) day
interval after the Effectiveness Date; and
(ii) to each holder of a Registrable Security, an amount
equal to one-quarter of one percent per annum (25 basis points)
calculated on an amount equal to the product of (x) the
Conversion Price (as defined in the Certificate of Designation)
actually used to effect the conversion of the Series A Preferred
Stock held by such holder or the Exercise Price actually paid to
effect the exercise of the Common Stock Purchase Warrant or the
Placement Agent Warrant held by such holder, times (y) the number
of shares of Common Stock received by such holder upon such
conversion or exercise; provided, that such liquidated damages
4
<PAGE>
will increase by an additional one-quarter of one percent per
annum (25 basis points) at each thirty (30) day interval after
the Effectiveness Date,
which Liquidated Damages Amount shall continue to be due and payable for so long
as and until the Initial Shelf Registration shall become effective, and will
cease to accrue on and after the date the Initial Shelf Registration becomes
effective.
(b) The Liquidated Damages Amount due shall be payable on each dividend
payment date to the record holder entitled to receive the dividend payment to be
made on such date or to the record holder of Registrable Securities, as
appropriate, provided that accrued Liquidated Damages Amounts shall be paid on
the applicable redemption date upon the redemption of any share of Series A
Preferred Stock (to the extent accrued with respect to such share of Series A
Preferred Stock) and, in the event of redemption of all Series A Preferred
Stock, shall also be paid on such redemption date to the holders of Common Stock
(to the extent accrued with respect to such Common Stock). All of the Company's
obligations set forth in this Section 3 which are outstanding with respect to
any Registrable Securities at the time such security ceases to be a Registrable
Security shall survive until such time as all such obligations with respect to
such security have been satisfied in full (notwithstanding termination of this
Agreement pursuant to Section 8(n)).
(c) In addition, as further liquidated damages if the Initial Shelf
Registration has not become effective on or prior to the Effectiveness Date, the
Conversion Price (as defined in the Certificate of Designation) shall adjust
upon the terms and conditions set forth in Section 5(j) of the Certificate of
Designation.
(d) The parties hereto agree that the liquidated damages provided for in
this Section 3 constitute a reasonable estimate of the damages that may be
incurred by holders of Series A Preferred Stock and of Registrable Securities by
reason of the failure of the Initial Shelf Registration to be declared effective
in accordance with the provisions hereof.
4. Registration Procedures.
-----------------------
In connection with the Company's registration obligations under Section 2
hereof, the Company shall effect such registration to permit the sale of the
Registrable Securities in accordance with the method or methods of disposition
thereof intended by the holders of such Registrable Securities (except that the
Company shall not be required to effect any registration pursuant to Section 2
involving an underwriting), and pursuant thereto the Company shall as
expeditiously as practicable:
(a) Prepare and file with the Commission a Registration Statement or
Registration Statements on any appropriate form under the Securities Act
available for the sale of the Registrable Securities by the holders thereof in
accordance with the intended method or methods of distribution thereof, and
cause each such Registration Statement to become effective and remain effective
as provided herein; provided, that before filing any such Registration Statement
or Prospectus or any amendments or supplements thereto (other than documents
that would be incorporated or deemed to be incorporated therein by reference and
that the Company is required
5
<PAGE>
by applicable securities laws or stock exchange requirements to file) the
Company shall furnish to the Special Counsel copies of all such documents
proposed to be filed, which documents will be subject to the review of such
Special Counsel and the holders, and the Company shall not file any such
Registration Statement or amendment thereto or any Prospectus or any amendment
or supplement thereto (other than such documents which, upon filing, would be
incorporated or deemed to be incorporated by reference therein and that the
Company is required by applicable securities laws or stock exchange requirements
to file) to which the holders of a majority in aggregate principal amount of the
Registrable Securities covered by such Registration Statement or the Special
Counsel shall reasonably object on a timely basis.
(b) Prepare and file with the Commission such amendments and post-
effective amendments to each Registration Statement as may be necessary to keep
such Registration Statement continuously effective for the applicable period
specified in Section 2; cause the related Prospectus to be amended or
supplemented by any required amendment or Prospectus supplement, and as so
amended or supplemented to be filed pursuant to Rule 424 (or any similar
provisions then in force) under the Securities Act; and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable period
in accordance with the methods of disposition intended by the holders thereof
set forth in such Registration Statement as so amended or in such Prospectus as
so amended or supplemented.
(c) Notify the Special Counsel and any selling holders of Registrable
Securities promptly, and (if requested by any such Person) confirm such notice
in writing, (i) when a Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective, (ii) of any
request by the Commission or any other federal or state governmental authority
during the period of effectiveness of the Registration Statement for amendments
or supplements to a Registration Statement or related Prospectus or for
additional information, (iii) of the issuance by the Commission or any other
federal or state governmental authority of any stop order suspending the
effectiveness of a Registration Statement or the initiation of any proceedings
for that purpose, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification
of any of the Registrable Securities for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose, (v) of the
existence of any fact or the happening of any event which makes any statement
made in such Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or which requires the making of any changes in such
Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, and (vi) of the Company's reasonable determination
that a post-effective amendment to a Registration Statement would be
appropriate.
6
<PAGE>
(d) Use all reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement, or the lifting of any
suspension of the qualification (or exemption from qualification) of any of the
Registrable Securities for sale in any jurisdiction, at the earliest practicable
moment.
(e) If reasonably requested by the holders of a majority in aggregate
principal amount of the Registrable Securities being sold, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment such
information as the Company or the holders of a majority in aggregate principal
amount of such Registrable Securities agree should be included therein as
required by applicable law, (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as practicable after the
Company has received notification of the matters to be incorporated in such
Prospectus supplement or post-effective amendment, and (iii) supplement or make
amendments to any Registration Statement consistent with clause (i) or (ii)
above; provided, that the Company shall not be required to take any actions
under this Section 4(e) that are not, in the opinion of outside counsel for the
Company, in compliance with applicable law.
(f) Furnish to each selling holder of Registrable Securities and the
Special Counsel, upon request and without charge, at least one conformed copy of
the Registration Statement or Statements and any post-effective amendment
thereto, including financial statements (but excluding schedules, all documents
incorporated or deemed to be incorporated therein by reference and all exhibits,
unless requested in writing by such holder or counsel).
(g) Deliver to each selling holder of Registrable Securities and the
Special Counsel, without charge, as many copies of the Prospectus or
Prospectuses relating to such Registrable Securities (including each preliminary
prospectus) and any amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus or each amendment or supplement thereto by each of the selling
holders of Registrable Securities in connection with the offering and sale of
the Registrable Securities covered by such Prospectus or any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities, to register or
qualify or cooperate with the selling holders of Registrable Securities and
their respective counsel in connection with the registration or qualification
(or exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any seller reasonably requests in
writing; keep each such registration or qualification (or exemption therefrom)
effective during the period such Registration Statement is required to be kept
effective and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable Securities
covered by the applicable Registration Statement; provided, that the Company
will not be required to (i) qualify generally to do business in any jurisdiction
where it is not then so qualified or (ii) take any action that would subject it
to general service of process in any such jurisdiction where it is not then so
subject.
(i) Cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities within the
7
<PAGE>
United States, except as may be required solely as a consequence of the nature
of such selling holder, in which case the Company will cooperate in all
reasonable respects with the filing of such Registration Statement and the
granting of such approvals, as may be necessary to enable the seller or sellers
thereof to consummate the disposition of such Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 4(c)(v) or
4(c)(vi) above, prepare a supplement or post-effective amendment to each
Registration Statement or an amendment or supplement to the related Prospectus
or any document incorporated therein by reference or file any other required
document (such as a Current Report on Form 8-K) so that, as thereafter delivered
to the purchasers of the Registrable Securities being sold thereunder, such
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(k) If necessary in connection with a disposition of Registrable
Securities, make available for inspection, at the offices where normally kept
during reasonable business hours, by a representative of the holders of
Registrable Securities being sold and any attorney or accountant retained by
such selling holders, financial and other records, pertinent corporate documents
and properties of the Company and its subsidiaries as they may reasonably
request, and cause the officers, directors and employees of the Company and its
subsidiaries to supply all information reasonably requested by any such
representative, attorney or accountant in connection with such disposition;
provided, that any records, information or documents that are designated by the
Company in writing as confidential at the time of delivery of such records,
information or documents shall be kept confidential by such Persons, and such
Persons shall so agree in writing, unless (i) such records, information or
documents are in the public domain or otherwise publicly available, (ii)
disclosure of such records, information or documents is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities or (iii) disclosure of such records, information or documents is
otherwise required by law (including, without limitation, pursuant to the
requirements of the Securities Act).
(l) Comply with all applicable rules and regulations of the Commission and
make generally available to its security holders earning statements satisfying
the provisions of section 11(a) of the Securities Act and Rule 158 thereunder
(or any similar rule promulgated under the Securities Act) no later than forty-
five (45) days after the end of any twelve (12) month period (or ninety (90)
days after the end of any twelve (12) month period if such period is a fiscal
year) commencing on the first day of the first fiscal quarter of the Company,
after the effective date of a Registration Statement, which statements shall
cover said twelve (12) month periods.
(m) Enter into such agreements and take all such other actions in
connection therewith in order to expedite or facilitate the disposition of such
Registrable Securities.
(n) Unless any Registrable Securities shall be in book-entry only form,
cooperate with the selling holders of Registrable Securities to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends;
8
<PAGE>
and enable such Registrable Securities to be in such denominations and
registered in such names as the holders may request.
(o) Provide the transfer agent for the Common Stock with printed
certificates for the Registrable Securities which are in a form eligible for
deposit with The Depository Trust Company.
(p) Cause the Common Stock to be listed on each securities exchange or
quotation system on which the Company's Common Stock is then listed no later
than the date the Registration Statement is declared effective and, in
connection therewith, to the extent applicable, to make such filings under the
Exchange Act and to have such filings declared effective thereunder.
The Company may require each selling holder of Registrable Securities as to
which any registration is being effected, and such selling holder of Registrable
Securities agrees, to furnish to the Company such information regarding the
distribution of such Registrable Securities as the Company may, from time to
time, reasonably request in writing and the Company may exclude from such
registration the Registrable Securities of any holder who unreasonably fails to
furnish such information within a reasonable time after receiving such request.
Each holder of Registrable Securities as to which any Registration Statement is
being effected agrees promptly to furnish to the Company all information
required to be disclosed in order to make the information previously furnished
to the Company by such holder not misleading. Any sale of any Registrable
Securities by any holder shall constitute a representation and warranty by such
holder that the information relating to such holder and its plan of distribution
is as set forth in the Prospectus delivered by such holder in connection with
such disposition, that such Prospectus does not as of the time of such sale
contain any untrue statement of a material fact relating to such holder or its
plan of distribution and that such Prospectus does not as of the time of such
sale omit to state any material fact relating to such holder or its plan of
distribution necessary to make the statements in such Prospectus, in the light
of the circumstances under which they were made, not misleading.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 4(c)(ii), 4(c)(iii),
4(c)(iv), 4(c)(v) or 4(c)(vi) hereof, such holder will forthwith discontinue
disposition of such Registrable Securities covered by the applicable
Registration Statement or Prospectus until such holder's receipt of the copies
of the supplemented or amended Prospectus contemplated by Section 4(j) hereof,
or until it is advised in writing (the "Advice") by the Company that the use of
the applicable Prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated or deemed to be
incorporated by reference in such Prospectus.
5. Registration Expenses.
---------------------
All fees and expenses incident to the performance of or compliance with
this Agreement by the Company (the "Registration Expenses") shall be borne by
the Company whether or not any of the Registration Statements become effective
and whether or not any of the Registrable
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<PAGE>
Securities are transferred pursuant to the Registration Statement. Such fees and
expenses shall include, without limitation, (a) all registration and filing fees
(including, without limitation, fees and expenses (i) with respect to
designation of the Registrable Securities as eligible for trading on The Nasdaq
Stock Market's National Market, and (ii) of compliance with securities or Blue
Sky laws, (b) printing expenses (including, without limitation, expenses of
printing certificates for Registrable Securities in a form eligible for deposit
with The Depository Trust Company and of printing Prospectuses), (c) messenger,
telephone and delivery expenses, (d) fees and disbursements of counsel for the
Company and the Special Counsel, (e) reasonable fees and disbursements of all
independent certified public accountants, (f) Securities Act liability insurance
if the Company so desires such insurance, and (g) fees and expenses of all other
Persons retained by the Company. In addition, the Company will, in any event,
bear its own internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, the fees and expenses incurred in connection
with the listing of the Registrable Securities on any securities exchange on
which similar securities issued by the Company are then listed and the fees and
expenses of any Person, including special experts, retained by the Company.
6. Indemnification.
---------------
(a) Indemnification by the Company. The Company shall, without limitation
------------------------------
as to time, indemnify and hold harmless, to the fullest extent permitted by law,
each holder of Registrable Securities, the officers, directors and agents and
employees of each of them, each Person who controls (within the meaning of
section 15 of the Securities Act or section 20 of the Exchange Act) such holder
and the officers, directors, agents and employees of any such controlling
person, from and against all losses, claims, damages, liabilities, costs
(including, without limitation, the costs of preparation and attorneys' fees)
and expenses (collectively, "Losses"), as incurred, arising out of or based upon
any untrue or allegedly untrue statement of a material fact contained in any
Registration Statement, Prospectus or form of Prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission of a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as the same are based solely upon information furnished in writing to
the Company by such holder expressly for use therein; provided, that the Company
shall not be liable to any holder of Registrable Securities to the extent that
any such Losses arise out of or are based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any preliminary
prospectus if either (A) (i) such holder failed to send or deliver a copy of the
Prospectus with or prior to the delivery of written confirmation of the sale by
such holder of a Registrable Security to the person asserting the claim from
which such Losses arise and (ii) the Prospectus would have completely corrected
such untrue statement or alleged untrue statement or such omission or alleged
omission; or (B) (x) such untrue statement or alleged untrue statement, omission
or alleged omission is completely corrected in an amendment or supplement to the
Prospectus and (y) having previously been furnished by or on behalf of the
Company with copies of the Prospectus as so amended or supplemented, such holder
thereafter fails to deliver such Prospectus as so amended or supplemented, prior
to or concurrently with the sale of a Registrable Security to the person
asserting the claim from which such Losses arise. The Company shall also
indemnify each selling broker, dealer manager and similar securities industry
professional participating in the
10
<PAGE>
distribution, and each of their officers, directors, agents and employees and
each Person who controls such Persons (within the meaning of section 15 of the
Securities Act or section 20 of the Exchange Act) to the same extent as provided
above with respect to the indemnification of the holders of Registrable
Securities.
(b) Indemnification by Holder of Registrable Securities. In connection
---------------------------------------------------
with any Registration Statement in which a holder of Registrable Securities is
participating, such holder agrees to indemnify, to the fullest extent permitted
by law, the Company, its officers, directors, agents and employees, each Person
who controls the Company (within the meaning of section 15 of the Securities Act
and section 20 of the Exchange Act), and the officers, directors, agents or
employees of such controlling persons, from and against all Losses arising out
of or based upon any untrue or allegedly untrue statement of a material fact
contained in any Registration Statement, Prospectus or form of Prospectus or in
any amendment or supplement thereto or in any preliminary prospectus, or arising
out of or based upon any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, to the extent, but only to the extent, that such untrue statement or
omission is contained in information so furnished in writing by such holder to
the Company expressly for use in such Registration Statement or Prospectus and
such information was solely relied upon by the Company in preparation of such
Registration Statement, Prospectus or preliminary prospectus, and such
information, if it contains an untrue statement or has an omission, was not
timely corrected, updated or supplemented in a writing by such holder to the
Company expressly for use in such Registration Statement or Prospectus. In no
event shall the liability of any selling holder of Registrable Securities
hereunder be greater in amount than the dollar amount of the proceeds (net of
payment of all expenses) received by such holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Person shall be
--------------------------------------
entitled to indemnity hereunder (an "indemnified party"), such indemnified party
shall give prompt notice to the party from which such indemnity is sought (the
"indemnifying party") of any claim or of the commencement of any proceeding with
respect to which such indemnified party seeks indemnification or contribution
pursuant hereto; and the indemnifying party, upon request of the indemnified
party, shall assume the defense and retain counsel reasonably satisfactory to
the indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the reasonable
fees and disbursements of such counsel related to such proceeding. The failure
to so notify the indemnifying party shall not relieve the indemnifying party of
any obligation or liability except and only to the extent that such failure was
prejudicial to the indemnifying party and the indemnifying party was actually
damaged or suffered any loss or incurred any additional expense as a result
thereof. In any such proceeding, any indemnified party shall have the right to
retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related proceedings in
the same
11
<PAGE>
jurisdiction, be liable for (A) the fees and expenses of more than one separate
firm (in additional to any local counsel) for all holders and all persons, if
any, who control any holder within the meaning of either section 15 of the
Securities Act or section 20 of the Exchange Act, and (B) the fees and expenses
of more than one separate firm (in addition to any local counsel) for the
Company, its directors, its officers who sign a Registration Statement and each
person, if any, who controls the Company within the meaning of either such
section, and that all such fees and expenses shall be reimbursed as they are
incurred. In the case of any such separate firm for the Company, and such
directors, officers and control persons of the Company, such firm shall be
designated in writing by the Company. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent, but
if settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified party
shall have requested an indemnifying party to reimburse the indemnified party
for fees and expenses of counsel as contemplated by the second and third
sentences of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than thirty (30) days after receipt
by such indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement. The indemnifying party shall not
consent to entry of any judgment or enter into any settlement or otherwise seek
to terminate any proceeding in which any indemnified party is or could be a
party and as to which indemnification or contribution could be sought by such
indemnified party under this Section 6, unless such judgment, settlement or
other termination includes as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release, in form and
substance satisfactory to the indemnified party, from all liability in respect
of such claim or litigation for which such indemnified party would be entitled
to indemnification hereunder.
(d) Contribution. If the indemnification provided for in this Section 6 is
------------
unavailable to an indemnified party under Section 6(a) or 6(b) hereof in respect
of any Losses or is insufficient to hold such indemnified party harmless, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall, jointly and severally, contribute to the amount paid or payable by
such indemnified party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the indemnifying party or
indemnifying parties, on the one hand, and such indemnified party, on the other
hand, in connection with the actions, statements or omissions that resulted in
such Losses as well as any other relevant equitable considerations. The relative
fault of such indemnifying party or indemnifying parties, on the one hand, and
such indemnified party, on the other hand, shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or relates to information supplied in
writing by, such indemnifying party or indemnified party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such action, statement or omission. The amount paid or payable by a
party as a result of any Losses shall be deemed to include any legal or other
fees or expenses incurred by such party in connection with any proceeding.
12
<PAGE>
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
--- ----
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provision of this Section 6(d), an indemnifying party that
is a selling holder of Registrable Securities shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Registrable Securities sold by such indemnifying party and distributed to
the public exceeds the amount of any damages which such indemnifying party has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
The indemnity, contribution and expense reimbursement obligations of the
Company hereunder shall be in addition to any liability the Company may
otherwise have hereunder, under the Units Purchase Agreement, the Securities Act
or otherwise. The provisions of this Section 6 shall survive so long as
Registrable Securities remain outstanding, notwithstanding any transfer of the
Registrable Securities by any holder or any termination of this Agreement.
7. Information Requirements.
------------------------
(a) The Company shall file in a timely manner the reports required to be
filed by it under the Securities Act and the Exchange Act, and if at any time
the Company is not required to file such reports, it will, upon the request of
any holder of Registrable Securities, make publicly available other information
so long as necessary to permit sales pursuant to Rule 144 under the Securities
Act. The Company further covenants that it will cooperate with any holder of
Registrable Securities and take such further action as any holder of Registrable
Securities may reasonably request (including without limitation making such
representations as any such holder may reasonably request), all to the extent
required from time to time to enable such holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 under the Securities Act. Upon the request of
any holder of Registrable Securities, the Company shall deliver to such holder a
written statement as to whether it has complied with such filing requirements.
Notwithstanding the foregoing, nothing in this Section 7 shall be deemed to
require the Company to register any of its securities under any section of the
Exchange Act.
(b) The Company shall file in a timely manner the reports required to be
filed by it under the Exchange Act and shall comply with all other requirements
set forth in the instructions to Form S-3 in order to allow the Company to be
eligible to file registration statements on Form S-3.
8. Miscellaneous.
-------------
(a) No Inconsistent Agreements. The Company has not entered, as of the
--------------------------
date hereof, and shall not enter, on or after the date of this Agreement, any
agreement with respect to its securities which is inconsistent with the rights
granted to the holders of Registrable Securities in this Agreement.
13
<PAGE>
(b) Amendments and Waivers. The provisions of this Agreement, including
----------------------
the provisions of this sentence, may not be amended (other than the last
sentence of Section 8(f)), modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless the Company has
obtained the written consent of the holders of 66-2/3% of the then outstanding
Common Stock constituting Registrable Securities (with holders of Series A
Preferred Stock, Common Stock Purchase Warrants and the Placement Agent Warrant
deemed to be the holders for purposes of this Section 8(b), of the number of
outstanding shares of Common Stock into which such shares of Series A Preferred
Stock are then convertible or of the number of shares of Common Stock receivable
upon exercise of the warrants, as the case may be). Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of holders of Registrable
Securities whose securities are being sold pursuant to a Registration Statement
and that does not directly or indirectly affect the rights of other holders of
Registrable Securities may be given by holders of at least 66-2/3% of the
Registrable Securities being sold by such holders; provided, that the provisions
of this sentence may not be amended, modified, or supplemented except in
accordance with the provisions of the immediately preceding sentence.
(c) Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made in writing and shall be deemed given (i) when
made, if made by hand delivery, (ii) upon confirmation, if made by telefax or
(iii) one (1) business day after being deposited with a reputable next-day
courier, charges prepaid, to the parties as follows:
(x) if to a holder of Registrable Securities, at the most current
address given by such holder to the Company in accordance with the
provisions of this Section 8(c); and
(y) if to the Company, to Western Micro Technology, Inc., 254 East
Hacienda Avenue, Campbell, California 95008, Attention: Chief Financial
Officer,
or to such other address as any party may have furnished to the other parties in
writing in accordance herewith.
(d) Owner of Registrable Securities. The Company will maintain, or will
-------------------------------
cause its registrar and transfer agent to maintain, a register with respect to
the Registrable Securities in which all transfers of Registrable Securities of
which the Company has received notice will be recorded. The Company may deem
and treat the person in whose name Registrable Securities are registered in such
register of the Company as the owner thereof for all purposes, including,
without limitation, the giving of notices under this Agreement.
(e) Approval of Holders. Whenever the consent or approval of holders of a
-------------------
specified percentage of Registrable Securities is required hereunder,
Registrable Securities held by the Company or its affiliates (as such term is
defined in Rule 405 under the Securities Act) (other than the Purchasers or
subsequent holders of Registrable Securities if such subsequent holders are
deemed to be such affiliates solely by reason of their holdings of such
Registrable Securities) shall not be counted in determining whether such consent
or approval was given by the holders of such required percentage. For purposes
of calculating the consent or approval of holders of
14
<PAGE>
a majority of the then outstanding aggregate principal amount of Registrable
Securities, holders of Series A Preferred Stock deemed to be the holders for
purposes of this Section 8(e), of the number of outstanding shares of Common
Stock into which such shares of Series A Preferred Stock are then convertible.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each holder of any Registrable Securities.
The Company may not assign its rights or obligations hereunder without the prior
written consent of each holder of any Registrable Securities.
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS.
(j) Severability. If any term, provision, covenant or restriction of this
------------
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
(k) Entire Agreement. This Agreement is intended by the parties as a final
----------------
expression of their agreement and is intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and the registration rights granted by the
Company with respect to the Registrable Securities. Except as provided in the
Units Purchase Agreement, there are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein, with respect to
the registration rights granted by the Company with respect to the Common Stock
issuable upon conversion of the Series A Preferred Stock or upon exercise of the
Common Stock Purchase Warrants. This Agreement supersedes all prior agreements
and understandings among the parties with respect to such registration rights.
(l) Attorneys' Fees. In any action or proceeding brought to enforce any
---------------
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the prevailing
15
<PAGE>
party, as determined by the court, shall be entitled to recover reasonable
attorneys' fees in addition to any other available remedy.
(m) Further Assurances. Each of the parties hereto shall use all
------------------
reasonable efforts to take, or cause to be taken, all appropriate action, do or
cause to be done all things reasonably necessary, proper or advisable under
applicable law, and execute and deliver such documents and other papers, as may
be required to carry out the provisions of this Agreement and the other
documents contemplated hereby and consummate and make effective the transactions
contemplated hereby.
(n) Termination. This Agreement and the obligations of the parties
-----------
hereunder shall terminate at the end of the Effectiveness Period, except for any
liabilities or obligations under Section 5 or 6 or the proviso of Section 4(k)
above, and the obligations to make payments of and provide for liquidated
damages under Section 3 hereof to the extent such damages accrue prior to the
end of the Effectiveness Period, each of which shall remain in effect in
accordance with its terms.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
WESTERN MICRO TECHNOLOGY, INC.
By
_______________________________
James W. Dorst
Chief Financial Officer
FAHNESTOCK & CO. INC.
By
_______________________________
Henry P. Williams
Senior Vice President
16
<PAGE>
Exhibit .4.14
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT.
WESTERN MICRO TECHNOLOGY, INC.
COMMON STOCK PURCHASE WARRANT
CSW-__
This certifies that, for the twelve and one-half cents ($0.125) per share
purchase price, receipt of which is hereby acknowledged, WESTERN MICRO
TECHNOLOGY, INC., a Delaware corporation (the "Company"), grants to
________________, (the "Warrantholder"), the right to subscribe for and purchase
from the Company _______ (________) validly issued, fully paid and nonassessable
shares (the "Warrant Shares") of the Company's Common Stock, par value $0.01 per
share (the "Common Stock"), at the purchase price per share of $9.6875 (the
"Exercise Price"), exercisable at any time and from time to time during the
period (the "Exercise Period") commencing on the date hereof and ending on the
fifth anniversary of the date hereof, all subject to the terms, conditions and
adjustments herein set forth.
1. Duration and Exercise of Warrant; Payment of Taxes; Information.
---------------------------------------------------------------
1.1 Duration and Exercise of Warrant.
--------------------------------
(a) Cash Exercise. This Warrant may be exercised by the Warrantholder by
-------------
(i) the surrender of this Warrant to the Company, with a duly executed Exercise
Form specifying the number of Warrant Shares to be purchased, during normal
business hours on any Business Day during the Exercise Period and (ii) the
delivery of payment to the Company, for the account of the Company, by cash,
wire transfer of immediately available funds to a bank account specified by the
Company, or by certified or bank cashier's check, of the Exercise Price for the
number of Warrant Shares specified in the Exercise Form in lawful money of the
United States of America. The Company agrees that such Warrant Shares shall be
deemed to be issued to the Warrantholder as the record holder of such Warrant
Shares as of the close of business on the date on which this Warrant shall have
been surrendered and payment made for the Warrant Shares as aforesaid. A stock
certificate or certificates for the Warrant Shares specified in the Exercise
Form shall be delivered to the Warrantholder as promptly as practicable, and in
any event within ten (10) days, thereafter. The stock certificate or
certificates so delivered shall be in denominations of one hundred (100) shares
each or such lesser or greater denominations as may be reasonably specified by
the Warrantholder in the Exercise Form. If this Warrant shall have been
exercised only in part, the Company shall, at the time of delivery of the stock
certificate or certificates, deliver to the Warrantholder a new Warrant
evidencing the rights to purchase the
<PAGE>
remaining Warrant Shares, which new Warrant shall in all other respects be
identical with this Warrant. No adjustments shall be made on Warrant Shares
issuable on the exercise of this Warrant for any cash dividends paid or payable
to holders of record of Common Stock prior to the date as of which the
Warrantholder shall be deemed to be the record holder of such Warrant Shares.
(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to
------------------
Section 1.1(a), this Warrant may be exercised by the Warrantholder by the
surrender of this Warrant to the Company, with a duly executed Exercise Form
marked to reflect Net Issue Exercise and specifying the number of Warrant Shares
to be purchased, during normal business hours on any Business Day during the
Exercise Period. The Company agrees that such Warrant Shares shall be deemed to
be issued to the Warrantholder as the record holder of such Warrant Shares as of
the close of business on the date on which this Warrant shall have been
surrendered as aforesaid. Upon such exercise, the Warrantholder shall be
entitled to receive shares equal to the value of this Warrant (or the portion
thereof being cancelled) by surrender of this Warrant to the Company together
with notice of such election in which event the Company shall issue to
Warrantholder a number of shares of the Company's Common Stock computed as of
the date of surrender of this Warrant to the Company using the following
formula:
X = Y(A-B)
------
A
Where:
X = the number of shares of Common Stock to be issued to Warrantholder
under this Section 1.1(b);
Y = the number of shares of Common Stock otherwise purchasable under this
Warrant (at the date of such calculation) or, if only a portion of
this Warrant is being exercised, the number of Warrant Shares being
exercised;
A = the Current Market Price of one share of the Company's Common Stock
(at the date of such calculation); and
B = the Exercise Price (as adjusted to the date of such calculation).
(c) Current Market Price. For purposes of Section 1.1(b), Current Market
--------------------
Price of one share of the Company's Common Stock shall mean:
(i) the average of the daily closing prices per share of the
Company's Common Stock on the principal national securities exchange or on
The Nasdaq Stock Market's ("Nasdaq") National Market, on which the Common
Stock is listed or admitted to trading, for the five (5) business days
before the day in question, or
2
<PAGE>
(ii) if not listed or traded on any such exchange or market, the
average of the last reported sale price per share on the Nasdaq SmallCap
Market for the five (5) business days before the day in question, or
(iii) if not listed or traded on any such exchange or Nasdaq, the
average of the bid and asked prices per share as reported in the "pink
sheets" published by the National Quotation Bureau, Inc. for the five (5)
business days before the day in question, or
(iv) if such quotations are not available, the fair market value per
share of the Company's Common Stock on the date such notice was received by
the Company as reasonably determined by the Board of Directors of the
Company.
1.2 Payment of Taxes. The issuance of certificates for Warrant Shares
----------------
shall be made without charge to the Warrantholder for any stock transfer or
other issuance tax in respect thereto; provided, however, that the Warrantholder
-----------------
shall be required to pay any and all taxes which may be payable in respect of
any transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Warrantholder as reflected upon the books of the
Company.
1.3 Information. Upon receipt of a written request from the
-----------
Warrantholder, the Company agrees to deliver promptly to such Warrantholder a
copy of its current publicly available financial statements and to provide such
other publicly available information concerning the business and operations of
the Company as such Warrantholder may reasonably request in order to assist the
Warrantholder in evaluating the merits and risks of exercising the Warrant and
to make an informed investment decision in connection with such exercise.
2. Restrictions on Transfer; Restrictive Legends.
---------------------------------------------
2.1 Restrictions on Transfer; Compliance with Securities Laws. This
---------------------------------------------------------
Warrant and the Warrant Shares issued upon the exercise of this Warrant may not
be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and transferee
(including the delivery of investment representation letters and legal opinions
reasonably satisfactory to the Company, if such are requested by the Company).
The Warrantholder, by acceptance hereof, acknowledges that this Warrant and the
Warrant Shares to be issued upon exercise hereof are being acquired solely for
the Warrantholder's own account and not as a nominee for any other party, and
for investment, and that the Warrantholder will not offer, sell or otherwise
dispose of this Warrant or any Warrant Shares to be issued upon exercise hereof
except under circumstances that will not result in a violation of the Securities
Act or any state securities laws. Upon exercise of this Warrant, the
Warrantholder shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the Warrant Shares so purchased are being
acquired solely for the Warrantholder's own account and not as a nominee for any
other party, for investment, and not with a view toward distribution or resale.
3
<PAGE>
2.2 Restrictive Legends. This Warrant shall (and each Warrant issued in
-------------------
substitution for this Warrant pursuant to Section 4 shall) be stamped or
otherwise imprinted with a legend in substantially the following form:
"THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT."
Except as otherwise permitted by this Section 2, each stock certificate for
Warrant Shares issued upon the exercise of this Warrant and each stock
certificate issued upon the direct or indirect transfer of any such Warrant
Shares shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FILED
UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH
ACT."
Notwithstanding the foregoing, the Warrantholder may require the Company to
issue a stock certificate for Warrant Shares without a legend if (i) such
Warrant Shares, as the case may be, have been registered for resale under the
Securities Act or sold pursuant to Rule 144 under the Securities Act (or a
successor rule thereto) or (ii) the Warrantholder has received an opinion of
counsel reasonably satisfactory to the Company that such registration is not
required with respect to such Warrant Shares.
3. Reservation of Shares, Etc.
---------------------------
The Company covenants and agrees that all Warrant Shares which are issued
upon the exercise of this Warrant will, upon issuance, be validly issued, fully
paid and nonassessable and free from all taxes (in accordance with Section 1.2
above), liens, security interests, charges and other encumbrances with respect
to the issue thereof. The Company further covenants and agrees that, during the
Exercise Period, the Company will at all times have authorized and reserved, and
keep available free from preemptive rights, a sufficient number of shares of
Common Stock to provide for the exercise of the rights represented by this
Warrant and will, at its expense, upon each such reservation of shares, procure
such listing of such shares of Common Stock (subject to issuance or notice of
issuance) as then may be required on all stock exchanges on which the Common
Stock is then listed or on Nasdaq if listed thereon.
4
<PAGE>
4. Exchange, Loss or Destruction of Warrant.
----------------------------------------
Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant and, in the case of loss, theft
or destruction, of such bond or indemnification as the Company may reasonably
require, and, in the case of such mutilation, upon surrender and cancellation of
this Warrant, the Company will execute and deliver a new Warrant of like tenor.
The term "Warrant" as used in this Agreement shall be deemed to include any
Warrants issued in substitution or exchange for this Warrant.
5. Ownership of Warrant.
--------------------
The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary.
6. Certain Adjustments.
-------------------
6.1 Adjustments in Number of Warrant Shares and in Exercise Price. The
-------------------------------------------------------------
number of Warrant Shares purchasable upon the exercise of this Warrant and the
Exercise Price shall be subject to adjustment as follows:
(a) Stock Dividends. If at any time prior to the exercise of this Warrant
---------------
in full (i) the Company shall fix a record date for the issuance of any stock
dividend payable in shares of Common Stock or other distribution with respect to
the Common Stock payable in securities or (ii) the number of shares of Common
Stock shall have been increased by a subdivision or split-up of shares of Common
Stock, then, on the record date fixed for the determination of holders of Common
Stock entitled to receive such dividend or distribution, or immediately after
the effective date of subdivision or split-up, as the case may be, the
securities to be delivered upon exercise of this Warrant will be increased so
that the Warrantholder will be entitled to receive the number of shares of
Common Stock and other securities (if any) that such Warrantholder would have
owned immediately following such action had this Warrant been exercised
immediately prior thereto, and the Exercise Price will be adjusted as provided
below in paragraph (f).
(b) Combination of Stock. If at any time prior to the exercise of this
--------------------
Warrant in full the number of shares of Common Stock outstanding shall have been
decreased by a combination of the outstanding shares of Common Stock, then,
immediately after the effective date of such combination, the number of shares
of Common Stock to be delivered upon exercise of this Warrant will be decreased
so that the Warrantholder thereafter will be entitled to receive the number of
shares of Common Stock that such Warrantholder would have owned immediately
following such action had this Warrant been exercised immediately prior thereto,
and the Exercise Price will be adjusted as provided below in paragraph (f).
(c) Reorganization, etc. If at any time prior to the exercise of this
--------------------
Warrant in full any capital reorganization of the Company, or any
reclassification of the Common Stock, or any consolidation of the Company with
or merger of the Company with or into any other person or
5
<PAGE>
any sale, lease or other transfer of all or substantially all of the assets of
the Company to any other person, shall be effected in such a way that the
holders of Common Stock shall be entitled to receive stock, other securities or
assets (whether such stock, other securities or assets are issued or distributed
by the Company or another person) with respect to or in exchange for Common
Stock, then, upon exercise of this Warrant the Warrantholder shall have the
right to receive the kind and amount of stock, other securities or assets
receivable upon such reorgani zation, reclassification, consolidation, merger or
sale, lease or other transfer by a holder of the number of shares of Common
Stock that such Warrantholder would have been entitled to receive upon exercise
of this Warrant had this Warrant been exercised immediately before such
reorganization, reclassification, consolidation, merger or sale, lease or other
transfer, subject to adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 6.
(d) Fractional Shares. No fractional shares of Common Stock or scrip shall
-----------------
be issued to any Warrantholder in connection with the exercise of this Warrant.
Instead of any fractional shares of Common Stock that would otherwise be
issuable to such Warrantholder, the Company will pay to such Warrantholder a
cash adjustment in respect of such fractional interest in an amount equal to
that fractional interest of the then Current Market Price per share of Common
Stock.
(e) Carryover. Notwithstanding any other provision of this Section 6, no
---------
adjustment shall be made to the number of shares of Common Stock to be delivered
to the Warrantholder (or to the Exercise Price) if such adjustment represents
less than 1% of the number of shares to be so delivered, but any lesser
adjustment shall be carried forward and shall be made at the time and together
with the next subsequent adjustment which together with any adjustments so
carried forward shall amount to 1% or more of the number of shares to be so
delivered.
(f) Exercise Price Adjustment. Whenever the number of Warrant Shares
-------------------------
purchasable upon the exercise of this Warrant is adjusted, as herein provided,
the Exercise Price payable upon the exercise of this Warrant shall be adjusted
by multiplying such Exercise Price immediately prior to such adjustment by a
fraction, of which the numerator shall be the number of Warrant Shares
purchasable upon the exercise of this Warrant immediately prior to such
adjustment, and of which the denominator shall be the number of Warrant Shares
purchasable immediately thereafter.
(g) No Duplicate Adjustments. Notwithstanding anything else to the
------------------------
contrary contained herein, in no event will an adjustment be made under the
provisions of this Section 6 to the number of Warrant Shares issuable upon
exercise of this Warrant or the Exercise Price for any event if an adjustment
having substantially the same effect to the Warrantholder as any adjustment that
otherwise would be made under the provisions of this Section 6 is made by the
Company for any such event to the number of shares of Common Stock (or other
securities) issuable upon exercise of this Warrant.
6.2 No Adjustment for Dividends. Except as provided in Section 6.1, no
---------------------------
adjustment in respect of any dividends shall be made during the term of this
Warrant or upon the exercise of this Warrant.
6
<PAGE>
6.3 Notice of Adjustment. Whenever the number of Warrant Shares or the
--------------------
Exercise Price of such Warrant Shares is adjusted, as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the
Warrantholder, notice of such adjustment or adjustments and a certificate of the
chief financial officer of the Company setting forth the number of Warrant
Shares and the Exercise Price of such Warrant Shares after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made.
7. Notices of Corporate Action.
---------------------------
In the event of
(a) any taking by the Company of a record of the holders of any class of
securities for the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any Change of Control,
or
(c) any voluntary or involuntary dissolution, liquidation or winding-up of
the Company,
the Company will mail to the Warrantholder a notice specifying (i) the date or
expected date on which any such record is to be taken for the purpose of such
dividend, distribution or right and the amount and character of any such
dividend, distribution or right, (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up is to take place and the time, if any
such time is to be fixed, as of which the holders of record of Common Stock (or
other securities) shall be entitled to exchange their shares of Common Stock (or
other securities) for the securities or other property deliverable upon such
reorganization, reclassification, recapitalization, Change of Control,
dissolution, liquidation or winding-up and (iii) that in the event of a Change
of Control, this Warrants is exercisable immediately prior to the consummation
of such Change of Control. Such notice shall be mailed at least 20 days prior
to the date therein specified, in the case of any date referred to in the
foregoing subdivisions (i) or (ii).
8. Definitions.
-----------
As used herein, unless the context otherwise requires, the following terms
have the following respective meanings:
Business Day: any day other than a Saturday, Sunday or a day on which
------------
national banks are authorized by law to close in the City of New York, State of
New York.
Change of Control: shall mean (i) a sale, conveyance, exchange or transfer
-----------------
of all or substantially all of the property and assets of the Company, (ii) the
sale of all or substantially all
7
<PAGE>
of the capital stock of the Company or the merger or consolidation of the
Company into or with any other corporation or an affiliate thereof (except if
such merger or consolidation does not result in the transfer of more than fifty
percent (50%) of the voting securities of the Company or if such merger or
consolidation is effected solely to change the Company's jurisdiction of
incorporation); or (iii) any sale or transfer of any capital stock of the
Company, following which fifty-one percent (51%) of the combined voting power of
the Company becomes beneficially owned by one person or group acting together.
For purposes of this definition, "group" shall have the meaning as such term is
used in section 13(d)(1) of the Exchange Act.
Commission: the Securities and Exchange Commission or any other federal
----------
agency at the time administering the Securities Act or the Exchange Act,
whichever is the relevant statute for the particular purpose.
Company: Western Micro Technology, Inc., a Delaware corporation.
-------
Convertible Securities: securities by their terms convertible into or
----------------------
exchangeable for Common Stock.
Exchange Act: the Securities Exchange Act of 1934, as amended, or any
------------
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934, as amended, shall
include a reference to a comparable section, if any, of any successor federal
statute.
