<PAGE> 1
As filed with the Securities and Exchange Commission on September 4, 1997
Registration No. ___-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GENERAL AUTOMATION, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 3573 95-2488811
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer I.D. No.)
incorporation) Classification)
</TABLE>
17731 Mitchell North
Irvine, California 92714
(714) 250-4800
(Address, including zip code, and telephone number,
including area code, of principal executive offices)
Jane Christie
17731 Mitchell North
Irvine, California 92714
(714) 250-4800
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copy to:
Scott E. McConnell, Esq.
Higham, McConnell & Dunning
28202 Cabot Road, Suite 450
Laguna Niguel, California 92677-1250
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933 check the following box. /X/
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=======================================================================================================
Proposed Proposed
maximum maximum Amount
offering aggregate of
Title of securities Amount to be price per offering registration
to be registered registered share price(1) fee
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.10 par value
per share 831,100 $1.5625 $1,298,594 $393.51
=======================================================================================================
</TABLE>
(1) The offering price is estimated pursuant to the provisions of Rule
457 solely for the purpose of calculating the registration fee (based
on the closing sale price for the Registrant's Common Stock on the
American Stock Exchange on September 2, 1997).
----------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE> 3
GENERAL AUTOMATION, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 501(b) of Regulation S-K)
<TABLE>
<CAPTION>
Form S-1 Item No. and Caption Caption in Prospectus
- ----------------------------- ---------------------
<S> <C>
1. Forepart of the Registration Front Cover Page of Prospectus
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Inside Front Cover Page and Outside Back Cover
Cover Pages of Prospectus Page
3. Summary Information, Risk Prospectus Summary; Risk Factors
Factors and Ratio of Earnings
to Fixed Charges
4. Use of Proceeds Prospectus Summary; Use of Proceeds
5. Determination of Offering Price Front Cover Page; Plan of Distribution
6. Dilution *
7. Selling Security Holders Selling Shareholders; Management
8. Plan of Distribution Front Cover Page; Plan of Distribution
9. Description of Securities to Description of Common Stock
Be Registered
10. Interests of Named Experts *
and Counsel
11. Information with Respect to Prospectus Summary; Risk Factors; Price Range of
the Registrant Common Stock; Dividend Policy; Business; Selected
Financial Data; Management's Discussion and
Analysis; Management; Security Ownership of
Certain Beneficial Owners and Management;
Financial Statements
12. Disclosure of Commission Position *
on Indemnification for Securities
Act Liabilities
</TABLE>
- ----------
* Omitted from Prospectus because item is inapplicable or answer is negative.
<PAGE> 4
P R O S P E C T U S
831,100 Shares
GENERAL AUTOMATION, INC.
Common Stock
This Prospectus relates to 831,100 shares of common stock (the
"Shares") of General Automation, Inc. ("GA" or the "Company"). The Shares may be
offered and sold from time to time by and for the account of one or more of the
shareholders (the "Selling Shareholders") of the Company identified under the
caption "Selling Shareholders." The Company will receive no part of the proceeds
of such sales. The Company will bear all of the expenses incurred in connection
with the offer and sale of the Shares, other than any commissions, discounts or
fees of underwriters, dealers or agents.
The sale of the Shares by the Selling Shareholders may be effected
from time to time in one or more transactions (which may involve block
transactions, purchases by a broker or dealer as principal and resale by such
broker or dealer for its own account pursuant to this Prospectus, ordinary
brokerage transactions and transactions in which brokers solicit purchases) on
the American Stock Exchange, in special offerings, exchange distributions or
secondary distributions pursuant to and in accordance with the rules of such
exchange, in negotiated transactions or otherwise, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices, or at
negotiated prices. In effecting sales, brokers or dealers engaged by the Selling
Shareholders may arrange for other brokers or dealers to participate. Brokers or
dealers selected by the Selling Shareholders may receive commissions or
discounts from the Selling Shareholders in amounts to be negotiated immediately
prior to sale (and which, as to a particular broker, may be in excess of
customary commissions). The Selling Shareholders and such brokers or dealers, or
any other participating brokers or dealers, may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933, as amended, in connection with
such sales.
The Company's common stock is traded on the American Stock Exchange.
On , 1997, the closing price of the Company's common stock on the
American Stock Exchange was $ per share.
----------
AN INVESTMENT IN THE COMPANY'S COMMON STOCK INVOLVES
CERTAIN RISKS. SEE "RISK FACTORS" BELOW.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
----------
The date of this Prospectus is___________ , 1997
<PAGE> 5
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). These reports, proxy statements and other
information filed by the Company can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices: 7 World Trade
Center, New York, New York 100048, and 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can also be obtained at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Company's common stock is listed on the American
Stock Exchange. Reports, proxy statements and other information concerning the
Company can be inspected at The American Stock Exchange, Inc., 86 Trinity Place,
New York, New York 10006-1818.
The Company has filed a registration statement with the Commission
with respect to the shares being offered under this Prospectus (the
"Registration Statement"). This Prospectus does not contain all of the
information contained in the Registration Statement, certain portions of which
have been omitted pursuant to the rules and regulations of the Commission.
2
<PAGE> 6
PROSPECTUS SUMMARY
The discussion in this Prospectus contains trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Actual results could differ materially from those projected in the
forward-looking statements contained in this Prospectus.
The following summary information is qualified in its entirety by the
more detailed information and financial statements and notes thereto appearing
elsewhere in this Prospectus.
The Company
General Automation, Inc. (the "Company" or "GA") integrates computer
systems, software and services for application solutions. GA has positioned
itself as a strong service and support company offering open systems and
complementary 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, complementary
operating environments and high quality customer services. 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.
Recently, the Company has completed transactions which have
significantly expanded the Company's business and opportunities. In October
1996, the Company purchased from Sequoia Systems, Inc. ("SSI") substantially all
of the assets and business of SSI's Sequoia Enterprise Systems business division
("SES"). SES manufactures, services, integrates and distributes fault-tolerant
Motorola-based computer systems operating under SSI's version of UNIX and
Intel-based computer systems running SSI's and Alpha Micro's versions of the
Pick application environment and database software products, and engages in
various related distribution arrangements. In May 1995, the Company and SunRiver
Data Systems ("SunRiver") formed a limited liability company ("GAL"), with the
Company owning 51% and SunRiver 49%, for the purpose of combining the Company's
Pick-based business and SunRiver's Pick-based business.
The Offering
All of the shares offered by this Prospectus are being offered for
the account of one or more shareholders. The Company will receive no part of the
proceeds of the sale of such shares.
3
<PAGE> 7
Summary Financial Data
(In thousands, except per share data)
The following table sets forth certain selected historical
consolidated financial data for the Company for each of the years ended
September 30, 1996, 1995, 1994, 1993 and 1992 which has been derived from
audited financial statements. The following table also sets forth selected
historical financial data at and for the nine months ended June 30, 1997 and
1996 which has been derived from the Company's unaudited financial statements
included elsewhere herein. The financial data at and for the nine months ended
June 30, 1997 and 1996 is not necessarily indicative of results which might be
expected for the full fiscal year. The following table should be read in
conjunction with (a) the audited consolidated financial statements of the
Company and notes thereto as of and for the three years ended September 30,
1996; (b) the unaudited financial statements at and for the nine months ended
June 30, 1997 and 1996; (c) "Management's Discussion and Analysis of Financial
Condition and Results of Operations"; (d) the audited consolidated financial
statements of SES (the Sequoia Enterprise System division of Sequoia Systems,
Inc.), which was acquired by the Company in October 1996; and (e) the pro forma
financial statements for the year ended September 30, 1996 and the nine months
ended June 30, 1997, included elsewhere herein.
<TABLE>
<CAPTION>
Nine Months Ended
June 30 Year Ended
------------------- September 30(3)
(Unaudited) -----------------------------------------------------
1997(7) 1996 1996 1995(6) 1994(5) 1993(4) 1992(1)(2)
------- ---- ---- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Sales, net $ 29,180 $ 19,129 $ 25,460 $ 14,269 $ 34,614 $ 42,878 $ 45,205
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations 679 1,653 2,247 (1,666) 1,300 (351) 42
-------- -------- -------- -------- -------- -------- --------
Net income (loss) before
extraordinary items 484 1,342 1,418 (2,065) 427 (1,477) (964)
Extraordinary items 0 0 0 0 0 900 1,108
-------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 484 $ 1,342 $ 1,418 $ (2,065) $ 427 $ (577) $ 144
======== ======== ======== ======== ======== ======== ========
Earnings per share:
Income (loss) before
extraordinary items $ .05 $ .18 $ .18 $ (.26) $ .04 $ (.13) $ (.08)
Extraordinary items 0 0 0 0 0 .08 .09
-------- -------- -------- -------- -------- -------- --------
Net income (loss) $ .05 $ .18 $ .18 $ (.26) $ .04 $ (.05) $ .01
======== ======== ======== ======== ======== ======== ========
</TABLE>
4
<PAGE> 8
<TABLE>
<CAPTION>
June 30 At September 30
--------------- -------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) $ 289 $ 1,255 $ 1,210 $ (638) $ 2,725 $ 1,457 $ 3,450
Total assets 21,739 9,873 10,271 10,484 18,041 22,456 23,618
Total long term debt and
capital lease obligations 1,157 1,087 1,072 1,305 1,453 2,215 1,406
Shareholders' equity(5) 5,328 2,652 2,778 771 3,246 2,264 3,442
</TABLE>
- ----------
(1) The Company closed its German subsidiary in the fourth quarter of fiscal
1992. (See Note 8 to the Company's Financial Statements included in this
Prospectus.)
(2) The Company sold 55% of its share of General Automation, Ltd. (U.K.) to
Sanderson Electronics, PLC, ("Sanderson") on June 30, 1990 and sold its
remaining 45% interest in General Automation, Ltd. to Sanderson on January
20, 1992. During the period from July 1, 1990 through January 20, 1992,
while the Company owned 45% of General Automation, Ltd., the Company
accounted for its minority interest in General Automation, Ltd. on an
equity basis. (See Note 8 to the Company's Financial Statements included
in this Prospectus.)
(3) No dividends have been paid on the Company's common stock during any of
the periods presented. (See "Dividend Policy.")
(4) On October 29, 1993, with retroactive effect to September 30, 1993, the
Company divested its European operations. (See Note 8 to the Company's
Financial Statements included in this Prospectus.)
(5) On November 10, 1994, with retroactive effect to October 1, 1994, the
Company divested its Pacific Basin operations. (See Notes 7 and 8 to the
Company's Financial Statements included in this Prospectus.)
(6) Effective May 22, 1995, the Company and SunRiver Data Systems ("SunRiver")
formed a limited liability company ("GAL") for the purpose of combining
GA's Pick based business and SunRiver's Pick based business, with the
Company owning 51% and SunRiver owning 49% of GAL.
(7) Effective October 11, 1996, the Company acquired substantially all of the
assets and liabilities of Sequoia Enterprise Systems ("SES"), a division
of Sequoia Systems, Inc. The acquisition of SES has been accounted for
under the purchase method of accounting. Accordingly, the financial
information for the nine months ended June 30, 1997 includes the results
of operations for SES from the date of the acquisition.
5
<PAGE> 9
THE COMPANY
General Automation, Inc. ("GA" or the "Company") was incorporated in
California in 1967 and reincorporated in Delaware in 1986. The Company
integrates computer systems and software, and provides value-added services for
application solutions. The Company has positioned itself as a service and
support company offering open systems and complementary software products to a
worldwide network of value-added resellers. The Company's product lines include
a broad range of hardware platforms including Intel and PowerPC based systems,
providing a wide range of systems, complementary operating environments and
value-added customer services.
The Company's principal executive offices are located at 17731
Mitchell North, Irvine California, and its telephone number is (714) 250-4800.
RISK FACTORS
Prospective purchasers of the shares offered hereby should consider,
in addition to the information set forth elsewhere in this Prospectus, the
following risk factors concerning the Company:
Recent Operating Losses; Accumulated Deficit. The Company has
incurred losses before extraordinary items in three of its last five fiscal
years. There can be no assurance that the Company will be able to achieve or
sustain profitable operations in the future. As of September 30, 1996, the end
of the Company's most recently completed fiscal year, the Company had an
accumulated deficit of $41,083,000.
Possible Loss of AMEX Listing. The Company's common stock is listed
on the American Stock Exchange (the "Exchange"). The de-listing of the Company's
common stock on the Exchange could have a material adverse effect on the market
for, and the market price of, the Company's common stock, and a material adverse
effect on the ability of the Company to raise capital. In determining whether a
security warrants continued listing on 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 state,
however, that the Exchange will normally consider de-listing 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 before extraordinary items in two of its last
four fiscal years, and the Company's stockholders' equity as of September 30,
1996, its most recent fiscal year-end, was $2,778,000. Moreover, the Company's
common stock has traded at less than $1.00 per share during a substantial
portion of the preceding two years. In 1995, the Company received notice that
the Exchange was reviewing the continued listing of the Company's common stock.
However, following discussions between the Company's management and Exchange
officials in November 1995, the Exchange informed the Company that the Exchange
would defer any de-listing action subject to the Company continuing to make
favorable progress toward compliance with the Exchange's financial and market
price guidelines for continued listing, and achievement of the operating results
reflected in the quarterly projections provided by the Company to the Exchange.
Since those discussions, the revenues, results of operations and financial
condition of the Company have improved substantially, and the price of the
Company's common stock on the Exchange has increased. Accordingly, the Company
does not believe that action will be taken by the Exchange to de-list the
Company's common stock. There can be no assurance, however, that the Exchange
will not take action in the future to de-list the Company's common stock.
6
<PAGE> 10
Technological Innovations; Decreasing Profit Margins. Competition in
the computer hardware market is intense and is characterized by constant
introduction of new, more cost effective products caused by rapid technological
advances. The Company in the past has been able to keep pace with these
technological changes. However, during recent years, it has become more apparent
that the Company cannot continue to compete effectively with its own hardware
platforms, and has made the decision to focus its resources on the integration
and distribution of hardware products engineered and manufactured by other
companies, with value-added features provided by the Company, such as its R91
Post Relational Database Application Environment, and full service and support.
Competition. The Company competes with a number of companies, many of
which have substantially greater financial, technological, marketing and other
resources than the Company. The Company's competitors for the sale of hardware
include Data General Corporation, Digital Equipment Corporation, Hewlett Packard
Company, and International Business Machines. The Company's competitors for
software products include V-Mark Software, Unidata and Pick Systems.
Cash Flow Constraints; Potential Need for Additional Financing. The
Company continues to operate under restricted cash resources. (See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources.") The Company has an agreement with a lender
for a revolving line of credit, not to exceed $2,000,000, which is
collateralized by domestic accounts receivable. The agreement is renewable
annually and bears interest at a rate of prime plus 2%. Because the amount of
credit available is dependent upon accounts receivable levels, varying levels of
domestic activity could preclude full utilization of this credit facility, which
might require that the Company obtain financing from alternative sources. There
can be no assurance that the Company will be able to obtain financing from other
sources if necessary.
Dependence Upon Key Personnel. The Company is substantially dependent
upon the continuing services of Ms. Jane Christie, the Company's President and
Chief Executive Officer, who is 45 years old, Mr. Robert Bagby, the Company's
Vice Chairman of the Board, who is 64 years old, and Mr. John R. Donnelly, the
Company's Vice President Finance and Chief Financial Officer, who is 63 years
old.
Lack of Dividends. The Company has not previously paid dividends to
its shareholders, and does not anticipate doing so in the foreseeable future.
USE OF PROCEEDS
All of the shares offered by this Prospectus are being offered by the
Selling Shareholders for their own respective accounts. Accordingly, the Company
will not receive any proceeds from the sale of the shares offered by this
Prospectus.
7
<PAGE> 11
PRICE RANGE OF COMMON STOCK
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 during each of the
fiscal quarters indicated, as reported by the American Stock Exchange.
<TABLE>
<CAPTION>
SALES PRICES
--------------------
High Low
---- ---
<S> <C> <C>
Fiscal Year Ended September 30, 1995
First Quarter $ 7/8 $ 7/16
Second Quarter $ 13/16 $ 7/16
Third Quarter $ 11/16 $ 7/16
Fourth Quarter $ 15/16 $ 1/2
Fiscal Year Ended September 30, 1996
First Quarter $ 15/16 $ 9/16
Second Quarter $2 1/2 $1 1/16
Third Quarter $3 11/16 $2 11/16
Fourth Quarter $3 1/16 $1 15/16
Fiscal Year Ended September 30, 1997
First Quarter $1 3/4 $1 9/16
Second Quarter $1 15/16 $1 13/16
Third Quarter $1 3/4 $1 11/16
Fourth Quarter (through August 28) $1 3/4 $1 11/16
</TABLE>
The approximate number of holders of record of common stock of the
Company as of August 31, 1997 was 900.
The Company's common stock is listed on the American Stock Exchange
(the "Exchange"). The de-listing of the Company's common stock on the Exchange
could have a material adverse effect on the market for, and the market price of,
the Company's common stock, and a material adverse effect on the ability of the
Company to raise capital. In determining whether a security warrants continued
listing on the Exchange, the Exchange does not rely on any precise mathematical
formulas. 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 state, however, that the Exchange will normally
consider de-listing 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 before
extraordinary items in two of its last four fiscal years, and the Company's
stockholders' equity as of September 30, 1996, its most recent fiscal year-end,
was $2,778,000. Moreover, the Company's common stock has traded at less than
$1.00 per share during a substantial portion of the preceding two years. In
1995, the Company received notice that the Exchange was reviewing the continued
listing of the Company's common stock. However, following discussions between
the Company's management and Exchange officials in November 1995, the Exchange
informed the Company that the Exchange would defer any de-listing action subject
to the Company continuing to make favorable progress toward compliance with the
Exchange's financial and market price guidelines for continued listing, and
achievement of the operating results reflected in the quarterly projections
provided by the Company to the Exchange. Since those discussions, the revenues,
results of operations and financial condition of the Company have improved
substantially, and the price of the Company's common stock on the Exchange has
increased. Accordingly, the Company does not believe that action will be taken
by the Exchange to de-list the Company's common stock. There can be no
assurance, however, that the Exchange will not take action in the future to
de-list the Company's common stock.
8
<PAGE> 12
DIVIDEND POLICY
The Company has never paid a dividend on its common stock. 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 foreseeable future. The
Company's current line of credit requires the Company to receive bank approval
prior to paying any dividends.
SELECTED FINANCIAL DATA
(In thousands, except per share data)
The following table sets forth certain selected historical
consolidated financial data for the Company for each of the years ended
September 30, 1996, 1995, 1994, 1993 and 1992 which has been derived from
audited financial statements. The following table also sets forth selected
historical financial data at and for the nine months ended June 30, 1997 and
1996 which has been derived from the Company's unaudited financial statements
included elsewhere herein. The financial data at and for the nine months ended
June 30, 1997 and 1996 is not necessarily indicative of results which might be
expected for the full fiscal year. The following table should be read in
conjunction with (a) the audited consolidated financial statements of the
Company and notes thereto as of and for the three years ended September 30,
1996; (b) the unaudited financial statements at and for the nine months ended
June 30, 1997 and 1996; (c) "Management's Discussion and Analysis of Financial
Condition and Results of Operations"; (d) the audited consolidated financial
statements of SES (the Sequoia Enterprise System division of Sequoia Systems,
Inc.), which was acquired by the Company in October 1996; and (e) the pro forma
financial statements for the year ended September 30, 1996 and the nine months
ended June 30, 1997, included elsewhere herein.
<TABLE>
<CAPTION>
Nine Months Ended
June 30 Year Ended
------------------ September 30(3)
(Unaudited) ------------------------------------------------------------
1997(7) 1996 1996 1995(6) 1994(5) 1993(4) 1992(1)(2)
---- ---- ---- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Sales, net $ 29,180 $ 19,129 $ 25,460 $ 14,269 $ 34,614 $ 42,878 $ 45,205
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations 679 1,653 2,247 (1,666) 1,300 (351) 42
-------- -------- -------- -------- -------- -------- --------
Net income (loss) before
extraordinary items 484 1,342 1,418 (2,065) 427 (1,477) (964)
Extraordinary items 0 0 0 0 0 900 1,108
-------- -------- -------- -------- -------- -------- --------
Net income (loss) $ 484 $ 1,342 $ 1,418 $ (2,065) $ 427 $ (577) $ 144
======== ======== ======== ======== ======== ======== ========
Earnings per share:
Income (loss) before
extraordinary items $ .05 $ .18 $ .18 $ (.26) $ .04 $ (.13) $ (.08)
Extraordinary items 0 0 0 0 0 .08 .09
-------- -------- -------- -------- -------- -------- --------
Net income (loss) $ .05 $ .18 $ .18 $ (.26) $ .04 $ (.05) $ .01
======== ======== ======== ======== ======== ======== ========
</TABLE>
9
<PAGE> 13
<TABLE>
<CAPTION>
June 30 At September 30
----------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital (deficit) $ 289 $ 1,255 $ 1,210 $ (638) $ 2,725 $ 1,457 $ 3,450
Total assets 21,739 9,873 10,271 10,484 18,041 22,456 23,618
Total long term debt and
capital lease obligations 1,157 1,087 1,072 1,305 1,453 2,215 1,406
Shareholders' equity(5) 5,328 2,652 2,778 771 3,246 2,264 3,442
</TABLE>
(1) The Company closed its German subsidiary in the fourth quarter of fiscal
1992. (See Note 8 to the Company's Financial Statements included in this
Prospectus.)
(2) The Company sold 55% of its share of General Automation, Ltd. (U.K.) to
Sanderson Electronics, PLC, ("Sanderson") on June 30, 1990 and sold its
remaining 45% interest in General Automation, Ltd. to Sanderson on January
20, 1992. During the period from July 1, 1990 through January 20, 1992,
while the Company owned 45% of General Automation, Ltd., the Company
accounted for its minority interest in General Automation, Ltd. on an
equity basis. (See Note 8 to the Company's Financial Statements included
in this Prospectus.)
(3) No dividends have been paid on the Company's common stock during any of
the periods presented. (See "Dividend Policy.")
(4) On October 29, 1993, with retroactive effect to September 30, 1993, the
Company divested its European operations. (See Note 8 to the Company's
Financial Statements included in this Prospectus.)
(5) On November 10, 1994, with retroactive effect to October 1, 1994, the
Company divested its Pacific Basin operations. (See Notes 7 and 8 to the
Company's Financial Statements included in this Prospectus.)
(6) Effective May 22, 1995, the Company and SunRiver Data Systems ("SunRiver")
formed a limited liability company ("GAL") for the purpose of combining
GA's Pick based business and SunRiver's Pick based business, with the
Company owning 51% and SunRiver owning 49% of GAL.
(7) Effective October 11, 1996, the Company acquired substantially all of the
assets and liabilities of Sequoia Enterprise Systems ("SES"), a division
of Sequoia Systems, Inc. The acquisition of SES has been accounted for
under the purchase method of accounting. Accordingly, the financial
information for the nine months ended June 30, 1997 includes the results
of operations for SES from the date of the acquisition.
10
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company reported net income for the year ended September 30, 1996
in the amount of $1,418,000, compared with a net loss of $2,065,000 and net
income of $427,000 for the years ended September 30, 1995 and 1994,
respectively. The fiscal 1996 profit is attributed to the Company's divestiture
of two of its three vertical software products, which accounted for
approximately 65% of the Company's losses in fiscal 1995, and the introduction
and market acceptance of the Company's Power95 product line, which was released
at the end of fiscal 1995.
SALES
<TABLE>
<CAPTION>
Net Sales
(In Thousands)
Nine Months Ended June 30 Year Ended September 30
------------------------- -----------------------------
1997 1996 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Product Revenues:
Domestic(1) $ 8,174 $ 7,567 $ 9,715 $ 7,020 $ 6,301
SGA 14,983
------- ------- ------- ------- -------
$ 8,174 $ 7,567 $ 9,715 $ 7,020 $21,284
------- ------- ------- ------- -------
Service Revenues:
Domestic $21,006 $11,562 $15,745 $ 7,249 $ 7,121
SGA 6,209
------- ------- ------- ------- -------
$21,006 $11,562 $15,745 $ 7,249 $13,330
------- ------- ------- ------- -------
Total Sales $29,180 $19,129 $25,460 $14,269 $34,614
======= ======= ======= ======= =======
</TABLE>
- ----------
(1) All references to "domestic" operations in this Management's Discussion
and Analysis of Financial Condition and Results of Operations also include
the operations of the Company's Canadian subsidiary, Liberty Integration
Software, Inc. ("Liberty") from and after October 1, 1996, the date of
the Company's acquisition of Liberty. The results of the operations of
Liberty have not been material since the date of the acquisition.
Nine Months Ended June 30, 1997 vs. 1996. Product revenues increased
$607,000 during the nine month period ended June 30, 1997 compared to the same
period last year. Product revenues during the nine months ended June 30, 1997
generated by the Company's SES division (which was acquired in October 1996)
were $3,747,000. Offsetting the revenue gains generated by SES were anticipated
decreases in the sale of GA products.
Service revenues increased $9,444,000 during the nine months ended
June 30, 1997 compared to the same period last year, due to service revenues
generated by SES totalling $9,735,000. Service revenues on Company manufactured
systems continue to deteriorate as older contracts are being canceled at a
faster rate than they can be replaced with contracts on new equipment, which
generally carry one year warranties and do not generate service revenues.
Domestic revenues for both products and service increased
dramatically in fiscal 1996 compared to the two previous years. These increases
are a direct result of GA's participation in General Automation LLC ("GAL") with
SunRiver commencing in May 1995 (see "Business-Acquisitions and Divestitures"),
and market acceptance of new products introduced late in fiscal 1995.
1996 vs. 1995. Total revenues increased $11,191,000, or 78.4%, in
fiscal 1996 over fiscal 1995 primarily due to a full year of participation in
GAL with SunRiver (see "Business-Acquisitions and Divestitures"), and a full
year of sales of new products introduced late in fiscal 1995. Product sales
increased 38.4%, or $2,695,000, while service revenues increased 117.2%, or
$8,496,000.
11
<PAGE> 15
1995 vs. 1994. Excluding revenue contributions in 1994 by SGA
Pacific, Ltd. ("SGA"), a 51% subsidiary of the Company which was sold in 1994
(see "Business-Acquisitions and Divestitures"), total sales increased $847,000,
or 6.3%, in fiscal 1995 over fiscal 1994. Product sales in the United States
increased 11.4%, or $719,000, primarily through GA's participation in GAL with
SunRiver 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 Company's competition prevents aggressive upward pricing policies.
The addition of service contracts attributable to GA's participation in GAL with
SunRiver generated revenue of $553,000 during the last four months of fiscal
1995. This increase in domestic service revenue was offset in part by the
termination of GA contracts on older systems, resulting in a net increase in
domestic service revenue during fiscal 1995 of $128,000. 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.
GROSS MARGIN
<TABLE>
<CAPTION>
Gross Margin
(In Thousands)
Nine Months Ended June 30 Year Ended September 30
--------------------------------------- -----------------------------------------------------------
1997 1996 1996 1995 1994
------------------ ----------------- ----------------- ------------------ ------------------
% of % of % of % of % of
Amount Sales Amount Sales Amount Sales Amount Sales Amount Sales
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Products:
Domestic $ 2,282 27.9 $ 972 12.8 $1,828 18.8 $ 518 7.4 $ 1,954 31.0
SGA 7,567 50.5
------- ------ ------ ------ -------
$ 2,282 27.9 $ 972 12.8 $1,828 18.8 $ 518 7.4 $ 9,521 44.7
------- ------ ------ ------ -------
Service:
Domestic $10,126 48.2 $4,773 41.2 $6,199 39.4 $2,285 31.5 $ 1,773 24.9
SGA 1,751 28.2
------- ------ ------ ------ -------
$10,126 48.2 $4,773 41.2 $6,199 39.4 $2,285 31.5 $ 3,524 26.4
------- ------ ------ ------ -------
Total Gross
Margin $12,408 42.5 $5,745 30.0 $8,027 31.5 $2,803 19.6 $13,045 37.7
======= ====== ====== ====== =======
</TABLE>
12
<PAGE> 16
Nine Months Ended June 30, 1997 vs. 1996. The overall gross margin
percentage for products and service increased 12.5% for the nine month period
ended June 30, 1997, compared with the corresponding period of the previous
year. Product gross margins increased 15.1% during the same nine month period,
due to negotiated price concessions from vendors, decreased direct labor and
overhead costs, and decreased royalty costs related to the Company's
participation in GAL with SunRiver. Service revenue gross margins increased 6.9%
for the nine month period ended June 30, 1997 due to increases in revenues and
decreased overhead costs resulting from the purchase of SES.
