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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A (AMENDMENT NO. 1)
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED] For the fiscal year ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file Number 0-5260
GENERAL AUTOMATION, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-2488811
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17731 Mitchell North, Irvine, California 92714
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 250-4800
Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of Exchange on which registered
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Common Stock, $.10 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The approximate aggregate market value of voting stock held by non-affiliates of
the registrant was $5,543,832 as of December 1, 1995.
The number of shares of the registrant's Common Stock, $.10 par value,
outstanding as of December 1, 1995 was 7,391,776.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on January 25, 1996 are incorporated by reference into
Part III hereof, to the extent indicated herein.
The Index to Exhibits appears on pages 23 -25
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PART I
ITEM 1. BUSINESS
GENERAL
General Automation, Inc. ("GA" or the "Company"), incorporated in California in
1967 and reincorporated in Delaware in 1986, integrates systems, software and
services for application solutions. GA has positioned itself as a strong service
and support company offering open systems and complimentary software products to
a worldwide network of value-added resellers. GA's product lines include a broad
range of hardware platforms including Intel and Motorola PowerPC based systems,
coupled with efficient and cost effective application environments, providing a
full range of systems, complimentary operating environments and high quality
customer services.
The Company's headquarters, including manufacturing and integration, corporate
and administrative operations are located in Irvine, California. Engineering and
support personnel are located in Hauppauge, New York. GA also has service and
sales offices in various locations throughout the United States and has
established European sales offices in England.
The Company's products are sold in the United States through over 200 value
added resellers. In addition it sells its products in Europe, Canada, Mexico,
Central and South America, Guam, Taiwan, Australia, New Zealand, Singapore, Hong
Kong, Africa and the People's Republic of China through distributors and value
added resellers. The Company provides service and support throughout North
America to over 3,000 customers.
ASSOCIATION WITH SANDERSON ELECTRONICS PLC, SANDERSON TECHNOLOGIES, LTD., & SGA
PACIFIC LIMITED.
In January 1989, Sanderson Electronics PLC ("Sanderson") purchased notes
convertible to Common Stock ($1.75 million) and warrants which were exercised
and acquired approximately 49% of the then outstanding shares of the Company.
Sanderson has since reduced its holding to below 10% of the outstanding shares.
Sanderson is a United Kingdom-based developer and supplier of applications
software using the Pick Operating System and is a UK distributor for the
Company's products.
In September 1989, the Company and Sanderson announced the formation of SGA
Pacific Limited ("SGA") based in Sidney, Australia. The Company held 51% of the
outstanding stock of SGA and Sanderson and management of SGA held 49%. On
November 10, 1994, the Company sold its 51% interest in SGA to Sanderson
Technologies, Ltd. For details of this transaction, see Acquisitions and
Divestitures (following) and Note 8 to the Financial Statements. This
transaction left Sanderson owning 442,588 shares of the Company's stock or
approximately 6% percent of the Company's outstanding shares.
In August 1995, GA and Sanderson Computers Pty Ltd. ("SCPL") entered into an
agreement whereby SCPL acquired GA's Zebra 2000 Library Systems business and
license rights to its Maxial hospitality software. These products have been
successfully sold outside the United States by SCPL. GA had not been able to
profitably sell these products in the US, with nearly 55% of its fiscal 1995
loss coming from these products. SCPL assumed the obligations of completing the
contracts in the backlog and providing on-going software support for all of the
customers. GA will receive certain cash payments and royalties from future SCPL
sales of the products. In addition to the Company's associations with Sanderson
and SGA set out above, both remain major distributors of the Company's products
with GA owning no shares in either firm.
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ACQUISITIONS AND DIVESTITURES
In June 1990, the Company sold 55% of its interest in its United Kingdom
subsidiary, General Automation, LTD. (GAL) to Sanderson Electronics, PLC for
loan forgiveness of $1,250,000, operating cash of $475,000 and 22.8% of the
outstanding shares of SGA giving the Company a 51% interest in SGA.
Subsequently, in January 1992, the Company sold its remaining 45% share of GAL
to Sanderson. See Note 8 to the Financial Statements included in this Form 10-K.
In January 1990, the Company acquired the assets, technology and customer base
of C.I.E. Systems, Inc. (C.I.E.) from the parent C.Itoh Electronics, Inc. for
$4,000,000. GA saw this as an opportunity to add additional sales volume to its
hardware and service business segments as both firms served the same markets.
The C.I.E products were fully integrated into the Company's existing product
lines.
In October 1992, the Company signed an agreement to form a holding company with
Krypton Group Ltd., Eurosystems GA Ltd. ("Eurosystems"), a UK corporation. Under
the terms of the agreement the Company received 61% of the common shares of
Eurosystems in exchange for its shares in General Automation France SA, General
Automation SA, (Belgium), and General Automation Italia SpA (Italy). Krypton
Group Ltd., ("Krypton"), a UK corporation, received 39% of the common shares in
exchange for its 100% share holding in Eurosystems Belgium SA and Eurosystems SA
(France), its 55% share holding in Eurosystems GmbH (Germany) and its 85% share
holding in Eurosystems Maintenance SA (France). The Company considered that the
formation of a holding company, which held the GA subsidiaries in Belgium,
France and Italy, had an enhanced prospect for growth and stability through
local management. Krypton already was in business in the product areas served by
these firms, and offered local support and direction. On October 29, 1993, with
retroactive effect to September 30, 1993, the Company sold its 61% share holding
in Eurosystems to Krypton for cash and a $990,000 note. Through fiscal 1995,
Krypton has made $180,000 in payments. In 1994 payments were suspended by
Krypton and a $240,000 reserve was set up in fiscal year 1994. In 1995 Krypton
filed for bankruptcy. The Company has entered into an agreement which would
allow GA to share equally in the profit of the Eurosystems group of companies
wholly owned by Future Systems Ltd, a newly formed company in Great Britain and
owned by the former Krypton management. The Eurosystems Group has been
profitable and management expects to receive payment in full of the $570,000
carried in the balance sheet. Eurosystems companies remain the distributors of
the Company's products in Belgium, France and Italy (see Note 8 to the
accompanying Consolidated Financial Statements).
On November 10, 1994, the Company completed the sale of its 51% interest in SGA
Pacific, Ltd. to Sanderson Technologies Ltd. for $2,000,000 in cash and notes
receivable, plus 4,100,000 shares of the Company's common stock held by
Sanderson (see Note 8 to the Financial Statements.) The overall reduction in the
number of shares of GA stock held by Sanderson is not felt to be related to or
have any impact on the Company's objectives.
SGA Pacific, Ltd. (now Sanderson Pacific Ltd.) continues as a General Automation
dealer in Asia and the South Pacific for hardware and software products.
Effective May 22, 1995, GA and SunRiver Data Systems formed a Limited Liability
Corporation (LLC) with the Company owning 51% of the partnership and SunRiver
49%. This partnership was formed to allow GA to acquire the former ADDS Pick
based business owned by SunRiver.. This business had been acquired by SunRiver
Data Systems from AT&T GIS in December of 1994 along with a terminal business
which complimented SunRiver's existing business and which SunRiver retained. The
acquisition broadened the Company's product offerings to include the AT&T
manufactured line of INTEL based hardware platforms and the ADDS versions of the
PICK application environment software products known as Mentor and Mentor PRO.
In addition, over two thousand service customers were added to the Company's
customer base. This acquisition effectively doubles the Company's business base
and revenues worldwide while broadening the product offering which is expected
to attract new customers. In addition the Company's engineering and development
as well as
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sales staff were more than doubled. This increase in resources obviously
provided greater customer base penetration as well as providing more skills to
be focused on new product development. Under the terms of the acquisition
agreement, the Company pays royalties to SunRiver for a five year period
starting at 12% of eligible revenues with step decreases down to 7% during the
fifth and final year. The Company makes monthly payments to SunRiver, with a
minimum due during the first year of the agreement of $2.9 million.
Additionally, SunRiver pays to the Company a monthly management fee for its
effort in managing certain of the service contracts which had been prepaid to
SunRiver. This payment arrangement is scheduled to end about May 22, 1996. The
Company sees this agreement as a vehicle for enhanced profits during each of the
five contract years.
PRODUCTS, CUSTOMERS AND MARKETING
GA is a leader in delivering cost-effective environments for
information-critical Pick applications. GA's core strength is in its exceptional
support and value-added services which are complimented by a line of open
systems and software products designed to encompass the needs of its worldwide
network of value-added resellers. GA has established strong relationships with
its value-added channel and enjoys an excellent reputation for product quality
and responsive services and support. Future growth will be achieved by expanding
the channel and enhancing the products and services offered to the channel.
SERVICE AND SUPPORT
GA is a leader in providing quality service and technical support to thousands
of end users. The Company has been delivering highly skilled technical services
for over 28 years and has earned a reputation for excellent quality and
responsive service through an exceptional staff of service professionals. The
service business generates over half of GA's revenue and is a key reason that
customers with information critical applications choose to buy from GA.
GA offers three basic lines of service:
- - Technical field service for the equipment sold by GA and those
maintenance agreements acquired through acquisitions of SunRiver Data
Systems and C.I.E. businesses.
- - Software maintenance services of GA's operating environments.
Additional software support has been sold for complimentary operating
environments such as PICK, VMARK, Unidata, Unix, & AIX.
- - Professional services is a new line of customer service introduced in
1995 that include: product training, system design and site
preparation, network configuration support, and disaster recovery
programs. Contract programming and consulting services are also offered
with expertise in PICK, C, C++, Visual Basic, Microsoft Access, COBOL,
FORTRAN, and Pro-IV. The professional services business is in its early
stages but has proven to be a very profitable venture for GA. This year
GA closed several major software consulting projects. Disaster recovery
has proven to be a strong area of interest, furnishing GA's end user
customers with assistance in developing disaster recovery plans as well
as the assurance that systems will be made available in the case of an
emergency. With GA's move into the open systems market, GA will be able
to leverage those skills and offer services to a larger more dynamic
marketplace.
GA is further expanding its software maintenance services by providing end user
call management and application support services for GA dealers. This service
provides a central call handling and technical call screening facility and is
particularly attractive for those dealers who are of such a size that they
cannot afford to put the support staff in place to handle their after market
support effectively and at the same time continue to develop the application
products and expand their market. These services are not only profitable for the
Company but also leverage its technical staff while making the dealer more
successful.
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SYSTEM AND SOFTWARE PRODUCTS
1995 marked a key year for GA's penetration into the open systems market with
the introduction of two families of systems based on industry standard
architectures: the PowerPC Superscaler RISC processor and Intel Pentium(TM)
processor. To deliver these solutions, GA has entered into OEM and distribution
agreements with Groupe Bull for their enhanced multiprocessor PowerPC-based
servers and AT&T Global Information Service (GIS) for their high performance
multiprocessor Intel-based platforms.
These agreements were forged, because both Groupe Bull's and AT&T's products and
services compliment those offered by GA and feature:
- - A broad range of system solutions starting at a low-end single
processor cost-effective entry level system through an eight-way
multiprocessor enterprise server.
- - A commitment to offer products at a cost-effective discount, allowing
GA to move product successfully through the channel while allowing GA
to achieve its profitability goals.
- - A complimentary service and support network that could be leveraged
worldwide to compliment the effective and growing services offered by
GA.
- - A strong investment in distributed processing, local area networks, and
wide area networks to ensure high connectivity solutions.
PowerPC Systems
This year GA introduced a line for PowerPC symmetric multiprocessor systems
manufactured by Groupe Bull and Motorola. Called the PowerAdvantage(TM) series,
these computers offer excellent price/performance with a state-of-the-art RISC
CPU. The PowerAdvantage product family offers a price competitive solution, with
an entry system priced at $15,000 and high end systems supporting over 1000
users. GA's goal is to double price-performance every year, over the next three
years. This will be achieved through higher clock speeds as well as the
evolution of the PowerPC processor from 601 to 604/603 and 620. In addition two
new entry level systems priced under $80,000 will be introduced.
To deliver the PowerAdvantage systems, GA has entered into an OEM agreement with
Groupe Bull SA. Groupe Bull is a technology leader in multiprocessor systems and
the developer and supplier of the symmetric multiprocessor (SMP) PowerPC system
platform to IBM. GA's relationship with Bull ensures a supply of high
reliability, high performance systems, and a broad product range.
Intel Based Systems
Through its acquisition of the SunRiver Data Systems PICK business, in May of
this year, GA began delivery of a line of single and multiprocessor Intel-based
servers. In September of this year, a distribution agreement was signed with
AT&T GIS under which the Company would purchase systems directly from AT&T.
AT&T's System 3000 family offers a broad range of Microchannel computers.
Numerous upgradeable components make expanding these systems fast and simple.
AT&T is a leader in providing exceptional price/performance UNIX systems. Future
enhancements will incorporate the PCI and EISA I/O buses and will ensure GA has
a highly-competitive offering of Intel-based solutions.
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The 34XX and 35XX products are designed to provide expansion and upgradeability.
Future releases of these products by AT&T will offer:
- - Faster Pentium CPU's
- - Fast and Wide (20 MB/sec) SCSI
- - New External RAID Disk Cabinets
- - Clustering enhancements
- - Quad processor boards
AT&T's product road map for future Intel based servers include:
- - The S10 a new single processor entry system featuring a 90 MHz Pentium
processor, ECC memory, and a PCI/EISA I/O bus.
- - The S40 a high performance 4-way symmetric multiprocessor server
featuring EISA, dual-PCI I/O buses and SCSI II support.
- - The S15 a dual processor EISA/PCI Pentium system.
These systems feature high performance Pentium processors, ECC memory, PCI/ISA,
and Wide SCSI. Mid-range systems will offer support for multiple processors.
Proprietary Systems
Since their introduction in 1983, GA micro-based multi-user computer systems
have evolved into a line of upgradeable high-performance, business-oriented
computer systems that were adaptable to the needs of individual end-users. The
Company continues to manufacture two product series, the A200 and the A500 which
were introduced in fiscal year 1993 and are based on the motorola 680XX CPU
chip. The Company believes that the future revenues from these proprietary
products will continue to decline. The A200 and A500 product series generated
13% of the Company's revenues in 1995, 18% in 1994 and 23% in 1993. The Company
will continue to provide performance improvement up-grades for its older
proprietary products such as the 68040 80MHZ CPU, faster disk drives, and other
higher capacity storage devices as long as there is a demand from its customer
base.
Software
The value-added channel serviced by GA is primarily based on re-sellers and
dealers whose information-critical applications are written to be compliant with
a multi-dimensional database environment standard. This standard is supported by
a collection of system software providers including Unidata, VMARK, Pick Data
Systems, Sequoia, and GA. Although implementations are similar, GA has
differentiated its product offering through enhanced system administration,
network integration, database interoperability, and performance.
GA's multi-dimensional database environments can be run native on a system
architecture or in concert with an advanced operating system such as UNIX, AIX
and Windows NT. GA offers native and UNIX/AIX resident versions for the Intel
and PowerPC microprocessors.
The Intel-based native solution is marketed under the name Mentor PRO and is
sold as a software only solution designed to run on a wide selection of generic
PC type platforms. The Intel/Unix based solution is sold under the name Mentor
Operating Environment (MOE) and is delivered on the AT&T system platforms. The
PowerPC/AIX based solution is sold under the name Power95(TM) and is delivered
on the PowerAdvantage system series. Power95 is a derivative of R91(R), GA's
Motorola 680X0 native multi-dimensional database. Power95 was jointly developed
by GA and Groupe Bull. R91(R) was developed to run a native Motorola 680X0
architecture and features significant enhancements in terms of ease of use,
system administration, distributed processing, and PC network integration.
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The Pick Operating System, which GA's software products are modeled from and are
licensed to was designed as a database management operating system; it supports
hierarchical, flat and relational database files. The Company believes that
among the most distinctive characteristics of its operating environment products
are their relative ease of programming, an English-like information management
and retrieval language, and the speed they offer in the handling of large and
complex databases. They include an advanced, database-oriented version of the
popular BASIC programming language, with automatic compilation and line-editing.
CUSTOMERS AND MARKETING
GA delivers its products and services through a strong international value-added
reseller channel with over 200 active dealers. Through GA's acquisition of the
SunRiver Data Systems business the channel has doubled in size and offers
cross-selling opportunities. A key focus for 1995 was to ensure the successful
integration of both SunRiver's and GA's dealer channels.
GA is selling into a $750 million segment of a larger $9 billion market. GA's
value-added resellers focus on key vertical markets such as healthcare, finance,
manufacturing, distribution, government, travel, and insurance. Around 18% of
GA's product revenue comes from 30 major resellers and distributors located
outside of North America. To expand on that business, in 1995 the Company formed
a wholly owned subsidiary, GA Mentor Ltd. (GAML) headquartered in the UK, and
established a sales office to better service GA's customer in the United
Kingdom, France, Belgium, Italy, and Germany. GA also has strong associations in
the Asia Pacific area with resellers and distributors in Australia, New Zealand,
Singapore, Hong Kong, and Malaysia which GA services out of the Irvine office.
GA's focus for growth includes the following elements:
- - Working closely with GA's value-added resellers and dealers to make
them more successful and thus increase sales through GA.
- - Offering complimentary services that enhance the resellers and dealers
business and increase revenues for them as well as GA.
- - Expanding the value-added channel through an investment in marketing
and direct sales techniques. that leverage GA's products and service
strengths.
- - Strengthening GA's position in international markets.
From a marketing and sales standpoint GA has made a renewed commitment to
growth. In 1995 the Company increased its sales organization from three sales
representatives to six, complimented by adding key management in marketing and
marketing communications.
GA has focused on establishing a stronger corporate identity. GA's new corporate
look is reflected in a coordinated communications programs including public
relations, expanded marketing collateral, a customized dealer program, direct
mail and trade show participation. To properly target these programs, GA has
conducted extensive market research and established a dealer advisory council.
These investments are already paying off with expanded sales and new dealers
entering the program monthly.