Exercise Form: an Exercise Form in the form annexed hereto as Exhibit A.
-------------
Exercise Price: the meaning specified on the cover of this Warrant, as
--------------
such price may be adjusted pursuant to Section 6 hereof.
Nasdaq: the meaning specified in Section 1.1(c)(i).
------
Related Rights: options or warrants to purchase or rights to subscribe for
--------------
securities by their terms convertible into or exchangeable for Common Stock.
Rights: options or warrants to purchase or rights to subscribe for Common
------
Stock.
Securities: Convertible Securities, Rights and Related Rights.
----------
Securities Act: the Securities Act of 1933, as amended, or any successor
--------------
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time. Reference to a particular section
of the Securities Act of 1933, as amended, shall include a reference to the
comparable section, if any, of any successor federal statute.
Warrantholder: the meaning specified on the cover of this Warrant.
-------------
8
<PAGE>
Warrant Shares: the meaning specified on the cover of this Warrant,
--------------
subject to the provisions of Section 6.
9. Miscellaneous.
-------------
9.1 Entire Agreement. This Warrant constitutes the entire agreement
----------------
between the Company and the Warrantholder with respect to this Warrant.
9.2 Binding Effects; Benefits. This Warrant shall inure to the benefit of
-------------------------
and shall be binding upon the Company and the Warrantholder and their respective
successors. Nothing in this Warrant, expressed or implied, is intended to or
shall confer on any person other than the Company and the Warrantholder, or
their respective successors, any rights, remedies, obligations or liabilities
under or by reason of this Warrant.
9.3 Amendments and Waivers. This Warrant may not be modified or amended
----------------------
except by an instrument or instruments in writing signed by the Company and the
Warrantholder. Either the Company or the Warrantholder may, by an instrument in
writing, waive compliance by the other party with any term or provision of this
Warrant on the part of such other party hereto to be performed or complied with.
The waiver by any such party of a breach of any term or provision of this
Warrant shall not be construed as a waiver of any subsequent breach.
9.4 Section and Other Headings. The section and other headings contained
--------------------------
in this Warrant are for reference purposes only and shall not be deemed to be a
part of this Warrant or to affect the meaning or interpretation of this Warrant.
9.5 Further Assurances. Each of the Company and the Warrantholder shall
------------------
do and perform all such further acts and things and execute and deliver all such
other certificates, instruments and documents as the Company or the
Warrantholder may, at any time and from time to time, reasonably request in
connection with the performance of any of the provisions of this Warrant.
9.6 Notices. All notices and other communications required or permitted
-------
to be given under this Warrant shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by United States mail, postage
prepaid, to the parties hereto at the following addresses or to such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
(a) if to the Company, addressed to:
Western Micro Technology, Inc.
254 East Hacienda Avenue
Campbell, California 95008
Attention: Chief Financial Officer
Telefax: (800) 725-5496
(b) if to the Warrantholder, to the address set forth on the Company's
register.
9
<PAGE>
Except as otherwise provided herein, all such notices and communications shall
be deemed to have been received on the date of delivery thereof, if delivered
personally, or on the third Business Day after the mailing thereof.
9.7 Separability. Any term or provision of this Warrant which is invalid
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the terms and provisions of this Warrant or
affecting the validity or enforceability of any of the terms or provisions of
this Warrant in any other jurisdiction.
9.8 Governing Law. This Warrant shall be deemed to be a contract made
-------------
under the laws of the State of New York.
9.9 No Rights or Liabilities as Shareholder. Nothing contained in this
---------------------------------------
Warrant shall be deemed to confer upon the Warrantholder any rights as a
shareholder of the Company or to impose any liabilities on the Warrantholder to
purchase any securities whether such liabilities are asserted by the Company or
by creditors or shareholders of the Company or otherwise.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
Dated: September 19, 1997.
WESTERN MICRO TECHNOLOGY, INC.
By________________________________
James W. Dorst
Chief Financial Officer
10
<PAGE>
Exhibit A
---------
EXERCISE FORM
-------------
(To be executed upon exercise of this Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase Warrant Shares and (check one):
[_] herewith tenders payment for _______ of the Warrant Shares to the
order of WESTERN MICRO TECHNOLOGY, INC. in the amount of $_________ in
accordance with the terms of this Warrant; or
[_] herewith tenders this Warrant for _______ Warrant Shares pursuant to
the Net Issue Exercise provisions of Section 1.1(b) of this Warrant.
The undersigned requests that a certificate (or certificates) for such Warrant
Shares be registered in the name of the undersigned and that such certificate
(or certificates) be delivered to the undersigned's address below.
In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Warrant Shares are being acquired solely for the account
of the undersigned and not as a nominee for any other party, for investment, and
that the undersigned will not offer, sell or otherwise dispose of any such
Warrant Shares except under circumstances that will not result in a violation of
the Securities Act of 1933, as amended, or any state securities laws.
Dated: ___________________.
____________________________________
(Signature)
____________________________________
(Print Name)
____________________________________
(Street Address)
____________________________________
(City) (State) (Zip Code)
If said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder.
<PAGE>
Exhibit 10.1
EXECUTION COPY
GUARANTOR SECURITY AND PLEDGE AGREEMENT
---------------------------------------
THIS GUARANTOR SECURITY AND PLEDGE AGREEMENT ("AGREEMENT") dated as of
September 30, 1997, is entered into by and among WMT Acquisition Corp., a
California corporation ("WMT"), Savoir Technology Group, Inc., a Delaware
corporation ("STG"), Star Management Services, Inc., a Delaware corporation
("SMS"), Inet Systems, Inc., a Texas corporation ("INET"), Star Data
International, a company organized under the laws of the Virgin Islands ("SDI"),
Sirius Investments, Inc., a Nevada corporation ("SII"), and Star Data Systems,
Inc., a Texas corporation ("SDS") (WMT, STG, SMS, INET, SDI, SII, SDS and any
Additional Grantor under and as defined in Section 36 below are referred to
herein individually from time to time as "GRANTOR" and collectively as the
"GRANTORS"), and Canpartners Investments IV, LLC as agent (in such capacity, the
"AGENT") for the Holders under (and as defined in) the Note Purchase Agreement
(as hereinafter defined). Capitalized terms used herein and not otherwise
defined herein have the meanings ascribed to such terms in the Note Purchase
Agreement.
W I T N E S S E T H
-------------------
WHEREAS, the Grantors, Western Micro Technology, Inc., a California
corporation (the "Issuer"), the Purchasers referred to therein, and the Agent
have entered into a Note Purchase Agreement of even date herewith (as amended,
restated, supplemented or otherwise modified from time to time, the "NOTE
PURCHASE AGREEMENT"), pursuant to which, the Purchasers have agreed to purchase
$15,700,000 in aggregate principal amount of the Issuer's 13.5% Second Priority
Senior Secured Notes due 2000 (the "NOTES");
WHEREAS, each of the Grantors has entered into the Note Purchase
Agreement, pursuant to which, among other things, each Grantor unconditionally
guaranteed the prompt and complete payment and performance of the Issuer's
Obligations under the Notes and the Note Documents, as more fully set forth in
the Note Purchase Agreement;
WHEREAS, each Grantor has entered into that certain Contribution
Agreement of even date herewith (the "CONTRIBUTION AGREEMENT") in connection
with the transactions contemplated by the Note Purchase Agreement;
WHEREAS, pursuant to the Note Purchase Agreement, the Issuer has
entered into that certain Issuer Security and Pledge Agreement of even date
herewith (the "ISSUER SECURITY AND PLEDGE AGREEMENT");
WHEREAS, it is a condition precedent to the purchase of the Notes by
the Purchasers under the Note Purchase Agreement that the Grantors shall have
executed and delivered this Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the premises set forth herein and
of the purchase of the Notes by the Purchasers or any other Holder, or any of
them, the Grantors hereby agree with the Agent, for its benefit and the ratable
benefit of the Holders, as follows:
SECTION 1. Grant of Security. Each Grantor hereby pledges to the
-----------------
Agent, for its benefit and the ratable benefit of the Holders, and hereby grants
to the Agent, for its benefit and the ratable benefit of the Holders, a security
interest in, all of such Grantor's right, title and interest in and to the
following, in each case whether now owned or existing or hereafter acquired or
arising and however and wherever arising or located (collectively, the
"COLLATERAL"):
(a) EQUIPMENT: All of such Grantor's equipment of every description,
including, without limitation, all machinery, manufacturing, distribution,
selling, data processing and office equipment, computers (including mainframe
processors and remote terminals), assembly systems, tools, tooling, molds, jigs,
dies, fixtures, appliances, furniture, furnishings, fork lifts, vehicles,
trucks, trailers, semi-trailers, rolling stock, vessels, aircraft, aircraft
engines, trade fixtures and related products constituting equipment, together
with any and all accessions, parts and equipment attached thereto or used in
connection therewith, and any substitutions therefor and replacements thereof
(all of the foregoing being the "EQUIPMENT");
(b) INVENTORY: All of such Grantor's inventory in all of its forms,
including, without limitation, (i) all goods, merchandise and other personal
property, finished or unfinished, furnished or to be furnished under any
contract of service, rental contract, lease or purchase order or intended for
sale or lease, including, without limitation, rental equipment, tools, toolings,
vehicles, trucks, trailers and semi-trailers, together with any and all
accessions, parts and inventory attached thereto or used in connection
therewith, and related products which constitute inventory, and all consigned
goods, (ii) all raw materials, mobile goods, work in process, parts, components,
assemblies, finished goods, and materials and supplies of any kind, nature or
description used or consumed in such Grantor's businesses or in connection with
the manufacture, production, packing, shipping, advertising, finishing, leasing
or sale of the foregoing, (iii) all goods in which such Grantor has an interest
in mass or a joint or other interest or right of any kind (including, without
limitation, goods in which such Grantor has an interest or right as consignee)
and (iv) all goods which are returned to or repossessed by such Grantor; in each
case wherever located and whether in the possession of such Grantor, a bailee, a
consignee, a lessee or any other Person for sale, lease, storage, transit,
processing, use or otherwise, and any and all documents for or relating to any
of the foregoing (all of the foregoing being the "INVENTORY");
(c) ACCOUNTS: All of such Grantor's accounts, contract rights, chattel
paper, instruments, documents, deposit and other bank accounts, book debts and
other rights to payment of any kind, whether or not arising out of or in
connection with the sale or lease of goods or the rendering of services, and
whether or not earned by performance, including, without limitation, (i) any of
the foregoing which are not evidenced by instruments or
-2-
<PAGE>
investment property, (ii) reserves and credit balances for any account
receivable or account debtor, (iii) all intercompany receivables, and all other
intercompany obligations, and any security documents executed in connection
therewith, (iv) all proceeds of any letters of credit or insurance policies on
which such Grantor is named as beneficiary, (v) all collateral supporting any
account receivable or account debtor, (vi) all claims against third parties for
advances or other financial accommodations or any other obligations whatsoever
owing to such Grantor, and (vii) all rights in and to all security agreements,
leases, rental contracts, acquisition agreements, contracts of service,
contracts of sale, distribution agreements, purchase orders, guaranties,
employment agreements, instruments, covenants not to compete, securities,
documents of title and other contracts securing, evidencing, supporting or
otherwise relating to any of the foregoing, together with all rights in any
goods, merchandise or Inventory which any of the foregoing may represent, and
all rights in returned or repossessed goods, merchandise or Inventory which any
of the same may represent, including, without limitation, any rights to
rescission, replevin, reclamation, and stoppage in transit (all of the foregoing
being the "Accounts", and any and all such security agreements, employment
agreements, acquisition agreements, leases, rental contracts, contracts of
service, contracts of sale, distribution agreements, purchase order, guaranties,
instruments and documents of title and other contracts being the "RELATED
CONTRACTS");
(d) GENERAL INTANGIBLES: All of such Grantor's general intangibles,
rights, interests, choses in action, causes of action, claims and other
intangible property, of every kind and nature (other than Accounts), including,
without limitation, (i) all corporate and other business books and records, (ii)
all loans, royalties, and other obligations receivable (other than Accounts),
(iii) all intellectual property, and all embodiments thereof, and rights
thereto, including, without limitation, all trademarks, registered trademarks,
trademark applications, service marks, registered service marks, service mark
applications, patents, patent applications, trade names, rights of use of any
name, labels, fictitious names, inventions, designs, trade secrets, technical
knowledge and processes, technical specifications, computer programs, software
(including proprietary software), printouts and other computer materials,
goodwill, registrations, copyrights, copyright applications, permits, licenses
(including formal or informal licensing arrangements which are permitted to be
assigned or pledged), franchises, blueprints, customer lists, credit files,
correspondence, and advertising materials, and all of such Grantor's rights to
use the patents, trademarks, service marks, or other property of the aforesaid
nature of other Persons now or hereafter licensed to such Grantor, (iv) all
customer and supplier contracts, firm sale orders, rights under license and
franchise agreements, rights under tax sharing agreements, and other contracts
and contract rights, (v) all interests in partnerships, limited liability
companies, joint ventures and other unincorporated Persons, (vi) all tax refunds
and tax refund claims, (vii) all right, title and interest under leases,
subleases, licenses and concessions and other agreements relating to real or
personal property, (viii) all deposit accounts (general or special) with any
bank or other financial institution and all certificates of deposit, (ix) all
credits with and other claims against third parties (including carriers and
shippers), (x) all rights to indemnification, (xi) all reversionary interests in
pension and profit sharing plans and reversionary, beneficial and residual
interests in trusts, (xii) all proceeds of, or claims for unearned premiums with
respect
-3-
<PAGE>
to, insurance of which such Grantor is beneficiary, (xiii) all letters of
credit, guaranties, Liens, security interests and other security held by or
granted to such Grantor, (xiv) certificates of title and (xv) all other general
intangibles (all of the foregoing being the "GENERAL INTANGIBLES");
(e) CHATTEL PAPER, INSTRUMENTS, DOCUMENTS AND INVESTMENT PROPERTY:
All of such Grantor's chattel paper, instruments, documents and investment
property, including, without limitation:
(i) all service agreements, employment agreements, acquisition
agreements, contracts of sale, distribution agreements, covenants not to
compete, contracts of service and other contracts with respect to computer
systems and related products, equipment and software and all rights
thereunder, including, without limitation, (A) all rights of such Grantor
to receive moneys due or to become due thereunder or pursuant thereto, (B)
all rights of such Grantor to receive proceeds of any insurance, indemnity,
warranty or guaranty with respect thereto, (C) all claims of such Grantor
for damages arising out of breach of or any default thereunder and (D) all
rights of such Grantor to terminate, amend, supplement, modify or exercise
rights, remedies or options thereunder;
(ii) the shares of the capital stock of each Subsidiary of such
Grantor, now or at any time or times hereafter owned by such Grantor, and
the certificates representing the shares of such capital stock (as
identified on Exhibit A attached hereto and made a part hereof), all
---------
options and warrants for the purchase of shares of the stock of each of
such Subsidiaries now or hereafter held in the name of such Grantor (all of
said capital stock, options and warrants and all capital stock held in the
name of such Grantor as a result of the exercise of such options or
warrants being hereinafter collectively referred to as the "PLEDGED
STOCK"), herewith delivered to the Agent accompanied by acknowledgments of
such Subsidiaries in the form of Exhibit B attached hereto and made a part
---------
hereof (the "ACKNOWLEDGMENTS") and stock powers in the form of Exhibit C
---------
attached hereto and made a part hereof (the "POWERS") duly executed in
blank, and all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of, or in
exchange for, any or all of the Pledged Stock, and all other products and
proceeds of the foregoing;
(iii) all additional shares of stock of any Subsidiary of such Grantor
from time to time acquired by such Grantor in any manner, and the
certificates representing such additional shares (any such additional
shares shall constitute part of the Pledged Stock), and all dividends,
cash, instruments, equity securities, financial assets and other interests
which are, or are of a type, dealt in or traded on financial markets, or
which are recognized in any way as a medium for investment, whether
certificated or uncertificated, any property held by a financial or
securities intermediary for such Grantor, securities accounts to which any
of the foregoing are credited and warrants, options, puts and calls, and
other rights or securities entitlements from time to time
-4-
<PAGE>
received, receivable or otherwise distributed in respect of or in exchange
for any or all of such shares, and all other products and proceeds of the
foregoing;
(iv) the promissory notes, intercompany notes and other instruments
identified on Exhibit A (the "PLEDGED NOTES"), and all products and
---------
proceeds of the Pledged Notes, including, without limitation, all interest
and principal payments, instruments, and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange
for the Pledged Notes;
(v) all additional promissory notes, instruments, bonds or debt
securities, issued by any Person from time to time issued to, or held by,
such Grantor in any manner (any such additional promissory notes or
instruments shall constitute part of the Pledged Notes) and all products
and proceeds of any such additional promissory notes and instruments,
including, without limitation, all interest and principal payments,
instruments, and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any such additional
promissory notes or instruments (the property described in clauses (e)(ii)
---------------
through (e)(v) of this Section 1 is collectively referred to as the
------ ---------
"PLEDGED COLLATERAL"); and
(vi) all bills of lading, warehouse receipts and other documents of
title;
(f) OTHER PROPERTY: All of such Grantor's property or interests in
property which now may be owned or hereafter may come into the possession,
custody or control of the Agent or any Holder, or any agent or affiliate of
the Agent or any Holder, in any way or for any purpose (whether for
safekeeping, deposit, custody, pledge, transmission, collection or
otherwise), and all rights and interests of such Grantor in respect of any
and all (i) drafts and letters of credit, (ii) interest rate and currency
exchange agreements, including, without limitation, cap, collar, floor,
forward and similar agreements and interest rate protection agreements,
(iii) cash, money and cash equivalents and (iv) proceeds of loans, advances
and other financial accommodations, including, without limitation, loans,
advances and other financial accommodations made or extended under the Note
Purchase Agreement; and all other personal property of such Grantor (all of
the foregoing being the "OTHER PROPERTY"); and
(g) All accessions, additions and repairs to, substitutions,
documents, ledger sheets and files for, and replacements, proceeds
(including, without limitation, proceeds that constitute property of the
types described in clauses (a) through (f) of this Section 1), products,
----------- --- ----------
rents and profits of any of the foregoing Collateral. Proceeds hereunder
shall include (i) all payments under (or claims for payment under)
insurance (whether or not the Agent is the loss payee thereof) or any
indemnity, warranty, guaranty or condemnation or requisition payments
payable by reason of loss or damage to or otherwise with respect to any of
the foregoing Collateral or any proceeds thereof, (ii) whatever is now or
hereafter received by such Grantor upon the sale, lease, exchange,
assignment, licensing, collection or other disposition of, or realization
upon any item of Collateral, whether such proceeds constitute inventory,
accounts,
-5-
<PAGE>
accounts receivable, general intangibles, instruments, securities or investment
property (including, without limitation, United States of America Treasury
Bills), credits, claims, demands, documents, letters of credit and letter of
credit proceeds, chattel paper, documents of title, certificates of title,
certificates of deposit, warehouse receipts, bills of lading, leases, deposit
accounts, money, tax refund claims, contract rights, goods or equipment, (iii)
any such items which are now or hereafter acquired by such Grantor with any
proceeds of its Collateral hereunder and (iv) cash and cash equivalents.
provided, however, that except with respect to the provisions of this Section 1,
- -------- -------
the foregoing grant of a security interest shall be deemed not to grant a
security interest in any of the property described below (such property being
hereinafter referred to as property subject to a "SECURITY INTEREST RESTRICTION"
and all other property being hereinafter referred to as "SECURITY PROPERTY"):
any property described on Exhibit G hereto, if, but only to the
extent that (x) the terms and provisions of a written agreement,
document or instrument in effect on the Closing Date prohibit the
granting of a security interest or condition the granting of a
security interest on the consent of a third party whose consent has
not been obtained or would cause, or allow a third party to cause, the
forfeiture of such property upon the granting of a security interest
therein; (y) the terms and provisions of a written agreement, document
or instrument entered into after the Closing Date (or any amendment to
any agreement described in clause (x) above entered into after the
Closing Date) prohibit the granting of a security interest or
condition the granting of a security interest on the consent of a
third party whose consent has not been obtained or would cause, or
allow a third party to cause, the forfeiture of such property upon the
granting of a security interest, provided that (i) the requirement of
--------
such prohibition or condition has not been initiated by an Obligor and
has been agreed or consented to by the Obligor in the ordinary course
of its business and such prohibition or condition is believed by the
Obligor in good faith to be reasonably necessary for the Obligor to
obtain the benefits of the agreement, document or instrument entered
into by the Obligor in order to conduct its normal business operations
and (ii) the Obligor has used its best efforts to have such
prohibition or condition eliminated or to obtain such consent; or (z)
applicable law either prohibits the granting of a security interest
therein or provides for the involuntary forfeiture of the property in
the event a security interest is granted therein without the consent
of the appropriate Governmental Authority, or at all; provided,
--------
however that with respect to clauses (x), (y) and (z) above, if such
prohibition or the condition requiring such consent relates only to
the foreclosure of a security interest or the exercise of other rights
or remedies upon a default but not to the granting of a security
interest therein, then a security interest in such property shall be
deemed to be granted by this Agreement subject to the condition that
the consent of such third party or Governmental Authority .is obtained
by the Agent prior to the foreclosure or
-6-
<PAGE>
exercising its other rights or remedies hereunder, so that any
involuntary forfeiture of the property is thereby avoided; provided,
--------
further, that the property which is the subject of the lien granted to
-------
IBM pursuant to the IBM Facility shall not be deemed to be subject to
a Security Interest Restriction; provided, further, that (A) the
-------- -------
foregoing grant of a security interest shall be deemed to include all
other Security Property that becomes free from a Security Interest
Restriction after the date of this Agreement and any other Security
Property that is acquired after the date of this Agreement that is not
subject to a Security Interest Restriction permitted herein, and (B)
in the event of the termination of elimination of any Security
Interest Restriction to the extent sufficient to permit any Security
Property to become Collateral hereunder, such Security Property shall
be deemed to be assigned and pledged to the Agent and shall be
included as Collateral hereunder.
SECTION 2. Security for Obligations. This Agreement secures, with
------------------------
respect to each Grantor, and the Collateral of such Grantor is collateral
security for, the prompt and complete payment of all of the Obligations of such
Grantor, whether or not for the payment of money, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising, and however acquired (all such
obligations of any Grantor, including, without limitation, the Obligations of
any Grantor, being the "SECURED OBLIGATIONS"). Without limiting the generality
of the foregoing, this Agreement secures, with respect to such Grantor, and the
Collateral of such Grantor is collateral security for, the payment of all
amounts which constitute part of the Secured Obligations of such Grantor and
would be owed by such Grantor to the Agent or any Holder but for the fact that
they are unenforceable or not allowable due to the occurrence of an Insolvency
Event or any similar proceeding involving such Grantor.
SECTION 3. Grantors Remain Liable. Anything herein to the contrary
----------------------
notwithstanding, (a) each Grantor shall remain liable under its respective
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the Agent
of any of the rights hereunder shall not release any Grantor from any of its
duties or obligations under its respective contracts and agreements included in
the Collateral, and (c) neither the Agent nor any Holder shall have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall the Agent or any Holder be
obligated to perform any of the obligations or duties of any Grantor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.
SECTION 4. Delivery of Pledged Collateral. Within thirty (30) days
------------------------------
after the end of each calendar quarter, each Grantor shall deliver to the Agent,
for the benefit of the Holders, all certificates or instruments representing or
evidencing the Pledged Collateral acquired by such Grantor during such calendar
quarter, and such Pledged Collateral shall be held by or on behalf of the Agent
pursuant hereto and shall be in suitable form for transfer by
-7-
<PAGE>
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank and, in the case of Pledged Stock of Subsidiaries of the
Grantors formed or acquired after the date hereof, an Acknowledgment executed by
such Subsidiary, all in form and substance satisfactory to the Agent. If, during
any such calendar quarter, (a) any stock dividend, reclassification,
readjustment or other change is declared or made in the capital structure of any
of the Subsidiaries which have issued Pledged Stock, or any option included
within the Pledged Collateral is exercised, or both, or (b) any subscription
warrant(s) or any other right(s) or option(s) shall be issued in connection with
the Pledged Collateral, then all new, substituted and additional shares,
warrants, rights, options and other securities issued by reason of any of the
foregoing shall be delivered to the Agent within thirty (30) days after the end
of such calendar quarter and shall be held by the Agent under the terms of this
Agreement and shall constitute Pledged Collateral hereunder; provided, however,
-------- -------
that nothing contained in this Section 4 shall be deemed to permit any stock
---------
dividend, issuance of additional stock, warrants, rights or options,
reclassification, readjustment or other change in the capital structure of any
of the Obligors which is not expressly permitted in the Note Purchase Agreement;
provided, further, however, that any Grantor's failure to so deliver such
- -------- ------- -------
property to the Agent shall in no way affect the Lien granted thereon as herein
provided.
SECTION 5. Subsequent Changes Affecting Pledged Collateral. Each
-----------------------------------------------
Grantor represents and warrants that it has made its own arrangements for
keeping itself informed of changes and potential changes affecting its Pledged
Collateral (including, but not limited to, rights to convert, rights to
subscribe, payment of dividends, payments of interest and/or principal,
reorganization and other exchanges, tender offers and voting rights), and each
Grantor agrees that neither the Agent nor any Holder shall have any obligation
to inform any Grantor of any such changes or potential changes or to take any
action or omit to take any action with respect thereto. The Agent may, after the
occurrence and during the continuance of an Event of Default, without notice and
at its option, transfer or register the Pledged Collateral or any part thereof
into its or its nominee's name with or without any indication that such Pledged
Collateral is subject to the Lien hereunder. In addition, the Agent may at any
time after the occurrence and during the continuance of an Event of Default
exchange certificates or instruments representing or evidencing the Pledged
Collateral for certificates or instruments of smaller or larger denominations.
SECTION 6. Representations and Warranties. Each Grantor represents and
------------------------------
warrants as follows:
(a) The correct corporate name and federal tax identification number
of such Grantor on the date hereof is set forth on Exhibit D attached hereto and
---------
made a part hereof. Except as set forth on Exhibit D for the jurisdictions
---------
specified with respect thereto, such Grantor has no other corporate, trade or
fictitious name and has not, during the immediately preceding five (5) years,
been known by or used any other corporate, trade or fictitious name.
(b) The principal place of business and chief executive office of
such Grantor are located at the address specified on Exhibit E attached hereto
---------
and made a part hereof. All
-8-
<PAGE>
records concerning the Accounts are located at the same address specified on
Exhibit E for such Grantor. All records concerning the Related Contracts and all
- ---------
originals of all chattel paper are located at the same address specified on
Exhibit E for such Grantor or at the addresses specified as addresses of such
- ---------
Grantor on Exhibit F attached hereto and made a part hereof.
---------
(c) All of such Grantor's Inventory and Equipment is located at the
places specified on Exhibit F. If any location of its Inventory or Equipment is
---------
subject to a lease, sublease, mortgage or similar instrument, the name and
address of each lessor, sublessor and/or mortgagee (other than such Grantor) is
set forth on Exhibit F. The legal name and address of each bailee, processor,
---------
warehouseman, consignee, carrier and shipper or other Person (other than a
Lessee) in possession of any of such Grantor's Inventory or Equipment (each such
Person being a "BAILEE") on the date hereof is set forth on Exhibit F, together
---------
with the address of the location where such Inventory or Equipment is or may be
held. Except as otherwise indicated on Exhibit F, no Person (other than a Lessee
---------
or a Person identified on Exhibit F as being a consignee) in possession of any
---------
of such Grantor's Inventory or Equipment conducts a business at the location of
such Inventory or Equipment other than a business in the nature of warehousing
or transporting goods for others. In the event that any of such Grantor's
Inventory or Equipment is in the possession of a Bailee, none of the receipts,
instruments or documents received and to be received by such Grantor from any
Bailee state that the Inventory or Equipment covered thereby is to be delivered
to bearer or to the order of a named person or to a named person and such named
person's assigns.
(d) The amount represented by such Grantor from time to time to the
Agent as the amount owing by each account debtor or by all account debtors in
respect of any Accounts will, at such time, be the correct amount actually and
unconditionally owing by such account debtor(s) thereunder to the best of such
Grantor's knowledge (except to the extent, if any, that such account debtor(s)
may be entitled to normal trade discounts, adjustments, returns and allowances).
None of the Accounts is evidenced by a promissory note or other instrument,
except for promissory notes and instruments delivered to the Agent pursuant to
this Agreement.
(e) Such Grantor is the sole legal and beneficial owner of its Pledged
Collateral (including, without limitation, the percentage of the issued and
outstanding capital stock of each of its Subsidiaries which is set forth
opposite the name of such Subsidiary on Exhibit A), free and clear of any Lien
---------
except for (i) Liens of the Agent, for the benefit of the Holders, under the
Note Documents, and (ii) Permitted Liens under the Note Purchase Agreement.
(f) All of the Pledged Stock has been duly authorized, validly issued
and is fully paid and non-assessable. The Pledged Notes have been duly
authorized and executed by the respective issuers thereof and constitute the
legal, valid and binding obligations of such respective issuers.
-9-
<PAGE>
(g) There are no restrictions upon the voting rights associated with,
or upon the transfer of, any of the Pledged Collateral (except as may be
required in connection with such disposition by laws affecting the offering and
sale of securities generally).
(h) Each Grantor has the right to vote, pledge and grant a security
interest in or otherwise transfer its Pledged Collateral free of any Liens
except for (i) Liens of the Agent, for the benefit of the Holders, under the
Note Documents, and (ii) Permitted Liens.
(i) The Powers are duly executed and give the Agent the authority they
purport to confer.
(j) The Acknowledgments have been duly authorized, executed and
delivered by the applicable Subsidiary of Grantor.
(k) The Pledged Stock constitutes, as of the date hereof, all of the
shares of capital stock and voting securities of each Subsidiary of each Grantor
that are not subject to a Security Interest Restriction. The Pledged Notes
constitute the only promissory notes of any Person in favor of the respective
Grantor as of the date hereof.
(l) The pledge of the Pledged Collateral pursuant to this Agreement
does not violate Regulation G, T, U or X.
(m) No consent, authorization, permit, notice or filing is required
(i) in connection with the execution, delivery or performance of this Agreement
by such Grantor, (ii) for the creation, perfection or maintenance of the
security interest or the Liens created hereby (including the maintenance of the
first priority nature of such Lien, except with respect to the property subject
to liens created, or hereafter created, under that certain Inventory and Working
Capital Financing Agreement dated December 1, 1996 between IBM and Grantor, as
the same has been heretofore and may be hereafter amended, supplemented or
modified, and (B) Permitted Liens)), or (iii) for the exercise by the Agent of
its rights and remedies hereunder, except (w) those that have been obtained or
made, (x) filings necessary to create, perfect or retain the perfection or
priority of Liens against such Grantor's Collateral, (y) that certain
Subordination and Intercreditor Agreement between and among IBM, the Agent, the
Purchasers, Issuer and Grantors of even date herewith and (z) with respect to
the Pledged Collateral, as may be required in connection with such disposition
by laws affecting the offering and sale of securities generally.
(n) There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived in writing.
SECTION 7. Further Assurances. (a) Each Grantor agrees that, at its
------------------
own expense, such Grantor will, and will cause each of its Subsidiaries to,
promptly execute and deliver all further instruments and documents, and take all
further action which may be reasonably necessary or desirable in the opinion of
the Agent, in order to (x) perfect and
-10-
<PAGE>
protect any Lien created or purported to be created hereby, (y) enable the Agent
to exercise and enforce its rights and remedies hereunder with respect to any of
such Grantor's Collateral, and (z) cause the execution, delivery and performance
of this Agreement to be duly authorized, and each Grantor shall, and shall cause
each of its Subsidiaries to, in any event take such action as may be required to
maintain the truthfulness and accuracy of the representations and warranties
contained in Section 6. Without limiting the generality of the foregoing, each
Grantor will: (i) if any Account or other amount payable to any Grantor under or
in connection with any of its Collateral shall be or becomes evidenced by any
promissory note, chattel paper, letter of credit or other negotiable or non-
negotiable instrument, such note, chattel paper, letter of credit or instrument
shall, within five (5) days after such Grantor's receipt thereof, be delivered
to the Agent duly indorsed and accompanied by duly executed instruments of
transfer or assignment, all in form and substance reasonably satisfactory to the
Agent; (ii) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be necessary
or desirable, or as the Agent may reasonably determine in its sole discretion to
be necessary or desirable, in order to perfect and preserve the Lien created or
purported to be created hereby; (iii) execute and deliver to the Agent notices,
agreements (including, without limitation, subordination agreements) and other
documents which the Agent may reasonably determine in its sole discretion to be
necessary or desirable, for the purpose of giving advice of and perfecting the
Liens granted to the Agent for its benefit and the ratable benefit of the
Holders and establishing the senior priority thereof over such other parties'
rights and interests in respect of any of each Grantor's Equipment, Inventory or
other Collateral held in the possession of Bailees, lessors, mortgagees or other
third parties, and shall use its best efforts to cause such third parties to
acknowledge or consent to such notices, agreements and other documents; (iv)
within thirty (30) days after the end of each calendar quarter, deliver to the
Agent with respect to any item for which a certificate of title has been issued
by the California Department of Motor Vehicles during such calendar quarter
(other than such certificates subject to Permitted Liens); (v) except with
respect to the deliveries made pursuant to Section 7(a)(iv), upon the request of
the Agent, after the occurrence and during the continuance of an Event of
Default, with respect to any item of Equipment or Inventory of any Grantor, in
either case which is covered by a certificate of title under a statute of any
jurisdiction under the law of which indication of a security interest on such
certificate is required as a condition of perfection thereof, execute and file
with the registrar of motor vehicles or other appropriate authority in such
jurisdiction an application or other document requesting the notation or other
indication of the Lien created hereunder on such certificate of title; (vi) upon
the request of the Agent, within thirty (30) days after the end of each calendar
quarter, deliver to the Agent copies of all such applications or other documents
filed pursuant to a request by the Agent under Section 7(a)(v) during such
calendar quarter and copies of all such certificates of title issued during such
calendar quarter indicating the Lien created hereunder in the items of Equipment
or Inventory covered thereby; and (vii) at the Agent's reasonable request,
appear in and defend any action or proceeding that may adversely affect that
Grantor's title to or the Agent's Lien on all or any material part of the
Collateral.
-11-
<PAGE>
(b) Each Grantor hereby authorizes the Agent to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of such Grantor's Collateral without the signature of the respective
Grantor where permitted by law. Each Grantor hereby agrees that a photocopy or
other reproduction of this Agreement or any financing statement covering its
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
(c) Each Grantor will keep and maintain at its own cost and expense,
and will cause each of its Subsidiaries to keep and maintain at their own cost
and expense, records of the Collateral in detail, form and scope consistent with
good business practice, including, without limitation, a record of all payments
received and all credits granted with respect to the Collateral and all other
dealings with the Collateral. If an Event of Default has occurred and is
continuing, for the Agent's further security, upon the Agent's request therefor,
each Grantor shall, and shall cause each of its Subsidiaries to, deliver copies
of, or if reasonably necessary in the opinion of the Agent, turn over originals
of, any such records to the Agent or to its representatives.
(d) Each Grantor will, and will cause each of its Subsidiaries to,
furnish to the Agent from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Agent may reasonably request, all in reasonable
detail, and each Grantor agrees that the Agent or its agents may enter upon the
premises of such Grantor or any of its Subsidiaries, at the expense, as
applicable, of the Grantor or the applicable Subsidiary, during normal business
hours and upon reasonable notice, all as often as may be requested, and at any
time at all on and after the occurrence of a Default which continues beyond the
expiration of any grace or cure period applicable thereto, and which has not
otherwise been waived pursuant to the Note Purchase Agreement or cured, for the
purposes of (i) inspecting and verifying the Collateral, (ii) inspecting and/or
copying (at such Grantor's expense) any and all records pertaining thereto and
(iii) discussing the affairs, finances and business of such Grantor with any
officers, employees and directors of such Grantor or with such Grantor's
auditors. Upon reasonable notice to such Grantor, the Agent or any of the
Agent's officers, employees, agents or auditors shall have the right at any time
or times hereafter to verify with account debtors or other obligors of such
Grantor the validity and amount or any other matter (including, without
limitation, the assertion by account debtors of claims, offsets or
counterclaims) with respect to any of the Collateral.
(e) Each Grantor will, and will cause each of its Subsidiaries to,
advise the Agent promptly, in reasonable detail, (i) of any material Lien or
claim made or asserted against any of the Collateral, (ii) of any material
change in the composition of the Collateral, and (iii) of the occurrence of any
other event which would have a material adverse effect on the aggregate value of
the Collateral or on the Liens created hereunder.
SECTION 8. Transfers of Collateral. Each Grantor agrees that it will
-----------------------
not, nor will it permit any of its Subsidiaries to (a) directly or indirectly,
sell, lease, assign, transfer or
-12-
<PAGE>
otherwise dispose of, or grant any option with respect to, any of the
Collateral, or any part thereof or interest therein, except as expressly
authorized under the Note Purchase Agreement, (b) directly or indirectly create,
incur, assume, or suffer to exist any Lien on any of the Pledged Collateral now
owned or hereafter acquired except for the Lien under this Agreement and
Permitted Liens, or (c) enter into any agreement or understanding that purports
to or may restrict or inhibit the Agent's rights or remedies hereunder,
including, without limitation, the Agent's right to sell or otherwise dispose of
the Pledged Collateral.
SECTION 9. Place of Perfection; Name Changes; Records. None of the
------------------------------------------
Grantors shall (a) change its name, identity or structure or adopt or use any
trade or fictitious name not specified as a current trade or fictitious name on
Exhibit D, or use any existing trade or fictitious name in any jurisdiction not
- ---------
specified for such name on Exhibit D, (b) change any location of its chief
executive office, place of business or place where records concerning its
Accounts, Related Contracts and chattel paper are maintained from the locations
specified on Exhibit E or Exhibit F or (c) change any location of any Collateral
--------- ---------
or jurisdiction where Lessees are located from the locations specified in
Exhibit F, unless, in each case, the applicable Grantor shall have given the
- ---------
Agent at least thirty (30) Business Days' prior written notice of any such
change. At least ten (10) Business Days prior to any such change referred to in
the preceding sentence, the applicable Grantor shall prepare and deliver to the
Agent amended exhibit(s) reflecting such change(s) and execute and deliver to
the Agent any financing statements or other documents required by the Agent, all
in form and substance reasonably satisfactory to the Agent, and take all other
actions required by Section 7.
SECTION 10. Covenants Regarding Accounts and Related Contracts. (a)
--------------------------------------------------
Each Grantor shall, at its expense, perform and observe all of the material
terms and provisions of the Related Contracts, service agreements, contracts of
sale, distribution agreements, employment agreements, acquisition agreements,
rental contracts, leases and chattel paper to be performed or observed by it,
maintain the Related Contracts, service agreements, contracts of sale,
distribution agreements, employment agreements, acquisition agreements, rental
contracts, leases and chattel paper in full force and effect and enforce the
Related Contracts in accordance with their terms, except for such Related
Contracts, service agreements, employment agreements, acquisition agreements,
contracts of sale, distribution agreements, rental contracts, leases and chattel
paper with respect to which the aggregate amount payable thereunder is not
Material.
(b) In any suit, proceeding or action brought by the Agent under any
account comprising part of the Collateral, the Grantors jointly and severally
agree to save, indemnify and keep the Agent and each Holder harmless from and
against all expense, loss or damages suffered by reason of any defense, setoff,
counterclaim, recoupment or reduction of liability whatsoever of the obligor
thereunder, arising out of a breach by the applicable Grantor of any obligation
or arising out of any other agreement, indebtedness or liability at any time
owing to or in favor of such obligor or its successors from the applicable
Grantor, and all such obligations of the applicable Grantor shall be and shall
remain enforceable against and only against the applicable Grantor and shall not
be enforceable against the Agent or any Holder.
-13-
<PAGE>
SECTION 11. Covenants Regarding Equipment and Inventory. (a) If any
-------------------------------------------
Equipment or Inventory of any Grantor is in the possession or control of any
Bailee or any of such Grantor's agents, such Grantor shall notify such Bailee or
agent of the Agent's Lien on such Equipment or Inventory and, upon the Agent's
request, direct such Bailee or agent to hold all such Equipment or Inventory for
the Agent's account and subject to the Agent's instructions.
(b) Upon the request of the Agent, each Grantor will promptly deliver
to the Agent a schedule, if available, listing all Equipment disposed of by such
Grantor, and the book value thereof, in the then-current (or any prior) fiscal
year.
(c) Each Grantor will, upon request of the Agent, submit to the Agent
a current listing, if available, of all of such Grantor's Equipment, which
listing shall indicate the type, model, serial number and location of such
Equipment.
(d) Each Grantor shall promptly upon the issuance and delivery to the
respective Grantor of any negotiable document of title, upon the request of the
Agent after the occurrence and during the continuance of an Event of Default,
deliver such negotiable document of title to the Agent.
