SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 3, 1995
Electronic Associates, Inc.
(Exact name of registrant as specified in its charter)
New Jersey
(State or other jurisdiction of incorporation)
1-4680 21-0606484
(Commission File Number) (IRS Employer Identification No.)
185 Monmouth Parkway, West Long Branch, New Jersey 07764-9989
(Address of principal executive offices, including zip code)
(908) 229-1100
(Registrant's telephone number)
N/A
(Former name or former address, if changed since last report.)
<PAGE>
Item 2. Acquisition or Disposition of Assets
General
Electronic Associates, Inc., a New Jersey corporation (the "Company"),
through a 52.3% owned subsidiary, has entered into a Joint Venture Agreement
("JVA") with Israel Aircraft Industries, Ltd., an Israel government corporation
("IAI"), for the purpose of forming a joint venture ("Joint Venture") with IAI
to review, develop, and exploit certain non-military, non-classified
technological applications ("Applications") developed by IAI. The transaction
was consummated on August 8, 1995.
Partner Preincorporation Agreement
To implement the JVA, in early August, 1995, the Company entered into a
Preincorporation Agreement to form an Israeli corporation ("Partner") which is
the joint venture partner and owns 50.1% of the Joint Venture. IAI owns 49.9% of
the Joint Venture. Under the Preincorporation Agreement, Partner is owned as
follows: (a) the Company owns a 52.3% interest, (b) certain Israeli persons own
an aggregate of 25.2%, (c) Mark Hauser owns a 15% interest, (d) Irwin L. Gross,
Chairman of the Company, owns a 5% interest, and (e) Broad Capital Associates
owns a 2.5% interest.
The equity interests in Partner were issued for an aggregate consideration
of $10,000 to each of the shareholders. In addition, the Company and the Israeli
citizens advanced $6.3 million and $1.575 million, respectively, to Partner. Of
such funds, $7.5 million has been advanced to the Joint Venture to be used
solely for working capital purposes. The remaining $375,000 will be used by
Partner for working capital purposes.
To fund its obligations under the Preincorporation Agreement, on August 3,
1995, the Company sold 1,458,333 shares of its common stock at a price of $4.80
per share for an aggregate of $7.0 million to five Israeli persons, three of
whom are shareholders in Partner. The offering was made pursuant to an exemption
under the Securities Act of 1933, as amended. The purchase agreements pursuant
to which the shares were sold contain an adjustment provision which requires the
issuance of additional shares in the event that the average closing price of the
shares for a certain period of time is less than the offering price in the
offering. The proceeds from the offering were placed in escrow and were
released upon the execution of the JVA.
Joint Venture Agreement
The JVA provides that the Joint Venture will have a Board of Directors
which will be comprised initially of six persons, three of whom will be selected
by Partner and three of whom will be selected by IAI. It is anticipated that
Messrs. Gross and Hauser will be two of Partner's three representatives on the
Board of Directors of the Joint Venture and that Mr. Gross will be elected the
chairperson.
The JVA provides that Joint Venture will review and evaluate Applications
developed by IAI, which are in various stages of development. To review and
evaluate the Applications, an investment committee ("Investment Committee")
comprised of seven persons will be formed. Partner will be entitled to select
four of the seven members of the Investment Committee. If an Application is
selected for development and exploitation, an entity will be formed ("Licensee")
in which Partner will own a 50% interest and IAI will own a 50% interest, and
IAI will grant such Licensee a perpetual, royalty free license for such
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<PAGE>
Application. The Investment Committee will prepare a business plan to exploit
each Application selected, including a funding plan. The Company will be
primarily responsible to raise the funds necessary to exploit the application
selected. However, the Company will not be under any obligation to raise any
funds for such purpose unless and until the Investment Committee selects an
Application for exploitation. In the event the Company is unable to raise the
funds necessary to exploit any Application which the Investment Committee
selects, IAI can terminate the JVA. The JVA can also be terminated under certain
other circumstances.
The following is a brief description of certain of the initial Applications
developed by IAI which will be reviewed by the Investment Committee. The
description of the Applications has been provided by IAI.
1. A pilot evaluation system which is designed for the selection of
candidates for military and civilian pilots and air traffic controllers.
2. A system for automatic inspection of manufactured parts.
3. A system to monitor water and soil toxicity, water bacteria monitors,
air pollution detectors and air/water monitoring systems.
4. An air traffic control system for airports with small to
medium traffic density.
5. A Geographic Information System which is designed for environment and
hazardous assessment applications or drain dependent applications and for urban
applications.
The foregoing information has been provided to the Company by IAI which has
advised the Company that such Applications are in various stages of development,
including certain Applications which are fully developed and for which some
products have been sold. To date, the Joint Venture has not completed its
review of the Applications and, accordingly, there is no assurance that any of
the Applications will be selected for development and exploitation, or if
selected, will be capable of being developed, or if developed, will be
commercially accepted and if commercially accepted will be profitable.