MAXIAL SYSTEMS
The Maxial applications software package is a comprehensive suite of programs
designed to automate virtually every function of a modern hotel; this is known
in the hospitality industry as "property management." The Maxial package has
been installed in more than 100 hotels world-wide with a high degree of
acceptance in the Pacific Basin. The same success has not been achieved in the
United States however, where the competition for such systems has been much
stronger. With only 13 systems installed in the US, effective August 28, 1995
the Company entered into an agreement with Sanderson
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Computers Inc. under which the product will be licensed to Sanderson who will be
responsible for the sales and support for the product world-wide and will pay GA
a royalty for each system sold. The amount of revenues expected from this
agreement are uncertain at this time and are not expected to materially affect
the position of the Company other than to eliminate the losses previously
experienced in support of the product.
ZEBRA 2000 LIBRARY INFORMATION AND MANAGEMENT SYSTEM
The Zebra 2000 Advanced Library Management and Information System is a complete
library automation package providing a wide range of advanced features including
on-line public access catalog, circulation control, acquisitions, requisitions,
inventory, closed reserve, serials control and MARC data load and output.
While acceptance of this product has been excellent in the Asia Pacific area
only a few systems were sold in the US resulting in significant losses from
operations to support the development and sales activities. Effective August 28,
1995 the Company entered into an agreement with Sanderson Computers, Inc.,
("SCI") under which SCI will be responsible for the sales and support for the
product world-wide. This product was licensed to GA by Sanderson Computers PTY
LTD initially in 1993 for sale in the US. As a result, the agreement will
provide no future revenues to the Company other than from service and product
purchased from GA by SCI as a GA reseller but will eliminate the losses
previously experienced.
SERVICE ADVANTAGE SYSTEM
The Service Advantage product is a full featured, fully integrated service
company management system and runs on GA native PICK systems as well as AIX and
UNIX based systems under Power95, Mentor Operating Environment (MOE) and VMARK.
The systems provide call handling and dispatch, job costing and bid/proposal
management, inventory control, purchasing, accounting and general ledger,
marketing and sales lead tracking (including scripted telemarketing), and office
automation functions to fully automate the service company operation.
The base product was originally developed by Service Automation Systems ("SAS").
SAS was acquired by Houston Data Center ("HDC") who sold the product primarily
to the heating, ventilating and air conditioning business sector. In May, 1994,
the Company acquired the rights to this product as an offset to an uncollected
receivable balance owed to the Company by HDC. The Company received the
non-exclusive right to market the product in all market sectors, except the
heating, ventilation and air conditioning sector which was sold to another
party.
The Company made the decision to focus its marketing and sales of this product
into the higher end service business, beginning with the telecommunications
industry. Such systems will typically sell in the $50K to $75K range. The
Company has completed the sale of two of these systems since May of 1994 and has
signed a contract to complete a third installation started by HDC. The specific
market size and growth rate is not known at this time.
In order for the Company to focus its management and capital resources on its
key business, a decision has been made to seek a licensee for this product in
the US market. It is expected that this transition will take place early in
calendar year 1996.
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FOREIGN OPERATIONS AND EXPORT SALES
The Company's export sales were approximately 8% in 1995 compared to 62% in
fiscal 1994, and 69% for 1993. In 1992, 1993 and 1994 the Company recognized
revenues from its majority owned subsidiary SGA Pacific Ltd. This subsidiary has
been sold effective November 10, 1994. These revenues were generated through
operations in Asia and the south Pacific. In future years, General Automation
expects to see a continuing relationship with SGA Pacific as a distributor of GA
products to the Pacific Basin and a source of royalty income as they market and
install the Maxial hospitality software, owned by the Company. See Note 7 to the
accompanying Financial Statements included in this Form 10-K for additional
information relating to the Company's international operations, including
financial information concerning operations by major geographic areas.
RAW MATERIALS
Raw materials essential to the Company's business are purchased worldwide in the
ordinary course of business from numerous suppliers. The vast majority of these
materials are generally available, and no serious shortages or delays have been
encountered. Certain raw materials used in producing some of the Company's
products can be obtained only from a small number of suppliers. Products are
designed to use pre-tested and readily available components. Most of these
components are purchased from several suppliers and are subject to blanket
purchase orders. In those situations in which the Company purchases components
from a single supplier, it believes that alternative commercial suppliers of
such components are readily available. The Company purchases the Motorola
MC68030 and MC68040 microprocessors from several independent distributors;
however, if Motorola Corporation should discontinue manufacturing such
microprocessors (which it currently manufactures in at least two separate
manufacturing facilities), an event which the Company considers to be unlikely,
the Company's operations would be adversely affected. In recent years the
Company has experienced no significant difficulty in procurement of necessary
components.
The Company purchases computer systems from other manufacturers including AT&T
GIS in the US and Group Bull in France. Delays are possible in that the GA
orders from its Dealers/VARS may not match production queues at the factories.
The delays are expected to be minimal and not material to the planned Company
results.
COMPETITION
GA markets software, systems and service and therefore faces three types of
competitors. The leading software competitors are Pick Systems, VMARK Software,
and Unidata. These three US-based organizations do not sell system solutions and
focus entirely on software and software support. Pick Systems, a privately held
corporation headquartered in Irvine, California, is GA's primary competitor on
GA's native Intel-based operating environment. VMARK Software, headquartered in
Westboro, Massachusetts, and Unidata , located in Denver, Colorado, offer UNIX
resident database operating environments. GA's software products offer greater
functionality and performance, at competitive prices.
GA's primary system competitors are International Business Machines, Data
General, Digital Equipment Corporation, and Hewlett Packard. GA's key
differentiation is servicing an established dealer base who prefer GA's software
and service to that which is available on these competing platforms.
Since GA currently only offers service on GA delivered systems, GA's competition
for that service business is a handful of third party service providers. These
companies tend to compete on price offering inferior technical support. With the
new PowerPC and Intel-based solutions GA is competing against system providers
such as Wang, AT&T, and IBM. From a software support vantage point, support is
primarily limited to GA developed operating environments.
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GA competes with GA's distributors, such as Monolith Corporation for dealer
direct telephone support; but is primarily the dominant support provider for GA
developed software solutions.
PRODUCT DEVELOPMENT
Because of rapid technological changes, the market in which the Company competes
requires continuous expenditures to develop and improve its products. For fiscal
1995 the Company spent approximately $600K for product development. In 1994 the
Company spent approximately $1.8 million for product development. For the years
ended September 30, 1993 and 1992, the Company spent approximately $1.7 million
and $2.1 million respectively. The decrease in R & D costs are primarily
resultant from the Company's decision to partner with Groupe Bull and AT&T for
hardware systems rather than develop their own. This strategy allows the Company
to invest its R & D dollars into software and support tools to better serve the
market. Certain development costs relating to computer software are capitalized
in accordance with Statement No. 86 of the Financial Accounting Standards Board;
while all other costs associated with product development are charged to
operations as incurred.
PATENTS AND TRADEMARKS
The Company holds trademarks protecting its trade names and symbols. The
Company's major product line utilizes Pick software as its operating system. The
Company is authorized, on a non-exclusive basis, to use and sublicense the use
of the Pick software indefinitely, in accordance with the terms of a license
agreement. The Company does not rely upon and does not believe that its success
is dependent upon patent protection; rather, the Company believes that its
success is dependent upon the knowledge and experience of its management and
technical personnel and its ability to market its existing products and to
develop new products. Invalidation or cancellation of the Pick license, however,
could adversely impact the Company's business, although management believes that
there are alternative courses of action which could be pursued.
MANUFACTURING AND SYSTEM INTEGRATION
The Company has moved rapidly from a manufacturing environment to a system
integration and configuration model. Basic systems are received from its
platform suppliers (Groupe Bull and AT&T) and are configured to the customers'
requirements. Software is loaded and the finished systems are thoroughly tested
prior to shipment. The Company currently performs these functions at its Irvine,
CA headquarters utilizing highly skilled system engineers and technicians to
insure product performance and quality.
MANUFACTURING
The Company has manufacturing facilities at its main location in Irvine,
California. Manufacturing processes are further enhanced by the purchase from
outside vendors of complete subassemblies for various portions of the products
and by coordinated engineering designs that allow common parts and processes for
a majority of the GA product line. The manufacturing facility was operating at
75% capacity at September 30, 1995.
Manufacturing functions performed by GA include system assembly and integration,
QA and testing, and final preparation and packaging.
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BACKLOG
GA computer orders from dealers and other customers generally specify delivery
dates of 30 days or less; the Company rarely receives an order that has
scheduled delivery dates beyond three months. Because of these ordering/delivery
patterns, the backlog at the end of a period may appear to be low and not a
significant indicator of future revenues.
The compressed order-delivery cycle mentioned above, can result in
period-to-period fluctuations in the Company's revenues since it is dependent
upon short term orders which can be deferred or delayed by the dealers and
thereby dramatically influence the current period revenues.
At September 30, 1995 the Company had a manufacturing backlog of $1.5 million.
At September 30, 1994 and September 30, 1993, the manufacturing backlog was $2.8
and $4.1 million, respectively. Almost all of which was attributed to its
recently divested SGA operations.
EMPLOYEES
The Company had approximately 115 employees at September 30, 1995. The Company
has never had a work stoppage and none of the Company's U.S. employees is
represented by a labor union.
GOVERNMENT REGULATIONS
The Company is subject to certain Federal, state and local provisions relating
to protection of the environment. The Company does not operate a type of
business whose activities are likely to require any special measures to ensure
compliance with those provisions. Accordingly, the Company does not believe that
any material capital expenditures will be required for compliance with such
provisions or that such provisions will have any material effect upon its
earnings or competitive position.
ITEM 2. PROPERTIES
In February 1995, the Company's executive offices and principal manufacturing
facilities were moved to a 20,000 square foot facility in Irvine, California,
which has been purchased by the Company (see Note 10 to the Financial
Statements). It is believed that this facility will serve the Company's current
and future needs.
At September 30, 1995 the Company had a remaining exposure of $75,000 under the
lease for the facility in Anaheim, California which previously served as the
Company's headquarters. As a precaution against the event that the property
could not be sublet, a $75,000 accrual was established on the books for this
exposure.
The move of the Company to its new Irvine, California location was dictated by
several factors: 1) The Anaheim facility was larger than needed under the
Company's current and anticipated business operations; the facility was built by
GA at a time when high-bay space was required in the manufacturing of computers.
This is no longer the case. 2) The cost of operating the facility was
approximately 50% higher than it would be in the new building; annualized, this
could total to nearly $75,000 in savings. 3) The new facility is in a much more
attractive and prosperous area, which offered greater security to the Company's
property and personnel. The relocation did not cause any material disruption
in the Company's operations.
The Company also leases space in ten (10) states, primarily for sales and
service offices.
For further information regarding lease commitments, see Note 10 to the
Financial Statements included in this Form 10-K.
11
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS
The Company is party to various legal proceedings generally incidental to its
business. The ultimate disposition of these proceedings is not presently
determinable, but in the opinion of the Company, these proceedings will not have
a material effect on the business or financial position of the Company and have
been adequately provided for in the Financial Statements.
The Company has been named as one of three defendants in a lawsuit brought by
the owner of real property once leased and used by a division of the Company as
part of its operations. The plaintiff is seeking relief from alleged
environmental damages which may have occurred on the property before, during, or
after the time the Company leased the property. The extent of the damage, if
any, has not been determined at this time nor has the extent of the Company's
liability, if any, been established in relation to the other defendants. All of
the parties to the action, including the plaintiff, are jointly funding testing
to determine the contamination, and scope of any required remedial effort. The
Company has two of its insurance carriers contributing to the Company's legal
expenses associated with this matter. However, such contribution is being made
under a reservation of rights. Until the testing results are available to
determine the environmental damages, if any, the Company has not recorded a
liability for any financial exposures attributed to the Company for remedial
efforts.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The table below provides certain information regarding the selling price of the
Company's Common Stock for the two fiscal years ended September 30, 1995 and
September 30, 1994. The Company's Common Stock is listed on the American Stock
Exchange and is quoted under the symbol GA. The following table sets forth the
range of high and low prices for the Common Stock of the Company for the fiscal
quarter indicated, as reported by the American Stock Exchange.
<TABLE>
<CAPTION>
Sale Prices
---------------
High Low
---- ---
Fiscal Year Ended September 30, 1995
<S> <C> <C>
Fourth Quarter $ 15/16 $ 1/2
Third Quarter $ 11/16 $ 7/16
Second Quarter $ 13/16 $ 7/16
First Quarter $ 7/8 $ 7/16
Fiscal Year Ended September 30, 1994
Fourth Quarter $ 5/8 $ 5/16
Third Quarter $ 3/4 $ 5/8
Second Quarter $ 1 7/16 $ 3/4
First Quarter $ 1 11/16 $ 11/16
</TABLE>
The approximate number of holders of record of Common Stock of the Company as of
December 1, 1995 was 956.
The Company has never paid a dividend on its Common Stock. The Board of
Directors reviews the financial condition of the Company periodically and
evaluates whether to declare dividends. Given the Company's present financial
condition and net operating losses in recent years, the Company does not expect
to pay any dividends in the forseeable future.
In determining whether a security warrants continued listing on the American
Stock Exchange (the "Exchange"), the Exchange does not rely on any precise
mathematical formula. Rather, it considers many factors, including the degree of
investor interest in the issuer of the security, the issuer's prospects for
growth, and whether the security has suitable characteristics for auction market
trading. The Rules of the Exchange provide, however, that the Exchange will
normally consider delisting a security if any one of a number of events shall
occur, including the following: (i) the issuer has stockholders' equity of less
than $4,000,000 and has sustained losses from continuing operations in three of
its four most recent fiscal years, or (ii) the security has traded for a
substantial period of time at a low price per share. The Company has sustained
losses in two of its last three fiscal years, and the Company's stockholders'
equity as of September 30, 1995, its most recent fiscal year-end, was $771,000.
Moreover, the Company's Common Stock has traded at less than $1.00 per share
during most of the preceding two fiscal years. The Company has received notice
that the Exchange has taken formal action to review the continued listing of the
Company's Common Stock; however, they have deferred any delisting action. The
Exchange's position was the result of senior Company management's presentation
and discussion with Exchange officials.
13
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended
September 30
--------------------------------------------
1995(7) 1994(6) 1993(5) 1992(1)(2) 1991(3)
-------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Sales, net $ 14,269 $ 34,614 $ 42,878 $ 45,205 $ 48,647
-------- -------- -------- -------- --------
Income (loss) from
operations (1,666) 1,300 (351) 42 1,756
-------- -------- -------- -------- --------
Income (loss) before
extraordinary items (2,065) 427 (1,477) (964) 222
Extraordinary items 0 0 900 1,108 74
-------- -------- -------- -------- --------
Net Income (loss) $ (2,065) $ 427 $ (577) $ 144 $ 296
======== ======== ======== ======== ========
Per share-primary:
Income (loss) before
extraordinary items (.26) .04 (.13) (.08) .02
Extraordinary items 0 .08 .09 .01
-------- -------- -------- -------- --------
Net income (loss) $ (.26) $ .04 $ (.05) $ .01 $ .03
======== ======== ======== ======== ========
Working capital $ (638) $ 2,725 $ 1,457 $ 3,450 $ 5,619
Total assets 10,484 18,041 22,456 23,618 29,368
Total debt 2,424 4,247 5,307 5,490 8,571
Shareholders' equity(5) $ 771 $ 3,246 $ 2,264 $ 3,442 $ 3,106
</TABLE>
(1) The Company closed its German subsidiary in the fourth quarter of
fiscal 1992. See Note 8 to the Financial Statements included in this
Form 10-K.
(2) The Company sold 55% of its share of General Automation, Ltd. (U.K.)
("GAL") to Sanderson Electronics, PLC, ("Sanderson") on June 30, 1990
and sold its remaining 45% of GAL to Sanderson on January 20, 1992.
During the period July 1, 1990, through January 20, 1992, while the
Company owned 45% of GAL, the Company accounted for its minority
interest in GAL on an equity basis. See Note 8 to the Financial
Statements included in this Form 10-K.
(3) On July 1, 1990, the Company purchased an additional 21.8% share of
SGA Pacific, Ltd. ("SGA") making the Company a 51.1% owner of SGA.
Since that time, the financial statements of SGA have been
consolidated with the results of the Company excluding 1995. See Note
8 to the Financial Statements included in this Form 10-K.
(4) No dividends have been paid on the Company's Common Stock during any of
the periods presented. See Item 5 (above) for discussion of dividend
restrictions.
(5) On October 29, 1993, with retroactive effect from September 30, 1993,
the Company divested its European operations. See Notes 7 and 8 to the
Financial Statements.
(6) On November 10, 1994, with retroactive effect from October 1, 1994,
the Company divested its Pacific Basin operations. See Notes 7 and 8
to the Financial Statements.
(7) On May 22, 1995, the Company acquired a similar product and services in
the Pick market from SunRiver Data Systems.
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported a net loss for the year ended September 30, 1995 in the
amount of $2,065,000, compared with a net income of $427,000 and net loss of
$577,000 for the years ended September 30, 1994 and 1993, respectively. The
fiscal 1995 loss is attributed to the Company's three vertical software products
which accounted to approximately 65% of the Company's losses, the $400,000 in
non-recurring expenses associated with the SunRiver partnership, and the late
introduction of the Company's Power95 product line, which had been scheduled for
release in early Spring of 1995. The cost make-up of the non-recurring expenses
associated with the SunRiver partnership included loan-labor costs for the use
of Sunriver personnel by the Company to effect an orderly transistion, legal and
accounting fees, and travel and per diem for personnel operating on a bi-coastal
basis.