1996 vs. 1995. The Company's overall gross profit margin percentage
increased 11.9% from 19.6% in fiscal 1995 to 31.5% in fiscal 1996. Gross margin
percentages for products increased 11.4%, while service margins increased from
31.5% to 39.4%. The increase in product margin was due to increased sales volume
in relation to relatively fixed direct labor and overhead costs and the
divestiture of two of the three vertical product lines which had resulted in
negative gross margin in the prior year. (See "Business-Discontinued Products.")
The increase in service margins is due to increased revenues in excess of
increased overhead and third party maintenance costs.
1995 vs. 1994. Excluding SGA, the Company's overall gross profit
margin decreased from 27.8% in fiscal 1994 to 19.6% in fiscal 1995. Gross margin
percentages for domestic products decreased from 31% to 7.4%, while domestic
service 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 NCR. The increase in
service margins was due to GA's participation in GAL with SunRiver.
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 closely tied to the cost/benefit relationship of their proposal
versus those of other firms.
NET PROFIT/LOSS
<TABLE>
<CAPTION>
Net Profit/Loss
(In Thousands)
Nine Months Ended Year Ended
June 30 September 30
-------------------- ---------------------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Domestic $ 484 $ 1,342 $ 1,418 $(2,065) $ (318)
SGA 745
------- ------- ------- ------- -------
Total Net
Income/(Loss) $ 484 $ 1,342 $ 1,418 $(2,065) $ 427
======= ======= ======= ======= =======
</TABLE>
Nine Months Ended June 30, 1997 vs. 1996. The decrease of $858,000
in net income for the nine months ended June 30, 1997 compared to the same
period in the prior year is due to (1) increased costs associated with the
acquisition of SES, and (2) increased research and development expenses. The
increases in expenses were partially offset by increased gross profit margins
attributable to SES.
1996 vs 1995. Net income was $1,418,000 for fiscal 1996 compared to
a net loss of $2,065,000 for fiscal 1995. The improvement in net income of
$3,483,000 for fiscal 1996 over fiscal 1995 is the result of a full year of
participation in GAL with SunRiver, the divestiture of two vertical product
lines, and increased income from the introduction of the Company's Power95 line
released at the end of fiscal 1995.
13
<PAGE> 17
1995 vs 1994. Excluding SGA, the net losses were $2,065,000 and
$318,000 for fiscal 1995 and fiscal 1994, respectively. The fiscal 1994 loss is
net of $900,000 of income resulting from a decrease in estimated tax
liabilities. The fiscal 1995 loss includes costs associated with the formation
of GAL, significant investments in the vertical products, and the later than
planned entry of new products in the marketplace.
EXPENSES
<TABLE>
<CAPTION>
Expenses
(In Thousands)
Nine Months Ended June 30 Year Ended September 30
-------------------------------- --------------------------------------------------
1997 1996 1996 1995 1994
-------------- -------------- -------------- -------------- ----------------
% of % of % of % of % of
Amount Sales Amount Sales Amount Sales Amount Sales Amount Sales
------- ----- ------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Research and
Development:
Domestic $ 2,610 8.9 $ 899 4.7 $1,156 4.5 $ 584 4.1 $ 575 1.7
SGA 1,178 3.4
------- ---- ------ ---- ------ ---- ------ ---- ------- ----
$ 2,610 8.9 $ 899 4.7 $1,156 4.5 $ 584 4.1 $ 1,753 5.1
Selling and
Administrative:
Domestic $ 7,935 27.2 $3,106 16.2 $4,366 17.1 $3,704 25.9 $ 3,700 10.7
SGA 5,907 17.1
------- ---- ------ ---- ------ ---- ------ ---- ------- ----
$ 7,935 27.2 $3,106 16.2 $4,366 17.1 $3,704 25.9 $ 9,607 27.8
Other:
Domestic $ 1,184 4.1 $ 87 .5 $ 258 1.0 $ 181 1.3 $ 300 .09
SGA 85 0.2
------- ---- ------ ---- ------ ---- ------ ---- ------- ----
$ 1,184 4.1 $ 87 .5 $ 258 1.0 $ 181 1.3 $ 385 1.1
Interest:
Domestic $ 195 .7 $ 186 1.0 $ 214 .8 $ 399 2.8 $ 376 1.1
SGA 232 0.7
------- ---- ------ ---- ------ ---- ------ ---- ------- ----
$ 195 .7 $ 186 1.0 $ 214 .8 $ 399 2.8 $ 608 1.8
------- ---- ------ ---- ------ ---- ------ ---- ------- ----
Total $11,924 40.2 $4,278 22.4 $5,994 23.5 $4,868 34.1 $12,353 35.8
======= ==== ====== ==== ====== ==== ====== ==== ======= ====
</TABLE>
Research and development expenses, including engineering, increased
$1,711,000 during the nine month period ended June 30, 1997 compared to the same
period last year. These increased expenditures are a combination of SES division
engineering costs, new product development costs, and approximately $400,000 of
costs related to an agreement entered into by the Company with McDonnell
Douglas Information Systems Limited, which is further discussed below under the
caption "Liquidity and Capital Resources".
Research and development expenses increased $572,000 from fiscal 1995
to fiscal 1996 as a result of activities related to GAL. It is the belief of
management that expenditures will increase with the acquisition of SES and
Liberty. (See "Business - Acquisitions and Divestitures" and Note 11 to the
Company's Financial Statements included in this Prospectus.) Research and
development expenses decreased $1,169,000 from fiscal 1994 to fiscal 1995 due
primarily to the sale of SGA in 1994. (See "Business - Acquisitions and
Divestitures" and Note 8 to the Company's financial statements included in this
Prospectus.)
14
<PAGE> 18
Selling and administrative expenses increased $4,829,000 during the
nine month period ended June 30, 1997 compared to the same period last year, due
to the acquisitions of Liberty Integration Software, Inc. and SES, and staff
increases in the sales and marketing areas.
Selling and administrative expenses increased $662,000 from fiscal
1995 to fiscal 1996 due to GA's participation in GAL with SunRiver. Selling and
administrative expenses increased $4,000 from fiscal 1994 to fiscal 1995,
excluding SGA. The sale of SGA to Sanderson Technology, Ltd. eliminated the SGA
expense, which was $5,907,000 in fiscal 1994. (See Note 8 to the Company's
Financial Statements included in this Prospectus.)
Other expenses increased $1,097,000 during the nine month period
ended June 30, 1997 compared to the same period last year, due to the
amortization of goodwill resulting from the acquisition of SES.
Other expenses increased $77,000 from fiscal 1995 to fiscal 1996 due
to foreign taxes owed resulting from an audit of Eurosystems GA Ltd., a
corporation of which the Company was previously the majority owner. (See
"Business -- Acquisitions and Divestitures.") Other expenses decreased $119,000
from fiscal 1994 to fiscal 1995 due to the elimination of goodwill amortization
caused by the sale of SGA.
Interest expense increased $27,000 during the nine month period ended
June 30, 1997 compared to the same period last year. The change was the result
of a lower effective interest rate applied to increased borrowing levels from
the Company's new line of credit with Imperial Bank, and interest payments on a
$500,000 Subordinated Promissory Note which was issued by the Company in January
1997. See "Liquidity and Capital Resources" below.
Interest expense decreased $185,000 from fiscal 1995 to fiscal 1996
due to lower levels of borrowing during the year. Interest expense increased
$23,000 from fiscal 1994 to fiscal 1995, excluding SGA, due to higher debt
balances.
A tax benefit of $120,000 was recognized in the quarter ended June
30, 1997 versus an income tax expense of $125,000 incurred in the quarter ended
June 30, 1996, due to a change in the estimated earnings for the fiscal year
ending September 30, 1997, which decreased the effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities during the nine months
ended June 30, 1997 was $1,178,000. Cash of $1,855,000 was generated by
decreases in inventory and an increase in accounts payable, while increases in
accounts receivable, prepaid expenses, and other assets, along with decreases in
deferred revenue and accrued expenses, consumed $2,212,000. Net cash of
$1,811,000 was used during the period in investing activities, attributable to
the acquisitions of Liberty and SES and the purchase of fixed assets. Financing
activities during the nine months ended June 30, 1997 provided net cash of
$1,669,000 through the issuance of $87,000 in common stock and new notes issued
of $2,162,000, which includes the net increase in borrowing from the Company's
new line of credit totaling $1,361,000, and $500,000, in a Subordinated
Promissory Note issued in January 1997. The Subordinated Promissory Note was
issued to Morgan Stanley Company, Inc., bears interest at the rate of 15% per
annum, and is payable in twenty-four monthly payments of $24,243 each. Proceeds
from financing activities during the nine months ended June 30, 1997 were used
to purchase SES and to retire a line of credit.
During fiscal 1996 the Company operated on improved cash resources.
During fiscal 1996, the Company's cash receipts exceeded its total expenditures,
due largely to the positive cash flow generated by GA's participation in GAL
with SunRiver, augmented by sales of non-GA manufactured products.
Net cash provided during fiscal 1996 by operating activities was
$220,000. The major items generating cash were a $615,000 increase in accrued
income tax, a $1,993,000 decrease in accounts receivable and a $438,000 increase
in other accrued expenses. The major items consuming cash were a $1,253,000
increase in inventories, a $583,000 increase in prepaid expenses, and a
$2,692,000 reduction in deferred revenue.
Net cash of $201,000 was used for investing activities in fiscal 1996
for capitalized software development costs and additions to property, plant and
equipment, offset by $55,000 provided by the disposal of assets.
Financing activities consumed net cash of $1,000 during fiscal 1996,
resulting from debt repayments of $857,000, offset by new notes payable of
$267,000 and $589,000 in proceeds from the issuance of common stock.
The Company is currently operating under restricted cash resources,
which requires that the Company carefully monitor and manage its cash position.
Obligations of the Company which contribute to its restricted cash resources
include (a) payments to Sequoia Systems, Inc. in connection with the Company's
acquisition of SES, which payments are based on the Company's revenues, and (b)
payments to SunRiver related to the Company's participation with SunRiver in
GAL, which payments are based on GAL's revenues. (See "Business -- Acquisitions
and Divestitures.")
15
<PAGE> 19
Until October 1996, the Company utilized a revolving line of credit
in an amount not to exceed $800,000, which was established under an agreement
with a U.S. lender. The line of credit was collateralized by domestic accounts
receivable, and was renewable at six-month intervals. The interest rate was
prime plus 6%, payable monthly, with a minimum of 14%. In addition, there were
monthly collateral management fees charged for maintaining the open line of
credit. Because the amount of borrowing was dependent upon accounts receivable
levels, varying levels of domestic activity could have precluded full
utilization of the line of credit. At September 30, 1996, the balance of the
loan was $528,000. The line of credit contained various covenants and
restrictions; at September 30, 1996 the Company was in compliance with all
covenants. On November 4, 1996, this agreement was terminated by mutual consent
and all funds owed were paid by borrowing from the new agreement described
below.
Effective October 30, 1996, the Company entered into an agreement
with Imperial Bank for a revolving line of credit, not to exceed $1,500,000,
collateralized by domestic accounts receivable. The maximum amount available to
the Company under this line of credit was increased to $2,000,000 in January
1997. The agreement is renewable annually and has an interest rate of prime plus
2%, payable monthly, with a minimum of $250 per month. Because the amount of
borrowing is dependent upon accounts receivable levels, varying levels of
domestic activity could preclude full utilization of the facility. At June 30,
1997, the balance of the loan was $1,889,000. The line of credit contains
various financial covenants and restrictions. At June 30, 1997 the Company was
not in compliance with all covenants and restrictions. Due to the
reclassification of certain balance sheet accounts, the Company's current ratio
at June 30, 1997 was below the minimum permitted ratio. The Company has
requested and expects to receive a waiver from the lender with respect to this
covenant.
Management does not believe that the Company's existing line of
credit will provide adequate capital for current needs and future expansion.
Accordingly, in January 1997, the Company borrowed a total of $500,000 from
certain individuals. The loan is evidenced by a Subordinated Promissory Note
which bears interest at the rate of 15% per annum, is payable in twenty-four
equal monthly installments, and is subordinated to all indebtedness of the
Company to banks and other financial institutions. (See "Management- Certain
Relationships and Related Transactions".) No plans have been made to seek
additional equity financing.
In April 1996 the Company entered into a license agreement with
McDonnell Douglas Information Systems Limited ("MDIS"), under which the Company
acquired rights to use and sublicense certain software owned by MDIS. The
Company's agreement with MDIS requires the Company to make six annual payments
to MDIS on April 26 of each year from 1997 through 2002, inclusive, of $400,000,
$650,000, $700,000, $700,000, $700,000 and $700,000, respectively. The Company
did not make the payment due in April 1997, and is attempting to renegotiate its
obligations under this agreement. The Company's financial statements at June 30,
1997 reflect a $400,000 reserve which has been established pending determination
of the Company's financial exposure under this agreement.
16
<PAGE> 20
BUSINESS
GENERAL
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 complementary 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, complementary operating environments and high quality customer
services. The Company's headquarters, including manufacturing and integration,
corporate and administrative operations, are located in Irvine, California. GA
also has other 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") acquired
approximately 49% of the then outstanding shares of the Company. 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 Sydney, Australia. The Company held 51%
of the outstanding stock of SGA and Sanderson and the management of SGA held
49%. On November 10, 1994, the Company sold its 51% interest in SGA to Sanderson
Technologies, Ltd. (For further information concerning this transaction, see
"Acquisitions and Divestitures" below and Note 8 to the Company's Financial
Statements included in this Prospectus.)
In August 1995, GA and Sanderson Computers Pty Ltd. ("SCPL"), an
affiliate of Sanderson, 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 U.S.,
with nearly 65% 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 existing customers. GA will receive certain
cash payments and royalties from future SCPL sales of the products. To date, no
royalties have been received by the Company under this agreement. Sanderson and
SGA (now Sanderson Pacific Ltd.) both remain major distributors of the Company's
products, with GA owning no shares in either firm.
ACQUISITIONS AND DIVESTITURES
Sequoia Enterprise Systems
On October 11, 1996 (the "Closing Date"), the Company purchased from
Sequoia Systems, Inc. ("SSI") substantially all of the assets and business of
SSI's Sequoia Enterprise Systems business division ("SES"). SES manufactures,
services, integrates and distributes fault-tolerant Motorola 68K computer
systems operating under SSI's version of UNIX and Intel based computer systems
running SSI's and Alpha Micro's versions of the Pick application environment and
database software products, and engages in various related distribution
arrangements.
17
<PAGE> 21
The Company's purchase of SES was made pursuant to an Asset Purchase Agreement
dated as of October 3, 1996 between the Company and SSI (the "Purchase
Agreement").
In exchange for SES, the Company has (i) agreed to pay a purchase
price of $10,700,000 (subject to adjustment based on the net book value of SES
as of the Closing Date as discussed below) (the "Purchase Price), (ii) assumed
certain liabilities of SSI totaling approximately $2,700,000 and (iii) issued to
SSI a Stock Purchase Warrant entitling SSI to purchase 250,000 shares of the
Company's common stock at an exercise price of $2.50 per share (the "Warrant"),
which will be exercisable during the three year period commencing on the first
anniversary of the Closing Date. The Purchase Agreement provides for a downward
or upward adjustment of the Purchase Price, on a dollar-for-dollar basis, if the
net book value of SES as of the Closing Date is less than $3,800,000 or more
than $4,200,000. The final determination of the net book value of SES is
currently being reviewed by the Company and SSI, in accordance with the Purchase
Agreement.
The Purchase Price will be paid by the Company in a combination of
cash and shares of the Company's common stock. The Purchase Agreement provides
for payment by the Company of the cash portion of the Purchase Price in monthly
installments, with the amount of each such installment being based on a
percentage of the gross revenues received by the Company during the month to
which the installment relates from the operation of SES and the Company's
overall service and support operations; provided, however, that the Company must
pay by the first anniversary of the Closing Date an amount (comprised of stock
and cash) equal to not less than the net book value of SES as of the Closing
Date. The Purchase Agreement provides that the Company will be required to make
the monthly installments until the date at which the total value of the
Company's stock issued to SSI (to be valued as set forth in the Purchase
Agreement and summarized in the following paragraph) combined with the monthly
installments made to date equal the Purchase Price.
On November 5, 1996, the Company issued 750,000 shares of its common
stock to SSI to be applied toward the Purchase Price (the "Payment Stock"). For
purposes of applying the same toward the Purchase Price, the Payment Stock will
be valued as follows: (i) 400,000 shares will be valued at $2.50 per share; (ii)
200,000 shares will be valued at the average of the closing per share sales
prices of the Company's common stock on the American Stock Exchange during the
ten trading days immediately preceding the first anniversary of the Closing
Date; and (iii) the remaining 150,000 shares will be valued at the average of
the closing per share sales prices of the Company's common stock on the American
Stock Exchange during the ten trading days immediately preceding any date on
which a valuation of such shares is made for purposes of determining the payment
of the Purchase Price; provided, however, that if the Purchase Price has not
been paid in full prior to the second anniversary of the Closing Date, these
shares will be valued at the average of the closing per share sales prices of a
share of the Company's common stock on the American Stock Exchange during the
ten trading days immediately preceding the second anniversary of the Closing
Date.
The assets which have been purchased by the Company do not include
the accounts receivable of SES. However, under the Purchase Agreement, SSI was
obligated to pay to the Company an amount equal to 40% of SSI's collections of
the accounts receivable of SES in existence on the Closing Date, as those
collections were made, until the Company had received a total of $1,560,000;
provided, however, that SSI was obligated to pay the full $1,560,000 to the
Company no later than 120 days following the Closing Date. The full $1,560,000
has been paid to the Company by SSI.
The acquisition was accounted for using the purchase method.
Accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on their fair values. The total cost in excess of net
assets acquired of approximately $6,600,000 is being amortized over five years.
The Company has agreed, at its expense, to register the Payment Stock
and the shares issuable upon exercise of the Warrant under the Securities Act of
1933.
SSI has agreed not to sell, make any short sale of, loan, or grant
any option for the purchase of, any of the Payment Stock without the prior
written consent of the Company (i) until the first anniversary of the Closing
Date, with respect to any shares of the Payment Stock in excess of 400,000
shares; and (ii) until the second anniversary of the Closing Date, with respect
to any shares of the Payment of Stock in excess of 600,000 shares.
18
<PAGE> 22
Under the Purchase Agreement, until the earlier of (i) payment of at
least 75% of the Purchase Price; or (ii) the date on which SSI no longer is the
holder of at least 50% of the shares of the Payment Stock (or if the Warrant has
been exercised, the aggregate of the Payment Stock and the shares issued upon
exercise of the Warrant), SSI will be entitled to designate an individual for
election to the Board of Directors of the Company ("SSI's Designee"); provided,
however, that such individual is reasonably acceptable to the Company at the
time of his initial designation. Once appointed to the Company's Board, SSI's
Designee will serve until the first annual meeting of the stockholders of the
Company following the Closing Date and until his successor shall be duly elected
and qualified or until his earlier death, disability, removal or resignation.
So long as SSI possesses the right of designation described in the
immediately preceding paragraph, the Company has agreed that (i) the Company
will nominate (or shall cause to be nominated) for election at each annual
meeting of the stockholders of the Company after the Closing Date, the incumbent
SSI's Designee or such other individual as SSI may designate; provided,
however, that such other individual is reasonably acceptable to the Company at
the time of his initial designation; (ii) if SSI's Designee should die, become
disabled, be removed, retire or resign during the term of his office, SSI shall
be entitled to designate a successor SSI's Designee reasonably acceptable to the
Company at the time of his initial designation, in which event the Company shall
cause such successor SSI's Designee to be promptly elected as a member of its
Board of Directors to fill the vacancy created by such death, disability,
removal, retirement or resignation; and (iii) without the prior written consent
of SSI (which consent will not be unreasonably withheld, delayed or
conditioned), neither the Company nor its Board of Directors will (A) recommend
that SSI's Designee be removed by the stockholders of the Company; or (B) fail
to recommend any incumbent SSI's Designee for reelection.
Liberty
Effective October 1, 1996, GA acquired all of the outstanding shares
of Liberty Integration Software, Inc. ("Liberty"). Liberty was purchased through
the issuance of 25,000 shares of the Company's common stock, and three equal
payments of $20,000 (CDN), or approximately $40,000 in U.S. dollars. Liberty is
operated as a wholly owned subsidiary. Liberty offers a full suite of enterprise
connectivity products and services which are focused on providing connectivity
solutions between MultiValue databases and industry standard developments such
as data warehousing, OLAP engines, client/server development tools and internet
WWW applications. Liberty began operations in July 1995. Effective July 1, 1997,
GA acquired from Liberty Project Limited Partnership ("LPLP") all rights to
certain software products which Liberty had theretofore distributed under a
license granted by LPLP. In consideration for these products, the Company issued
a total of 125,715 shares of the Company's common stock.
General Automation LLC
Effective May 22, 1995, GA and SunRiver Data Systems ("SunRiver")
formed a limited liability company, General Automation LLC ("GAL"), with the
Company owning 51% and SunRiver 49%. GAL was formed to allow GA to acquire the
Pick based business owned by SunRiver. This business had been acquired by
SunRiver from AT&T Global Information Systems in December 1994 along with a
terminal business which complemented SunRiver's existing business and which
SunRiver retained.
Under the terms of the Operating Agreement which governs the conduct
of GAL's operations (the "Operating Agreement"), GAL operates and manages GA's
Pick business and SunRiver's Pick business. Under the Operating Agreement,
SunRiver is entitled to receive cash distributions from GAL in an amount equal
to a percentage of GAL's net revenues, which is payable whether or not GAL is
profitable or generating positive cash flow. The percentage of net revenues to
which SunRiver is entitled was 12% for the first year of the Operating Agreement
(subject to a minimum of $2,900,000 in the first year only) and will decline
annually thereafter in steps
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<PAGE> 23
until it reaches 7% in the fifth year. Subsequent to the fifth year of the
Operating Agreement, the percentage of net revenues to be paid to SunRiver is to
be determined by negotiations between GA and SunRiver. GA is entitled to retain
all cash generated by GAL, if any, after the payment to SunRiver of the net
revenue percentage described above.
Under the Operating Agreement, the business and affairs of GAL are
managed exclusively by GA. However, in the event that GAL fails to achieve
agreed upon revenue or profit projections, SunRiver has the right to thereafter
jointly manage GAL with GA. Further, upon the occurrence of certain other
events, including the failure of GAL to pay to SunRiver the percentage of net
revenues to which SunRiver is entitled, SunRiver has the right to thereafter
replace GA as the sole manager of GAL. During the first year of the Operating
Agreement, GA received a management fee of $1,031,000 in connection with its
duties as manager of GAL. However, subsequent to the first year of the Operating
Agreement, GA will not be entitled to any compensation for acting as manager of
GAL.
In May 2000, GA will have the right to purchase SunRiver's entire
interest in GAL for a number of shares of GAL common stock equal to 9% of each
class of GA's then outstanding capital stock. If GA exercises this right of
purchase, it is obligated, immediately following the issuance of stock to
SunRiver, to register the shares so issued under the Securities Act of 1933.
SGA
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 "Management - Certain Relationships and Related
Transactions" and Note 8 to the Company's Financial Statements included in this
Prospectus.) The overall reduction in the number of shares of GA stock held by
Sanderson is not believed by management to be related to or have any impact on
the Company's objectives. SGA (now Sanderson Pacific Ltd.) continues as a GA
dealer in Asia and the South Pacific for hardware and software products.
Eurosystems
In October 1992, the Company signed an agreement with Krypton Group
Ltd. 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., ("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
believed that a holding company, formed to hold the GA subsidiaries in Belgium,
France and Italy, would have 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. In 1994,
payments were suspended by Krypton, and a $240,000 reserve was established by
the Company in fiscal year 1994. In 1995, Krypton filed for bankruptcy. On March
14, 1996, the Company received a new $600,000 note from Future Services Ltd., a
newly-formed company in Great Britain owned by the former Krypton management.
Future Services Ltd. has been profitable and management expects to receive full
payment of the $570,000 note receivable balance recorded at September 30, 1996.
The note bears interest at 10% and is payable monthly, with the Company sharing
in 50% of the net profits of Future Services, Ltd. until the debt is repaid.
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<PAGE> 24
General Automation Ltd.
In June 1990, the Company sold 55% of its interest in its United
Kingdom subsidiary, General Automation, Ltd. to Sanderson 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 General Automation Ltd. to
Sanderson. (See Note 8 to the Company's Financial Statements included in this
Prospectus.)
C.I.E.
In January 1990, the Company acquired the assets, technology and
customer base of C.I.E. Systems, Inc. ("C.I.E.") from 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.
SERVICE AND SUPPORT
GA maintains a high quality service organization dedicated to meeting
the complex support requirements of several thousand end users. The Company is a
leader in the support industry and has been delivering highly skilled technical
services for over 28 years. GA 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. With the
acquisition of the service operations of SES, GA has integrated the fault
tolerant and SES Intel based systems into GA's support organization.
GA offers four basic lines of service:
1. Technical field service for the equipment sold by GA and its
distributors, and under the maintenance agreements assumed or
acquired through acquisitions of C.I.E. and SES and GA's
participation in GAL with SunRiver.
2. Software maintenance services of GA's operating environments.
Additional software support has been sold for complementary
operating environments such as Pick, V-Mark Software, Unidata,
Unix, AIX, Windows 95 and Windows NT.
3. Professional services, introduced in 1995, that include
performance tuning, system upgrade services, technical product
training, system design and site preparation, network design and
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
has proven to be a very profitable venture for GA. 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.
4. Ready response service provides a central call handling and
technical call screening facility and is particularly attractive
for those dealers who are of such 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
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. These
services also afford GA the opportunity to provide help desk
support to segments of the industry outside the traditional
MultiValue marketplace.
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<PAGE> 25
GA has recently been certified as an Acer authorized service
provider, thereby allowing GA to provide hardware support for any Pick
applications running on Acer products. GA may also provide depot services, at
any of GA's nationwide locations, to resellers and end users of Acer products.
SYSTEM AND SOFTWARE PRODUCTS
GA continues its penetration into the open systems market with the
PowerPC Superscaler RISC multiprocessor (from Groupe Bull) and Intel Pentium
multiprocessor systems (from NCR, previously AT&T Global Information Systems).
The distribution agreements for these systems commenced in 1995. Both Groupe
Bull's and NCR's products and services complement those offered by GA and
feature (a) 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; (b) 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; (c) a complementary service and
support network that could be leveraged worldwide to complement the effective
and growing services offered by GA; and (d) a strong investment in distributed
processing, local area networks, and wide area networks to ensure high
connectivity solutions.
PowerPC Systems
In 1996, GA continued to expand the line for PowerPC symmetric
multiprocessor systems manufactured by Groupe Bull and Motorola by adding two
low-end systems called the Lite-Tower and Desktop systems, and enhancing the
current line with Motorola's enhanced 604 PowerPC processor. 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 $7,000 and high end
systems supporting over 1000 users.
Intel Based Systems
Through its participation in GAL with SunRiver, in May 1995 GA began
delivery of a line of single and multiprocessor Intel-based servers. In
September 1995, a distribution agreement was signed under which the Company
purchases systems directly from NCR.
NCR's server family offers a broad range of Microchannel and PCI/EISA
computers. Numerous upgradeable components make expanding these systems fast and
simple. NCR is a leader in providing exceptional price/performance UNIX and NT
systems.
GA introduced the following NCR PCI/EISA entry-level servers in 1996:
(a) the S10, a single processor system featuring a Pentium processor (90 Mhz,
133 Mhz, or 166 Mhz), ECC memory, and a PCI/EISA I/O bus, and (b) the S40, a
high performance four-way symmetric multiprocessor server featuring EISA,
dual-PCI I/O buses and SCSI II support.
The new WorldMark server line demonstrates NCR's commitment to
enterprise computing. GA introduced the WorldMark 4100 and 4500 systems in
fiscal 1996. The 4100 is a one to eight processor MCA system and the 4500 is a
two to sixteen processor system. Both systems offer Pentium Pro support and many
expandability and high availability features.
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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 are 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 1993 and are based on the Motorola
680XX microprocessor. The Company believes that revenues from these proprietary
products will continue to decline. The A200 and A500 product series generated
15% of the Company's revenues in fiscal 1996, 13% in fiscal 1995 and 18% in
fiscal 1994.
Software
The value-added channel served by GA is primarily based on resellers
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, V-Mark
Software, Pick Data Systems, 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 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. In March 1996, GA started distributing preview copies of mv.BASE, a
Windows NT and Windows 95 implementation of its multi-dimensional database.
Shipments of this software package began in the first quarter of fiscal 1997.
mv.BASE offers an easy migration path for applications designed for
Pick-compatible databases to move to a client/server environment. Included with
the product are tools which provide interoperability with Windows applications
and files, as well as a programming interface for application-specific client
software. Optional ODBC support allows ODBC-compliant applications to access
mv.BASE data. mv.BASE supports serial terminal users as well as PC clients and
continues to provide the high performance, easy to use database environment for
which GA is known.
The Pick operating system, from which GA's software products are
derived, 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.
