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 (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.)
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Item 2. Acquisition or Disposition of Assets
General
Electronic Associates, Inc., a New Jersey corporation (the "Company"), and
certain other persons have an agreement in principle with Israel Aircraft
Industries, Ltd., an Israel government corporation ("IAI"), to enter into a
Joint Venture Agreement ("JVA"), 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 is expected to be consummated on or about 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 will
be the joint venture partner and will own 50.1% of the Joint Venture. IAI will
own 49.9% of the Joint Venture. Under the Preincorporation Agreement, Partner
will be owned as follows: (a) the Company will own a 52.3% interest, (b) certain
Israeli persons will own an aggregate of 25.2%, (c) Mark Hauser will own a 15%
interest, (d) Irwin L. Gross, Chairman of the Company, will own a 5% interest,
and (e) Broad Capital Associates will own a 2.5% interest.
The equity interests in Partner will be issued for an aggregate
consideration of $10,000 to each of the shareholders. In addition, the Company
and the Israeli citizens will advance $6.3 million and $1.575 million,
respectively, to Partner. Of such funds, $7.5 million will be 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 will be
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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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. To date, the Company has not completed its review of the
Applications and, accordingly, there is no assurance that any of the
Applications 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 will grant 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 will also
grant 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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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 has been capitalized as an
intangible asset. The valuation of the intangible asset is subject to appraisal.
Dependent upon the results of the appraisal process, a portion of the purchase
price may be charged to expense immediately as in-process research and
development with no alternative use. 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 -- 9,250 (D) 23,762
Less accumulated amortization (235) -- -- (235)
----------- ------------- -------------- -------------
14,277 -- 9,250 23,527
----------- ------------- -------------- -------------
Other assets 654 -- -- 654
Notes receivable 1,016 -- -- 1,016
----------- ------------- -------------- -------------
$45,732 $7,000 $10,855 $63,587
=========== ============= ============== =============
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 -- -- 7,505 (E) 7,505
Shareholders' Equity:
Common Stock 37,838 7,000 (A) 1,650 (D) 46,488
Accumulated deficit since
January 1, 1986 (20,996) -- -- (20,996)
----------- ------------- -------------- -------------
16,842 7,000 1,650 25,492
Less common stock in Treasury,
at cost (475) -- -- (475)
----------- ------------- -------------- -------------
Total Shareholders' Equity 16,367 7,000 1,650 25,017
----------- ------------- -------------- -------------
$ 45,732 $ 7,000 $ 10,855 $ 63,587
=========== ============= ============== =============
</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 and, therefore, a
preliminary allocation of the purchase price to the Joint Venture's
assets to reflect their estimated fair values has been made. Pro forma
adjustments are based upon currently available information, including
a preliminary estimate of the fair value of certain assets of the
Joint Venture. 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. This intangible asset
must be appraised to determine its stage of development, value and
estimated useful life. The applications are in various stages of
development. Certain technologies may be in the initial stages of
development and considered to be in process research and development
with no alternative future use, which will not be capitalized and will
be immediately charged to expense. These pro forma financial
statements do not reflect any write-off of in process research and
development
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<PAGE>
charges. Upon final appraisal, a portion of the purchase price
which is currently capitalized may be charged to expense.
The current purchase price and related intangible asset value has 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)
----------
Purchase price allocated to
intangible assets $9,250,000
----------
(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
based on a preliminary valuation of the technology contributed by
IAI ($7,500,000) 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 4, 1995
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