SECTION 12. Voting Rights. During the term of this Agreement, and
-------------
except as provided in the next sentence of this Section 12, each Grantor shall
----------
have the right to vote its Pledged Stock on all corporate questions in a manner
not inconsistent with the terms of this Agreement, the Note Purchase Agreement
and any other agreement, instrument or document executed pursuant thereto or in
connection therewith, and in a manner that would not have a material adverse
effect on the value of the Pledged Stock and the related Pledged Collateral or
any part thereof. After the occurrence and during the continuance of an Event of
Default, the Agent may, at the Agent's option and following written notice from
the Agent to the Grantors, exercise all voting powers pertaining to the
Grantors' Pledged Collateral, including the right to take shareholder action by
written consent, and the Grantors hereby irrevocably constitute and appoint the
Agent as the Grantors' proxy and attorney-in-fact, with full power of
substitution, to do so. This proxy shall be irrevocable and shall continue until
the termination of this Agreement in accordance with Section 23.
----------
SECTION 13. Dividends and Other Distributions. (a) So long as no Event
---------------------------------
of Default shall have occurred or would result therefrom:
(i) subject to Section 4 hereof and the provisions of the Note
Purchase Agreement, each Grantor shall be entitled to receive, retain and
utilize all dividends, interest and principal paid in respect of its Pledged
Collateral unless any such dividend, interest or principal is not permitted to
be paid under the terms of the Note Purchase Agreement; and
(ii) the Agent shall execute and deliver (or cause to be executed and
delivered) to the respective Grantors all such proxies and other instruments as
any such Grantor may
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<PAGE>
reasonably request for the purpose of enabling such Grantor to receive the
dividends, interest or principal payments which it is authorized to receive,
retain and utilize pursuant to clause (i) above.
(b) Except as may otherwise be provided in the Note Purchase
Agreement, after the occurrence and during the continuance of an Event of
Default, or if any of the following would result in an Event of Default if paid
to a Grantor:
(i) all rights of any Grantor to receive dividends, interest and
principal payments in respect of the Pledged Collateral shall cease, and all
such rights shall thereupon become vested in the Agent, for the benefit of the
Agent and the ratable benefit of the Holders, which shall thereupon have the
sole right to receive and hold as Pledged Collateral such dividends, interest
and principal payments; and
(ii) all dividends, interest and principal payments which are received
by any Grantor contrary to the provisions of clause (i) of this Section 13(b)
---------- -------------
shall be received in trust for the Agent, for the benefit of the Agent and the
ratable benefit of the Holders, shall be segregated from other funds of the
respective Grantor and shall be paid over immediately to the Agent as Pledged
Collateral in the same form as so received (with any necessary indorsements).
(c) Except as may otherwise be provided in the Note Purchase
Agreement, any and all (i) dividends, interest and principal paid or payable
other than in cash in respect of, and instruments and other property received,
receivable or otherwise distributed in respect of, or in exchange for, any
Pledged Collateral, (ii) dividends and other distributions paid or payable in
cash received, receivable or otherwise distributed in respect of any Pledged
Stock in connection with a partial or total liquidation or dissolution or in
connection with a reduction of capital, capital surplus or paid-in-surplus, and
(iii) cash paid, payable or otherwise distributed in redemption of, or in
exchange for, any Pledged Stock, shall in each case be delivered forthwith to
the Agent to hold as Pledged Collateral and shall, if received by a Grantor, be
received in trust for the Agent, for the benefit of Holders, be segregated from
other funds of the respective Grantor, and be paid over immediately to the Agent
as Pledged Collateral in the same form as so received (with any necessary
indorsements).
SECTION 14. Intentionally Omitted.
---------------------
SECTION 15. Agent Appointed Attorney-in-Fact. Each Grantor hereby
--------------------------------
irrevocably appoints the Agent such Grantor's attorney-in-fact, with full
authority in the place and stead of such Grantor and in the name of such Grantor
or otherwise, from time to time in the Agent's discretion, to take any action
and to execute any instrument which the Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, subject to the Agent's authority as
provided in the Note Purchase Agreement, including, without limitation:
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<PAGE>
(a) after the occurrence and during the continuance of an Event of
Default, to ask, demand, collect, sue for, recover, compromise, receive and give
acquittance and receipts for moneys due and to become due under or in connection
with any of the Collateral;
(b) after the occurrence and during the continuance of an Event of
Default, to receive, indorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) above;
----------
(c) after the occurrence and during the continuance of an Event of
Default, to file any claims or take any action or institute any proceedings
which the Agent may deem necessary or desirable for the collection of any of the
Collateral or otherwise to enforce the rights of the Agent with respect to any
of the Collateral;
(d) after the occurrence and during the continuance of an Event of
Default, to discharge any Lien or encumbrance on or against any of the
Collateral or bond the same;
(e) to give any notices and record any Liens;
(f) to make any payments or take any acts which the Agent deems
reasonably necessary or desirable to protect the Lien of the Agent, for the
benefit of the Holders, on the Collateral;
(g) after the occurrence and during the continuance of an Event of
Default, to execute and give receipt for any certificate of ownership or any
document or title; and
(h) after the occurrence and during the continuance of an Event of
Default, to transfer title to any item of Collateral.
All Persons dealing with the Agent, or any employee or agent of the Agent acting
pursuant hereto, or any substitute attorney-in-fact for the Agent, shall be
fully protected in treating the powers and authorities conferred by this Section
-------
15 as existing and continuing in full force and effect. Each Grantor hereby
- --
ratifies all that such attorney-in-fact shall lawfully do or cause to be done by
virtue hereof. This power of attorney is coupled with an interest and shall be
irrevocable. This power of attorney shall terminate upon the termination of
this Agreement pursuant to Section 23.
----------
SECTION 16. Agent May Perform. If any Grantor fails to perform any
-----------------
agreement contained herein, the Agent, after giving prior notice to such
Grantor, may itself perform, or cause performance of, such agreement, and the
expenses of the Agent incurred in connection therewith shall be payable by the
applicable Grantor to the Agent upon demand by the Agent.
SECTION 17. The Agent's Rights and Duties. The powers conferred on
-----------------------------
the Agent and the Holders hereunder are solely to protect their interest in the
Collateral and shall
-16-
<PAGE>
not impose any duty upon any of them to exercise any such powers. Except for the
safe custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Agent shall have no duty as to any
Collateral. Without limiting the generality of the foregoing sentence, the Agent
shall be under no obligation to (a) ascertain or take action with respect to
calls, conversions, exchanges, maturities, tenders or other matters relative to
any Pledged Collateral, whether or not the Agent has or is deemed to have
knowledge of such matters, but may do so at its option or (b) take any steps
necessary to preserve rights in the Pledged Collateral against any other parties
but may do so at its option. All expenses incurred in connection therewith shall
be for the sole account of the applicable Grantor, and shall constitute part of
its Obligations secured hereby. Any action taken or omitted to be taken by the
Agent in connection with any of the Collateral shall not result in any liability
of the Agent to any Grantor unless such action or omission shall be determined
by a court of competent jurisdiction to have arisen solely out of the gross
negligence or willful misconduct of the Agent. The Agent may exercise any of its
rights and execute any of its duties hereunder by or through agents or employees
and shall be entitled to advice of counsel concerning all matters pertaining to
its rights and duties hereunder.
SECTION 18. Remedies. If any Event of Default shall have occurred and
--------
be continuing:
(a) The Agent may exercise in respect of the Collateral, in addition
to other rights and remedies provided for herein, in the Note Purchase
Agreement, or otherwise available to it, all the rights and remedies of a
secured party upon default under the Uniform Commercial Code in effect in any
relevant jurisdiction at that time (the "UNIFORM COMMERCIAL CODE") (whether or
not the Uniform Commercial Code applies to the affected Collateral), and also
may (i) without notice, demand or legal process of any kind, all of which each
Grantor hereby waives to the extent permitted by applicable law, at any time or
times notify the account debtors or obligors under any Accounts, chattel paper,
instruments or General Intangibles of the assignment of such Collateral to the
Agent and to direct such account debtors or obligors to make payment of all
amounts due or to become due to the respective Grantors thereunder directly to
the Agent, to notify each Person maintaining a lockbox or similar arrangement to
which account debtors or obligors under any Accounts, chattel paper, instruments
or General Intangibles have been directed to make payment to remit all amounts
representing collections on checks and other payment items from time to time
sent to or deposited in such lockbox or other arrangement directly to the Agent
and, upon such notification and at the expense of the respective Grantors, to
accelerate or extend the time of payment, compromise, issue credits, or bring
suit on such Collateral (in the name of the respective Grantors or the Holders)
and otherwise administer and collect such Collateral, in the same manner and to
the same extent as the respective Grantors might have done; (ii) without notice,
demand or legal process of any kind, all of which each Grantor hereby waives to
the extent permitted by applicable law, at any time or times enter any premises
where any Collateral may be located and take physical possession of the
Collateral and maintain such possession on the premises, at no cost to the
Agent, or remove the Collateral or any part thereof, to such other places as the
Agent may desire; (iii) without notice, demand or legal
-17-
<PAGE>
process of any kind, all of which each Grantor hereby waives to the extent
permitted by applicable law, at any time or times enter any premises where any
Collateral may be located and use, manage, operate and control the Collateral
thereon and the relevant business and property to preserve the Collateral;
exclude any third parties, whether or not claiming under such Grantor, from any
such premises and property; complete any unfinished Inventory, make repairs,
replacements, alterations, additions and improvements to the Collateral; and,
dispose of all or any portion of the Collateral in the ordinary course of
business; (iv) require any Grantor to, and each Grantor hereby agrees that it
will at its own expense and upon request of the Agent forthwith, assemble all or
part of its Collateral as directed by the Agent and make it available to the
Agent at a place or places to be designated by the Agent that is reasonably
convenient for both parties, and deliver possession of said Collateral or any
part thereof to the Agent; and (v) without notice, except as specified below,
sell, lease, assign, grant an option or options to purchase or otherwise dispose
of the Collateral or any part thereof in one or more parcels with or without
advertisement, at any exchange, broker's board, public or private sale, at any
of the Agent's offices or elsewhere, for cash, on credit, for future delivery,
or otherwise, and upon such other terms as the Agent may deem commercially
reasonable. Any repossession, retaking, sale, or other disposition of the
Collateral by the Agent shall not operate to release the respective Grantor from
its obligations hereunder. The Agent and each Holder may, in its own name or in
the name of a designee or nominee, bid for or purchase the Collateral at any
public sale and, if permitted by applicable law, buy the Collateral at any
private sale. Each purchaser of any or all of the Collateral so sold shall
thereafter own the same, absolutely free from any claim, encumbrance or right of
any kind whatsoever on the part of any Grantor, and each Grantor hereby waives,
to the extent permitted by applicable law, all rights of redemption, appraisal,
valuation, stay, extension or moratorium now or hereafter in force in order to
prevent or delay the enforcement of this Agreement, or the absolute sale of the
whole or any part of the Collateral or the possession thereof by any purchaser
at any sale hereunder. Each Agent agrees that, to the extent notice of sale
shall be required by law, the Agent shall provide such notice as is commercially
reasonable, which shall not be less than five (5) Business Days' notice to the
applicable Grantor(s) of the time and place of any public sale or the time after
which any private sale is to be made. The Agent shall not be obligated to make
any sale of Collateral regardless of notice of sale having been given. The Agent
may adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was so adjourned, provided, however, that
-------- -------
Agent provides commercially reasonable notice to Grantor of the time and place
to which the sale was adjourned. Each Grantor hereby waives any claims against
the Agent arising by reason of the fact that the price at which any Collateral
may have been sold at such a private sale was less than the price which might
have been obtained at a public sale, even if the Agent accepts the first offer
received and does not offer such Collateral to more than one offeree; provided
--------
that such sale was conducted in a commercially reasonable manner.
(b) Any cash held by the Agent as Collateral and all cash proceeds
received by the Agent in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral may, in the discretion of the
Agent, be held by the Agent as collateral for,
-18-
<PAGE>
and/or then or at any time thereafter be applied in whole or in part by the
Agent for its benefit and for the ratable benefit of the Holders against, all or
any part of the respective Grantor's Secured Obligations in such order as the
Agent shall elect, subject to any provision of the Note Purchase Agreement
governing the application of such cash, proceeds, or other realization upon the
Collateral. If the proceeds of any sale or other disposition of the Collateral
of a Grantor are insufficient to pay all of the Secured Obligations of such
Grantor, such Grantor shall be liable for the deficiency, in addition to any
fees, expenses or other amounts required to be paid pursuant to the Note
Purchase Agreement to collect such deficiency. Any surplus of such cash or cash
proceeds held by the Agent and remaining after payment in full of all Secured
Obligations shall be promptly paid to the applicable Grantor or to whomsoever
may be lawfully entitled to receive such surplus.
(c) Each Grantor hereby consents to the voluntary dismissal by the
Agent of any judicial action, prejudgment or otherwise, brought by the Agent,
and each Grantor further consents to the exoneration of any bond that the Agent
files in such action.
SECTION 19. Registration Rights. (a) In the event that the Agent
-------------------
determines, after the occurrence and during the continuance of an Event of
Default, to exercise its right to sell the Pledged Stock pursuant to Section 18,
----------
each Grantor shall, upon the request of the Agent, at each Grantor's expense:
(i) execute and deliver, and cause each issuer of Pledged Stock and
its respective officers and directors to execute and deliver, all such
instruments and documents, and do or cause to be done all such other acts
and things, as may be necessary or, in the opinion of the Agent, the
applicable Grantor or its or their counsel, advisable to register the
applicable Pledged Collateral under the provisions of the Securities Act of
1933, as amended (the "SECURITIES ACT") and to exercise its reasonable
efforts to cause the registration statement relating thereto to become
effective and to remain effective for such period as prospectuses are
required by law to be furnished, and to make all amendments and supplements
thereto and to the related prospectus which, in the opinion of the Agent,
the applicable Grantor or its or their counsel, are necessary or advisable,
all in conformity with the requirements of the Securities Act and the rules
and regulations of the Securities and Exchange Commission applicable
thereto;
(ii) use its reasonable efforts to qualify its Pledged Collateral
under state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of its Pledged Collateral, as requested
by the Agent;
(iii) cause any Subsidiary which has issued Pledged Collateral (or
any of them) to make available to the holders of its securities, as soon as
practicable, earnings statements which will satisfy the provisions of
Section 11(a) of the Securities Act; and
-19-
<PAGE>
(iv) do or cause to be done all such other acts and things as may be
reasonably necessary to make such sale of its Pledged Collateral or any
part thereof valid and binding and in compliance with applicable law.
The Grantors will reimburse the Agent for all expenses incurred by the Agent,
including, without limitation, reasonable attorneys' and accountants' fees and
expenses in connection with the foregoing. Upon or at any time after the
occurrence and during the continuance of an Event of Default, if the Agent
determines that, prior to any public offering of any securities constituting
part of the Pledged Collateral, such securities should be registered under the
Securities Act and/or registered or qualified under any other federal or state
law and such registration and/or qualification is not practicable, then the
Grantors agree that it will be commercially reasonable if a private sale is
arranged so as to avoid a public offering, even though the sales price
established and/or obtained at such private sale may be substantially less than
prices which could have been obtained for such security on any market or
exchange or in any other public sale. In so doing, the Agent may restrict the
bidders and prospective purchasers to those who are qualified and will represent
and agree that they are purchasing for investment only and not for distribution,
and the Agent may solicit offers to buy the Pledged Collateral, or any part of
it, from a limited number of investors deemed by the Agent, in its reasonable
judgment, to be financially responsible parties who might be interested in so
purchasing the Pledged Collateral. If the Agent solicits such offers from not
less than four (4) such investors, then the acceptance by the Agent of the
highest offer obtained therefrom shall be deemed to be a commercially reasonable
method of disposing of such Pledged Collateral. The Agent shall be under no
obligation to delay a sale of any of the Pledged Collateral for the period of
time necessary to permit the registrant to register such securities for public
sale under the Securities Act, or under applicable state securities laws, even
if the applicable Grantor or the issuer of the Pledged Collateral would agree to
do so.
(b) In addition to a private sale as provided above in Section
-------
19(a), if any of the Pledged Collateral shall not be freely distributable to the
- -----
public without registration under the Securities Act (or similar statute) at the
time of any proposed sale pursuant to this Section 19, then the Agent shall not
----------
be required to effect such registration or cause the same to be effected but, in
its discretion (subject only to applicable requirements of law), may require
that any sale hereunder (including a sale at auction) be conducted subject to
restrictions (i) as to the financial sophistication and ability of any Person
permitted to bid or purchase at any such sale, (ii) as to the content of legends
to be placed upon any certificates representing the Pledged Collateral sold in
such sale, including restrictions on future transfer thereof, (iii) as to the
representations required to be made by each Person bidding or purchasing at such
sale relating to that Person's access to financial information about the
pertinent issuer of Pledged Collateral and such Person's intentions as to the
holding of the Pledged Collateral so sold for investment, for its own account,
and not with a view of the distribution thereof, and (iv) as to such other
matters as the Agent may, in its discretion, deem necessary or appropriate in
order that such sale (notwithstanding any failure so to register) may be
effected in compliance with the Uniform Commercial Code as in effect in the
State of California or any other relevant
-20-
<PAGE>
jurisdiction and other laws affecting the enforcement of creditors' rights and
the Securities Act and all applicable state securities laws.
SECTION 20. Waivers. Each Grantor waives presentment and demand for
-------
payment of any of the Obligations, protest and notice of dishonor or Event of
Default with respect to any of the Obligations and all other notices to which
any Grantor might otherwise be entitled, except as otherwise expressly provided
herein or in the Note Purchase Agreement.
SECTION 21. Amendments, Etc. No amendment or waiver of any provision
---------------
of this Agreement, and no consent to any departure by any Grantor herefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Grantor and the Holders (or by the Agent on their behalf), except as
otherwise provided in the Note Purchase Agreement, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 22. Notices, Etc. All notices and other communications
------------
provided for hereunder shall be given in the manner and to the addresses set
forth in the Note Purchase Agreement, except that any notice provided by any
Grantor to the Agent hereunder shall be effective only upon receipt thereof by
the Agent.
SECTION 23. Continuing Lien; Assignments under Note Purchase
------------------------------------------------
Agreement; Termination; Payments Set Aside. This Agreement shall create a
- ------------------------------------------
continuing Lien on the Collateral and shall (i) remain in full force and effect
until the payment in full of the Secured Obligations, (ii) be binding upon each
Grantor, its successors and permitted assigns (which shall include, without
limitation, such Grantor's receivers, trustees or debtors-in-possession), and
(iii) inure to the benefit of, and be enforceable by, the Agent, the Holders and
their respective successors, transferees and permitted assigns. Without limiting
the generality of the foregoing clause (iii), any Holder may assign or otherwise
------------
transfer all or any portion of its rights and obligations under the Note
Purchase Agreement in accordance with the terms thereof and any Note held by it
(subject to the terms of the Note Purchase Agreement), to any other Person, and
such other Person shall thereupon become vested with all the benefits in respect
thereof granted to such Holder herein or otherwise. None of the Grantors shall
assign this Agreement, or any rights or obligations hereunder, without the prior
written consent of the Agent and the Holders. Upon the payment in full of the
Secured Obligations, the Lien granted hereby shall terminate and all rights to
the Collateral shall revert to the respective Grantor. At such time, the Agent
shall, at the request and expense of the Grantors, reassign and redeliver to the
respective Grantor all of the Collateral hereunder which has not been sold,
disposed of, retained or applied by the Agent in accordance with the terms of
this Agreement. Such reassignment and redelivery shall be without warranty by or
recourse to the Agent, except as to the absence of any prior assignments by the
Agent of its interest in the Collateral, and shall be at the expense of the
respective Grantor. To the extent that any Grantor makes a payment or payments
to the Agent or any Holder, or the Agent or the Holders enforce their Liens or
exercise their rights of set-off, and such payment or payments or the proceeds
of such enforcement or set-off or any part thereof are subsequently invalidated,
declared to be fraudulent
-21-
<PAGE>
or preferential, set aside and/or required to be repaid to a trustee, receiver
or any other party under any bankruptcy law, state or federal law, common law or
equitable cause, then, to the extent of such recovery, the obligation or part
thereof originally intended to be satisfied, and all Liens, rights and remedies
therefor, shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or set-off had not occurred.
SECTION 24. Survival of Representations and Warranties. Each Grantor
------------------------------------------
covenants, warrants, and represents to the Agent and the Holders that all
representations and warranties of such Grantor contained in this Agreement shall
be true at the time of such Grantor's execution of this Agreement, shall survive
the execution, delivery and acceptance hereof by the parties hereto and the
closing of the transactions described in the Note Purchase Agreement and the
other Note Documents and shall continue in effect until all of the Secured
Obligations shall have been paid in full and the Note Purchase Agreement has
been terminated.
SECTION 25. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND
-------------
ENFORCEMENT OF THIS AGREEMENT AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE,
SHALL BE GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS
PROVISIONS) AND DECISIONS OF THE STATE OF CALIFORNIA, EXCEPT AS REQUIRED BY
MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF THE LIEN HEREUNDER, OR ANY OF THE REMEDIES HEREUNDER, IN RESPECT
OF ANY PARTICULAR COLLATERAL, MAY BE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF CALIFORNIA.
SECTION 26. SUBMISSION TO JURISDICTION. ALL DISPUTES AMONG THE
--------------------------
GRANTORS AND THE HOLDERS (OR THE AGENT ACTING ON THEIR BEHALF), WHETHER SOUNDING
IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND
FEDERAL COURTS LOCATED IN LOS ANGELES, CALIFORNIA, AND THE COURTS TO WHICH AN
APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT THE AGENT, ON BEHALF OF
-------- -------
THE HOLDERS, SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO
PROCEED AGAINST THE GRANTORS OR THEIR RESPECTIVE PROPERTY IN ANY LOCATION
REASONABLY SELECTED BY THE AGENT IN GOOD FAITH TO ENABLE THE AGENT TO REALIZE ON
SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE
AGENT. EACH OF THE GRANTORS AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE
COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY COLLECTION PROCEEDING BROUGHT BY
THE AGENT. EACH OF THE GRANTORS WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE
LOCATION OF THE COURT IN WHICH THE AGENT HAS COMMENCED A PROCEEDING, INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON FORUM NON
CONVENIENS.
-22-
<PAGE>
SECTION 27. INTENTIONALLY OMITTED.
SECTION 28. JURY TRIAL. THE GRANTORS, THE AGENT AND THE PURCHASERS
----------
EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY. INSTEAD, ANY DISPUTES WILL BE
RESOLVED IN A BENCH TRIAL.
SECTION 29. LIMITATION OF LIABILITY. NONE OF THE AGENT OR THE HOLDERS
-----------------------
SHALL HAVE ANY LIABILITY TO THE GRANTORS (WHETHER SOUNDING IN TORT, CONTRACT, OR
OTHERWISE) FOR LOSSES SUFFERED BY THE GRANTORS OR THEIR RESPECTIVE SUBSIDIARIES,
AND EACH OF THE GRANTORS HEREBY WAIVES AND RELEASES ANY CLAIMS, IN CONNECTION
WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE TRANSACTIONS OR RELATIONSHIPS
CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN
CONNECTION HEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND NONAPPEALABLE
JUDGMENT OR COURT ORDER BINDING ON THE AGENT OR ANY SUCH HOLDER, THAT THE LOSSES
WERE THE RESULT OF ACTS OR OMISSIONS CONSTITUTING GROSS NEGLIGENCE, WILLFUL
MISCONDUCT, BREACH OF CONTRACT OR KNOWING OR GROSSLY NEGLIGENT VIOLATIONS OF
APPLICABLE REQUIREMENTS OF LAW. EACH OF THE GRANTORS AGREES NOT TO ASSERT ANY
CLAIM AGAINST ANY OF THE AGENT OR ANY HOLDER ON ANY THEORY OF LIABILITY FOR
SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT OF, OR IN ANY
WAY IN CONNECTION WITH, THE OBLIGATIONS OR ANY OTHER MATTERS GOVERNED BY THIS
AGREEMENT OR THE OTHER NOTE DOCUMENTS.
SECTION 30. Severability. In case any provision in or obligation
------------
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations shall not in any way be affected or impaired thereby.
SECTION 31. Protection of Collateral. The Agent shall have the right
------------------------
(but shall not be obligated) to make payments and take actions it deems
reasonably necessary to protect its Lien on the Collateral. The Grantors shall
reimburse the Agent for all such payments made, and expenses incurred with
respect to such actions taken, by the Agent, which amounts and expenses shall be
secured under this Agreement, and the Grantors shall be bound by any such
payment made or action taken by the Agent.
SECTION 32. No Waiver; Remedies. No failure on the part of any Holder
-------------------
or the Agent to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided in the Note Purchase Agreement, any other
Note Document, in equity, or by law.
-23-
<PAGE>
SECTION 33. Marshalling; Recourse to Security. None of the Holders or
---------------------------------
the Agent shall be under any obligation to marshall any assets in favor of any
Grantor or any other party or against or in payment of any or all of the Secured
Obligations. Recourse to security shall not be required at any time.
SECTION 34. Construction. (a) The parties acknowledge that each party
------------
and its counsel have reviewed and revised this Agreement and that the normal
rule of construction to the effect that any ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement or any amendments or exhibits hereto.
(b) The words "hereof", "herein" and "hereunder" and words of like
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement and section and exhibit
references are to this Agreement and to its attachments unless otherwise
specified.
(c) All terms defined in this Agreement in the singular shall have
comparable meanings when used in the plural, and vice versa, unless otherwise
---- -----
specified.
(d) Unless otherwise defined herein or in the Note Purchase
Agreement, terms used in Article 9 of the Uniform Commercial Code in effect in
the State of California are used herein as therein defined.
SECTION 35. Headings. Section headings in this Agreement are included
--------
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
SECTION 36. Additional Grantors. The initial Grantors hereunder shall
-------------------
be WMT, STG, SMS, INET, SDI, SII, and SDS. From time to time after the date
hereof, additional Subsidiaries of the Obligors may become Guarantors under the
Note Purchase Agreement in accordance with Section 6.17 of the Note Purchase
Agreement. Such additional Subsidiaries (each, an "ADDITIONAL GRANTOR") shall
become a party to this Guarantor Security and Pledge Agreement by executing a
counterpart of this Agreement. Upon delivery of any such counterpart to the
Agent, notice of which is hereby waived by the other Grantors, each Additional
Grantor shall be a Grantor and shall be as fully a party hereto as if such
Additional Grantor were an original signatory hereof. Each Additional Grantor
shall deliver at the time of delivery of such counterpart additional schedules
hereto, and deliver or cause to be delivered such Pledged Collateral,
Acknowledgments and Powers, which are necessary to make its representations and
warranties made herein true and correct, together with any other documents which
the Agent may reasonably request. Each Grantor expressly agrees that its
obligations arising hereunder shall not be affected or diminished by the
addition or release of any other Grantor hereunder, nor by any election of the
Agent or the Holders not to cause any Subsidiary of any Obligor to become an
Additional Grantor hereunder. This Agreement shall be fully effective as to any
Grantor that is or becomes a party hereto regardless of whether any other Person
becomes or fails to become or ceases to be a Grantor hereunder.
-24-
<PAGE>
SECTION 37. Execution in Counterparts; Effectiveness. This Agreement
----------------------------------------
and any waiver or amendment hereto may be executed in any number of counterparts
and by the different parties hereto in separate counterparts, each of which when
so executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. This Agreement shall become effective on
the date on which all of the parties hereto shall have signed a copy hereof
(whether the same or different copies) and shall have delivered the same to the
Agent pursuant to the provisions of the Note Purchase Agreement and of this
Agreement concerning notices.
* * *
-25-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
GRANTORS:
- ---------
WMT Acquisition Corp., SAVOIR TECHNOLOGY GROUP, INC.,
a California corporation, a Delaware corporation,
By: /s/ James W. Dorst By: /s/ James W. Dorst
------------------------------ ------------------------------
James W. Dorst James W. Dorst
Chief Financial Officer Chief Financial Of
STAR MANAGEMENT SERVICES, INC., INET SYSTEMS, INC.,
a Delaware corporation, a Texas corporation,
By: /s/ Carlton Joseph Mertens II By: /s/ Carlton Joseph Mertens II
----------------------------- -----------------------------
Carlton Joseph Mertens II Carlton Joseph Mertens II
President President
STAR DATA INTERNATIONAL, STAR DATA SYSTEMS, INC.,
a company organized under the laws a Texas corporation
of the virgin Islands
By: /s/ Carlton Joseph Mertens II By: /s/ Carlton Joseph Mertens II
----------------------------- -----------------------------
Carlton Joseph Mertens II Carlton Joseph Mertens II
President President
SIRIUS INVESTMENTS, INC., AGENT:
a Nevada corporation -----
CANPARTNERS INVESTMENTS IV, LLC,
By: /s/ Carlton Joseph Mertens II a California limited liability company,
-----------------------------
Carlton Joseph Mertens II as Agent
President
By: /s/ Scott A. Imbach
----------------------------
Scott A. Imbach
Attorney-In-Fact
SIGNATURE PAGE 1 OF 1
<PAGE>
EXHIBIT A
to
GUARANTOR SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Pledged Collateral
------------------
GRANTOR
- -------
WMT Acquisition Corp.
Pledged Stock Certificates: None.
- --------------------------
Pledged Notes: None.
- -------------
GRANTOR
- -------
Savoir Technology Group, Inc.
Pledged Stock Certificates: None.
- --------------------------
Pledged Notes: None.
- -------------
GRANTOR
- -------
Star Management Services, Inc.
Pledged Stock Certificates: Sirius Investments, Inc.
- --------------------------
Percentage of Issued and Outstanding Capital Stock Owned by the Pledgor:
100%
Shares of Capital Stock Owned by Pledgor Subject to Pledge: 3,000
Pledged Notes: None.
- -------------
<PAGE>
GRANTOR
- -------
Sirius Investments, Inc.
Pledged Stock Certificates: Star Data Systems, Inc.
- --------------------------
Percentage of Issued and Outstanding Capital Stock Owned by the Pledgor:
100%
Shares of Capital Stock Owned by Pledgor Subject to Pledge: 3,000
Pledged Notes: None.
- -------------
GRANTOR
- -------
Star Data Systems, Inc.
Pledged Stock Certificates: INET Systems, Inc.
- --------------------------
Percentage of Issued and Outstanding Capital Stock Owned by the Pledgor:
100%
Shares of Capital Stock Owned by Pledgor Subject to Pledge: 1,000
Pledged Stock Certificates: Star Data International, Inc.
- --------------------------
Percentage of Issued and Outstanding Capital Stock Owned by the Pledgor:
100%
Shares of Capital Stock Owned by Pledgor Subject to Pledge: 1,000
Pledged Notes: None.
- -------------
GRANTOR
- -------
INET Systems, Inc.
Pledged Stock Certificates: None.
- --------------------------
Pledged Notes: None.
- -------------
2
<PAGE>
GRANTOR
- -------
Star Data International, Inc.
Pledged Stock Certificates: None.
- --------------------------
Pledged Notes: None
- -------------
3
<PAGE>
EXHIBIT B
to
GUARANTOR SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Form of Acknowledgment
----------------------
ACKNOWLEDGMENT
The undersigned hereby acknowledges receipt of a copy of the foregoing
Guarantor Security and Pledge Agreement, agrees promptly to note on its books
and records the Liens granted under such Guarantor Security and Pledge
Agreement, and waives any rights or requirement at any time hereafter to receive
a copy of such Guarantor Security and Pledge Agreement in connection with the
registration of any Pledged Collateral in the name of the Agent or its nominee
or the exercise of voting rights by the Agent.
[NAME OF ISSUER OF PLEDGED STOCK]
By: _______________________
Name:
Title:
4
<PAGE>
EXHIBIT C
to
GUARANTOR SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Form of Stock Power
-------------------
STOCK POWER
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and
transfer to ______________________________ all of its right, title and interest
in and to ______________ shares of the capital stock of _______________, a
______________ corporation, represented by Certificate No. ______ (the "Stock"),
standing in the name of the undersigned on the books of said corporation and
does hereby irrevocably constitute and appoint _____________________ as the
undersigned's true and lawful attorney, for it and in its name and stead, to
sell, assign and transfer all or any of the Stock and for that purpose to make
and execute all necessary acts of assignment and transfer thereof.
Dated: _____________
[NAME OF GRANTOR]
By: ________________________
Name:
Title:
5
<PAGE>
EXHIBIT D
to
GUARANTOR SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Corporate or Fictitious Names; Tax Identification Number
--------------------------------------------------------
WMT ACQUISITION CORP.
- ---------------------
Exact Corporate Name: WMT Acquisition Corp.
Tax Identification Number: 94-2414428
Other Corporate,
Trade or Fictitious Names Jurisdictions Used
- ------------------------- ------------------
None.
SAVOIR TECHNOLOGY GROUP, INC.
- -----------------------------
Exact Corporate Name: Savoir Technology Group, Inc.
Tax Identification Number: 94-2414428
Other Corporate,
Trade or Fictitious Names Jurisdictions Used
- ------------------------- ------------------
None.
STAR MANAGEMENT SERVICES, INC.
- ------------------------------
Exact Corporate Name: Star Management Services, Inc.
Tax Identification Number: 74-2651903
Other Corporate,
Trade or Fictitious Names Jurisdictions Used
- ------------------------- ------------------
None.
6
<PAGE>
INET SYSTEMS, INC.
- ------------------
Exact Corporate Name: INET Systems, Inc.
Tax Identification Number: 74-2759019
Other Corporate,
Trade or Fictitious Names Jurisdictions Used
- ------------------------- ------------------
None.
STAR DATA INTERNATIONAL, INC.
- ----------------------------
Exact Corporate Name: Star Data International, Inc.
Tax Identification Number: 66-0508277
Other Corporate,
Trade or Fictitious Names Jurisdictions Used
- ------------------------- ------------------
None.
SIRIUS INVESTMENTS, INC.
- -----------------------
Exact Corporate Name: Sirius Investments, Inc.
Tax Identification Number: 74-2651905
Other Corporate,
Trade or Fictitious Names Jurisdictions Used
- ------------------------- ------------------
None.
STAR DATA SYSTEMS, INC.
- ----------------------
Exact Corporate Name: Star Data Systems, Inc.
Tax Identification Number: 74-2136583
Other Corporate,
Trade or Fictitious Names Jurisdictions Used
- ------------------------- ------------------
None.
7
<PAGE>
EXHIBIT E
to
GUARANTOR SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Address Where Records Concerning Accounts Are Located
-----------------------------------------------------
and Principal Place of Business
-------------------------------
WMT ACQUISITION CORP.
- --------------------
Chief Executive Office and Principal Place of Business
------------------------------------------------------
254 E. Hacienda Avenue
Campbell, CA 95008
Other Addresses
---------------
None.
SAVOIR TECHNOLOGY GROUP, INC.
- ----------------------------
Chief Executive Office and Principal Place of Business
------------------------------------------------------
254 E. Hacienda Avenue
Campbell, CA 95008
Other Addresses
---------------
None.
STAR MANAGEMENT SERVICES, INC.
- -----------------------------
Chief Executive Office and Principal Place of Business
------------------------------------------------------
888 Isom Road
San Antonio, TX 78216
Other Addresses
---------------
None.
8
<PAGE>
INET SYSTEMS, INC.
- -----------------
Chief Executive Office and Principal Place of Business
------------------------------------------------------
888 Isom Road
San Antonio, TX 78216
Other Addresses
---------------
None.
STAR DATA INTERNATIONAL, INC.
- ----------------------------
Chief Executive Office and Principal Place of Business
------------------------------------------------------
5144 Droinningens Gade
Suite 300
Charlotte Amalie
St. Thomas, Virgin Islands 00802
Other Addresses
---------------
None.
SIRIUS INVESTMENTS, INC.
- -----------------------
Chief Executive Office and Principal Place of Business
------------------------------------------------------
888 Isom Road
San Antonio, TX 78216
Other Addresses
---------------
None.
9
<PAGE>
STAR DATA SYSTEMS, INC.
- ----------------------
Chief Executive Office and Principal Place of Business
------------------------------------------------------
888 Isom Road
San Antonio, TX 78216
Other Addresses
---------------
None.
10
<PAGE>
EXHIBIT F
to
GUARANTOR SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Locations of Inventory and Equipment
------------------------------------
WMT ACQUISITION CORP.
- --------------------
Locations Owned or Leased by the Grantor
----------------------------------------
None.
Jurisdictions where Lessees are Located
---------------------------------------
None.
Bailees
-------
None.
Names and Mailing Address of Bailees/
-------------------------------------
Address where Bailee Holds Collateral
-------------------------------------
None.
11
<PAGE>
SAVOIR TECHNOLOGY GROUP, INC.
- ----------------------------
Locations Owned or Leased by the Grantor
----------------------------------------
None.
Jurisdictions where Lessees are Located
---------------------------------------
None.
Bailees
-------
None.
Names and Mailing Address of Bailees/
-------------------------------------
Address where Bailee Holds Collateral
-------------------------------------
None.
STAR MANAGEMENT SERVICES, INC.
- -----------------------------
Locations Owned or Leased by the Grantor
----------------------------------------
None.
Jurisdictions where Lessees are Located
---------------------------------------
None.
Bailees
-------
None.
Names and Mailing Address of Bailees/
-------------------------------------
Address where Bailee Holds Collateral
-------------------------------------
None.
12
<PAGE>
INET SYSTEMS, INC.
- -----------------
Locations Owned or Leased by the Grantor
----------------------------------------
None.
Jurisdictions where Lessees are Located
---------------------------------------
None.
Bailees
-------
None.
Names and Mailing Address of Bailees/
-------------------------------------
Address where Bailee Holds Collateral
-------------------------------------
None.
13
<PAGE>
STAR DATA INTERNATIONAL, INC.
- ----------------------------
Locations Owned or Leased by the Grantor
----------------------------------------
Name and Address of Lessor,
Sublessor, Lessee, Sublessee
Address and/or Mortgagee, if any
- ------- ------------------------
5144 Droinningens Gade None; address for Foreign Sales
Suite 300 Corporation purposes only
Charlotte Amalie
St. Thomas, Virgin Islands 00802
Jurisdictions where Lessees are Located
---------------------------------------
None.
Bailees
-------
None.
Names and Mailing Address of Bailees/
-------------------------------------
Address where Bailee Holds Collateral
-------------------------------------
None.
14
<PAGE>
SIRIUS INVESTMENTS, INC.
- -----------------------
Locations Owned or Leased by the Grantor
----------------------------------------
None.
Jurisdictions where Lessees are Located
---------------------------------------
None.
Bailees
-------
None.
Names and Mailing Address of Bailees/
-------------------------------------
Address where Bailee Holds Collateral
-------------------------------------
None.
STAR DATA SYSTEMS, INC.
- ----------------------
Locations Owned or Leased by the Grantor
----------------------------------------
Name and Address of Lessor,
Sublessor, Lessee, Sublessee
Address and/or Mortgagee, if any
- ------- ------------------------
888 Isom Road Maribal Properties, Inc.
San Antonio, TX 78216 861 Isom Road
San Antonio, TX 78216
12029 Warfield Road Byco, Inc.
San Antonio, TX 78216 1031 E. Nakoma, #102
San Antonio, TX 78216
Jurisdictions where Lessees are Located
---------------------------------------
None.
Bailees
-------
None
15
<PAGE>
Names and Mailing Address of Bailees/
-------------------------------------
Address where Bailee Holds Collateral
-------------------------------------
None.
16
<PAGE>
EXHIBIT G
to
GUARANTOR SECURITY AND PLEDGE AGREEMENT
dated as september 30, 1997
Property Subject to a Security Interest Restriction
---------------------------------------------------
All Grantors: None.
17
<PAGE>
EXHIBIT 10.2
EXECUTION COPY
SMS SUBORDINATION AND INTERCREDITOR AGREEMENT
---------------------------------------------
THIS SMS SUBORDINATION AND INTERCREDITOR AGREEMENT (this "AGREEMENT") is
made effective as of the 30th day of September, 1997, by and among Canpartners
Investments IV, LLC, a California limited liability company, and Robert Fleming
Inc., a Delaware corporation (collectively the "SENIOR SUBORDINATED LENDER");
Western Micro Technology, Inc., a Delaware Corporation (the "COMPANY"); Harvey
E. Najim and Carlton Joseph Mertens II (collectively "SMS SELLER"); WMT
Acquisition Corp., a California corporation, Savoir Technology Group, Inc., a
Delaware corporation, Star Management Services, Inc., a Delaware corporation
("SMS"), Inet Systems, Inc., a Texas corporation, Star Data International, a
company organized under the laws of the Virgin Islands, Sirius Investments,
Inc., a Nevada corporation, and Star Data Systems, Inc., a Texas corporation
(collectively the "SUBSIDIARIES"). The Company and the Subsidiaries are
collectively referred to as the "OBLIGORS" and individually as an "OBLIGOR."
BACKGROUND
----------
A. Obligors are about to become indebted (directly as borrower or
indirectly as guarantor) to Senior Subordinated Lender pursuant to the terms of
that certain Note Purchase Agreement dated as of September 30, 1997 between
Senior Subordinated Lender and the Obligors for a term loan in the amount of
$15,700,000 (the "Note Purchase Agreement"). Capitalized terms not defined
herein shall have the respective meanings therefor in the Note Purchase
Agreement. SMS Seller is interested in the welfare of Obligors and will benefit
if Senior Subordinated Lender extends or maintains credit to the Obligors.