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CUSTOMERS AND MARKETING
GA delivers its products and services through a strong international
value-added reseller channel with over 200 active dealers. GA has increased its
marketing activity by the creation of an end user newsletter (Priority One) and
a series of direct mail pieces focused on enhancing the relationship between GA
and the end user. Through GA's participation in GAL with SunRiver, GA's
distribution channel has doubled in size and offers cross-selling opportunities.
GA is selling into an approximately $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. Approximately 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.
headquartered in the United Kingdom, and established a sales office to better
serve GA's customers in the United Kingdom, France, Belgium, Italy, and Germany.
GA also has strong associations in Asia and the Pacific Basin with resellers and
distributors in Australia, New Zealand, Singapore, Hong Kong, and Malaysia which
GA services out of its Irvine, California office.
GA's focus for growth includes the following elements: (a) working
closely with GA's value-added resellers and dealers to make them more successful
and thus increase sales through GA, (b) offering complementary services that
enhance the resellers' and dealers' business and increase revenues for them as
well as GA, (c) expanding the value-added channel through an investment in
marketing and direct sales techniques that leverage GA's products and service
strengths, (d) strengthening GA's position in international markets and (e)
focusing on GA's end users to provide more services, add-on products, and growth
paths to new systems.
In 1996, the Company continued to expand its marketing and sales
organizations. GA's marketing organization added a Director of Product Marketing
and a Marketing Services Manager. GA also expanded its sales organization with
the establishment of two inside sales positions as well as the addition of a
Director of International Sales.
DISCONTINUED PRODUCTS
Maxial Systems
The Maxial package has been installed in more than 100 hotels
worldwide, 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 U.S., effective August 28, 1995 the Company entered into an
agreement with Sanderson Computers Pty Ltd. ("SCPL") under which the product is
licensed to SCPL who is responsible for the sales and support for the product
worldwide 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. To date, no royalties have
been received by the Company under this agreement.
Service Advantage System
The Service Advantage product is a full featured, fully integrated
service company management system. In order for the Company to focus its
management and capital resources on its key business, a decision was made in
December, 1994 to discontinue all marketing and sales efforts on the product but
to continue to support existing contractual commitments.
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FOREIGN OPERATIONS AND EXPORT SALES
The Company's export sales were approximately 5% of total revenues in
fiscal 1996 compared to 8% in fiscal 1995, and 61% in fiscal 1994. In fiscal
1992, 1993 and 1994 the Company recognized revenues from its majority owned
subsidiary, SGA, which was sold effective November 10, 1994. These revenues were
generated through operations in Asia and the South Pacific. (See Note 7 to the
Company's Financial Statements included in this Prospectus 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 NCR in the United States and Groupe Bull in France. Delays are
possible in that the GA orders from its dealers and value-added resellers may
not match production queues at the factories. The delays are expected to be
minimal and not material to the Company's operations.
COMPETITION
GA markets software, systems and service and therefore faces three
types of competitors. The leading software competitors are Pick Systems, V-Mark
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. V-Mark Software,
headquartered in Westboro, Massachusetts, and Unidata, located in Denver,
Colorado, offer UNIX resident database operating environments.
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.
GA's competition with respect to the servicing of GA delivered
systems comes primarily from 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. 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.
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PRODUCT DEVELOPMENT
Because of rapid technological changes, the market in which the
Company competes requires continuous expenditures to develop and improve its
products. During fiscal 1996, the Company spent approximately $1,200,000 for
product development. For the years ended September 30, 1995 and 1994, the
Company spent approximately $600,000 and $1,800,000 respectively. The increase
in research and development costs during the year ended September 30, 1996 is
primarily due to GA's participation in GAL with SunRiver and the development of
mv.Base, shipments of which began in the first quarter of fiscal 1997. 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 trademark registrations protecting certain of its
trademarks. 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 license agreements. 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. The Company
does not believe that it is operating in such a manner as to prompt cancellation
of any of the Pick licenses. Furthermore, management believes that there are
alternative courses of action which could be pursued in the event of such a
cancellation so as not to adversely impact operations of the Company.
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,
California headquarters utilizing highly-skilled system engineers and
technicians to insure product performance and quality.
MANUFACTURING
The Company has manufacturing facilities in Irvine, California.
Manufacturing processes are 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 85% capacity at
September 30, 1996. Manufacturing functions performed by GA include system
assembly and integration, quality assurance and testing, and final preparation
and packaging.
BACKLOG
Orders from dealers and other customers for GA's products generally
specify delivery dates of 30 days or less, and the Company rarely receives an
order that has scheduled delivery dates beyond three months. Because of these
order/delivery patterns, the backlog at the end of a period may appear to be low
and is 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 current period revenues.
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At September 30, 1996 the Company had a manufacturing backlog of
$500,000. At September 30, 1995 and September 30, 1994, the manufacturing
backlog was $1,500,000 and $2,800,000, respectively. Almost all of the backlog
prior to 1996 is attributed to the Company's divested SGA operations.
At June 30, 1997 the Company had a manufacturing backlog of
$403,048, which included the backlog of SES. Comparable information at June 30,
1996 is not presented because the amount of backlog of SES at that date is not
available.
EMPLOYEES
As of August 31, 1997, the Company had approximately 185 employees.
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.
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 3 to the
Company's Financial Statements included in this Prospectus.) During 1996, the
Company completed its move from the leased facilities in Anaheim, California.
This ended all financial obligations of the Company under the lease for those
facilities.
The move of the Company to its new Irvine, California location was
dictated by several factors. First, 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. Second, the cost of operating the
facility was approximately 50% higher than it would be in the new building;
annualized, this could total nearly $75,000 in savings. Third, 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's engineering and support personnel are located in leased
facilities in Hauppage, New York. The Company also leases space in ten states,
primarily for sales and service offices. The acquisition of SES in October 1996
brings with it major leases in Marlborough, Massachusetts and Irvine,
California. These are currently short-term leases which are being reviewed in
light of future requirements of the Company.
For further information regarding lease commitments, see Note 10 to
the Company's Financial Statements included in this Prospectus.
LEGAL PROCEEDINGS
In 1991 the Company was named as one of three defendants in a lawsuit
brought by the owner of certain real property once leased and used by a division
of the Company (the "Property"). The lawsuit sought relief from alleged
environmental contamination which may have occurred on the Property before,
during or after the time the Company leased the Property. In August 1997, for
the purpose of settling the lawsuit, all of the parties to the lawsuit,
including the Company, entered into a Consent Decree, and the Company entered
into related agreements with the three insurance companies which had been
funding the Company's defense of the lawsuit under insurance policies held by
the Company. Under the Consent Decree and the related agreements, the Company
will be released from all liability related to the lawsuit in exchange for
payments totalling $1,050,000, funded by the Company's insurance carriers, to a
trust account which has been established to finance the remediation of the
contamination on
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and around the Property. The Consent Decree is subject to court approval, which
all parties to the lawsuit have agreed to seek.
In the ordinary course of business, the Company is generally subject
to claims, complaints and legal actions. The litigation process is inherently
uncertain and it is possible that the resolution of such matters might have a
material adverse effect upon the financial position of the Company. However, in
the opinion of management, matters currently threatened or pending against the
Company are not expected to have a material adverse effect on the financial
position or results of operations of the Company.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Director
Name Since Positions With the Company
- ---- -------- --------------------------
<S> <C> <C>
Lawrence Michels (1) (2) 1990 Chairman of the Board, Director
Robert D. Bagby 1989 Vice Chairman of the Board, Director
Jane M. Christie 1997 President, Chief Executive Officer, Director
John R. Donnelly ---- Vice President Finance, Chief Financial Officer
Leonard N. Mackenzie 1980 Director
Philip T. Noden (1) (2) 1989 Director
Paul L. Morigi (1) (2) 1990 Director
Robert M. McClure (1) 1994 Director
</TABLE>
- ----------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Directors are elected at each annual meeting of stockholders to serve
for a one-year term or until their successors are elected. Executive officers
are appointed by and serve at the discretion of the Board of Directors.
Set forth below is certain information regarding the Company's
directors and executive officers.
Lawrence Michels (65) was elected to the Board of Directors in August
1990, and in August 1993 was appointed Chairman of the Board of Directors. From
1979 until December 1992, Mr. Michels was President and Chief Executive Officer
of The Santa Cruz Operation, Inc., an international leader in the UNIX and open
systems software marketplace. Previously he held the positions of Vice President
at TRW and President of TRW Data Systems. Mr. Michels has been providing
management consulting for various companies since 1992.
Robert D. Bagby (64) was elected to the Board of Directors in
September 1989. Mr. Bagby was the Company's Vice President of Operations from
1987 to 1994. In February 1994, he was appointed President and Chief Operating
Officer and in October 1994 he was appointed Chief Executive Officer. In May
1996, he was appointed Vice Chairman of the Board of Directors and resigned his
position as President and Chief Executive Officer.
Jane M. Christie (45) joined the Company in 1979. In 1987 she was
made responsible for the Company's services division as well as the vertical
solutions group. Over the last twenty years, Ms. Christie has held various
senior executive positions within the Company, Sorbus and First Data Resources.
In August 1995 she became an officer of the Company and Senior Vice President of
Customer Services, Sales and Marketing. In May 1996, Ms. Christie was appointed
President and Chief Executive Officer of the Company, succeeding Robert D.
Bagby.
John R. Donnelly (63) joined the Company in March 1994 as Vice
President Finance, Chief Financial Officer and Secretary. Since graduating from
the University of Notre Dame, Mr. Donnelly has held senior management positions
with a number of firms, including Martin Marietta (Denver) as Chief of Long
Range Planning, (1962 - 1968), ITT Cannon as Manager of Resource Planning and
Assistant Controller, (1968 - 1973), Maxwell Laboratories as Vice President of
Finance and Executive Vice President (1973 - 1978), Science Applications, Inc.
(1978 - 1980), and GA as Controller and Vice President of Finance (1980 - 1982).
From 1982 through 1990, Mr. Donnelly was Vice President, Finance and Chief
Financial Officer of Infodetics Corporation. From 1990 up until the time he
rejoined GA in 1994, Mr. Donnelly ran his own consulting practice.
29
<PAGE> 33
Leonard N. Mackenzie (59) served as the Company's Chairman, President
and Chief Executive Officer from 1980 to August 1988, at which time he resigned
those positions and was appointed Chairman of the Board. Mr. Mackenzie reassumed
the position of President and Chief Executive Officer of the Company in January
1990. In February 1994, he resigned his position as President and Chief
Executive Officer and in May 1996, he resigned his position as Vice Chairman.
Mr. Mackenzie is an active member of the Board and concentrates on growth-
oriented opportunities. Mr. Mackenzie is co-founder, with his wife, of a large
natural gas asset management company in Dallas, Texas, and since November 1996
has been Chairman, President and Chief Executive Officer of SunRiver Data
Systems, headquartered in Austin, Texas. Mr. Mackenzie is also a director of
Vinyard Engine Systems, a major alternative fuel engine conversion business.
Philip T. Noden (54) has been a director of the Company since January
1989. Since 1983 he has been a member of the Board of Directors of Sanderson
Electronics PLC. ("Sanderson"), a United Kingdom-based developer and supplier of
applications software.
Paul L. Morigi (76) was elected to the Board of Directors in August
1990. From 1982 to 1987 he was Senior Vice President and a director of Advest,
Inc., a stock brokerage firm. He is currently Chairman of the Board of Phillips
Screw Corp., and is a consultant to Gintel Equity Management Company. Since 1987
he has been President of Paul Morigi & Company, Inc., a Connecticut investment
company and a member of the American Stock Exchange.
Robert M. McClure (61) was elected to the Board of Directors in April
1994. Dr. McClure is the President of Unidot, Inc., which he founded in 1979 to
specialize in the design of sophisticated computer software and hardware. Dr.
McClure also serves as a director of The Santa Cruz Operation, Inc., and IPT
Corporation.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended September 30, 1996, the Board of
Directors held a total of four meetings. Each director attended all of the
meetings of the Board and the Committees of which he was a member. The Board has
a Compensation Committee and an Audit Committee. The Board has no Nominating
Committee.
The Audit Committee meets with the Company's independent accountants
at least annually to review the results of the annual audit and discuss the
financial statements, recommends to the Board the independent accountants to be
retained, and receives and considers the accountants' procedures in connection
with the audit and financial controls. The Audit Committee, which is composed of
Messrs. Michels, Morigi, Noden and McClure, met once during fiscal 1996 at a
meeting specially called for the Audit Committee.
The Compensation Committee has the authority to award stock options
to employees and consultants under the Company's stock option plans and to
perform such other functions regarding compensation as the Board may delegate.
The Compensation Committee, which is composed of Messrs. Michels, Morigi and
Noden, met once during the fiscal year ended September 30, 1996.
There are no family relationships among the directors or executive
officers of the Company.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
annual and long-term compensation for each of the three fiscal years ended
September 30, 1996 of those persons who at September 30, 1996 were either (i)
the Company's Chief Executive Officer, or (ii) one of its four most highly
compensated executive officers whose salary and bonus during the fiscal year
ended September 30, 1996 exceeded $100,000 (collectively, the "Named Executive
Officers"):
30
<PAGE> 34
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation(1) Compensation(1) Awards
Securities All Other
Name and Underlying Compensation
Principal Position Year Salary($) Bonus($) Options(#) ($) (2)
------------------ ---- --------- ------- ---------------- -------------
<S> <C> <C> <C> <C> <C>
Robert D. Bagby, Vice 1996 140,000 -0- -0- 4,200
Chairman of the Board 1995 140,000 -0- 485,000 4,200
1994 129,368 -0- -0- 3,351
Jane M. Christie, 1996 126,900 -0- -0- 3,624
President and CEO (3) 1995 100,000 -0- -0- -0-
1994 50,000 -0- -0- -0-
John R. Donnelly, Vice 1996 109,500 -0- -0- 3,759
President Finance, Chief 1995 100,000 -0- -0- -0-
Financial Officer, Secretary 1994 50,000 -0- -0- -0-
Treasurer (4)
Leonard N. Mackenzie, 1996 62,504 -0- -0- -0-
Director (5) 1995 123,565 -0- 485,000 -0-
1994 171,965 -0- -0- -0-
</TABLE>
- -----------------
(1) The Company made no long-term incentive plan payouts to its Named
Executive Officers during the 1994, 1995 and 1996 fiscal years.
(2) Includes contributions to the Company's Employee Savings Plan on behalf of
the Named Executive Officers to match contributions (included under
Salary) made by each to the Plan.
(3) Ms. Christie became Senior Vice President of Customer Services, Sales and
Marketing in August 1995, and President and Chief Executive Officer in May
1996.
(4) Mr. Donnelly joined the Company in March 1994.
(5) Mr. Mackenzie served as President and Chief Executive Officer until
February 1994 and Vice Chairman from February 1994 until May 1996.
COMPENSATION OF DIRECTORS
During the fiscal year ended September 30, 1996, directors who were
not employees of the Company each received a monthly retainer of $1,200 and the
Chairman received a monthly retainer of $3,500. Directors who were also
employees of the Company received no additional remuneration for serving as a
director.
In April 1997, the Company entered into a letter agreement with
Leonard Mackenzie, a director of the Company, in connection with Mr. Mackenzie's
resignation as an employee of the Company. Under the letter agreement, Mr.
Mackenzie agreed to terminate the incentive stock option which had been granted
to Mr. Mackenzie in August 1994, under which Mr. Mackenzie held the right to
purchase 300,000 shares of the Company's common
31
<PAGE> 35
stock at an exercise price of $0.75 per share. Under the letter agreement, Mr.
Mackenzie has also agreed to provide certain consulting services to the Company.
In consideration of the termination of Mr. Mackenzie's incentive stock option,
and the consulting services to be provided to the Company by Mr. Mackenzie, the
Company has agreed to pay to, or for the benefit of, Mr. Mackenzie, monthly
payments of $27,083. The letter agreement may be terminated by the Company at
any time after the second anniversary of the date of the letter agreement, in
which event the monthly payment obligations of the Company will terminate. Upon
termination of the letter agreement for any other reason, including Mr.
Mackenzie's death (but excluding termination following breach of the letter
agreement by Mr. Mackenzie), the Company is obligated to continue making
payments under the letter agreement at the rate of $27,083 per month until the
second anniversary of the date of the letter agreement, and thereafter at the
rate of $20,083 per month until the third anniversary of the date of the letter
agreement. In addition, upon the expiration or termination of the letter
agreement for any reason (excluding termination following breach of the letter
agreement by Mr. Mackenzie), the Company is obligated to issue to Mr. Mackenzie
a warrant to purchase shares of the Company's common stock (the "Warrant"). The
Warrant will have a two year term commencing on the date of expiration or
termination of the letter agreement, and an exercise price equal to the fair
market value per share of the Company's common stock on the date of expiration
or termination of the letter agreement. The number of shares purchasable upon
exercise of the Warrant will be the quotient obtained by dividing (A) the
difference, if any, between (i) $899,988, and (ii) the sum of the aggregate
compensation paid to Mr. Mackenzie under the letter agreement and the aggregate
compensation payable to Mr. Mackenzie under the severance provisions of the
letter agreement described above, by (B) the fair market value per share of the
Company's common stock on the date of expiration or termination of the letter
agreement.
STOCK OPTION GRANTS
During the fiscal year ended September 30, 1996, no stock options
were granted to any of the named Executive Officers.
OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth the number of shares of common stock
issuable upon the exercise of outstanding stock options held by each of the
Named Executive Officers at September 30, 1996. The table also contains
information regrading each Named Executive Officer who exercised stock options
during the fiscal year ended September 30, 1996.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised
Acquired on Value Underlying Unexercised In-the-Money Options/SARs
Name Exercise Realized (1) Options/SARs at FY-End (#)(2) at FY-End
---- -------- ------------ ----------------------------- -------------------------
<S> <C> <C> <C> <C>
Jane M. Christie 100,000 $294,375 250,000 $ 328,125
John R. Donnelly 150,000 $481,250 250,000 $ 218,750
Leonard N. Mackenzie(3) 100,000 $300,000 885,000 $1,639,837
Robert D. Bagby 100,000 $284,375 585,000 $1,007,588
</TABLE>
- -------------
(1) Reflects the market value of the shares acquired, as of the date of
exercise, less the exercise price paid.
(2) All of these options were fully exercisable at September 30, 1996.
(3) The options held by Mr. Mackenzie at September 30, 1996 included an
option to purchase 300,000 shares which was canceled in April 1997. (See
"Management -- Compensation of Directors.")
32
<PAGE> 36
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On November 10, 1994, the Company sold its entire interest in SGA
Pacific Limited, an Australian corporation which was a 51% owned subsidiary of
the Company, to Sanderson Technology Limited ("STL"). In consideration, STL paid
the Company $1,000,000 in cash, delivered to the Company a promissory note in
the principal amount of $1,000,000 payable over twenty-four months, and
transferred 4,100,000 shares of the Company's common stock back to the Company.
As a result, Sanderson's beneficial ownership of the Company's common stock was
reduced to under 10%. See "Security Ownership of Certain Beneficial Owners and
Management." Mr. Philip Noden, a director of the Company, is a member of the
Board of Directors of Sanderson Electronics PLC ("Sanderson"), of which STL is a
wholly-owned subsidiary.
A portion of the consideration paid by STL to the Company consisted
of 4,100,000 shares of the Company's outstanding common stock. Of these shares,
2,275,000 shares (the "GA Group Shares") were acquired by STL, immediately prior
to the closing, from The GA Group and Mr. Donald Rutherford in exchange for
cancellation by STL of the remaining unpaid principal amount of a loan
previously made by STL to the partners of The GA Group and Mr. Donald
Rutherford. The GA Group is a general partnership originally composed of Messrs.
Lawrence Michels, Chairman of the Board of the Company, Leonard Mackenzie, a
director of the Company, Robert D. Bagby, Vice Chairman of the Board of the
Company, and Donald Rutherford, formerly Vice President Finance and a director
of the Company (the "Purchasers"). Under an agreement with STL dated August 27,
1993 (the "GA Group/STL Agreement"), the Purchasers acquired the GA Group Shares
from STL for 1,200,000 British Pound Sterling. Under the GA Group/STL Agreement,
the entire purchase price for the GA Group Shares had been treated as a loan to
the Purchasers by STL, all of which remained outstanding at November 10, 1994,
and was canceled in consideration of the sale of the GA Group Shares from the
Purchasers back to STL. On November 10, 1994, the exchange rate for the British
Pound Sterling was U.S. $1.61.
In November 1996, Mr. Leonard M. Mackenzie, a director of the
Company, became Chairman of the Board, President and Chief Executive Officer of
SunRiver Data Systems ("SunRiver"). Previously, in May 1995, the Company and
SunRiver formed a limited liability company ("GAL"), with the Company owning 51%
and SunRiver 49%.
Under the terms of the Operating Agreement which governs the conduct
of GAL's operations (the "Operating Agreement"), GAL operates and manages the
Company's Pick business and SunRiver's Pick business. Under the Operating
Agreement, SunRiver is entitled to receive cash distributions from GAL in an
amount equal to a percentage of GAL's revenues, which is payable whether or not
GAL is profitable or generating positive cash flow. The percentage of the net
revenues to which SunRiver is entitled was 12% for the first year of the
Operating Agreement (subject to a minimum of $2,900,000) and will decline
annually thereafter in steps until it reaches 7% in the fifth year. Subsequent
to the fifth year of the Operating Agreement, the percentage of net revenue to
be paid to SunRiver is to be determined by negotiations between the Company and
SunRiver. The Company is entitled to retain all cash generated by GAL, if any,
after the payment to SunRiver of the net revenue percentage described above.
Under the Operating Agreement, the business and affairs of GAL are
managed exclusively by the Company. However, in the event GAL fails to achieve
agreed upon revenue or profit projections, SunRiver has the right to thereafter
jointly manage GAL with the Company. Further, upon the occurrence of certain
other events, including the failure of GAL to pay to SunRiver the percentage of
net revenues of which SunRiver is entitled, SunRiver has the right to thereafter
replace the Company as the sole manger of GAL. During the first year of the
Operating Agreement, the Company received a management fee in connection with
its duties as manager of GAL. However, subsequent to the first year of the
Operating Agreement, the Company will not be entitled to any compensation for
acting as manager of GAL.
33
<PAGE> 37
In May 2000, the Company will have the right to purchase SunRiver's
entire interest in GAL for a number of shares of the Company's common stock
equal to 9% of each class of the Company's then outstanding capital stock. If
the Company exercises this right of purchase, it is obligated, immediately
following the issuance of stock to SunRiver, to register the shares so issued
under the Securities Act of 1933.
Mr. Philip Noden, a director of the Company, is a member of the
Board of Directors and Technical Director of Sanderson Electronics PLC, of which
STL is a wholly owned subsidiary. STL and its affiliates acquire the Company's
products in significant quantities, with which aggregate purchases in fiscal
1996 of approximately $589,000. As of September 30, 1996, the Company had trade
accounts receivable of approximately $354,000 due from STL and its affiliates.
In January 1997, the Company borrowed $500,000 from five
individuals, and issued a $500,000 Subordinated Note to Morgan Stanley Company,
Inc. (the "Note") to evidence the loan. The Note bears interest at the rate of
15% per annum and is payable in twenty-four equal monthly installments. The
Company's indebtedness under the Note is subordinated to all indebtedness of the
Company to banks and other financial institutions, whether existing at the time
of the issuance of the Note or thereafter incurred. Paul Morigi, a director of
the Company, is the beneficial holder of the Note with respect to $ 200,000 of
the principal amount thereof.
34
<PAGE> 38
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table, based in part upon information supplied by
executive officers, directors and principal stockholders, sets forth certain
information regarding the ownership of the Company's common stock as of August
31, 1997 by (i) all those known by the Company to be beneficial owners of more
than five percent of the Company's common stock; (ii) each director and nominee
for director; (iii) each of the Named Executive Officers; and (iv) all current
executive officers and directors of the Company as a group. Unless otherwise
indicated, the address of each such shareholder is c/o General Automation, Inc.,
17731 Mitchell North, Irvine, California 92714. Except to the extent indicated
in the footnotes, each of the stockholders listed below has sole voting and
investment power with respect to the shares listed opposite such stockholder's
name.
<TABLE>
<CAPTION>
Beneficial Ownership(1)
-----------------------
Name and Address Number of Percent of
of Beneficial Owner Shares Class
- ------------------- -------- ----------
<S> <C> <C>
Richard H. Pickup 500,000 5.58%
2501 Monaco Drive
Laguna Beach, CA 92651-1008
Sanderson Technology Limited 156,100 1.74%
Parkway House
Parkway Avenue
Sheffield, S9 4WA
England
Robert D. Bagby (2) 549,800 6.14%
John R. Donnelly (2) 330,900 3.69%
Jane M. Christie (2) 465,050 5.19%
Leonard N. Mackenzie (2) 546,450 6.10%
Robert M. McClure (2) 110,000 1.22%
Lawrence Michels (2) 789,833 8.82%
Paul L. Morigi (2) 146,200 1.63%
Philip T. Noden (3) -0-
All current executive officers and 3,594,333 40.15%
directors as a group 8 persons (4)
</TABLE>
35
<PAGE> 39
(1) The number and percentage ownership for each beneficial owner is
calculated as if all options or warrants held by such owner that are
currently exercisable or exercisable within sixty days after the date of
this Prospectus were exercised and such shares ("beneficially owned"
shares) were included in the numerator as shares owned and in the
denominator as shares outstanding for purposes of the calculation for such
beneficial owner only.
(2) Shares listed for Mr. Bagby, Ms. Christie, Mr. Donnelly, Mr. Mackenzie,
Mr. Michels, Mr. McClure and Mr. Morigi include 535,000, 450,000, 300,000,
485,000, 100,000, 90,000 and 50,000 shares, respectively, that may be
acquired through the exercise of stock options which are currently
exercisable or which will become exercisable within sixty days after the
date of this Prospectus.
(3) Excludes 156,100 shares held by Sanderson Technology Limited, a wholly
owned subsidiary of Sanderson Electronics PLC, of which Mr. Noden is a
director, with respect to which shares Mr. Noden disclaims beneficial
ownership.
(4) Includes 2,010,000 shares that may be acquired through the exercise of
stock options which are currently exercisable or which will become
exercisable within sixty days after the date of this Prospectus.
SELLING SHAREHOLDERS
All of the shares offered by this Prospectus are being offered by the
Selling Shareholders for their own respective accounts. The following table sets
forth certain information as of August 31, 1997 with respect to the Selling
Shareholders and the shares of the Company's common stock which they
beneficially own:
<TABLE>
<CAPTION>
Percentage
of Class
Shares Owned Shares Owned Shares Owned Owned
Name of Selling Prior to Covered by After the After
Shareholder Offering Prospectus Offering (1) Offering
----------- -------- ---------- ------------ --------
<S> <C> <C> <C> <C>
Sequoia Systems, Inc. 750,000 750,000 -0- 0%
Sanderson Technology
Limited 156,100 56,100 -0- 1%
Antoon Houben 12,500 12,500 -0- 0%
Robert Houben 12,500 12,500 -0- 0%
</TABLE>
- ---------
(1) Assuming the sale of all of the shares to which this Prospectus relates.
36
<PAGE> 40
PLAN OF DISTRIBUTION
The sale of the shares offered by this Prospectus by the Selling
Shareholders may be effected from time to time in one or more transactions
(which may involve block transactions, purchases by a broker or dealer as
principal and resale by such broker or dealer for its own account pursuant to
this Prospectus, ordinary brokerage transactions and transactions in which
brokers solicit purchases) on the American Stock Exchange, in special offerings,
exchange distributions or secondary distributions pursuant to and in accordance
with the rules of such exchange, in negotiated transactions or otherwise, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices, or at negotiated prices. In effecting sales, brokers
or dealers engaged by the Selling Shareholders may arrange for other brokers or
dealers to participate. Brokers or dealers selected by the Selling Shareholders
may receive commissions or discounts from the Selling Shareholders in amounts to
be negotiated immediately prior to sale (and which, as to a particular broker,
may be in excess of customary commissions). The Selling Shareholders and such
brokers or dealers, or any other participating brokers or dealers, may be deemed
to be "underwriters" within the meaning of the Securities Act of 1933, as
amended, in connection with such sales.
The Company has agreed to maintain the effectiveness of the
Registration Statement covering the shares offered by this Prospectus until the
earliest of (i) the fourth anniversary of the effective date of the Registration
Statement of which this Prospectus is a part, (ii) the sale by SSI of all of the
shares offered by it hereby, or (iii) the date on which all of the shares held
by SSI which are then covered by this Prospectus are eligible for sale under
Securities and Exchange Commission Rule 144, without regard to volume
limitations. The Company has also agreed to pay the fees and expenses incurred
by it in connection with the preparation and filing of the Registration
Statement of which this Prospectus is a part. However, the Selling Shareholders
are responsible for any commissions, discounts or fees of underwriters, brokers,
dealers or agents, and any transfer taxes applicable to the shares sold pursuant
to this Prospectus.