Sales NET SALES
(In thousands)
<TABLE>
<CAPTION>
Year Ended
September 30
------------
1995 1994 1993
------- ------- -------
Product Revenues:
<S> <C> <C> <C>
Domestic $ 7,020 $ 6,301 $ 5,759
Europe 3,313
SGA 14,983 12,077
------- ------- -------
7,020 21,284 21,149
------- ------- -------
Service Revenues:
Domestic 7,249 7,121 7,742
Europe 8,930
SGA 6,209 5,057
------- ------- -------
7,249 13,330 21,729
------- ------- -------
Total Sales $14,269 $34,614 $42,878
======= ======= =======
</TABLE>
The three-year table above shows a U.S. increase in revenues for products and a
modest increase in revenues in services over 1994. The instability experienced
in service revenues is due to the very aggressive pricing policies from our
competition. An additional factor is the maturation of our hardware products,
which, if not replaced by GA hardware, often leads to the service contract being
placed with another service organization. The increase in domestic product
revenues from 1994 to 1995 is due to the SunRiver partnership and the
introduction of new products late in 1995.
1995 vs. 1994
Excluding revenue contributions by SGA in 1994, total sales increased $847,000
or 6.3% in 1995 over 1994. Product sales in the U.S. increased 11.4% or
$719,000, primarily through the partnership with SunRiver Data Systems
(described in Acquisitions and Divestitures above) and the introduction of new
products late in the year. The revenue increases shown above were accomplished
without price increases; the intense nature of the competition prevents
aggressive upward pricing
15
<PAGE> 16
policies. The Company believes that the introduction of new products will
generate new sales but is unlikely to allow for enhanced margins.
Domestic service revenues increased $128,000 due to the acquisition of SunRiver
Data Systems service customers offset by the termination of contracts on older
systems. Termination of contracts is a normal part of the business. As computers
grow older, they're no longer covered under contracts. Increased competition has
also caused some sales attrition. The addition of the SunRiver Data Systems
service contracts generated revenues of $553,000 during the last four months the
year.
1994 vs. 1993
Excluding revenue contributions by Eurosystems GA Ltd. in 1993, total sales
increased $3,979,000 or 13.0% in 1994 over 1993. Product sales in the U.S.
increased 9.4% or $542,000, primarily through library vertical sales. SGA's
product sales increase was $2,906,000, an increase of 24.1% over the prior year,
primarily attributable to increases in vertical sales, the largest of which was
the Singapore Port Award.
Excluding Eurosystems, service revenues increased $531,000. Domestically,
service revenues decreased $621,000 due to termination of contracts on older
systems, coupled with decreased sales of new systems. In the Pacific Basin,
service revenues increased $1,152,000 due to new installations of library,
Maxial, and other verticals.
Regarding Company manufactured computer sales, total revenues are expected to
continue to decline as the Company refocuses its efforts in other directions.
The addition of non-GA manufactured products to the Company's product offerings,
such as AT&T and Groupe Bull is expected to more than offset the sales erosion
of GA manufactured products, with the goal to increase the level of earned
profits through this higher volume.
The service segment of the Company provides help desk and on site service for
all GA systems at end user sites in the US and generated half of the Company's
revenues. This business is enjoying increasing revenues due to the acquisition
from SunRiver Data Systems. As the Company moves more into the distribution of
non-manufactured products, the domestic service organization will provide
service and software support for them.
For much of its history, GA has had significant foreign transactions, such sales
are conducted in U.S. dollars. Its foreign subsidiaries were subject to foreign
currency fluctuations, and such gains or losses recorded on a current basis. GA
no longer has foreign holdings subject to currency fluctuations, thereby
avoiding future currency risks.
The Company has approximately 3,500 service customers. The normal service
contract is for a year or more and invoiced in advance of the period in which
the service is to be performed. The pricing is done per a fixed price schedule
and calculated according to the equipment and or software to be maintained.
16
<PAGE> 17
GROSS MARGIN
GROSS MARGIN
(In thousands)
<TABLE>
<CAPTION>
Year Ended
September 30
-----------------------------------------------------------
1995 1994 1993
------------------ ----------------- ------------------
% of % of % of
Amount Sales Amount Sales Amount Sales
----- ----- ------ ----- ------ -----
Products:
<S> <C> <C> <C> <C> <C> <C>
Domestic $ 518 7.4 $ 1,954 31.0 $ 2,404 41.7
Europe 1,373 41.4
SGA 7,567 50.5 6,019 49.8
------- ------- -------
518 7.4 9,521 44.7 9,796 46.3
------- -------
Service and Support:
Domestic 2,285 31.5 1,773 24.9 1,785 23.1
Europe 3,944 44.2
SGA 1,751 28.2 1,315 26.0
------- ------- -------
2,285 31.5 3,524 26.4 7,044 32.4
------- ------- -------
Total Gross Margin $ 2,803 19.6 $13,045 37.7 $16,840 39.3
======= ======= =======
</TABLE>
GROSS MARGIN
1995 vs. 1994
Excluding SGA, the Company's overall gross profit margin decreased 8.2% from
27.8% in fiscal 1994 to 19.6% in fiscal 1995. Gross margin percentages for
domestic products decreased 23.6%, while domestic service and support margins
increased 6.6% from prior year levels. The decrease in product margin was due to
vertical product losses and lower margins on non-GA manufactured computer
systems such as Groupe Bull and AT&T GIS. The increase in service and support
margin was due to the acquisition of the Pick business from SunRiver Data
Systems.
The Company believes that future gross margins in domestic service will
stabilize because of the large combined size of the GA and SunRiver Datasystems
customer base despite pressure from the increasingly competitive nature of that
business segment. To offset decreasing margins from computer hardware sales, it
anticipates increased margins from expanding sales of application software
solutions and non GA products. The aggregate effect of these trends is expected
to have a material impact on the Company's 1996 gross margin.
GA sells its hardware products through a nationwide dealer network, and dealers
sell to the end-users, pricing their products as the competition will allow.
Company pricing strategies in the past have been aimed at stimulating dealer
orders through pricing concessions; general price decreases or increases are not
the normal technique used by the Company. The dealers generally are selling a
system, complete with application software, in a "bundled" proposal, as a
turn-key sale. The direct competitive pressures facing the dealers are more
closely tied to the cost/benefit relationship of their proposal versus those of
other firms.
17
<PAGE> 18
1994 vs. 1993
Excluding Eurosystems GA, Ltd. gross margin contributions increased $1,522,000
and remained at the same level as a percentage of net sales. Domestically,
product gross margins decreased from 41.7% to 31.0%, primarily due to lower
margins on vertical sales and a larger percentage of low-end, low profit
computer systems in the 1994 sales mix. In the Pacific Basin, a modest gross
margin percentage increase of 0.7% was achieved on much larger sales volume.
Domestic service margins increased 23.1% to 24.0% on a lower volume of revenue.
Service revenues in the Pacific Basin increased and an increase in gross margin
percentage of 26.0% to 28.2% was achieved.
NET PROFIT/(LOSS)
<TABLE>
<CAPTION>
NET INCOME/(LOSS)
(In thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Domestic $(2,065) $ (318) $ 108
Europe (1,036)
SGA 745 351
------- ------- -------
Total Net Income/(LOSS) $(2,065) $ 427 $ (577)
======= ======= =======
</TABLE>
1995 vs 1994
Excluding SGA, the net losses are ($2,065,000) and ($318,000) for 1995 and 1994,
respectively. The 1994 loss is net of $900,000 of income resulting from a
decrease in estimated tax liabilities. The fiscal year 1995 loss includes costs
associated with the with SunRiver Data Systems acquisition, heavy investments in
the vertical products and the later then planned entry of the new products in
the marketplace.
1994 vs. 1993
The net income (loss) figures are materially impacted by the decreases in
estimated tax liabilities in these years. See Notes 6 and 9 to the Financial
Statements included in this Form 10-K.
18
<PAGE> 19
EXPENSES
<TABLE>
<CAPTION>
EXPENSES
(In thousands)
Year Ended
September 30
--------------------------------------------------------------
1995 1994 1993
------------------ ------------------ -----------------
% of % of % of
Amount Sales Amount Sales Amount Sales
-------- ------ -------- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Research and
Development:
Domestic $ 584 4.1 $ 575 1.7 $ 640 1.5
SGA 1,178 3.4 1,094 2.5
-------- ---- -------- ---- -------- ----
584 4.1 1,753 5.1 1,734 4.0
-------- ---- -------- ---- -------- ----
Selling and
Administrative:
Domestic 3,704 25.9 3,700 10.7 3,754 8.7
Europe 5,307 12.4
SGA 5,907 17.1 5,392 12.6
-------- ---- -------- ---- -------- ----
3,704 25.9 9,607 27.8 14,453 33.7
-------- ---- -------- ---- -------- ----
Other:
Domestic 181 1.3 300 0.9 91 0.2
Europe
SGA 85 0.2 (81) -0.2
-------- ---- -------- ---- -------- ----
181 1.3 385 1.1 10 0.0
-------- ---- -------- ---- -------- ----
Interest:
GA 399 2.8 376 1.1 228 0.5
Europe 25 0.1
SGA 232 0.7 466 1.1
-------- ---- -------- ---- -------- ----
399 2.8 608 1.8 719 1.7
-------- ---- -------- ---- -------- ----
Total $ 4,868 34.1 $ 12,353 35.8 $ 16,916 39.4
======== ==== ======== ==== ======== ====
</TABLE>
Excluding SGA, Research and Development increased $9,000 from 1994 to 1995 as a
result of the SunRiver Data Systems activities. It is the belief of management
that expenditures will decline as the emphasis switches from hardware to
software products. In 1994, the expense increased $19,000.
Selling and administrative expense increased $4,000 from 1994 to 1995, excluding
SGA. Management expects to maintain the same level of expense in the United
States. Selling and administrative expense increased $461,000 from 1993 to 1994,
excluding Eurosystems. In the Pacific Basin, Selling and Administrative expenses
increased $515,000 between 1993 and 1994, which is attributable to expenses
necessary to support increases in sales volume and investments in personnel to
gain additional sales. Management expects to maintain the same level of expense
in the United States. The sale of Eurosystems to the minority shareholders
eliminated the European expense, which was $5,307,000 in 1993. (See note 8 to
the accompanying Financial Statements).
Excluding SGA, other expenses decreased $119,000 from 1994 to 1995 due to the
elimination of goodwill amortization caused by the sale of SGA. Other expense
increased $375,000 from 1993 to 1994. 1993 included credits of $309,000 from
amortization of credits from the advantageous purchase of the assets of C.I.E in
1990.
19
<PAGE> 20
Excluding SGA, interest expense increased $23,000 from 1994 to 1995 due to
higher levels of borrowing during portions of the year. Interest expense
decreased $86,000 from 1993 to 1994, excluding Eurosystems, due to continuing
decreases to the debt balance.
LIQUIDITY AND CAPITAL RESOURCES
The Company is operating on improved cash resources. During the Company's fiscal
1995, the Company's cash receipts exceeded the total expenditures excluding SGA.
The Company has seen improvement in its cash position due to the partnership
with SunRiver Data Systems and expects the trend to continue, augmented by sales
of non GA manufactured products. These two factors are expected to provide GA
with the needed working capital to support future operations. No plans have been
made to seek new equity funds.
Net cash used for operating activities was $343,000. The major items generating
cash were a $563,000 reduction in inventories, a $1,662,000 increase in accounts
payable, and a $3,160,000 increase in advances from customers. The major item
consuming cash was a $3,846,000 increase in accounts receivable. The remainder
was provided by ongoing operations.
Net cash of $1,527,000 was used for investing activities in fiscal 1995 for
capitalized software development costs and additions to property, plant and
equipment.
Financing activities provided $1,741,000 from debt repayments of $1,407,000,
offset by new notes payable of $1,357,000 and $1,791,000 in proceeds from the
sale of SGA.
Currently, the Company has an agreement with a U.S. lender for a revolving line
of credit, not to exceed $800,000, which is collateralized by domestic accounts
receivable. The agreement is renewable at six month intervals. The interest rate
is prime plus 6%, payable monthly, with a minimum of 14%. In addition, there are
monthly collateral management fees charged for maintaining the open line of
credit. Because the amount of borrowing is dependent upon accounts receivable
levels, varying levels of domestic activity could preclude full utilization of
the facility. Management believes that these funds exceed the Company's needs
and is seeking less costly alternatives for temporary capital. At September 30,
1995, the balance of the loan was $543,000. The line of credit contains various
covenants and restrictions; at September 30, 1995 the Company was not in
compliance with certain covenants, for which a waiver was obtained from the
lender. This non-compliance condition was the result of the lender charging
their management fees to the GA account, which then raised the loan to $13,000
above the maximum calculated balance based on net collateral. The situation was
corrected the next business day.
On November 10, 1994, the Company completed the agreement for the sale of its
51% interest in SGA Pacific Ltd. to Sanderson Technology, Ltd. for $1,000,000 in
cash which the Company received on November 14, 1994, a note in the amount of
$1,000,000 to be repaid over 24 months, bearing interest at 8%, plus 4,100,000
shares of the Company's Common Stock, which were retired.
As explained in Item 2 above, the Company has purchased a building in Irvine,
California. Eventually, the Company expects to experience a significant cost
savings, (approximately $75,000 annually) from the move. Until February, 1996,
the Company expects to be responsible for the monthly rent on the existing
Anaheim, California facility. During the period to February, 1996, the Company
expects an additional $75,000 outlay of cash, due to residual payments of rent,
all of which is provided for at September 30, 1995.
20
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Schedules on Page 26 of this report.
21
<PAGE> 22
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the directors and executive officers of
the Company, see the information appearing on pages 3 and 4 of the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held January 25,
1996 under the caption "Election of Directors" and on page 11 of the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held January 25
1996 under the caption "Compliance with Section 16(a) of the Securities Exchange
Act of 1934", which information is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
For information with respect to the compensation of certain executive
officers of the Company, see the information appearing on pages 7 and 8 of the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held
January 25, 1996 under the caption "Executive Compensation", which information
is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
For information with respect to the security ownership of certain
beneficial owners and management of the Company, see the information appearing
on pages 6 and 7 of the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held January 25, 1996 under the caption "Security Ownership
of Certain Beneficial Owners and Management", which information is incorporated
herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information with respect to certain relationships and related
transactions, see the information appearing on page 11 of the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held January 25, 1996
under the caption "Certain Relationships and Related Transactions", which
information is incorporated herein by reference.
22
<PAGE> 23
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
1. Financial Statements
See Index to Consolidated Financial Statements and Schedules on Page
26 of this report.
2. Exhibits
3(a) Amended Certificate of Incorporation of the Company. (1)
3(b) By-Laws of the Company (2)
10(a) Sample Dealer Agreement with Schedule. (3)
10(b) Pick License Agreement dated November 23, 1982, between the
Company and Pick Computer Works, Inc. (3)
10(c) Lease, dated March 28, 1991; between the Company and Lincoln
Properties Company. Premises: 1045 South East Street, Anaheim,
California, as amended. (4)
10(d) Form of Note Purchase and Warrant Agreement dated as of June
17, 1987, between the Company and the Purchasers thereof. (5)
10(e) Amendment dated May 18, 1989 to Note Purchase Agreement dated
June 17, 1987 between the Company and Paul Morigi & Company.
(10)
10(f) The following agreements by and between the Company and
Sanderson Electronics PLC, all dated as of January 6, 1989,
except as indicated: Purchase Agreement; 15% Convertible
Senior Note in the principal amount of $500,000; 15%
Convertible Senior Note in the principal amount of $1,250,000,
dated as of January 24, 1989; Pledge Agreement; Security
Agreement; Common Stock Warrant Agreement (2,837,388 shares of
the Company's Common Stock); Common Stock Warrant Agreement
(2,500,000 shares); Common Stock Warrant Agreement ("Mirror
Rights Agreement"); and Common Stock Registration Rights
Agreement. (6)
10(g) Amendment dated July 28, 1989 to the following agreements by
and between the Company and Sanderson Electronics PLC: 15%
Convertible Senior Note in the principal amount of $500,000,
dated as of January 6, 1989; 15% Convertible Senior Note in
the principal amount of $1,250,000, dated as of January 24,
1989; Common Stock Warrant Agreement dated as of January 6,
1989 pursuant to which the Notes may be converted to 2,500,000
shares of the Company's Common stock. (7)
10(h) Commitment Letter by and between General Automation, Ltd. and
Sanderson Computers (PPS) Limited for a Floating Rate
Unsecured Convertible Loan Stock. (8)
23
<PAGE> 24
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)
10(i) Articles of Association of SGA Pacific Limited. (9)
10(j) The Company's 1991 Stock option Plan and Directors' Stock
Option Plan. (11)
10(k) Agreement for the sale and purchase of 49,951 ordinary shares
in the capital of Eurosystems GA Ltd. to Krypton Group Ltd.,
and instrument constituting $990,000 non-interest bearing loan
note, all dated October 28, 1993. (12)
10(l) Agreement relating to the Company's sale of its 51% interest
in SGA Pacific, Limited to Sanderson Technology, Ltd., dated
October 20, 1994. (13)
10(m) Agreement by and between General Automation, Inc. and Future
Services, Ltd., dated March 14, 1996.
10(n) Operating Agreement by and between General Automation, Inc.
and SunRiver Data Systems dated May 22, 1995.
21 Subsidiaries of Registrant
23 Consent of Independent Accountants.
27 Financial Data Schedule.
(1) Filed as Exhibit 3(a) to the Company's 10-K dated as of June 30, 1989,
and by this reference incorporated herein.
(2) Filed as Exhibit No. 30 to the Company's Form 10-K dated as of June 30,
1988, and by this reference incorporated.
(3) Filed as Exhibit No. 10 to the Company's Form S-1 as filed on June 5,
1986, and by this reference incorporated herein.
(4) Filed as Exhibit 10(d) to the Company's Form 10-K dated as of September
30, 1992, and by this reference incorporated herein.
(5) Filed as Exhibit B to the Company's Proxy Statement to Shareholders
dated October 14, 1987, and by this reference incorporated herein.
(6) Filed as Exhibits to the Company's Current Report on Form 8-K dated as
of January 6, 1989, and by this reference incorporated herein.
(7) Filed as Exhibit 10(x) to the Company's Annual Report on Form 10-K
dated as of June 30, 1989, and by this reference incorporated herein.