B. Obligors have requested that Senior Subordinated Lender and SMS Seller
extend and maintain credit facilities to the Obligors. Senior Subordinated
Lender and SMS Seller are willing to do so provided this Agreement is executed.
NOW, THEREFORE, the parties hereto, as an inducement for Senior
Subordinated Lender and SMS Seller to extend and maintain credit facilities to
the Obligors, and intending to be legally bound hereby, agree as follows:
1. DEFINITIONS. The following words and phrases as used in
-----------
capitalized form in this Agreement, whether in singular or plural, shall have
the meanings indicated:
(A) "CLOSING DATE" shall mean the date on which the Senior
Subordinated Notes are issued to the Senior Subordinated Lender.
(B) "DEFAULT" means an event or condition the occurrence or
existence of which would, with the lapse of time or the giving of notice or
both, become an Event of Default. An "Event of Default" shall be as defined in
the Senior Subordinated Debt Agreements.
(C) "PAYMENT STOPPAGE NOTICE" shall mean a notice that a default
under the Senior Subordinated Debt has occurred pursuant to which Senior
Subordinated Lender may, or following notice or lapse of time or both would be
able to, accelerate the
<PAGE>
maturity or otherwise require purchase or repayment of any of the Senior
Subordinated Debt, which notice is given to the Obligors and SMS Seller by
Senior Subordinated Lender and which states that such notice is a Payment
Stoppage Notice delivered pursuant to this Agreement.
(D) "PAYMENT STOPPAGE PERIOD" shall mean the period commencing
upon the Obligors' and SMS Seller's receipt of any Payment Stoppage Notice and
ending on the date which is 135 days after the receipt by Obligors and SMS
Seller of such Payment Stoppage Notice.
(E) "SATISFIED" shall mean with respect to Senior Subordinated
Debt that any and all Senior Subordinated Debt shall have been paid in full and
all related financing arrangements and accommodations between the Obligors and
Senior Subordinated Lender shall have been terminated and Senior Subordinated
Lender has no obligation to make any loans, financial accommodations or advance
any funds which would constitute Senior Subordinated Debt to any Obligor.
(F) "SENIOR SUBORDINATED DEBT" means, without duplication, (i)
the principal of and interest on (including, whether or not allowed by law,
interest accruing after the filing of a petition initiating any proceedings
pursuant to or under any Bankruptcy Law) and all other amounts owing with
respect to all Indebtedness under the Note Purchase Agreement, (ii) guarantees
by the Guarantors of Indebtedness under, or the joint and several obligations of
the Guarantors of any Indebtedness under, the Note Purchase Agreement and the
obligation to pay fees, expenses and other amounts due to the Holders thereunder
and, whether or not allowed by law, interest accruing thereunder after the
filing of a petition initiating any proceedings pursuant to or under any
Bankruptcy Law, and (iii) any guarantees by the Issuer of any Indebtedness or
other obligations of any Subsidiary that is a party to the Note Purchase
Agreement and the obligation to pay fees, expenses and other amounts due
thereunder.
(G) "SENIOR SUBORDINATED DEBT AGREEMENTS" shall mean all loan
agreements, notes, security agreements, guaranties and all other documents,
agreements, instrument, opinions and certificates now or hereafter existing or
delivered in connection with any of the Senior Subordinated Debt, as any such
agreement, note, document or instrument may be amended, modified, supplemented,
consolidated, replaced, renewed or refinanced as permitted herein, provided such
action does not increase the amount of the Indebtedness under the Note Purchase
Agreement.
(H) "SMS SUBORDINATED DEBT" shall mean all liabilities and
monetary obligations of any nature, whether primary, secondary, absolute,
contingent, sole, joint, several or joint and several and all interest thereon
and all fees, costs and expenses (including attorneys' fees and legal expenses)
related thereto, now or at any time or times hereafter existing, contracted or
incurred, of any Obligor to SMS Seller pursuant to the SMS Subordinated Debt
Agreements.
-2-
<PAGE>
(I) "SMS SUBORDINATED DEBT AGREEMENTS" shall mean (i) that
certain Stock Purchase Agreement dated as of June 4, 1997 among SMS Seller,
Issuer and SMS, as amended, including exhibits (the "Stock Purchase Agreement"),
(ii) all Promissory Notes (as defined in the Stock Purchase Agreement) issued
pursuant to the Stock Purchase Agreement by any or all Obligors in favor of SMS
Seller or any member of SMS or any successor or assign of SMS Seller (the "SMS
Notes"), and (iii) all other documents, agreements, instruments, opinions and
certificates now or hereafter delivered in connection with the SMS Notes and the
Stock Purchase Agreement, to the extent it provides for monetary obligations of
any Obligor to SMS Seller (excluding employment agreements, option agreements,
industry remarketer affiliate agreement, noncompetition agreements, and
registration rights agreement attached as Exhibits to the Stock Purchase
Agreement and to be executed in connection therewith, and any rights, duties or
obligations of SMS Seller's arising thereunder), and (iv) any other agreements,
documents or instruments which from time to time evidence SMS Subordinated Debt,
in each case as any such agreement, note, document or instrument may be amended,
modified, supplemented, replaced, renewed or refinanced.
(J) "SMS SUBORDINATED NOTE" shall mean the SMS Notes and any
other notes evidencing subordinated debt under the SMS Subordinated Debt
Agreements.
2. SUBORDINATION.
-------------
(A) GENERAL. SMS Seller hereby subordinates all SMS Subordinated
-------
Debt and all claims, rights and demands arising therefrom to all the Senior
Subordinated Debt. Until the Senior Subordinated Debt is Satisfied, (i) no
Obligor will make, and SMS Seller will not accept, either directly or
indirectly, payment (of any kind or character) of all or any part of the
principal of, premium, if any, or interest on, or any claim or amount with
respect to, any of the SMS Subordinated Debt, (ii) no Obligor will purchase,
repurchase, acquire or redeem any SMS Subordinated Debt and (iii) SMS Seller
will not demand or accelerate any of the SMS Subordinated Debt, institute any
court proceedings against any Obligor to collect any SMS Subordinated Debt, or
exercise any rights or remedies against any Obligor or its assets, to the extent
such payment, purchase, acquisition, redemption or other action is expressly
prohibited by this Agreement.
(B) PROHIBITIONS. No payments shall be made on or in respect of
------------
the principal of, premium, if any, or interest on or any claim or amount with
respect to any of the SMS Subordinated Debt or with respect to any purchase,
repurchase, acquisition or redemption of any of the SMS Subordinated Debt, and
SMS Seller will not demand, accelerate, accept or receive any of the SMS
Subordinated Debt, institute any court proceedings against any Obligor to
collect any SMS Subordinated Debt or exercise any rights or remedies against any
Obligor or its assets to collect or satisfy any SMS Subordinated Debt, if any of
the following events have occurred:
(I) Any bankruptcy, insolvency, reorganization,
liquidation, receivership or similar proceeding has been commenced against or by
any Obligor;
-3-
<PAGE>
(II) Any default in the payment of any principal of,
premium, if any, or interest on any of the Senior Subordinated Debt when due and
payable, whether as regularly scheduled, at maturity, upon acceleration or
otherwise, has occurred, and Senior Subordinated Lender has given a Payment
Stoppage Notice to Obligors and SMS Seller, unless and until the default giving
rise to the Payment Stoppage Notice is cured or waived in writing by Senior
Subordinated Lender; or
(III) Any default or other event has occurred in connection
with any of the Senior Subordinated Debt or the Senior Subordinated Debt
Agreements (other than a default in the payment of any principal, premium, if
any, or interest on any Senior Subordinated Debt) pursuant to which Senior
Subordinated Lender may, or following notice or lapse of time or both would be
able to, accelerate the maturity of any of the Senior Subordinated Debt and
Senior Subordinated Lender has given a Payment Stoppage Notice to Obligors and
SMS Seller, unless and until the earliest to occur of (A) the Payment Stoppage
Period expires, (B) the default giving rise to the Payment Stoppage Notice is
cured or waived in writing by Senior Subordinated Lender, or (C) the Obligors
and SMS Seller receive written notice from Senior Subordinated Lender
terminating the Payment Stoppage Period; or
(IV) Pursuant to the terms of the IBM Intercreditor
Agreement, Senior Subordinated Lender is prohibited from taking such action
against any Obligor in connection with the Senior Subordinated Debt. The
prohibition contained in this SECTION 2(B)(IV) shall expire upon the expiration
----------------
of the applicable prohibition to which Senior Subordinated Lender is subject
pursuant to the IBM Intercreditor Agreement.
(V) The prohibitions contained in this SECTION 2(B)
------------
(other than the prohibitions contained in SECTION 2(B)(III) and 2(B)(IV)) shall
----------------- --------
lapse and expire no later than 270 days after the occurrence of any of the
matters in SECTIONS 2(B)(I) OR (II) unless (A) Senior Subordinated Lender has
------------------------
taken and is continuing to take commercially reasonable steps to enforce its
rights and remedies under the Senior Subordinated Debt Agreements, and shall
thereafter lapse at such time as Senior Subordinated Lender ceases taking such
steps, or (B) Senior Subordinated Lender is prohibited, pursuant to the terms of
the IBM Intercreditor Agreement, from taking commercially reasonable steps to
enforce its rights and remedies under the Senior Subordinated Debt Agreements,
in which case such prohibitions contained herein shall lapse at such time as all
of the following have occurred: (X) Senior Subordinated Lender is no longer
subject to such prohibition pursuant to the terms of the IBM Intercreditor
Agreement, (Y) Senior Subordinated Lender has, subsequent to the elimination of
such prohibition pursuant to the IBM Intercreditor Agreement, taken commercially
reasonable steps to enforce its rights and remedies under the Senior
Subordinated Debt Agreements, and (Z) Senior Subordinated Lender has ceased
taking such commercially reasonable steps.
(VI) Subject to the provisions of SECTION 3(B) and SECTION
------------ -------
12 of this Agreement, once the Senior Subordinated Debt has been Satisfied the
- --
prohibitions in this SECTION 2(B) shall be deemed terminated.
------------
-4-
<PAGE>
(C) PAYMENT STOPPAGE PERIODS. Notwithstanding anything
------------------------
herein to the contrary, in no event will a Payment Stoppage Period extend beyond
135 days from the date the payment on the SMS Subordinated Debt was due and only
one such Payment Stoppage Period may be commenced within any 365 consecutive
days. For all purposes of SECTION 2(B)(III), no default which existed or was
-----------------
continuing with respect to the Senior Subordinated Debt to which the Payment
Stoppage Period relates on the date such Payment Stoppage Period commenced shall
be made the basis for the commencement of any subsequent Payment Stoppage Period
by Senior Subordinated Lender or any holder or holders of such Senior
Subordinated Debt unless such default is cured or waived for a period of not
less than 90 consecutive days.
(D) PREPAYMENTS. Notwithstanding anything herein or
-----------
elsewhere to the contrary, Obligors may not acquire, purchase, repurchase,
redeem, or otherwise make any prepayment (mandatory or voluntary) of any
principal, premium, if any, or prepay interest on any of the SMS Subordinated
Debt unless and only to the extent that no Default or Event of Default then
exists or would result therefrom or unless the prior written consent of Senior
Subordinated Lender is first obtained.
(E) ACCELERATION AND OTHER REMEDIES. Notwithstanding
-------------------------------
anything herein or in any of the SMS Subordinated Debt Agreements to the
contrary, SMS Seller agrees that it will not accelerate any of the SMS
Subordinated Debt, institute any court proceedings against any Obligor to
collect any SMS Subordinated Debt, or exercise any rights or remedies against
any Obligor or its assets to collect or satisfy the SMS Subordinated Debt, as a
result of any default under the SMS Subordinated Debt Agreements, or otherwise,
unless SMS Seller has given Senior Subordinated Lender written notice of its
intent to take such action at least 30 days prior to such acceleration,
institution of court proceeding or other exercise of remedies. Similarly, Senior
Subordinated Lender agrees to give SMS Seller notice of any Event of Default or
acceleration under the Senior Subordinated Debt Agreements.
(F) SUBROGATION. After the Senior Subordinated Debt has
-----------
been Satisfied, the holders of SMS Subordinated Debt shall be subrogated to the
rights of the holders of Senior Subordinated Debt to receive payments or
distributions of cash, property or securities of the Obligors applicable to the
Senior Subordinated Debt until the SMS Subordinated Debt shall be paid in full,
and, for the purposes of such subrogation, no payments or distributions to the
holders of the Senior Subordinated Debt of any cash, property or securities to
which the holders of the SMS Subordinated Debt would be entitled except for the
provisions of this Agreement, and no payment over pursuant to the provisions of
this Agreement to the holders of Senior Subordinated Debt by holders of SMS
Subordinated Debt shall, as between the Obligors, their creditors other than
holders of Senior Subordinated Debt, and the holders of SMS Subordinated Debt,
be deemed to be a payment by any Obligor to or on account of the SMS
Subordinated Debt.
(G) ENFORCEMENT. The right of Senior Subordinated Lender to
-----------
enforce the subordination provisions and any other provisions hereof shall not
in any way be prejudiced or impaired by any act or failure to act on the part of
Senior Subordinated Lender,
-5-
<PAGE>
any Obligor or SMS Seller, or by any noncompliance by any Obligor or SMS Seller
with the terms, provisions and covenants of this Agreement.
3. IN FURTHERANCE OF SUBORDINATION.
-------------------------------
(A) Upon any distribution of any of the assets of any Obligor,
any guarantor on any of the SMS Subordinated Debt, or any collateral securing
the SMS Subordinated Debt, upon or in connection with any dissolution,
recapitalization, distribution, winding up, liquidation, arrangements or
reorganization of any Obligor, any guarantor of any of the SMS Subordinated Debt
or any other person or entity, or upon any assignment for the benefit of
creditors or any other marshaling of the assets and/or liabilities of any
Obligor, or any guarantor of any of the SMS Subordinated Debt or otherwise, any
payment, dividend or distribution of any kind (whether in cash, securities or
other property) which would otherwise be payable or deliverable with respect to
the SMS Subordinated Debt, shall be paid or delivered directly to Senior
Subordinated Lender, to the extent such payment or delivery would not cause SMS
Seller to be in violation of any court order binding upon SMS Seller, for
application (in the case of cash) to or as collateral (in the case of securities
or other property) for the Senior Subordinated Debt.
(B) In the event that any payment or payments made to Senior
Subordinated Lender with respect to any of the Senior Subordinated Debt or
otherwise made to Senior Subordinated Lender pursuant to this Agreement, or any
part thereof, are subsequently invalidated, declared to be fraudulent or
preferential, set aside or are required to be repaid to any trustee, receiver or
any other person under any bankruptcy statute, state or federal law, common law
or equitable cause, then (i) to the extent of such payment or payments, the
obligations or part thereof intended to be satisfied shall be revived and
continued as Senior Subordinated Debt in full force and effect, as if such
payment or payments had not been made, (ii) Senior Subordinated Lender shall
continue to have all rights under this Agreement related to such revived
obligations which shall constitute Senior Subordinated Debt, and (iii) SMS
Seller agrees to pay to Senior Subordinated Lender any payments which were paid
over to SMS Seller by any trustee or receiver under any bankruptcy statute,
state or federal law, common law or equitable cause and were returned to SMS
Seller with respect to the SMS Subordinated Debt or in connection with any
subrogation rights of SMS Seller to the extent necessary to pay in full such
revived and continued Senior Subordinated Debt obligations.
(C) In the event that SMS Seller is required to turn over or
deliver to Senior Subordinated Lender any amount or property paid or delivered
to SMS Seller pursuant to this SECTION 3, SECTION 5 or otherwise, the
--------- ---------
obligations of the Obligors under the SMS Subordinated Debt Agreements with
respect to any such amount or property shall be revived and continued as SMS
Subordinated Debt in full force and effect, as if such amount or property had
not been paid or received.
4. RELATIVE RIGHTS. This Agreement defines the relative rights of
---------------
the holders of Senior Subordinated Debt and the holders of SMS Subordinated
Debt. Nothing in this Agreement shall:
-6-
<PAGE>
(A) impair, as between the Obligors and the holders of SMS
Subordinated Debt, the obligation of any Obligor, which is absolute and
unconditional, to pay principal of, premium, if any, and interest on the
liabilities and the monetary obligations set forth in the Stock Purchase
Agreement, or, if applicable, the SMS Subordinated Note, and any other amounts
due under the SMS Subordinated Debt Agreements;
(B) affect the relative rights of the holders of SMS
Subordinated Debt and creditors of the Obligors other than holders of Senior
Subordinated Debt; or
(C) prevent any holder of SMS Subordinated Debt from exercising
its available remedies upon a default or event of default under the SMS
Subordinated Debt Agreements, subject to the rights of holders of Senior
Subordinated Debt hereunder and the restrictions set forth in this Agreement.
If any Obligor fails because of this Agreement to pay liabilities
and/or monetary obligations set forth in the Stock Purchase Agreement or, if
applicable, the SMS Subordinated Notes, or any other amounts due under the SMS
Subordinated Debt Agreements on the date when such obligation is otherwise due
and owing (other than any payment due during a Payment Stoppage Period), the
failure to make such payment shall be a default or event of default under the
SMS Subordinated Debt Agreements notwithstanding any provision of this
Agreement.
5. PAYMENTS HELD IN TRUST. In the event that SMS Seller receives
----------------------
any dividend, distribution or payment referred to in SECTION 3, or receives any
---------
payment (of any kind or character) of any SMS Subordinated Debt or security
therefor which at the time received are in violation of or are prohibited under
this Agreement, SMS Seller will (a) not credit such payments against the SMS
Subordinated Debt, (b) notify Senior Subordinated Lender promptly thereof, and
(c) receive the same in trust for Senior Subordinated Lender and will promptly
pay and deliver the same to Senior Subordinated Lender in precisely the form
received, except for any requisite endorsement or assignment, which SMS Seller
will make and hereby authorizes Senior Subordinated Lender or any of its
officers of employees to make in the event that SMS Seller does not make the
same. Senior Subordinated Lender will apply any such moneys so received by it
in reduction of the Senior Subordinated Debt and will hold any property other
than money so received by it as collateral security therefor. If SMS Seller
fails to make any endorsement or assignment required hereunder, Senior
Subordinated Lender is hereby appointed attorney for SMS Seller with full power
of substitution to make any such endorsement or assignment. Such power of
attorney being coupled with an interest is irrevocable until the Senior
Subordinated Debt has been paid in full, but is limited to the specific purposes
and specific circumstances set forth in this SECTION 5.
---------
6. SENIOR SUBORDINATED LENDER'S RIGHTS. Without notice to SMS
-----------------------------------
Seller and without affecting or releasing any obligation or agreement of SMS
Seller under this Agreement or the subordination provided herein, Senior
Subordinated Lender may at any time or times do any of the following with
respect to any of the Senior Subordinated Debt: (a) waive or rescind any
default, (b) exercise any rights or remedies with respect to the Senior
-7-
<PAGE>
Subordinated Debt, (c) amend, modify, alter or waive any of the terms thereof or
any of the documents executed in connection therewith, (d) renew or extend the
time for payment of all or any part thereof, (e) decrease (but not increase of
Senior Subordinated Debt as of the date hereof, which shall require the consent
of SMS Seller) the amount thereof, (f) accept collateral security or guaranties
therefor and sell, exchange, fail to perfect, release or otherwise deal with all
or any part of any such collateral or guaranties, (g) release any party
primarily or secondarily obligated thereon, (h) grant indulgences and take or
refrain from taking any action with regard to the collection or enforcement
thereof, and (i) take any action which might otherwise give rise to any claim by
SMS Seller. Nothing contained in this Agreement shall impair any right of
Senior Subordinated Lender with respect to any of the Senior Subordinated Debt
or any collateral security or guaranties therefor or the proceeds thereof.
7. REPRESENTATIONS. SMS Seller represents to Senior Subordinated
---------------
Lender that:
(A) As of the Closing Date, all of the now existing debt
obligations of any nature whatsoever of any Obligor to SMS Seller are set forth
in the Stock Purchase Agreement. There is no event of default or event which
with the giving of notice, passage of time or both would constitute an event of
default existing under the Stock Purchase Agreement.
(B) Intentionally Omitted.
(C) This Agreement has been duly executed and delivered by SMS
Seller and constitutes the valid and binding obligation of SMS Seller,
enforceable in accordance with its terms.
8. COVENANTS.
---------
(A) SMS Seller and Obligors agree that no Obligor will give or
permit to be given, and SMS Seller will not accept any security for any SMS
Subordinated Debt without the prior written consent of Senior Subordinated
Lender. SMS Seller agrees that upon receiving any such security SMS Seller will
promptly assign and deliver the same to Senior Subordinated Lender, without any
representation or warranty whatsoever.
(B) In the event that SMS Seller at any time has any
indebtedness or other obligations owing to any Obligor for any reason, including
without limitation any accounts receivable owing to any Obligor, SMS Seller will
not offset the indebtedness or other obligations owing to such Obligor against
any of the SMS Subordinated Debt except with respect to offsets against payments
of SMS Subordinated Debt which payments, at the time of such offset, are
otherwise permitted under this Agreement.
(C) If any default under the SMS Subordinated Debt is cured
during a Payment Stoppage Period, SMS Seller agrees that it will not exercise
any rights or remedies
-8-
<PAGE>
against any Obligor or its assets as a result of such default and such default
will be deemed cured.
(D) SMS Seller will not amend, modify or restate any of the
provisions of the SMS Subordinated Debt or any of the SMS Subordinated Debt
Agreements in any way which increases the interest rate on any of the SMS
Subordinated Debt or increases any waiver fees or other similar sums payable in
connection with the SMS Subordinated Debt or shortens or accelerates the
maturity or due date of any payments under the SMS Subordinated Debt. Obligors
will not amend, modify or restate any of the provisions of the SMS Subordinated
Debt or any of the SMS Subordinated Debt Agreements except with the prior
written consent of the Senior Subordinated Lender. SMS Seller agrees that it
will not amend, modify or restate any of the provisions of the SMS Subordinated
Debt or any of the SMS Subordinated Debt Agreements, if SMS Seller has been
notified by Senior Subordinated Lender that such amendment, modification or
restatement would constitute a Default under the Senior Subordinated Debt
Agreements.
(E) Senior Subordinated Lender agrees to provide copies to SMS
Seller of notices it receives from IBM Credit Corporation with respect to the
Inventory and Working Capital Financing Agreement dated December 31, 1996
between IBM Credit Corporation and Western Micro Technology, Inc.
9. LIMITATION ON CONSENT TO PAYMENT. In the event that Senior
--------------------------------
Subordinated Lender consents in writing to the making of a payment on account of
the SMS Subordinated Debt, which payment would otherwise be prohibited under
this Agreement, such consent shall be deemed to be a consent to the payment
specifically referred to in such written consent and shall not be construed as a
waiver of any prohibitions in this Agreement generally as to all future payments
or grants. A consent by Senior Subordinated Lender to any request shall not be
deemed to be a consent to future similar requests.
10. LEGEND. SMS Seller and Obligors shall cause each instrument that
------
at any time evidences all or any portion of the SMS Subordinated Debt to be
conspicuously marked with a legend substantially in the form of the following:
"THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION
AND INTERCREDITOR AGREEMENT IN FAVOR OF CANPARTNERS
INVESTMENTS IV, LLC, A CALIFORNIA LIMITED LIABILITY COMPANY,
AND ROBERT FLEMING INC., A DELAWARE CORPORATION, WHICH
SUBORDINATION AND INTERCREDITOR AGREEMENT CONTAINS CERTAIN
SUBORDINATION PROVISIONS AND IS INCORPORATED HEREIN BY
REFERENCE. NOTWITHSTANDING ANY CONTRARY STATEMENT CONTAINED
IN THE WITHIN INSTRUMENT, NO PAYMENT ON ACCOUNT OF THE
PRINCIPAL, PREMIUM, IF ANY, OR INTEREST HEREOF SHALL BECOME
DUE OR BE PAID IN VIOLATION OF THE TERMS OF SUCH
SUBORDINATION AND INTERCREDITOR AGREEMENT."
-9-
<PAGE>
11. NO ASSIGNMENT. SMS Seller agrees that SMS Seller will not assign
-------------
or transfer to any person or entity any SMS Subordinated Debt or any evidence
thereof or security or guaranty therefor, unless such assignee agrees to the
provisions of this Agreement.
12. TERMINATIONS. This Agreement will continue in full force and
------------
affect as long as any Senior Subordinated Debt has not been Satisfied and shall
thereupon automatically terminate. To the extent any payment or payments of any
Senior Subordinated Debt or any SMS Subordinated Debt received by Senior
Subordinated Lender are subsequently invalidated, declared to be fraudulent or
preferential, set aside or are required to be repaid to a trustee, receiver or
other person or entity under any bankruptcy act, state or federal law, common
law or equitable cause, then this Agreement will be revived and continue in full
force and effect. This Agreement may not be otherwise terminated except by an
instrument in writing signed by Senior Subordinated Lender and SMS Seller.
13. OBLIGATIONS OF OBLIGORS UNCONDITIONAL. Nothing contained in this
-------------------------------------
Agreement is intended to or shall impair, as between the Obligors and SMS
Seller, the obligation of the Obligors, which is absolute and unconditional, to
pay to SMS Seller the monetary obligations set forth in the Stock Purchase
Agreement, or if applicable, the principal of or any interest on the SMS
Subordinated Notes, as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of SMS Seller and creditors of the Obligors other than the holders of the
Senior Subordinated Debt, nor shall anything herein prevent the SMS Seller or,
if applicable, the holder of the SMS Subordinated Notes, from exercising all
remedies otherwise permitted by applicable law upon default under this
Agreement, subject to the rights, if any, under this Agreement of the holders of
the Senior Subordinated Debt in respect of cash, property or securities of the
Obligors received upon the exercise of any such remedy.
14. WAIVERS.
-------
(A) Except as set forth in SECTION 2(E) above, SMS Seller hereby
------------
waives, to the extent permitted by applicable law, any right to notice from
Senior Subordinated Lender prior to disposition of any assets of any Obligor or
any guarantor or any collateral securing any of the Senior Subordinated Debt.
To the extent SMS Seller is not permitted by applicable law to waive notice, SMS
Seller agrees that ten (10) days notice prior to any such disposition shall be
reasonable. SMS Seller agrees not to interfere with any disposition of assets
of any Obligor or any guarantor or any collateral securing any of the Senior
Subordinated Debt by or at the direction of Senior Subordinated Lender and
waives, to the extent permitted by applicable law, the right to challenge any
such disposition as not commercially reasonable.
(B) SMS Seller waives any right to require Senior Subordinated
Lender to marshal any assets of any Obligor or any guarantor or to otherwise
proceed in any fashion against any Obligor, any guarantor or any other person.
-10-
<PAGE>
(C) Senior Subordinated Lender is irrevocably authorized to
demand and receive specific performance of this Agreement by SMS Seller, even if
any Obligor has breached its agreements hereunder, at any time upon the breach
by SMS Seller of its agreements hereunder. SMS Seller irrevocably waives any
defense based on the adequacy of a remedy at law which might be asserted as a
bar to such remedy of specific performance.
(D) SMS Seller assumes responsibility for keeping itself
informed of the financial condition of Obligors, and of all other circumstances
bearing upon the risk of nonpayment of the Senior Subordinated Debt, and Senior
Subordinated Lender shall have no duty to advise SMS Seller of information known
to Senior Subordinated Lender regarding such condition or any such
circumstances.
15. RELEASES. Senior Subordinated Lender may release any one or more
--------
parties hereto, or the successors or assigns thereof, from any other obligations
hereunder, and such release by operation of law, shall not release any other
party hereto from nor in any way affect, any of the obligations of any other
party under this Agreement, or affect the subordination of any of the SMS
Subordinated Debt to the Senior Subordinated Debt.
16. NOTICES. All notices, requests, and other communications made or
-------
given to connection with this Agreement shall be in writing and, unless receipt
is stated herein to be required shall be deemed to have been validly given if
delivered personally against receipt by private carrier, registered or certified
mail, return receipt requested, or by telecopy with the original forwarded by
first class mail, in all cases with charges prepaid, addressed as follows, or
delivered to the individual or division or department to whose attention notices
to a party are to be addressed, until some other address (or individual or
division or department for attention) shall have been designated by notice given
by a party to the other:
To Senior Subordinated Lender:
c/o Canyon Partners Incorporated
9665 Wilshire Boulevard
Beverly Hills, California 90212
Attn: Scott Imbach
Telecopy Number: (310) 247-2701
and
Robert Fleming Inc.
320 Park Avenue, 11th Floor
New York, New York 10022
Attention: Michael E. Rowe
Telecopy: (212) 508-3679
To Obligors: Western Micro Technology, Inc.
254 E. Hacienda Avenue
Campbell, CA 95008
-11-
<PAGE>
Attn: James W. Dorst
Telecopy: (408) 341-4768
To SMS Seller:
Carlton Joseph Mertens II
888 Isom Road
San Antonio, TX 78216-4033
Telecopy: (210) 377-3796
and
Harvey E. Najim
Spectum Bldg., 10th Floor
613 N.W. Loop 410
San Antonio, TX 78216
Telecopy: (210) 369-8039
Copies of all notices hereunder shall also be delivered to:
IBM Credit Corporation
5000 Executive Parkway, Suite 450
San Ramon, CA 94583
Attn: Remarketer Financing Center Manager
Telecopy: (510) 227-5651
17. SUBMISSION TO JURISDICTION. Obligors, Senior Subordinated Lender
--------------------------
and SMS Seller agree irrevocably to submit themselves to the jurisdiction for
the United States District Court for the Central District of California and the
jurisdiction of any court of the State of California located in Los Angeles
County and waive any and all objections to jurisdiction that they may have under
the laws of the State of California or the United States, and irrevocably agree
that, all actions or proceedings relating to this Agreement or the transactions
contemplated hereunder shall be litigated in such courts, and Obligors and SMS
Seller waives any objection which they may have based on improper venue or for
the nonconvenience to the conduct of any proceedings in any such court and waive
personal service of any and all process upon them, and consent that all such
service of process be made by mail or messenger directed to them at the address
set forth in SECTION 16, provided, however, that the provisions of this sentence
---------- -------- -------
shall not apply to any action or proceeding to which SMS Seller and any Obligor
is a party (but to which Senior Subordinated Lender is not a party) with respect
to any dispute between SMS Seller and any of the Obligors arising out of or
relating to the Stock Purchase Agreement or, if applicable, the SMS Subordinated
Notes. Nothing contained in this section shall affect the right of Senior
Subordinated Lender to serve legal process in any other manner permitted by law
or affect the right of Senior Subordinated Lender to bring any action or
proceeding against any Obligor or the property of any Obligor in the courts of
any other jurisdiction.
-12-
<PAGE>
18. DELAY OR OMISSION NOT WAIVER. Neither the failure nor any delay
----------------------------
on the part of Senior Subordinated Lender to exercise any right, remedy, power
or privilege hereunder shall operate as a waiver thereof or impair any such
right, remedy, power or privilege. No single, partial or full exercise of any
rights, remedies, powers and privileges by Senior Subordinated Lender shall
preclude further or other exercise thereof. No course of dealing between Senior
Subordinated Lender and any Obligor or SMS Seller shall operate as or be allowed
to constitute a waiver of Senior Subordinated Lender's rights hereunder or
affect the duties or obligations of any Obligor or SMS Seller.
19. MISCELLANEOUS. This Agreement shall be binding upon and inure to
-------------
the benefit of the parties hereto and their respective permitted successors and
assigns. If any party hereto is a partnership, all provisions of this Agreement
applicable to such party shall be binding upon and include not only the
partnership but each and all of the partners thereof individually. This
Agreement may not be modified except in writing executed by the party against
which enforcement of such modification is sought. The rights granted to Senior
Subordinated Lender hereby shall be in addition to any other rights of Senior
Subordinated Lender under any other subordination agreement, if any, now or
hereafter outstanding. All rights and remedies of Senior Subordinated Lender
shall be cumulative. The provisions of this Agreement, shall operate only in
favor of and only for the benefit of Senior Subordinated Lender and SMS Seller,
their respective successors and assigns, and not in favor of or for the benefit
of any Obligor or any other person or entity. Whenever Senior Subordinated
Lender's consent is required or permitted, such consent shall be in the sole and
absolute discretion of Senior Subordinated Lender.
20. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
21. GOVERNING LAW. This Agreement shall be governed by and construed
-------------
according to the laws of the State of California without regard to its rules and
principles regarding conflicts of law or any rule or canon of construction which
interprets agreements against the draftsmen.
22. SEVERABILITY. If any provision herein shall for any reason be
------------
held invalid or unenforceable, no other provision shall be affected thereby, and
this Agreement shall be construed as if the invalid or unenforceable provision
had never been a part of it.
23. ENTIRE AGREEMENT. This instrument embodies the entire agreement
----------------
of the parties hereto with respect to the subject matter hereof, and there are
no courses of dealing, usages of trade, or other representations, promises,
terms or conditions referring to such subject matter, and no inducements or
representations leading to the execution hereof other than as mentioned herein.
24. WAIVER OF RIGHT TO TRIAL BY JURY. OBLIGORS, SMS SELLER AND
--------------------------------
SENIOR SUBORDINATED LENDER WAIVE ANY RIGHT TO TRIAL BY JURY ON
-13-
<PAGE>
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR
ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO HEREIN OR DELIVERED IN CONNECTION
HEREWITH, OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF THE OBLIGORS, SMS SELLER OR SENIOR SUBORDINATED LENDER WITH RESPECT
TO THIS AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO HEREIN OR
DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO, IN EACH
CASE WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE. OBLIGORS, SMS SELLER AND
SENIOR SUBORDINATED LENDER AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION
OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF OBLIGORS, SMS
SELLER AND SENIOR SUBORDINATED LENDER TO THE WAIVER OF THEIR RIGHT TO TRIAL BY
JURY. OBLIGORS AND SMS SELLER ACKNOWLEDGE THAT THEY HAVE HAD THE OPPORTUNITY TO
CONSULT WITH COUNSEL REGARDING THIS SECTION AND THAT THEY FULLY UNDERSTAND ITS
TERMS, CONTENT AND EFFECT, AND THAT THEY VOLUNTARILY AND KNOWINGLY AGREE TO THE
TERMS OF THIS SECTION. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS SECTION
-------
24, THIS SECTION 24 SHALL NOT APPLY TO, AND SMS SELLER SHALL NOT BE DEEMED TO
- -- ----------
HAVE WAIVED ANY RIGHTS WITH RESPECT TO ANY ACTIONS OR PROCEEDINGS WHICH ARE
SOLELY BETWEEN SMS SELLER AND ANY OR ALL OBLIGORS AND WHICH ARISE UNDER OR
RELATE TO THE STOCK PURCHASE AGREEMENT AND/OR AGREEMENTS EXECUTED IN CONNECTION
THEREWITH, SUCH DISPUTE TO BE SETTLED IN ACCORDANCE WITH SECTION 10 OF THE STOCK
----------
PURCHASE AGREEMENT.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
pending to be legally bound hereby, effective as of the day and year first above
written.
WESTERN MICRO TECHNOLOGY, INC., CANPARTNERS INVESTMENTS IV, LLC,
a Delaware corporation a California limited liability company
By: /s/ James W. Dorst By: /s/ Scott A.Imbach
------------------------------ ------------------------------
James W. Dorst Scott A. Imbach
Chief Financial Officer Attorney-In-Fact
SMS SELLER ROBERT FLEMING INC.
a Delaware corporation
/s/ Harvey E. Najim
- ---------------------------------- /s/ Arthur Levy
Harvey E. Najim By: ______________________________
Name: Arthur Levy
Title: Vice Chairman
/s/ Carlton Joseph mertens II
- ----------------------------------
Carlton Joseph Mertens II
WMT ACQUISITION CORP., SAVOIR TECHNOLOGY GROUP, INC.,
a California corporation a Delaware corporation
By: /s/ James W. Dorst By: /s/ James W. Dorst
------------------------------ ------------------------------
James W. Dorst James W. Dorst
Chief Financial Officer Chief Financial Officer
INET SYSTEMS, INC., STAR DATA INTERNATIONAL,
a Texas corporation a company organized under the laws of
the Virgin Islands
By: /s/ Carlton Joseph Mertens, II
------------------------------
Carlton Joseph Mertens II
President By: /s/ Carlton Joseph Mertens, II
------------------------------
Carlton Joseph Mertens II
STAR MANAGEMENT SERVICES, INC., President
a Delaware corporation
By: /s/ Carlton Joseph Mertens, II
------------------------------
Carlton Joseph Mertens II
President
SIGNATURE PAGE 1 OF 1
<PAGE>
SIRIUS INVESTMENTS, INC., STAR DATA SYSTEMS, INC.,
a Nevada corporation a Texas corporation
By: /s/ Carlton Joseph Mertens, II By: /s/ Carlton Joseph Mertens, II
------------------------------ ------------------------------
Carlton Joseph Mertens II Carlton Joseph Mertens II
President President
ADDITIONAL SUBS SIGNATURE PAGE
<PAGE>
Exhibit 10.3
EXECUTION COPY
ISSUER SECURITY AND PLEDGE AGREEMENT
------------------------------------
THIS ISSUER SECURITY AND PLEDGE AGREEMENT ("AGREEMENT") dated as of
September 30, 1997, is entered into by and between WESTERN MICRO TECHNOLOGY,
INC. ("GRANTOR"), and CANPARTNERS INVESTMENTS IV, LLC, as agent (in such
capacity, the "AGENT") for the Purchasers under (and as defined in) the Note
Purchase Agreement (as hereinafter defined). Capitalized terms used herein and
not otherwise defined herein have the meanings ascribed to such terms in the
Note Purchase Agreement.
W I T N E S S E T H
-------------------
WHEREAS, the Grantor, the Guarantors from time to time party thereto,
the Purchasers referred to therein, and the Agent have entered into a Note
Purchase Agreement of even date herewith (as amended, restated, supplemented or
otherwise modified from time to time, the "NOTE PURCHASE AGREEMENT"), pursuant
to which, the Purchasers have agreed to purchase $15,700,000 in aggregate
principal amount of the Grantor's 13.5% Second Priority Senior Secured Notes due
2000 (the "NOTES");
WHEREAS, each of the Grantor's Wholly-Owned Subsidiaries has entered
into the Note Purchase Agreement, pursuant to which, among other things, each
such Wholly-Owned Subsidiary unconditionally guaranteed the prompt and complete
payment and performance of the Grantor's Obligations under the Notes and the
Note Documents, as more fully set forth in the Note Purchase Agreement;
WHEREAS, each Wholly-Owned Subsidiary has entered into that certain
Contribution Agreement of even date herewith (the "CONTRIBUTION AGREEMENT") and
that certain Guarantor Security and Pledge Agreement of even date herewith (the
"GUARANTOR SECURITY AND PLEDGE AGREEMENT") in connection with the transactions
contemplated by the Note Purchase Agreement;
WHEREAS, it is a condition precedent to the purchase of the Notes by
the Purchasers under the Note Purchase Agreement that the Grantor shall have
executed and delivered this Agreement.