DESCRIPTION OF COMMON STOCK
The Company's authorized capital stock consists of 30,000,000 shares
of common stock, $.10 par value, and 10,000,000 shares of preferred stock, $.10
par value. As of August 31, 1997, there were 9,077,591 shares of common stock
outstanding, held of record by approximately 900 shareholders, and no shares of
preferred stock outstanding. The preferred stock may be divided into such number
of series as the Company's Board of Directors may determine. The Board of
Directors is authorized to determine and alter the powers, rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of preferred stock, and to fix the number of shares of any series of
preferred stock and the designation of any such series of preferred stock.
All outstanding shares of common stock, including those offered by
this Prospectus, are fully paid and nonassessable. All holders of common stock
have full voting rights and are entitled to one vote for each share held of
record on all matters submitted to a vote of the shareholders, subject to the
exercise of cumulative voting rights in the election of directors. Shareholders
have no preemptive or subscription rights. The common stock is neither
redeemable nor convertible, and there are no sinking fund provisions. Holders of
common stock are entitled to dividends when and as declared by the Board of
Directors from funds legally available therefor and are entitled, in the event
of liquidation, to share ratably in all assets remaining after payment of
liabilities. Under the terms of the Company's line of credit, the Company is
prohibited from paying dividends without the lender's prior approval.
37
<PAGE> 41
EXPERTS
The financial statements of General Automation, Inc. as of September
30, 1996 and 1995 and for each of the three years in the period ended September
30, 1996 included in this Prospectus, have been so included in reliance on the
report of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The consolidated balance sheets of Sequoia Enterprise Systems
Division of Sequoia Systems, Inc. at June 30, 1996 and 1995 and the related
consolidated statements of operations, parent company investment and cash flows
for each of the three years in the period ended June 30, 1996, included in this
Prospectus, have been included herein in reliance on the report, which includes
as explanatory paragraph, of Coopers and Lybrand L.L.P., independent
accountants, given on the authority of said firm as experts in auditing and
accounting. The explanatory paragraph states that certain costs and expenses
presented in the financial statements represent management's estimates of the
costs of services provided to Sequoia Enterprise Systems, a division of Sequoia
Systems, Inc., by Sequoia Systems Inc.. As a result, the consolidated financial
statements presented may not be indicative of the financial position or results
of operations that would have been achieved had Sequoia Enterprise Systems
operated as a nonaffiliated entity.
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby has
been passed upon for the Company by Higham, McConnell & Dunning, 28202 Cabot
Road, Suite 450, Laguna Niguel, California 92677-1250.
38
<PAGE> 42
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
GENERAL AUTOMATION, INC. AND SUBSIDIARIES
Report of Independent Accountants F-1
Consolidated Balance Sheet as of September 30, 1996 and 1995 F-2
Consolidated Statement of Operations for the Three Years Ended
September 30, 1996 F-4
Consolidated Statement of Shareholders' Equity for the Three
Years Ended September 30, 1996 F-5
Consolidated Statement of Cash Flows for the Three Years Ended
September 30, 1996 F-6
Notes to Consolidated Financial Statements F-8
Consolidated Balance Sheet (Unaudited) as of June 30, 1997 and
September 30, 1996 F-24
Consolidated Statements of Operations (Unaudited) for the Three and
Nine Month Periods Ended June 30, 1997 and 1996 F-26
Consolidated Statements of Cash Flow (Unaudited) for the Nine Month
Periods Ended June 30, 1997 and 1996 F-27
Note to Consolidated Financial Statements (Unaudited) F-28
Unaudited Pro Forma Condensed Financial Information -- Description
of Transaction F-31
Unaudited Pro Forma Condensed Statement of Operations for the Nine
Months Ended June 30, 1997 F-33
Unaudited Pro Forma Condensed Statement of Operations for the Year
Ended September 30, 1996 F-34
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF
SEQUOIA SYSTEMS, INC.
Report of Independent Accountants F-35
Consolidated Balance Sheets as of June 30, 1996 and 1995 F-36
Consolidated Statements of Operations for the Three Years Ended June 30, 1996 F-37
Consolidated Statements of Cash Flows for the Three Years Ended June 30, 1996 F-38
Statements of Parent Investment for the Three Years Ended June 30, 1996 F-39
Notes to Consolidated Financial Statements F-40
</TABLE>
39
<PAGE> 43
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholders and Board of Directors
of General Automation, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of changes in
stockholders' equity, present fairly, in all material respects, the financial
position of General Automation, Inc. and its subsidiaries at September 30, 1996
and 1995 and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 1996, 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.
/s/ PRICE WATERHOUSE LLP
- ------------------------------
PRICE WATERHOUSE LLP
Costa Mesa, California
December 9, 1996
F-1
<PAGE> 44
GENERAL AUTOMATION, INC.
And Subsidiaries
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30
---------------
1996 1995
----- -----
<S> <C> <C>
Assets
- ------
Current Assets:
Cash $ 119 $ 101
Accounts receivable, net (Note 2) 3,686 5,679
Inventories (Note 2) 2,979 1,726
Prepaid expenses 768 185
------- -------
Total current assets 7,552 7,691
------- -------
Long-term receivable 570 570
Property, plant and equipment, net of
accumulated depreciation and
amortization (Note 2) 1,392 1,354
Other assets (Note 2) 757 869
------- -------
$10,271 $10,484
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 45
GENERAL AUTOMATION, INC.
And Subsidiaries
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30
-----------------
1996 1995
----- -----
<S> <C> <C>
Liabilities and Shareholders' Equity
- ------------------------------------
Current Liabilities:
Accounts payable $ 2,967 $ 2,959
Advances from customers (Note 1) 709 3,401
Accrued income taxes (Note 6) 615
Other accrued expenses (Note 2) 1,288 850
Notes payable and current
portion of long-term
debt (Note 3) 763 1,119
-------- --------
Total current liabilities 6,342 8,329
Long-term debt, excluding
current portion (Note 3) 1,072 1,305
Deferred credit 79 79
Shareholders' Equity
Common stock par value $.10 per share;
Authorized 30,000,000 shares; issued
and outstanding 8,176,376 at
September 30,1996 and 7,391,776 at
September 30, 1995 818 739
Additional paid in capital 43,043 42,533
Accumulated deficit (41,083) (42,501)
-------- --------
Total shareholders' equity 2,778 771
-------- --------
$ 10,271 $ 10,484
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 46
GENERAL AUTOMATION, INC.
And Subsidiaries
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Twelve Months
Ended
September 30
------------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Revenues:
Product $ 9,715 $ 7,020 $ 21,284
Service 15,745 7,249 13,330
-------- -------- --------
Total 25,460 14,269 34,614
-------- -------- --------
Costs and expenses:
Cost of sales Product 7,887 6,502 11,763
Service 9,546 4,964 9,806
Selling and
administrative 4,366 3,704 9,607
Research and development 1,156 584 1,753
Other, net 258 181 385
-------- -------- --------
23,213 15,935 33,314
-------- -------- --------
Income (loss) from
operations 2,247 (1,666) 1,300
Interest income 60 35 41
Interest expense (274) (434) (649)
-------- -------- --------
Income (loss) before
income taxes and minority
interest 2,033 (2,065) 692
Provision for (benefit from)
income taxes 615 (454)
Minority interest in income
of SGA 719
-------- -------- --------
Net income(loss) $ 1,418 $ (2,065) $ 427
======== ======== ========
Net income (loss) per common share $ .18 $ (.26) $ .04
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 47
GENERAL AUTOMATION, INC.
And Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated Translation
Shares Amount Capital Deficit Adjustment
---------- ------ ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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-
=====
Net income 1,418
Stock Options exercised 784,600 79 510
---------- ------ ------- --------
Balance at September 30, 1996 8,176,376 $ 818 $43,043 $(41,083)
========== ====== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 48
GENERAL AUTOMATION, INC.
and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Twelve
Months Ended
September 30
---------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Cash flows provided by (used for)
operating activities:
Net income (loss) $ 1,418 $(2,065) $ 427
Adjustments to reconcile net
income (loss) to net
cash provided by (used for)
operations:
Gain from disposal of assets (55)
Minority interest in income of SGA 719
Depreciation and amortization 364 355 1,328
Changes in balance sheet items, net of
dispositions
Accounts receivable 1,993 (3,846) (1,461)
Inventories (1,253) 563 233
Prepaid expenses (583) (11) 11
Other assets (33) 79 155
Accounts payable 8 1,662 978
Advances from customers (2,692) 3,160 (371)
Accrued income taxes 615 (512)
Other accrued expenses 438 (240) (534)
------- ------- -------
Net cash provided by (used for)
operating activities 220 (343) 973
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 49
GENERAL AUTOMATION, INC.
and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Twelve
Months Ended
September 30
---------------------------
1996 1995 1994
------ ------- -------
<S> <C> <C> <C>
Cash flows used for investing
activities:
Purchases of property, plant and
equipment $(101) $(1,328) $ (431)
Proceeds from disposal of assets 55
Capitalized software costs (168) (178) (410)
Investment in subsidiary 13 (21)
----- ------- -------
Net cash used for
investing activities (201) (1,527) (841)
----- ------- -------
Cash flows provided by (used for)
financing activities:
Proceeds from issuance of common stock 589
Proceeds from issuance of notes
payable 267 1,357 940
Principal payments on notes
payable (857) (1,407) (2,000)
Principal payments on accrued
taxes (133)
Proceeds from sale of SGA Pacific 1,791
----- ------- -------
Net cash (used for) provided by
financing activities (1) 1,741 (1,193)
----- ------- -------
Effect of exchange rates
on cash 125
----- ------- -------
Increase (decrease) in cash 18 (129) (936)
Cash at beginning of period 101 230 1,166
----- ------- -------
Cash at end of period $ 119 $ 101 $ 230
===== ======= =======
Cash paid during the period for:
Interest $ 274 $ 452 $ 1,042
===== ======= =======
Income taxes $ $ $ 133
===== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 50
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 (The Service
Advantage) 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:
<TABLE>
<S> <C>
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
</TABLE>
The estimated useful life of customer service spare parts is adjusted to reflect
actual usage.
F-8
<PAGE> 51
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.
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 SGA using the equity method,
under which the Company recognized its pro-rata share of net income as reported
by SGA, after adjusting for the effects of intercompany transactions.
Foreign Currency Translation
The assets and liabilities for the Company's international subsidiaries which
were sold in 1995 were 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
Income taxes are accounted for using an asset and liability approach which
requires the recognition of deferred tax assets for the expected future tax
consequences of temporary differences between the financial statement and tax
bases of assets and liabilities at the applicable enacted tax rates.
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, 1996, 1995 and 1994 are 7,677,627, 8,036,572, and
11,366,776, respectively.
F-9
<PAGE> 52
Fair Value of Financial Instruments
The Company values financial instruments as required by Statement of Financial
Accounting Standards No. 107, "Disclosure about Fair Values of Financial
Instruments" (SFAS 107). The carrying amounts of cash accounts receivable,
accounts payable, accrued liabilities and debt approximate fair value. It was
not practicable to estimate the fair value of the long-term receivable since the
timing and amounts of the principal payments are not on fixed terms . Refer to
Note 8 for further discussion regarding this note receivable.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
New Accounting Standards
In March 1995, Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" ("SFAS 121") was issued. SFAS No. 121 establishes new guidelines in
accounting for the impairment of long-lived assets, including identifiable
intangibles. When circumstances indicate that the carrying amount of an asset
may not be recoverable as demonstrated by estimated cash inflows, an impairment
loss shall be recorded based on fair value. Management believes SFAS No. 121
will have no material effect on the financial statements of the Company upon
adoption in fiscal 1997.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123") "Accounting for Stock-Based
Compensation," which becomes effective for fiscal years beginning after December
15, 1995. SFAS 123 establishes new financial accounting and reporting standards
for stock-based compensation plans. Entities will be allowed to measure
compensation expense for stock-based compensation under SFAS 123 or APB Opinion
No. 25, "Accounting for Stock Issued to Employees." Entities electing to remain
with the accounting in APB Opinion No. 25 will be required to make pro forma
disclosures of net income and earnings per share as if the provisions of SFAS
123 had been applied. The Company intends to continue to follow the accounting
pursuant to APB No. 25 and, as a result, adoption of SFAS 123 in fiscal 1997
will have no effect on the Company's financial statements.
F-10
<PAGE> 53
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
2. Composition of Certain Balance Sheet Accounts:
Accounts receivable consist of:
<TABLE>
<CAPTION>
September 30
--------------------
1996 1995
-------- --------
<S> <C> <C>
Trade receivables $ 4,161 $ 6,007
Due from related parties 86 116
------- -------
4,247 6,123
Less allowance for
doubtful accounts (561) (444)
------- -------
$ 3,686 $ 5,679
======= =======
</TABLE>
Inventories are summarized as follows:
<TABLE>
<CAPTION>
September 30
----------------
1996 1995
------ --------
<S> <C> <C>
Materials, subassemblies
and spare parts $2,855 $1,498
Work in process 115 157
Finished goods 9 71
------ ------
$2,979 $1,726
====== ======
</TABLE>
F-11
<PAGE> 54
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
2. Composition of Certain Balance Sheet Accounts:
The major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
September 30
-------------------
1996 1995
------- -------
<S> <C> <C>
Land and building $ 1,276 $ 1,256
Machinery and equipment 2,133 2,064
Furniture and fixtures 213 200
Leasehold improvements 50 50
------- -------
3,672 3,570
Less accumulated
depreciation and
amortization (2,280) (2,216)
------- -------
$ 1,392 $ 1,354
======= =======
</TABLE>
Depreciation and amortization expense for the years ended September 30, 1996,
1995 and 1994 amounted to $64, $60 and $528, respectively.
Other assets comprise:
<TABLE>
<CAPTION>
September 30
-------------------
1996 1995
------- --------
<S> <C> <C>
Computer software costs $ 1,780 $ 1,612
Other 87 67
------- -------
1,867 1,679
Less accumulated
amortization (1,110) (810)
------- -------
$ 757 $ 869
======= =======
</TABLE>
During the years ended September 30, 1996, 1995 and 1994 the Company capitalized
$168, $178 and $410 of software development costs, respectively, and $310, $295
and $678 of such costs were amortized to cost of sales, respectively.
Other accrued expenses consist of the following:
<TABLE>
<CAPTION>
September 30
---------------
1996 1995
------ ------
<S> <C> <C>
Accrued payroll $ 499 $ 429
Accrued taxes other than income 69 95
Other 720 326
------ ------
$1,288 $ 850
====== ======
</TABLE>
F-12
<PAGE> 55
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
-----------------
1996 1995
------- ------
<S> <C> <C>
Unsecured note payable
bearing interest at 15%,
monthly payments of $31,192 beginning
August, 1995; due January, 1997 $ 121 $ 450
Note payable, bearing interest at 13%;
monthly payments of $6,800;
due on August 15, 1998 137 195
Notes payable to States relating to taxes;
bearing interest between 12% and 15%;
monthly payments of $7,547 through March 1999 59 241
Mortgage payable to National Bank of
Southern California, bearing interest at
prime + 1%, monthly payments of $8,445 990 995
Line of credit:
Continental Business Credit, bearing
interest at prime plus 6%, renewable
every six months 528 543
------ ------
1,835 2,424
Less amounts due in one year 763 1,119
------ ------
$1,072 $1,305
====== ======
</TABLE>
F-13
<PAGE> 56
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, 1996 are
approximately as follows for the twelve month periods ending September 30, 1997:
$763, 1998 - $92, 1999 - $14, 2000 - $10 2001 - $9 and $947 thereafter.
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, 1996 the total owed on this line was $528. The
agreement is renewable at six month intervals. The line includes various
covenants and restrictions; at September 30, 1996 the Company was in compliance
with all covenants.
Effective October 30, 1996, the Company entered into an agreement with Imperial
Bank for a revolving line of credit, not to exceed $1,500,000 collaterized by
domestic accounts receivable. The agreement is renewable annually and has
interest rate of prime plus 2%, payable monthly, with a minimum of $250.
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
contributes from profits amounts equal to 50% of each employee's contribution
which are limited 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 years ended September 30, 1996, 1995 and 1994
were $85, $78 and $65, respectively.
F-14
<PAGE> 57
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. 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 granted at prices in excess
of the market price of approximately $0.625 on the date of grant. 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
--------- ------------
<S> <C> <C>
1991 PLANS
- ----------
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
Granted 50,000
Exercised (732,000)
Terminated (71,000)
---------
Outstanding at September 30, 1996 665,000 $ 0.75
=========
</TABLE>
All remaining 665,000 options granted under the 1991 Plan are exercisable at
September 30, 1996. Under the amended 1991 Plan an additional 188,000 shares
have been reserved for future grants. All outstanding options have been granted
at $0.75 per share.
F-15
<PAGE> 58
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
6. Income Taxes:
The provision (benefit) for income taxes for each of the three fiscal years in
the period ended September 30, 1996 consists of the following:
<TABLE>
<CAPTION>
Year Ended
September 30
----------------------
1996 1995 1994
----- ----- ------
<S> <C> <C> <C>
Current:
Federal $482 $ $ (900)
State 133
Foreign -- -- 446
---- ------- -----
$615 $ -- $(454)
==== ======= =====
</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 are as follows:
<TABLE>
<CAPTION>
Year Ended
September 30
---------------------------
1996 1995 1994
------ ----- -----
<S> <C> <C> <C>
Tax provision (benefit)
calculated at Federal
statutory rate $ 691 $ (702) $ 235
Benefit of operating loss
carryforwards (355)
State income taxes 133
Expenses not benefited 123
Tax benefits not provided
on losses of domestic
and foreign operations (405) 414
Foreign operations taxed
at other than federal
statutory rate (205)
Reduction in estimated taxes due
under 1989 IRS settlement (900)
Income from sale of foreign subsidiary 1,054
Other 23 53 2
------ ------ ------
Provision (benefit) at effective tax rate $ 615 $ $ (454)
====== ====== ======
</TABLE>
F-16
<PAGE> 59
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
6. Income Taxes, Continued:
Federal net operating loss carryforwards in the total amount of $5.8 million is
subject to an annual limitation of $545 due to a change in ownership in November
1994.
On May 19, 1989, the Company and the IRS executed a revised agreement (the "IRS
Agreement") relating to tax deficiencies assessed for years 1974 to 1981. As of
September 30, 1996, the Company has no remaining obligations under the IRS
Agreement as the total obligation was fully satisfied with the filing of the
1994 Federal income tax return.
At September 30, 1994, 1993 and 1992, the revised its estimated tax liability
relating to the $2.8 million fixed portion of the IRS 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, 1996, relate to the following. A
valuation allowance has been established to reduce deferred tax assets to
amounts which are more likely than not to be realized:
<TABLE>
<CAPTION>
Deferred Tax Assets
-------------------
1996 1995
------ -------
<S> <C> <C>
Inventory reserve 102 82
Warranty Reserve 27 16
Vacation accrual 132 117
Allowance for bad debts 191 151
Accrued royalties 70 32
NOL carryforward 1,975 2,379
------ ------
Total 2,497 2,777
Valuation Allowance (2,497) (2,777)
------ ------
Net 0 0
====== ======
</TABLE>
F-17
<PAGE> 60
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
1996 and 1995, essentially all of the Company's operations were within the
United States.
Information concerning the Company's operations by geographic area for 1994 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>
F-18
<PAGE> 61
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
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.
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 were 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%. A gain was not recognized for
financial statement purposes due to the related party nature of the transaction.
Net operating losses were utilized to offset the entire gain recognized for tax
purposes in the fiscal 1995 tax return.
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).
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).
On October 29, 1993, with retroactive effect to September 30, 1993, the Company
sold its 61% share of Eurosystems to the minority shareholders of Eurosystems
(Krypton Group Ltd.) for $750 for a loss of $994 which was 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 was
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. As of September 30, 1994, the Company set up a $240 reserve against the
$810 balance remaining. In 1995 Krypton filed for bankruptcy.
F-19
<PAGE> 62
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
As of March 14, 1996, the Company received a new $600,000 note from Future
Services, Ltd., a newly formed Company in Great Britain and owned by the former
Krypton management, to repay the $570,000 note receivable balance currently
recorded in the balance sheet. 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
9. Commitments and Contingencies:
The Company leases certain facilities and equipment under operating leases.
Lease rental expense for the periods ended September 30, 1996, 1995 and 1994
were approximately $200, $305 and $1,367, respectively.
As of September 30, 1996, the minimum rental commitments required under existing
noncancellable operating leases, some of which provide for future increases in
minimum rentals, are as follows:
<TABLE>
<S> <C>
1997 $ 62
1998 22
1999 0
2000 0
-----
$ 84
=====
</TABLE>
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 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.
F-20
<PAGE> 63
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
10. Other:
General Automation LLC.
Effective May 22, 1995, GA and SunRiver Data Systems ("SunRiver") formed a
limited liability company ("GAL"), with the Company owning 51% and SunRiver 49%.
GAL was formed to allow GA to acquire the former ADDS Pick based business owned
by SunRiver. This business had been acquired by SunRiver from AT&T GIS in
December 1994 along with a terminal business which complimented SunRiver's
existing business and which SunRiver retained.
Under the terms of the Operating Agreement which governs the operation of GAL
(the "Operating Agreement"), GAL operates and manages GAI's Pick business and
SunRiver's Pick business. Under the Operating Agreement, SunRiver is entitled to
receive cash distributions from GAL in an amount equal to a percentage of GAL's
net revenues, which is payable whether or not GAL is profitable or generating
positive cash flow. The percentage of net revenues to which SunRiver is entitled
was 12% for the first year of the Operating Agreement (subject to a minimum of
$2,900,000 in the first year only) and will decline annually thereafter in steps
until it reaches 7% in the fifth year. However, the percentage of net revenues
payable to SunRiver is subject to adjustment (upward or downward) under certain
circumstances. Subsequent to the fifth year of the Operating Agreement, the
percentage of net revenues to be paid to SunRiver is to be determined by
negotiations between GA and SunRiver. GA is entitled to retain all cash
generated by GAL, if any, after the payment to SunRiver of the net revenue
percentage described above.
Under the Operating Agreement, the business and affairs of GAL are managed
exclusively by GA. However, in the event that GAL fails to achieve agreed upon
revenue or profit projections, SunRiver has the right to thereafter jointly
mange GAL with GA. Further, upon the occurrence of certain other events,
including the failure of GAL to pay to SunRiver the percentage of net revenues
to which SunRiver is entitled, SunRiver has the right to thereafter replace GA
as the sole manager of GAL. During the first year of the Operating Agreement, GA
received a management fee of $1,031,000 in connection with its duties as manager
of GAL. However, subsequent to the first year of the Operating Agreement, GA
will not be entitled to any compensation for acting as manager of GAL.
In May 2,000 GA will have the right to purchase SunRiver's entire interest in
GAL for a number of shares of GAL common stock equal to 9% of each class of GA's
then outstanding capital stock. If GA exercises this right of purchase, it is
obligated, immediately following the issuance of stock to SunRiver, to register
the shares so issued under the Securities Act of 1933.
Effective August 28, 1995, the Company entered into an agreement with Sanderson
Computers, Inc. ("SCI") under which SCI is responsible for the world-wide sales
of the Zebra 200 Library Systems, and the Maxial hospitality systems. Further,
SCI will assume the responsibilities 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.
F-21
<PAGE> 64
GENERAL AUTOMATION, INC.
And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(Dollars in thousands)
11. Subsequent Events
Sequoia Enterprise Systems.
On October 11, 1996 (the "Closing Date"), the Company purchased from Sequoia
Systems, Inc. ("SSI") substantially all of the assets and business of SSI's
"Sequoia Enterprise Systems" business division ("SES"). SES manufactures,
services, integrates and distributes fault-tolerant Motorola 68K computer
systems operating under SSI's version of UNIX and Intel based computer systems
running SSI's and Alpha Micro's versions of the "PICK" application environment
and database software products, and engages in various related distribution
arrangements. The Company's purchase of SES was made pursuant to an Asset
Purchase Agreement dated as of October 3, 1996 between the Company and SSI (the
"Purchase Agreement"). The assets which have been purchased by the Company do
not include the accounts receivable of SES. However, under the Purchase
Agreement, SSI is obligated to pay to the Company an amount equal to 40% of
SSI's collections of the accounts receivable of SES in existence on the closing
date, as those collections are made, until the Company has received a total of
$1,560,000; provided, however, that SSI will pay the full $1,560,000 to the
Company no later than 120 days following the Closing Date.
In exchange for SES, the Company has agreed to (i) pay an estimated purchase
price of $10,700,000 (subject to possible adjustment based on the net book value
of SES as of the Closing Date, as further discussed below) (the "Purchase
Price), (ii) assume certain liabilities of SSI totaling approximately
$2,700,000, and (iii) issue to SSI a Stock Purchase Warrant entitling SSI to
purchase 250,000 shares of the Company's common stock during the three year
period commencing on the first anniversary of the closing at an exercise price
of $2.50 per share (the "Warrant").
The Purchase Agreement also provides for an upward or downward adjustment of the
purchase price, on a dollar for dollar, basis if the net book value of SES as of
the Closing Date is less than $3,800,000 or more than $4,200,000. The final
determination of the net book value of SES is currently being reviewed by the
Company and SES, in accordance with the Purchase Agreement.
The Purchase Price will be paid by the Company in a combination of cash and
shares of the Company's common stock. The Purchase Agreement provides for
payment by the Company of the cash portion of the Purchase Price in monthly
installments, with the amount of each such installment being based on a
percentage of the gross revenues received by the Company during the month to
which the installment relates from the operation of SES and the Company's
overall service and support operations; provided, however, that (i) the Company
must pay by the first anniversary of the Closing Date an amount (comprised of
stock and cash) equal to not less than the net book value of SES as of the
Closing Date. The Purchase Agreement provides that the Company will be required
to make the monthly installments until the date at which the total value of the
Company's stock issued to SSI (to be valued as set forth in the Purchase
Agreement and summarized in the following paragraph) combined with the monthly
installment made to date equal the Purchase Price
On November 5, 1996, the Company issued 750,000 shares of its common stock to
SSI to be applied toward the Purchase Price (the "Payment Stock"). For purposes
of applying the same toward the Purchase Price, the Payment Stock will be valued
as follows: (i) 400,000 shares will be valued at $2.50 per share; (ii) 200,000
shares will be valued at the average of the closing per share sales prices of
the Company's common stock on the American Stock Exchange during the ten trading
days immediately preceding the first anniversary of the Closing Date; and (iii)
the remaining 150,000 shares will be valued at the average of the closing per
share sales prices of the Company's common stock on the American Stock Exchange
during the ten trading days immediately preceding any date on which a valuation
of such shares is made for purposes of determining the payment of the Purchase
Price; provided, however, that if the Purchase Price has not been
F-22
<PAGE> 65
paid in full prior to the second anniversary of the Closing Date, these shares
will be valued at the average of the closing per share sales prices of a share
of the Company's common stock on the American Stock Exchange during the ten
trading days immediately preceding the second anniversary of the Closing Date.
The acquisition was accounted for using the purchase method. Accordingly, the
purchase price was allocated to the assets acquired and liabilities assumed
based on their fair values. The total cost in excess of net assets acquired of
approximately $6,600,000 is being amortized over five years.
The Company has agreed, at its expense, to register under the Securities Act of
1933 for sale by SSI the Payment Stock and the shares issuable upon exercise of
the Warrant. SSI has agreed not to sell, make any short sale of, loan, or grant
any option for the purchase of, any of the Payment Stock without the prior
written consent of the Company (i) until the first anniversary of the Closing
Date, with respect to any shares of the Payment Stock in excess of 400,000
shares; and (ii) until the second anniversary of the Closing Date, with respect
to any shares of the Payment of Stock in excess of 600,000 shares.
Under the Purchase Agreement, until the earlier of (i) payment of at least 75%
of the Purchase Price; or (ii) the date on which SSI no longer is the holder of
at least 50% of the shares of the Payment Stock (or if the Warrant has been
exercised, the aggregate of the Payment Stock and the shares issued upon
exercise of the Warrant), SSI will be entitled to designate an individual for
election to the Board of Directors of the Company ("SSI's Designee"); provided,
however, that such individual is reasonably acceptable to the Company at the
time of his initial designation. Once appointed to the Company's Board, SSI's
Designee will serve until the first annual meeting of the stockholders of the
Company following the Closing Date and until his successor shall be duly elected
and qualified or until his earlier death, disability, removal or resignation.