24
<PAGE> 25
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K (Continued)
(8) Filed as Exhibit 10(y) to the Company's Annual Report on Form 10-K
dated as of June 30, 1989, and by this reference incorporated herein.
(9) Filed as Exhibit 10(bb) to the Company's Annual Report on Form 10-K
dated as of June 30, 1989, and by this reference incorporated herein.
(10) Filed as Exhibit 3(b) to the Company's Form 10-K dated as of June 30,
1989, and by this reference incorporated herein.
(11) Filed as Exhibits to the Company's Form S-8 as filed on October 4,
1991, and by this reference incorporated herein.
(12) Filed as Exhibit to the Company's Form 8-K dated as of November 12,
1993, and by this reference incorporated herein.
(13) Filed as Exhibit to the Company's Form 8-K dated as of November 23,
1994, and by this reference incorporated herein.
25
<PAGE> 26
GENERAL AUTOMATION, INC.
And Subsidiaries
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES
<TABLE>
<CAPTION>
Pages
<S> <C>
Report of Independent Accountants 27
Financial Statements:
Consolidated Balance Sheet - September 30, 1995 28 - 29
and 1994
Consolidated Statement of Operations for the Three Years 30
in the period ended September 30, 1995.
Consolidated Statement of Shareholders' Equity 31
(Deficit) for the Three Years Ended September 30, 1995.
Consolidated Statement of Cash Flows for the Three Years 32 - 33
in the period Ended September 30, 1995.
Notes to Consolidated Financial Statements. 34 - 50
</TABLE>
26
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and Board of Directors
of General Automation, Inc.:
In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of
General Automation, Inc. and its subsidiaries at September 30, 1995 and 1994 and
the results of their operations and their cash flows for each of the three years
in the period ended September 30, 1995, in conformity with generally accepted
accounting principles. These consolidated financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Costa Mesa, California
December 19, 1995
27
<PAGE> 28
GENERAL AUTOMATION, INC.
And Subsidiaries
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30
-------------------
1995 1994
------- -------
<S> <C> <C>
Assets
Current Assets:
Cash $ 101 $ 230
Accounts receivable, net (Note 2) 5,679 9,144
Inventories (Note 2) 1,726 4,427
Prepaid expenses 185 409
------- -------
Total current assets 7,691 14,210
------- -------
Long-term receivable 570 210
Property, plant and equipment, net of
accumulated depreciation and
amortization (Note 2) 1,354 1,698
Other assets (Note 2) 869 1,923
------- -------
$10,484 $18,041
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE> 29
GENERAL AUTOMATION, INC.
And Subsidiaries
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30
----------------------
1995 1994
-------- --------
<S> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts payable $ 2,959 $ 3,731
Advances from customers (Note 1) 3,401 1,373
Accrued income taxes (Note 6) 688
Other accrued expenses (Note 2) 850 2,899
Notes payable and current
portion of long-term
debt (Note 3) 1,119 2,794
-------- --------
Total current liabilities 8,329 11,485
Long-term debt, excluding
current portion (Note 3) 1,305 1,453
Deferred credit 79 70
Minority interest - SGA
Pacific Ltd. (SGA) (Note 8) 1,787
Commitments and contingencies (Note 10)
Shareholders' Equity
Common stock par value $.10 per share;
Authorized 30,000,000 shares; issued
and outstanding 7,391,776 at
September 30,1995 and 11,366,776
September 30, 1994 739 1,137
Additional paid in capital 42,533 42,420
Accumulated deficit (42,501) (40,457)
Currency translation adjustments 146
-------- --------
Total shareholders' equity 771 3,246
-------- --------
$ 10,484 $ 18,041
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE> 30
GENERAL AUTOMATION, INC.
And Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Twelve Months
Ended
September 30
------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Sales - net - Product $ 7,020 $ 21,284 $ 21,149
Service revenue 7,249 13,330 21,729
-------- -------- --------
Total 14,269 34,614 42,878
-------- -------- --------
Costs and expenses:
Cost of sales - Product 6,502 11,763 11,353
- Service 4,964 9,806 14,685
Selling and
administrative 3,704 9,607 14,453
Research and development 584 1,753 1,734
Loss on disposal
of subsidiaries 994
Other, net 181 (385) 10
-------- -------- --------
15,935 33,314 43,229
-------- -------- --------
(Loss) income from
operations (1,666) 1,300 (351)
Interest income 35 41 146
Interest expense (434) (649) (865)
-------- -------- --------
(Loss) income before
income taxes, minority
interest and extraordinary
items (2,065) 692 (1,070)
(Benefit from) provision for
income taxes (454) 190
Minority interest in income
of SGA 719 217
-------- -------- --------
(Loss) income before
extraordinary items (2,065) 427 (1,477)
Extraordinary items (Note 9) 900
-------- -------- --------
Net (loss) income $ (2,065) $ 427 $ (577)
======== ======== ========
Earnings per share - primary:
(Loss) income before
extraordinary items $ (.26) $ (.04) $ (.13)
Extraordinary items .08
-------- -------- --------
Net (loss) income $ (.26) $ (.04) $ (.05)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE> 31
GENERAL AUTOMATION, INC.
And Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Translation
Shares Amount Capital Deficit Adjustment
------ ------ ------- ------- ----------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1992 11,366,776 $ 1,137 $ 42,420 $ (40,307) $ 192
Net loss (577)
Translation adjustments (601)
----------- ----------- ----------- ----------- -----------
Balance at September 30, 1993 11,366,776 1,137 42,420 (40,884) (409)
Net income 427
Translation adjustments 555
----------- ----------- ----------- ----------- -----------
Balance at September 30, 1994 11,366,776 1,137 42,420 (40,457) 146
Net loss (2,065)
Retired from Sale of SGA (4,100,000) (410) 113 21 (146)
Issued for legal settlement 125,000 12
----------- ----------- ----------- ----------- -----------
Balance at September 30, 1995 7,391,776 $ 739 $ 42,533 $ (42,501) $ -0-
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE> 32
GENERAL AUTOMATION, INC.
and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Twelve
Months Ended
September 30
---------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Cash flows (used for) provided by operating activities:
Net (loss) income $(2,065) $ 427 $ (577)
Adjustments to reconcile net
(loss) income to net
cash (used for) provided by
operations:
Depreciation and amortization 355 1,328 1,057
Minority interest in income
of SGA 719 217
Changes in balance sheet items, net of
dispositions
Accounts receivable (3,846) (1,461) (1,711)
Inventories 563 233 1,125
Prepaid expenses (11) 11 (131)
Other assets 79 155 (415)
Accounts payable 1,662 978 1,760
Advances from customers 3,160 (371) 157
Accrued income taxes (512) (441)
Other accrued expenses (240) (534) 216
------- ------- -------
Net cash (used for) provided by operating
activities (343) 973 1,257
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
32
<PAGE> 33
GENERAL AUTOMATION, INC.
and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Twelve
Months Ended
September 30
---------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Cash flows (used for)
investing activities:
Purchases of property, plant and
equipment (1,328) (431) (556)
Capitalized software (178) (410) (374)
Investment in subsidiary (21)
------- ------- -------
Net cash (used for)
investing activities (1,527) (841) (930)
------- ------- -------
Cash flows provided by (used for)
financing activities:
Proceeds from issuance of notes
payable 1,357 940 1,848
Principal payments on notes
payable (1,407) (2,000) (1,835)
Principal payments on accrued
taxes (133) (200)
Proceeds from sale of SGA Pacific 1,791
------- ------- -------
Net cash provided by (used for)
financing activities 1,741 (1,193) (187)
------- ------- -------
Effect of exchange rates
on cash 125 15
------- ------- -------
Increase (decrease) in cash (129) (936) 155
Cash at beginning of period 230 1,166 1,011
------- ------- -------
Cash at end of period $ 101 $ 230 1,166
======= ======= =======
Cash paid during the period for:
Interest $ 452 $ 1,042 $ 659
======= ======= =======
Income taxes $ $ 133 $ 691
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 34
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands)
1. Description of the Company and Summary of Significant Accounting Policies:
DESCRIPTION OF THE COMPANY
The Company is engaged in the development, design and sale of computer software
and hardware and related field support services.
SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
all of its wholly and majority-owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated.
Revenue Recognition
Revenues for sales of products are recognized as shipped. Revenue is not
recognized on product sales if significant obligations remain or collectibility
is in doubt. Revenues for maintenance service contracts are recognized on a
monthly basis ratably over the period of the contracts. Cash payments received
and billings in advance of revenue recognition are deferred (Advances from
customers) and recognized as earned. Vertical installations (Library, Service
Advantage, etc.) revenues are recognized on the percentage of completion method.
Warranties
All products, except the lowest-end models, carry a one year warranty, during
which all maintenance labor and parts are covered. The Company carries adequate
reserves to cover any anticipated charges of this nature.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Cost elements include material, labor and factory overhead. Market is considered
to be selling price, less allowance for normal selling expenses.
Depreciation and Amortization
Depreciation and amortization are provided over the estimated useful lives of
the assets using the straight-line method. Estimated useful lives are as
follows:
Building 30 years
Machinery and equipment 3-7 years
Furniture and fixtures 3-7 years
Leasehold improvements Lease term or asset life, whichever is less
Customer service spare parts 7 years
The estimated useful life of customer service spare parts is adjusted to reflect
actual usage
34
<PAGE> 35
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
1. Description of the Company and Summary of Significant Accounting Policies,
Continued
Expenditures that materially increase the asset life are capitalized and
ordinary maintenance and repairs are charged to operations as incurred. The
difference between cost of purchased companies and fair value of net assets
acquired is amortized using the straight-line method over 5 years.
Capitalized Software
All capitalized software development costs are amortized on a straight-line
basis over the remaining estimated economic life of the product, generally three
to five years. The costs capitalized are those incurred after the Company has
determined the technical feasibility of a software project. The project
amortization does not commence until after the general release of the product
and are included in the cost of sales.
Equity Investments
The Company accounted for its minority interest in investees on the equity
method, under which the Company recognize its pro-rata share of net income as
reported by the investees, after adjusting for the effects of intercompany
transactions.
Foreign Currency Translation
The assets and liabilities for the Company's international subsidiaries are
translated into US Dollars using current exchange rates. Income statement items
are generally translated at average exchange rates prevailing during the period.
The resulting translation adjustments are recorded in the currency translation
adjustments account in shareholders' equity. Foreign currency transaction gains
and losses are included in net income.
Income Taxes
Effective October 1, 1993, the Company adopted Statement of Financial Accounting
Standards No. 109 (FAS 109), Accounting for Income Taxes. The adoption of FAS
109 changes the Company's method of accounting for income taxes from the
deferred method (APB 11) to an asset and liability approach. Previously, the
Company deferred the past tax effects of timing differences between financial
reporting and taxable income. The asset and liability approach requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the carrying amounts and tax bases
of other assets and liabilities. Adoption of FAS 109 resulted in no material
adjustment to the statement of operations.
Earnings Per Common Share
Earnings or loss per share are based on the weighted average number of shares
outstanding without inclusion of common stock equivalents if such inclusion
would be antidilutive.
Weighted average shares used in the earnings or loss per share calculations for
the years ended September 30, 1995, 1994 and 1993 are 8,036,572, 11,366,776 and
11,366,776, respectively.
35
<PAGE> 36
Reclassifications
Certain reclassifications have been made to the 1994 financial statements to
conform to the 1995 presentation.
36
<PAGE> 37
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
2. Composition of Certain Balance Sheet Accounts (in thousands):
Accounts receivable consist of:
<TABLE>
<CAPTION>
September 30
--------------------
1995 1994
------- -------
<S> <C> <C>
Trade receivables $ 6,007 $ 9,757
Due from related parties 116 75
------- -------
6,123 9,832
Less allowance for
doubtful accounts (444) (688)
------- -------
$ 5,679 $ 9,144
======= =======
Inventories are summarized as follows:
<CAPTION>
September 30
--------------------
1995 1994
------- -------
<S> <C> <C>
Materials, subassemblies
and spare parts $ 1,498 $ 2,715
Work in process 157 297
Finished goods 71 1,415
------- -------
$ 1,726 $ 4,427
======= =======
</TABLE>
37
<PAGE> 38
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
2. Composition of Certain Balance Sheet Accounts (in thousands):
The major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
September 30
--------------------
1995 1994
------- -------
<S> <C> <C>
Land and building $ 1,256
Machinery and equipment 2,064 $ 3,346
Furniture and fixtures 200 1,798
Leasehold improvements 50 451
------- -------
3,570 5,595
Less accumulated
depreciation and
amortization (2,216) (3,897)
------- -------
$ 1,354 $ 1,698
======= =======
</TABLE>
Depreciation and amortization expense for the years ended September 30, 1995,
1994 and 1993 amounted to $60, $528 and $577, respectively.
Other assets comprise:
<TABLE>
<CAPTION>
September 30
--------------------
1995 1994
------- -------
<S> <C> <C>
Computer software costs $ 1,612 $ 4,403
Goodwill 551
Other 67 44
------- -------
1,679 4,998
Less accumulated
amortization (810) (3,075)
------- -------
$ 869 $ 1,923
======= =======
</TABLE>
During the years ended September 30, 1995, 1994 and 1993 the Company capitalized
$178, $410 and $374 of software and development costs, respectively, and $295,
$678 and $654 of such costs were amortized to cost of sales, respectively.
Other accrued expenses consist of the following:
<TABLE>
<CAPTION>
September 30
-----------------
1995 1994
------ ------
<S> <C> <C>
Accrued payroll 429 $1,305
Accrued taxes other than income 95 150
Other 326 1,444
------ ------
$ 850 $2,899
====== ======
</TABLE>
38
<PAGE> 39
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars and thousands)
3. Notes Payable and Long-Term Debt:
Notes payable and long-term debt consist of the following:
<TABLE>
<CAPTION>
September 30
-----------------
1995 1994
------ ------
(in thousands)
<S> <C> <C>
Note redeemable due March, 1995
bearing interest at 10%, monthly
payments of $150,000
plus interest beginning December, 1994 -- $ 550
Note payable maturing January, 1997
bearing interest at 15%, monthly payments
of $31,192 beginning August, 1995 $ 450 500
Payable for purchase of Maxial Systems, Inc.,
described below, monthly payments of
$6,800, 13% interest 195 245
Notes payable to States relating to taxes
maturing August, 1995 through March, 1999
bearing interest 12%, monthly
payments of $22,640 241 468
Note payable to Sanderson Electronics
PLC, due September 30, 1994 bearing
interest at LIBOR plus 2.5% -- 704
Mortgage payable to National Bank of
Southern California beginning November,
1994 bearing interest at prime + 1%, monthly
payments of $8,445 995 --
Lines of credit:
Bank overdraft facilities, SGA Pacific
Ltd, bearing interest at Australia
prime + 1.65% -- 481
Continental Business Credit, bearing
interest at prime plus 6%, renewable
every six months 543 711
Bank of New Zealand, due on 30 day call
notice at New Zealand prime + 1.65%
to 2.75% -- 588
------ ------
2,424 4,247
Less amounts due in one year 1,119 2,794
------ ------
$1,305 $1,453
====== ======
</TABLE>
39
<PAGE> 40
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
3. Notes Payable and Long-Term Debt, Continued:
Payment requirements on principal balances at September 30, 1995 are
approximately as follows: (in thousands) for the twelve month periods ending
September 30, 1996 - $1,119, 1997 - $233, 1998 - $92, 1999 - $14, 2000 - $10.
In conjunction with the purchase of Maxial Systems, Inc. in 1986, the Company
entered into a revised note agreement with Robert Kramer. The note is
collateralized by the assets of the Company and was issued to complete the
obligations of the Company in the purchase. The note provides for 48 monthly
payments of $7, of which 13 have been made at September 30, 1995. At September
30, 1995 the total remaining payments were $238, less imputed interest, bringing
the present value of the note to $195.
In June 1987, the Company completed a private placement of $1,050 unsecured
redeemable notes due June 1992. Repayment of one note in the amount of $550 was
completed in fiscal 1995. The second note has total remaining payments at
September 30, 1995 of $499 less imputed interest, bringing the present value of
the note to $450. Monthly payments are $31.
In March 1991, an agreement was reached with a domestic lender for a line of
credit collateralized by all current domestic trade accounts receivable. The
maximum borrowing limit is $800 with interest at prime plus 6% with a minimum
rate of 14%. At September 30, 1995 the total owed on this line was $543. The
agreement is renewable at six month intervals. The line includes various
covenants and restrictions; at September 30, 1995 the Company was not in
compliance with certain covenants, for which a waiver was obtained from the
lender.
The Company purchased a building in Irvine, California, on November 16, 1994,
which serves as the Company's corporate offices. The purchase price was $1,200,
less a down payment of $200 leaving a financed balance of $1,000. Monthly
payments for the first twenty-four months are guaranteed to remain at $8 each.
Annual interest is based on prime, plus 1%. Monthly payments will be adjusted
annually for changes to the prime rate. At the end of ten years, a balloon
payment of approximately $917 will be due.
4. Employee Benefit Plans:
The Company has a profit sharing 401K plan covering substantially all of its
domestic employees. Eligible employees may contribute 2% to 12% of their
compensation up to the maximum dollar amount allowed by the IRS. The Company has
agreed to contribute from profits in amounts equal to 50% of each employee's
contribution up to 3% of the employee's compensation. The Company may elect to,
although it is not obligated to, make contributions in years when it has no
profits. Contributions for the periods ended September 30, 1995, September 30,
1994 and September 30, 1993 were $78, $65 and $65, respectively.
40
<PAGE> 41
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
5. Stock Options
In February 1991, the shareholders of the Company adopted the 1991 Stock Option
Plan and the 1991 Directors' Stock Option Plan. The Board of Directors of the
Company authorized the grant of options to current employees and directors of
the Company, which were exercisable through December 31, 1994. Employees and
directors who held options under previous plans were given the right to retain
those options or accept the options under the 1991 Plans, in which case their
existing options would be canceled. Options under the 1991 Plans were priced in
excess of the market price of approximately $0.625 on the date of authorization.