NOW, THEREFORE, in consideration of the premises set forth herein and
of the purchase of the Notes by the Purchasers or any other Holder, or any of
them, the Grantor hereby agrees with the Agent, for its benefit and the ratable
benefit of the Holders, as follows:
SECTION 1. Grant of Security. The Grantor hereby pledges to the Agent,
-----------------
for its benefit and the ratable benefit of the Holders, and hereby grants to the
Agent, for its benefit and the ratable benefit of the Holders, a security
interest in, all of the Grantor's right, title and interest in and to the
following, in each case whether now owned or existing or hereafter
<PAGE>
acquired or arising and however and wherever arising or located (collectively,
the "COLLATERAL"):
(a) EQUIPMENT: All of the Grantor's equipment of every description,
including, without limitation, all machinery, manufacturing, distribution,
selling, data processing and office equipment, computers (including mainframe
processors and remote terminals), assembly systems, tools, tooling, molds, jigs,
dies, fixtures, appliances, furniture, furnishings, fork lifts, vehicles,
trucks, trailers, semi-trailers, rolling stock, vessels, aircraft, aircraft
engines, trade fixtures and related products constituting equipment, together
with any and all accessions, parts and equipment attached thereto or used in
connection therewith, and any substitutions therefor and replacements thereof
(all of the foregoing being the "EQUIPMENT");
(b) INVENTORY: All of the Grantor's inventory in all of its forms,
including, without limitation, (i) all goods, merchandise and other personal
property, finished or unfinished, furnished or to be furnished under any
contract of service, rental contract, lease or purchase order or intended for
sale or lease, including, without limitation, rental equipment, tools, toolings,
vehicles, trucks, trailers and semi-trailers, together with any and all
accessions, parts and inventory attached thereto or used in connection
therewith, and related products which constitute inventory, and all consigned
goods, (ii) all raw materials, mobile goods, work in process, parts, components,
assemblies, finished goods, and materials and supplies of any kind, nature or
description used or consumed in the Grantor's businesses or in connection with
the manufacture, production, packing, shipping, advertising, finishing, leasing
or sale of the foregoing, (iii) all goods in which the Grantor has an interest
in mass or a joint or other interest or right of any kind (including, without
limitation, goods in which the Grantor has an interest or right as consignee)
and (iv) all goods which are returned to or repossessed by the Grantor; in each
case wherever located and whether in the possession of the Grantor, a bailee, a
consignee, a lessee or any other Person for sale, lease, storage, transit,
processing, use or otherwise, and any and all documents for or relating to any
of the foregoing (all of the foregoing being the "INVENTORY");
(c) ACCOUNTS: All of the Grantor's accounts, contract rights, chattel
paper, instruments, documents, deposit and other bank accounts, book debts and
other rights to payment of any kind, whether or not arising out of or in
connection with the sale or lease of goods or the rendering of services, and
whether or not earned by performance, including, without limitation, (i) any of
the foregoing which are not evidenced by instruments or investment property,
(ii) reserves and credit balances for any account receivable or account debtor,
(iii) all intercompany receivables and all other intercompany obligations, and
any security documents executed in connection therewith, (iv) all proceeds of
any letters of credit or insurance policies on which the Grantor is named as
beneficiary, (v) all collateral supporting any account receivable or account
debtor, (vi) all claims against third parties for advances or other financial
accommodations or any other obligations whatsoever owing to the Grantor, and
(vii) all rights in and to all security agreements, leases, rental contracts,
-2-
<PAGE>
acquisition agreements, contracts of service, contracts of sale, distribution
agreements, purchase orders, guaranties, employment agreements, instruments,
covenants not to compete, securities, documents of title and other contracts
securing, evidencing, supporting or otherwise relating to any of the foregoing,
together with all rights in any goods, merchandise or Inventory which any of the
foregoing may represent, and all rights in returned or repossessed goods,
merchandise or Inventory which any of the same may represent, including, without
limitation, any rights to rescission, replevin, reclamation, and stoppage in
transit (all of the foregoing being the "ACCOUNTS", and any and all such
security agreements, employment agreements, acquisition agreements, leases,
rental contracts, contracts of service, contracts of sale, distribution
agreements, purchase order, guaranties, instruments and documents of title and
other contracts being the "RELATED CONTRACTS");
(d) GENERAL INTANGIBLES: All of the Grantor's general intangibles,
rights, interests, choses in action, causes of action, claims and other
intangible property, of every kind and nature (other than Accounts), including,
without limitation, (i) all corporate and other business books and records, (ii)
all loans, royalties, and other obligations receivable (other than Accounts),
(iii) all intellectual property, and all embodiments thereof, and rights
thereto, including, without limitation, all trademarks, registered trademarks,
trademark applications, service marks, registered service marks, service mark
applications, patents, patent applications, trade names, rights of use of any
name, labels, fictitious names, inventions, designs, trade secrets, technical
knowledge and processes, technical specifications, computer programs, software
(including proprietary software), printouts and other computer materials,
goodwill, registrations, copyrights, copyright applications, permits, licenses
(including formal or informal licensing arrangements which are permitted to be
assigned or pledged), franchises, blueprints, customer lists, credit files,
correspondence, and advertising materials, and all of the Grantor's rights to
use the patents, trademarks, service marks, or other property of the aforesaid
nature of other Persons now or hereafter licensed to the Grantor, (iv) all
customer and supplier contracts, firm sale orders, rights under license and
franchise agreements, rights under tax sharing agreements, and other contracts
and contract rights, (v) all interests in partnerships, limited liability
companies, joint ventures and other unincorporated Persons, (vi) all tax refunds
and tax refund claims, (vii) all right, title and interest under leases,
subleases, licenses and concessions and other agreements relating to real or
personal property, (viii) all deposit accounts (general or special) with any
bank or other financial institution and all certificates of deposit, (ix) all
credits with and other claims against third parties (including carriers and
shippers), (x) all rights to indemnification, (xi) all reversionary interests in
pension and profit sharing plans and reversionary, beneficial and residual
interests in trusts, (xii) all proceeds of, or claims for unearned premiums with
respect to, insurance of which the Grantor is beneficiary, (xiii) all letters of
credit, guaranties, Liens, security interests and other security held by or
granted to the Grantor, (xiv) certificates of title and (xv) all other general
intangibles (all of the foregoing being the "GENERAL INTANGIBLES");
-3-
<PAGE>
(e) CHATTEL PAPER, INSTRUMENTS, DOCUMENTS AND INVESTMENT PROPERTY: All
of the Grantor's chattel paper, instruments, documents and investment property,
including, without limitation:
(i) all service agreements, employment agreements, acquisition
agreements, contracts of sale, distribution agreements, covenants not to
compete, contracts of service and other contracts with respect to computer
systems and related products, equipment and software and all rights
thereunder, including, without limitation, (A) all rights of the Grantor to
receive moneys due or to become due thereunder or pursuant thereto, (B) all
rights of the Grantor to receive proceeds of any insurance, indemnity,
warranty or guaranty with respect thereto, (C) all claims of the Grantor
for damages arising out of breach of or any default thereunder and (D) all
rights of the Grantor to terminate, amend, supplement, modify or exercise
rights, remedies or options thereunder;
(ii) the shares of the capital stock of each Subsidiary of the
Grantor, now or at any time or times hereafter owned by the Grantor, and
the certificates representing the shares of such capital stock (as
identified on Exhibit A attached hereto and made a part hereof), all
---------
options and warrants for the purchase of shares of the stock of each of
such Subsidiaries now or hereafter held in the name of the Grantor (all of
said capital stock, options and warrants and all capital stock held in the
name of the Grantor as a result of the exercise of such options or warrants
being hereinafter collectively referred to as the "PLEDGED STOCK"),
herewith delivered to the Agent accompanied by acknowledgments of such
Subsidiaries in the form of Exhibit B attached hereto and made a part
---------
hereof (the "ACKNOWLEDGMENTS") and stock powers in the form of Exhibit C
---------
attached hereto and made a part hereof (the "POWERS") duly executed in
blank, and all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of, or in
exchange for, any or all of the Pledged Stock, and all other products and
proceeds of the foregoing;
(iii) all additional shares of stock of any Subsidiary of the Grantor
from time to time acquired by the Grantor in any manner, and the
certificates representing such additional shares (any such additional
shares shall constitute part of the Pledged Stock), and all dividends,
cash, instruments, equity securities, financial assets and other interests
which are, or are of a type, dealt in or traded on financial markets, or
which are recognized in any way as a medium for investment, whether
certificated or uncertificated, any property held by a financial or
securities intermediary for the Grantor, securities accounts to which any
of the foregoing are credited and warrants, options, puts and calls, and
other rights or securities entitlements from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or
all of such shares, and all other products and proceeds of the foregoing;
-4-
<PAGE>
(iv) the promissory notes, intercompany notes and other instruments
identified on Exhibit A (the "PLEDGED NOTES"), and all products and
---------
proceeds of the Pledged Notes, including, without limitation, all interest
and principal payments, instruments, and other property from time to time
received, receivable or otherwise distributed in respect of or in exchange
for the Pledged Notes;
(v) all additional promissory notes, instruments, bonds or debt
securities, issued by any Person from time to time issued to, or held by,
the Grantor in any manner (any such additional promissory notes or
instruments shall constitute part of the Pledged Notes) and all products
and proceeds of any such additional promissory notes and instruments,
including, without limitation, all interest and principal payments,
instruments, and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any such additional
promissory notes or instruments (the property described in clauses (e)(ii)
---------------
through (e)(v) of this Section 1 is collectively referred to as the
------ ---------
"PLEDGED COLLATERAL"); and
(vi) all bills of lading, warehouse receipts and other documents of
title;
(f) OTHER PROPERTY: All of the Grantor's property or interests in
property which now may be owned or hereafter may come into the possession,
custody or control of the Agent or any Holder, or any agent or affiliate of the
Agent or any Holder, in any way or for any purpose (whether for safekeeping,
deposit, custody, pledge, transmission, collection or otherwise), and all rights
and interests of the Grantor in respect of any and all (i) drafts and letters of
credit, (ii) interest rate and currency exchange agreements, including, without
limitation, cap, collar, floor, forward and similar agreements and interest rate
protection agreements, (iii) cash, money and cash equivalents and (iv) proceeds
of loans, advances and other financial accommodations, including, without
limitation, loans, advances and other financial accommodations made or extended
under the Note Purchase Agreement; and all other personal property of the
Grantor (all of the foregoing being the "OTHER PROPERTY"); and
(g) All accessions, additions and repairs to, substitutions,
documents, ledger sheets and files for, and replacements, proceeds (including,
without limitation, proceeds that constitute property of the types described in
clauses (a) through (f) of this Section 1), products, rents and profits of any
- ----------- ---------
of the foregoing Collateral. Proceeds hereunder shall include (i) all payments
under (or claims for payment under) insurance (whether or not the Agent is the
loss payee thereof) or any indemnity, warranty, guaranty or condemnation or
requisition payments payable by reason of loss or damage to or otherwise with
respect to any of the foregoing Collateral or any proceeds thereof, (ii)
whatever is now or hereafter received by the Grantor upon the sale, lease,
exchange, assignment, licensing, collection or other disposition of, or
realization upon any item of Collateral, whether such proceeds constitute
inventory, accounts, accounts receivable, general intangibles, instruments,
securities or investment property (including, without limitation, United States
of America Treasury Bills), credits, claims, demands, documents, letters of
credit and letter of credit proceeds, chattel paper, documents of
-5-
<PAGE>
title, certificates of title, certificates of deposit, warehouse receipts, bills
of lading, leases, deposit accounts, money, tax refund claims, contract rights,
goods or equipment, (iii) any such items which are now or hereafter acquired by
the Grantor with any proceeds of its Collateral hereunder and (iv) cash and cash
equivalents.
provided, however, that except with respect to the provisions of this Section 1,
- -------- -------
the foregoing grant of a security interest shall be deemed not to grant a
security interest in any of the property described below (such property being
hereinafter referred to as property subject to a "SECURITY INTEREST RESTRICTION"
and all other property being hereinafter referred to as "SECURITY PROPERTY"):
any property described on Exhibit G hereto, if, but only to the
extent that (x) the terms and provisions of a written agreement,
document or instrument in effect on the Closing Date prohibit the
granting of a security interest or condition the granting of a
security interest on the consent of a third party whose consent has
not been obtained or would cause, or allow a third party to cause, the
forfeiture of such property upon the granting of a security interest
therein; (y) the terms and provisions of a written agreement, document
or instrument entered into after the Closing Date (or any amendment to
any agreement described in clause (x) above entered into after the
Closing Date) prohibit the granting of a security interest or
condition the granting of a security interest on the consent of a
third party whose consent has not been obtained or would cause, or
allow a third party to cause, the forfeiture of such property upon the
granting of a security interest, provided that (i) the requirement of
--------
such prohibition or condition has not been initiated by an Obligor and
has been agreed or consented to by the Obligor in the ordinary course
of its business and such prohibition or condition is believed by the
Obligor in good faith to be reasonably necessary for the Obligor to
obtain the benefits of the agreement, document or instrument entered
into by the Obligor in order to conduct its normal business operations
and (ii) the Obligor has used its best efforts to have such
prohibition or condition eliminated or to obtain such consent; or (z)
applicable law either prohibits the granting of a security interest
therein or provides for the involuntary forfeiture of the property in
the event a security interest is granted therein without the consent
of the appropriate Governmental Authority, or at all; provided,
--------
however that with respect to clauses (x), (y) and (z) above, if such
prohibition or the condition requiring such consent relates only to
the foreclosure of a security interest or the exercise of other rights
or remedies upon a default but not to the granting of a security
interest therein, then a security interest in such property shall be
deemed to be granted by this Agreement subject to the condition that
the consent of such third party or Governmental Authority .is obtained
by the Agent prior to the foreclosure or exercising its other rights
or remedies hereunder, so that any involuntary forfeiture of the
property is thereby avoided; provided, further, that the
-------- -------
-6-
<PAGE>
property which is the subject of the lien granted to IBM pursuant to
the IBM Facility shall not be deemed to be subject to a Security
Interest Restriction; provided, further, that (A) the foregoing grant
-------- -------
of a security interest shall be deemed to include all other Security
Property that becomes free from a Security Interest Restriction after
the date of this Agreement and any other Security Property that is
acquired after the date of this Agreement that is not subject to a
Security Interest Restriction permitted herein, and (B) in the event
of the termination or elimination of any Security Interest Restriction
to the extent sufficient to permit any Security Property to become
Collateral hereunder, such Security Property shall be deemed to be
assigned and pledged to the Agent and shall be included as Collateral
hereunder.
SECTION 2. Security for Obligations. This Agreement secures, with
------------------------
respect to the Grantor, and the Collateral of the Grantor is collateral security
for, the prompt and complete payment of all of the Obligations of the Grantor,
whether or not for the payment of money, whether direct or indirect (including
those acquired by assignment), absolute or contingent, due or to become due, now
existing or hereafter arising, and however acquired (all such obligations of the
Grantor, including, without limitation, the Obligations of the Grantor, being
the "SECURED OBLIGATIONS"). Without limiting the generality of the foregoing,
this Agreement secures, with respect to the Grantor, and the Collateral of the
Grantor is collateral security for, the payment of all amounts which constitute
part of the Secured Obligations of the Grantor and would be owed by the Grantor
to the Agent or any Holder but for the fact that they are unenforceable or not
allowable due to the occurrence of an Insolvency Event or any similar proceeding
involving the Grantor.
SECTION 3. Grantor Remains Liable. Anything herein to the contrary
----------------------
notwithstanding, (a) the Grantor shall remain liable under its respective
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed, (b) the exercise by the Agent
of any of the rights hereunder shall not release the Grantor from any of its
duties or obligations under its respective contracts and agreements included in
the Collateral, and (c) neither the Agent nor any Holder shall have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall the Agent or any Holder be
obligated to perform any of the obligations or duties of the Grantor thereunder
or to take any action to collect or enforce any claim for payment assigned
hereunder.
SECTION 4. Delivery of Pledged Collateral. Within thirty (30) days
------------------------------
after the end of each calendar quarter, the Grantor shall deliver to the Agent,
for the benefit of the Holders, all certificates or instruments representing or
evidencing the Pledged Collateral acquired by the Grantor during such calendar
quarter, and such Pledged Collateral shall be held by or on behalf of the Agent
pursuant hereto and shall be in suitable form for transfer by delivery, or shall
be accompanied by duly executed instruments of transfer or assignment in
-7-
<PAGE>
blank and, in the case of Pledged Stock of Subsidiaries of the Grantor formed or
acquired after the date hereof, an Acknowledgment executed by such Subsidiary,
all in form and substance satisfactory to the Agent. If, during any such
calendar quarter, (a) any stock dividend, reclassification, readjustment or
other change is declared or made in the capital structure of any of the
Subsidiaries which have issued Pledged Stock, or any option included within the
Pledged Collateral is exercised, or both, or (b) any subscription warrant(s) or
any other right(s) or option(s) shall be issued in connection with the Pledged
Collateral, then all new, substituted and additional shares, warrants, rights,
options and other securities issued by reason of any of the foregoing shall be
delivered to the Agent within thirty (30) days after the end of such calendar
quarter and shall be held by the Agent under the terms of this Agreement and
shall constitute Pledged Collateral hereunder; provided, however, that nothing
-------- -------
contained in this Section 4 shall be deemed to permit any stock dividend,
---------
issuance of additional stock, warrants, rights or options, reclassification,
readjustment or other change in the capital structure of any of the Obligors
which is not expressly permitted in the Note Purchase Agreement; provided,
--------
further, however, that the Grantor's failure to so deliver such property to the
- ------- -------
Agent shall in no way affect the Lien granted thereon as herein provided.
SECTION 5. Subsequent Changes Affecting Pledged Collateral. The
-----------------------------------------------
Grantor represents and warrants that it has made its own arrangements for
keeping itself informed of changes and potential changes affecting its Pledged
Collateral (including, but not limited to, rights to convert, rights to
subscribe, payment of dividends, payments of interest and/or principal,
reorganization and other exchanges, tender offers and voting rights), and the
Grantor agrees that neither the Agent nor any Holder shall have any obligation
to inform the Grantor of any such changes or potential changes or to take any
action or omit to take any action with respect thereto. The Agent may, after the
occurrence and during the continuance of an Event of Default, without notice and
at its option, transfer or register the Pledged Collateral or any part thereof
into its or its nominee's name with or without any indication that such Pledged
Collateral is subject to the Lien hereunder. In addition, the Agent may at any
time after the occurrence and during the continuance of an Event of Default
exchange certificates or instruments representing or evidencing the Pledged
Collateral for certificates or instruments of smaller or larger denominations.
SECTION 6. Representations and Warranties. The Grantor represents and
------------------------------
warrants as follows:
(a) The correct corporate name and federal tax identification number
of the Grantor on the date hereof is set forth on Exhibit D attached hereto and
---------
made a part hereof. Except as set forth on Exhibit D for the jurisdictions
---------
specified with respect thereto, the Grantor has no other corporate, trade or
fictitious name and has not, during the immediately preceding five (5) years,
been known by or used any other corporate, trade or fictitious name.
(b) The principal place of business and chief executive office of the
Grantor are located at the address specified on Exhibit E attached hereto and
---------
made a part hereof. All
-8-
<PAGE>
records concerning the Accounts are located at the same address specified on
Exhibit E for the Grantor. All records concerning the Related Contracts and all
- ---------
originals of all chattel paper are located at the same address specified on
Exhibit E for the Grantor or at the addresses specified as addresses of the
- ---------
Grantor on Exhibit F attached hereto and made a part hereof.
---------
(c) All of the Grantor's Inventory and Equipment is located at the
places specified on Exhibit F. If any location of its Inventory or Equipment is
---------
subject to a lease, sublease, mortgage or similar instrument, the name and
address of each lessor, sublessor and/or mortgagee (other than the Grantor) is
set forth on Exhibit F. The legal name and address of each bailee, processor,
---------
warehouseman, consignee, carrier and shipper or other Person (other than a
Lessee) in possession of any of the Grantor's Inventory or Equipment (each such
Person being a "BAILEE") on the date hereof is set forth on Exhibit F, together
---------
with the address of the location where such Inventory or Equipment is or may be
held. Except as otherwise indicated on Exhibit F, no Person (other than a Lessee
---------
or a Person identified on Exhibit F as being a consignee) in possession of any
---------
of the Grantor's Inventory or Equipment conducts a business at the location of
such Inventory or Equipment other than a business in the nature of warehousing
or transporting goods for others. In the event that any of the Grantor's
Inventory or Equipment is in the possession of a Bailee, none of the receipts,
instruments or documents received and to be received by the Grantor from any
Bailee state that the Inventory or Equipment covered thereby is to be delivered
to bearer or to the order of a named person or to a named person and such named
person's assigns.
(d) The amount represented by the Grantor from time to time to the
Agent as the amount owing by each account debtor or by all account debtors in
respect of any Accounts will, at such time, be the correct amount actually and
unconditionally owing by such account debtor(s) thereunder to the best of the
Grantor's knowledge (except to the extent, if any, that such account debtor(s)
may be entitled to normal trade discounts, adjustments, returns and allowances).
None of the Accounts is evidenced by a promissory note or other instrument,
except for promissory notes and instruments delivered to the Agent pursuant to
this Agreement.
(e) The Grantor is the sole legal and beneficial owner of its Pledged
Collateral (including, without limitation, the percentage of the issued and
outstanding capital stock of each of its Subsidiaries which is set forth
opposite the name of such Subsidiary on Exhibit A), free and clear of any Lien
---------
except for (i) Liens of the Agent, for the benefit of the Holders, under the
Note Documents, and (ii) Permitted Liens.
(f) All of the Pledged Stock has been duly authorized, validly issued
and is fully paid and non-assessable. The Pledged Notes have been duly
authorized and executed by the respective issuers thereof and constitute the
legal, valid and binding obligations of such respective issuers.
-9-
<PAGE>
(g) There are no restrictions upon the voting rights associated with,
or upon the transfer of, any of the Pledged Collateral (except as may be
required in connection with such disposition by laws affecting the offering and
sale of securities generally).
(h) The Grantor has the right to vote, pledge and grant a security
interest in or otherwise transfer its Pledged Collateral free of any Liens
except for (i) Liens of the Agent, for the benefit of the Holders, under the
Note Documents, and (ii) Permitted Liens.
(i) The Powers are duly executed and give the Agent the authority they
purport to confer.
(j) The Acknowledgments have been duly authorized, executed and
delivered by the applicable Subsidiary of Grantor.
(k) The Pledged Stock constitutes, as of the date hereof, all of the
shares of capital stock and voting securities of each Subsidiary of the Grantor
that are not subject to a Security Interest Restriction. The Pledged Notes
constitute the only promissory notes of any Person in favor of the Grantor as of
the date hereof.
(l) The pledge of the Pledged Collateral pursuant to this Agreement
does not violate Regulation G, T, U or X.
(m) No consent, authorization, permit, notice or filing is required
(i) in connection with the execution, delivery or performance of this Agreement
by the Grantor, (ii) for the creation, perfection or maintenance of the security
interest or the Liens created hereby (including the maintenance of the first
priority nature of such Lien except with respect to the property subject to (A)
liens created, or hereafter created, under that certain Inventory and Working
Capital Financing Agreement dated December 1, 1996 between IBM and Grantor, as
the same has been heretofore and may be hereafter amended, supplemented or
modified, and (B) Permitted Liens)) or (iii) for the exercise by the Agent of
its rights and remedies hereunder, except (w) those that have been obtained or
made, (x) filings necessary to create, perfect or retain the perfection or
priority of Liens against the Grantor's Collateral, (y) that certain
Subordination and Intercreditor Agreement between and among IBM, the Agent, the
Purchasers and Grantor of even date herewith and (z) with respect to the Pledged
Collateral, except as may be required in connection with such disposition by
laws affecting the offering and sale of securities generally.
(n) There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived in writing.
SECTION 7. Further Assurances. (a) The Grantor agrees that, at its own
------------------
expense, the Grantor will, and will cause each of its Subsidiaries to, promptly
execute and deliver all further instruments and documents, and take all further
action which may be
-10-
<PAGE>
reasonably necessary or desirable in the opinion of the Agent, in order to (x)
perfect and protect any Lien created or purported to be created hereby, (y)
enable the Agent to exercise and enforce its rights and remedies hereunder with
respect to any of the Grantor's Collateral, and (z) cause the execution,
delivery and performance of this Agreement to be duly authorized, and the
Grantor shall, and shall cause each of its Subsidiaries to, in any event take
such action as may be required to maintain the truthfulness and accuracy of the
representations and warranties contained in Section 6. Without limiting the
generality of the foregoing, the Grantor will: (i) if any Account or other
amount payable to the Grantor under or in connection with any of its Collateral
shall be or becomes evidenced by any promissory note, chattel paper, letter of
credit or other negotiable or non-negotiable instrument, such note, chattel
paper, letter of credit or instrument shall, within five (5) days after the
Grantor's receipt thereof, be delivered to the Agent duly indorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance reasonably satisfactory to the Agent; (ii) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as the Agent may
reasonably determine in its sole discretion to be necessary or desirable, in
order to perfect and preserve the Lien created or purported to be created
hereby; (iii) execute and deliver to the Agent notices, agreements (including,
without limitation, subordination agreements) and other documents which the
Agent may reasonably determine in its sole discretion to be necessary or
desirable, for the purpose of giving advice of and perfecting the Liens granted
to the Agent for its benefit and the ratable benefit of the Holders and
establishing the senior priority thereof over such other parties' rights and
interests in respect of any of the Grantor's Equipment, Inventory or other
Collateral held in the possession of Bailees, lessors, mortgagees or other third
parties, and shall use its best efforts to cause such third parties to
acknowledge or consent to such notices, agreements and other documents; (iv)
within thirty (30) days after the end of each calendar quarter, deliver to the
Agent with respect to any item for which a certificate of title has been issued
by the California Department of Motor Vehicles during such calendar quarter
(other than such certificates subject to Permitted Liens); (v) except with
respect to the deliveries made pursuant to Section 7(a)(iv), upon the request of
----------------
the Agent, after the occurrence and during the continuance of an Event of
Default, with respect to any item of Equipment or Inventory of the Grantor, in
either case which is covered by a certificate of title under a statute of any
jurisdiction under the law of which indication of a security interest on such
certificate is required as a condition of perfection thereof, execute and file
with the registrar of motor vehicles or other appropriate authority in such
jurisdiction an application or other document requesting the notation or other
indication of the Lien created hereunder on such certificate of title; (vi) upon
the request of the Agent, within thirty (30) days after the end of each calendar
quarter, deliver to the Agent copies of all such applications or other documents
filed pursuant to a request by the Agent under Section 7(a)(v) during such
---------------
calendar quarter and copies of all such certificates of title issued during such
calendar quarter indicating the Lien created hereunder in the items of Equipment
or Inventory covered thereby; and (vii) at the Agent's reasonable request,
appear in and defend any action or proceeding that may adversely affect
Grantor's title to or the Agent's Lien on all or any material part of the
Collateral.
-11-
<PAGE>
(b) The Grantor hereby authorizes the Agent to file one or more
financing or continuation statements, and amendments thereto, relating to all or
any part of the Grantor's Collateral without the signature of the Grantor where
permitted by law. The Grantor hereby agrees that a photocopy or other
reproduction of this Agreement or any financing statement covering its
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.
(c) The Grantor will keep and maintain at its own cost and expense,
and will cause each of its Subsidiaries to keep and maintain at their own cost
and expense, records of the Collateral in detail, form and scope consistent with
good business practice, including, without limitation, a record of all payments
received and all credits granted with respect to the Collateral and all other
dealings with the Collateral. If an Event of Default has occurred and is
continuing, for the Agent's further security, upon the Agent's request therefor,
the Grantor shall, and shall cause each of its Subsidiaries to, deliver copies
of, or if reasonably necessary in the opinion of the Agent, turn over originals
of, any such records to the Agent or to its representatives.
(d) The Grantor will, and will cause each of its Subsidiaries to,
furnish to the Agent from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as the Agent may reasonably request, all in reasonable
detail, and the Grantor agrees that the Agent or its agents may enter upon the
premises of the Grantor or any of its Subsidiaries, at the expense, as
applicable, of the Grantor or the applicable Subsidiary, during normal business
hours and upon reasonable notice, all as often as may be requested, and at any
time at all on and after the occurrence of a Default which continues beyond the
expiration of any grace or cure period applicable thereto, and which has not
otherwise been waived pursuant to the Note Purchase Agreement or cured, for the
purposes of (i) inspecting and verifying the Collateral, (ii) inspecting and/or
copying (at the Grantor's expense) any and all records pertaining thereto and
(iii) discussing the affairs, finances and business of the Grantor with any
officers, employees and directors of the Grantor or with the Grantor's auditors.
Upon reasonable notice to the Grantor, the Agent or any of the Agent's officers,
employees, agents or auditors shall have the right at any time or times
hereafter to verify with account debtors or other obligors of the Grantor the
validity and amount or any other matter (including, without limitation, the
assertion by account debtors of claims, offsets or counterclaims) with respect
to any of the Collateral.
(e) The Grantor will, and will cause each of its Subsidiaries to,
advise the Agent promptly, in reasonable detail, (i) of any material Lien or
claim made or asserted against any of the Collateral, (ii) of any material
change in the composition of the Collateral, and (iii) of the occurrence of any
other event which would have a material adverse effect on the aggregate value of
the Collateral or on the Liens created hereunder.
-12-
<PAGE>
SECTION 8. Transfers of Collateral. The Grantor agrees that it will
-----------------------
not, nor will it permit any of its Subsidiaries to (a) directly or indirectly,
sell, lease, assign, transfer or otherwise dispose of, or grant any option with
respect to, any of the Collateral, or any part thereof or interest therein,
except as expressly authorized under the Note Purchase Agreement, (b) directly
or indirectly create, incur, assume, or suffer to exist any Lien on any of the
Pledged Collateral now owned or hereafter acquired except for the Lien under
this Agreement and Permitted Liens, or (c) enter into any agreement or
understanding that purports to or may restrict or inhibit the Agent's rights or
remedies hereunder, including, without limitation, the Agent's right to sell or
otherwise dispose of the Pledged Collateral.
SECTION 9. Place of Perfection; Name Changes; Records. The Grantor
------------------------------------------
shall not (a) change its name, identity or structure or adopt or use any trade
or fictitious name not specified as a current trade or fictitious name on
Exhibit D, or use any existing trade or fictitious name in any jurisdiction not
- ---------
specified for such name on Exhibit D, (b) change any location of its chief
---------
executive office, place of business or place where records concerning its
Accounts, Related Contracts and chattel paper are maintained from the locations
specified on Exhibit E or Exhibit F or (c) change any location of any Collateral
--------- ---------
or jurisdiction where Lessees are located from the locations specified in
Exhibit F, unless, in each case, the Grantor shall have given the Agent at least
- ---------
thirty (30) Business Days' prior written notice of any such change. At least
ten (10) Business Days prior to any such change referred to in the preceding
sentence, the Grantor shall prepare and deliver to the Agent amended exhibit(s)
reflecting such change(s) and execute and deliver to the Agent any financing
statements or other documents required by the Agent, all in form and substance
reasonably satisfactory to the Agent, and take all other actions required by
Section 7.
- ---------
SECTION 10. Covenants Regarding Accounts and Related Contracts. (a)
--------------------------------------------------
The Grantor shall, at its expense, perform and observe all of the material terms
and provisions of the Related Contracts, service agreements, contracts of sale,
distribution agreements, employment agreements, acquisition agreements, rental
contracts, leases and chattel paper to be performed or observed by it, maintain
the Related Contracts, service agreements, contracts of sale, distribution
agreements, employment agreements, acquisition agreements, rental contracts,
leases and chattel paper in full force and effect and enforce the Related
Contracts in accordance with their terms, except for such Related Contracts,
service agreements, employment agreements, acquisition agreements, contracts of
sale, distribution agreements, rental contracts, leases and chattel paper with
respect to which the aggregate amount payable thereunder is not Material.
(b) In any suit, proceeding or action brought by the Agent under any
account comprising part of the Collateral, the Grantor agrees to save, indemnify
and keep the Agent and each Holder harmless from and against all expense, loss
or damages suffered breach by the Grantor of any obligation or arising out of
any other agreement, indebtedness or liability at any time owing to or in favor
of such obligor
-13-
<PAGE>
or its successors from the Grantor, and all such obligations of the Grantor
shall be and shall remain enforceable against and only against the Grantor and
shall not be enforceable against the Agent or any Holder.
SECTION 11. Covenants Regarding Equipment and Inventory. (a) If any
-------------------------------------------
Equipment or Inventory of the Grantor is in the possession or control of any
Bailee or any of the Grantor's agents, the Grantor shall notify such Bailee or
agent of the Agent's Lien on such Equipment or Inventory and, upon the Agent's
request, direct such Bailee or agent to hold all such Equipment or Inventory for
the Agent's account and subject to the Agent's instructions.
(b) Upon the request of the Agent, the Grantor will promptly deliver
to the Agent a schedule, if available, listing all Equipment disposed of by the
Grantor, and the book value thereof, in the then-current (or any prior) fiscal
year.
(c) The Grantor will, upon request of the Agent, submit to the Agent
a current listing, if available, of all of the Grantor's Equipment, which
listing shall indicate the type, model, serial number and location of such
Equipment.
(d) The Grantor shall promptly upon the issuance and delivery to the
Grantor of any negotiable document of title, upon the request of the Agent after
the occurrence and during the continuance of an Event of Default, deliver such
negotiable document of title to the Agent.
SECTION 12. Voting Rights. During the term of this Agreement, and
-------------
except as provided in the next sentence of this Section 12, the Grantor shall
----------
have the right to vote its Pledged Stock on all corporate questions in a manner
not inconsistent with the terms of this Agreement, the Note Purchase Agreement
and any other agreement, instrument or document executed pursuant thereto or in
connection therewith, and in a manner that would not have a material adverse
effect on the value of the Pledged Stock and the related Pledged Collateral or
any part thereof. After the occurrence and during the continuance of an Event
of Default, the Agent may, at the Agent's option and following written notice
from the Agent to the Grantor, exercise all voting powers pertaining to the
Grantor's Pledged Collateral, including the right to take shareholder action by
written consent, and the Grantor hereby irrevocably constitutes and appoints the
Agent as the Grantor's proxy and attorney-in-fact, with full power of
substitution, to do so. This proxy shall be irrevocable and shall continue
until the termination of this Agreement in accordance with Section 23.
----------
SECTION 13. Dividends and Other Distributions. (a) So long as no
---------------------------------
Event of Default shall have occurred or would result therefrom:
(i) subject to Section 4 hereof and the provisions of the Note
---------
Purchase Agreement, the Grantor shall be entitled to receive, retain and utilize
all dividends, interest
-14-
<PAGE>
and principal paid in respect of its Pledged Collateral unless any such
dividend, interest or principal is not permitted to be paid under the terms of
the Note Purchase Agreement; and
(ii) the Agent shall execute and deliver (or cause to be executed and
delivered) to the Grantor all such proxies and other instruments as the Grantor
may reasonably request for the purpose of enabling the Grantor to receive the
dividends, interest or principal payments which it is authorized to receive,
retain and utilize pursuant to clause (i) above.
----------
(b) Except as may otherwise be provided in the Note Purchase
Agreement, after the occurrence and during the continuance of an Event of
Default, or if any of the following would result in an Event of Default if paid
to a Grantor:
(i) all rights of the Grantor to receive dividends, interest and
principal payments in respect of the Pledged Collateral shall cease, and all
such rights shall thereupon become vested in the Agent, for the benefit of the
Agent and the ratable benefit of the Holders, which shall thereupon have the
sole right to receive and hold as Pledged Collateral such dividends, interest
and principal payments; and
(ii) all dividends, interest and principal payments which are
received by the Grantor contrary to the provisions of clause (i) of this Section
---------- -------
13(b) shall be received in trust for the Agent, for the benefit of the Agent and
- -----
the ratable benefit of the Holders, shall be segregated from other funds of the
Grantor and shall be paid over immediately to the Agent as Pledged Collateral in
the same form as so received (with any necessary indorsements).
(c) Except as may otherwise be provided in the Note Purchase
Agreement, any and all (i) dividends, interest and principal paid or payable
other than in cash in respect of, and instruments and other property received,
receivable or otherwise distributed in respect of, or in exchange for, any
Pledged Collateral, (ii) dividends and other distributions paid or payable in
cash received, receivable or otherwise distributed in respect of any Pledged
Stock in connection with a partial or total liquidation or dissolution or in
connection with a reduction of capital, capital surplus or paid-in-surplus, and
(iii) cash paid, payable or otherwise distributed in redemption of, or in
exchange for, any Pledged Stock, shall in each case be delivered forthwith to
the Agent to hold as Pledged Collateral and shall, if received by Grantor, be
received in trust for the Agent, for the benefit of Holders, be segregated from
other funds of the Grantor, and be paid over immediately to the Agent as Pledged
Collateral in the same form as so received (with any necessary indorsements).
SECTION 14. Intentionally Omitted.
---------------------
SECTION 15. Agent Appointed Attorney-in-Fact. The Grantor hereby
--------------------------------
irrevocably appoints the Agent the Grantor's attorney-in-fact, with full
authority in the place and stead of the Grantor and in the name of the Grantor
or otherwise, from time to time in the Agent's discretion, to take any action
and to execute any instrument which the Agent may
-15-
<PAGE>
deem necessary or advisable to accomplish the purposes of this Agreement,
subject to the Agent's authority as provided in the Note Purchase Agreement,
including, without limitation:
(a) after the occurrence and during the continuance of an Event of
Default, to ask, demand, collect, sue for, recover, compromise, receive and give
acquittance and receipts for moneys due and to become due under or in connection
with any of the Collateral;
(b) after the occurrence and during the continuance of an Event of
Default, to receive, indorse, and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) above;
----------
(c) after the occurrence and during the continuance of an Event of
Default, to file any claims or take any action or institute any proceedings
which the Agent may deem necessary or desirable for the collection of any of the
Collateral or otherwise to enforce the rights of the Agent with respect to any
of the Collateral;
(d) after the occurrence and during the continuance of an Event of
Default, to discharge any Lien or encumbrance on or against any of the
Collateral or bond the same;
(e) to give any notices and record any Liens;
(f) to make any payments or take any acts which the Agent deems
reasonably necessary or desirable to protect the Lien of the Agent, for the
benefit of the Holders, on the Collateral;
(g) after the occurrence and during the continuance of an Event of
Default, to execute and give receipt for any certificate of ownership or any
document of title; and
(h) after the occurrence and during the continuance of an Event of
Default, to transfer title to any item of Collateral.
All Persons dealing with the Agent, or any employee or agent of the Agent acting
pursuant hereto, or any substitute attorney-in-fact for the Agent, shall be
fully protected in treating the powers and authorities conferred by this Section
-------
15 as existing and continuing in full force and effect. The Grantor hereby
- --
ratifies all that such attorney-in- fact shall lawfully do or cause to be done
by virtue hereof. This power of attorney is coupled with an interest and shall
be irrevocable. This power of attorney shall terminate upon the termination of
this Agreement pursuant to Section 23.
----------
SECTION 16. Agent May Perform. If the Grantor fails to perform any
-----------------
agreement contained herein, the Agent, after giving prior notice to the Grantor,
may itself perform, or cause performance of, such agreement, and the expenses of
the Agent incurred in connection therewith shall be payable by the Grantor to
the Agent upon demand by the Agent.
-16-
<PAGE>
SECTION 17. The Agent's Rights and Duties. The powers conferred on
-----------------------------
the Agent and the Holders hereunder are solely to protect their interest in the
Collateral and shall not impose any duty upon any of them to exercise any such
powers. Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Agent shall have no
duty as to any Collateral. Without limiting the generality of the foregoing
sentence, the Agent shall be under no obligation to (a) ascertain or take action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relative to any Pledged Collateral, whether or not the Agent has or is
deemed to have knowledge of such matters, but may do so at its option or (b)
take any steps necessary to preserve rights in the Pledged Collateral against
any other parties but may do so at its option. All expenses incurred in
connection therewith shall be for the sole account of the Grantor, and shall
constitute part of its Obligations secured hereby. Any action taken or omitted
to be taken by the Agent in connection with any of the Collateral shall not
result in any liability of the Agent to the Grantor unless such action or
omission shall be determined by a court of competent jurisdiction to have arisen
solely out of the gross negligence or willful misconduct of the Agent. The
Agent may exercise any of its rights and execute any of its duties hereunder by
or through agents or employees and shall be entitled to advice of counsel
concerning all matters pertaining to its rights and duties hereunder.
SECTION 18. Remedies. If any Event of Default shall have occurred
--------
and be continuing:
(a) The Agent may exercise in respect of the Collateral, in addition
to other rights and remedies provided for herein, in the Note Purchase
Agreement, or otherwise available to it, all the rights and remedies of a
secured party upon default under the Uniform Commercial Code in effect in any
relevant jurisdiction at that time (the "UNIFORM COMMERCIAL CODE") (whether or
not the Uniform Commercial Code applies to the affected Collateral), and also
may (i) without notice, demand or legal process of any kind, all of which the
Grantor hereby waives to the extent permitted by applicable law, at any time or
times notify the account debtors or obligors under any Accounts, chattel paper,
instruments or General Intangibles of the assignment of such Collateral to the
Agent and to direct such account debtors or obligors to make payment of all
amounts due or to become due to the Grantor thereunder directly to the Agent, to
notify each Person maintaining a lockbox or similar arrangement to which account
debtors or obligors under any Accounts, chattel paper, instruments or General
Intangibles have been directed to make payment to remit all amounts representing
collections on checks and other payment items from time to time sent to or
deposited in such lockbox or other arrangement directly to the Agent and, upon
such notification and at the expense of the Grantor, to accelerate or extend the
time of payment, compromise, issue credits, or bring suit on such Collateral (in
the name of the Grantor or the Holders) and otherwise administer and collect
such Collateral, in the same manner and to the same extent as the Grantor might
have done; (ii) without notice, demand or legal process of any kind, all of
which the Grantor hereby waives to the extent permitted by applicable law, at
any time or times enter any premises where any Collateral may be located and
take physical
-17-
<PAGE>
possession of the Collateral and maintain such possession on the premises, at no
cost to the Agent, or remove the Collateral or any part thereof, to such other
places as the Agent may desire; (iii) without notice, demand or legal process of
any kind, all of which the Grantor hereby waives to the extent permitted by
applicable law, at any time or times enter any premises where any Collateral may
be located and use, manage, operate and control the Collateral thereon and the
relevant business and property to preserve the Collateral; exclude any third
parties, whether or not claiming under the Grantor, from any such premises and
property; complete any unfinished Inventory, make repairs, replacements,
alterations, additions and improvements to the Collateral; and, dispose of all
or any portion of the Collateral in the ordinary course of business; (iv)
require the Grantor to, and the Grantor hereby agrees that it will at its own
expense and upon request of the Agent forthwith, assemble all or part of its
Collateral as directed by the Agent and make it available to the Agent at a
place or places to be designated by the Agent that is reasonably convenient for
both parties, and deliver possession of said Collateral or any part thereof to
the Agent; and (v) without notice, except as specified below, sell, lease,
assign, grant an option or options to purchase or otherwise dispose of the
Collateral or any part thereof in one or more parcels with or without
advertisement, at any exchange, broker's board, public or private sale, at any
of the Agent's offices or elsewhere, for cash, on credit, for future delivery,
or otherwise, and upon such other terms as the Agent may deem commercially
reasonable. Any repossession, retaking, sale, or other disposition of the
Collateral by the Agent shall not operate to release the Grantor from its
obligations hereunder. The Agent and each Holder may, in its own name or in the
name of a designee or nominee, bid for or purchase the Collateral at any public
sale and, if permitted by applicable law, buy the Collateral at any private
sale. Each purchaser of any or all of the Collateral so sold shall thereafter
own the same, absolutely free from any claim, encumbrance or right of any kind
whatsoever on the part of the Grantor, and the Grantor hereby waives, to the
extent permitted by applicable law, all rights of redemption, appraisal,
valuation, stay, extension or moratorium now or hereafter in force in order to
prevent or delay the enforcement of this Agreement, or the absolute sale of the
whole or any part of the Collateral or the possession thereof by any purchaser
at any sale hereunder. The Agent agrees that, to the extent notice of sale shall
be required by law, the Agent shall provide such notice as is commercially
reasonable, which shall not be less than five (5) Business Days' notice to the
Grantor of the time and place of any public sale or the time after which any
private sale is to be made. The Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Agent may adjourn
any public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at the
time and place to which it was so adjourned, provided that Agent provides
--------
commercially reasonable notice to Grantor of the time and place to which the
sale was adjourned. The Grantor hereby waives any claims against the Agent
arising by reason of the fact that the price at which any Collateral may have
been sold at such a private sale was less than the price which might have been
obtained at a public sale, even if the Agent accepts the first offer received
and does not offer such Collateral to more than one offeree; provided that
--------
such sale was conducted in a commercially reasonable manner.