So long as SSI possesses the right of designation described in the immediately
preceding paragraph, the Company has agreed that (i) the Company will nominate
(or shall cause to be nominated) for election at each annual meeting of the
stockholders of the Company after the Closing Date, the incumbent SSI's Designee
or such other individual as SSI may designate; provided, however, that such
other individual is reasonably acceptable to the Company at the time of his
initial designation; (ii) if SSI's Designee should die, become disabled, be
removed, retire or resign during the term of his office, SSI shall be entitled
to designate a successor reasonably acceptable to the Company at the time of his
initial designation, in which event the Company shall cause such successor to be
promptly elected as a member of its Board of Directors to fill the vacancy
created by such death, disability, removal, retirement or resignation; and (iii)
without the prior written consent of SSI (which consent will not be unreasonably
withheld, delayed or conditioned), neither the Company nor its Board of
Directors will: (A) recommended that SSI's Designee be removed by the
stockholders of the Company; or (B) fail to recommend any incumbent SSI's
Designee for reelection.
Liberty
Effective October 1, 1996, GA acquired all of the outstanding shares of Liberty
Integration Software, Inc. ("Liberty"). Liberty was purchased through the
issuance of 25,000 shares of the Company's common stock, and three equal
payments of $20,000 (CDN) or approximately $40,000 in US dollars. Liberty is
operated as a wholly owned subsidiary. Liberty offers a full suite of enterprise
connectivity products and services which are focused on providing connectivity
solutions between MultiValue databases and industry standard developments such
as data warehousing, OLAP engines, client/server development tools and internet
WWW applications. Liberty began operations in July 1995.
Effective October 30, 1996, the Company entered into an agreement with Imperial
Bank for a revolving line of credit, not to exceed $1,500,000 collaterized by
domestic accounts receivable. The agreement is renewable annually and has
interest rate of prime plus 2%, payable monthly, with a minimum of $250.
F-23
<PAGE> 66
GENERAL AUTOMATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30 SEPTEMBER 30
1997 1996
------- ------------
<S> <C> <C>
ASSETS
- ------
Current Assets:
Cash $ 1,186 $ 119
Accounts receivable, less allowances of
$437 and $561 respectively 5,390 3,686
Inventories 4,007 2,979
Prepaid expenses 928 768
------- -------
Total current assets 11,511 7,552
Long-term receivable 570 570
Property, plant and equipment, net of
accumulated depreciation and
amortization 2,401 1,392
Goodwill, net of amortization 5,592 0
Other assets 1,665 757
------- -------
TOTAL ASSETS $21,739 $10,271
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 67
GENERAL AUTOMATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30 SEPTEMBER 30
1997 1996
-------- -------------
<S> <C> <C>
LIABILITIES
- -----------
Current liabilities:
Accounts payable $ 3,694 $ 2,967
Deferred revenue 705 709
Other accrued liabilities 1,469 1,288
Accrued income taxes 344 615
Notes payable and current
portion of long-term debt 2,260 763
Current portion of other long-term
liabilities (see footnote #2) 2,750
-------- --------
Total current liabilities 11,222 6,342
-------- --------
Long-term debt, excluding current portion 1,157 1,072
Other long-term liabilities 4,032
Deferred credits 0 79
-------- --------
Total Liabilities 16,411 7,493
-------- --------
SHAREHOLDERS' EQUITY
- --------------------
Common stock par value $.10 per share
Authorized 30,000,000 shares;
issued and outstanding 9,051,876
at June 30, 1997 and 8,176,376
at September 30, 1996 905 818
Additional paid-in capital 44,990 43,043
Deficit (40,598) (41,083)
Translation adjustment 31 0
-------- --------
TOTAL SHAREHOLDERS' EQUITY 5,328 2,778
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 21,739 $ 10,271
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 68
GENERAL AUTOMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -----------------------
1997 1996 1997 1996
------ ------- -------- --------
<S> <C> <C> <C> <C>
SALES - PRODUCT $2,401 $2,978 $ 8,174 $ 7,567
SALES - SERVICE REVENUE 6,983 4,313 21,006 11,562
------ ------ ------- -------
Total 9,384 7,291 29,180 19,129
------ ------ ------- -------
COSTS AND EXPENSES:
Cost of sales - Product 1,446 2,574 5,892 6,595
Cost of sales - Service 3,390 2,300 10,880 6,789
Research and development 793 406 2,610 899
Selling and administrative 3,162 1,139 7,935 3,106
Other, net 424 71 1,184 87
------ ------ ------- -------
9,215 6,490 28,501 17,476
------ ------ ------- -------
OPERATING INCOME 169 801 679 1,653
Interest income 14 16 42 24
Interest expense (89) (61) (237) (210)
------ ------ ------- -------
INCOME BEFORE INCOME TAXES 94 756 484 1,467
(Benefit) provision for income taxes (120) 125 0 125
------ ------ ------- -------
NET INCOME $ 214 $ 631 $ 484 $ 1,342
====== ====== ======= =======
PER SHARE-PRIMARY:
NET INCOME $ .02 $ 0.08 $ 0.05 $ 0.18
====== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 69
GENERAL AUTOMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-------------------------
JUNE 30, JUNE 30,
1997 1996
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 484 $ 1,342
Adjustments to reconcile net income to net cash
provided by operations:
Gain from disposal of assets (55)
Depreciation and amortization 1,051 47
Changes in assets, (increase)/decrease
and liabilities, increase/(decrease), net of effects
from acquisitions:
Accounts receivable (731) 1,044
Inventories 557 (205)
Prepaid expenses (68) (346)
Other assets (111) 250
Accounts payable 1,298 (612)
Deferred revenue (709) (1,556)
Accrued expense (593) 277
------- -------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 1,178 186
------- -------
CASH FLOWS (USED IN) INVESTING ACTIVITIES:
Purchases of property, plant and equipment (150) (67)
Acquisition of businesses, net of cash acquired (1,661)
------- -------
NET CASH (USED IN) INVESTING ACTIVITIES (1,811) (67)
------- -------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of common stock 87 539
Proceeds from issuance of notes payable 2,162 276
Proceeds from disposal of assets 55
Principal payments on notes (580) (877)
------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,669 (7)
------- -------
Effect of rate changes on cash 31
Increase in cash 1,067 112
Cash at beginning of period 119 101
------- -------
Cash at end of period $ 1,186 $ 213
======= =======
Cash paid during the period for:
Interest $ 237 $ 210
======= =======
Income taxes $ 271 $ 0
======= =======
Supplemental schedule of noncash investing and financing activities:
In conjunction with the acquisition of SES, noncash activities were as follows:
Issuance of stock and warrants $ 2,375
Liabilities assumed, including $8,856 of amounts due seller $10,756
</TABLE>
The accompanying notes are an integral part of these statements
F-27
<PAGE> 70
GENERAL AUTOMATION, INC., AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. FINANCIAL STATEMENTS:
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments, all of which are of a normal
recurring nature, necessary to present fairly the financial position, results of
operations and cash flows. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. It is suggested that
these financial statements be read in conjunction with the Company's audited
financial statements, and the notes thereto included elsewhere in this
Prospectus. The results of operations for interim periods are not necessarily
indicative of the results of operations to be expected for the year.
2. ACQUISITIONS:
Effective October 11, 1996, the Company purchased substantially all
of the assets and business of Sequoia Enterprise Systems ("SES") from Sequoia
Systems, Inc. ("SSI") for approximately $10,700,000 (subject to possible
adjustment based on the net book value of SES as of the closing date). The
purchase agreement provides for an upward or downward adjustment of the purchase
price, on a dollar for dollar basis, if the net book value of SES is less than
$3,800,000 or more than $4,200,000. The final determination of the net book
value of SES is currently being reviewed by the Company and SES in accordance
with the purchase agreement. The purchase price consisted of approximately
$1,875,000 in Company stock, the assumption of certain liabilities, and deferred
payments based on future revenues. The acquisition was accounted for as a
purchase, and the net assets and results of operations are included in the
Company's consolidated financial statements from the acquisition date. The
resultant estimated goodwill is being amortized over 5 years using the straight
line method. SES operates as a division of the Company. For additional
information concerning this acquisition, see Note 11 to the Company's audited
financial statements included elsewhere in this Prospectus)
The purchase price will be paid by the Company in a combination of cash
and shares of the Company's common stock. The purchase agreement provides
for payment by the Company of the cash portion of the purchase price in monthly
installments, with the amount of each such installment being based on a
percentage of the gross revenues received by the Company during the month to
which the installment relates from the operation of SES and the Company's
overall service and support operations; provided, however, that the Company must
pay by the first anniversary of the closing date an amount (comprised of stock
and cash) equal to not less than the net book value of SES as of the closing
date. The purchase agreement provides that the Company will be required to make
the monthly installments until the date at which the total value of the
Company's stock issued to SSI (to be valued as set forth in the purchase
agreement and summarized in the following paragraph) combined with the monthly
installments made to date equal the purchase price.
On November 5, 1996, the Company issued 750,000 shares of its common
stock to SSI to be applied toward the purchase price (the "Payment Stock"). For
purposes of applying the same toward the purchase price, the Payment Stock will
be valued as follows: (i) 400,000 shares will be valued at $2.50 per share; (ii)
200,000 shares will be valued at the average of the closing per share sales
prices of the Company's common stock on the American Stock Exchange during the
ten trading days immediately preceding the first anniversary of the closing
date; and (iii) the remaining 150,000 shares will be valued at the average of
the closing per share sales prices of the Company's common stock on the American
Stock Exchange during the ten trading days immediately preceding any date on
which a valuation of such shares is made for purposes of determining the payment
of the purchase price; provided, however, that if the purchase price has not
been paid in full prior to the second anniversary of the closing date, these
shares will be valued at the average of the closing per share sales prices of a
share of the Company's common stock on the American Stock Exchange during the
ten trading days immediately preceding the second anniversary of the closing
date.
The following unaudited pro forma summary combines the consolidated
results of operations of the Company and SES as if the acquisition had occurred
on October 1, 1996, after giving effect to certain pro forma adjustments,
including the depreciation and amortization of the assets acquired based of
their fair values, the increase in common
F-28
<PAGE> 71
shares outstanding. This pro forma summary does not necessarily reflect the
results of operations as they would have been if the Company and SES had been a
single entity during the nine months ended June 30, 1997, nor is it indicative
of the results of operations which may occur in the future.
For the nine months ended June 30, 1997
(in thousands except per share data)
(unaudited)
Revenues $29,870
Net Income $ 210
Net Income Per Share $ .02
Pro forma summary information for the comparable period of the prior
year is not presented as the required data to compute the summary information is
not available.
3. INVENTORIES ARE AS FOLLOWS: (IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, September 30,
1997 1996
-------- -------------
<S> <C> <C>
Materials, subassemblies and service spares $3,493 $2,855
Work in process 510 115
Finished goods 4 9
------ ------
Total Inventories $4,007 $2,979
====== ======
</TABLE>
4. IMPAIRMENTS:
The Company annually evaluates its long-lived assets, including
intangibles, for potential impairment. When circumstances indicate that the
carrying amount of the asset may not be recoverable, as demonstrated by future
cash flows, an impairment loss would be recorded based on fair value.
5. NET INCOME PER COMMON SHARE:
Net income per common share for the three and nine month periods
ended June 30, 1997 and 1996 are based on the weighted average of shares
outstanding including the dilutive effect of common stock equivalents.
Weighted average shares outstanding are 9,507,962 and 9,436,955 for the
three and nine month periods ended June 30, 1997 including common stock
equivalents, and 7,741,860 and 7,508,136 for the three and nine month periods
ended June 30, 1996.
F-29
<PAGE> 72
Statement of Financial Accounting Standards No. 128 "Earnings Per
Share" (SFAS No. 128), issued in February 1997, would require the Company to
report a basic earnings per share and a diluted earnings per share. Basic
earnings per share would be computed by dividing net income available to common
stockholders by the weighted average shares outstanding during the period, with
no assumption of conversion of dilutive common stock equivalents. Diluted
earnings per share would be computed by reflecting the potential dilution that
could occur if additional shares of common stock were issued upon the exercise
of employee stock options or warrants.
SFAS No. 128 also would require a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. SFAS No. 128 will be effective for the Company in the
first quarter of fiscal year 1998. Earlier adoption is not permitted and,
accordingly, the Company will be required to restate the earnings per share
calculation for the interim periods of 1997, and for all earnings per share data
of prior years presented in summaries of earnings or selected financial data.
The adoption of SFAS No. 128 is not expected to have a material impact of
reported EPS for the three or nine months ended June 30, 1997.
F-30
<PAGE> 73
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
Description of Transaction
On October 11, 1996 (the "Closing Date"), General Automation, Inc. (the
Company or GA) purchased from Sequoia Systems, Inc. ("SSI") substantially all of
the assets and business of SSI's "Sequoia Enterprise Systems" business division.
SES manufactures, services, integrates and distributes fault-tolerant Motorola
68K computer systems operating under SSI's version of UNIX and Intel based
computer systems running SSI's and Alpha Micro's versions of the "PICK"
application environment and database software products, and engages in various
related distribution arrangements. The Company's purchase of SES was made
pursuant to an Asset Purchase Agreement dated as of October 3, 1996 between the
Company and SSI (the "Purchase Agreement").
The assets which have been purchased by the Company do not include the
accounts receivable of SES. However, under the Purchase Agreement, SSI was
obligated to pay to the Company an amount equal to 40% of SSI's collections of
the accounts receivable of SES in existence on the Closing Date, as those
collections were made, until the Company had received a total of $1,560,000;
provided, however, that SSI was obligated to pay the full $1,560,000 to the
Company no later than 120 days following the Closing Date. The full $1,560,000
has been paid to the Company by SSI.
In exchange for SES, the Company has (i) agreed to pay an estimated
purchase price of $10,700,000 (subject to adjustment based on the net book value
of SES as of the closing date as discussed below) (the "Purchase Price"); (ii)
assumed certain liabilities of SSI totaling approximately $2,700,000, and (iii)
issued to SSI a Stock Purchase Warrant entitling SSI to purchase 250,000 shares
of the Company's common stock at an exercise price of $2.50 per share (the
"Warrant"). The Warrant is exercisable during the three year period commencing
on the first anniversary of the closing. The Purchase Agreement also provides
for an upward or downward adjustment, on a dollar for dollar basis, of the
Purchase Price if the net book value of SES as of the Closing Date is less than
$3,800,000 or more than $4,200,000. The final determination of the net book
value of SES is currently being reviewed by the Company and SES, in accordance
with the Purchase Agreement.
The Purchase Price will be paid by the Company in a combination of cash
and the Company's common stock. On November 5, 1996, 750,000 shares of the
Company's common stock (the "Payment Stock") were issued to SSI. The deferred
payments under the Purchase Agreement will be paid in monthly installments, with
the amount of each installment being based on a percentage of the gross revenues
received by the Company during the month to which the installment relates from
the operation of SES and the Company's overall service and support operations;
provided, however, that the Company must pay, by the first anniversary of the
Closing Date an amount (comprised of stock, cash, or a combination thereof)
equal to not less than the net book value of SES as of the Closing Date. The
Purchase Agreement provides that the Company will be required to make the
monthly installments until the date at which the total value of the stock issued
by the Company to SSI (to be valued as set forth in the Purchase Agreement and
summarized in the following paragraph) combined with the monthly installments
made to date equal the Purchase Price.
For purposes of applying the Payment Stock toward the Purchase Price,
such stock will be valued as follows: (i) 400,000 shares well be valued at $2.50
per share; (ii) 200,000 shares will be valued at the average of the closing per
share sales prices of the Company's common stock on the American Stock Exchange
during the ten trading days immediately preceding the first anniversary of the
Closing Date; and (iii) the remaining 150,000 shares will be valued at the
average of the closing per share prices of the Company's common stock on the
American Stock Exchange during the ten trading days immediately preceding any
date on which a valuation of such shares is made for purposes of determining the
payment of the Purchase Price; provided, however, that if the Purchase Price has
not been paid in full prior to the second anniversary of the Closing Date, these
shares will be
F-31
<PAGE> 74
valued at the average of the closing per share sales prices of the Company's
common stock on the American Stock Exchange during the ten trading days
immediately preceding the second anniversary of the Closing Date.
The acquisition has been accounted for by the purchase method of
accounting and, accordingly, the total cost to acquire the assets of SES was
allocated to the underlying net assets based on their estimated fair values. The
excess of the net assets acquired over the purchase price was recorded as
goodwill.
The accompanying pro forma statements of operations for the year ended
September 30, 1996 and the nine months ended June 30, 1997 reflect combined
results of operations as if the acquisition of SES had occurred at the beginning
of each period.
The pro forma condensed combined statements of operations may not be
indicative of the results that actually would have been achieved if the
acquisition had been in effect as of the dates and for the periods indicated or
which may be obtained in the future. Therefore, the pro forma financial
information should be read in conjunction with the consolidated financial
statements of GA and the accompanying notes thereto which are included in its
most recent Form 10-K, and the consolidated financial statements of SES and the
accompanying notes thereto included elsewhere herein.
F-32
<PAGE> 75
GENERAL AUTOMATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL REPORTING (1) COMBINED
-------------------------------- ---------
GA SES
REVENUES: 6/30/97 10/1 - 10/11/1996
<S> <C> <C> <C>
SYSTEMS $ 8,174 $ 300 $ 8,474
SERVICE 21,006 390 21,396
------- ----- --------
TOTAL 29,180 690 29,870
COST OF REVENUES:
SYSTEMS 5,892 271 6,163
SERVICE & OTHER 10,880 335 11,215
------- ----- --------
TOTAL 16,772 606 17,378
GROSS PROFIT 12,408 84 12,492
RESEARCH AND DEVELOPMENT 2,610 138 2,748
SELLING, GENERAL AND ADMINISTRATIVE 8,129 243 8,372
GOODWILL AMORTIZATION 990 -- 990
------- ----- --------
TOTAL 11,729 381 12,110
INCOME (LOSS) FROM OPERATIONS 679 (297) 382
OTHER INCOME (EXPENSE) (195) 28 (167)
------- ----- --------
INCOME (LOSS) BEFORE TAXES 484 (269) 215
PROVISION (BENEFIT) FOR INCOME TAXES -- 5 (2) 5
------- ----- --------
NET INCOME (LOSS) $ 484 $(274) $ 210
======= ===== ========
NET INCOME PER COMMON SHARE $ 0.05 $ 0.02
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 9,436,955 9,464,428
</TABLE>
FOOTNOTES:
(1) Depreciation: For the period of 10/01/96 through 10/10/96, the
difference in depreciation expense as calculated by SES and what would
have been calculated by GA assuming the acquisition had occurred on
10/01/96 is considered immaterial. Accordingly, no pro forma adjustment
for depreciation has been made.
Amortization of Goodwill: Goodwill is being amortized on a straight
line basis over 60 months. For the period of 10/11/96 through 10/31/96
the Company recorded a full month of amortization. No pro forma
adjustment for goodwill amortization has been made for the period
10/01/96 through 10/11/96.
(2) Income tax provision: During the period from 10/01/96 through 10/11/96
SES recorded a tax liability relating to one of its foreign
subsidiaries.
F-33
<PAGE> 76
GENERAL AUTOMATION
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
GA SES ADJUSTMENTS COMBINED
REVENUES: 9/30/96 6/30/96 INCREASE
(DECREASE)
<S> <C> <C> <C>
SYSTEMS $ 9,715 $17,514 $ 27,229
SERVICE 15,745 14,257 30,002
OTHER -- 24 24
------- ------- --------
TOTAL 25,460 31,795 57,255
COST OF REVENUES:
SYSTEMS 7,887 11,598 19,485
SERVICE & OTHER 9,546 7,618 17,164
------- ------- --------
TOTAL 17,433 19,216 36,649
GROSS PROFIT 8,027 12,579 20,606
RESEARCH AND DEVELOPMENT 1,156 3,731 4,887
SELLING, GENERAL AND ADMINISTRATIVE 4,366 7,247 (936)(1) 10,677
RESTRUCTURING CHARGE (NOTE 4) 258 1,771(4) 2,029
GOODWILL AMORTIZATION -- -- 1,320 (2) 1,320
------- ------ -------- --------
TOTAL 5,780 12,749 384 18,913
INCOME (LOSS) FROM OPERATIONS 2,247 (170) (384) 1,693
OTHER INCOME (EXPENSE) (214) 14 (200)
------- ------ -------- --------
INCOME (LOSS) BEFORE TAXES 2,033 (156) (384) 1,493
PROVISION (BENEFIT) FOR INCOME TAXES 615 (62) (45)(3) 508
------- ------- -------- --------
NET INCOME (LOSS) $ 1,418 $ (94) $ (339) 985
======= ======= ======== ========
NET INCOME PER COMMON SHARE $ 0.18 $ 0.12
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING 7,677,627 8,427,627
</TABLE>
FOOTNOTES:
(1) Depreciation: reflects the bookings of fixed assets at their fair
value (estimated at the net book value at the time of acquisition)
and depreciating the asset over the estimated useful life as follows:
Building 30 years
Machinery & equipment 3 - 7 years
Furniture & fixtures 3 - 7 years
Leasehold improvements Lease term or asset life,
whichever is less
(2) Amortization of Goodwill: Goodwill is being amortized on a straight
line basis over 60 months.
(3) Income tax provision: The Company has an estimated effective income tax
rate of 34%.
(4) During 1996, SES incurred $1,771,000 in restructuring charges relating
to severance costs and other asset write-downs which are non-recurring
in nature.
F-34
<PAGE> 77
[COOPERS & LYBRAND LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board, of Directors of
Sequoia Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Sequoia
Enterprise Systems, a division of Sequoia Systems, Inc., as of June 30, 1996 and
1995 and the related consolidated statements of operations, parent company
investment and cash flows for each of the three years in the period ended June
30, 1996. These 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As discussed in Note 1, certain costs and expenses presented in the financial
statements represent management's estimates of the costs of services provided to
Sequoia Enterprise Systems by Sequoia Systems Inc. As a result, the
consolidated financial statements presented may not be indicative of the
financial position or results of operations that would have been achieved had
Sequoia Enterprise Systems operated as a nonaffiliated entity. Additionally, as
discussed in Note 10, Sequoia Enterprise Systems was acquired by General
Automation, Inc. on October 11, 1996.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sequoia Enterprise
Systems as of June 30, 1996 and 1995 and the results of its operations and its
cash flows for each of the three years in the period ended June 30, 1996 in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
/s/ COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 28, 1997
F-35
<PAGE> 78
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
------------ ------------
<S> <C> <C>
Current assets:
Accounts receivable, net $ 3,460,280 $ 3,878,372
Accounts receivable from related parties - -
Inventories 4,021,275 7,049,621
Other current assets 451,904 475,571
------------ ------------
Total current assets 7,933,459 11,403,564
------------ ------------
Property, plant and equipment, at cost:
Computer equipment 9,862,427 10,393,450
Machinery equipment 2,255,569 2,265,612
Equipment under capital lease 2,337,669 2,665,660
Furniture and fixtures 566,793 558,083
Leasehold improvements 730,165 687,170
Less accumulated depreciation and amortization (13,938,291) (14,101,263)
------------ ------------
1,814,332 2,468,712
Other assets 308,255 372,901
------------ ------------
Total assets $ 10,056,046 $ 14,245,177
============ ============
LIABILITIES AND PARENT COMPANY INVESTMENT
Current liabilities:
Current portion of capital lease obligations 55,833 124,699
Accounts payable 1,422,820 1,539,402
Accrued expenses 2,157,242 4,950,796
Deferred revenue 949,585 663,307
------------ ------------
Total current liabilities 4,585,480 7,278,204
Obligations under capital leases, net of current portion -- 55,833
Commitments and contingencies
Parent investment 5,470,566 6,911,140
------------ ------------
Total liabilities and parent company investment $ 10,056,046 $ 14,245,177
============ ============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
F-36
<PAGE> 79
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
System $ 17,513,361 $ 28,000,351 $ 29,463,856
Service 14,257,226 14,882,193 13,636,105
Other 24,056 1,011,981 1,665,229
------------ ------------ ------------
Total revenues 31,794,643 43,894,525 44,765,190
Cost of revenues:
System 11,598,147 11,849,017 11,870,643
Service and other 7,617,375 8,094,210 6,664,563
------------ ------------ ------------
Total cost of revenues 19,215,522 19,943,227 18,535,206
Gross profit 12,579,121 23,951,298 26,229,984
Research and development 3,731,058 8,422,193 7,749,970
Selling, general, and administrative expenses 7,246,942 10,545,051 9,141,919
Restructuring charge (credit) 1,771,320 (1,109,327)
------------ ------------ ------------
Income from operations (170,199) 4,984,044 10,447,422
Other Income (expense) 13,800 (158,933) 38,499
------------ ------------ ------------
Income before provision for income taxes (156,399) 4,825,111 10,485,921
Provision for income taxes (62,561) 1,930,045 4,194,369
------------ ------------ ------------
Net income (loss) $ (93,838) $ 2,895,066 $ 6,291,552
============ ============ ============
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
F-37
<PAGE> 80
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (93,838) $ 2,895,066 $ 6,291,552
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,242,693 1,812,601 1,836,693
Amortization 53,571 225,379 561,376
Restructuring charge (credit) 1,771,320 -- (1,109,000)
Write-down of equipment 52,331 -- --
Changes in operating assets and liabilities:
Accounts receivables 418,092 728,246 (1,321,720)
Accounts receivable from related parties -- 845,490 (30,770)
Inventories 3,028,346 (3,618,165) 1,443,136
Other current assets (33,963) (98,755) 101,330
Accounts payable (116,582) (350,219) 587,377
Accrued expenses (2,865,725) 708,524 (2,571,437)
Deferred revenue 286,278 (150,068) 128,362
----------- ----------- -----------
Net cash provided by operating activities 3,742,523 2,998,099 5,916,899
Cash flows from investing activities:
Purchase of equipment and improvements (685,605) (1,831,764) (1,434,942)
Decrease (increase) in other assets (220,222) (159,267) 297,584
----------- ----------- -----------
Net cash used in investing activities (905,827) (1,991,031) (1,137,358)
Cash flows from financing activities:
Repayment of obligations under capital leases (124,699) (121,473) (190,762)
Net transactions with parent company (2,711,997) (885,595) (4,588,779)
----------- ----------- -----------
Net cash used in financing activities (2,836,696) (1,007,068) (4,779,541)
----------- ----------- -----------
Net decrease in cash -- -- --
Cash and cash equivalents, beginning of year -- -- --
Cash and cash equivalents, end of year -- -- --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements,
F-38
<PAGE> 81
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
STATEMENTS OF PARENT INVESTMENT
June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Beginning parent investment $ 6,911,140 $ 4,683,409 $ 2,702,121
Net income (loss) (93,838) 2,895,066 6,291,552
Net transactions with parent (1,346,736) (667,335) (4,310,264)
----------- ----------- -----------
Ending parent investment $ 5,470,566 $ 6,911,140 $ 4,683,409
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
F-39
<PAGE> 82
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
Sequoia Enterprise Systems ("SES" or the "Company") is a wholly-owned
operating unit of Sequoia Systems, Inc. ("Sequoia"). SES designs,
manufactures, markets and services highly modular and easily
expandable, totally available computer systems based on the UNIX
operating system. SES systems are used primarily for on-line
transaction processing ("OLTP") and in other interactive environments
in which system availability, fast response time and data integrity are
critical.
These financial statements present SES' consolidated worldwide results
of income and its financial condition as it operated as a business unit
of Sequoia Systems, Inc., including certain adjustments necessary for a
fair presentation of the business. Expenses associated with Sequoia's
outside directors, legal, treasury and investor relations functions
have been excluded from these financial statements. Interest income and
interest expense has not been allocated and are not material.
Management believes the allocations are reasonable, however, the
financial statements presented may not be indicative of the results
that would have been achieved had the division operated as a
non-affiliated entity.
NET PARENT COMPANY INVESTMENT
All cash receipts and disbursements and intercompany charges related to
SES' operations are charged or credited to the parent company
investment account.
FOREIGN CURRENCY TRANSLATION
For foreign subsidiaries where the functional currency is the local
currency, the financial statements of SES' foreign subsidiaries are
translated using rates of exchange in effect at the end of the fiscal
year for monetary assets and liabilities and historical rates for
non-monetary assets and liabilities. Income and expenses are translated
at an average exchange rate prevailing during the fiscal year and the
resulting gains and losses are included in the net parent company
investment account.
EMPLOYEE SAVINGS AND RETIREMENT PLANS
Sequoia sponsors two defined contribution employee savings and
retirement plans ("the Plans"), which cover only United States
employees. Employees participate in the plans based on the subsidiary
of their employment. Contributions to the plans are made by Sequoia.
These financial statements for SES do not include any amounts related
to these plans as they are considered to be immaterial.
Continued
F-40
<PAGE> 83
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of SES and
all of its foreign operations. Significant intercompany transactions and
balance have been eliminated.
REVENUE RECOGNITION
Revenues from product sales, which includes revenues from software
licenses, are recognized upon shipment unless significant uncertainties
exist. Service and other revenues include maintenance, installation
fees, professional services, rental revenue and license fees. Service
and other revenues related to maintenance agreements are recognized
ratably over the period in which the service is provided, All other
service and other revenues are recognized as earned. License fees are
recognized as revenue upon receipt of non-refundable payments.