All such option holders accepted the options offered under the 1991 Plans, and
all options to acquire common stock of the Company were consolidated under the
1991 Plans. In April, 1994, the shareholders of the company adopted an amendment
to the 1991 Stock Option Plan increasing the shares of Common Stock reserved for
issuance thereunder from 900,000 to 1,300,000. The shareholders, at the same
time, adopted an amendment to the 1991 Directors' Stock Option Plan to increase
the number of shares of Common Stock reserved for issuance thereunder from
100,000 to 200,000, and to modify certain provisions concerning
non-discretionary stock option grants.
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share
---------- ------------
1991 PLANS
<S> <C> <C>
Outstanding at September 30, 1992 863,000 $0.75
Granted -0-
Exercised -0-
Terminated (23,000)
---------
Outstanding at September 30, 1993 840,000 $0.75
Granted 513,000
Exercised -0-
Terminated (210,000)
---------
Outstanding at September 30, 1994 1,143,000 $0.75
Granted 300,000
Exercised -0-
Terminated (25,000)
---------
Outstanding at September 30, 1995 1,418,000 $0.75
=========
</TABLE>
All remaining 1,418,000 options granted under the 1991 Plan are exercisable at
September 30, 1995. Under the amended 1991 Plan an additional 82,000 shares have
been reserved for future grants. All outstanding options have been granted at
$0.75 per share.
41
<PAGE> 42
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
6. Income Taxes:
Effective October 1, 1993, the Company adopted the provision of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," which
requires a liability approach for computing deferred income taxes. Deferred
income tax assets and liabilities are computed for differences between the
financial statement and tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established, when necessary, to reduce
deferred tax assets to amounts which are more likely than not to be realized.
The provision for income taxes is the payable or refundable amount for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
The cumulative effect of adopting Statement 109, as of October 1, 1993 did not
change net income. As permitted under the Statement, prior years' financial
statements have not been restated.
The provision (benefit) for income taxes for each of the three fiscal years in
the period ended September 30, 1995 consists of the following:
<TABLE>
<CAPTION>
Year Ended
September 30
------------------
(in thousands)
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Current:
Domestic $-- $(900) --
Foreign -- $ 446 $ 190
----- ----- -----
-- (454) 190
----- ----- -----
Deferred:
Domestic -- --
Foreign -- -- --
----- ----- -----
$-- $(454) $ 190
===== ===== =====
</TABLE>
Reasons for differences between income tax expense and the amount computed by
applying the federal statutory income tax rate to income (loss) before income
taxes and extraordinary income are as follows:
42
<PAGE> 43
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
6. Income Taxes, Continued:
<TABLE>
<CAPTION> Year Ended
September 30
------------------------------
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Tax (benefits) provision
calculated at Federal
statutory rate $ (702) 235 $ (385)
Tax benefits not provided
on losses of domestic
and foreign operations (405) 414 915
Foreign operations taxed
at other than federal
statutory rate (205) (284)
Amortization of goodwill 53 60 (56)
Reduction in estimated taxes due
under 1989 IRS settlement (900)
Income from sale of foreign subsidiary 1,054
Other (58)
------- ------- -------
(Benefit) provision at effective tax rate $ -- $ (454) $ 190
======= ======= =======
</TABLE>
No deferred taxes were recorded for the period ended September 30, 1995 and
September 30, 1994. For the years ended September 30, 1993, there were $72 in
deferred taxes recorded from European operations.
At September 30, 1995, the Company has domestic net operating loss carryforwards
for financial reporting and tax purposes of approximately $45,000 and $53,000
respectively, expiring primarily during the years 1997 through 2010. The tax net
operating loss carryforwards could be limited due to a possible greater than 50%
ownership change that may have occurred.
On May 19, 1989, the Company and the IRS executed a revised agreement relating
to tax deficiencies assessed for years 1974 to 1981, the terms and conditions of
which include the following:
Beginning on June 5, 1989, the Company began paying $17 per month over
a 60 month period. The IRS applied such payments totaling $1,000
against the Company's assessed liability for interest. The Company
completed the payment schedule in May, 1994.
43
<PAGE> 44
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
6. Income Taxes, Continued:
The remaining amount of the obligation, representing statutory additions
and interest, was set at $2.8 million. This amount was to be offset on a
dollar-for-dollar basis by the Company via a written waiver of 50% of the
net operating loss carryforwards (NOLs) allowable for each taxable year in
which a profit was realized. Such offset will continue until such time
that the $2.8 million is fully satisfied or the Federal income tax return
for fiscal 1994 has been filed by the Company with the IRS, whichever is
earlier. Any portion of the total $2.8 million which remains unsatisfied
following the filing date of the fiscal 1994 Federal income tax return
will be satisfied by waiving an additional amount of NOLs equivalent to
the remaining tax balance of the $2.8 million.
The IRS has replaced the lien against all the assets of the Company with a lien
on certain trademarks and technology of the Company. The lien should have been
released subsequent to receipt of the last payment by the IRS in May, 1994. This
release was not obtained until November, 1995.
At September 30, 1994, 1993 and 1992, the Company revised its estimated tax
liability relating to the $2.8 million fixed portion of the revised IRS
settlement agreement. Based upon projected operating results, management
determined that approximately $1 million each year of the estimated tax
liability would be satisfied by the end of fiscal year 1994 by waiver of unused
NOL carryovers and not from financial assets. Accordingly, the September 30,
1994 tax liability accounts of the Company reflect this change in accounting
estimate, which has been reflected as an extraordinary item in the Consolidated
Statement of Operations, $1,000 in 1992 and $900 in 1993. In 1994 the adjustment
of $900 is included in the provision for income taxes.
Deferred tax assets as of September 30, 1995, relate to the following:
<TABLE>
<CAPTION>
Deferred Tax Assets
--------------------
Current Long-Term
<S> <C> <C>
Inventory reserve 82
Warranty Reserve 16
Vacation accrual 117
Allowance for bad debts 151
Accrued royalties 32
NOL carryforward 2,379
Foreign Tax Credits
------ ------
Total 398 2,379
Valuation Allowance (398) (2,379)
------ ------
Net 0 0
====== ======
</TABLE>
44
<PAGE> 45
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
7. Segment Information:
The Company operates in one business segment. Operations include the design,
manufacture, sales and service of computer systems and computer products. In
1995, essentially all of the Company's operations were within the United
States.
Information concerning the Company's operations by geographic area for 1994
and 1993 is as follows:
<TABLE>
<CAPTION>
Twelve Months Ended September 30, 1994
--------------------------------------------------
United Pacific Elimina-
States Basin tions Total
(In thousands)
<S> <C> <C> <C> <C>
Net sales to
customers $ 13,422 $ 21,192 $ 34,614
Inter-area sales 575 $ (575)
-------- -------- -------- --------
Total net sales $ 13,997 $ 21,192 $ (575) $ 34,614
-------- -------- -------- --------
Segment operating
income $ 741 $ 2,148 $ 2,889
-------- -------- -------- --------
Interest expense, net (608)
Corporate expenses (1,589)
Income before income
taxes and minority interests $ 692
========
Identifiable assets $ 6,655 $ 11,982 $ (596) $ 18,041
-------- -------- -------- --------
Identifiable liabilities $ 5,110 $ 7,942 $ 1,743 $ 14,795
-------- -------- -------- --------
</TABLE>
45
<PAGE> 46
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
7. Segment Information, Continued:
<TABLE>
<CAPTION>
Twelve Months Ended September 30, 1993
----------------------------------------------------------------
United Pacific Elimina-
States Europe Basin tions Total
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales to
customers $ 13,501 $ 12,243 $ 17,134 $ 42,878
Inter-area sales 827 37 $ (864)
-------- -------- -------- -------- --------
Total net sales $ 14,328 $ 12,280 $ 17,134 $ (864) $ 42,878
-------- -------- -------- -------- --------
Segment operating
income (loss) $ 473 $ (718) $ 929 684
-------- -------- -------- --------
Interest expense, net (719)
Corporate expenses (1,035)
--------
Loss before income
taxes minority interests
and extraordinary income $ (1,070)
========
Identifiable assets $ 8,213 $ 5,700 $ 9,772 $ (1,229) $ 22,456
-------- -------- -------- -------- --------
Identifiable
liabilities $ 4,916 $ 4,649 $ 7,404 $ 3,223 $ 20,192
-------- -------- -------- -------- --------
</TABLE>
Sales and transfers between geographic areas are made with reference to
prevailing market prices and at prices approximately equal to those charged to
unaffiliated distributors. Operating income is revenue less related costs and
operating expenses, including other income and expense, but excluding interest
and corporate expenses.
Identifiable assets are those assets of the Company that are identified with
operations in each geographic area.
No single customer or group of related customers or total export sales accounted
for as much as 10% of consolidated sales during any of the periods presented.
8. Acquisitions and Dispositions:
Effective October 1, 1989, the Company acquired a 29.3% interest in SGA Pacific
Limited (SGA), a distributor of the Company's products in Australia, New Zealand
and Asia in exchange for the stock of the Company's wholly-owned subsidiaries in
Singapore and Hong Kong, and for cash of $38. The total consideration, which is
the aggregate of the Company's historical basis in the stock exchanged and the
cash, amounted to $243.
46
<PAGE> 47
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
8. Acquisitions and Dispositions, Continued:
On July 1, 1990, the Company purchased an additional 21.8% interest in SGA from
Sanderson Electronics, PLC, for $875. As the Company became a majority (51.1%)
stockholder, SGA's operations have been consolidated with the Company from July
1, 1990. On November 10, 1994, with retroactive effect from October 1, 1994, the
company sold its 51% share of SGA Pacific, Ltd. to Sanderson Technology, Ltd. In
consideration, Sanderson Technology Ltd. paid the Company $1,000 in cash, $1,000
in a 24 month note, plus transferred 4,100,000 shares of the Company's common
shares back to the Company, which were retired. This brought Sanderson's
interest in the Company down to under 10%. The sale was not recorded as a profit
due to the related party nature of the transaction. However, the estimated gain
of $3.1 million will be taxable on the fiscal 1995 tax return. It is expected
that most of $1.1 million due in Federal income taxes will be offset by net
operating loss carryforwards.
In October, 1992, the Company signed an agreement to form a holding company,
Eurosystems GA Ltd. (Eurosystems), a UK corporation. Under the terms of the
agreement, the Company received 61% of the common shares of Eurosystems in
exchange for its shares in General Automation France SA, General Automation SA
(Belgium), and General Automation Italia SpA (Italy). Krypton Group Ltd., a UK
corporation received 39% of the common shares in exchange for its 100%
shareholding in Eurosystems Belgium SA and Eurosystems SA (France), its 55%
shareholding in Eurosystems GmbH (Germany) and its 85% shareholding in
Eurosystems Maintenance SA (France). The Company accounted for this transaction
as a purchase, with related acquisition adjustments first reflected in the
Company's quarter ended December 31, 1992.
In March, 1993, Eurosystems GA, Ltd. sold its shares of Eurosystems GmbH
(Germany) to the minority shareholders of the German subsidiary for DM3,000
(approximately $1,863). Because this event was related to the initial purchase
in October, 1992, the Company determined that the proper recording of its share
of the gain on the transaction was be to offset the gain of $251 against the
goodwill established at the time of the acquisition.
On October 29, 1993, with retroactive effect from September 30, 1993, the
Company sold its 61% share of Eurosystems to the minority shareholders of
Eurosystems (Krypton Group Ltd.) for $750. A loss of $994 related to this
disposition is included in the 1993 consolidated statement of operations. The
terms included a note receivable in the amount of $750 if paid by December 31,
1993, or $795, including $45 interest if paid before March 31, 1994. If not
repaid by March 31, 1994, the note is repayable in 33 monthly installments of
$30. The note was not paid by March 31, 1994 and after receiving six monthly
installments, payments were suspended by Krypton. For fiscal year 1994, the
Company set up a $240,000 reserve against the $810 balance remaining. In 1995
Krypton filed for bankruptcy. The Company has entered into an agreement which
allows GA to share equally in the profits of the Eurosystems group of companies
wholly owned by Future Services, Ltd. a newly formed company in Great Britain
and owned by the former Krypton management. The Eurosystems group has been
profitable and management expects to receive the $570 carried in the balance
sheet.
47
<PAGE> 48
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
8. Acquisitions and Dispositions, Continued:
Unaudited Proforma condensed financial information of the Company for fiscal
year 1994 as if the divestitures of Eurosystems GA, Ltd. and SGA Pacific,
Limited had occurred as of the beginning of fiscal year 1993:
<TABLE>
<CAPTION>
Unaudited Proforma Balance Sheet
At September 30, 1994
--------------------------------
<S> <C>
Cash $1,063
Accounts and notes receivable 2,820
Inventory 2,318
Other current assets 174
------
6,375
Long-term portion of
notes receivable 710
Other assets 1,049
------
Total assets $8,134
======
Accounts payable $1,297
Other current liabilities 1,396
Notes payable 1,742
------
4,435
------
Long-term debt 732
Other non-current liabilities
Deferred income 70
Shareholders' equity 2,897
------
Total liabilities and
shareholders' equity $8,134
======
Net book value per share,
based on 7,266,776 shares,
after retirement of
4,100,000 shares $ 0.40
======
</TABLE>
48
<PAGE> 49
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
8. Acquisitions and Dispositions, Continued:
<TABLE>
<CAPTION>
Unaudited Proforma Statement of Operations
For the Year Ended September 30, 1994
------------------------------------------
<S> <C>
Sales, net $ 14,572
Income (loss) from
operations (842)
Net income (loss) $ (318)
Per share-primary:
Income (loss) before
extraordinary income $ (0.40)
Extraordinary items
--------
$ (0.40)
========
</TABLE>
9. Extraordinary Income:
Extraordinary income for the year ended September 30, 1993 included $1,000 from
a decrease in estimated tax liabilities as described in Note 6.
10. Commitments and Contingencies:
The Company leases certain facilities and equipment under operating leases.
Lease rental expense for the periods ended September 30, 1995, September 30,
1994 and September 30, 1993 were approximately $305, $1,367 and $1,786,
respectively.
As of September 30, 1995, the minimum rental commitments required under existing
noncancellable operating leases, some of which provide for future increases in
minimum rentals, are (in thousands) as follows:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
1996 $144
1997 5
1998 0
1999 0
----
$149
====
</TABLE>
49
<PAGE> 50
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
10. Commitments and Contingencies, Continued:
The Company is a defendant in various lawsuits and claims which have arisen in
the course of its business. While it is not possible to predict with certainty
the outcome of such litigation and claims, it is the opinion of Company
management, based in part on consultations with counsel, that the liability of
the Company, if any, arising from the ultimate disposition of any or all such
lawsuits and claims has been adequately provided for in the consolidated
financial statements of the Company.
The Company is currently a party to a lease agreement for its former corporate
headquarters in Anaheim through February, 1996. The Company does not expect to
sub-lease the building through the remainder of the lease term. Approximately
$75 has been accrued for losses anticipated with this transaction.
The Company has been named as one of three defendants in a lawsuit brought by
the owner of real property once leased and used by a division of the Company as
part of its operations. The plaintiff is seeking relief from alleged
environmental damages which may have occurred on the property before, during, or
after the time the Company leased the property. The extent of the damage, if
any, has not been determined at this time nor has the extent of the Company's
liability, if any, been established in relation to the other defendants. All of
the parties to the litigation are, under the direction of the court, jointly
funding testing to determine the contamination, and scope of any required
remedial effort. The Company has two of its insurance carriers contributing to
the Company's expenses in this matter. The Company has not recorded a liability
for any potential financial exposures attributed to the Company for remedial
efforts.
11. Other
11.1 Effective May 22, 1995, the Company and SunRiver Data Systems formed a
Limited Liability Corporation (LLC). The LLC was formed to allow the
consolidation of the two firms "Pick" businesses into a single entity, under
one management, to enhance the profit potential from this type of business.
SunRiver does not participate in the profits or losses of this LLC. Under the
agreement, SunRiver is paid a percentage of eligible revenues, ranging from 12%
down to 5% over a five year period. The Company has a first year obligation to
pay SunRiver a minimum of $2.9 million; which is being expensed as incurred. No
minimum payments are required during the balance of the agreement. The
agreement also provides for loaned labor from SunRiver to assist in the
transition and also for SunRiver to pay a fee to GA for managing those
contracts for which SunRiver had been prepaid. These payments will end about
the end of May, 1996.
11.2 Effective August 28, 1995, the Company entered into an agreement with
Sanderson Computer, Inc. ("SCI") under which SCI is responsible for the
world-wide sale of the Zebra 200 Library Systems, and the Maxial hospitality
systems. Further, SCI will assume the responsabilities for completing the
Company's approximate $400,000 backlog of Zebra 2000 contracts. The Company will
receive royalty payments from the Maxial revenues plus an exclusivity annual fee
of $20,000. The Company will receive no revenues from the Zebra 2000 product
line as base software was owned by SCI's parent to whom the Company had been
paying royalties. SCI has used GA employees, facilities and equipment on an
interim basis until they complete the staffing at its Ohio facility; for this,
the Company receives fair value.
12. Subsequent Events (Unaudited)
As of March 14, 1996, the Company received a new $600,000 note from Future
Services, Ltd. to repay the $570,000 note previously carried on the Company's
records. This note bears interest at 10% payable monthly, with the Company
sharing 50% of the net profits of Future Services, Ltd. until the debt is
repaid.
50
<PAGE> 51
SIGNATURES
Pursuant to the requirements of section 13, or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
GENERAL AUTOMATION, INC.