-18-
<PAGE>
(b) Any cash held by the Agent as Collateral and all cash proceeds
received by the Agent in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral may, in the discretion of the
Agent, be held by the Agent as collateral for, and/or then or at any time
thereafter be applied in whole or in part by the Agent for its benefit and for
the ratable benefit of the Holders against, all or any part of the Grantor's
Secured Obligations in such order as the Agent shall elect, subject to any
provision of the Note Purchase Agreement governing the application of such cash,
proceeds, or other realization upon the Collateral. If the proceeds of any sale
or other disposition of the Collateral of Grantor are insufficient to pay all
of the Secured Obligations of the Grantor, the Grantor shall be liable for the
deficiency, in addition to any fees, expenses or other amounts required to be
paid pursuant to the Note Purchase Agreement to collect such deficiency. Any
surplus of such cash or cash proceeds held by the Agent and remaining after
payment in full of all Secured Obligations shall be promptly paid to the Grantor
or to whomsoever may be lawfully entitled to receive such surplus.
(c) The Grantor hereby consents to the voluntary dismissal by the
Agent of any judicial action, prejudgment or otherwise, brought by the Agent,
and the Grantor further consents to the exoneration of any bond that the Agent
files in such action.
SECTION 19. Registration Rights. (a) In the event that the Agent
-------------------
determines, after the occurrence and during the continuance of an Event of
Default, to exercise its right to sell the Pledged Stock pursuant to Section 18,
----------
the Grantor shall, upon the request of the Agent, at the Grantor's expense:
(i) execute and deliver, and cause each issuer of Pledged Stock and
its respective officers and directors to execute and deliver, all such
instruments and documents, and do or cause to be done all such other acts
and things, as may be necessary or, in the opinion of the Agent, the
Grantor or its or their counsel, advisable to register the applicable
Pledged Collateral under the provisions of the Securities Act of 1933, as
amended (the "SECURITIES ACT") and to exercise its reasonable efforts to
cause the registration statement relating thereto to become effective and
to remain effective for such period as prospectuses are required by law to
be furnished, and to make all amendments and supplements thereto and to the
related prospectus which, in the opinion of the Agent, the Grantor or its
or their counsel, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto;
(ii) use its reasonable efforts to qualify its Pledged Collateral
under state securities or "Blue Sky" laws and to obtain all necessary
governmental approvals for the sale of its Pledged Collateral, as requested
by the Agent;
-19-
<PAGE>
(iii) cause any Subsidiary which has issued Pledged Collateral (or
any of them) to make available to the holders of its securities, as soon as
practicable, earnings statements which will satisfy the provisions of
Section 11(a) of the Securities Act; and
(iv) do or cause to be done all such other acts and things as may be
reasonably necessary to make such sale of its Pledged Collateral or any
part thereof valid and binding and in compliance with applicable law.
The Grantor will reimburse the Agent for all expenses incurred by the Agent,
including, without limitation, reasonable attorneys' and accountants' fees and
expenses in connection with the foregoing. Upon or at any time after the
occurrence and during the continuance of an Event of Default, if the Agent
determines that, prior to any public offering of any securities constituting
part of the Pledged Collateral, such securities should be registered under the
Securities Act and/or registered or qualified under any other federal or state
law and such registration and/or qualification is not practicable, then the
Grantor agrees that it will be commercially reasonable if a private sale is
arranged so as to avoid a public offering, even though the sales price
established and/or obtained at such private sale may be substantially less than
prices which could have been obtained for such security on any market or
exchange or in any other public sale. In so doing, the Agent may restrict the
bidders and prospective purchasers to those who are qualified and will represent
and agree that they are purchasing for investment only and not for distribution,
and the Agent may solicit offers to buy the Pledged Collateral, or any part of
it, from a limited number of investors deemed by the Agent, in its reasonable
judgment, to be financially responsible parties who might be interested in so
purchasing the Pledged Collateral. If the Agent solicits such offers from not
less than four (4) such investors, then the acceptance by the Agent of the
highest offer obtained therefrom shall be deemed to be a commercially reasonable
method of disposing of such Pledged Collateral. The Agent shall be under no
obligation to delay a sale of any of the Pledged Collateral for the period of
time necessary to permit the registrant to register such securities for public
sale under the Securities Act, or under applicable state securities laws, even
if the Grantor or the issuer of the Pledged Collateral would agree to do so.
(b) In addition to a private sale as provided above in Section 19(a),
-------------
if any of the Pledged Collateral shall not be freely distributable to the public
without registration under the Securities Act (or similar statute) at the time
of any proposed sale pursuant to this Section 19, then the Agent shall not be
----------
required to effect such registration or cause the same to be effected but, in
its discretion (subject only to applicable requirements of law), may require
that any sale hereunder (including a sale at auction) be conducted subject to
restrictions (i) as to the financial sophistication and ability of any Person
permitted to bid or purchase at any such sale, (ii) as to the content of legends
to be placed upon any certificates representing the Pledged Collateral sold in
such sale, including restrictions on future transfer thereof, (iii) as to the
representations required to be made by each Person bidding or purchasing at such
sale relating to that Person's access to financial information about the
pertinent issuer of Pledged Collateral and such Person's intentions as to the
holding of the Pledged Collateral so sold for investment,
-20-
<PAGE>
for its own account, and not with a view of the distribution thereof, and (iv)
as to such other matters as the Agent may, in its discretion, deem necessary or
appropriate in order that such sale (notwithstanding any failure so to register)
may be effected in compliance with the Uniform Commercial Code as in effect in
the State of California or any other relevant jurisdiction and other laws
affecting the enforcement of creditors' rights and the Securities Act and all
applicable state securities laws.
SECTION 20. Waivers. The Grantor waives presentment and demand for
-------
payment of any of the Obligations, protest and notice of dishonor or Event of
Default with respect to any of the Obligations and all other notices to which
the Grantor might otherwise be entitled, except as otherwise expressly provided
herein or in the Note Purchase Agreement.
SECTION 21. Amendments, Etc. No amendment or waiver of any provision
---------------
of this Agreement, and no consent to any departure by the Grantor herefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Grantor and the Holders (or by the Agent on their behalf), except as
otherwise provided in the Note Purchase Agreement, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 22. Notices, Etc. All notices and other communications
-------------
provided for hereunder shall be given in the manner and to the addresses set
forth in the Note Purchase Agreement, except that any notice provided by the
Grantor to the Agent hereunder shall be effective only upon receipt thereof by
the Agent.
SECTION 23. Continuing Lien; Assignments under Note Purchase
------------------------------------------------
Agreement; Termination; Payments Set Aside. This Agreement shall create a
- ------------------------------------------
continuing Lien on the Collateral and shall (i) remain in full force and effect
until the payment in full of the Secured Obligations, (ii) be binding upon the
Grantor, its successors and permitted assigns (which shall include, without
limitation, the Grantor's receivers, trustees or debtors-in-possession), and
(iii) inure to the benefit of, and be enforceable by, the Agent, the Holders and
their respective successors, transferees and permitted assigns. Without
limiting the generality of the foregoing clause (iii), any Holder may assign or
------------
otherwise transfer all or any portion of its rights and obligations under the
Note Purchase Agreement in accordance with the terms thereof and any Note held
by it (subject to the terms of the Note Purchase Agreement), to any other
Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to such Holder herein or otherwise. The
Grantor shall not assign this Agreement, or any rights or obligations hereunder,
without the prior written consent of the Agent and the Holders. Upon the
payment in full of the Secured Obligations, the Lien granted hereby shall
terminate and all rights to the Collateral shall revert to the Grantor. At such
time, the Agent shall, at the request and expense of the Grantor, reassign and
redeliver to the Grantor all of the Collateral hereunder which has not been
sold, disposed of, retained or applied by the Agent in accordance with the terms
of this Agreement. Such reassignment and redelivery shall be without warranty
by or recourse to the Agent, except as to the absence of any prior
-21-
<PAGE>
assignments by the Agent of its interest in the Collateral, and shall be at the
expense of the Grantor. To the extent that the Grantor makes a payment or
payments to the Agent or any Holder, or the Agent or the Holders enforce their
Liens or exercise their rights of set-off, and such payment or payments or the
proceeds of such enforcement or set-off or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside and/or
required to be repaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such recovery, the obligation or part thereof originally intended
to be satisfied, and all Liens, rights and remedies therefor, shall be revived
and continued in full force and effect as if such payment had not been made or
such enforcement or set-off had not occurred.
SECTION 24. Survival of Representations and Warranties. The Grantor
------------------------------------------
covenants, warrants, and represents to the Agent and the Holders that all
representations and warranties of the Grantor contained in this Agreement shall
be true at the time of the Grantor's execution of this Agreement, shall survive
the execution, delivery and acceptance hereof by the parties hereto and the
closing of the transactions described in the Note Purchase Agreement and the
other Transaction Documents and shall continue in effect until all of the
Secured Obligations shall have been paid in full and the Note Purchase Agreement
has been terminated.
SECTION 25. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND
-------------
ENFORCEMENT OF THIS AGREEMENT AND ANY DISPUTE ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT, WHETHER SOUNDING IN CONTRACT, TORT, EQUITY OR OTHERWISE,
SHALL BE GOVERNED BY THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICTS OF LAWS
PROVISIONS) AND DECISIONS OF THE STATE OF CALIFORNIA, EXCEPT AS REQUIRED BY
MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT THE VALIDITY OR
PERFECTION OF THE LIEN HEREUNDER, OR ANY OF THE REMEDIES HEREUNDER, IN RESPECT
OF ANY PARTICULAR COLLATERAL, MAY BE GOVERNED BY THE LAWS OF A JURISDICTION
OTHER THAN THE STATE OF CALIFORNIA.
SECTION 26. SUBMISSION TO JURISDICTION. ALL DISPUTES BETWEEN THE
--------------------------
GRANTOR AND THE HOLDERS (OR THE AGENT ACTING ON THEIR BEHALF), WHETHER SOUNDING
IN CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND
FEDERAL COURTS LOCATED IN LOS ANGELES, CALIFORNIA, AND THE COURTS TO WHICH AN
APPEAL THEREFROM MAY BE TAKEN; PROVIDED, HOWEVER, THAT THE AGENT, ON BEHALF OF
-------- -------
THE HOLDERS, SHALL HAVE THE RIGHT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TO
PROCEED AGAINST THE GRANTOR OR ITS RESPECTIVE PROPERTY IN ANY LOCATION
REASONABLY SELECTED BY THE AGENT IN GOOD FAITH TO ENABLE THE AGENT TO REALIZE ON
SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE
AGENT. THE GRANTOR AGREES THAT IT WILL NOT ASSERT
-22-
<PAGE>
ANY PERMISSIVE COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY COLLECTION
PROCEEDING BROUGHT BY THE AGENT. THE GRANTOR WAIVES ANY OBJECTION THAT IT MAY
HAVE TO THE LOCATION OF THE COURT IN WHICH THE AGENT HAS COMMENCED A PROCEEDING,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
FORUM NON CONVENIENS.
SECTION 27. INTENTIONALLY OMITTED.
---------------------
SECTION 28. JURY TRIAL. THE GRANTOR, THE AGENT AND THE PURCHASERS
----------
EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY. INSTEAD, ANY DISPUTES WILL BE
RESOLVED IN A BENCH TRIAL.
SECTION 29. LIMITATION OF LIABILITY. NONE OF THE AGENT OR THE
-----------------------
HOLDERS SHALL HAVE ANY LIABILITY TO THE GRANTOR (WHETHER SOUNDING IN TORT,
CONTRACT, OR OTHERWISE) FOR LOSSES SUFFERED BY THE GRANTOR OR ITS RESPECTIVE
SUBSIDIARIES, AND THE GRANTOR HEREBY WAIVES AND RELEASES ANY CLAIMS, IN
CONNECTION WITH, ARISING OUT OF, OR IN ANY WAY RELATED TO THE TRANSACTIONS OR
RELATIONSHIPS CONTEMPLATED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT
OCCURRING IN CONNECTION HEREWITH, UNLESS IT IS DETERMINED BY A FINAL AND
NONAPPEALABLE JUDGMENT OR COURT ORDER BINDING ON THE AGENT OR ANY SUCH HOLDER,
THAT THE LOSSES WERE THE RESULT OF ACTS OR OMISSIONS CONSTITUTING GROSS
NEGLIGENCE, WILLFUL MISCONDUCT, BREACH OF CONTRACT OR KNOWING OR GROSSLY
NEGLIGENT VIOLATIONS OF APPLICABLE REQUIREMENTS OF LAW. THE GRANTOR AGREES NOT
TO ASSERT ANY CLAIM AGAINST ANY OF THE AGENT OR ANY HOLDER ON ANY THEORY OF
LIABILITY FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT
OF, OR IN ANY WAY IN CONNECTION WITH, THE OBLIGATIONS OR ANY OTHER MATTERS
GOVERNED BY THIS AGREEMENT OR THE OTHER NOTE DOCUMENTS.
SECTION 30. Severability. In case any provision in or obligation
------------
under this Agreement shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations shall not in any way be affected or impaired thereby.
SECTION 31. Protection of Collateral. The Agent shall have the right
------------------------
(but shall not be obligated) to make payments and take actions it deems
reasonably necessary to protect its Lien on the Collateral. Grantor shall
reimburse the Agent for all such payments made, and expenses incurred with
respect to such actions taken, by the Agent, which amounts and expenses shall be
secured under this Agreement, and the Grantor shall be bound by any such payment
made or action taken by the Agent.
-23-
<PAGE>
SECTION 32. No Waiver; Remedies. No failure on the part of any
-------------------
Holder or the Agent to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right hereunder preclude any other or further exercise thereof or the
exercise of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided in the Note Purchase Agreement, any other
Note Document, in equity, or by law.
SECTION 33. Marshalling; Recourse to Security. None of the Holders
---------------------------------
or the Agent shall be under any obligation to marshall any assets in favor of
the Grantor or any other party or against or in payment of any or all of the
Secured Obligations. Recourse to security shall not be required at any time.
SECTION 34. Construction. (a) The parties acknowledge that each
------------
party and its counsel have reviewed and revised this Agreement and that the
normal rule of construction to the effect that any ambiguities are to be
resolved against the drafting party shall not be employed in the interpretation
of this Agreement or any amendments or exhibits hereto.
(b) The words "hereof", "herein" and "hereunder" and words of like
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement and section and exhibit
references are to this Agreement and to its attachments unless otherwise
specified.
(c) All terms defined in this Agreement in the singular shall have
comparable meanings when used in the plural, and vice versa, unless otherwise
---- -----
specified.
(d) Unless otherwise defined herein or in the Note Purchase
Agreement, terms used in Article 9 of the Uniform Commercial Code in effect in
the State of California are used herein as therein defined.
SECTION 35. Headings. Section headings in this Agreement are
--------
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
SECTION 36. Additional Grantor. The initial Grantor hereunder shall
------------------
be the Issuer under the Note Purchase Agreement. From time to time after the
date hereof, additional Subsidiaries of the Obligors may become Guarantors under
the Note Purchase Agreement in accordance with Section 6.17 of the Note Purchase
Agreement. Such additional Subsidiaries (each, an "ADDITIONAL GRANTOR") shall
become a party to the Guarantor Security and Pledge Agreement by executing a
counterpart of such Agreement. Upon delivery of any such counterpart to the
Agent, notice of which is hereby waived by the other Grantors, each Additional
Grantor shall be a Grantor and shall be as fully a party thereto as if such
Additional Grantor were an original signatory thereof. Each Additional Grantor
shall deliver at the time of delivery of such counterpart additional schedules
thereto, and deliver or cause to be
-24-
<PAGE>
delivered such Pledged Collateral, Acknowledgments and Powers, which are
necessary to make its representations and warranties made therein true and
correct, together with any other documents which the Agent may reasonably
request. The Grantor expressly agrees that its obligations arising hereunder
shall not be affected or diminished by the addition or release of any other
Grantor thereunder, nor by any election of the Agent or the Holders not to cause
any Subsidiary of any Obligor to become an Additional Grantor thereunder. This
Agreement shall be fully effective as to any Grantor that is or becomes a party
hereto or thereto regardless of whether any other Person becomes or fails to
become or ceases to be a Grantor hereunder or thereunder.
SECTION 37. Execution in Counterparts; Effectiveness. This Agreement
----------------------------------------
and any waiver or amendment hereto may be executed in any number of counterparts
and by the different parties hereto in separate counterparts, each of which when
so executed and delivered shall be an original, but all of which shall together
constitute one and the same instrument. This Agreement shall become effective on
the date on which all of the parties hereto shall have signed a copy hereof
(whether the same or different copies) and shall have delivered the same to the
Agent pursuant to the provisions of the Note Purchase Agreement and of this
Agreement concerning notices.
* * *
-25-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
GRANTOR: WESTERN MICRO TECHNOLOGY, INC.
- -------
a Delaware corporation
By: /s/ James W. Dorst
-------------------------
James W. Dorst
Chief Financial Officer
AGENT: CANPARTNERS INVESTMENTS IV, LLC,
- -----
a California limited liability company,
as Agent
By: /s/ Scott A. Imbach
-------------------------
Scott A. Imbach
Attorney-In-Fact
<PAGE>
EXHIBIT A
to
ISSUER SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Pledged Collateral
------------------
Pledged Stock Certificates
- --------------------------
<TABLE>
<CAPTION>
Percentage of Issued and Shares of Capital Stock
and Outstanding Capital Owned by the Pledgor
Name Stock Owned by Pledgor Subject to Pledge
- ---- ---------------------- -----------------
<S> <C> <C>
WMT Acquisition Corp. 100% 1,000
Savoir Technology Group, Inc. 100% 1,000
Star Management Services, Inc. 100% 3,000
</TABLE>
Pledged Notes
- -------------
None.
<PAGE>
EXHIBIT B
to
ISSUER SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Form of Acknowledgment
----------------------
ACKNOWLEDGMENT
The undersigned hereby acknowledges receipt of a copy of the foregoing
Issuer Security and Pledge Agreement, agrees promptly to note on its books and
records the Liens granted under such Issuer Security and Pledge Agreement, and
waives any rights or requirement at any time hereafter to receive a copy of such
Issuer Security and Pledge Agreement in connection with the registration of any
Pledged Collateral in the name of the Agent or its nominee or the exercise of
voting rights by the Agent.
[NAME OF ISSUER OF PLEDGED STOCK]
By: _______________________
Name:
Title:
2
<PAGE>
EXHIBIT C
to
ISSUER SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Form of Stock Power
-------------------
STOCK POWER
FOR VALUE RECEIVED, the undersigned does hereby sell, assign and
transfer to ______________ all of its right, title and interest in and to ______
______ shares of the capital stock of ______________, a ____________
corporation, represented by Certificate No. _____________ (the "Stock"),
standing in the name of the undersigned on the books of said corporation and
does hereby irrevocably constitute and appoint ____________ as the undersigned s
true and lawful attorney, for it and in its name and stead, to sell, assign and
transfer all or any of the Stock and for that purpose to make and execute all
necessary acts of assignment and transfer thereof.
Dated: _____________
[NAME OF GRANTOR]
By: ________________________
Name:
Title:
3
<PAGE>
EXHIBIT D
to
ISSUER SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Corporate or Fictitious Names; Tax Identification Number
--------------------------------------------------------
WESTERN MICRO TECHNOLOGY, INC.
- -----------------------------
Exact Corporate Name: Western Micro Technology, Inc.
Tax Identification Number: 94-2414428
Other Corporate,
Trade or Fictitious Names Jurisdictions Used
- ------------------------- ------------------
None.
4
<PAGE>
EXHIBIT E
to
ISSUER SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Address Where Records Concerning Accounts Are Located
-----------------------------------------------------
and Principal Place of Business
-------------------------------
WESTERN MICRO TECHNOLOGY, INC.
- -----------------------------
Chief Executive Office and Principal Place of Business
------------------------------------------------------
254 E. Hacienda Avenue
Campbell, CA 95008
Other Addresses
---------------
None.
5
<PAGE>
EXHIBIT F
to
ISSUER SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Locations of Inventory and Equipment
------------------------------------
WESTERN MICRO TECHNOLOGY, INC.
- -----------------------------
Locations Owned or Leased by the Grantor
----------------------------------------
Name and Address of Lessor,
Sublessor, Lessee, Sublessee
Address and/or Mortgagee, if any
- ------- ------------------------
254 E. Hacienda Avenue MJHM II
Campbell, CA 95008 c/o South Bay Construction
511 Division Street
Campbell, CA 95008
44951 Industrial Avenue 30 Industrial Partnership
Fremont, CA 94538 c/o Investment Building Group
224 Airport Parkway, #190
San Jose, CA 95140
10 Holland Drive Western States Technology
Irvine, CA 92618 18101 Von Karman Ave., #350
Irvine, CA 92715
5803B Sebastian Pl. Sebastian Place LLLC
San Antonio, TX 78249 5803 Sebastian Place
San Antonio, TX 78249
3715 Parkmoor Village Drive Parkmoor Office Plaza A
Colorado Springs, CO 80917 101 N. Cascade Ave., #310
Colorado Springs, CO 80903
341 Shore Drive Bridgeview Bank & Trust
Burr Ridge, IL 60521 c/o Northwestern Terrazzo
P.O. Box 3786
Oakbrook, IL 60522
139 Newbury Street Iron Mountain
Framingham, MA 01701 745 Atlantic Avenue
Boston, MA 02111
6
<PAGE>
Jurisdictions where Lessees are Located
---------------------------------------
None.
Bailees
-------
None.
Names and Mailing Address of Bailees/
-------------------------------------
Address where Bailee Holds Collateral
-------------------------------------
None.
7
<PAGE>
EXHIBIT G
to
ISSUER SECURITY AND PLEDGE AGREEMENT
dated as of September 30, 1997
Property Subject to a Security Interest Restriction
---------------------------------------------------
None.
8
<PAGE>
Exhibit 10.4
EXCECUTIONS COPY
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT ("Agreement") is entered into as of
September 30, 1997 by and among WMT Acquisition Corp., a California corporation,
Savoir Technology Group, Inc., a Delaware corporation, Star Management Services,
Inc., a Delaware corporation, Inet Systems, Inc., a Texas corporation, Star Data
International, a company organized under the laws of the Virgin Islands, Sirius
Investments, Inc., a Nevada corporation, and Star Data Systems, Inc., a Texas
corporation (each a "Guarantor," and collectively, the "Guarantors").
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings ascribed to such terms in the Note Purchase Agreement
referred to below. The meanings ascribed to capitalized terms used herein shall
be applicable both to the singular and plural forms of the terms used.
W I T N E S S E T H:
WHEREAS, WESTERN MICRO TECHNOLOGY, INC., a Delaware corporation (the
"Issuer"), THE GUARANTORS from time to time party thereto, the PURCHASERS
referred to therein, and CANPARTNERS INVESTMENTS IV, LLC, a California limited
liability company, in its capacity as the Agent for the Purchasers, have entered
into that certain Note Purchase Agreement of even date herewith (as the same may
be amended, restated, supplemented or otherwise modified from time to time, the
"Note Purchase Agreement"), pursuant to which the Issuer will issue to the
Purchasers Notes;
WHEREAS, each of the Guarantors is a Wholly-Owned Subsidiary of the
Issuer and is engaged in businesses related to the businesses of the other
Guarantors, and each of the Guarantors will derive direct or indirect economic
benefit from the purchase of the Notes by the Purchasers pursuant to the Note
Purchase Agreement; and
WHEREAS, the Purchasers have required as a condition, among others, to
their purchase of the Notes that each Guarantor, jointly or several, irrevocably
and unconditionally guarantee the due and punctual payment in full of all
Obligations as provided in the Note Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and the covenants
hereinafter contained, it is agreed as follows:
1. Defined Terms.
-------------
(a) "Allocable Amount" of any Guarantor means, as of any date of
----------------
determination, an amount equal to the maximum amount which could then be claimed
by the Holders against such Guarantor under the Note Purchase Agreement without
rendering such claim voidable or avoidable under Section 548 of Chapter 11 of
the United States Bankruptcy
<PAGE>
Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform
Fraudulent Conveyance Act or similar statute or common law.
(b) "Proportionate Share" of any Guarantor means, as of any date of
-------------------
determination, the percentage obtained by dividing (i) such Guarantor's
Allocable Amount in effect immediately prior to the making of any "Guarantor
Payment" (as defined below) by (ii) the aggregate Allocable Amounts of all of
the Guarantors in effect immediately prior to the making of such Guarantor
Payment.
2. Contribution, Indemnification and Reimbursement. In the event
-----------------------------------------------
any Guarantor shall, pursuant to the terms of the Note Purchase Agreement, make
a payment (a "Guarantor Payment") of all or any portion of the Obligations
which, taking into account all other Guarantor Payments then previously or
concurrently made by any of the other Guarantors, exceeds the amount which such
Guarantor would otherwise have paid if each Guarantor had paid its Proportionate
Share of the aggregate Obligations satisfied by such Guarantor Payment, such
Guarantor shall be entitled to contribution and indemnification from each of the
other Guarantors, and each of the other Guarantors hereby agrees to reimburse
such Guarantor, in an amount equal to such other Guarantor's respective
Proportionate Share of such Guarantor Payment.
3. No Impairment of Guarantors' Obligations. This Agreement is
----------------------------------------
intended only to define the relative rights of the Guarantors with respect to
payments made by the Guarantors under the Note Purchase Agreement, and nothing
set forth in this Agreement is intended to or shall impair the obligations of
the Guarantors, jointly and severally, to pay any amounts to the Holders, as and
when the same shall become due and payable in accordance with the terms of the
Notes and the Note Purchase Agreement.
4. Assets of Guarantors. The parties hereto acknowledge that the
--------------------
rights of contribution and indemnification hereunder shall constitute an asset
in favor of any Guarantor to which such contribution and indemnification is
owing.
5. Effectiveness; Termination; Revocation.
--------------------------------------
(a) This Agreement shall become effective upon its execution by each
of the Guarantors and shall continue in full force and effect and may not be
terminated or otherwise revoked by any Guarantor until the Obligations shall
have been paid in full (in cash) and discharged.
(b) Each Guarantor agrees that if, notwithstanding the foregoing,
such Guarantor shall have any non-waivable right under applicable law to
terminate or revoke this Agreement, and such Guarantor shall attempt to exercise
such right, then such termination or revocation shall not be effective until a
written notice of such revocation or termination, specifically referring hereto
and signed by such Guarantor, is actually received by each of the other
Guarantors and by the Holders at the address to which notices are required to be
sent
-2-
<PAGE>
under the Note Purchase Agreement. Such notice shall not affect the right
or power of any Guarantor to enforce rights arising prior to receipt of such
written notice by each of the other Guarantors and the Holders. If any Holder
takes any action giving rise to Obligations under the Note Purchase Agreement
after any Guarantor has exercised any right to terminate or revoke this
Agreement but before the Holders receive such written notice, the rights of each
other Guarantor to contribution and indemnification hereunder in connection with
any Guarantor Payments made with respect to such Obligations shall be the same
as if such termination or revocation had not occurred.
6. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and the rights of the parties shall be governed by, the law of
the State of California excluding choice-of-law principles of the law of such
State that would require the application of the laws of a jurisdiction other
than such State.
* * *
-3-
<PAGE>
IN WITNESS WHEREOF, each of the Guarantors has executed and delivered
this Agreement as of the date first above written.
WMT ACQUISITION CORP., SAVOIR TECHNOLOGY GROUP, INC.,
a California corporation, a Delaware corporation,
By: /s/ James W. Dorst By: /s/ James W. Dorst
------------------------------ -------------------------------
James W. Dorst James W. Dorst
Chief Financial Officer Chief Financial Officer
STAR MANAGEMENT SERVICES, INC., INET SYSTEMS, INC.,
a Delaware corporation, a Texas corporation,
By: /s/ Carlton Joseph Mertens II By: /s/ Carlton Joseph Mertens II
------------------------------ -------------------------------
Carlton Joseph Mertens II Carlton Joseph Mertens II
President President
STAR DATA INTERNATIONAL, SIRIUS INVESTMENTS, INC.,
a company organized under the laws of a Nevada corporation,
the Virgin Islands
By: /s/ Carlton Joseph Mertens II By: /s/ Carlton Joseph Mertens II
------------------------------ -------------------------------
Carlton Joseph Mertens II Carlton Joseph Mertens II
President President
STAR DATA SYSTEMS, INC.,
a Texas corporation
By: /s/ Carlton Joseph Mertens II
------------------------------
Carlton Joseph Mertens II
President
REVISED SIGNATURE PAGE 1
<PAGE>
Exhibit 10.5
EXECUTION COPY
PURCHASE AGREEMENT ASSIGNMENT
-----------------------------
THIS ASSIGNMENT ("Assignment") is made as of the 30th day of
September, 1997 by WESTERN MICRO TECHNOLOGY, INC., a Delaware corporation (the
"Issuer"), and CANPARTNERS INVESTMENTS IV, LLC, a California limited liability
company, as agent (in such capacity, the "Agent") for the "Purchasers" under the
Note Purchase Agreement referred to below. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings ascribed to such
terms in the Note Purchase Agreement.
WITNESSETH:
----------
WHEREAS, the Issuer has entered into that certain Stock Purchase
Agreement of September 30, 1997, by and among Harvey E. Najim, Carlton Joseph
Mertens II (collectively the "Seller"), the Issuer and Star Management Services,
Inc., a Delaware Corporation have entered into a certain Stock Purchase
Agreement dated as of the date hereof (as amended, restated, supplemented or
otherwise modified from time to time, the "Purchase Agreement"), providing,
among other things, for the purchase by the Issuer of certain stock from the
Seller;
WHEREAS, the Issuer, the Guarantors from time to time party thereto,
the Purchaser referred to therein and the Agent have entered into a certain Note
Purchase Agreement of September 30, 1997 (as amended, restated, supplemented or
otherwise modified from time to time, the "Note Purchase Agreement"), pursuant
to which, among other things, (i) the Purchaser has agreed to purchase from the
Issuer the Issuer's Second Priority Senior Secured Notes due 2000 (the "Notes")
and (ii) the Issuer has granted to the Agent, for the benefit of the Agent and
the Purchaser, a security interest in substantially all of its assets,
including, without limitation, the Issuer's rights and remedies under the
Purchase Agreement; and
WHEREAS, the Agent and the Purchaser have required, as a condition to
their entering into the Note Purchase Agreement, that the Issuer specifically
assign to the Agent, for the benefit of the Agent and the Purchaser, as
additional security for the prompt and complete payment, observance and
performance of the Issuer's obligations thereunder and under the Transaction
Documents (such obligations and all such obligations of the Issuer under this
Assignment now or hereafter existing being hereinafter referred to as the
"Liabilities"), all of the Issuer's rights and remedies under the Purchase
Agreement;
NOW THEREFORE, for and in consideration of the foregoing and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Issuer hereby agrees as follows:
1. The Issuer hereby assigns and transfers to the Agent, for the
benefit of the Agent and the Purchasers, and as additional security for the
prompt and complete payment,
<PAGE>
performance and observance of the Liabilities, all of its rights and remedies
under and with respect to the Purchase Agreement, including, without limitation,
its rights to any and all amounts payable to the Issuer by the Seller.
2. The Issuer hereby irrevocably authorizes and empowers the Agent,
upon the occurrence and during the continuance of an Event of Default, to (i)
assert, either directly or on behalf of the Issuer, any claims (including any
right to payment) the Issuer may have, from time to time, against the Seller
under or with respect to the Purchase Agreement and (ii) receive and collect
directly from the Seller any amounts due to the Issuer under or with respect to
the Purchase Agreement. The Issuer hereby irrevocably makes, constitutes and
appoints the Agent (and all officers, employees or agents designated by the
Agent) as the Issuer's true and lawful attorney (and agent-in-fact) for the
purpose of enabling the Agent or its designee, upon the occurrence and during
the continuance of an Event of Default, to assert and collect such claims and to
apply such monies in the manner set forth herein and in the Note Purchase
Agreement.
3. The Issuer shall (i) keep the Agent informed of all circumstances
which may give rise to the Issuer's right to assert claims and/or receive
payment under or in connection with the Purchase Agreement and (ii) deliver or
cause to be delivered to the Agent copies of all material written communications
to, or received from, the Seller or any other party in connection with the
Purchase Agreement. The Issuer shall not amend, compromise, settle or waive any
of its claims, rights or remedies under or in connection with the Purchase
Agreement without the prior written consent of the Agent.
4. This Assignment shall continue effective until the Liabilities
have been fully paid and satisfied and the Note Purchase Agreement has
terminated pursuant to its terms.
5. This Assignment shall be construed according to the internal laws
(as opposed to conflicts of law provisions) and decisions of the State of
California and shall be immediately binding upon the Issuer.
6. This Assignment may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
-2-
<PAGE>
IN WITNESS WHEREOF, this Assignment has been executed and delivered as
of the day and year first above written.
WESTERN MICRO TECHNOLOGY, INC.
a Delaware corporation
By: /s/ James W. Dorst
----------------------------
James W. Dorst
Chief Financial Officer
ACCEPTANCE
----------
Acknowledged and Accepted as of this 30th day of September, 1997.
CANPARTNERS INVESTMENTS IV, LLC,
a California limited liability company
By: /s/ Scott A. Imbach
_____________________________
Scott A. Imbach
Attorney-In-Fact
SIGNATURE PAGE 1 OF 2
<PAGE>
CONSENT TO ASSIGNMENT
---------------------
The undersigned hereby (i) acknowledges receipt of a copy of the
foregoing Assignment dated as of September 30, 1997 ("Assignment"), executed by
Western Micro Technology, Inc., a Delaware corporation ("Issuer"), pursuant to
which the Issuer has assigned to Canpartners Investments IV, LLC, a California
limited liability company, as agent (the "Agent") all of its rights and remedies
under that certain Stock Purchase Agreement dated as of September 30, 1997 (the
"Purchase Agreement") between the Issuer and the undersigned; (ii) irrevocably
consents to the Issuer's execution and delivery of the Assignment; and (iii)
agrees to remit all amounts which it is or becomes obligated to pay to the
Issuer under the Purchase Agreement in cash directly to the Agent for the
account of the Issuer.
/s/ Harvey E. Najim
---------------------------------
Harvey E. Najim
/s/ Carlton Joseph Mertens II
---------------------------------
Carlton Joseph Mertens II
The undersigned hereby consents to the remission by Harvey E. Najim
and Carlton Joseph Mertens II to Canpartners Investments IV, LLC, as Agent, of
all amounts which Harvey E. Najim and Carlton Joseph Mertens II is or becomes
obligated to pay to the undersigned in connection with the Purchase Agreement.
WESTERN MICRO TECHNOLOGY , INC.
a Delaware corporation
By: /s/ James W. Dorst
-----------------------------
James W. Dorst
Chief Financial Officer
SIGNATURE PAGE 2 OF 2
<PAGE>
Exhibit 10.6
AMENDMENT #4 TO THE
INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT
THIS AMENDMENT #4 dated as of the 30th day of September, 1997 (this
"Amendment"), hereby amends that certain Inventory and Working Capital Financing
Agreement by and between Western Micro Technology, Inc., a Delaware corporation
("Customer"), and IBM Credit Corporation, a Delaware corporation ("IBM Credit").
RECITALS
WHEREAS, the Customer and IBM Credit have entered into that certain
Inventory and Working Capital Financing Agreement dated as of December 31, 1996
(as amended, supplemented or as otherwise modified from time to time, the
"Agreement"); and
WHEREAS, Customer has requested additional financial accommodations from
IBM Credit in connection with Customer's intended acquisition of Star Management
Services, Inc.; and
WHEREAS, IBM Credit agrees to provide the special additional accommodations
solely for the purposes of such acquisition under the terms and conditions set
forth herein; and
WHEREAS, pursuant to such acquisition financing, IBM Credit and Customer
shall execute contemporaneously with the execution of this Amendment, that
certain Promissory Note, Warrant Agreement and Assumption Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Customer and IBM Credit hereby agree as follows:
Section 1. All capitalized terms not otherwise defined herein shall have the
respective meanings set forth in the Agreement.
Section 2. Modification of Agreement.
(a) The following definition shall be added to Section 1.1:
"'Acquisition Loan': any loan or advance of funds made by IBM Credit to the
Customer pursuant to section 2.9 of this Agreement."
(b) The definition of "Termination Date" shall be deleted in its entirety and
the following substituted therefor:
-1-
<PAGE>
"'Termination Date': shall mean September 30, 1999, or such other date as IBM
Credit and Customer may agree to in writing from time to time."
(c) The following new Section 2.9 shall be added to the Agreement:
"2.9. Acquisition Loan. IBM Credit, in its sole discretion and provided that
all conditions precedent are met to its satisfaction, agrees to make a loan in
the amount of Ten Million Dollars ($10,000,000.00) to the Customer for the
purpose of Customer's acquisition of Star Management Services, Inc. Such
Acquisition Loan shall be used solely for the acquisition and shall be payable
according to the terms and conditions of the Promissory Note of even date
herewith.
(B) When determining Available Credit and Shortfall Amounts, the aggregate of
the Acquisition Loan existing at the time of determination shall be subtracted
from Outstanding Advances.
(C) Use of Proceeds. All proceeds of the Acquisition Loan will be used by the
Customer solely to finance the acquisition of Star Management Services, Inc.
(D) Closing Fee. Upon the closing of the acquisition of Star Management
Services, Inc., Customer shall pay to IBM Credit a Closing Fee of Two Hundred
Thousand Dollars ($200,000.00) in cash or immediately available funds.
(E) Public Offering or Private Placement. In the event of a public offering or
private placement of additional shares of Customer (but excluding the private
placement of Series A preferred stock offered in conjunction with the
Acquisition Loan), any remaining principal of the Acquisition Loan and any
outstanding interest shall be immediately due and payable upon the completion of
such offering or placement.
(d) Paragraph 10.1 shall be deleted in its entirety and the following
substituted therefor:
"10.1. Term; Termination. (A) This Agreement shall remain in force until the
earlier of the Termination Date, the date specified in a written notice by the
Customer that they intend to terminate this Agreement which date shall be no
less than ninety (90) days following the receipt by IBM Credit of such written
notice, and termination by IBM Credit after the occurrence and during the
continuance of an Event of Default. Upon the date that this Agreement is
terminated, all of Customer's Obligations shall be immediately due and payable
in their entirety, even if they are not yet due under their terms.
If this Agreement is terminated pursuant to 10.1(ii) above with an effective
termination date on or prior to September 30, 1998, then Customer shall pay to
IBM Credit, in addition to any other Obligations which may be due at the time,
an early termination fee of one and one quarter percent (1.25%) of the then
current Credit Line. Such early termination fee shall be due on the effective
date of such termination.
-2-
<PAGE>
If this Agreement is terminated pursuant to 10.1(ii) above with an effective
termination date after September 30, 1998 and on or prior to September 30, 1999,
then Customer shall pay to IBM Credit, in addition to any other Obligations
which may be due at the time, an early termination fee of one half percent
(0.50%) of the then current Credit Line. Such early termination fee shall be due
on the effective date of such termination."
(e) Attachment A to the Agreement is hereby amended by deleting such Attachment
A in its entirety and substituting, in lieu thereof, the Attachment A attached
hereto. Such new Attachment A shall be effective as of the date specified in the
new Attachment A.
(f) Item 6 under the definition of Permitted Indebtedness in section 1.1 of the
Agreement shall be deleted in its entirety and the following substituted
therefor:
(6) Additional Indebtedness in the amount of $15,700,000.00 incurred in
connection with Customer's acquisition of Star Management Services, Inc.
provided the holder of such Indebtedness has subordinated its interest to that
of IBM Credit, and any other Indebtedness consented to by IBM Credit in writing
prior to incurring such Indebtedness.