RESEARCH AND DEVELOPMENT
Costs relating to research and development are expensed as incurred.
CASH, CASH EQUIVALENTS, AND INVESTMENTS
Cash, restricted cash, cash equivalents, and investments pertaining to
SES' business are accounted for centrally by the corporate unit. As
such, SES' cash receipts and disbursements were combined with other
Sequoia corporate-wide cash transactions and balances. Accordingly, no
cash balances are presented in SES' historical balance sheets.
INVENTORIES
Inventories are stated at the lower of average cost (first-in,
first-out) or market which requires the periodic assessment of net
realizable value. The difference between cost and market is charged to
income in the period the impairment is determined.
PROPERTY, PLANT AND EQUIPMENT
Property, plant, and equipment is recorded at cost. Expenditures for
maintenance and repairs are charged to expense while the costs of
significant improvements are capitalized. SES provides for depreciation
by charges to operations in amounts estimated to allocate the cost of
equipment and leasehold improvements over their useful lives on a
straight-line basis. Computer equipment, machinery and equipment,
equipment under capital lease and furniture and fixtures are depreciated
over three to ten years, and leasehold improvements are amortized over
the term of the associated lease.
The Company periodically evaluates its fixed assets as to determine
whether assets are impaired or continue to be utilized. Upon
determination of an impairment, retirement or other disposition of
property and equipment, the cost and related depreciation are removed
from the accounts, and any resulting gain or loss is reflected in the
results of operations.
Continued
F-41
<PAGE> 84
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
SOFTWARE LICENSE FEES AND ROYALTIES
SES has entered into license and royalty agreements for software to be
incorporated into certain computer systems held for sale. The initial
fees under such software license arrangements are capitalized in other
assets and amortized over the lesser of the term of the license
agreement or on a straight line basis over three to five years. Royalty
payments are expensed upon the sale of computer systems that
incorporate the licensed software.
INCOME TAX PROVISION
The results of the divisions operations are included in Sequoia's
federal, state, and international consolidated income tax returns. The
income tax provision included in SES' statements of operations is
calculated as if it had been required to file separate tax returns. The
provision for income taxes is calculated in accordance with SFAS No.
109 "Accounting for Income Taxes," which requires the recognition of
deferred income taxes using the liability method. The net operating
results of SES through June 30, 1996 have been included in the
consolidated income tax returns of Sequoia. Any tax benefits relating
to prior losses generated by SES will remain with Sequoia and are not
recognized in the accompanying financial statements.
OTHER CHARGES / RESTRUCTURING CREDIT
During 1996, in response to the accelerating decline in demand for the
Motorola based products, the SES decided to curtail investment in its
Motorola products, refocus its research and development activities and
consolidate certain functions. As a result of management's actions, SES
has been allocated $1,771,000 of a restructuring charge relating to
severance costs and other asset write-downs. These other charges
included: $1,162,000 of severance and related costs, $284,000 to
write-off other current and long-term assets which were no longer used
and $325,000 for other contractual obligations related to these
actions. Payments of approximately $1,035,000 were made in connection
with these charges during the year ended June 30, 1996. Remaining
liabilities of $736,000 at June 30, 1996 predominantly consisted of
severance and related costs which are expected to be paid out during
fiscal 1997.
During fiscal 1992, the Company recorded a restructuring charge of
$13,990,000 as a result of lower revenues and a downsizing of the
operations based on anticipated future revenue levels. During fiscal
1994, the Company settled its obligations, and determined that, as of
June 30, 1994, $1,109,000 of restructuring charges was in excess of
business requirements and recorded a restructuring credit.
Additionally, the Company realized a benefit in cost of revenues of
$900,000 in fiscal 1994 as a result of the sale of inventory which had
been previously written down as part of the restructuring. As of June
30, 1995 restructuring activities were completed.
Continued
F-42
<PAGE> 85
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
EARNINGS PER SHARE
Earnings per share have not been presented since SES operated as a
business unit of Sequoia during the periods presented in the
accompanying financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that effect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
IMPAIRMENT OF LONG-LIVED ASSETS TO BE DISPOSED OF
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of." The Company and the division intend to adopt
this standard in fiscal year 1997. The division does not expect the
adoption of this standard to have a material effect on its financial
position or results of operations.
WARRANTY OBLIGATIONS
The Company generally provides its products with a 90-day to two-year
warranty from the date of installation depending upon the product. The
cost of warranty obligations are estimated and provided for at the time
of sale.
2. INVENTORIES:
Inventories at June 30 consist of the following:
<TABLE>
<CAPTION>
1996 1996
---------- ----------
<S> <C> <C>
Raw materials $1,822,163 $1,378,626
Work in progress 1,103,531 2,866,206
Finished goods 1,095,581 2,804,789
---------- ----------
$4,021,275 $7,049,621
========== ==========
</TABLE>
Continued
F-43
<PAGE> 86
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
3. OTHER ASSETS:
Other Assets at June 30 consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Software license fees net of accumulated amortization
of $589,040 and $535,469, in 1996 and 1995,
respectively $213,371 $282,163
Other 94,884 90,738
-------- --------
$308,255 $372,901
======== ========
</TABLE>
4. ACCRUED EXPENSES:
Accrued Expenses at June 30 consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Compensation and benefits $ 649,207 $2,638,556
Commissions and royalties 130,138 562,796
Other charges 337,822 --
Warranty expense -- 190,680
Accrued rent 91,972 153,286
Other 948,103 1,405,478
---------- ----------
$2,157,242 $4,950,796
========== ==========
</TABLE>
5. INCOME TAXES:
A reconciliation of the federal statutory rate to the Company's effective
rate is as follows for the year ended June 30,
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal Statutory rate 34.0% 34.0% 34.0%
State income taxes, net of federal benefit 6.0% 6.0% 6.0%
---- ---- ----
40.0% 40.0% 40.0%
==== ==== ====
</TABLE>
Continued
F-44
<PAGE> 87
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. LEASE COMMITMENTS:
SES leases equipment and office space for its headquarters and sales
offices under various operating arrangements that expire at various dates
through 2000. In addition, SES leases certain equipment, office furniture
and software licenses under capital leases that mature at various dates
through 1997. At June 30, 1996, minimum payments due under all operating
and capital lease arrangements are as follows:
<TABLE>
<CAPTION>
OPERATING LEASE CAPITAL LEASE
FISCAL YEAR COMMITMENTS COMMITMENTS
----------- -----------
<S> <C> <C>
1997 $1,064,021 $68,724
1998 636,323
1999 37,865
2000 5,298
---------- --------
Total minimum lease payments $1,743,507 68,724
Less--Amount representing interest on capital lease 12,891
Present value of minimum lease payments $55,833
=======
</TABLE>
Approximately $1,613,000, $1,404,000, and $1,579,000 were charged to rent
expense in fiscal 1996, 1995, and 1994, respectively, under operating
lease commitments. Accumulated amortization on equipment under capital
lease amounted to $2,338,000 and $2,460,000 at June 30, 1996 and 1995,
respectively.
7. NOTE PAYABLE:
In 1994 the Company had an outstanding note payable for $1,950,000 under
the borrowing arrangements established with State Street Bank. This note
payable is not reflected on SES' balance sheet as the borrowing agreement
is between State Street Bank and Sequoia and is considered to be a
liability of Sequoia.
Continued
F-45
<PAGE> 88
SEQUOIA ENTERPRISE SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. SIGNIFICANT CUSTOMERS AND DOMESTIC AND EXPORT SALES:
The following summarizes significant customers.
<TABLE>
<CAPTION>
NUMBER OF
SIGNIFICANT PERCENTAGE
YEARS ENDED JUNE 30, CUSTOMERS REVENUES OF REVENUES
-------------------- --------- -------- -----------
<S> <C> <C> <C>
1996 1 $4,066,359 13%
1995 1 8,480,473 19%
1994 1 12,019,990 19%
</TABLE>
The following summarizes domestic export sales for SES:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Domestic $25,286,593 $31,156,348 $35,064,600
Export;
Europe 2,226,917 3,555,199 3,851,306
Asia 254,092 2,018,720 3,578,811
Australia 2,797,468 5,795,260 1,331,606
All other 1,229,573 1,368,998 938,867
----------- ----------- -----------
$31,794,643 $43,894,525 $44,765,190
=========== =========== ===========
</TABLE>
9. RELATED PARTY TRANSACTIONS:
In November 1991, the Company entered into a joint venture. Sequoia
Systems Pty. Ltd., with Tricom Pty. Ltd. (Tricom). The joint venture,
through Tricom, had the right to distribute the Company's products in
Australia and New Zealand. The Company purchased 15% of the joint venture
and had the right to purchase the joint venture after five years. During
fiscal 1994, the Company had sales to the joint venture, through Tricom,
of $1,332,000. The Company had accounted for its investment in the joint
venture at cost, but as part of the restructuring charge recorded during
fiscal 1993, has subsequently written down the investment to its net
realizable value.
On July 1, 1994, the Company reached an agreement and purchased selected
assets and the ongoing business operations of Sequoia Systems (Australia)
Pty. Ltd., its joint venture with Tricom Computer. The company transferred
15% of its ownership to Tricom as part of this agreement.
The Company also incorporated certain Australian legal entities to operate
the business in the same geographic market area. Tricom has also agreed to
specific noncompete agreements in selected
Continued
F-46
<PAGE> 89
SEQUOIA ENTERPRISE-SYSTEMS DIVISION OF SEQUOIA SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
markets with the Company and/or its subsidiary(s) and further, that the
joint venture would be liquidated, as defined in the agreement.
10. SUBSEQUENT EVENT:
On October 3, 1996, the Company announced it had entered into an agreement
for the sale of substantially all of the net assets of SES to General
Automation, Inc. for approximately $11,000,000 in General Automation, Inc.
common stock, warrants, and deferred payments. The transaction closed on
October 11, 1996,
F-47
<PAGE> 90
No dealer, salesman or other person has been authorized to give any
information or make any representations in connection with this offering other
than those contained in this Prospectus (including any Prospectus Supplement)
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company or by any of the Selling
Shareholders. This Prospectus (including any Prospectus Supplement) does not
constitute an offer to sell or a solicitation of an offer to buy any of these
securities in any state to any person to whom it is unlawful to make such offer
or solicitation in such state. The delivery of this Prospectus at any time does
not imply that the information contained herein is correct as of any time
subsequent to its date.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information...................... 2
Prospectus Summary......................... 3
The Company................................ 6
Risk Factors............................... 7
Use of Proceeds............................ 7
Price Range of Common Stock................ 8
Dividend Policy............................ 9
Selected Financial Data.................... 9
Management's Discussion and Analysis....... 11
Business ................................ 17
Management................................. 29
Security Ownership......................... 35
Selling Shareholders....................... 36
Plan of Distribution....................... 37
Description of Common Stock................ 37
Experts ................................ 38
Legal Matters.............................. 38
Index to Financial Statements.............. 39
</TABLE>
831,100
Shares of Common Stock
GENERAL AUTOMATION, INC.
PROSPECTUS
, 1997
<PAGE> 91
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following sets forth the estimated amounts of expenses in
connection with the offering of the shares of common stock pursuant to this
Registration Statement, all of which shall be borne by the Company:
<TABLE>
<S> <C>
Securities and Exchange Commission Fee ................ $ 394
Accounting Fees and Expenses .......................... $ 80,000
Legal Fees and Expenses ............................... $ 35,000
Miscellaneous Expenses ................................ $ 10,000
--------
Total ............................... $125,394
========
</TABLE>
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law makes provision
for the indemnification of officers and directors in terms sufficiently broad to
indemnify officers and directors under certain circumstances from liabilities
(including reimbursement for expenses incurred) arising under the Securities Act
of 1933. Indemnification Agreements entered into by the Company and its officers
and directors provide that the Company shall indemnify its officers and
directors to the fullest extent permitted by law.
In addition, as permitted by Section 102(b)(7) of the Delaware
General Corporation Law, the Company's Certificate of Incorporation provides
that a director of the Company shall not be liable to the Company or its
shareholders for monetary damages for breach of the director's fiduciary duty of
care. However, as provided by Delaware law, such limitation of liability will
not act to limit liability (i) for any breach of the director's duty of loyalty
to the Company or its shareholders, (ii) for any acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) arising under the provisions of the Delaware General Corporation Law
relating to unlawful distributions, or (iv) for any transaction from which the
director derived an improper benefit.
Item 15. Recent Sales of Unregistered Securities.
1. In November 1994, the Company granted stock options to each of
three individuals who were officers and/or directors of the Company. Each such
option entitled the optionee to purchase 485,000 shares of the Company's common
stock. These options were granted without registration under the Securities Act
of 1933 (the "Act") in reliance on the exemption provided by Section 4(2) of the
Act. The shares of common stock issuable upon the exercise of these options were
registered in a Registration Statement on Form S-8 filed by the Company on
August 2, 1996.
2. In January 1995, the Company issued 125,000 shares of its common
stock to one individual in connection with the settlement of certain litigation
involving the Company. These shares were issued without registration under the
Act in reliance on the exemption provided by Section 4(2) of the Act.
II-1
<PAGE> 92
3. In November 1996, the Company issued to Sequoia Systems, Inc.
750,000 shares of the Company's common stock, and a Stock Purchase Warrant
entitling Sequoia Systems, Inc. to purchase up to an additional 250,000 shares
of the Company's common stock. These securities were issued as partial
consideration for the company's acquisition from Sequoia Systems, Inc. of
substantially all of the assets and business o fits Sequoia Enterprise Systems
division. These securities were issued without registration under the Act in
reliance on the exemption provided by Section 4(2) of the Act.
4. In September 1996, the Company issued 56,100 shares of the
Company's common stock to Sanderson Technology Limited ("STL") for cash
consideration in the aggregate amount of $42,075. These shares were issued
pursuant to the exercise of rights under the Common Stock Warrant Agreement
dated January 6, 1989 between the Company and Sanderson Electronics PLC, an
affiliate of STL (the "Mirror Warrant Agreement"). These securities were issued
without registration under the Act in reliance on the exemption provided by
Section 4(2) of the Act.
5. In January 1997 the Company issued a Subordinated Note in the
principal amount of $500,000 to Morgan Stanley Company, Inc., beneficial
interests in which are held by five individuals. This Note was issued without
registration under the Act in reliance on the exemption provided by Section 4(2)
of the Act.
6. In May 1997 the Company issued 100,000 shares of the Company's
common stock to STL for cash consideration in the aggregate amount of $75,000.
These shares were issued pursuant to the exercise of rights under the Mirror
Warrant Agreement, and were issued without registration under the Act in
reliance on the exemption provided by Section 4(2) of the Act.
7. In July 1997 the Company issued 125,715 shares of the Company's
common stock to the partners of Liberty Project Limited Partnership, a British
Columbia limited partnership ("LPLP"), in exchange for substantially all of the
assets of LPLP. The securities were issued without registration under the Act in
reliance on the exemptions provided by Regulation S and Rule 505.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
Exhibit Description
- ------- -----------
3.1 Amended Certificate of Incorporation of the company, incorporated
herein by reference to Exhibit 3(a) to the Company's 10-K for the
year ended June 30, 1989.
3.2 Bylaws of the Company, incorporated herein by reference to Exhibit
3.0 to the Company's 10-K for the year ended June 30, 1988.
5 Opinion of Higham, McConnell & Dunning (to be filed by amendment).
10.1 License Agreement dated November 23, 1982 between the Company and
Pick Computer Works, Inc., incorporated herein by reference to
Exhibit 10 to the Company's Registration Statement on the Form S-1
filed June 5, 1986.
10.2 The following agreements between the Company and Sanderson
Electronics PLC, dated as of January 6, 1989: Common Stock Warrant
Agreement ("Mirror Rights Agreement"), and Common Stock Registration
Rights Agreement, incorporated herein by reference to Exhibit 10(x)
to the Company's 10-K for the year ended June 30, 1989.
10.3 Agreement between the Company and Future Services, Ltd., dated March
16, 1996, incorporated herein by reference to Exhibit 10(m) to the
Company's 10-K for the year ended September 30, 1996.
II-2
<PAGE> 93
10.4 Operating Agreement dated May 22, 1995 between the Company and
SunRiver Data Systems, incorporated herein by reference to Exhibit
10(n) to the Company's 10-K for the year ended September 30, 1996.
10.5 Asset Purchase Agreement dated as of October 3, 1996 between the
Company and Sequoia Systems, Inc., incorporated herein by reference
to Exhibit 2 to the Company's 8-K filed October 15, 1996.
10.6 Stock Purchase Warrant dated October 11, 1996 issued by the Company
to Sequoia Systems, Inc., incorporated herein by reference to Exhibit
4.1 to the Company's 8-K filed October 15, 1996.
10.7 Registration Rights Agreement dated October 11, 1996 between the
Company and Sequoia Systems, Inc., incorporated herein by reference
to Exhibit 4.2 to the Company's 8-K filed October 15, 1996.
10.8 Loan Agreement dated October 30, 1996 between the Company and
Imperial Bank, incorporated herein by reference to Exhibit 10(r) to
the Company's 10-K for the year ended September 30, 1996.
10.10 Amendment dated January 27, 1997 to the Loan Agreement dated October
30, 1996 between the Company and Imperial Bank.
10.11 Stock Option Agreements dated March 21, 1995 entered into between the
Company and each of Messrs. Lawrence Michels, Robert Bagby and
Leonard Mackenzie.
10.12 The Company's 1991 Stock Option Plan, as amended.
10.13 The Company's 1991 Directors' Stock Option Plan, as amended.
10.14 Subordinated Note dated January 21, 1997 in the amount of $500,000
payable to Morgan Stanley and Company, Inc.
10.15 License Agreement dated April 26, 1996 between the Company and
McDonnell Information Systems Limited
10.16 Letter agreement dated April 15, 1997 between the Company and Leonard
Mackenzie.
23.1 Consent of Higham, McConnell & Dunning (included in Exhibit 5).
23.2 Consent of Price Waterhouse LLP.
23.3 Consent of Coopers & Lybrand LLP.
24 Power of Attorney (set forth on the signature page of this
Registration Statement)
(b) Financial Statement Schedules:
All financial statement schedules are omitted because the information is not
required, is not material, or is otherwise furnished.
Item 17. Undertakings.
II-3
<PAGE> 94
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represents a
fundamental change in the information set forth in this
Registration Statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in this
Registration Statement or any material change to such
information in the Registration Statement; provided,
however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do
not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained
in periodic reports filed by the Company pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act
of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Registrant pursuant to the provisions described under Item 15
above, or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer of
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(d) The undersigned Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement
II-4
<PAGE> 95
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-5
<PAGE> 96
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Irvine,
State of California, on the 3rd day of September, 1997.
GENERAL AUTOMATION, INC.
By: /s/ JANE CHRISTIE
----------------------------------------
Jane Christie, President
and Chief Executive Officer
We, the undersigned directors and officers of General Automation,
Inc., do hereby constitute and appoint Jane M. Christie and John R. Donnelly, or
either or them, our true and lawful attorneys and agents, to do any and all acts
and things in our name and behalf in our capacities as directors and officers
and to execute any and all instruments for us and in our names in the capacities
indicated below, which said attorneys and agents, or either of them, may deem
necessary and advisable to enable said corporation to comply with the Securities
Act of 1933, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but without limitation, power and authority
to sign for us or any of us in our names and in the capacities indicated below,
any and all amendments (including post-effective amendments) hereto; and we do
hereby ratify and confirm all that said attorneys and agents, or either of them,
shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ LAWRENCE MICHELS
- --------------------------- Chairman of the Board September 3, 1997
Lawrence Michels and Director
/s/ ROBERT D. BAGBY
- --------------------------- Vice Chairman September 3, 1997
Robert D. Bagby and Director
/s/ JANE M. CHRISTIE
- --------------------------- Chief Executive Officer, September 3, 1997
Jane M. Christie President
and Director
/s/ JOHN R. DONNELLY
- --------------------------- Chief Financial September 3, 1997
John R. Donnelly Officer and
Principal Accounting
Officer
</TABLE>
S-1
<PAGE> 97
<TABLE>
<S> <C> <C>
/s/ LEONARD MACKENZIE Director September 3, 1997
- --------------------------
Leonard Mackenzie
/s/PHILIP T. NODEN Director September 3, 1997
- --------------------------
Philip T. Noden
/s/ PAUL MORIGI Director September 3, 1997
- --------------------------
Paul Morigi
/s/ROBERT M. McCLURE Director September 3, 1997
- --------------------------
Robert M. McClure
</TABLE>
S-2
<PAGE> 1
Exhibit 10.10
FIRST AMENDMENT TO SECURITY AND LOAN AGREEMENT
AND ADDENDUM, EXHIBIT "A", THERETO
This First Amendment ("Amendment") amends that certain Security and Loan
Agreement dated October 30, 1996, by and between Imperial Bank ("Bank") and
General Automation, Inc. ("Borrower") and the Addendum. Exhibit "A," (the
"Addendum") thereto, of even date, (collectively herein the Security and Loan
Agreement and the Addendum are referred to as the ("Agreement") as follows:
1. The dollar figure "$1,500,000" in Section 1. of the Security and Loan
Agreement is hereby amended to read as "$2,000,000."
2. Section 8.a. of the Addendum is hereby amended to read in its entirety
as follows:
"Maintain a minimum Book Net Worth of $5,000,000 as of 9/30/96 -
and of $4,500,000 as of 12/31/96 and thereafter."
3. Except as provided above, the Agreement remains unchanged.
4. This Amendment is effective as of January 27, 1997, and the parties
hereby confirm that the Agreement as amended is in full force and effect.
GENERAL AUTOMATION, INC.
"Borrower"
By: /s/ John R. Donnelley
----------------------------
John R. Donnelley
Title: VP Finance
-------------------------
IMPERIAL BANK
"Bank"
By: /s/ Caroline Hawkins
----------------------------
Caroline Hawkins
Title: Regional Vice President
-------------------------
<PAGE> 1
Exhibit 10.11
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Agreement") is made this 21st
day of March, 1995 between GENERAL AUTOMATION, INC., a Delaware corporation (the
"Company"), and Lawrence Michels, an employee and/or director of the company
(the "Optionee").
R E C I T A L:
The Company desires to grant to the Optionee, and the Optionee
desires to accept from the Company, options to purchase 485,000 shares of the
Company's Common Stock par value $0.10 per share (the "Common Stock"), on the
terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants
hereinafter set forth and for good and valuable consideration, the parties
hereto have agreed, and do hereby agree, as follows:
1. GRANT OF OPTION. The Company hereby grants to the Optionee
the right and option (the "Option") to purchase all or any part of Four Hundred
Eighty-Five Thousand (485,000) shares of the Common Stock (such number being
subject to adjustment as provided in Section 7 hereof) on the terms and
conditions herein set forth. The Option granted herein is not intended to be an
"incentive option" within the meaning of the Internal Revenue Code of 1986, as
amended.
2. PURCHASE PRICE. The purchase price of the shares of the
Common Stock covered by the Option shall be Eighty-Six Cents ($0.86) per share
(such price being subject to adjustment as provided in Section 7 hereof).
3. TERM OF OPTION. The term of the Option shall commence on
the date hereof and all rights to purchase shares hereunder shall cease at 5:00
p.m. Pacific time on the fifth anniversary of the date hereof subject to earlier
termination as provided herein.
4. EXERCISE OF OPTION. Except as may otherwise be provided in
this Agreement, the Option shall be exercisable in full at any time or in part
from time to time during the term of the Option. The purchase price of the
shares as to which the Option shall be exercised shall be paid in full at the
time of exercise: (i) in cash or by certified check or by bank draft; (ii)
subject to any legal restrictions on the acquisition or purchase of its shares
by the Company, by the delivery of shares of Common Stock of the Company which
shall be deemed to have a value to the Company equal to the aggregate fair
market value (which shall be determined pursuant to Section 8 below) of such
shares; or (iii) in any combination of (i) or (ii) above. The Optionee shall not
have any of the rights of a shareholder with respect to the shares covered by
the Option as to any shares of Common Stock not actually issued and delivered to
the optionee.
1
<PAGE> 2
5. NONTRANSFERABILITY OF OPTION. The Option shall not be
transferable otherwise than by will or the laws of descent and distribution, and
the Option may be exercised, during the lifetime of the Optionee, only by the
Optionee. More particularly (but without limiting the generality of the
foregoing), the Option may not be assigned, transferred, pledged or hypothecated
in any way, shall not be assignable by operation of law and shall not be subject
to execution, attachment or similar process. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of the Option contrary to the
provisions hereof, and the levy of any execution, attachment or similar process
upon the Option, shall be null and void and without effect.
6. OTHER EXPIRATIONS. In addition to any other event causing
an expiration or termination of the Option, the Option shall expire and all
rights to purchase shares cease (to the extent not theretofore terminated or
expired as herein provided) upon (i) the effective date of the dissolution or
liquidation of the Company or of a merger, consolidation or reorganization
(including the sale of substantially all of its assets) of the Company with one
or more entities, corporate or otherwise, as a result of which the Company is
not the surviving entity, or (ii) the merger or other reorganization of the
Company with one or more entities, corporate or otherwise, as a result of which
the outstanding shares of Common Stock of the company are changed into or
exchanged for shares of the capital stock or other securities of another entity
or for cash or other property; provided, however, that the Company may, in its
discretion, and immediately prior to any such transaction, cause a new option to
be substituted for this Option or cause this option to be assumed by a successor
entity or a parent or subsidiary of such entity; and such new option shall apply
to all shares issued in addition to or substitution, replacement or modification
of the shares of Common Stock theretofore covered by this Option.
If no provision is made for the assumption of this Option or
the substitution for this Option of a new option as hereinabove provided, then
the Company shall cause written notice to be given to the Optionee of the
proposed transaction not less than thirty (30) days prior to the anticipated
effective date thereof. To the extent the Option remains unexercised as of the
effective date of such transaction, the Option shall, concurrently with the
consummation of such transaction, terminate and become void and of no effect.
7. ADJUSTMENTS. In the event that the outstanding shares of
Common Stock of the Company are hereafter increased or decreased or changed into
or exchanged for a different number or kind of shares or other securities of the
Company by reason of merger, consolidation or reorganization in which the
Company is the surviving corporation or of a recapitalization, stock split,
combination of shares, reclassification, reincorporation, stock dividend (in
excess of 2%), or other change in the capital structure of the Company, (and
provided that the Option is not terminated as a result thereof pursuant to
Section 6 hereof), then the number and class of shares subject to this Option,
and the purchase price per share (but not the total purchase price), shall all
be proportionately adjusted so that, upon exercise of this Option, the Optionee
shall receive the number and class of shares the Optionee would have received
had the Optionee been the holder of the number of shares of Common Stock in the
Company, for which this Option is being exercised, on the date of such change or
increase or
2
<PAGE> 3
decrease in the number or class of issued shares of Common Stock of the Company.
Adjustments under this paragraph shall be made by the Board of Directors of the
Company whose determination with respect thereto shall be final and conclusive.
No fractional share shall be issued under this Option or upon any such
adjustment.
8. DETERMINATION OF FAIR MARKET VALUE. For purposes of
determining the fair market value of the Company's Common Stock pursuant to
Section 4 of this Agreement, the fair market value of the Company's Common Stock
shall, if the Common Stock is not listed or admitted to trading on a national
stock exchange, be the average of the closing bid price and asked price of the
Common Stock in the over-the-counter market on the date of exercise or, if the
Company's Common Stock is then listed or admitted to trading on any national
stock exchange, the closing sale price on such day on the principal stock
exchange on which the Company's Common Stock is then listed or admitted to
trading. If no closing bid and asked prices are quoted on such day, or if no
sale takes place on such day on such principal exchange, as the case may be,
then the closing sale price of the Common Stock on such exchange on the next
preceding day on which a sale occurred, or the closing bid and asked prices on
the next preceding day on which such prices were quoted, as the case may be,
shall be the fair market value of the Common Stock.
9. TERMINATION OF EMPLOYMENT OR STATUS AS A DIRECTOR. In the
event that the Optionee shall cease to be an officer or director of the Company
for any reason, including death, retirement, or otherwise, then his Option may
be exercised at any time within sixty (60) days of the date of such cessation,
but in any event no later than the date of expiration of the Option pursuant to
the other provisions of this Agreement, and if not so exercised within such time
shall become void and of no effect at the end of such time.
10. METHOD OF EXERCISING OPTION. Subject to the terms and
conditions of this Agreement, the Option may be exercised by written notice to
the Company, at its principal office in the State of California. Such notice
shall state the election to exercise the Option, the number of shares in respect
of which it is being exercised, and shall be signed by the person so exercising
the Option. Such notice shall also be accompanied by payment for the full
exercise price of such shares. In the event the Option shall be exercised by any
person or persons other than the Optionee in accordance with the terms hereof,
such notice shall also be accompanied by appropriate proof of the right of such
person or persons to exercise the Option. All shares that shall be purchased
upon the exercise of the Option as provided herein shall be fully paid and
nonassessable.