Date: April 29, 1996 By: /s/ John R. Donnelly
----------------------------
John R. Donnelly
Vice President, and
Chief Financial & Accounting Officer
<PAGE> 1
EXHIBIT 10(n)
OPERATING AGREEMENT
FOR
GENERAL AUTOMATION LLC
A DELAWARE LIMITED LIABILITY COMPANY
This operating agreement ("Agreement"), is made as of May 22, 1995, by
and between General Automation, Inc., a Delaware corporation ("GAI"), and
SunRiver Data Systems, a Delaware corporation ("SunRiver") with reference to
the following facts:
A. On May 6, 1995, a Certificate of Formation for General Automation
LLC ("GAL" or the "Company"), a limited liability company under the laws of the
State of Delaware, was filed with the Delaware Secretary of State.
B. The parties desire to adopt and approve an operating agreement for
GAL.
NOW, THEREFORE, the parties (hereinafter sometimes collectively
referred to as the "Members" or individually as the "Member") by this Agreement
set forth the operating agreement for GAL under the laws of the State of
Delaware upon the terms and subject to the conditions of this Agreement.
ARTICLE I
DEFINITIONS
When used in this Agreement, the following terms shall have the
meanings set forth below (all terms used in this Agreement that are not defined
in this Article I shall have the meanings set forth elsewhere in this
Agreement):
1.1 "Act" shall mean the Delaware Limited Liability Company Act,
codified in the Delaware Code Annotated, Section 18-101 et seq., as the same
may be amended from time to time.
1.2 "Articles" shall mean the Certificate of Formation for GAL
originally filed with the Delaware Secretary of State and as amended from time
to time.
1.3 "Capital Account" shall mean with respect to any Member the
capital account which GAL establishes and maintains for such Member pursuant to
Section 3.3.
1.4 "Capital Contribution" shall mean the total value of cash and
fair market value of property contributed and/or services rendered or to be
rendered to GAL by Members.
1.5 "Fiscal Year" shall mean GAL's fiscal year, which shall be
the October 1st through September 30th.
1.6 "GAI's PICK Business" consists of the distribution of
PICK-based computer systems and software running GAI's version of the PICK
System on various hardware platforms, including but not restricted to GAI's
R91(R) version of the PICK System on GAI's manufactured 68040 based systems and
its soon to be released Power95(R) version of PICK running on GAI badged AIX
based hardware platforms supplied under OEM agreements by Groupe Bull, IBM, and
Motorola marketed
1
<PAGE> 2
through dealers, distributors, original equipment manufacturers and value-
added resellers, and the maintenance and support of such systems under
maintenance contracts and on "time and material" basis.
1.7 "Majority Interest" shall mean one or more Percentage
Interests of Members which taken together exceed fifty percent (50%) of the
aggregate of all Percentage Interests.
1.8 "Manager" shall mean one or more Managers. Specifically,
"Manager" shall mean GAI, or any other persons that succeed it.
1.9 "Member" shall mean each Person who (a) is an initial
signatory to this Agreement, has been admitted to GAL as a Member in accordance
with the Articles of this Agreement or is an assignee who has become a Member
in accordance with Article VI and (b) has not resigned, withdrawn, been
expelled or, if other than an individual, dissolved.
1.10 "Membership Interest" shall mean a Member's entire interest
in GAL including the right to vote on or participate in the management, and the
right to receive information concerning the business and affairs of GAL.
1.11 "Percentage Interest" shall mean the percentage of a Member
set forth opposite the name of such Member under the column "Member's
Percentage Interest" in Exhibit A hereto, as such percentage may be adjusted
from time to time pursuant to the terms of this Agreement. Percentage
Interests shall be determined in accordance with the relative proportions of
the Capital Accounts of the Members.
1.12 "Software" shall mean executable programs and source code for
all PICK like products of GAI and SunRiver, such as Mentor, Mentor PRO, Mentor
Operating Environment, R91, R83, and Power95.
1.13 "SunRiver's PICK Business" consists of the distribution of
PICK-based computer systems and software running SunRiver's version of the
PICK System on various hardware platforms (including but not restricted to
SunRiver's Intel based product marketed under the trademark "ADDS Mentor(R)PRO"
and SunRiver's Mentor Operating Environment (MO/E) operating system) through
dealers, distributors, original equipment manufacturers and value-added
resellers, and the maintenance and support of such systems under maintenance
contracts and on "time and material" basis, all in substantially the form
previously operated by the Applied Digital Data Systems, Inc. subsidiary of
AT&T Global Information Solutions ("AT&T-GIS") , which was acquired by SunRiver
in December 1994.
1.14 "Significant Terminal VAR" Shall mean a _PICK dealer/VAR that
also sells terminal products purchased from SunRiver into markets other than
the "PICK" market and purchases more than 50 terminals per annum.
2
<PAGE> 3
ARTICLE II
ORGANIZATIONAL MATTERS
2.1 Formation. Pursuant to the Act, the Members have formed a
Delaware limited liability company under the laws of the State of Delaware by
filing the Articles with the Delaware Secretary of State and entering into this
Agreement. The rights and liabilities of the Members shall be determined
pursuant to the Act and this Agreement. To the greatest extent permitted by
the Act, the Agreement shall control.
2.2 Name. The name of the company shall be "General Automation
LLC."
2.3 Term. The term of this Agreement shall be co-terminus with
the period of durations of GAL provided in the Articles, unless extended or
sooner terminated as hereinafter provided.
2.4 Office and Agent. GAL shall continuously maintain an office
and registered agent in the State of Delaware as required by the Act. The
principal office of GAL shall be at 17731 Mitchell North, Irvine, California
92714. Such location could change, as GAI from time to time may determine, or
the business of GAL may require. The registered agent shall be as stated in
the Articles or as otherwise determined by the Manager.
2.5 Purpose of GAL. The purpose of GAL is to engage in any lawful
activity for which a limited liability company may be organized under the Act.
Notwithstanding the foregoing, without the unanimous consent of the Members,
GAL shall not engage in any business other than the following:
(a) to manage and operate GAI's PICK Business and SunRiver's
PICK Business.
(b) the development, manufacturing, marketing, sale,
distribution and service of information management environment products
currently known as Mentor PRO, Mentor Operating Environment, R91, Power95 and
future derivatives and enhanced versions of such products;
(c) the manufacture and/or integration, marketing, sale and
distribution of hardware platforms using PICK software for use in the PICK
marketplace provided by AT&T, Groupe BULL, IBM, Motorola, and others on various
operating systems as may be determined by the management of GAL;
(d) to provide technical service and support for the company's
products including: AT&T UNIX, AIX, and other operating systems as well as
professional services for PICK application software worldwide; and
(e) such other activities directly related to the foregoing
("the Business") as may be necessary, advisable, or appropriate, in the
reasonable opinion of the Manager to further the foregoing business.
3
<PAGE> 4
ARTICLE III
CAPITAL CONTRIBUTIONS
3.1 Initial Capital Contributions. Each Member shall contribute
such amount as is set forth on Exhibit "A" as their initial Capital
Contribution, which Exhibit "A" shall be revised to reflect any additional
contributions contributed in accordance with Section 3.2.
3.2 Additional Capital Contributions. No Member shall be required
to make any additional Capital Contributions. To the extent unanimously
approved by the Members, the Members may be permitted to make additional
Capital Contributions.
3.3. Capital Accounts. GAL will maintain the capital accounts in
accordance with Treasury Regulations Section 1.704-1(b)(2)(iv).
3.4 No Interest. No Member shall be entitled to receive any
interest on their Capital Contributions.
ARTICLE IV
MAINTENANCE CONTRACTS, LEASES, DISTRIBUTORSHIPS, AND LICENSES
4.1 Assignment of Maintenance Contracts. SunRiver and GAI shall
retain their respective ownership of and the obligations under all their
existing system maintenance contracts with their customers. SunRiver shall
subcontract with GAL to provide all services required by SunRiver under these
agreements, including call management, Technical Assistance Center support for
software and hardware for SunRiver's customers. SunRiver shall pay GAL a
monthly management fee equal to twenty percent (20 %) of the monthly charges to
the customers under such maintenance contract for this service. GAL will use
its best efforts to secure contracts from all SunRiver customers upon the
expiration of the existing SunRiver maintenance contracts with such customers,
and shall act as a re-seller of SunRiver supplied AT&T maintenance services as
provided under the Master OEM Maintenance Agreement (the "AT&T Agreement")
between SunRiver and AT&T Global Information Solutions Company (AT&T) dated
December 9, 1994 to such customers until such time as GAL shall secure a direct
maintenance agreement with AT&T, which GAL shall use its best effort to secure.
GAL shall be responsible for renewal and billing of all new service contracts
and renewals of existing contracts after closing and shall perform all
activities consistent with the AT&T Agreement. The Manager hereby agrees to
actively promote the Business of GAL, and SunRiver and GAI agree to cooperate
with GAL to allow it to actively conduct its business and to expand the PICK
market for current and future products.
4.2 Lease of Capital Equipment. SunRiver shall rent or lease to
GAL any existing capital equipment including, but not limited to, computers,
terminals, modems, networks, and other devices used in the operation of the
SunRiver PICK Businesses. The listing of all such equipment is contained on
and Exhibit "B" attached hereto. SunRiver shall be compensated for such
equipment lease at the rate of .0278 times the market value of such equipment
per month for three (3) years after which time the capital equipment shall
become the property of GAL.
4.3 Distributorship. SunRiver hereby appoints GAL as a
distributor and grants to GAL the exclusive right to market, distribute, sell,
install, and support the terminal products of SunRiver to
4
<PAGE> 5
GAL's PICK customers and VARs except as st forth below. SunRiver shall not
sell terminal products to any GAL VARs which sell hardware and products which
utilize the Pick Operating Systems or software that emulates the functions and
features of the Pick Operating System but shall be authorized to sell terminal
products to any "Significant Terminal VARs". GAL and SunRiver agree to execute
a standard SunRiver distributor agreement substantially in the same form as
Exhibit "C" attached. GAL shall exclusively sell SunRiver terminal products so
long as GAL determines, in its reasonable judgment, that the SunRiver terminal
products are both technically and financially competitive with similar terminal
products.
4.4 AT&T Agreements. Nothing in this agreement shall be
considered to constitute an assignment of the AT&T Agreement. GAL shall take no
actions in contravention of SunRiver's existing agreements with AT&T.
4.5 PICK Systems Negotiations. SunRiver and GAI shall jointly
engage in negotiations with PICK Systems, the goal of which shall be to secure
an agreement between the parties to allow for the integration of the features
of GAI's R91, Power95 and SunRiver's Mentor(R)PRO into Advanced PICK, for which
a favorable license will be issued by PICK to GAI.
4.6 Software Licenses. Concurrent with the execution of this
agreement, GAI and SunRiver shall each enter into an Exclusive License
Agreement with GAL substantially in the form attached as Exhibit "E" whereby
each shall license its proprietary software version of the PICK Operating
System to GAL to enable GAL to market and to sell such software in furtherance
of the Business. GAL shall be further authorized to develop and enhance the
software during the term of the Exclusive License Agreement. All such
enhancement shall remain the property of GAL subject to the provisions of
Article IX and XI hereof.
4.7 On-going Business Relationships: The parties agree that
SunRiver and GAI will continue to work together to exploit the PICK marketplace
and to explore combined purchases of materials, equipment, parts and services.
GAL may elect to purchase from SunRiver certain continuing services including
(i) Marketing and marketing communications services; (ii) Software development;
(iii) facilities as may be required. GAL shall purchase such services from
SunRiver prior to purchasing the same from a third party provided that the
service is available from SunRiver at a commercially reasonable price and
provides equivalent benefits. Such services shall be provided by SunRiver on a
cost-plus ten (10) per cent basis.
ARTICLE V
PURCHASE OF PRODUCTION AND
SPARE PARTS INVENTORIES
5.1 Production Inventories. Both GAI and SunRiver shall retain
ownership of their respective inventories of production Parts currently used to
support their respective PICK businesses ("the Parts"). A complete listing of
all spare Parts currently in inventory, with corresponding Part identification
numbers and prices, is attached hereto as Exhibit "D", and incorporated herein
by reference. GAL shall purchase such Parts as and when required to conduct
the business on a cost plus eight percent (8%) basis. GAL shall purchase spare
Parts from SunRiver prior to purchasing the same Parts from a third party
providing the Part is available from SunRiver at a commercially competitive
price. For a period of three (3) years following the date of this agreement
GAL shall have a right of
5
<PAGE> 6
first refusal to purchase any of the Parts which SunRiver may offer to sell to
any third party at a price equivalent to that offered to such third party. All
Parts not acquired during such three (3) year period may be disposed of by
SunRiver in any manner it so chooses.
ARTICLE VI
MEMBERS
6.1 Limited Liability. Except as required under the Act or as
expressly set forth in this Agreement, no Member shall be personally liable for
any debt, obligation, or liability of GAL, whether that liability or obligation
arises in contract, tort, or otherwise.
6.2 Admission of Additional Members. The Manager, with the
unanimous approval of the Members, may admit to GAL additional Members. Any
additional Members shall obtain Membership Interests and will participate in
the management and distributions of GAL on such terms as are determined by the
Manager and approved unanimously by the Members. Notwithstanding the
foregoing, substitute Members may only be admitted in accordance with Article
VII.
6.3 Withdrawals or Resignations. Any Member may withdraw or
resign as a Member at any time upon 180 days prior written notice to GAL. Such
Member's Membership Interest will be subject to purchase and sale as provided
in Article IX. The withdrawing Member is not entitled to a return of capital
prior to dissolution. The withdrawing Member is entitled to receive
distributions as otherwise provided for in this agreement until its capital is
returned. Except as set forth in this agreement withdrawal of a Member will
not result in a dissolution of GAL, if the Members agree to continue GAL.
6.4 Remuneration to Members. Except as authorized in this
Agreement, no Member is entitled to remuneration for acting in GAL business,
subject to the entitlement of the Manager or Members winding up the affairs of
GAL to reasonable compensation pursuant to Section 11.2.
6.5 Members Are Not Agents. The management of GAL is vested in
the Manager. No Member, acting solely in the capacity of a Member, is an agent
of GAL nor can any Member in such capacity bind nor execute any instrument on
behalf of GAL.
6.6 Information. The Manager shall on request furnish a photocopy
of the (a) Member list, (b) the Manager list, (c) the federal, state or local
tax or informational returns, (d) the Articles of Organization and all
amendments or (e) the Agreement and all amendments, correct as of the date of
making the photocopy, to any Member, the representative of any Member, or the
nominee of any Member.
6.7 Permitted Actions by Members. At any meeting of Members duly
called for that purpose, the Members may, by vote of the Members owning a
Majority of all the Membership Interests, take all actions necessary to manage
GAL, other than those set out below, which shall require unanimous approval of
the Membership.
6.7.1 Appoint a Manager other than GAI except as
specifically authorized by this agreement.
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6.7.2 Amend this Agreement.
6.7.3 Dissolve GAL.
6.7.4 Approve or disapprove the sale of the assets of GAL.
6.7.5 Approve Annual Business Plan. The members agree the
plan will be formulated on or about September 30 of each year,
and such plan will have monthly and quarterly projections of
revenue.
6.7.6 Approve any financing or lien other than Accounts
Receivable which encumbers the assets of GAL and which would
be superior in priority to the payment of distributions to
SunRiver.
6.8 Meetings of Members.
A. Date, Time and Place of Meetings of Members: Secretary.
Meetings of Members may be held as such date, time and place as the Manager may
fix from time to time. The meeting must be held within the county the
principal place of business is located. No annual or regular meetings of
Members is required.
B. Power to Call Meetings. Meetings of the Members may be
called by any Manager, or upon written demand of any Members for the purpose of
addressing any matters on which the Members may vote.
C. Notice of Meeting. Written notice of a meeting of Members
shall be sent or otherwise given to each Member not less that ten (10) nor
more than thirty (30) days before the date of the meeting. the notice shall
specify the place, date and hour of the meeting, and the general nature of the
business to be transacted. No other business may be transacted at this
meeting. When the meeting is called by other than a Manager and the notice is
not given within twenty (20) days after the receipt of the request, the person
entitled to call the meeting may give the notice.
D. Manner of Giving Notice: Affidavit of Notice. Notice of
any meeting of Members shall be given either personally or by first-class mail
or telegraphic or other written communication, charges prepaid, addressed to
the Member at the address of that Member appearing on the books of GAL or given
by the Member to GAL for the purpose of notice. Notice shall be deemed to have
been given at the time when delivered personally or deposited in the mail or
sent by telegram or other means of written communication.
E. Validity of Action. Any action approved at a meeting,
other than by unanimous approval of those entitled to vote, shall be valid only
if the general nature of the proposal so approved was stated in the notice of
meeting or in any written waiver of notice.
F. Quorum. The presence of the holders of a Majority
Interest shall constitute a quorum at a meeting of Members. The Members
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the loss of a
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quorum, if any action taken after loss of a quorum (other than adjournment) is
approved by at least Members holding a Majority Interest.
G. Adjourned Meeting: Notice. Any Members' meeting, whether
or not a quorum is present, may be adjourned from time to time by the vote of
the majority of the Membership Interests represented at that meeting.
H. Waiver of Notice or Consent. The actions taken at any
meeting of Members however called and noticed, and whatever held, have the same
validity as if taken at a meeting duly held after regular call and notice, if a
quorum is present and if, either before or after the meeting, each of the
Members entitled to vote, who was not present signs a written waiver of notice
or consents to the holding of the meeting or approves the minutes of the
meeting. All such waivers, consents or approvals shall be filed with GAL
records or made a part of the minutes of the meeting. Attendance of a person
at a meeting shall constitute a waiver of notice of that meeting, except when
the person objects, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened, and except
that attendance at a meeting is not a waiver of any right to object to the
consideration of matters not included in the notice of the meeting if that
objection is expressly made at the meeting.
I. Action by Written Consent without a Meeting. Any action
that may be taken at a meeting of Members may be taken without a meeting, if a
consent in writing setting forth the action so taken, is signed and delivered
to GAL by Members having not less than the minimum number of votes that would
be necessary to authorize or take that action at a meeting at which all Members
entitled to vote on that action at a meeting were present and voted. All
consents shall be filed with the Manager shall be maintained in GAL records.