(g) Attachment B to the Agreement is hereby amended by deleting such Attachment
B in its entirety and substituting, in lieu thereof, the Attachment B attached
hereto.
Section 3. Representations and Warranties. Customer makes to IBM Credit the
following representations and warranties all of which are material and are made
to induce IBM Credit to enter into this Amendment:
Section 3.1. Accuracy and Completeness of Warranties and Representations. All
representations made by Customer in the Agreement were true and accurate and
complete in every respect as of the date made, and, as amended by this
Amendment, all representations made by Customer in the Agreement are true,
accurate and complete in every material respect as of the date hereof, and do
not fail to disclose any material fact necessary to make such warranties and
representations not misleading.
Section 3.2. Violation of Other Agreements. The execution and delivery of this
Amendment and the performance and observance of the covenants to be performed
and observed hereunder do not violate or cause Customer not to be in compliance
with the terms of any agreement to which Customer is a party.
Section 3.3. Litigation. Except as has been disclosed by Customer to IBM
Credit in writing, there is no litigation, proceeding, investigation or labor
dispute pending or threatened against Customer, which if adversely determined,
would materially adversely affect Customer's ability to perform Customer's
obligations under the Agreement and the other documents, instruments and
agreements executed in connection therewith or pursuant hereto.
Section 3.4. Enforceability of Amendment. This Amendment has been duly
authorized, executed and delivered by Customer and is enforceable against
Customer in accordance with its terms.
-3-
<PAGE>
Section 4. Ratification of Agreement. Except as specifically amended hereby, all
of the provisions of the Agreement shall remain unamended and in full force and
effect. Customer hereby ratifies, confirms and agrees that the Agreement, as
amended hereby, represents a valid and enforceable obligation of Customer's, and
is not subject to any claims, offsets or defense.
Section 5. Governing Law. This Amendment shall be governed by and interpreted in
accordance with the laws of the State of New York.
Section 6. Counterparts. This Amendment may be executed in any number of
counterparts, each of which shall be an original and all of which shall
constitute one agreement.
IN WITNESS WHEREOF, this Amendment has been duly executed by the authorized
officers of the undersigned as of the day and year first above written.
WESTERN MICRO TECHNOLOGY, INC. IBM CREDIT CORPORATION
By /s/ James W. Dorst By /s/ Tracey M. Wyatt
----------------------------- --------------------------------
Name James W. Dorst Name Tracey M. Wyatt
--------------------------- ------------------------------
Title CFO Title Remarketer Loan Manager
-------------------------- -----------------------------
-4-
<PAGE>
ATTACHMENT A, EFFECTIVE DATE September,30 1997 ("IWCF ATTACHMENT A")
TO INVENTORY AND WORKING CAPITAL FINANCING AGREEMENT ("IWCF AGREEMENT")
DATED December 31, 1996
Customer: Western Micro Technology, Inc.
I. Fees, Rates and Repayment Terms:
(A) Credit Line: Seventy Five Million Dollars ($75,000,000.00);
(B) Borrowing Base:
(i) 85% of the amount of the Customer's Eligible Accounts as of the date
of determination as reflected in the Customer's most recent Collateral
Management Report.
Notwithstanding the terms of Section 3.1 (W) of the Agreement, Accounts
arising from IBM incentive payments, rebates, discounts and refunds which
are (a) verifiable by Authorized Suppliers, and (b) payable by Authorized
Suppliers by check to the lockbox will be deemed to be Eligible Accounts.
(ii) 100% of the Customer's inventory in the Customer's possession as of
the date of determination as reflected in the Customer's most recent
Collateral Management Report constituting Products (other than service
parts) financed through a Product Advance by IBM Credit. The value to be
assigned to such inventory shall be based upon the Authorized Supplier's
invoice price to Customer for Financed Products net of all applicable price
reduction credits;
(iii) 50% of the value of other inventory in which IBM Credit has a first
priority security interest and ordered from parties other than Authorized
Suppliers which are on such parties' current price list, UP TO a maximum
collateral value of $6,000,000.00, from date of closing through 12/31/97.
Thereafter, 30% of the value of other inventory in which IBM Credit has a
first priority security interest and ordered from parties other than
Authorized Suppliers which are on such parties' current price list, UP TO a
maximum collateral value of $6,000,000.00. The value to be assigned to such
inventory shall be based upon the supplier's invoice price to Customer for
such products net of all applicable price reduction credits;
(iv) 20% of the value of Customer's IBM emergency parts inventory. The
value to be assigned to such inventory shall be based upon the suppliers
invoice price to Customer for such products net of all applicable price
reduction credits;
(v) 75% of used equipment purchased from IBM Credit;
(vi) 75% of verifiable prepaid expenses to IBM Credit End User Financing
for used equipment.
Page 1 of 7
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING Agreement ("IWCF AGREEMENT")
I. Fees, Rates and Repayment Terms (continued):
(C) Product Financing Charge: Prime Rate plus 1. 625%
(D) Product Financing Period: 75 days
(E) Collateral Insurance Amount: Twenty Five Million Dollars
($25,000,000.00) (Such insurance shall also include coverage against
earthquake peril for at least 30% of the value of inventory stored in
California)
(F) A/R Finance Charge:
(i) PRO Advance Charge: Prime Rate plus 1.875%
(ii) WCO Advance Charge: Prime Rate plus 1.875%
(iii) Takeout Advance Charge: Prime Rate plus 1.625%
(G) Delinquency Fee Rate: Prime Rate plus 6.5000%
(H) Shortfall Transaction Fee: Shortfall Amount multiplied by O.30%
(I) Free Financing Period Exclusion Fees: Product Advance multiplied by
0.40%
(J) Other Charges:
(i) Application Processing Fee: $ 0.00
(ii) Monthly Service Fee: $1,500.00
(iii) Closing Fee: $ 0.00
(iv) Commitment Fee: $ 0.00
Page 2 of 7
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING Agreement ("IWCF AGREEMENT")
II. Bank Account
(A) Customer's Lockbox(es) and Special Account(s) will be maintained at the
following Bank(s):
Name of Bank:______________________Silicon Valley Bank__________________________
Address:___________________________3003 Tasman Drive____________________________
___________________________________Santa Clara, CA 95054________________________
Phone:__________________________________________________________________________
Lockbox Address:________________________________________________________________
Special Account #:______________________________________________________________
Name of Bank:___________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
Phone:__________________________________________________________________________
Lockbox Address:________________________________________________________________
Special Account #:______________________________________________________________
Name of Bank:___________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
Phone:__________________________________________________________________________
Lockbox Address:________________________________________________________________
Special Account #:______________________________________________________________
Page 3 of 7
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING Agreement ("IWCF AGREEMENT")
III. Financial Covenants:
Definitions: The following terms shall have the following respective meanings in
this Attachment A. All amounts shall be determined in accordance with generally
accepted accounting principles (GAAP).
Current shall mean within the on-going twelve month period.
Current Assets shall mean assets that are cash or expected to become cash
within the on-going twelve months.
Current Liabilities shall mean payment obligations resulting from past or
current transactions that require settlement within the on-going twelve
month period. All indebtedness to IBM Credit shall be considered a Current
Liability for purposes of determining compliance with the Financial
Covenants.
Long Term shall mean beyond the on-going twelve month period.
Long Term Assets shall mean assets that take longer than a year to be
converted to cash. They are divided into four categories: tangible assets,
investments, intangibles and other.
Long Term Debt shall mean payment obligations of indebtedness which mature
more than twelve months from the date of determination, or mature within
twelve months from such date but are renewable or extendible at the option
of the debtor to a date more than twelve months from the date of
determination.
Net Profit after Tax shall mean Revenue plus all other income, .minus all
costs, including applicable taxes.
Revenue shall mean the monetary expression of the aggregate of products or
services transferred by an enterprise to its customers for which said
customers have paid or are obligated to pay, plus other income as allowed.
Subordinated Debt shall mean Customer's indebtedness to third parties as
evidenced by a Note Purchase Agreement executed in September, 1997 and an
associated Subordination and Intercreditor Agreement in favor of IBM
Credit.
Page 4 of 7
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING Agreement ("IWCF AGREEMENT")
III. Financial Covenants (continued):
Tangible Net Worth shall mean:
Total Net Worth minus;
(a) goodwill, organizational expenses, pre-paid expenses,
deferred charges, research and development expenses,
software development costs, leasehold expenses, trademarks,
trade names, copyrights, patents, patent applications,
privileges, franchises, licenses and rights in any thereof,
and other similar intangibles (but not including contract
rights) and other current and non-current assets as
identified ID Customer's financial statements (except for
those assets identified in Attachment B, Section VIII or
otherwise mutually agreed to Ln writing by Customer and IBM
Credit); and
(b) all accounts receivable from employees, officers, directors,
stockholders and affiliates; and
(c) all callable/redeemable preferred stock (with the exception
of preferred stock redeemable for other equity securities,
and up to $21.6 million of that preferred stock issued
concurrent with Customer's acquisition of Star Management
Services, Inc.)
Total Assets shall mean the total of Current Assets and Long Term
Assets.
Total Liabilities shall mean the Current Liabilities and Long Term
Debt less Subordinated Debt, resulting from past or current
transactions, that require settlement in the future.
Total Net Worth (the amount of owner's or stockholder's Ownership in
an enterprise) is equal to Total Assets minus total Liabilities.
Working Capital shall mean Current Assets minus Current Liabilities.
Page 5 of 7
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING Agreement ("IWCF AGREEMENT")
III. Financial Covenants (continued):
Customer will be required to maintain the following financial ratios,
percentages and amounts at all times:
a) Times (x) Interest Earned :
- 2.0x from closing through 12/31/97
- 2.25x for each fiscal quarter thereafter
b) Current Ratio :
- O.90 from closing through 12/31/97
- 1.00 each fiscal quarter during 1998
- 1.05 each fiscal quarter during 1999
c) Net Profit after Tax to Revenue :
=> O.8% from closing through 12/31/97
=> 0.8% for first quarter for fiscal 1998
=> O.9% during each remaining quarter for fiscal 1998
=> 1.4% during each quarter for fiscal 1999
d) Tangible Net Worth will be no less than negative twenty seven million
dollars (-$27,000,000.00) from closing through 5/31/98 and will be
greater than or equal to five million dollars ($5,000,000.00) from
6/1/98 forward;
NOTE: "closing" above refers to the closing of the acquisition of Star
Management Services, Inc. by Customer.
Page 6 of 7
<PAGE>
IWCF ATTACHMENT A TO
INVENTORY AND WORKING CAPITAL FINANCING Agreement ("IWCF AGREEMENT")
IV. The continued effectiveness of the following Conditions Precedent Pursuant
to Section 5.1 (K) of the Agreement:
. Executed Waiver of Landlord Lien for all premises in which a landlord
has the right of levy for rent;
. Subordination or Intercreditor Agreements from all creditors having a
lien which is superior to IBM Credit in any assets that IBM Credit
relies on to satisfy Customer's obligations to IBM Credit;
Page 7 of 7
<PAGE>
ATTACHMENT B
I. LIENS.
See Attached Schedule 1
(excludes IBM Credit Corporation liens)
II. LOCATIONS OF OFFICES, RECORDS AND INVENTORY.
(A) Principal Place of Business and Chief Executive Office
Corporate Office
254 E. Hacienda Avenue
Campbell, CA 95008
(B) Locations of Assets, Inventory and Equipment (including warehouses)
LOCATION LEASE (YES/NO)
WAREHOUSE/INVENTORY LOCATIONS:
-----------------------------
1) 44951 Industrial, Fremont, CA 94538 YES
2) 10 Holland, Irvine, CA 92618 YES
3) 341 Shore Dr., Burr Ridge, IL 60521 YES
4) 300 Industrial Growth Parkway, Angola, IN 46703 YES
5) 139 Newbury St., Framingham, MA 01701 YES
6) 5051 Peach Tree Corners Circle NO
Norcross, GA 30092 (Melita)
7) 300 Industrial Parkway NO
Angola, IN 07410
EQUIPMENT/SALES LOCATIONS:
-------------------------
1) 254 E. Hacienda Ave., Campbell, CA 95008 YES
2) 14985 Coleman Valley Road NO
Occidental, CA 95465
3) 7 Kings Lane NO
Essex, CT 06428
4) 143 Tredeau Street NO
Hartford, CT 06114
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<PAGE>
5) 210 Mill Creek Place NO
Roseville, GA 30076
6) 660 Corbin Lake Court NO
Dunwoody, GA 30350
7) 812 Dunes Way NO
Alpharetta, GA 30202
8) 3428 Grasmere Drive NO
Lexington, KY 40503
9) 5010 Dorsey Hall Drive #203 YES
Ellicott City, MD 21042
10) 43250 Little Road NO
Clinton Township, MI 48036
11) 6-05 Saddle River NO
Fairlawn, NJ 07410
12) 10 Cedar Ave. NO
Lake Grove, NY 11756
13) 14 Shara Avenue NO
Pittsburg, NY 14524
14) 3625 Chiswick Ct. NO
Charlotte, NC 28226
15) 5739 Sentinel Drive NO
Raleigh, NC 27609
16) 710 Ramblewood Lane NO
Willmington, NC 28405
17) 3015 Fairway Drive NO
Kettering, OH 45409
18) 299 W. Granville Road NO
Worthington, OH 43085
19) 15014 NW Oakmont Loop NO
Beaverton, OR 97006
20) 5803B Sebastian Place NO
San Antonio, TX 78249
21) 4219 27th Ave. NW NO
Gig Harbor, WA 98335
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<PAGE>
III. FICTITIOUS NAMES.
The Company operates only under one name but has used certain names (which
it claims no rights to) including STAR Technologies, International Data
Products, International Parts, Star Data Systems, Business Partner
Solutions and Sirius Investments, Inc.
IV. ORGANIZATION.
(A) Subsidiaries
<TABLE>
<CAPTION>
Name Jurisdiction Owner Percent
Owned
<S> <C> <C> <C>
1) Savoir Technology, Group, DE Western Micro Technology, 100%
Inc. Inc.
2) WMT Acquisition Corp. CA Western Micro Technology, 100%
Inc.
3) Star Management Services, DE Western Micro Technology, 100%
Inc. Inc.
4) Sirius Investment, Inc. NV Star Management Services, 100%
Inc.
5) Star Data Systems, Inc. (dba TX Sirius Investments, Inc. 100%
Business Partner Solutions)
6) INET Systems, Inc. TX Star Data Systems, Inc. 100%
7) Star Data International, Inc. Virgin Islands Star Data Systems, Inc. 100%
B) Affiliates
Name Capacity
NONE
</TABLE>
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<PAGE>
V. JUDGMENTS OR LITIGATION.
The Company has no outstanding judgements or pending material litigation
not previously disclosed with the following exception:
* Case #768518 filed in Santa Clara Superior Court
Worldcom Network Systems, Inc. vs. Western Micro Technology, Inc.
Amount = $30,636.52
VI. ENVIRONMENTAL MATTERS.
The Company has no material Environmental Matters not previously
disclosed.
VII. INDEBTEDNESS.
The Company has no indebtedness other than CanPartners Investments IV, LLC
and Robert Fleming Inc., trade creditors, creditors involved in the normal
course of doing business and various immaterial office machine (i.e.
copiers and faxes) financings.
VIII. ASSETS TO BE INCLUDED IN TOTAL NET WORTH PURSUANT TO ATTACHMENT A SECTION
III
There are no modifications to the Total Net Worth formula described in
Attachment A, Section III.
-4-
<PAGE>
SCHEDULE 1
----------
WESTERN MICRO TECHNOLOGY, INC.
------------------------------
Schedule of
U.C.C. Filings
1. The CIT Group/Equipment Financing, Inc.
---------------------------------------
UCC-1 financing statement filed 2/11/94 (California) --
certain identified equipment and furnishings
2. Paramount Equipment
-------------------
Assigned to Citicorp Dealer Finance -- UCC-1 financing statement filed
3/14/94 (California) -- Mitsubishi
3. The CIT Group/Equipment Financing, Inc.
---------------------------------------
UCC-1 financing statement filed 2/3/95 (California) -- certain identified
items of equipment
4. NTFC Capital Corporation
------------------------
UCC-1 financing statement filed 8/29/95 (California) -- certain leased
equipment and cabling
5. Vanguard Financial Service Corporation
--------------------------------------
UCC-1 financing statement filed 12/5/95 (California) -- Northern Telecom
phone system
6. Sanwa Business Credit Corporation
---------------------------------
UCC-1 financing statement filed 7/31/96 (California) -- 1996 Mitsubishi
Order Picker
7. The CIT Group/Equipment Financing, Inc.
---------------------------------------
UCC-1 financing statement filed 3/20/97 (California) -- certain identified
equipment
8. Vanguard Financial Service Corporation
--------------------------------------
UCC-1 financing statement filed 12/6/95 (Illinois) -- Northern Telecom
phone system
<PAGE>
Exhibit 10.7
IBM Credit Corporation White Plains, New York 10604
ASSUMPTION AGREEMENT
Agreement made this 30th day of September, 1997 by and among Western Micro
Technology, Inc., a Delaware corporation ("Buyer"), Star Management Services,
Inc., a Texas corporation ("Seller"), Star Data Systems, Inc., a Texas
corporation ("Star Data") and IBM Credit Corporation, a Delaware corporation
("IBM Credit").
WHEREAS, Buyer has purchased or acquired certain assets from Seller; and
WHEREAS, Star Data, a subsidiary of Seller, is among the assets purchased
or acquired by Buyer; and
WHEREAS, IBM Credit has agreed to provide financing to Buyer to enable
Buyer to purchase Seller and Star Data, (the "Acquisition Loan"); and
WHEREAS, IBM Credit has a security agreement with Buyer's predecessor in
interest, Western Micro Technology, Inc., a California corporation ("Western"),
financing certain obligations as set forth in an Inventory and Working Financing
Agreement dated December 31, 1996 (the "Western IWCF") and other documents; and
WHEREAS, IBM Credit has a security agreement with Star Data, financing
certain obligations as set forth in an Inventory and Working Financing Agreement
dated July 18, 1996 (the "Star Data IWCF") and other documents; and
WHEREAS, on or about August 1, 1997, Western reincorporated in the state of
Delaware; and
WHEREAS, Buyer wishes to assume the obligations of Seller and Star Data due
to IBM Credit under the Star Data IWCF and to assume the obligations of Western
to IBM Credit under the Western IWCF as amended by Amendment #4 (such Amendment
#4 to be executed concurrently with this Agreement), and IBM Credit is willing
to permit such assumption under certain conditions.
NOW, THEREFORE, in consideration of IBM Credit's willingness to agree to
such assumption, the parties agree as follows:
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<PAGE>
1. Star Data hereby transfers, grants, assigns and conveys to Buyer, for good
and valuable consideration, all of Star Data's rights and interests in, to and
under the Star Data IWCF, and all other agreements between Star Data and IBM
Credit relating thereto.
2. Buyer hereby accepts the within assignment and further assumes all the
obligations of Western under the Western IWCF (as amended), and further assumes
the full observance and performance of each and every term, covenant and
condition of the Western IWCF (as amended).
3. Buyer assumes the payment obligations of Seller and Star Data to IBM Credit
under the Star Data IWCF and any other obligation under the Star Data IWCF that
IBM Credit reasonably deems necessary to perfect and maintain perfection of IBM
Credits security interests in the Collateral (as defined in the Star Data IWCF)
and to consummate the transactions under the Star Data IWCF. Buyer agrees to
pay IBM Credit the principal balance owing IBM Credit from Star Data, as more
fully set forth in paragraph 4, in accordance with the terms of the Star Data
IWCF.
4. The parties affirm that the indebtedness owed to IBM Credit by Star Data as
of September 30,1997 under the Star Data IWCF is $24,127,841.53 plus accrued
interest and any indebtedness to IBM Credit arising from orders approved by IBM
Credit and placed by Star Data prior to the date on which this Agreement is
executed, and subject to their rights under the Star Data IWCF, Buyer, Seller
and Star Data waive all defenses, claims or setoffs that they may have against
IBM Credit concerning that amount.
5. Buyer recognizes and agrees that IBM Credit has and shall have a purchase
money security interest in certain of the inventory and equipment purchased and
also a security interest in all inventory, equipment, accounts receivable,
chattel paper, general intangibles and all other assets purchased from Star
Data.
6. The parties realize that this Agreement in no way alters the contractual
obligations of Seller and Star Data to IBM Credit, however, they realize that
the liability of Seller and Star Data to IBM Credit may be reduced as the
obligations to IBM Credit arising from its financing of Star Data shall be
reduced, but only so far as is provided by the laws of the relevant
jurisdiction.
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<PAGE>
7. Buyer shall be responsible for any additional charges, costs, fees,
expenses and advances that may hereafter be due to IBM Credit pursuant to the
purchased business.
IN WITNESS WHEREOF, the parties hereto have caused this Assumption
Agreement to be executed as of the date above written.
WESTERN MICRO TECHNOLOGY, INC.
By /s/ James W. Dorst
-------------------------------
Print Name James W. Dorst
-----------------------
Title Chief Financial Officer
----------------------------
STAR MANAGEMENT SYSTEMS, INC. STAR DATA SYSTEMS, INC.
By /s/ James W. Dorst By /s/ James W. Dorst
------------------------------- -------------------------------
Print Name James W. Dorst Print Name James W. Dorst
----------------------- -----------------------
Title Chief Financial Officer Title Chief Financial Officer
---------------------------- ----------------------------
IBM CREDIT CORPORATION
By /s/ Tracey M. Wyatt
-------------------------------
Print Name Tracey M. Wyatt
-----------------------
Title Remarketer Loan Manager
----------------------------
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<PAGE>
Exhibit 10.8
IBM CREDIT CORPORATION
COLLATERALIZED GUARANTY
OF PAYMENT
TO: IBM CREDIT CORPORATION ("IBM Credit") DATE September 30, 1997
5000 Executive Parkway, Suite 450
San Ramon, CA 94583
Gentlemen:
In consideration of credit and financing accommodations granted or to be
granted by IBM Credit to Western Micro Technology, Inc. ("Dealer"), which is in
the best interest of INET Systems, Inc. ("Guarantor") and from which Guarantor
will derive direct or indirect economic benefit, and for other good and valuable
consideration received, Guarantor hereby jointly and severally guaranties to IBM
Credit, from property held separately, jointly or in community, the prompt and
unconditional performance and payment by Dealer of any and all obligations,
liabilities, contracts, mortgages, notes, trust receipts, secured transactions,
inventory financing and security agreements, and commercial paper on which
Dealer is in any manner obligated, heretofore, now, or hereafter owned,
contracted or acquired by IBM Credit ("Liabilities"), whether the Liabilities
are individual, joint, several, primary, secondary, direct, contingent or
otherwise. Guarantor acknowledges that IBM Credit is providing financing to
Dealer based in part upon this Guaranty. Guarantor also acknowledges that IBM
Credit has required this Guaranty as a condition, among others, to provide
financing to Dealer.
If Dealer fails to pay or perform any Liabilities to IBM Credit when due,
all Liabilities to IBM Credit shall then be deemed to have become immediately
due and payable, and the Guarantor shall then pay upon demand the full amount of
all sums owed to IBM Credit by Dealer, together with all reasonable expenses,
including reasonable attorney's fees.
The liability of each Guarantor is direct and unconditional and shall not
be affected by any extension, renewal or other change in the terms of payment of
any security agreement, promissory note, or any other agreement between IBM
Credit and Dealer, or any change in the manner, place or terms of payment or
performance thereof, or the release, settlement or compromise of or with any
party liable for the payment or performance thereof, the release or non-
perfection of any security thereunder, any change in Dealer's financial
condition, or the interruption of business relations between IBM Credit and
Dealer. This Guaranty shall continue for so long as any sums owing to IBM
Credit by Dealer remain outstanding and unpaid, unless terminated in the manner
provided below. Each Guarantor acknowledges that its obligations hereunder are
in addition to and independent of any agreement or transaction between IBM
Credit and Dealer or any other person creating or reserving any lien,
encumbrance or security interest in any property of Dealer or any other person
as security for any obligation of Dealer. IBM Credit need not exhaust its
rights or recourse against Dealer or any other person or any security it may
have at any time before being entitled to payment from the Guarantor. This is a
Guaranty of Payment and not a Guaranty of Collection.
To secure payment of all of the Guarantor's current and future debts and
obligations to IBM Credit, whether under this Guaranty or any other agreement,
whether direct or contingent, the Guarantor does assign, pledge and give to IBM
Credit a security interest in all of the Guarantor's inventory, raw materials,
goods in process, finished goods, machines, machinery, furniture, furnishings,
fixtures, vehicles, equipment, accounts receivable, book debts, notes, chattel
paper, acceptances, rebates, incentive payments, drafts, contracts, contract
rights, choses in action, and any and all general intangibles, whether now owned
or hereafter acquired, and all attachments, accessions and additions thereto,
substitutions, replacements, accessories, and equipment therefor, and all
proceeds therefrom (all of the above property is referred to as "the
Collateral"). This security interest is also granted to secure the Guarantor's
debts to all affiliates of IBM Credit.
IBM Credit shall have the right, but not the obligation, from time to time,
as it in its sole discretion may determine, and all without any advance notice
to the Guarantor, to: (a) examine the Collateral; (b) appraise it as security;
(c) verify its condition and non-use; (d) verify that all Collateral has been
properly accounted for and this Agreement complied with, and (e) assess,
examine, check and make copies of any and all of the non-confidential books,
records and files of Guarantor.
-1-
<PAGE>
If the Guarantor does not comply with any of the terms of this Agreement,
or fails to fulfill any obligation to IBM Credit or any of its affiliates under
any other agreement, or the Guarantor becomes insolvent or ceases to do business
as a going concern, or a bankruptcy, insolvency proceeding, arrangement or
reorganization is filed by or against the Guarantor, or any of the Guarantor's
property is attached or seized, or a receiver is appointed for the Guarantor, or
the Guarantor shall lose any franchise, permission, license or right to conduct
its business, or the Guarantor misrepresents in a material way its financial
condition or organizational structure, or whenever IBM Credit reasonably and in
good faith deems the debt or Collateral to be insecure:
a) IBM Credit may call all or any part of the amount the Guarantor or
Dealer owes IBM Credit or its affiliates due and payable immediately, if
permitted by applicable law, together with court costs and all costs and
expenses of IBM Credit's repossession and collection activity, including,
but not limited to reasonable attorney's fees.
b) The Guarantor will hold and keep the Collateral in trust, in good order
and repair, for IBM Credit's benefit and shall not exhibit or sell them.
c) Upon IBM Credit's demand, the Guarantor will immediately deliver the
Collateral to IBM Credit, in good order and repair, at a place reasonably
convenient to IBM Credit, together with all related documents; or IBM
Credit may, in its sole discretion and without demand, take immediate
possession of the Collateral, together with all related documents.
d) The Guarantor waives and releases: (i) any and all claims and causes of
action which the Guarantor may now or ever have against IBM Credit as a
result of any possession, repossession, collection or sale by IBM Credit of
any of the Collateral, notwithstanding the effect of such possession,
repossession, collection or sale upon the undersigned's business; (ii) all
rights of redemption from any such sale; and (iii) the benefit of all
valuation, appraisal and exemption laws. If IBM Credit seeks to take
possession of any of the Collateral by replevin or other court process, the
Guarantor irrevocably waives any notice, bonds, surety and security
relating thereto required by any statute, court rule or otherwise as an
incident to such possession.
e) The Guarantor appoints IBM Credit or any person it may delegate as its
duly authorized Attorney-in-Fact to do, in IBM Credit's sole discretion,
any of the following: (i) sell, assign, transfer, negotiate or pledge any
and all accounts, chattel paper, or contract rights; (ii) endorse the
Guarantor's name on any and all notes, checks, drafts, or other forms of
exchange received as payment on any accounts, chattel paper and contract
rights, for deposit in IBM Credit's account; (iii) grant any extension,
rebate or renewal on any and all accounts, chattel paper or contract
rights, or enter into any settlement thereof; (iv) demand, collect and
receive any and all amounts due on accounts, chattel paper and contract
rights; and (v) exercise any and all rights Guarantor has in the
Collateral.
f) In the event the Guarantor brings any action or asserts any claim
against IBM Credit which arises out of this Agreement, any other agreement
or any of our business dealings, in which the Guarantor does not prevail,
the Guarantor agrees to pay to IBM Credit all court costs and all
reasonable costs and expenses of IBM Credit's defense of such action of
claim including, but not limited to, reasonable attorney's fees.
IBM Credit may also declare a default under this Agreement and exercise any
and all rights and remedies available herein, if, in IBM Credit's sole
discretion, IBM Credit determines that the Collateral has substantially
decreased in value, and Guarantor has been unable to either: (a) provide IBM
Credit with additional collateral in a form and substance satisfactory to IBM
Credit; or (b) reduce the total indebtedness of Dealer by an amount sufficient
to IBM Credit.
IBM Credit has and will always possess all the rights and remedies of a
secured party under law, and its rights and remedies are and will always be
cumulative. The Guarantor acknowledges and agrees that the Collateral is the
subject of widely distributed standard price quotations and is customarily sold
in a recognized market. Guarantor agrees that a private sale by IBM Credit of
any of the Collateral to a dealer in those types of Collateral is a commercially
reasonable sale. Further, Guarantor agrees that delivery by IBM Credit of any
of the Collateral to a distributor or manufacturer, with a request that it
repurchase Collateral, as provided in any repurchase agreement with IBM Credit,
is a commercially reasonable disposition or sale.
The Guarantor promises that except for liens and claims previously
disclosed to IBM Credit and purchase money liens (a) the Collateral is and shall
remain free from all claims and liens superior to yours; (b) the Guarantor shall
defend the Collateral against all other claims and demands; and (c) the
Guarantor will notify IBM Credit before it signs, or authorizes the signing of
any financing statement regardless of its coverage. Where permitted by law, IBM
Credit may perfect its security interest in the Collateral by filing a financing
statement signed only by IBM Credit. The undersigned will execute any and all
documents IBM Credit may request to confirm or perfect its title or security
interest in the Collateral.
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<PAGE>
Guarantor's principal place of business is located at:
888 Isom Road San Antonio, TX 78216
- --------------------------------------------------------------------------------
(Number and Street) (City, County, State, Zip Code)
and Guarantor represents that its business is conducted as a ___ SOLE
PROPRIETORSHIP, PARTNERSHIP, ___ JOINT VENTURE, X CORPORATION, ___ COOPERATIVE
---
(check applicable term). The Guarantor agrees to notify IBM Credit immediately
of any change in identity, name, form of ownership or management, and of any
change in its principal place of business, or any additions or discontinuances
of other business locations.
The Collateral shall be kept at the Guarantor's principal place of business
and at the following addresses:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
until all sums owed to IBM Credit are paid in full. The undersigned will
immediately notify you if the Collateral is kept at any other address. This
paragraph is for IBM Credit's informational purposes only, and is not in any way
or manner intended to limit the extent of IBM Credit's security interest in the
Collateral.
The Guarantor and its predecessors have done and do business only under the
following names:
________________________________________________________________________________
________________________________________________________________________________
The Guarantor will pay all taxes, license fees, assessments and charges on
the Collateral when due. The Guarantor will be responsible for any loss of
Collateral for any reason whatsoever. The Guarantor will keep the Collateral
insured for its full insurable value against loss or damage by fire, wind, theft
and for combined additional coverage, including vandalism and malicious
mischief, and for other risks as IBM Credit may require. The Guarantor will
obtain insurance under such terms and in amounts as IBM Credit may specify, from
time to time, in companies acceptable to IBM Credit, with a loss-payee or
mortgagee clause payable to IBM Credit to the extent of any loss to the
Collateral and containing a waiver of all defenses against the Guarantor that is
acceptable to you. The undersigned further agrees to provide IBM Credit with
written evidence of the required insurance coverage and loss-payee or mortgagee
clause. The Guarantor assigns to IBM Credit all sums not in excess of the
unpaid debt owed IBM Credit, and directs any insurance company to make payment
directly to IBM Credit to be applied to the unpaid debt owed IBM Credit. The
Guarantor further grants you an irrevocable power of attorney to endorse any
draft and sign and file all of the necessary papers, forms and documents to
initiate and settle any and all claims with respect to the Collateral. If the
Guarantor fails to pay any of the above-referenced costs, charges or any
insurance premiums, or if it fails to insure the Collateral, IBM Credit may pay
such costs, charges or any insurance premiums, and the amounts paid shall be
considered an additional debt owed by the Guarantor to IBM Credit. The
Guarantor will promptly notify IBM Credit of any loss, theft or destruction of
or damage to any of the Collateral.
Except for transactions in the ordinary course of business, the Guarantor
will not rent, lease, lend, demonstrate, pledge, create a security interest in,
transfer or secrete any of the Collateral, or use the Collateral for any purpose
other than exhibition, without IBM Credit's prior written consent, which will
not be unreasonably withheld.
This Guaranty is assignable, shall be construed liberally in favor of IBM
Credit, and shall inure to the benefit of and bind respective successors,
personal representatives and assigns of IBM Credit and Guarantor, and also
benefit any of existing or future affiliates of IBM Credit that may extend
credit to Dealer.
In accordance with Section 2856 of the California Civil Code (if the same
shall be found to be applicable): (i) Guarantor waives any and all rights of
defenses available to such Guarantor by reason of Sections 2787 to 2855,
inclusive, 2899 and 3433 of the California Civil Code, including without
limitation any or all rights and defenses such Guarantor may have by reason of
protection afforded to the principal with respect to any of the Liabilities, or
to any other guarantor (including any other Guarantor) of any of the Liabilities
with respect to any of such guarantor's obligations under its guaranty, in
either case pursuant to the antideficiency or other laws of the State of
California limiting or discharging the Dealer's indebtedness or such guarantor's
Liabilities, including without limitation Section 580a, 580b, 580d, or 726 of
the California Code of Civil Procedure; and (ii) Each Guarantor waives all
rights and defenses arising out of an election of remedies by the creditor, even
though that election of remedies, such as a nonjudicial foreclosure with respect
to security for any Liabilities, has destroyed such Guarantor's rights of
subrogation and reimbursement against the principal by the operation of Section
580d of the California Code of Civil Procedure or otherwise; and even though the
election of remedies by the creditor, such as nonjudicial foreclosure with
respect to security for an obligation of any other guarantor of any of the
Liabilities, has destroyed such Guarantor's rights of contribution against such
other guarantor. No other provision of this Guaranty shall be construed as
limiting the generality of any of the covenants and waivers set forth in this
paragraph. This paragraph
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<PAGE>
is included solely out of an abundance of caution and shall not be construed to
mean any of the above-referenced provisions of California law are in any way
applicable to this Guaranty or to any of the Liabilities.
If Dealer hereafter is incorporated, acquired by a corporation, dissolved,
or otherwise undergoes any change in it's management, ownership, identity, or
organizational structure, this Guaranty shall continue to extend to any
Liabilities of the Dealer or such resulting corporation, dissolved corporation,
or new or changed legal entity, or identity to IBM Credit.
The Guarantor waives: notice of the acceptance of this Guaranty, and of
presentment, demand and protest; notices of nonpayment, nonperformance, any
right of contribution from other guarantors, and dishonor; notices of amount of
indebtedness of Dealer outstanding at any time; notices of the number and amount
of advances made by IBM Credit to Dealer in reliance on this Guaranty; notices
of any legal proceedings against Dealer; notice and hearing as to any
prejudgment remedies; and any other demands and notices required by law. The
Guarantor further waives all rights of set-off and all counterclaims against IBM
Credit or Dealer. The Guarantor also waives any and all rights in and notices
or demands relating to any collateral now or hereafter securing any of the
Liabilities, including, but not limited to, all rights, notices or demands
relating, whether directly or indirectly, to the sale or other disposition of
any or all of such collateral or the manner of such sale or other disposition.
All waivers by the Guarantor herein shall survive any termination or revocation
of this Guaranty.
The Guarantor authorizes IBM Credit to sell at public or private sale or
otherwise realize upon the collateral now or hereafter securing any of the
Liabilities, in such manner and upon such terms and conditions as IBM Credit
deems best. The Guarantor further authorizes IBM Credit to deal with the
proceeds of such collateral as provided in IBM Credit's agreement with Dealer,
without prejudice to IBM Credit's claim for any deficiency and free from any
right or redemption on the part of Dealer, the Guarantor or any third parties,
which right or redemption is hereby waived together with every formality
prescribed by custom or by law in relation to any such sale or other
realization.
The Guarantor further agrees that all of its right, title and interest in,
to and under any loans, notes, debts and all other liabilities and obligations
whatsoever owed by Dealer to the Guarantor, whether heretofore or hereafter
created or incurred and for whatever amount, and all security therefor, shall be
now and hereafter at all times fully subordinated to all Liabilities. Except
for intercompany transactions in the ordinary course of business, the Guarantor
will not ask, demand or sue for, or take or receive payment of, all or any part
of such loans, notes, debts or any other liabilities or obligations whatsoever
or any security therefor, until and unless all of the Liabilities are paid,
performed and fully satisfied.
The Guarantor has made an independent investigation of the financial
condition of Dealer and gives this Guaranty based on that investigation and not
upon any representations made by IBM Credit. The Guarantor acknowledges that it
has access to current and future Dealer financial information which will enable
the Guarantor to continuously remain informed of Dealer's financial condition.
The Guarantor also consents to and agrees that the obligations under this
Guaranty shall not be affected by subsequent increases or decreases in the
credit line that IBM Credit may grant to Dealer; substitutions, exchanges or
releases of all or any part of the collateral now or hereafter securing any of
the Liabilities; sales or other dispositions of any or all of the collateral now
or hereafter securing any of the Liabilities without demands, advertisement or
notice of the time or place of the sales or other dispositions; realizing on the
collateral to the extent IBM Credit, in its sole discretion, deem proper; or
purchases of all or any part of the collateral for IBM Credit's own account.
This Guaranty and any and all obligations, liabilities, terms and
provisions herein shall survive any and all bankruptcy or insolvency
proceedings, actions and/or claims brought by or against Dealer, whether such
proceedings, actions and/or claims are federal and/or state.
This Guaranty is submitted by the Guarantor to IBM Credit (for its
acceptance or rejection thereof) at its above specified office; as an offer by
the Guarantor to guaranty the credit and financial accommodations provided by
IBM Credit to Dealer. If accepted, this Guaranty shall be deemed to have been
made at IBM Credit's above-specified office. This Guaranty and all obligations
pursuant thereto, shall be governed and controlled as to interpretation,
enforcement, validity, construction, effect and, in all other respects by the
laws of the state of New York. The Guarantor, to induce IBM Credit to accept
this Guaranty, agrees that all actions or proceedings arising directly or
indirectly in connection with, out of, related to or from this Guaranty may be
litigated in courts within the state of New York. The Guarantor consents and
submits to the jurisdiction of any local, state or federal court located within
that state. The Guarantor waives any right to transfer or change the venue of
any litigation brought against the Guarantor by IBM Credit in accordance with
this paragraph.
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<PAGE>
Any delay by IBM Credit, or its successors, affiliates or assigns in
exercising any or all rights granted IBM Credit under this Guaranty shall not
operate as a waiver of those rights. Furthermore, any failure by IBM Credit,
its successors, affiliates or assigns, to exercise any or all rights granted IBM
Credit under this Guaranty shall not operate as a waiver of IBM Credit's right
to exercise any or all of them later.
This document contains the full agreement of the parties concerning the
guaranty of Dealer's Liabilities and can be varied only by a document signed by
all of the parties hereto. The Guarantor may terminate this Guaranty by notice
to IBM Credit in writing, the termination to be effective sixty (60) days after
receipt and acknowledgment thereof by IBM Credit, but the termination shall in
no manner terminate the Guarantor's guaranty of Liabilities arising prior to the
effective date of termination. If executed by more than one party "Guarantor"
shall be deemed to refer to all thereof and the obligations of all thereof
hereunder shall be joint and several.
IBM CREDIT AND GUARANTOR AGREE THAT ANY ACTION, SUIT, OR PROCEEDING,
RELATING DIRECTLY OR INDIRECTLY TO THIS GUARANTY INCLUDING ANY COUNTERCLAIMS, OR
THE RELATIONSHIP BETWEEN IBM CREDIT AND GUARANTOR, WILL BE TRIED IN A COURT OF
COMPETENT JURiSDICTION BY A JUDGE WITHOUT A JURY. THUS, IBM CREDIT AND
GUARANTOR HEREBY WAIVE ANY RIGHT TO A JURY TRIAL IN ANY SUCH ACTION, SUIT OR
PROCEEDING.
WITNESS INET SYSTEMS, INC.
-----------------------------------
Name of Corporate Guarantor
______________________________________ By: /s/ James W. Dorst
--------------------------------
Print Name:___________________________ Print Name: James W. Dorst
------------------------
Address:______________________________ Title: Chief Financial Officer
-----------------------------
______________________________________ Guarantor's Address:_______________
______________________________________ ___________________________________
___________________________________
SEAL
ATTEST:
/s/ James W. Dorst
-----------------------------------
Secretary
Print Name: James W. Dorst
-----------------------
STATE OF TEXAS )
) SS
COUNTY OF BEXAR )
On this 30th day of September, 1997, the above individuals personally appeared
before me, and who, being duly sworn, each stated that the foregoing Guaranty
was executed in each of their representative capacities as represented above for
the Guarantor.