11. REPRESENTATIONS OF OPTIONEE, LEGEND CONDITION. The
Optionee acknowledges that the Option has not been, and the shares of Common
Stock purchasable upon exercise of the Option may not then be, registered under
the Securities Act of 1933 in reliance upon exemptions from such registration
for nonpublic offerings. Accordingly, the Optionee acknowledges and agrees that
the stock certificates representing any shares of Common Stock issued upon
exercise of the Option shall (unless such shares shall hereafter have been
registered under the Securities Act of 1933, which the Company has no obligation
to do) bear and be subject to a legend in substantially the following form:
3
<PAGE> 4
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") IN RELIANCE
UPON EXEMPTIONS FROM SUCH REGISTRATION FOR NONPUBLIC OFFERINGS.
ACCORDINGLY, NO SALE, PLEDGE, HYPOTHECATION OR OTHER TRANSFER OF THESE
SECURITIES OR ANY INTEREST THEREIN MAY BE MADE WITHOUT REGISTRATION
UNDER THE ACT OR AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
The Optionee hereby represents that all shares of Common Stock
in the Company to be purchased by the Optionee pursuant to the exercise of this
Option will be acquired by Optionee for investment and not with a view to the
distribution thereof except as may be permitted under the Securities Act of 1933
and the rules and regulations thereunder. The Optionee agrees that he or she
shall, upon reasonable request by the Company in connection with any exercise of
the Option, execute and deliver an investment letter in such form as may be
deemed appropriate by the Company.
12. RESERVATION OF SHARES. The Company shall at all times
during the term of the Option reserve and keep available such number of shares
of Common Stock as will be sufficient to satisfy the requirements of this
Agreement, shall pay all original issue and transfer taxes with respect to the
issue and transfer of shares pursuant hereto and all other fees and expenses
necessarily incurred by the Company in connection therewith, and will from time
to time use its best efforts to comply with all laws and regulations, which, in
the opinion of counsel for the Company, shall be applicable thereto.
13. No AGREEMENT TO RETAIN AS EMPLOYEE OR DIRECTOR. Nothing in
this Agreement shall be construed to constitute or to be evidence of any
agreement or understanding, express or implied, on the part of the Company or
any subsidiary of the Company, to retain the Optionee as an employee or director
of the Company or any subsidiary.
14. TAX WITHHOLDING. The Company shall have the right, in
connection with any exercise of this Option, to deduct from the Optionee's
compensation, or require the Optionee to remit to the Company, an amount
sufficient to satisfy all federal, state and local tax withholding requirements.
15. GENERAL PROVISIONS. Notwithstanding any other provisions
of this Agreement, the Company shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock upon the exercise of this
Option prior to fulfillment of all of the following conditions:
(a) The listing or approval for listing upon notice of
issuance, of such shares on any securities exchange as may at the time be the
market for the Company's Common Stock;
4
<PAGE> 5
(b) Any registration or other qualification of such shares
under any state or federal law or regulation, or the maintaining in effect of
any such registration or other qualification which the Board of Directors of the
Company shall, in its absolute discretion upon the advise of counsel, deem
necessary or advisable; and
(c) The obtaining of any other consent, approval or permit
from any state or federal governmental agency which the Board of Directors of
the Company shall, in its absolute discretion upon the advice of counsel,
determine to be necessary or advisable.
The Company shall diligently endeavor to obtain fulfillment of all the
foregoing conditions.
16. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto and supersedes any prior written or oral agreements
between the parties concerning the subject matter contained herein. There are no
representations, agreements, arrangements or understandings, oral or written,
between the parties hereto, relating to the subject matter contained in this
Agreement, which are not fully expressed herein.
17. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but such counterparts, when taken
together, shall constitute but one and the same agreement.
18. NOTICES. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery, or, if
mailed, 48 hours after deposit with the United States Postal Service for mailing
via registered or certified mail, addressed to the Company at its then principal
executive offices, or to the Optionee at the address set forth below his or her
signature hereto, or at such other address as such parties may hereafter
designate by written notice to the other party.
IN WITNESS WHEREOF, the Company has caused this Stock Option Agreement
to be duly executed by its officer, "hereunto duly authorized, and the Optionee
has hereunto set his or her hand, all as of the day and year first above
written.
GENERAL AUTOMATION, INC. Optionee
A Delaware Corporation
By: /s/ JOHN R. DONNELLY /s/ LARRY MICHELS
---------------------------- -------------------
John R. Donnelley (Signature)
Its: Vice President Finance & CFO 30376 Snowbird Lane
---------------------------- -------------------
Evergreen. CO 80439
-------------------
(Address)
5
<PAGE> 6
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Agreement") is made this 21st
day of March, 1995 between GENERAL AUTOMATION, INC., a Delaware corporation (the
"Company"), and Robert D. Bagby, an employee and/or director of the company (the
"Optionee").
R E C I T A L:
The Company desires to grant to the Optionee, and the Optionee
desires to accept from the Company, options to purchase 485,000 shares of the
Company's Common Stock par value $0.10 per share (the "Common Stock"), on the
terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants
hereinafter set forth and for good and valuable consideration, the parties
hereto have agreed, and do hereby agree, as follows:
1. GRANT OF OPTION. The Company hereby grants to the Optionee
the right and option (the "Option") to purchase all or any part of Four Hundred
Eighty-Five Thousand (485,000) shares of the Common Stock (such number being
subject to adjustment as provided in Section 7 hereof) on the terms and
conditions herein set forth. The Option granted herein is not intended to be an
"incentive option" within the meaning of the Internal Revenue Code of 1986, as
amended.
2. PURCHASE PRICE. The purchase price of the shares of the
Common Stock covered by the Option shall be Eighty-Six Cents ($0.86) per share
(such price being subject to adjustment as provided in Section 7 hereof).
3. TERM OF OPTION. The term of the Option shall commence on
the date hereof and all rights to purchase shares hereunder shall cease at 5:00
p.m. Pacific time on the fifth anniversary of the date hereof subject to earlier
termination as provided herein.
4. EXERCISE OF OPTION. Except as may otherwise be provided in
this Agreement, the Option shall be exercisable in full at any time or in part
from time to time during the term of the Option. The purchase price of the
shares as to which the Option shall be exercised shall be paid in full at the
time of exercise: (i) in cash or by certified check or by bank draft; (ii)
subject to any legal restrictions on the acquisition or purchase of its shares
by the Company, by the delivery of shares of Common Stock of the Company which
shall be deemed to have a value to the Company equal to the aggregate fair
market value (which shall be determined pursuant to Section 8 below) of such
shares; or (iii) in any combination of (i) or (ii) above. The Optionee shall not
have any of the rights of a shareholder with respect to the shares covered by
the Option as to any shares of Common Stock not actually issued and delivered to
the optionee.
1
<PAGE> 7
5. NONTRANSFERABILITV OF OPTION. The Option shall not be
transferable otherwise than by will or the laws of descent and distribution, and
the Option may be exercised, during the lifetime of the Optionee, only by the
Optionee. More particularly (but without limiting the generality of the
foregoing), the Option may not be assigned, transferred, pledged or hypothecated
in any way, shall not be assignable by operation of law and shall not be subject
to execution, attachment or similar process. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of the Option contrary to the
provisions hereof, and the levy of any execution, attachment or similar process
upon the Option, shall be null and void and without effect.
6. OTHER EXPIRATIONS. In addition to any other event causing
an expiration or termination of the Option, the Option shall expire and all
rights to purchase shares cease (to the extent not theretofore terminated or
expired as herein provided) upon (i) the effective date of the dissolution or
liquidation of the Company or of a merger, consolidation or reorganization
(including the sale of substantially all of its assets) of the Company with one
or more entities, corporate or otherwise, as a result of which the Company is
not the surviving entity, or (ii) the merger or other reorganization of the
Company with one or more entities, corporate or otherwise, as a result of which
the outstanding shares of Common Stock of the company are changed into or
exchanged for shares of the capital stock or other securities of another entity
or for cash or other property; provided, however, that the Company may, in its
discretion, and immediately prior to any such transaction, cause a new option to
be substituted for this Option or cause this option to be assumed by a successor
entity or a parent or subsidiary of such entity; and such new option shall apply
to all shares issued in addition to or substitution, replacement or modification
of the shares of Common Stock theretofore covered by this Option.
If no provision is made for the assumption of this Option or
the substitution for this Option of a new option as hereinabove provided, then
the Company shall cause written notice to be given to the Optionee of the
proposed transaction not less than thirty (30) days prior to the anticipated
effective date thereof To the extent the Option remains unexercised as of the
effective date of such transaction, the Option shall, concurrently with the
consummation of such transaction, terminate and become void and of no effect.
7. ADJUSTMENTS. In the event that the outstanding shares of
Common Stock of the Company are hereafter increased or decreased or changed into
or exchanged for a different number or kind of shares or other securities of the
Company by reason of merger, consolidation or reorganization in which the
Company is the surviving corporation or of a recapitalization, stock split,
combination of shares, reclassification, reincorporation, stock dividend (in
excess of 2%), or other change in the capital structure of the Company, (and
provided that the Option is not terminated as a result thereof pursuant to
Section 6 hereof), then the number and class of shares subject to this Option,
and the purchase price per share (but not the total purchase price), shall all
be proportionately adjusted so that, upon exercise of this Option, the Optionee
shall receive the number and class of shares the Optionee would have received
had the Optionee been the holder of the number of shares of Common Stock in the
Company, for which this Option is being exercised, on the date of such change or
increase or
2
<PAGE> 8
decrease in the number or class of issued shares of Common Stock of the Company.
Adjustments under this paragraph shall be made by the Board of Directors of the
Company whose determination with respect thereto shall be final and conclusive.
No fractional share shall be issued under this Option or upon any such
adjustment.
8. DETERMINATION OF FAIR MARKET VALUE. For purposes of
determining the fair market value of the Company's Common Stock pursuant to
Section 4 of this Agreement, the fair market value of the Company's Common Stock
shall, if the Common Stock is not listed or admitted to trading on a national
stock exchange, be the average of the closing bid price and asked price of the
Common Stock in the over-the-counter market on the date of exercise or, if the
Company's Common Stock is then listed or admitted to trading on any national
stock exchange, the closing sale price on such day on the principal stock
exchange on which the Company's Common Stock is then listed or admitted to
trading. If no closing bid and asked prices are quoted on such day, or if no
sale takes place on such day on such principal exchange, as the case may be,
then the closing sale price of the Common Stock on such exchange on the next
preceding day on which a sale occurred, or the closing bid and asked prices on
the next preceding day on which such prices were quoted, as the case may be,
shall be the fair market value of the Common Stock.
9. TERMINATION OF EMPLOYMENT OR STATUS AS A DIRECTOR. In the
event that the Optionee shall cease to be an officer or director of the Company
for any reason, including death, retirement, or otherwise, then his Option may
be exercised at any time within sixty (60) days of the date of such cessation,
but in any event no later than the date of expiration of the Option pursuant to
the other provisions of this Agreement, and if not so exercised within such time
shall become void and of no effect at the end of such time.
10. METHOD OF EXERCISING OPTION. Subject to the terms and
conditions of this Agreement, the Option may be exercised by written notice to
the Company, at its principal office in the State of California. Such notice
shall state the election to exercise the Option, the number of shares in respect
of which it is being exercised, and shall be signed by the person so exercising
the Option. Such notice shall also be accompanied by payment for the full
exercise price of such shares. In the event the Option shall be exercised by any
person or persons other than the Optionee in accordance with the terms hereof,
such notice shall also be accompanied by appropriate proof of the right of such
person or persons to exercise the Option. All shares that shall be purchased
upon the exercise of the Option as provided herein shall be fully paid and
nonassessable.
11. REPRESENTATIONS OF OPTIONEE, LEGEND CONDITION. The
Optionee acknowledges that the Option has not been, and the shares of Common
Stock purchasable upon exercise of the Option may not then be, registered under
the Securities Act of 1933 in reliance upon exemptions from such registration
for nonpublic offerings. Accordingly, the Optionee acknowledges and agrees that
the stock certificates representing any shares of Common Stock issued upon
exercise of the Option shall (unless such shares shall hereafter have been
registered under the Securities Act of 1933, which the Company has no obligation
to do) bear and be subject to a legend in substantially the following form:
3
<PAGE> 9
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") IN RELIANCE
UPON EXEMPTIONS FROM SUCH REGISTRATION FOR NONPUBLIC OFFERINGS.
ACCORDINGLY, NO SALE, PLEDGE, HYPOTHECATION OR OTHER TRANSFER OF THESE
SECURITIES OR ANY INTEREST THEREIN MAY BE MADE WITHOUT REGISTRATION
UNDER THE ACT OR AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
The Optionee hereby represents that all shares of Common Stock
in the Company to be purchased by the Optionee pursuant to the exercise of this
Option will be acquired by Optionee for investment and not with a view to the
distribution thereof except as may be permitted under the Securities Act of 1933
and the rules and regulations thereunder. The Optionee agrees that he or she
shall, upon reasonable request by the Company in connection with any exercise of
the Option, execute and deliver an investment letter in such form as may be
deemed appropriate by the Company.
12. RESERVATION OF SHARES. The Company shall at all times
during the term of the Option reserve and keep available such number of shares
of Common Stock as will be sufficient to satisfy the requirements of this
Agreement, shall pay all original issue and transfer taxes with respect to the
issue and transfer of shares pursuant hereto and all other fees and expenses
necessarily incurred by the Company in connection therewith, and will from time
to time use its best efforts to comply with all laws and regulations, which, in
the opinion of counsel for the Company, shall be applicable thereto.
13. No AGREEMENT TO RETAIN AS EMPLOYEE OR DIRECTOR. Nothing in
this Agreement shall be construed to constitute or to be evidence of any
agreement or understanding, express or implied, on the part of the Company or
any subsidiary of the Company, to retain the Optionee as an employee or director
of the Company or any subsidiary.
14. TAX WITHHOLDING. The Company shall have the right, in
connection with any exercise of this Option, to deduct from the Optionee's
compensation, or require the Optionee to remit to the Company, an amount
sufficient to satisfy all federal, state and local tax withholding requirements.
15. GENERAL PROVISIONS. Notwithstanding any other provisions
of this Agreement, the Company shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock upon the exercise of this
Option prior to fulfillment of all of the following conditions:
(a) The listing or approval for listing upon notice of
issuance, of such shares on any securities exchange as may at the time be the
market for the Company's Common Stock;
4
<PAGE> 10
(b) Any registration or other qualification of such shares
under any state or federal law or regulation, or the maintaining in effect of
any such registration or other qualification which the Board of Directors of the
Company shall, in its absolute discretion upon the advise of counsel, deem
necessary or advisable; and
(c) The obtaining of any other consent, approval or permit
from any state or federal governmental agency which the Board of Directors of
the Company shall, in its absolute discretion upon the advice of counsel,
determine to be necessary or advisable.
The Company shall diligently endeavor to obtain fulfillment of
all the foregoing conditions.
16. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties hereto and supersedes any prior written or oral
agreements between the parties concerning the subject matter contained herein.
There are no representations, agreements, arrangements or understandings, oral
or written, between the parties hereto, relating to the subject matter contained
in this Agreement, which are not fully expressed herein.
17. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but such
counterparts, when taken together, shall constitute but one and the same
agreement.
18. NOTICES. Any notice required or permitted hereunder shall
be given in writing and shall be deemed effectively given upon personal
delivery, or, if mailed, 48 hours after deposit with the United States Postal
Service for mailing via registered or certified mail, addressed to the Company
at its then principal executive offices, or to the Optionee at the address set
forth below his or her signature hereto, or at such other address as such
parties may hereafter designate by written notice to the other party.
IN WITNESS WHEREOF, the Company has caused this Stock Option
Agreement to be duly executed by its officer, thereunto duly authorized, and the
Optionee has hereunto set his or her hand, all as of the day and year first
above written.
GENERAL AUTOMATION, INC. Optionee
A Delaware Corporation
By: /s/ JOHN R. DONNELLY /s/ ROBERT D. BAGBY
----------------------------- ------------------------
John R. Donnelly (Signature)
Its: Vice President Finance & CFO 506 Rockford Pl
---------------------------- ------------------------
Corona Del Mar, CA 92625
------------------------
(Address)
5
<PAGE> 11
STOCK OPTION AGREEMENT
----------------------
THIS STOCK OPTION AGREEMENT ("Agreement") is made this 21st
day of March, 1995 between GENERAL AUTOMATION, INC., a Delaware corporation
(the "Company"), and Leonard N. Mackenzie, an employee and/or director of the
company (the "Optionee").
R E C I T A L:
--------------
The Company desires to grant to the Optionee, and the Optionee
desires to accept from the Company, options to purchase 485,000 shares of the
Company's Common Stock par value $0.10 per share (the "Common Stock"), on the
terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants
hereinafter set forth and for good and valuable consideration, the parties
hereto have agreed, and do hereby agree, as follows:
1. GRANT OF OPTION. The Company hereby grants to the Optionee
the right and option (the "Option") to purchase all or any part of Four Hundred
Eighty-Five Thousand (485,000) shares of the Common Stock (such number being
subject to adjustment as provided in Section 7 hereof) on the terms and
conditions herein set forth. The Option granted herein is not intended to be an
"incentive option" within the meaning of the Internal Revenue Code of 1986, as
amended.
2. PURCHASE PRICE. The purchase price of the shares of the
Common Stock covered by the Option shall be Eighty-Six Cents ($0.86) per share
(such price being subject to adjustment as provided in Section 7 hereof).
3. TERM OF OPTION. The term of the Option shall commence on
the date hereof and all rights to purchase shares hereunder shall cease at 5:00
p.m. Pacific time on the fifth anniversary of the date hereof subject to earlier
termination as provided herein.
4. EXERCISE OF OPTION. Except as may otherwise be provided in
this Agreement, the Option shall be exercisable in full at any time or in part
from time to time during the term of the Option. The purchase price of the
shares as to which the Option shall be exercised shall be paid in full at the
time of exercise: (i) in cash or by certified check or by bank draft; (ii)
subject to any legal restrictions on the acquisition or purchase of its shares
by the Company, by the delivery of shares of Common Stock of the Company which
shall be deemed to have a value to the Company equal to the aggregate fair
market value (which shall be determined pursuant to Section 8 below) of such
shares; or (iii) in any combination of (i) or (ii) above. The Optionee shall not
have any of the rights of a shareholder with respect to the shares covered by
the Option as to any shares of Common Stock not actually issued and delivered to
the optionee.
1
<PAGE> 12
5. NONTRANSFERABILITY OF OPTION. The Option shall not be
transferable otherwise than by will or the laws of descent and distribution, and
the Option may be exercised, during the lifetime of the Optionee, only by the
Optionee. More particularly (but without limiting the generality of the
foregoing), the Option may not be assigned, transferred, pledged or hypothecated
in any way, shall not be assignable by operation of law and shall not be subject
to execution, attachment or similar process. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of the Option contrary to the
provisions hereof, and the levy of any execution, attachment or similar process
upon the Option, shall be null and void and without effect.
6. OTHER EXPIRATIONS. In addition to any other event causing
an expiration or termination of the Option, the Option shall expire and all
rights to purchase shares cease (to the extent not theretofore terminated or
expired as herein provided) upon (i) the effective date of the dissolution or
liquidation of the Company or of a merger, consolidation or reorganization
(including the sale of substantially all of its assets) of the Company with one
or more entities, corporate or otherwise, as a result of which the Company is
not the surviving entity, or (ii) the merger or other reorganization of the
Company with one or more entities, corporate or otherwise, as a result of which
the outstanding shares of Common Stock of the company are changed into or
exchanged for shares of the capital stock or other securities of another entity
or for cash or other property; provided, however, that the Company may, in its
discretion, and immediately prior to any such transaction, cause a new option to
be substituted for this Option or cause this option to be assumed by a successor
entity or a parent or subsidiary of such entity; and such new option shall apply
to all shares issued in addition to or substitution, replacement or modification
of the shares of Common Stock theretofore covered by this Option.
If no provision is made for the assumption of this Option or
the substitution for this Option of a new option as hereinabove provided, then
the Company shall cause written notice to be given to the Optionee of the
proposed transaction not less than thirty (30) days prior to the anticipated
effective date thereof. To the extent the Option remains unexercised as of the
effective date of such transaction, the Option shall, concurrently with the
consummation of such transaction, terminate and become void and of no effect.
7. ADJUSTMENTS. In the event that the outstanding shares of
Common Stock of the Company are hereafter increased or decreased or changed into
or exchanged for a different number or kind of shares or other securities of the
Company by reason of merger, consolidation or reorganization in which the
Company is the surviving corporation or of a recapitalization, stock split,
combination of shares, reclassification, reincorporation, stock dividend (in
excess of 2%), or other change in the capital structure of the Company, (and
provided that the Option is not terminated as a result thereof pursuant to
Section 6 hereof), then the number and class of shares subject to this Option,
and the purchase price per share (but not the total purchase price), shall all
be proportionately adjusted so that, upon exercise of this Option, the Optionee
shall receive the number and class of shares the Optionee would have received
had the Optionee been the holder of the number of shares of Common Stock in the
Company, for which this Option is being exercised, on the date of such change or
increase or
2
<PAGE> 13
decrease in the number or class of issued shares of Common Stock of the Company.
Adjustments under this paragraph shall be made by the Board of Directors of the
Company whose determination with respect thereto shall be final and conclusive.
No fractional share shall be issued under this Option or upon any such
adjustment.
8. DETERMINATION OF FAIR MARKET VALUE. For purposes of
determining the fair market value of the Company's Common Stock pursuant to
Section 4 of this Agreement, the fair market value of the Company's Common Stock
shall, if the Common Stock is not listed or admitted to trading on a national
stock exchange, be the average of the closing bid price and asked price of the
Common Stock in the over-the-counter market on the date of exercise or, if the
Company's Common Stock is then listed or admitted to trading on any national
stock exchange, the closing sale price on such day on the principal stock
exchange on which the Company's Common Stock is then listed or admitted to
trading. If no closing bid and asked prices are quoted on such day, or if no
sale takes place on such day on such principal exchange, as the case may be,
then the closing sale price of the Common Stock on such exchange on the next
preceding day on which a sale occurred, or the closing bid and asked prices on
the next preceding day on which such prices were quoted, as the case may be,
shall be the fair market value of the Common Stock.
9. TERMINATION OF EMPLOYMENT OR STATUS AS A DIRECTOR. In the
event that the Optionee shall cease to be an officer or director of the Company
for any reason, including death, retirement, or otherwise, then his Option may
be exercised at any time within sixty (60) days of the date of such cessation,
but in any event no later than the date of expiration of the Option pursuant to
the other provisions of this Agreement, and if not so exercised within such time
shall become void and of no effect at the end of such time.
10. METHOD OF EXERCISING OPTION. Subject to the terms and
conditions of this Agreement, the Option may be exercised by written notice to
the Company, at its principal office in the State of California. Such notice
shall state the election to exercise the Option, the number of shares in respect
of which it is being exercised, and shall be signed by the person so exercising
the Option. Such notice shall also be accompanied by payment for the full
exercise price of such shares. In the event the Option shall be exercised by any
person or persons other than the Optionee in accordance with the terms hereof,
such notice shall also be accompanied by appropriate proof of the right of such
person or persons to exercise the Option. All shares that shall be purchased
upon the exercise of the Option as provided herein shall be fully paid and
nonassessable.
11. REPRESENTATIONS OF OPTIONEE. LEGEND CONDITION. The
Optionee acknowledges that the Option has not been, and the shares of Common
Stock purchasable upon exercise of the Option may not then be, registered under
the Securities Act of 1933 in reliance upon exemptions from such registration
for nonpublic offerings. Accordingly, the Optionee acknowledges and agrees that
the stock certificates representing any shares of Common Stock issued upon
exercise of the Option shall (unless such shares shall hereafter have been
registered under the Securities Act of 1933, which the Company has no obligation
to do) bear and be subject to a legend in substantially the following form:
3
<PAGE> 14
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") IN RELIANCE
UPON EXEMPTIONS FROM SUCH REGISTRATION FOR NONPUBLIC OFFERINGS.
ACCORDINGLY, NO SALE, PLEDGE, HYPOTHECATION OR OTHER TRANSFER OF THESE
SECURITIES OR ANY INTEREST THEREIN MAY BE MADE WITHOUT REGISTRATION
UNDER THE ACT OR AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
The Optionee hereby represents that all shares of Common Stock
in the Company to be purchased by the Optionee pursuant to the exercise of this
Option will be acquired by Optionee for investment and not with a view to the
distribution thereof except as may be permitted under the Securities Act of 1933
and the rules and regulations thereunder. The Optionee agrees that he or she
shall, upon reasonable request by the Company in connection with any exercise of
the Option, execute and deliver an investment letter in such form as may be
deemed appropriate by the Company.
12. RESERVATION OF SHARES. The Company shall at all times
during the term of the Option reserve and keep available such number of shares
of Common Stock as will be sufficient to satisfy the requirements of this
Agreement, shall pay all original issue and transfer taxes with respect to the
issue and transfer of shares pursuant hereto and all other fees and expenses
necessarily incurred by the Company in connection therewith, and will from time
to time use its best efforts to comply with all laws and regulations, which, in
the opinion of counsel for the Company, shall be applicable thereto.
13. No AGREEMENT TO RETAIN AS EMPLOYEE OR DIRECTOR. Nothing in
this Agreement shall be construed to constitute or to be evidence of any
agreement or understanding, express or implied, on the part of the Company or
any subsidiary of the Company, to retain the Optionee as an employee or director
of the Company or any subsidiary.
14. TAX WITHHOLDING. The Company shall have the right, in
connection with any exercise of this Option, to deduct from the Optionee's
compensation, or require the Optionee to remit to the Company, an amount
sufficient to satisfy all federal, state and local tax withholding requirements.
15. GENERAL PROVISIONS. Notwithstanding any other provisions
of this Agreement, the Company shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock upon the exercise of this
Option prior to fulfillment of all of the following conditions:
(a) The listing or approval for listing upon notice of
issuance, of such shares on any securities exchange as may at the time be the
market for the Company's Common Stock;
4
<PAGE> 15
(b) Any registration or other qualification of such shares
under any state or federal law or regulation, or the maintaining in effect of
any such registration or other qualification which the Board of Directors of the
Company shall, in its absolute discretion upon the advise of counsel, deem
necessary or advisable; and
(c) The obtaining of any other consent, approval or permit
from any state or federal governmental agency which the Board of Directors of
the Company shall, in its absolute discretion upon the advice of counsel,
determine to be necessary or advisable.
The Company shall diligently endeavor to obtain fulfillment of
all the foregoing conditions.
16. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties hereto and supersedes any prior written or oral
agreements between the parties concerning the subject matter contained herein.
There are no representations, agreements, arrangements or understandings, oral
or written, between the parties hereto, relating to the subject matter contained
in this Agreement, which are not fully expressed herein.
17. COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but such
counterparts, when taken together, shall constitute but one and the same
agreement.
18. NOTICES. Any notice required or permitted hereunder shall
be given in writing and shall be deemed effectively given upon personal
delivery, or, if mailed, 48 hours after deposit with the United States Postal
Service for mailing via registered or certified mail, addressed to the Company
at its then principal executive offices, or to the Optionee at the address set
forth below his or her signature hereto, or at such other address as such
parties may hereafter designate by written notice to the other party.
IN WITNESS WHEREOF, the Company has caused this Stock Option
Agreement to be duly executed by its officer, thereunto duly authorized, and the
Optionee has hereunto set his or her hand, all as of the day and year first
above written.
GENERAL AUTOMATION, INC. Optionee
A Delaware Corporation
By: /s/ JOHN R. DONNELLY /s/ LEONARD N. MACKENZIE
---------------------------- ----------------------------
John R. Donnelly (Signature)
Its: Vice President Finance & CFO 601 Turtle Creek Blvd. #1006
---------------------------- ----------------------------
Dallas, TX 75219
----------------------------
(Address)
5
<PAGE> 1
Exhibit 10.12
GENERAL AUTOMATION, INC.
1991 STOCK OPTION PLAN
Adopted January 17, 1991
Approved by Stockholders on February 20, 1991
As Amended by Amendments Approved by the
Stockholders on April 7, 1994
and January 30, 1997
1. PURPOSE.
(a) The purpose of the 1991 Stock Option Plan (the "Plan") is to
provide a means by which selected employees, directors and consultants to
GENERAL AUTOMATION, INC., a Delaware corporation (the "Company"), and its
Affiliates, as defined in subparagraph 1(b), may be given an opportunity to
purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Section 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the
services of persons now employed by or serving as directors of or consultants to
the Company, to secure and retain the services of persons capable of filling
such positions, and to provide incentives for such persons to exert maximum
efforts for the success of the Company.