ARTICLE VII
MANAGEMENT AND CONTROL OF GAL
7.1 Management of GAL by Managers. The business and affairs of GAL
shall be managed exclusively by GAI, except as otherwise set forth in this
agreement. Except for situations in which a unanimous vote of the Members is
expressly required by the Articles or this Agreement, GAI shall have full,
complete and exclusive authority, power, and discretion to manage and control
the business and affairs of GAL, to make all decisions regarding those matters
and to perform any and all other acts or activities customary or incident to
the management of GAL's business and affairs generally consistent with the
approved Business Plan, which such Business Plan shall be prepared no less than
annually and shall include but is not limited to an operating budget, marketing
plan, sales goals and objectives, and product development plans.
7.2 Managing Member's Powers and Duties. GAI shall, in management of
GAL's affairs, have, subject to the laws of the State of Delaware, including
without limitation, the following powers:
1. To employ from time to time at the expense of GAL, on such
terms and for such compensation as the Manager may deemed reasonable, such
persons as may be required for efficient maintenance and operation of GAL
business, including accountants, attorneys, and others.
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2. To pay all attorneys' fees and accountants' fees and other
costs incurred in the formation of GAL and completion of all steps necessary
for GAL to comply with all applicable laws.
3. To execute, acknowledge, and deliver any and all
instruments in writing required to effectuate any of his other powers.
7.3 Election of Managers.
A. Number, Term, and Qualifications. GAL shall initially
have one (1) Manager which shall be GAI. Unless the Manager resigns or is
removed, the Manager shall hold office until a successor shall have been
elected and qualified. Except as set forth herein, the Manager shall be
elected by the unanimous vote or written consent of the Members. A Manager
need not be a Member.
B. Resignation. If GAI should resign as Manager, SunRiver
shall have the option of becoming Manager without the requirement of the
unanimous vote of the Members, and GAL shall continue to be governed as set
herein. Should SunRiver not exercise its right to become Manager and the
Members are unable to agree on a suitable Manager then GAL shall be dissolved
as set out in Article 8 hereof.
C. Removal. Except as set forth below the Manager may be
removed at any time, with or without cause, by the affirmative vote of Members
holding a Majority Interest at a meeting called expressly for that purpose, or
by the written consent of the Members holding a Majority Interest. Any removal
shall be without prejudice to the rights, if any, of the Manager under any
agreement and, if the Manger is also a Member, shall not affect the Manager's
rights as a Member or constitute a withdrawal of a Member. Notwithstanding the
foregoing, if SunRiver becomes the Manager under any of the provisions provided
for such appointment, except as set forth in Article XIII, SunRiver may not be
removed without the unanimous vote of the Members.
7.4 Management Committee. GAL shall have a management committee
that consists of five (5) individuals, at least three (3) of which shall be
selected by GAI and two (2) of which may be selected by SunRiver, at SunRiver's
discretion. The management committee will have no authority over the Manager
and its decisions, but will serve to advise and consult with the Manager on an
as needed basis but no less than once per month.
7.5 Members have No Managerial Authority. The Members shall have no
power to participate in the management of GAL except as expressly authorized by
this Agreement or the Articles and except as expressly required by the Act.
Unless expressly and duly authorized in writing to do so by a Manager, no
Member shall have any power or authority to bind or act on behalf of GAL in any
way, to pledge its credit, or to render it liable for any purpose.
7.6 Performance of Duties: Liability of Managers. A Manager shall
not be liable to GAL or to any Member for any loss or damage sustained by GAL
or any Member, unless the loss or damage shall have been the result of fraud,
deceit, gross negligence, reckless or intentional misconduct, or a knowing
violation of law by the Manager. The Manager shall perform its Managerial
duties in good faith, in a manner they reasonably believe to be in the best
interests of GAL and its Members, and with such care, including reasonable
inquiry, as an ordinarily prudent person in a like position would use under
similar circumstances. A Manager who so performs the duties of Manager shall
not have any liability by reason of being or having been a Manager of GAL.
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7.7 Devotion of Time. The Manager is not obligated to devote all of
their time or business efforts to the affairs of GAL. The Manager shall devote
whatever time, effort, and skill as they deem appropriate for the operation of
GAL.
7.8 Competing Activities. The Members, their officers, directors,
shareholders, partners, Members, Managers, agents, or employees may engage or
invest in, independently or with others, any business activity of any type or
description, except those which directly or indirectly compete with GAL or the
Business. Neither GAL nor any Member shall have any right in or to such other
ventures or activities or to the income or proceeds derived therefrom. The
Manager and the Members shall not be obligated to present any investment
opportunity or prospective economic advantage to GAL, even if the opportunity
is of the character that, if presented to GAL, could be taken by GAL.
7.9 Transaction between GAL and Managers. Notwithstanding that it
may constitute a conflict of interest, the Manager may, engage in any
transaction with GAL so long as such transaction is not expressly prohibited by
this Agreement and so long as the terms and conditions of such transaction are
fair and reasonable to GAL and are on terms not less favorable to GAL then can
be secured from arms-length third parties.
7.10 Payments to Managers. Except a specified in this Agreement, GAI
is not entitled to remuneration for services rendered to GAL. GAI and their
affiliates shall receive only the following payments:
A. Management Fee. GAI's sole compensation will be to
receive cash distributions as provided for in Section 8.1.
B. Expenses. GAL shall reimburse the Manager for the actual
cost of goods and materials used for or by GAL. GAL shall also pay or
reimburse the Manager for organizational expenses (including, without
limitation, legal and accounting fees and costs) incurred to form GAL and
prepare the Articles and this Agreement.
ARTICLE VIII
ALLOCATIONS OF NET PROFITS AND NET LOSSES AND DISTRIBUTIONS
8.1a The Members shall distribute cash and allocate profit or loss
as described below. SunRiver shall receive cash distributions equal to a
percentage of the "Net Revenues" of the combined Business for each preceding
month as set forth below. Solely for the purposes of this Agreement, "Net
Revenues" shall be monthly gross revenues from the Businesses, less credits,
returns, sales taxes and duties, packaging, prepaid and billed freight charges
on customer shipments, and all other related pass through charges. No
deduction shall be made for the costs of goods, operating expenses, and other
expenses of GAL in determining net revenues. GAI will receive all other cash
distributions, if any, not paid to SunRiver. Except as set forth in Paragraph
8.1b the amount of "net revenue" paid monthly to SunRiver, for the first 60
months from the date hereof, will be as follows:
<TABLE>
<S> <C>
Months 1-12 -- 12% Months 12-24 -- 10%
Months 24-36 -- 9% Months 36-48 -- 8%
Months 48-60 -- 7%
</TABLE>
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The monthly cash distributions to SunRiver required under this Paragraph 8.1 or
as may be modified under Paragraph 8.1(b) (hereinafter the "SunRiver
Distributions") shall be made to SunRiver no later than thirty (30) business
days after the close of the month and shall be paid without reference to the
profits of GAL or whether GAL is profitable for any period or any year. In the
event such payments are not made by GAL to SunRiver in a timely fashion,
SunRiver shall have all the rights of a creditor under the law plus the rights
set forth in Article X of this Agreement. The SunRiver Distributions provided
for hereunder are in addition to the other payments required under this
agreement including Paragraphs 4.2 and 5.1 or as may be modified under
Paragraph 8.1(b).
8.1b Revenue Forecast. If during the any three (3) month period of
the twelve (12) month period following the date of this Agreement the actual
net revenue generated by the Business falls below 85% of that net revenue which
is established by the approved Business Plan for that period, then the
following modifications to the distribution procedures of Paragraph 8.1 shall
apply as follows:
A. If the revenue deficiency during any such three (3) months
during the twelve (12) month period from the date hereof results in all or part
from actual revenues from former SunRiver customers being less than the
revenue which is forecast for the period by the Business Plan from those
customers, and, if such deficit is equal to or greater than 15% of the total
projected net revenue in the Business Plan, from all sources, then the
percentage of net revenue paid to SunRiver shall be reduced from 12% to 10.5%
for such period, the remainder of the twelve (12) month period commencing from
the date hereof.
B. Conversely, if the revenue deficiency during any such three
(3) months during the twelve (12) month period from the date hereof results in
all or part from actual revenue from GAI customers being less than that
revenue which is forecast for the period by the Business Plan from those
customers, and if such deficit is equal to or greater than 15% of the total
projected net revenue in the Business Plan, from all sources, then the
percentage of net revenue paid to SunRiver shall be increased from 12% to 13.5%
for the remainder of the twelve (12) month period commencing from the date
hereof.
Provided however that in no event shall the distribution of net revenue to
SunRiver during the first twelve (12) months following the execution of this
Agreement be less than $2.9 million, regardless of the actual net revenue
generated by the Business from either of GAI's or SunRiver's customer base.
Moreover, neither of the above paragraphs will apply if both paragraphs are
applicable.
8.2 Profits. After giving effect to the special allocations set
forth in Paragraph 8.4, Profits with respect to any Fiscal Year shall be
allocated to the Members as follows:
(a) First, to the Members until the cumulative profits
allocated pursuant to this Paragraph 8.2 (a) are equal to the cumulative Losses
allocated to the Members pursuant to Paragraph 8.3 (b)(ii) for all prior Fiscal
Years;
(b) Second, to the Members until the cumulative profits
allocated pursuant to this Paragraph 8.2 (b) are equal to the cumulative Losses
allocated to the Members pursuant to Paragraph 8.3(b)(i) and Paragraph 8.3(ii)
for all prior Fiscal Years;
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(c) Third , to SunRiver in an amount equal to the SunRiver
Distributions paid to it from the inception of the Partnership and to date and
which have not been subject to a profits allocation under this Paragraph 8.2;
and
(d) the balance, if any, to GAI.
Distribution to the Members will be made within thirty (30) days following the
close of the month. The Members acknowledge that year end adjustments may be
made on Monthly payments.
8.3 Losses. After giving effect to the special allocations set
forth in Paragraph 8.4, losses with respect to any Fiscal Year shall be
allocated to the Members as follows:
(a) 99 percent to GAI and 1 percent to SunRiver;
(b) Losses allocated to any Member with respect to any
Fiscal year shall not exceed the maximum amount of Losses that may be so
allocated without causing such Member to have a Negative Capital Account at
the end of such year. All Losses in excess of the limitation set forth in this
Paragraph 8.2(c) shall be allocated:
(i) First, to the Members who will not be subject
to this limitation to the extent possible until such Members become subject to
this limitation; and
(ii) Second, any remaining amount to the Members
pro rata in accordance with their aggregate Percentage Interests, unless
otherwise required by the Code or Treasury Regulations.
8.4 Special Allocations.
(a) Qualified Income Offset. Subject to paragraph (6)
below, notwithstanding anything herein to the contrary, but only if required by
Treasury Regulation section 1.704-1(b) in order for the allocations provided
for herein to be considered to have substantial economic effect or to be deemed
to be in accordance with the Members' interests in the Company, if in any
Fiscal Year, a Member unexpectedly receives an adjustment, allocation or
distribution described in Treasury Regulation section 1.704-1(b) (2) (ii) (d)
(4), (5) or (6), and such adjustment, allocation or distribution causes or
increases a Negative Capital Account such Member shall be allocated items of
income and gain (consisting of a pro rata portion of each item of Company
income, including gross income and gain) in an amount and manner sufficient to
eliminate such deficit balance as quickly as possible. This paragraph is
intended to comply with Treasury Regulation section 1.704-1(b) (2) (ii) (d) and
shall be interpreted consistently therewith.
(b) Minimum Gain Charge Back. Notwithstanding any other
provision of this Article 8, if there is a net decrease in Company Minimum Gain
(as defined in the Treasury Regulations under Section 704 of the code) during
any Fiscal Year, each Member shall, subject to the exception provided in
Treasury Regulation section 1.704-2(f), be allocated items of income and gain
for such year an amount equal to such Member's share of the net decrease in
Company Minimum gain within the meaning of Treasury Regulation section
1.704-2(g) (2). To the extent that Paragraph 8.4 is inconsistent with Treasury
Regulation sections 1.704-2(f) or 1.704-2(b) or
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incomplete with respect to such Treasury Regulations, the Minimum Gain Charge
back provided for herein shall be applied and interpreted in accordance with
such Regulations.
(c) Nonrecourse Deductions. Nonrecourse Deductions shall
be allocated to the Members as described in Paragraph 8.3(b)(ii).
(d) Curative Allocations. Special allocations of items
of income or gain, allocations of Losses, allocations pursuant to Paragraph 8.4
and any other allocations may not be consistent with the manner in which the
Members intend to divide the Company Profits, Losses, Nonrecourse Deductions,
gain and similar items. Accordingly, Profits, Losses, Nonrecourse Deductions,
and other items shall be allocated subsequent to any such special allocations
among the Members consistent with Treasury Regulation section 1.704-1(b) and
1.704-2 so as to prevent such special allocations from distorting the manner in
which overall Company Profits, Losses and Nonrecourse Deductions are intended
to be allocated among the Members. In general, the Members and the Company
anticipate and agree that this will be accomplished by specially allocating
other Profits, Losses and items of income, gain, loss and deduction among the
Members in the current year or subsequent years so that the net amount of such
special or other unintended allocations to each Member is zero after taking
into account present value concepts.
(e) Member Nonrecourse Deduction and Member Minimum
Gain Charge back.
(i) Member Nonrecourse Deductions. Any Member
Nonrecourse Deductions (as defined in the Treasury Regulations under Section
704 of the code) for any fiscal year or other period shall be allocated to the
Member who bears the economic risk of loss with respect to the Member
Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable
in accordance with Treasury Regulation sections 1.704-2(i) and 1.704-2(k) and
Member Minimum Gain Chargeable arising from any decrease in Member Minimum Gain
shall be allocated to the Member as required by Treasury Regulation section
1.704-2(i).
(ii) Member Minimum Gain Charge back. If there is
a net decrease in Member Minimum Gain attributable to a Member Nonrecourse Debt
during any Fiscal Year; within the meaning of Treasury Regulation sections
1.704-2(i) (3) and 1.704-2(k), each Member who, as of the beginning of such
year, has a share of the Member Minimum gain attributable to such Member
Nonrecourse Debt, determined in accordance with treasury Regulation section
1.704-2(i) (5) and 1.704-2(k), shall be allocated items of income and gain for
such year (and, if necessary, subsequent years) in proportion to, and to the
extent of, an amount equal to the greater of (A) such Member's share of the net
decrease in Member Minimum Gain attributable to such Member Nonrecourse Debt
that is allocable to the disposition of Company property subject to such Member
Nonrecourse Debt, or (B) the Negative Capital Account of such Member as of the
end of such year, determined before taking into account any allocation of
Company income, gain, loss, deduction or Code section 705(a) (2) (B)
expenditure for such year equal to that Member's share of the net decrease in
the Member Minimum Gain, determined in a manner consistent with Treasury
Regulation section 1.704-2(g) (2). to the extent that this Section 8.4(ii) is
inconsistent with Treasury Regulation section 1.704-2(i) or 1.704-2(k) or
incomplete with respect to such Treasury Regulation, the Member Minimum gain
chargeable provided for herein shall be applied and interpreted in accordance
with such regulation.
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8.5 Allocation of Credits. All tax credits shall be allocated
among the Members in accordance with their Percentage Interests or in
accordance with applicable provisions of the Code or Treasury Regulation to the
extent any such provision is inconsistent with such allocation.
8.6 Tax Allocations. Except to the extent otherwise required by
the Code and Regulations, the "traditional" methods provided for the Treasury
Regulations Section 1.704.3(b) shall apply to all tax allocations governed by
Section 704(c) and all reverse 704(c) allocations.
8.7 Change in Members' Interest. In the event there is any change
in the members' percentage Interests in the Company during any Fiscal Year,
Profits, Losses or Nonrecourse Deductions shall be allocated among the Members
in accordance with their Percentage Interests from time to time during such
Fiscal Year in accordance with Code section 706, using any convention permitted
by law and selected by the Manager in its sole discretion.
8.8 Notwithstanding anything contained in this Agreement to the
contrary, each of SunRiver and GAI will be allocated not less than one percent
of GAL's income and loss in every tax year.
8.9 On the fifth anniversary of the date hereof, the allocations
provided for herein will be amended as agreed by GAI and SunRiver, consistent
with the new Agreement among the Members.
8.10 Obligations of Members to Report Allocations. The Members are
aware of the income tax consequences of the allocations made by this Article
VIII and hereby agree to be bound by the provisions of this Article VIII in
reporting their shares of Company income and loss for income tax purposes which
income and loss will be determined under the relevant provisions of the
Internal Revenue Code of 1986, as amended.
ARTICLE IX
TRANSFER AND ASSIGNMENT OF INTERESTS
9.1 Transfer and Assignment of Interests. No Member shall be
entitled to transfer assign, convey, sell, encumber, or in any way alienate all
or any part of his or her Membership Interest except with the prior written
consent of all of the other Members, which consent may be given or withheld,
conditioned or delayed (as allowed by this Agreement or the Act), as the other
Members may determine in their sole discretion. After the consummation of any
transfer of any part of a Membership Interest, the Membership Interest so
transferred shall continue to be subject to the terms and provisions of this
Agreement.
9.2 Substitution of Members. A transferee of a Membership Interest
shall have the right to become a substitute Member only if the requirements of
Section VI are met, and such transferee executes an instrument satisfactory to
GAL accepting and adopting the terms and provisions of this Agreement. The
admission of a substitute Member shall not result in the release of the Member
who assigned the Membership Interest from any liability that such Member may
have to GAL.
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9.3 Right of First Refusal. Each time a Member proposes to transfer,
assign, convey, sell, encumber or in any way alienate all or any part of his or
her Membership Interest (or as required by operation of law or other
involuntary transfer to do so) such Member shall first offer such Membership
Interest to GAL and the non-transferring Members in accordance with the
following provisions:
A. Such Member shall deliver a written notice to GAL and the
other Members stating (i) such Member's bona fide intention to transfer such
Membership Interest, (ii) the name and address of the proposed transferee,
(iii) the Membership Interest to be transferred, and (iv) the purchase price in
terms of payment for which the Member proposes to transfer such Membership
Interest.