At the present time, the Company is unable to determine whether, or the
extent to which, any of the Applications of IAI which the Investment Committee
reviews will be selected and exploited. Accordingly, with the exception of the
initial investment of $6.3 million in Partner, the Company is unable to
determine at this time the effect, if any, of this transaction on the results of
operation of the Company or on its liquidity and capital resources.
In connection with the consummation of the JVA, the Company granted IAI an
option to acquire 500,000 shares of its common stock exercisable at $7.25 per
share for a period of three years from the date of grant. The Company also
granted options to acquire 600,000 shares of its common stock exercisable at
$7.25 per share for a period of three years from the date of grant to a
corporation controlled by two of the Israeli shareholders in Partner.
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<PAGE>
Item 7. Financial Statements and Exhibits
(b) Pro Forma Financial Information.
The following Unaudited Pro Forma Combined Condensed Balance Sheet was prepared
to reflect the Company's investment through a 52.3% owned subsidiary (Partner)
in a newly formed Israeli corporation which will be 50.1% owned by Partner (the
Joint Venture).The cash to finance this investment was raised in a sale of the
Company's common stock under an offering exempt from the registration
requirements under the Securities Act of 1933 (the Exempt Offering). The
Unaudited Pro Forma Combined Condensed Balance Sheet reflects the capital raised
in the Exempt Offering and the corresponding investments in Partner and the
Joint Venture as if such transactions had occurred on April 1, 1995.
The Company's investment in the Joint Venture will be accounted for by the
Company using the purchase method of accounting. For purposes of the
accompanying pro forma balance sheet, it has been assumed that no portion of the
purchase price will be capitalized since certain technologies may be in the
initial stages of development and considered to be in process research and
development with no alternative future use, thus resulting in a charge to
Accumulated Deficit of $5,500,000. The Company will obtain an appraisal of the
technological applications which the Joint Venture has a
right to exploit and selects for development and exploitation. Upon
completion of the appraisal, a portion of the purchase price may be capitalized.
Further, a portion of the purchase price is based on the estimated value of
options to acquire shares of common stock of the Company which were granted in
connection with the investment in the Joint Venture. The total purchase price
may change dependent upon the appraised value of such options.
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<PAGE>
Unaudited Pro Forma Combined Condensed Balance Sheet
April 1, 1995
(in thousands)
<TABLE>
<CAPTION>
Historical
----------
----Pro Forma Adjustments----
Investment in Pro Forma
April 1, 1995 Exempt Offering Joint Venture Combined
------------- --------------- ------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $33 $7,000 (A) ($6,305) (B) $728
Restricted Cash -- -- 7,910 (C) 7,910
Receivables, less allowance of
$327 in 1995 and $207 in 1994
for doubtful accounts 11,933 -- -- 11,933
Inventories 11,059 -- -- 11,059
Prepaid expenses and other assets 952 -- -- 952
----------- ------------- -------------- -------------
Total current assets 23,977 7,000 1,605 32,582
----------- ------------- -------------- -------------
Fixed assets 10,354 -- -- 10,354
Less accumulated depreciation (5,215) -- -- (5,215)
----------- ------------- -------------- -------------
5,139 -- -- 5,139
----------- ------------- -------------- -------------
Investment in affiliates 669 -- -- 669
----------- ------------- -------------- -------------
Intangible assets 14,512 -- -- 14,512
Less accumulated amortization (235) -- -- (235)
----------- ------------- -------------- -------------
14,277 -- -- 14,277
----------- ------------- -------------- -------------
Other assets 654 -- -- 654
Notes receivable 1,016 -- -- 1,016
----------- ------------- -------------- -------------
$45,732 $7,000 $1,605 $54,337
=========== ============= ============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term
liabilities $9,843 -- -- $9,843
Accounts payable 12,939 -- -- 12,939
Accrued expenses 2,472 -- 100 (D) 2,572
----------- ------------- -------------- -------------
Total current liabilities 25,254 -- 100 25,354
----------- ------------- -------------- -------------
Long-term liabilities:
Long-term debt 1,431 -- 1,600 (E) 3,031
Other long-term liabilities 2,680 -- -- 2,680
----------- ------------- -------------- -------------
Total long-term liabilities 4,111 -- 1,600 5,711
----------- ------------- -------------- -------------
Total liabilities 29,365 -- 1,700 31,065
----------- ------------- -------------- -------------
Minority Interest in Equity of Subsidiaries -- -- 3,755 (E) 3,755
Shareholders' Equity:
Common Stock 37,838 7,000 (A) 1,650 (D) 46,488
Accumulated deficit since
January 1, 1986 (20,996) -- (5,500)(D) (26,496)
----------- ------------- -------------- -------------
16,842 7,000 (3,850) 19,992
Less common stock in Treasury,
at cost (475) -- -- (475)
----------- ------------- -------------- -------------
Total Shareholders' Equity 16,367 7,000 (3,850) 19,517
----------- ------------- -------------- -------------
$ 45,732 $ 7,000 $ 1,605 $ 54,337
=========== ============= ============== =============
</TABLE>
See accompanying Notes to Unaudited Pro Forma Combined Condensed Balance Sheet
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<PAGE>
Notes to Unaudited Pro Forma Combined Condensed Balance Sheet
The Unaudited Pro Forma Combined Condensed Balance Sheet was prepared to reflect
the Company's investment through a 52.3% owned subsidiary (Partner) in a newly
formed Israeli corporation which will be 50.1% owned by Partner (the Joint
Venture). The cash to finance this investment was raised in a sale of the
Company's common stock under an offering exempt from the registration
requirements under the Securities Act of 1933 (the Exempt Offering). The
Unaudited Pro Forma Combined Condensed Balance Sheet reflects the capital raised
in the Exempt Offering and the corresponding investments in Partner and the
Joint Venture as if such transactions had occurred on April 1, 1995.