/s/ Karen Pagel
----------------------------------
Notary Public
My Commission Expires: ____________
NOTARY PUBLIC SEAL
FOR KAREN PAGEL
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<PAGE>
SECRETARY'S CERTIFICATE
I hereby certify that I am the Secretary of the following named corporation
and that execution of the above Guaranty was ratified, approved and confirmed by
the Shareholders at a meeting, if necessary, and pursuant to a resolution of the
Board of Directors of the corporation at a meeting of the Board of Directors
duly called, and which is currently in effect, which resolution was duly
presented, seconded and adopted and reads as follows:
"BE IT RESOLVED that any officer of this corporation is hereby authorized
to execute a guaranty of the obligations of Western Micro Technology, Inc.
("Dealer") to IBM Credit Corporation on behalf of the corporation, which
instrument may contain such terms as any officer may see fit including, but not
limited to a grant of a security interest in all assets of this corporation to
secure this corporation's liabilities and obligations to IBM Credit Corporation;
a waiver of notice of the acceptance of this guaranty; presentment; demand;
protest; notices of nonpayment, nonperformance, dishonor, the amount of
indebtedness of Dealer outstanding at any time, any legal proceedings against
Dealer, and any other demands and notices required by law; any right of
contribution from other guarantors; and all set-offs and counterclaims."
IN WITNESS WHEREOF and as Secretary of the named corporation I have
hereunto set my hand and affixed the corporate seal on this 30th day of
September, 1997.
/s/ James W. Dorst
-----------------------------------
(Secretary)
James W. Dorst
-----------------------------------
(Corporate Guarantor)
CORPORATE SEAL
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<PAGE>
EXHIBIT 10.9
EXECUTION COPY
IBM CREDIT CORPORATION
----------------------
SUBORDINATION AND INTERCREDITOR AGREEMENT
-----------------------------------------
THIS SUBORDINATION AND INTERCREDITOR AGREEMENT (this "AGREEMENT") is made
effective as of the 30th day of September, 1997, by and among Canpartners
Investments IV, LLC, a California limited liability company, and Robert Fleming
Inc., a Delaware corporation (collectively the "SUBORDINATED LENDER"), Western
Micro Technology, Inc., a Delaware Corporation (the "COMPANY"), WMT Acquisition
Corp., a California corporation, Savoir Technology Group, Inc., a Delaware
corporation, Star Management Services, Inc., a Delaware corporation, Inet
Systems, Inc., a Texas corporation, Star Data International, a company organized
under the laws of the Virgin Islands, Sirius Investments, Inc., a Nevada
corporation, and Star Data Systems, Inc., a Texas corporation, and IBM Credit
Corporation, a Delaware Corporation ("IBM CREDIT CORPORATION"). The Company,
WMT Acquisition Corp., a California corporation, Savoir Technology Group, Inc.,
a Delaware corporation, Star Management Services, Inc., a Delaware corporation,
Inet Systems, Inc., a Texas corporation, and Star Data International, a company
organized under the laws of the Virgin Islands and Sirius Investments, Inc., a
Nevada corporation, and Star Data Systems, Inc., a Texas corporation, are
hereinafter collectively referred to as the "OBLIGORS" and individually as an
"OBLIGOR."
BACKGROUND
----------
A. Obligors are indebted (directly as borrower or indirectly as
guarantor) to IBM Credit Corporation. IBM Credit Corporation is interested in
the welfare of Obligors and will benefit if Subordinated Lender extends or
maintains credit to the Obligors.
B. Obligors have requested that IBM Credit Corporation and Subordinated
Lender extend and maintain credit facilities to the Company. IBM Credit
Corporation and Subordinated Lender are willing to do so provided this Agreement
is executed.
NOW, THEREFORE, the parties hereto, as an inducement for IBM Credit
Corporation and Subordinated Lender to extend and maintain credit facilities to
the Company, and intending to be legally bound hereby, agree as follows:
1. DEFINITIONS. The following words and phrases as used in
-----------
capitalized form in this Agreement, whether in singular or plural, shall have
the meanings indicated:
(A) "CHANGE OF CONTROL" shall have the meaning set forth in the
Subordinated Debt Agreements.
<PAGE>
(B) "CLOSING DATE" shall mean the date on which the Subordinated
Notes are issued to the Subordinated Lender.
(C) "DEFAULT" means an event or condition the occurrence or
existence of which would, with the lapse of time or the giving of notice or
both, become an Event of Default. An "Event of Default" shall be as defined in
the Senior Debt Agreements.
(D) "PAYMENT STOPPAGE NOTICE" shall mean a notice that a default
under the Senior Debt (other than a default in the payment of any principal,
premium, if any, or interest on any Senior Debt) has occurred pursuant to which
IBM Credit Corporation may, or following notice or lapse of time or both would
be able to, accelerate the maturity or otherwise require purchase or repayment
of any of the Senior Debt, which notice is given to the Obligors and the
Subordinated Lender by IBM Credit Corporation and which states that such notice
is a Payment Stoppage Notice delivered pursuant to this Agreement.
(E) "PAYMENT STOPPAGE PERIOD" shall mean the period commencing
upon the Obligors' and Subordinated Lender's receipt of any Payment Stoppage
Notice and ending on the date which is 90 days after the receipt by Obligors and
Subordinated Lender of such Payment Stoppage Notice.
(F) "SATISFIED" shall mean with respect to Senior Debt that any
and all Senior Debt shall have been paid in full and all financing arrangements
and accommodations between the Obligor and IBM Credit Corporation shall have
been terminated and IBM Credit Corporation has no obligation to make any loans,
financial accommodations or advance any funds which would constitute Senior Debt
to any Obligor.
(G) "SCHEDULED SUBORDINATED DEBT" shall mean: (a) the principal
of, premium, if any, and all interest on the Subordinated Notes and all fees,
costs and expenses (including attorneys' fees and legal expenses) related
thereto, (b) all other sums payable under the Subordinated Debt Agreements, and
(c) all increases of principal thereof and all extensions, amendments,
replacements, refinancings and renewals thereof.
(H) "SENIOR DEBT" means, without duplication, (i) the principal
of and interest on (including, whether or not allowed by law, interest accruing
after the filing of a petition initiating any proceedings pursuant to or under
any Bankruptcy Law) and all other amounts owing with respect to all Indebtedness
under that certain Inventory and Working Capital Financing Agreement dated
December 31, 1996 between IBM Credit Corporation and Western Micro Technology,
Inc. for a $75 million revolving credit facility (the "Revolving Loan") and a
$10 million term loan (the "Acquisition Loan") (collectively the "IBM Credit
Corporation Facility"), (ii) guarantees by the Issuer of Indebtedness under, or
the joint and several obligations of the Issuer of any Indebtedness under, the
IBM Credit Corporation Facility and the obligation to pay fees, expenses and
other amounts due to the lenders thereunder and, whether or not allowed by law,
interest accruing thereunder after the filing of
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<PAGE>
a petition initiating any proceedings pursuant to or under any Bankruptcy Law,
and any guarantees by the Issuer of any Indebtedness or other obligations of any
Subsidiary that is a party to the IBM Credit Corporation Facility and the
obligation to pay fees, expenses and other amounts due thereunder.
(I) "SENIOR DEBT AGREEMENTS" shall mean all loan agreements,
notes, security agreements, guaranties and all other documents, agreements,
instrument, opinions and certificates now or hereafter existing or delivered in
connection with any of the Senior Debt, as any such agreement, note, document or
instrument may be amended, modified, supplemented, consolidated, replaced,
renewed or refinanced as permitted herein.
(J) "SUBORDINATED DEBT" shall mean all liabilities and
obligations (other than Senior Debt) of any nature, whether primary, secondary,
absolute, contingent, sole, joint, several or joint and several and all interest
thereon and all fees, costs and expenses (including attorneys' fees and legal
expenses) related thereto, now or at any time or times hereafter existing,
contracted or incurred, of any Obligor to any Subordinated Lender pursuant to
the Subordinated Debt Agreements, including without limitation, the Scheduled
Subordinated Debt.
(K) "SUBORDINATED DEBT AGREEMENTS" shall mean (i) the Note
Purchase Agreement dated as of September 30, 1997 among the Obligors and the
Subordinated Lender, (ii) the Subordinated Notes, (ii) all other documents,
agreements, instruments, opinions and certificates now or hereafter delivered in
connection with such Note Purchase Agreement or the Subordinated Notes and (iv)
any other agreements, document or instrument which from time to time evidences
Subordinated Debt, in each case as any such agreement, note, document or
instrument may be amended, modified, supplemented, replaced, renewed or
refinanced.
(L) "SUBORDINATED NOTES" shall mean the Notes issued to the
Subordinated Lender or any successor or assign of Subordinated Lender and any
other notes evidencing subordinated debt under the Subordinated Debt Agreements.
(M) "WARRANT AGREEMENT" shall mean the Warrant Agreement dated
as of September 30, 1997 among the Company and the Subordinated Lender pursuant
to which the Company agrees to issue to the Subordinated Lender warrants to
purchase 400,000 shares of Company common stock.
(N) "WARRANTS" shall mean the warrants issued from time to time
pursuant to the Warrant Agreement.
2. SUBORDINATION.
-------------
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<PAGE>
(A) GENERAL. Subordinated Lender hereby subordinates all
-------
Subordinated Debt and all claims, rights and demands arising therefrom to all
the Senior Debt. Until the Senior Debt is Satisfied, if such payment, purchase,
acquisition, redemption or other action is expressly prohibited by this
Agreement (i) no Obligor will make, and Subordinated Lender will not accept,
either directly or indirectly, payment (of any kind or character) of all or any
part of the principal of, premium, if any, or interest on or any claim or amount
with respect to any of the Subordinated Debt, (ii) no Obligor will purchase,
repurchase, acquire or redeem any Subordinated Debt (except with respect to the
Subordinated Lender's tendering of the Subordinated Notes to pay the exercise
price of the Warrants in lieu of cash), and (iii) Subordinated Lender will not
demand or accelerate any of the Subordinated Debt, institute any court
proceedings against any Obligor to collect any Subordinated Debt, or exercise
any rights or remedies against any Obligor or its assets.
(B) PROHIBITIONS. No payments shall be made on or in respect of
------------
the principal of, premium, if any, or interest on or any claim or amount with
respect to any of the Subordinated Debt or with respect to any purchase,
repurchase, acquisition or redemption of any of the Subordinated Debt, and
Subordinated Lender will not demand or accelerate any of the Subordinated Debt,
institute any court proceedings against any Obligor to collect any Subordinated
Debt or exercise any rights or remedies against any Obligor or its assets, if
any of the following events have occurred:
(I) Any bankruptcy, insolvency, reorganization,
liquidation, receivership or similar proceeding has been commenced against or by
any Obligor;
(II) Any default in the payment of any principal of,
premium, if any, or interest on any of the Senior Debt when due and payable,
whether as regularly scheduled, at maturity, upon acceleration or otherwise, has
occurred, unless and until such default has been cured or waived in writing by
IBM Credit Corporation; or
(III) Any default or other event has occurred in connection
with any of the Senior Debt or the Senior Debt Agreements (other than a default
in the payment of any principal, premium, if any, or interest on any Senior
Debt) pursuant to which IBM Credit Corporation may, or following notice or lapse
of time or both would be able to, accelerate the maturity of any of the Senior
Debt and IBM Credit Corporation has given a Payment Stoppage Notice to Obligors
and the Subordinated Lender, unless and until the earliest to occur of (A) the
Payment Stoppage Period expires, (B) the default giving rise to the Payment
Stoppage Notice is cured or waived in writing by IBM Credit Corporation, or (C)
the Obligors and the Subordinated Lender receive written notice from IBM Credit
Corporation terminating the Payment Stoppage Period.
(IV) The prohibitions contained in this SECTION 2 shall
---------
lapse and expire no later than 179 days after the occurrence of any of the
matters in SECTIONS 2(B)(I) OR (II) unless IBM Credit Corporation has taken and
------------------------
is continuing to take commercially
-4-
<PAGE>
reasonable steps to enforce its rights and remedies under the Senior Debt
Agreements, and shall thereafter lapse at such time as IBM Credit Corporation
ceases taking such steps.
(V) Subject to the provisions of SECTION 3(B) and SECTION
------------ -------
12 of this Agreement, once the Senior Debt has been Satisfied the prohibitions
- --
in this SECTION 2(B) shall be deemed terminated.
------------
(C) PAYMENT STOPPAGE PERIODS. Notwithstanding anything herein to
------------------------
the contrary, in no event will a Payment Stoppage Period extend beyond 90 days
from the date the payment on the Subordinated Debt was due and only one such
Payment Stoppage Period commenced within any 365 consecutive days. For all
purposes of Section 2(b)(iii), no default which existed or was continuing with
respect to the Senior Debt to which the Payment Stoppage Period relates on the
date such Payment Stoppage Period commenced shall be made the basis for the
commencement of any subsequent Payment Stoppage Period by IBM Credit Corporation
or any holder or holders of such Senior Debt unless such default is cured or
waived for a period of not less than 90 consecutive days.
(D) PREPAYMENTS. Notwithstanding anything herein or elsewhere to
-----------
the contrary, Obligors may not acquire, purchase, repurchase, redeem, or
otherwise make any prepayment (mandatory or voluntary) of any principal,
premium, if any, or prepay interest on any of the Subordinated Debt unless and
only to the extent that no Default or Event of Default then exists or would
result therefrom or unless the prior written consent of IBM Credit Corporation
is first obtained.
(E) ACCELERATION AND OTHER REMEDIES. Notwithstanding anything
-------------------------------
herein or in any of the Subordinated Debt Agreements to the contrary, the
Subordinated Lender agrees that it will not accelerate any of the Subordinated
Debt, institute any court proceedings against any Obligator to collect any
Subordinated Debt, or exercise any rights or remedies against any Obligor or its
assets, as a result of any default under the Subordinated Debt Agreements, or
otherwise, unless the Subordinated Lender has given IBM Credit Corporation
written notice of its intent to take such action at least 30 days prior to such
acceleration, institution of court proceeding or other exercise of remedies.
Similarly, IBM Credit Corporation agrees to give Subordinated Lender notice of
any Event of Default or acceleration under the Senior Debt Agreement.
(F) TENDER OF SUBORDINATED NOTES FOR WARRANTS. The Subordinated
-----------------------------------------
Lender shall at all times, regardless of whether there are any prohibitions
under this Agreement or the Senior Debt Agreements regarding payments to the
Subordinated Lender or actions which may be taken by the Subordinated Lender
with respect to the Subordinate Debt, have the right to tender the Subordinated
Notes to the Obligors to pay the exercise price of the Warrants in lieu of cash.
-5-
<PAGE>
(G) SUBROGATION. After the Senior Debt has been Satisfied, the
-----------
holders of Subordinated Debt shall be subrogated to the rights of the holders of
Senior Debt to receive payments or distributions of cash, property or securities
of the Obligors applicable to the Senior Debt until the Subordinate Debt shall
be paid in full, and, for the purposes of such subrogation, no payments or
distributions to the holders of the Senior Debt of any cash, property or
securities to which the holders of the Subordinated Debt would be entitled
except for the provisions of this Agreement, and no payment over pursuant to the
provision of this Agreement to the holders of Senior Debt by holders of
Subordinated Debt shall, as between the Obligors, their creditors other than
holders of Senior Debt, and the holders of Subordinated Debt, be deemed to be a
payment by any Obligor to or on account of the Subordinated Debt.
(H) ENFORCEMENT. The right of IBM Credit Corporation to enforce
-----------
the subordination provisions and any other provisions hereof shall not in any
way be prejudiced or impaired by any act or failure to act on the part of IBM
Credit Corporation, any Obligor or Subordinated Lender, or by any noncompliance
by any Obligor or the Subordinated Lender with the terms, provisions and
covenants of this Agreement.
3. IN FURTHERANCE OF SUBORDINATION.
-------------------------------
(A) Upon any distribution of any of the assets of any Obligor,
any guarantor of any of the Subordinated Debt or any collateral securing the
Subordinated Debt, upon or in connection with any dissolution, recapitalization,
distribution, winding up, liquidation, arrangements or reorganization of any
Obligor, any guarantor of any of the Subordinated Debt or any other person or
entity, or upon any assignment for the benefit of creditors or any other
marshaling of the assets and/or liabilities of any Obligor, or any guarantor of
any of the Subordinated Debt or otherwise, any payment, dividend or distribution
of any kind (whether in cash, securities or other property) which would
otherwise be payable or deliverable with respect to the Subordinated Debt, shall
be paid or delivered directly to IBM Credit Corporation for application (in the
case of cash) to or as collateral (in the case of securities or other property)
for the Senior Debt.
(B) In the event that any payment or payments made to IBM Credit
Corporation with respect to any of the Senior Debt or otherwise made to IBM
Credit Corporation pursuant to this Agreement, or any part thereof, are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or are required to be repaid to any trustee, receiver or any other period under
any bankruptcy statute, state or federal law, common law or equitable cause,
then (i) to the extent of such payment or payments, the obligations or part
thereof intended to be satisfied shall be revived and continued as Senior Debt
in full force and effect, as if such payment or payments had not been made, (ii)
IBM Credit Corporation shall continue to have all rights under this Agreement
related to such revived obligations which shall constitute Senior Debt, and
(iii) Subordinated Lender agrees to pay to IBM Credit Corporation any payments
which were paid over to Subordinated Lender by any trustee or receiver under any
bankruptcy statute, state or federal law, common law or equitable cause and were
returned
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<PAGE>
to Subordinated Lender with respect to the Subordinated Debt or in connection
with any subrogation rights of Subordinated Lender to the extent necessary to
pay in full such revived and continued Senior Debt obligations.
(C) In the event that Subordinated Lender is required to turn
over or deliver to IBM Credit Corporation any amount or property paid or
delivered to Subordinated Lender pursuant to this SECTION 3, SECTION 5 or
--------- ---------
otherwise, the obligations of the Obligors under the Subordinated Debt
Agreements with respect to any such amount or property shall be revived and
continued as Subordinated Debt in full force and effect, as if such amount or
property had not been paid or received.
4. RELATIVE RIGHTS. This Agreement defines the relative rights of
---------------
the holders of Senior Debt and the Holders of Subordinated Debt. Nothing in
this Agreement shall:
(A) impair, as between the Obligors and the holders of
Subordinated Debt, the obligation of any Obligor, which is absolute and
unconditional, to pay principal of, premium, if any, and interest on the
Subordinated Notes and any other amounts due under the Subordinated Debt
Agreements;
(B) affect the relative rights of the holders of Subordinated
Debt and creditors of the Obligors other than holders of Senior Debt; or
(C) prevent any holder of Subordinated Debt from exercising its
available remedies upon a default or event of default under the Subordinated
Debt Agreements, subject to the rights of holders of Senior Debt hereunder and
the restrictions set forth in this Agreement.
As between Subordinated Lender and Obligors, if any Obligor fails
because of this Agreement to pay principal of, premium, if any, and interest on
the Subordinated Notes or any other amounts due under the Subordinated Debt
Agreements on the date when such payment is due (other than any payment due
during a Payment Stoppage Period), the failure to make such payment shall be a
default or event of default under the Subordinated Debt Agreements
notwithstanding any provision of this Agreement.
5. PAYMENTS HELD IN TRUST. In the event that Subordinated Lender
----------------------
receives any dividend, distribution or payment referred to in SECTION 3, or
---------
receives any payment (of any kind or character) of any Subordinated Debt or
security therefor which at the time received are in violation of or are
prohibited under this Agreement, Subordinated Lender will (a) not credit such
payments against the Subordinated Debt, (b) notify IBM Credit Corporation
promptly thereof, and (c) receive the same in trust for IBM Credit Corporation
and will promptly pay and deliver the same to IBM Credit Corporation in
precisely the form received, except for any requisite endorsement or assignment,
which Subordinated Lender will
-7-
<PAGE>
make and hereby authorizes IBM Credit Corporation or any of its officers of
employees to make in the event that Subordinated Lender does not make the same.
IBM Credit Corporation will apply any such moneys so received by it in reduction
of the Senior Debt and will hold any property other than money so received by it
as collateral security therefor. If Subordinated Lender fails to make any
endorsement or assignment required hereunder, IBM Credit Corporation is hereby
appointed attorney for Subordinated Lender with full power of substitution to
make any such endorsement or assignment. Such power of attorney being coupled
with an interest is irrevocable until the Senior Debt has been paid in full.
6. IBM CREDIT CORPORATION'S RIGHTS. Without notice to Subordinated
-------------------------------
Lender and without affecting or releasing any obligation or agreement of
Subordinated Lender under this Agreement or the subordination provided herein,
subject to SECTION 8(F) hereof, IBM Credit Corporation may at any time or times
do any of the following with respect to any of the Senior Debt: (a) waive or
rescind any default, (b) exercise any rights or remedies, with respect to the
Senior Debt, (c) amend, modify, alter or waive any of the terms thereof or any
of the documents executed in connection therewith, (d) renew or extend the time
for payments of all or any part thereof, (e) decrease the amount thereof, (f)
accept collateral security or guaranties therefor and sell, exchange, fail to
perfect, release or otherwise deal with all or any part of any such collateral
or guaranties, (g) release any party primarily or secondarily obligated thereon,
(h) grant indulgences and take or refrain from taking any action with regard to
the collection or enforcement thereof, and (i) take any action which might
otherwise give rise to any claim by the Subordinated Lender. Nothing contained
in this Agreement shall impair any right of IBM Credit Corporation with respect
to any of the Senior Debt or any collateral security or guaranties therefor or
the proceeds thereof.
7. REPRESENTATIONS. Subordinated Lender represents to IBM Credit
---------------
Corporation that:
(A) The Scheduled Subordinated Debt constitutes as of the
Closing Date, all of the now existing debt obligations of any nature whatsoever
of any Obligor to any Subordinated Lender and/or Subordinated Lender and others.
There is no event of default or event which with the giving of notice, passage
of time or both would constitute an event of default existing under the
Scheduled Subordinated Debt.
(B) Subordinated Lender is the owner and holder of the
Subordinated Notes, as of the Closing Date.
(C) This Agreement has been duly executed and delivered by
Subordinated Lender and constitutes the valid and binding obligation of
Subordinated Lender, enforceable in accordance with its terms.
8. COVENANTS.
---------
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<PAGE>
(A) IBM Credit Corporation hereby consents to the grant of
security interests and guaranties to Subordinated Lender as provided in the
Subordinated Debt Agreements.
(B) Subordinated Lender will give IBM Credit Corporation a copy
of any written notice given to any Obligor exercising Subordinated Lender's
right to have any Obligor repurchase any of the Subordinated Debt as a result of
a Change of Control. IBM Credit Corporation will give Subordinated Lender a copy
of any written notice given to any Obligor exercising IBM Credit Corporation's
option to have any Obligor repurchase any of the Senior Debt as a result of a
Change of Control.
(C) In the event that Subordinated Lender at any time has any
indebtedness or other obligations owing to any Obligor for any reason, including
without limitation any accounts receivable owing to any Obligor, Subordinated
Lender will not offset the indebtedness or other obligations owing to such
Obligor against any of the Subordinated Debt except with respect to (i) the
Subordinated Lender's tendering of the Subordinated Notes to pay the exercise
price of the Warrants in lieu of cash, and (ii) offsets against payments of
Subordinated Debt which payments, at the time of such offset, are otherwise
permitted under this Agreement.
(D) If any default under the Subordinated Debt is cured during a
Payment Stoppage Period, Subordinated Lender agrees that it will not exercise
any rights or remedies against any Obligor or its assets as a result of such
default and such default will be deemed cured.
(E) Subordinated Lender will not amend, modify or restate any of
the provisions of the Subordinated Debt or any of the Subordinated Debt
Agreements, in any way which increases the interest rate on any of the
Subordinated Debt by more than 2.5% per annum in the aggregate or shortens or
accelerates the maturity or due date of any payments under the Subordinated
Debt. Obligors will not amend, modify or restate any of the provisions of the
Subordinated Debt or any of the Subordinated Debt Agreements except in
accordance with the terms and conditions set forth in the Senior Loan Documents.
Subordinated Lender agrees that it will not amend, modify or restate any of the
provisions of the Subordinated Debt or any of the Subordinated Debt Agreements,
if Subordinated Lender has been notified by IBM Credit Corporation that such
amendment, modification or restatement would constitute a Default under the
Senior Debt Agreements.
(F) IBM Credit Corporation will not amend, modify or restate any
of the provisions of the Senior Debt or any of the Senior Debt Agreements in any
way which increases the aggregate interest rate spread over the Prime Rate (as
such term is defined in the Revolving Loan) by more than 2.5% per annum (except
that the Delinquency Fee Rate (as such term is defined in the Revolving Loan)
may not be changed), increases the principal amount outstanding under the Senior
Debt Agreements more than $10.0 million resulting in
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<PAGE>
more than $95 million in the aggregate outstanding, increases any waiver fees or
other similar sums payable in connection with the Senior Debt or under the
Senior Debt Agreements more than $425,000 in the aggregate, or adversely affects
the rights granted to Subordinated Lender hereunder.
9. LIMITATION ON CONSENT TO PAYMENT. In the event that IBM Credit
--------------------------------
Corporation consents in writing to the making of a payment on account of the
Subordinated Debt, which payment would otherwise be prohibited under this
Agreement, such consent shall be deemed to be a consent to the payment
specifically referred to in such written consent and shall not be construed as a
waiver of any prohibitions in this Agreement generally as to all future payments
or grants. A consent by IBM Credit Corporation to any request shall not be
deemed to be a consent to future similar requests.
10. LEGEND. Subordinated Lender and Obligors shall cause each
------
instrument that at any time evidences all of any portion of the Subordinated
Debt to be conspicuously marked with a legend substantially in the form of the
following:
"This instrument is subject to the terms of a
Subordination and Intercreditor Agreement in favor
of IBM Credit Corporation, which Subordination and
Intercreditor Agreement contains certain
subordination provisions and is incorporated herein
by reference. Notwithstanding any contrary statement
contained in the within instrument, no payment on
account of the principal, premium, if any, or
interest hereof shall become due or be paid except
in accordance with the terms of such Subordination
and Intercreditor Agreement."
11. NO ASSIGNMENT. Subordinated Lender agrees that Subordinated
-------------
Lender will not assign or transfer to any person or entity any Subordinated Debt
or any evidence thereof or security or guaranty therefor, unless such assignee
is informed of the provisions of this Agreement.
12. TERMINATIONS. This Agreement will continue in full force and
------------
effect as long as any Senior Debt has not been Satisfied. To the extent any
payment or payments of any Senior Debt or any Subordinated Debt received by IBM
Credit Corporation are subsequently invalidated, declared to be fraudulent of
preferential, set aside or are required to be repaid to a trustee, receiver or
other person or entity under any bankruptcy act, state or federal law, common
law or equitable cause, then this Agreement will be revived and continue in full
force and effect. This Agreement may not be terminated except by an instrument
in writing signed by IBM Credit Corporation and the Subordinated Lender.
13. OBLIGATIONS OF OBLIGORS UNCONDITIONAL. Nothing contained in this
-------------------------------------
Agreement is intended to or shall impair, as between the Obligors and the
Subordinated Lender
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<PAGE>
(as opposed to as between the Subordinated Lender and the IBM Credit), the
obligations of the Obligors, which are absolute and unconditional, to pay to the
Subordinated Lender the principal of and any interest on the Subordinated Notes
as and when the same shall become due and payable in accordance with their
terms, or is intended to or shall affect the relative rights of the Subordinated
Lender and creditors of the Obligors other than the holders of the Senior Debt,
nor shall anything herein or therein prevent the Holder of any Subordinated Note
from exercising all remedies otherwise permitted by applicable law upon default
under this Agreement, subject to the rights, if any, under this Agreement of the
holders of the Senior Debt in respect of cash, property or securities of the
Obligors received upon the exercise of any such remedy.
14. WAIVERS.
-------
(A) Subordinated Lender hereby waives, to the extent permitted
by applicable law, any right to notice from IBM Credit Corporation prior to
disposition of any assets of any Obligor or any guarantor or any collateral
securing any of the Senior Debt. To the extent Subordinated Lender is not
permitted by applicable law to waive notice, Subordinated Lender agrees that ten
(10) days notice prior to any such disposition shall be reasonable. Subordinated
Lender agrees not to interfere with any disposition of assets of any Obligor or
any guarantor or any collateral securing any of the Senior Debt by or at the
direction of IBM Credit Corporation and waives, to the extent permitted by
applicable law, the right to challenge any such disposition as not commercially
reasonable.
(B) Subordinated Lender waives any right to require IBM Credit
Corporation to marshal any assets of any Obligor or any guarantor or to
otherwise proceed in any fashion against any Obligor, any guarantor or any other
person.
(C) IBM Credit Corporation is irrevocably authorized to demand
and receive specific performance of this Agreement by Subordinated Lender, even
if any Obligor has breached its agreements hereunder, at any time upon the
breach by Subordinated Lender of its agreements hereunder. Subordinated Lender
irrevocably waives any defense based on the adequacy of a remedy at law which
might be asserted as a bar to such remedy of specific performance.
(D) Subordinated Lender assumes responsibility for keeping
itself informed of the financial condition of Obligors, and of all other
circumstances bearing upon the risk of nonpayment of the Senior Debt, and IBM
Credit Corporation shall have no duty to advise Subordinated Lender of
information known to IBM Credit Corporation regarding such condition of any such
circumstances.
15. RELEASES. IBM Credit Corporation may release any one or more
--------
parties hereto, or the successors or assigns thereof, from any other obligations
hereunder, and such release by operation of law, shall not release any other
party hereto from nor in any way
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<PAGE>
affect, any of the obligations of any other party under this Agreement, or
affect the subordination of any of the Subordinated Debt to the Senior Debt.
16. NOTICES. All notices, requests, and other communications made or
-------
given to connection with this Agreement shall be in writing and, unless receipt
is stated herein to be required shall be deemed to have been validly given if
delivered personally against receipt by private carrier, registered or certified
mail, return receipt requested, or by telecopy with the original forwarded by
first class mail, in all cases with charges prepaid, addressed as follows, or
delivered to the individual or division or department to whose attention notices
to a party are to be addressed, until some other address (or individual or
division or department for attention) shall have been designated by notice given
by a party to the other:
To Subordinated Lender: c/o Canyon Partners Incorporated
9665 Wilshire Boulevard
Beverly Hills, California 90212
Attn: Scott Imbach
Telecopy Number: (310) 247-2701
and
Robert Fleming Inc.
320 Park Avenue, 11th Floor
New York, New York 10022
Attention: Michael E. Rowe
Telecopy: (212) 508-3679
To Obligors: Western Micro Technology, Inc.
254 E. Hacienda Avenue
Campbell, CA 95008
Attn: James W. Dorst
Telecopy: (408) 341-4768
To IBM Credit Corporation: IBM Credit Corporation
5000 Executive Parkway, Suite 450
San Ramon, CA 94583
Attn: Remarketer Financing Center Manager
Telecopy: (510) 227-5651
17. SUBMISSION TO JURISDICTION. Obligors, IBM Credit Corporation and
--------------------------
Subordinated Lender agree irrevocably to submit themselves to the jurisdiction
for the United States District Court for the Southern District of New York and
the jurisdiction of any court of the State of New York located in Manhattan and
waive any and all objections to jurisdiction that they may have under the laws
of the State of New York or the United States, and
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<PAGE>
irrevocably agree that, all actions or proceedings relating to this Agreement or
the transactions contemplated hereunder shall be litigated in such courts, and
Obligors and Subordinated Lender waive any objection which they may have based
on improper venue or for the nonconvenience to the conduct of any proceedings in
any such court and waive personal service of any and all process upon them, and
consent that all such service of process be made by mail or messenger directed
to them at the address set forth in SECTION 16. Nothing contained in this
----------
section shall affect the right of IBM Credit Corporation to serve legal process
in any other manner permitted by law or affect the right of IBM Credit
Corporation to bring any action or proceeding against or the property of any
Obligor in the courts of any other jurisdiction.
18. DELAY OR OMISSION NOT WAIVER. Neither the failure nor any delay
----------------------------
on the part of IBM Credit Corporation to exercise any right, remedy, power or
privilege hereunder shall operate as a waiver thereof or impair any such right,
remedy, power or privilege. No single, partial or full exercise of any rights,
remedies, powers and privileges by IBM Credit Corporation shall preclude further
or other exercise thereof. No course of dealing between IBM Credit Corporation
and any Obligor or Subordinated Lender shall operate as or be allowed to
constitute a waiver of IBM Credit Corporation's rights hereunder or affect the
duties or obligations of any Obligor or Subordinated Lender.
19. MISCELLANEOUS. This Agreement shall be binding upon and inure to
-------------
the benefit of the parties hereto and their respective permitted successors and
assigns. If any party hereto is a partnership, all provisions of this Agreement
applicable to such party shall be binding upon and include not only the
partnership but each and all of the partners thereof individually. This
Agreement may not be modified except in writing executed by the party against
which enforcement of such modification is sought. The rights granted to IBM
Credit Corporation hereby shall be in addition to any other rights of IBM Credit
Corporation under any other subordination agreement, if any, now or hereafter
outstanding. All rights and remedies of IBM Credit Corporation shall be
cumulative. The provisions of this Agreement, shall operate only in favor of
and only for the benefit of IBM Credit Corporation, its successors and assigns,
and not in favor of or for the benefit of any Obligor, Subordinated Lender or
any other person or entity. Whenever IBM Credit Corporation's consent is
required or permitted, such consent shall be in the sole and absolute discretion
of IBM Credit Corporation.
20. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
21. GOVERNING LAW. This Agreement shall be governed by and construed
-------------
according to the laws of the State of New York without regard to its rules and
principles regarding conflicts of law or any rule or canon of construction which
interprets agreements against the draftsmen.
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<PAGE>
22. SEVERABILITY. If any provision herein shall for any reason be
------------
held invalid or unenforceable, no other provision shall be affected thereby, and
this Agreement shall be construed as if the invalid or unenforceable provision
had never been a part of it.
23. ENTIRE AGREEMENT. This instrument embodies the entire agreement
----------------
of the parties hereto with respect to the subject matter hereof, and there are
no courses of dealing, usages of trade, or other representations, promises,
terms or conditions referring to such subject matter, and no inducements or
representations leading to the execution hereof other than as mentioned herein.
24. WAIVER OF RIGHT TO TRIAL BY JURY. OBLIGORS, SUBORDINATED LENDER
--------------------------------
AND IBM CREDIT CORPORATION WAIVE ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (a) ARISING UNDER THIS AGREEMENT OR ANY OTHER
DOCUMENT OR INSTRUMENT REFERRED TO HEREIN OR DELIVERED IN CONNECTION HEREWITH,
OR (b) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
OBLIGORS, SUBORDINATED LENDER OR IBM CREDIT CORPORATION WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER DOCUMENT OR INSTRUMENT REFERRED TO HEREIN OR DELIVERED IN
CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE. OBLIGORS, SUBORDINATED LENDER AND
IBM CREDIT CORPORATION AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF OBLIGORS,
SUBORDINATED LENDER AND IBM CREDIT CORPORATION TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY. OBLIGORS AND SUBORDINATED LENDER ACKNOWLEDGE THAT THEY HAVE HAD
THE OPPORTUNITY TO CONSULT WITH COUNSEL REGARDING THIS SECTION AND THAT THEY
FULLY UNDERSTAND ITS TERMS, CONTENT AND EFFECT, AND THAT THEY VOLUNTARILY AND
KNOWINGLY AGREE TO THE TERMS OF THIS SECTION.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
pending to be legally bound hereby, effective as of the day and year first above
written.
WESTERN MICRO TECHNOLOGY, INC., CANPARTNERS INVESTMENTS IV, LLC,
a Delaware corporation a California limited liability company
By: /s/ James W. Dorst By: /s/ Scott A. Imbach
------------------------------ -------------------------------------
James W. Dorst Scott A. Imbach
Chief Financial Officer Attorney-In-Fact
IBM CREDIT CORPORATION, ROBERT FLEMING INC.
a Delaware corporation a Delaware corporation
By: /s/ Tracey M. Wyatt By: /s/ Arthur Levy
------------------------------ -------------------------------------
Name: Tracy M. Wyatt Name: Arthur Levy
Title: Remarketer Loan Manager Title: Vice Chairman
WMT ACQUISITION CORP., SAVOIR TECHNOLOGY GROUP, INC.,
a California corporation a Delaware corporation
By: /s/ James W. Dorst By: /s/ James W. Dorst
------------------------------ ------------------------------------
James W. Dorst James W. Dorst
Chief Financial Officer Chief Financial Officer
INET SYSTEMS, INC., STAR DATA INTERNATIONAL,
a Texas corporation a company organized under the laws of
the Virgin Islands
By: /s/ Carlton Joseph Mertens II
------------------------------
Carlton Joseph Mertens II By: /s/ Carlton Joseph Mertens II
President ------------------------------------
Carlton Joseph Mertens II
President
STAR MANAGEMENT SERVICES, INC.,
a Delaware corporation
By: /s/ Carlton Joseph Mertens II
------------------------------
Carlton Joseph Mertens II
President
SIGNATURE PAGE 1 OF 1
<PAGE>
SIRIUS INVESTMENTS, INC., STAR DATA SYSTEMS, INC.,
a Nevada corporation, a Texas corporation,
By: /s/ Carlton Joseph Mertens II By: /s/ Carlton Joseph Mertens II
------------------------------ ------------------------------------
Carlton Joseph Mertens II Carlton Joseph Mertens II
President President
ADDITIONAL SUBS SIGNATURE PAGE
<PAGE>
Exhibit 99.1
WESTERN MICRO TECHNOLOGY ACQUIRES
STAR MANAGEMENT SERVICES DISTRIBUTION BUSINESS
CAMPBELL, CALIFORNIA, OCTOBER 1, 1997 -- Effective September 30th, 1997, Western
Micro Technology, Inc. (Nasdaq National Market - WSTM), a leading midrange
systems distributor, announced it has completed the acquisition of Star
Management Services' distribution business.
Under the terms of the merger agreement, as amended, which was originally
announced on June 4th of this year, the primary shareholders of Star Management
Services received $38,912,000 in cash at closing combined with 460,000 shares of
Western Micro common stock. Additional payments of $3,675,000 are to be paid on
the first and the second anniversaries of the closing. An additional $5M is to
be paid based on achieving certain performance goals set by Western Micro
management.
Upon closing, the Company's new wholly owned subsidiary will be renamed Business
Partner Solutions-TM-. The Company will combine its existing IBM Business Unit
with the acquired distribution arm of Star Management Services. The melding of
the two companies creates an organization of approximately 200 employees.
Business Partner Solutions will focus its sales and support efforts on products
and solutions for the IBM AS/400-R- and IBM RS/6000-TM-midrange server market.
It will also continue to offer financing, marketing, integration, logistical,
and technical support services to its IBM customers. Joe Mertens will be the
President and CEO of the subsidiary, which will be headquartered in San Antonio,
TX, and will be reporting to Scott Munro.
"We are very pleased the merger has been completed," said Scott Munro, President
and CEO of Western Micro. "Although the process took us longer to complete than
expected, by bringing the two organizations together we will represent one of
IBM's largest and most significant distributors in the country. Additionally, we
will have the ability to leverage each other's strengths and provide our IBM
customers with a comprehensive list of services to enhance their business. Our
plans are to make the creation of Business Partner Solutions seamless to our
customer base, while continuing to provide them with the highest level of
service they're accustomed to receiving from us."
Both Western Micro and Star are IBM Premier Business Partners. This status,
granted by IBM, signifies the highest level of quality, customer satisfaction,
and overall excellence in revenue performance and business results. In addition,
Western Micro was awarded certification in the IBM Authorized Assembler Program
(AAP) for the IBM RS/6000 UNIX workstations and entry level servers earlier in
the year. Light manufacturing of the IBM RS/6000 will continue to be performed
in Western Micro's certified Technical Integration Center located in Fremont,
CA. During August of this year, Western Micro Technology reincorporated in the
state of Delaware.
Western Micro Technology is an innovative, value-added distributor providing
solutions, sales and services to VARs, System Integrators and OEMs. Western
Micro excels as the distributor of choice of the sophisticated, high-level
resellers who insist on working with the best
<PAGE>
products supported by top-notch technical and marketing professionals. Leading
manufacturers such as IBM, NCR, Data General, Unisys and SCO have established
strong business relationships with Western Micro. In turn, Western Micro
provides its customers with the dedicated sales, marketing, financial and
technical capabilities necessary to support these world class product lines. For
further information, visit our web site at www.westernmicro.com.
When used in this disclosure, the words "estimate", "project", "intend",
"expect" and similar expressions are used to identify forward-looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially. For a discussion of certain of such
risks, see "Factors Affecting Future Results" contained within the Company's
documents filed quarterly with the Securities and Exchange Commission. Readers
are cautioned not to place undue reliance on these forward looking statements,
which speak only as of the date hereof.
###
FOR MORE INFORMATION CONTACT:
Sandra M. Salah
Vice President, Corporate Relations
Western Micro Technology, Inc.
408-341-4712
[email protected]
Western Micro Technology, Western Micro, and the Western Micro logo are
registered trademarks of Western Micro Technology, Inc. All other company and/or
product names are respective property of their prospective holders and should be
treated as such.