B. Within thirty (30) days after receipt of the notice, each
non-transferring Member shall notify the Manager in writing of his or her
desire to purchase a portion of the Membership Interest being so transferred.
The failure of any Member to submit a notice within the applicable period shall
constitute an election on the part of that Member not to purchase any of the
Membership Interest which may be so transferred. Each Member so electing to
purchase shall be entitled to purchase a portion of such Membership Interest in
the same proportion that the Percentage Interest of such Member bears to the
Membership Interest of all Members who so elect. In the event any Member
elects to purchase none or less than all of his or her pro rata share of such
Membership Interest, the other Members can elect to purchase more than their
pro rata share. If such Members fail to purchase the entire Membership
Interest being transferred, GAL may purchase any remaining share of such
Membership Interest.
C. Within ninety (90) days after the notice described in
Section 9.3, GAL and the Members electing to purchase such Membership Interest
shall have the first right to purchase or obtain such Membership Interest upon
the price and terms of payment designated in such notice. If such notice
provides for the payment of non-cash consideration such payment shall
nonetheless be made in cash based on a good faith estimate of the present fair
market value of the non-cash consideration offered as determined by the Members
who are purchasing such Membership Interest.
D. If GAL or the other Members elect not to purchase all of
the Membership Interest designated in the notice described in Paragraph 9.3A,
then the transferring Member may transfer the Membership Interest described in
the notice to the proposed transferee, providing such transfer (i) is
completed within thirty (30) days after the expiration of GAL's and the other
Members' right to purchase such Membership Interest, (ii) is made on terms no
less favorable to the transferring Member than as designated in the notice,
and (iii) the requirements of Sections 9.1, and 9.2 are met. If such Membership
Interest is not so transferred, the transferring Member must give notice in
accordance with this Section prior to any other or subsequent transfer of such
Membership Interest.
9.4 Purchase by GAI. Upon the earlier of the expiration of equity
sixty (60) months from the date of this Agreement or the withdrawal of SunRiver
as a Member, GAI shall have the option to purchase SunRiver's Membership
Interest in GAL for common stock in GAI equal to nine percent (9%) of each
class of GAI's then outstanding capital stock. GAI shall, within ninety (90)
days following the happening of one of the above trigger events, notify
SunRiver of its intention to acquire SunRiver's Membership Interest. Within
thirty (30) days following such notice, if any, GAI shall issue and deliver to
SunRiver shares of stock in GAI equal to nine percent (9%) each class of GAI's
then outstanding capital stock. Upon issuance of such common stock to SunRiver
GAI shall immediately proceed to register such shares under and in accordance
with the Securities Act of 1933 and the
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regulations promulgated thereunder. Such shares shall be granted protection
from dilution to the extent that GAI under SEC regulations can so grant. In
the event that GAI purchases SunRiver's Membership Interest pursuant to this
Paragraph 9.4, then GAL or GAI shall retain ownership of any intellectual
property, software , or other products developed by GAL and, at SunRiver's
request, shall grant SunRiver a "favored nation" right to license and sell any
such intellectual property, software or other products owned or developed by
GAL. If GAI does not elect to purchase SunRiver's Membership Interest, then
the parties will negotiate in good faith to determine SunRiver's future profit
sharing percentages and its rights to distribution of future revenue.
ARTICLE X
ACCOUNTING, RECORDS, REPORTING BY MEMBERS
10.1 Books and Records. The books and records of GAL shall be kept,
and the results of its operations recorded, in accordance with the accounting
methods followed for generally accepted accounting principles. GAL shall
maintain at its principal office in California all of the following:
A. A current list of the full name and last known business or
residence address of each Member, together with the Capital Contributions,
Capital Account and Percentage Interest of each Member;
B. A current list of the full name and business or residence
address of each Member;
C. A copy of the Articles and any and all amendments thereto
together with executed copies of any powers of attorney pursuant to which the
Articles or may amendments thereto have been executed;
D. Copies of GAL's federal, state, and local income tax or
information returns and reports, if any, for the six most recent taxable years;
E. A copy of this Agreement and any and all amendments
thereto together with executed copies of any powers of attorney pursuant to
which this Agreement or any amendments thereto have been executed;
F. Copies of the financial statements of GAL, if any, for the
six (6) most recent Fiscal Years; and
G. GAL's books and records as they relate to the internal
affairs of GAL for at least the current and past four (4) Fiscal Years.
10.2 Delivery to Members and Inspection.
A. Upon the request of any Member for purposes reasonably
related to the interest of that Member the Manager shall promptly deliver to
the requesting Member at the expense of GAL, a copy of the information required
to be maintained by Section s 10.1, A, B and D, and a copy of this Agreement.
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B. Each Member and Manager has the right, upon reasonable
request for purposes reasonably related to the interest of the Member, to:
(i) inspect and copy during normal business hours
any of GAL records described in Section 10.1A through G; and
(ii) obtain from the Manager, promptly after their
becoming available, a copy of GAL's federal, state, and local income tax or
information returns for each Fiscal Year.
C. The Manager shall promptly furnish to a Member a copy of
any amendment to the Articles or this Agreement.
10.3 Financial Statements.
A. The Manager shall cause monthly, quarterly, and annual
reports to be sent to each of the Members not later than the earlier of (i) 60
days after the close of the Fiscal Quarter and Fiscal Year and twenty (20) days
after the end of the month and (ii) such time to allow each Member to
incorporate such information in their respective 10Q and 10K SEC filings as
required or as otherwise agreed by the Members. The reports shall contain a
balance sheet as of the end of the Fiscal Quarter and Year and an income
statement and statement of changes in financial position for the Fiscal Quarter
and Year. Annual Reports shall be audited by the GAL's accountants.
B. The Manager shall cause to be prepared at least annually,
at Company expense, information necessary for the preparation for the Member's
federal and state income tax returns. The Manager shall send or cause to be
sent to each Member within sixty (60) days after the end of each taxable year
such information as is necessary to complete federal and state income tax
returns.
10.4 Filings. The Manager, at Company expense, shall cause the income
tax returns for GAL to be prepared and timely filed with the appropriate
authorities.
10.5 Bank Accounts. The Manager shall maintain the funds of GAL in
one or more separate bank accounts in the name of GAL, and shall not permit the
funds of GAL to be commingled in any fashion with the funds of any other person
or entity.
10.6 Accounting Decisions and Reliance on Others. All decisions as to
accounting matters, except as otherwise specifically set forth herein, shall be
made by the Manager. The Manager may rely upon the advise of their accountants
as to whether such decisions are in accordance with accounting methods followed
for generally accepted accounting principles. The Merger may cause GAL to make
whatever elections GAL may take under the Code and Regulations including the
election referred to in Section 754 of the Code to Adjust the Basis of Company
Assets.
10.7 Tax Matters Partner The Manager will designate a member to act
on behalf of GAL as the "tax matters partner" within the meaning of Section
623(a)(7) of the Code.
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ARTICLE XI
DISSOLUTION AND WINDING UP
11.1 Dissolution. GAL shall be dissolved, its assets shall be
disposed of, and its affairs wound up on the first to occur of the following:
A. Upon the happening of any event of dissolution specified
in the Articles;
B. Upon the entry of a decree of judicial dissolution;
C. Upon the mutual assent of Members;
D. Upon the "Bankruptcy " of one of the Members.
E. The sale of all or substantial all of the assets of GAL; or
F. Twenty (20) years from the date of this Agreement.
For the purposes of this Agreement, "Bankruptcy" shall mean: (a) the filing of
an application by a Member for, or consent to, the appointment of a trustee,
receiver, or custodian of its other assets; (b) the entry of an order for
relief with respect to a Member in proceedings under the United States
Bankruptcy Code, (c) the making by a Member of a general assignment for the
benefit creditors; or (d) the entry of an order, judgment, or decree by any
court of competent jurisdiction appointing a trustee, receiver, or custodian of
the assets of a Member unless the proceedings and the person appointed are
dismissed within (90) days.
11.2 Winding Up. Upon the occurrence of any event specified in
Paragraph 11.3 of this agreement, GAL shall continue solely for the purpose of
winding up its affairs in an orderly manner, liquidating its assets, and
satisfying the claims of its creditors. The non-bankrupt Member shall be
responsible for overseeing the winding up and liquidation of GAL, shall take
full account of the liabilities of GAL and shall either cause its assets to be
sold or distributed in each case subject to Paragaph 11.3, and if sold as
promptly as is consistent with obtaining the fair market value thereof, shall
cause the proceeds therefrom, to extent sufficient therefore, to be applied and
distributed as provided in Section 10.5 . The Member responsible for winding
up GAL shall be entitled to reasonable compensation for such services.
11.3 Software License: Should the dissolution of GAL occur for any
reason, other than the purchase of SunRiver's Membership Interest by GAI, both
GAI and SunRiver shall have a unrestricted, royalty free license, to all
software and other intellectual properties owned or developed by GAL.
11.4 Distributions in Kind Any non-cash asset distributed to one or
more Member shall first be valued at its fair market value to determine the Net
Profit or Net Loss that would have resulted if such asset were sold for such
value. The amount distributed and charged to the Capital Account of each
Member achieving an interest in such distributed asset shall be the fair market
value of such interest (net of any liability secured by such asset that such
Member assumes or takes subject to). The fair market value of such asset shall
be determined by the Manager or by the Members or, if any
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<PAGE> 19
Member objects, by an independent appraiser selected by the Manager or
liquidating trustee and approved by the Members.
11.5 Order of Payment of Liabilities Upon Dissolution. After
determining that all known debts and liabilities of GAL including, without
limitation, debts and liabilities to Members who are creditors of GAL, have
been paid or adequately provided for, the remaining assets shall be distributed
to the Members in accordance with their positive Capital Account balances,
after taking into account income and loss for GAL's taxable year during which
liquidation occurs. Such liquidating distributions shall be made by the end of
GAL's taxable year in which GAL is liquidated, or if later, within ninety (90)
days after the date of such liquidation.
11.6 Limitations on Payments made in Dissolution. Except as
otherwise specifically provided in this Agreement, each Member shall only be
entitled to look solely at the assets of Company for the return of his or her
positive Capital Account balance and shall have no recourse for his or her
Capital Contribution and/or share of Net Profits (upon dissolution or
otherwise) against the Manager or any other Member.
11.7 Certificate of Cancellation. GAI shall cause to be filed in the
office of, and on a form prescribed by, the Delaware Secretary of State, a
certificate of cancellation of the Articles upon the completion of the winding
up of the affairs of GAL.
11.8 No Action for Dissolution. Except expressly permitted in this
Agreement, a Member shall not take any voluntary action that directly causes a
Dissolution Event. The Members acknowledge that irreparable damage would be
done to the goodwill and reputation of GAL if any Member should bring an action
in court to dissolve GAL under circumstances where dissolution is not required
by Section 11.1.
ARTICLE XII
INDEMNIFICATION
12.1 Indemnification of Agents. GAL shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding by reason of the fact that he
or she is or was a Member, Manager, officer, employee or other agent of GAL or
that, being or having been such a Member, Manager, officer, employee or agent,
to the fullest extent permitted by applicable law in effect on the date hereof
and to such greater extent as applicable law may hereafter from time to time
permit. The Manager shall be authorized, on behalf of GAL, to enter into
indemnity agreements from time to time with any Person entitled to be
indemnified by GAL hereunder, upon such terms and conditions as the Manager
deem appropriate in their business judgment.
ARTICLE XIII
SUNRIVER AS MANAGER
13.1 SunRiver as Joint Manager. The Members acknowledge that
although GAI has been designated to act as the sole Manager of GAL pursuant to
Paragraph 7.3A and holds a majority ownership position in GAL. Under certain
circumstances, listed below, SunRiver may appoint a Manager to join with GAI to
manage the Business and the affairs of GAL.
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A. Should GAL fail to achieve the revenue projections
established in the Business Plan for three (3) consecutive months during it's
fiscal year starting October 1, 1995 through September 30, 1996 , as reported
pursuant to Paragraph 10.3.
B. Should GAL fail to achieve the net profit established in
the Business Plan for six (6) consecutive monthly periods, when taken
cumulatively, starting October 1, 1995, as reported pursuant to Paragraph 10.3.
C. Should GAL fail to report any profit for two (2)
consecutive quarterly periods when taken cumulatively, starting October 1,
1995, as reported pursuant to Paragraph 10.3.
Upon the occurrence of any of such events, SunRiver shall give written notice
to GAI of SunRiver's intent to exercise its option as joint Manager, and GAI
shall have thirty (30) days to cure the failure in the performance of GAL or,
if it is unable to do so, SunRiver shall immediately be appointed as a Manager
and all control of GAL shall thereafter require the joint affirmation of both
GAI and SunRiver until such time as one of the Managers shall either be
replaced, resign, or SunRiver shall sell its Membership to GAI.
13.2 SunRiver as Manager. Anything in this Agreement to the
contrary notwithstanding, SunRiver may replace GAI as the Manager with complete
control over the Business and affairs of GAL upon the occurrence of one or more
of the following events:
A. The Bankruptcy of GAI.
B. GAL fails or is unable to make a required distribution
of net revenue to SunRiver when such payment is due.
C. GAL should violate any of the covenants contained in this
Agreement pertaining to SunRiver and fails to remedy such violation with-in
sixty (60) days following receipt of written notice of such violation from
SunRiver.
Following the appointment of SunRiver or any successor Manager as Manager the
provisions of this Article 13 concerning the replacement of the Manager shall
thereafter apply to SunRiver or any successor Manger, except that the
applicable test periods will begin the month after SunRiver becomes Manager.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1 Entire Agreement and Severability Provisions. This Agreement
constitutes the entire understanding and agreement between GAI, SunRiver, and
GAL, and supersedes any and all prior, contemporaneous oral or written
communications relating to the subject matter hereof, all of which are merged
herein. This Agreement can only be modified, amended, or altered by an
instrument in writing, mutually signed by the parties hereto. Such amendment
shall be binding with or without any additional consideration. If any provision
of this Agreement is held unenforceable, said holding shall not be
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deemed to impair the validity of the remaining provisions of the Agreement
which shall remain in full force and effect.
14.2 Waiver. No waiver of any provision of this Agreement or any
rights or obligations of either party hereunder shall be effective, except
pursuant to written instrument signed by the party or parties waiving
compliance. This waiver shall be effective only in the specific instance and
the specific purpose stated.
14.3 Governing Law and Choice of Forum. This Agreement shall be
construed and enforced in accordance with the laws of the State of Delaware
applicable to contracts wholly executed and wholly performed therein. The
parties agree that, and hereby submit themselves to, the exclusive jurisdiction
and venue for the purposes of resolving any action or proceeding brought by
either party against the other arising out of or related to this Agreement
shall be brought only in a state or federal court of competent jurisdiction
located in the County of Orange, California.
14.4 Attorney's Fees. The prevailing party in any action or proceeding
between Independent and International arising out of or related to this
Agreement shall be entitled to recover its reasonable attorney's fees and costs
incurred in connection therewith.
14.5 Notices. All notices, requests, demands and other communications
required under this Agreement shall be deemed duly given to the respective
parties at the addresses first set forth above or at such other addresses as
designated in writing by either party in accordance with this Section upon (a)
personal delivery, or (b) delivery by U.S. mail, postage pre-paid, or (c)
receipt by the transmitting party of confirmation or answer back if delivery is
by telex, telegram or facsimile.
14.6 Press Releases and Public Announcements: SunRiver and GAI agree
that no press releases or public announcements of any kind shall be made
regarding this Agreement and during the transition period without the mutual
approval of both parties and further agree to instruct their respective
employees to respect the confidentiality of the proposed agreement until such
time that a public announcement is released.
14.7 Expenses: Except as indicated in the foregoing each party will
pay its own expenses in connection with the completion of the transactions
contemplated hereby.
EXECUTED as of the date first written above.
SUNRIVER DATA SYSTEMS, INC. GENERAL AUTOMATION LLC
By: /s/ Geral Youngblood By: /s/ R.D. Bagby
-------------------- ------------------
Title: President & CFO Title: President & CEO
---------------- ---------------
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EXHIBIT "A"
CAPITAL ACCOUNT AND MEMBER PERCENT INTEREST
<TABLE>
<CAPTION>
INITIAL CAPITAL CONTRIBUTION MEMBER PERCENT INTEREST
- ---------------------------- -----------------------
<S> <C> <C>
SunRiver $ 980.00 49%
- --------
GAI $1000.00 51%
- ---
</TABLE>
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<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF GENERAL AUTOMATION, INC.
General Automation, Inc. owns the issued and outstanding securities of the
following corporations as indicated:
<TABLE>
<CAPTION>
% Thereof Owned
by Applicant
Name Corporation Jurisdiction
- --------- --------------- -----------------
<S> <C> <C>
GA Mentor Ltd. 100% United Kingdom
GA Capital Ltd. 100% United Kingdom
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-43158 and No. 33-79038) of our report dated
December 19, 1995 appearing on page 27 of General Automation, Inc.'s Annual
Report on Form 10-K for the year ended September 30, 1995.
PRICE WATERHOUSE LLP
Costa Mesa, California
April 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 101
<SECURITIES> 0
<RECEIVABLES> 6,123
<ALLOWANCES> 444
<INVENTORY> 1,726
<CURRENT-ASSETS> 7,691
<PP&E> 3,570
<DEPRECIATION> 2,216
<TOTAL-ASSETS> 10,484
<CURRENT-LIABILITIES> 8,329
<BONDS> 0
<COMMON> 739
0
0
<OTHER-SE> 771
<TOTAL-LIABILITY-AND-EQUITY> 10,484
<SALES> 7,020
<TOTAL-REVENUES> 14,269
<CGS> 6,502
<TOTAL-COSTS> 11,466
<OTHER-EXPENSES> 4,373
<LOSS-PROVISION> 96
<INTEREST-EXPENSE> 399
<INCOME-PRETAX> (2,065)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,065)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,065)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