The following is a summary of pro forma adjustments reflected in the Unaudited
Pro Forma Combined Condensed Balance Sheet as of April 1, 1995.
(A) Represents the net proceeds from the issuance of 1,458,333 shares of
the Company's common stock in the Exempt Offering.
(B) Represents the cash of the Company which will be advanced to Partner
($6,300,000) and the investment in Partner ($5,000). Substantially all
of the cash investment will be utilized to make an equity investment
in the Joint Venture.
(C) Represents the cash of Partner ($410,000) and the Joint Venture
($7,500,000). The cash was raised in the following manner:
6% subordinated capital notes
due the Company by Partner
due in five equal installments
beginning June 1, 2002 $6,300,000(1)
6% subordinated capital notes
due to certain minority shareholders
by Partner due in five equal
installments beginning June 1, 2002 1,600,000
Equity investments by Company $5,000(1)
and by minority shareholders ($5,000) 10,000
----------
$7,910,000
==========
(1) Eliminated in consolidated
financial statements of Company
(D) The Company's investment in the Joint Venture will be accounted
for by the Company using the purchase method of accounting. The
estimated purchase price, the minority interest in the Joint
Venture and the write-off of in process research and development
with no alternative future use have been determined as follows:
Purchase price:
Cash investment in Joint Venture $7,500,000(1)
Estimated value of options to
acquire shares of common stock of
the Company granted in connection
with this transaction 1,650,000(2)
Estimated fees, expenses and other
accruals 100,000(3)
----------
Total estimated purchase price $9,250,000
Minority interest in equity of Joint
Venture ($3,750,000)
----------
In process research and development $5,500,000
==========
The assets of the Joint Venture include the right to review and evaluate
certain technological applications developed by IAI which are in various stages
of development.If a technology is selected for development and exploitation, IAI
will grant a perpetual royalty free license to exploit the technology. IAI has
advised the Company that the technological applications are in various stages of
development, including certain applications which are fully developed and for
which some products have been sold. To date, the Joint Venture has not completed
its review of the applications and, accordingly, there is no assurance that any
of the applications will be selected for development and exploitation, or if
selected, will be capable of being developed, or if developed, will be
commercially accepted and if commercially accepted will be profitable. Certain
technologies may be in the initial stages of development and considered to be in
process research and development with no alternative future use. For purposes of
the accompanying pro forma balance sheet, it has been assumed that no portion of
the purchase price will be capitalized, thus resulting in a charge to
Accumulated Deficit of $5,500,000. The Company will obtain an appraisal of the
technological applications which the Joint Venture has a right to exploit and
selects for development and exploitation. Upon completion of the appraisal, a
portion of the purchase price may be capitalized.
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<PAGE>
(1) Represents the portion of cash loaned to Partner by the
Company and certain minority shareholders which was
invested in the Joint Venture.
(2) Represents the estimated value of options to acquire
1,100,000 shares of common stock of the Company, which were
granted in connection with this transaction, at an exercise
price of $7.25 per share based upon a recent price of the
Company's common stock of $8.75 per share. The total
purchase price may change dependent upon the appraised
value of such options.
(3) Represents an estimate of expenses related to the Joint
Venture formation and investment including legal fees,
accounting fees, due diligence costs and other accruals.
(E) Represents the minority interest in the equity of the Joint Venture
($3,750,000) and the minority interest in Partner ($5,000).
(c) Exhibits
Exhibit No. Description
2.1 Form of Pre-Incorporation Agreement
2.2 Form of Joint Venture Agreement
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<PAGE>
SIGNATURES
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 hereto duly authorized.
ELECTRONIC ASSOCIATES, INC.
Registrant
By: /s/ JONATHAN R. WOLTER
---------------------------------------------
JONATHAN R. WOLTER
Treasurer and Vice President, Finance
(Principal Financial and Accounting Officer)
Date: August 10, 1995
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