1
<PAGE> 2
(d) The Company intends that the options issued under the Plan
shall, in the discretion of the Board of Directors of the Company (the "Board")
or any committee to which responsibility for administration of the Plan has been
delegated pursuant to subparagraph 2(c), be either incentive stock options as
that term is used in Section 422 of the Code ("Incentive Stock Options"), or
options which do not qualify as incentive stock options ("Supplemental Stock
Options"). All options shall be separately designated Incentive Stock Options or
Supplemental Stock Options at the time of grant, and in such form as issued
pursuant to paragraph 5, and a separate certificate or certificates shall be
issued for shares purchased on exercise of each type of option. An option
designated as a Supplemental Stock Option will not be treated as an incentive
stock option.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until
the Board delegates administration to a committee, as provided in subparagraph
2(c). Whether or not the Board has delegated administration, the Board shall
have the final power to determine all questions of policy and expediency that
may arise in the administration of the Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted options; when and how the option shall
be granted; whether the option will be an Incentive Stock Option or a
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Supplemental Stock Option; the provisions of each option granted (which need not
be identical), including the time or times during the term of each option within
which all or portions of such option may be exercised; and the number of shares
for which an option shall be granted to each such person.
(2) To construe and interpret the Plan and options granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any option agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(3) To amend the Plan as provided in paragraph 10.
(4) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company.
(c) The Board may delegate administration of the Plan to a
committee composed of not fewer than two (2) members (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
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3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 9 relating to
adjustments upon changes stock, the stock that may be sold pursuant to options
granted under the Plan not exceed in the aggregate two million thirty-five
thousand (2,035,000) of the Company's common stock. If any option granted under
the Plan shall any reason expire or otherwise terminate without having been
exercised in the stock not purchased under such option shall again become
available for Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
(c) An Incentive Stock Option may be granted to an eligible
person under the Plan only if the aggregate fair market value (determined at the
time the option is granted) of the stock with respect to which incentive stock
options (as defined in the Code) granted after 1986 are exercisable for the
first time by such optionee during any calendar year under all incentive stock
option plans of the Company and its Affiliates does not exceed one hundred
thousand dollars ($100,000). Should it be determined that an option granted
under the Plan exceeds such maximum for any reason other than the failure of a
good faith attempt to value the stock subject to the option, such option shall
be considered a Supplemental Stock Option to the extent, but only to the extent,
of such excess; provided, however, that should it be determined that an entire
option or any portion thereof does not qualify for treatment as an incentive
stock option by
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reason of exceeding such maximum, such option or the applicable portion shall be
considered a Supplemental Stock Option.
4. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to employees
(including officers) of the Company or its Affiliates. A director of the Company
shall not be eligible to receive Incentive Stock Options unless such director is
also an employee (including an officer) of the Company or any Affiliate.
Supplemental Stock Options may be granted only to employees (including officers)
of the Company or its Affiliates, directors of the Company or its Affiliates, or
consultants to the Company or its Affiliates.
(b) No person shall be eligible for the grant of an Incentive
Stock Option under the Plan if, at the time of grant, such person owns (or is
deemed to own pursuant to Section 424(d) of the Code) stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates unless the exercise price of such option
is at least one hundred ten percent (110%) of the fair market value of such
stock at the date of grant and the term of the option does not exceed five (5)
years from the date of grant.
5. OPTION PROVISIONS. Each option shall be in such form and shall
contain such terms and conditions as the Board or the Committee shall deem
appropriate. The provisions of separate options need not be identical, but each
option shall include (through incorporation of provisions hereof by
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reference in the option or otherwise) the substance of each of the following
provisions:
(a) The option shall not be exercisable after the expiration of
ten (10) years from the date it was granted.
(b) The exercise price of each Incentive Stock Option shall be
not less than one hundred percent (100%) of the fair market value of the stock
subject to the option on the date the option is granted. The exercise price of
each Supplemental Stock Option shall be not less than eighty-five percent (85%)
of the fair market value of the stock subject to the option on the date the
option is granted.
(c) The purchase price of stock acquired pursuant to an option
shall be paid, to the extent permitted by applicable statutes and regulations,
either in (1) cash at the time the option is exercised, or (2) at the discretion
of the Board or the Committee, either at the time of the grant or exercise of
the option, (i) by delivery to the Company of other common stock of the Company,
(ii) according to a deferred payment or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other common stock
of the Company) with the person to whom the option is granted or to whom the
option is transferred pursuant to subparagraph 5(d), or (iii) in any other form
of legal consideration that may be acceptable to the Board or the Committee.
(d) An option shall not be transferable except by will or by the
laws of descent and distribution, and shall be exercisable during the lifetime
of the person to whom the option is granted only by such person.
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(e) The total number of shares of stock subject to an option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). From time to time during each of such installment periods, the option
may become exercisable ("vest") with respect to some or all of the shares
allotted to that period, and may be exercised with respect to some or all of the
shares allotted to such period and/or any prior period as to which the option
was not fully exercised. During the remainder of the term of the option (if its
term extends beyond the end of the installment periods), the option may be
exercised from time to time with respect to any shares then remaining subject to
the option. The provisions of this subparagraph 5(e) are subject to any option
provisions governing the minimum number of shares as to which an option may be
exercised.
(f) The Company may require any optionee, or any person to whom
an option is transferred under subparagraph 5(d), as a condition of exercising
any such option, (1) to give written assurances satisfactory to the Company as
to the optionee's knowledge and experience in financial and business matters
and/or to employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business matters,
and that he or she is capable of evaluating, alone or together with the
purchaser representative, the merits and risks of exercising the option; and (2)
to give written assurances satisfactory to the Company stating that such person
is acquiring the stock subject to the option for such person's own account and
not with any present intention of selling or otherwise distributing the
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stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (1) the issuance of the shares upon the
exercise of the option has been registered under a then currently effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (2) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws.
(g) An option shall terminate three (3) months after termination
of the optionee's employment or relationship as a director of or consultant with
the Company or an Affiliate, unless (1) such termination is due to such person's
permanent and total disability, within the meaning of Section 422(c)(6) of the
Code, in which case the option may, but need not, provide that it may be
exercised at any time within one (1) year following such termination of
employment or relationship as a director or consultant; or (2) the optionee dies
while in the employ of or while serving as a director of or consultant to the
Company or any Affiliate, or within not more than three (3) months after
termination of such relationship, in which case the option may, but need not,
provide that it may be exercised at any time within eighteen (18) months
following the death of the optionee by the person or persons to whom the
optionee's rights under such option pass by will or by the laws of descent and
distribution; or the option by its terms specifies either (i) that it shall
terminate sooner than three (3) months after termination of the optionee's
employment or relationship as a director or consultant or (ii) that it may be
exercised more than
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three (3) months after termination of such relationship with the Company or an
Affiliate. This subparagraph 5(g) shall not be construed to extend the term of
any option or to permit anyone to exercise the option after expiration of its
term, nor shall it be construed to increase the number of shares as to which any
option is exercisable from the amount exercisable on the date of termination of
the optionee's employment or relationship as a director or consultant.
(h) The option may, but need not, include a provision whereby the
optionee may elect at any time during the term of his or her employment or
relationship as a director or consultant with the Company or any Affiliate to
exercise the option as to any part or all of the shares subject to the option
prior to the stated vesting date of the option or of any installment or
installments specified in the option. Any shares so purchased from any unvested
installment or option may be subject to a repurchase right in favor of the
Company or to any other restriction the Board or the Committee determines to be
appropriate.
(i) To the extent provided by the terms of an option, the
optionee may satisfy any federal, state or local tax withholding obligation
relating to the exercise of such option by any of the following means or by a
combination of such means: tendering a cash payment; authorizing the Company to
withhold from the shares of the common stock otherwise issuable to the
participant as a result of the exercise of the stock option a number of shares
having a fair market value less than or equal to the amount of the withholding
tax obligation; or delivering to the Company owned and unencumbered shares of
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the common stock having a fair market value less than or equal to the amount of
the withholding tax obligation.
6. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the
Company shall keep available at all times the number of shares of stock required
to satisfy such options.
The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the options granted
under the Plan; provided, however, that this undertaking shall not require the
Company to register under the Securities Act either the Plan, any option granted
under the Plan or any stock issued or issuable pursuant to any such option. If,
after reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such options unless and until such authority is obtained.
7. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock
pursuant to options granted under the Plan shall constitute general funds of the
Company.
8. MISCELLANEOUS.
(a) The Board or the Committee shall have the power to accelerate
the time at which an option may first be exercised or the time during
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which an option or any part thereof will vest pursuant to subparagraph 5(e),
notwithstanding the provisions in the option stating the time at which it may
first be exercised or the time during which it will vest.
(b) Neither an optionee nor any person to whom an option is
transferred under subparagraph 5(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
option unless and until such person has satisfied all requirements for exercise
of the option pursuant to its terms.
(c) Throughout the term of any option granted pursuant to the
Plan, the Company shall make available to the holder of such option, not later
than one hundred twenty (120) days after the close of each of the Company's
fiscal years during the option term, upon request, such financial and other
information regarding the Company as comprises the annual report to the
stockholders of the Company provided for in the by-laws of the Company.
(d) Nothing in the Plan or any instrument executed or option
granted pursuant thereto shall confer upon any eligible employee or optionee any
right to continue in the employ of the Company or any Affiliate (or to continue
acting as a director or consultant) or shall affect the right of the Company or
any Affiliate to terminate the employment or director or consulting relationship
of any eligible employee or optionee with or without cause. In the event that an
optionee is permitted or otherwise entitled to take a leave of absence, the
Company shall have the unilateral right to (1) determine whether such leave of
absence will be treated as a termination of employment for purposes of
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paragraph 5(g) hereof and corresponding provisions of any outstanding options,
and (2) suspend or otherwise delay the time or times at which the shares subject
to the option would otherwise vest.
9. ADJUSTMENT UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
options will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding options.
(b) In the event of: (1) a dissolution or liquidation of the
Company; (2) a merger or consolidation in which the Company is not the surviving
corporation; or (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's common stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, then to the extent
permitted by applicable law: (i) any surviving corporation shall assume any
options outstanding under the Plan or shall substitute similar options for those
outstanding under the Plan, (ii) the time during which such options may be
exercised shall be accelerated and the options terminated if not exercised prior
to such event, or (iii) such options shall continue in full force and effect,
as
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determined by the Board in its discretion, either at the time of the grant of
each option under the Plan or at the time of the transaction in question.
10. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in paragraph 9 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(1) Increase the number of shares reserved for options under
the Plan;
(2) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422(b) of
the Code);
(3) or Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the requirements
of Section 422(b) of the Code.
(b) It is expressly contemplated that the Board may amend the
Plan in any respect the Board deems necessary or advisable to provide optionees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to employee incentive
stock options and/or to bring the Plan and/or incentive stock options granted
under it into compliance therewith.
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(c) Rights and obligations under any option granted before
amendment of the Plan shall not be altered or impaired by any amendment of the
Plan unless (1) the Company requests the consent of the person to whom the
option was granted and (2) such person consents in writing.
11. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on January 1, 2001. No
options may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any option granted while the
Plan is in effect shall not be altered or impaired by suspension or termination
of the Plan, except with the consent of the person to whom the option was
granted.
12. EFFECTIVE DATE OF PLAN. The Plan shall become effective as
determined by the Board, but no options granted under the Plan shall be
exercised unless and until the Plan has been approved by the stockholders of the
Company, and, if required, an appropriate permit has been issued by the
Commissioner of Corporations of the State of California.
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Exhibit 10.13
GENERAL AUTOMATION, INC.
1991 DIRECTORS' STOCK OPTION PLAN
Adopted January 17, 1991
Approved by Stockholders on February 20, 1991
As Amended by an Amendment Approved by the Board on
March 7, 1994 and by Stockholders on April 7, 1994
1. PURPOSE.
(a) The purpose of the 1991 Directors' Stock Option Plan (the
"Plan") is to provide a means by which each director of GENERAL AUTOMATION, INC.
(the "Company") who is not otherwise an employee of the Company, Sanderson
Electronics PLC ("Sanderson") or any Affiliate of the Company or Sanderson and
has not been an employee of the Company, Sanderson or any Affiliate of the
Company or Sanderson for all or part of the preceding fiscal year of the Company
(each such person being hereafter referred to as "Non-Employee Director") may be
given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company or Sanderson as those terms
are defined in Section 425(e) and (f), respectively, of the Internal Revenue
Code of 1986, as amended from time to time (the "Code").
(c) The Company, by means of the Plan, seeks to retain the
services of persons now employed as Non-Employee Directors of the Company,
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to secure and retain the services of persons capable of serving in such
capacity, and to provide incentives for such persons to exert maximum efforts
for the success of the Company.
(d) The Company intends that the options issued under the Plan
not be incentive stock options as that term is used in Section 422A of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To construe and interpret the Plan and options granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission, or inconsistency in the Plan or in any option agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(2) To amend the Plan as provided in paragraph 11.
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(3) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company.
(c) The Board may delegate administration of the Plan to a
committee composed of not fewer than three (3) members of the Board (the
"Committee"), all of the members of which Committee shall be persons who in the
opinion of counsel to the Company are "disinterested persons" within the meaning
of Rule 16b-3(d)(3) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the Plan, the powers
theretofore possessed by the Board, subject, however, to such resolutions, not
inconsistent with the provisions of the Plan, as may be adopted from time to
time by the Board. The Board may abolish the Committee at any time and revest in
the Board the administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to
options granted under the Plan shall not exceed in the aggregate two hundred
thousand (200,000) shares of the Company's common stock. If any option granted
under the Plan shall for any reason expire or otherwise terminate without having
been exercised in full, the stock not purchased under such option shall again
become available for the Plan.
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(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
4. ELIGIBILITY. Options shall be granted only to
Non-Employee Directors the Company.
5. NON-DISCRETIONARY GRANTS. Upon approval by the Company's
stockholders of the amendment of this Section 5 to read as herein set forth,
each person who is then a Non-Employee Director and has theretofore received an
option under this Plan, shall automatically be granted an additional option to
purchase thirty thousand (30,000) shares of the Company's common stock. All
other Non-Employee Directors shall automatically be granted an option to
purchase fifty thousand (50,000) shares of the Company's common stock upon the
later to occur of (1) the date of the approval by the Company's stockholders of
the amendment of this Section 5 to read as herein set forth, or the (2) date on
which such person first becomes a director of the Company, whether through
election by the stockholders of the Company or appointment by the Board of
Directors to fill a vacancy.
6. OPTION PROVISIONS. Each option shall be in such form and shall
contain such terms and conditions as the Board or the Committee shall deem
appropriate. The provisions of separate options need not be identical, but each
option shall include (through incorporation of provisions hereof by reference in
the option or otherwise) the substance of each of the following provisions:
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(a) The term of each option shall be ten (10) years from the date
it was granted.
(b) The exercise price of each option shall be the fair market
value of the stock subject to such option on the date the option is granted.
(c) The purchase price of stock acquired pursuant to an option
shall be paid in cash or check at the time the option is exercised.
(d) An option shall not be transferable except by will or by the
laws of descent and distribution, and shall be exercisable during the lifetime
of the person to whom the option is granted only by such person.
(e) Each option shall become exercisable (i.e., "vest") in one
installment on the date six (6) months after the date on which such option was
granted.
(f) The Company may require any optionee, or any person to whom
an option is transferred under subparagraph 6(d), as a condition of exercising
any such option: (1) to give written assurances satisfactory to the Company as
to the optionee's knowledge and experience in financial and business matters;
and (2) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (1) the issuance of the shares upon the
exercise of the option has been registered under a then currently effective
registration statement under the Securities Act of 1933, as amended (the
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"Securities Act"), or (2) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws.
(g) An option shall terminate three (3) months after termination
of the optionee's directorship with the Company unless such termination is due
to such person's permanent and total disability, within the meaning of Section
422A(c)(7) of the Code, in which case the option may be exercised at any time
within one (1) year following termination of such directorship; or the optionee
dies while serving as a director of the Company or within not more than three
(3) months after termination of such directorship, in which case the option may
be exercised at any time within eighteen (18) months following the death of the
optionee by the person or persons to whom the optionee's rights under such
option pass by will or by the laws of descent and distribution. This
subparagraph 6(g) shall not be construed to extend the term of any option or to
permit anyone to exercise the option after expiration of its term, nor shall it
be construed to increase the number of shares as to which any option is
exercisable from the amount exercisable on the date of termination of the
optionee's directorship.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the
Company shall keep available at all times the number of shares of stock required
to satisfy such options.
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(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the options granted
under the Plan; provided, however, that this undertaking shall not require the
Company to register under the Securities Act either the Plan, any option granted
under the Plan or any stock issued or issuable pursuant to any such option. If,
after reasonable efforts, the Company is unable to obtain from any such
regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such options unless and until such authority is obtained.
8. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock
pursuant to options granted under the Plan shall constitute general funds of the
Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is
transferred under subparagraph 6(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
option unless and until such person has satisfied all requirements for exercise
of the option pursuant to its terms.
(b) Throughout the term of any option granted pursuant to the
Plan, the Company shall make available to the holder of such option, not later
than one hundred twenty (120) days after the close of each of the Company's
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fiscal years during the option term, upon request, such financial and other
information regarding the Company as comprises the annual report to the
stockholders of the Company provided for in the by-laws of the Company.
(c) Nothing in the Plan or any instrument executed or option
granted pursuant thereto shall confer upon any eligible optionee any right to
continue acting as a director of the Company or shall affect the right of the
Company to terminate the directorship of any eligible optionee with or without
cause.
10. ADJUSTMENT UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
options will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding options.
(b) In the event of: (1) a dissolution or liquidation of the
Company; (2) a merger or consolidation in which the Company is not the surviving
corporation; or (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's common stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, then to the
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extent permitted by applicable law: (i) any surviving corporation shall assume
any options outstanding under the Plan or shall substitute similar options for
those outstanding under the Plan, or (ii) the time during which such options may
be exercised shall be accelerated and the options terminated if not exercised
prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in paragraph 10 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment requires stockholder approval in
order for the Plan to comply with the requirements of Rule 16b-3 promulgated
under the Exchange Act.
(b) Rights and obligations under any option granted before
amendment of the Plan shall not be altered or impaired by any amendment of the
Plan unless (1) the Company requests the consent of the person to whom the
option was granted and (2) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on January 1, 2001. No
options may be granted under the Plan while the Plan is suspended or after it is
terminated.
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(b) Rights and obligations under any option granted while the
Plan is in effect shall not be altered or impaired by suspension or termination
of the Plan, except with the consent of the person to whom the option was
granted.
13. EFFECTIVE DATE OF PLAN. The Plan shall become effective on the
date the Plan is adopted by the Board or approved by the stockholders of the
Company, whichever is earlier.
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Exhibit 10.14
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR QUALIFIED UNDER THE
SECURITIES LAWS OF ANY STATE, AND HAVE BEEN ISSUED IN RELIANCE UPON
EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION FOR NONPUBLIC
OFFERINGS. ACCORDINGLY, THE SALE, TRANSFER, PLEDGE, HYPOTHECATION OR
OTHER DISPOSITION OF ANY SUCH SECURITIES OR ANY INTEREST THEREIN MAY
NOT BE ACCOMPLISHED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND QUALIFICATION UNDER APPLICABLE STATE
SECURITIES LAWS, OR PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY IN
FORM AND SUBSTANCE TO GENERAL AUTOMATION, INC. TO THE EFFECT THAT SUCH
REGISTRATION AND QUALIFICATION ARE NOT REQUIRED.
GENERAL AUTOMATION, INC.
SUBORDINATED NOTE
-----------------
$500,000 January 21, 1997
General Automation, Inc., a Delaware corporation (the "COMPANY"), for
value received, promises to pay to Morgan Stanley Company, Inc., or order (the
"HOLDER"), the sum of Five Hundred Thousand Dollars ($500,000), together with
interest on unpaid principal from the date hereof until paid at the rate of
fifteen percent (15%) per annum. Interest and principal shall be paid in
twenty-four (24) equal monthly installments of $24,243.40 each, commencing on
February 21, 1997 and continuing on the 21st day of each month thereafter to and
including January 21, 1999, at which time the entire remaining principal amount
of this Note, together with accrued interest, shall be due and payable in full.
The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject, and to which the Holder, by
the acceptance of this Note, agrees:
1. ACCELERATION. If any of the events specified in this Section 1 shall
occur, the Holder may, so long as such condition exists, and subject to Section
2 below, declare the entire principal and unpaid accrued interest hereon
immediately due and payable, by notice in writing to the Company:
(a) The failure of the Company to pay when due any monthly
installment payable under this Note, which failure is not
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cured within twenty (20) days following written notice of such failure given by
the Holder to the Company; or
(b) The institution by the Company of proceedings to be adjudicated
as bankrupt or insolvent, or the consent by it to institution of bankruptcy or
insolvency proceedings against it or the filing by it of a petition or answer or
consent seeking reorganization or release under the federal Bankruptcy Act, or
any other applicable federal or state law, or the consent by it to the filing of
any such petition or the appointment of a receiver, liquidator, assignee,
trustee or other similar official of the Company, or of any substantial part of
its property, or the making by it of an assignment for the benefit of creditors,
or the taking of corporate action by the Company in furtherance of any such
action; or
(c) If, within sixty (60) days after the commencement of an action
against the Company (and service of process in connection therewith on the
Company) seeking any bankruptcy, insolvency, reorganization, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, such action shall not have been resolved in favor of the Company or
all orders or proceedings thereunder affecting the operations or the business of
the Company stayed, or if the stay of any such order or proceeding shall
thereafter be set aside, or if, within sixty (60) days after the appointment
without the consent of acquiescence of the Company of any trustee, receiver or
liquidator of the Company or of all or any substantial part of the properties of
the Company, such appointment shall not have been vacated; or
(d) Any declared default of the Company under any Senior
Indebtedness (as defined below) that gives the holder thereof the right to
accelerate such Senior Indebtedness, and such Senior Indebtedness is in fact
accelerated by the holder.
2. SUBORDINATION. The indebtedness evidenced by this Note is hereby
expressly subordinated, to the extent and in the manner hereinafter set forth,
in right of payment to the prior payment in full of all the Company's Senior
Indebtedness, as hereinafter defined.
2.1 SENIOR INDEBTEDNESS. As used in this Note, the term "SENIOR
INDEBTEDNESS" shall mean the principal of and unpaid accrued interest on: (a)
all indebtedness of the Company to banks, insurance companies or other financial
institutions regularly engaged in the business of lending money, which is for
money borrowed by the Company (whether or not secured and whether or not
existing as of the date of this Note or hereafter incurred), and (b) any such
indebtedness issued in exchange for
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such Senior Indebtedness, or any indebtedness arising from the satisfaction of
such Senior Indebtedness by a guarantor.
2.2 DEFAULT ON SENIOR INDEBTEDNESS. If there should occur any
receivership, insolvency, assignment for the benefit of creditors, bankruptcy,
reorganization or arrangements with creditors (whether or not pursuant to
bankruptcy or other insolvency laws), sale of all or substantially all of the
assets, dissolution, liquidation or any other marshalling of the assets and
liabilities of the Company, or if this Note shall be declared due and payable
upon the occurrence of an event of default with respect to any Senior
Indebtedness, then (a) no amount shall be paid by the Company in respect of the
principal of or interest on this Note at the time outstanding, unless and until
the principal and interest on the Senior Indebtedness then outstanding shall be
paid in full, and (b) no claim or proof of claim shall be filed with the Company
by or on behalf of the Holder of this Note that shall assert any right to
receive any payments in respect of the principal of and interest on this Note,
except subject to the payment in full of the principal of and interest on all of
the Senior Indebtedness then outstanding. If there occurs an event of default
that has been declared in writing with respect to any Senior Indebtedness, or in
the instrument under which any Senior Indebtedness is outstanding, permitting
the holder of such Senior Indebtedness to accelerate the maturity thereof, then,
unless and until such event of default shall have been cured and waived or shall
have ceased to exist, or all Senior Indebtedness shall have been paid in full,
no payment shall be made in respect of the principal of or interest on this
Note, unless within three (3) months after the happening of such event of
default, the maturity of such Senior Indebtedness shall not have been
accelerated.
2.3 EFFECT OF SUBORDINATION. Subject to the rights, if any, of the
holders of Senior Indebtedness under this Section 2 to receive cash, securities
and other properties otherwise payable or deliverable to the Holder of this
Note, nothing contained in this Section 2 shall impair, as between the Company
and the Holder, the obligation of the Company, subject to the terms and
conditions hereof, to pay to the Holder the principal hereof and interest hereon
as and when the same become due and payable, or shall prevent the Holder of this
Note, upon default hereunder, from exercising all rights, powers and remedies
otherwise provided herein or by applicable law.
2.4 SUBROGATION. Subject to the payment in full of all Senior
Indebtedness and until this Note shall be paid in full, the Holder shall be
subrogated to the rights of the holders of Senior Indebtedness (to the extent of
payments or distributions previously made to such holders of Senior Indebtedness
pursuant to the provisions of Section 2.2 above) to receive payments or
distributions of assets of the Company applicable to the Senior Indebtedness. No
such payments or
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distributions applicable to the Senior Indebtedness shall, as between the
Company and its creditors, other than the holders of Senior Indebtedness and the
Holder, be deemed to be a payment by the Company to or on account of this Note;
and for the purposes of such subrogation, no payments or distributions to the
holders of Senior Indebtedness to which the Holder would be entitled except for
the provisions of this Section 2 shall, as between the Company and its
creditors, other than the holders of Senior Indebtedness and the Holder, be
deemed to be a payment by the Company to or on account of the Senior
Indebtedness.
2.5 UNDERTAKING. By its acceptance of this Note, the Holder agrees
to execute and deliver such documents as may be reasonably requested from time
to time by the Company or the lender of any Senior Indebtedness in order to
implement the foregoing provisions of this Section 2.
3. USURY LAWS. The Company hereby agrees: (a) not to insist upon, or
plead, or in any manner whatsoever claim the benefit or the advantage of the
California usury law or the usury law of any other jurisdiction against the
Holder in connection with any claim, action or proceeding which may be brought
by the Holder in order to enforce any right or remedy under this Note; and (b)
to resist any and all efforts to compel the Company to claim the benefit or
advantage of the California usury law or the usury law of any other jurisdiction
against the Holder in connection with any claim, action or proceeding which may
be brought by the Holder in order to enforce any right or remedy under this
Note.
4. PREPAYMENT. The Company may at any time prepay this Note in whole or
in part. All payments made on this Note shall be applied first to accrued
interest, and the balance of such payment, if any, shall be applied to
principal, and interest shall thereupon cease upon the principal so credited.
5. HEADINGS. The headings of this Note have been inserted as a matter
of convenience and shall not affect the construction hereof.
6. APPLICABLE LAW. This Note shall be governed by and construed in
accordance with the internal laws of the State of New York.
7. ATTORNEYS' FEES. In the event that any legal action is commenced in
connection with any dispute arising under this Note or to determine the rights
or obligations of any party hereunder,
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the party prevailing in such action shall be entitled to receive, in addition to
whatever other remedies he or it may be entitled, an amount as and for it or his
or her attorneys' fees in such action.
IN WITNESS WHEREOF, General Automation, Inc. has caused this Note to be
signed on its behalf by the officer named below, thereunto duly authorized.
GENERAL AUTOMATION, INC.
By:
-----------------------------------
John R. Donnelly, Vice
President and Chief Financial
Officer
5
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Exhibit 10.15
LICENSE AGREEMENT
This Agreement (:'Agreement") is made this 26th day of April, 1996, by and
between McDonnell Information Systems Limited (hereinafter"MDIS"), a United
Kingdom corporation, whose business address is Boundary Way, Hemel Hempstead,
Herts, HP2 7HU, England and General Automation, Inc. (hereinafter "GAI"), a
Delaware corporation, whose principal place of business is 17731 Mitchell North,
Irvine, California 92714, with reference to the following facts:
A. MDIS is owner of all right, title, interest and copyright in a proprietary
operating system known and marketed as REALITY and a version of REALITY
utilized to operate in various operating environments, including UNIX and
AIX, known and marketed as REALITYX (collectively hereinafter referred to as
"Software"). The Software embodies unique concepts, programming techniques,
procedures, designs, structures and routines, all of which constitute
copyrights subject matter and "Confidential Information", which are and
shall remain a valuable property of MDIS, except as provided for herein.
B. GAI is experienced in the development of computer Software, the design and
manufacture of computer hardware, the design, integration, marketing and
distribution of computer systems, and the providing of support and service
for such systems and Software to Value Added Resellers/dealers and
end-users. Further GAI has the capabilities to integrate, market and
support, and otherwise exploit the Software as part of its product line, for
sale to its customers worldwide.
C. GAI desires to be appointed as a Master Distributor and granted a license to
modify, enhance market, sell and otherwise use the Software as provided for
herein. GAI shall have the first right of refusal to be appointed as master
distributor in respect of the REALITYX software for which MDIS seeks to
appoint a master distributor in the United States.
D. On the terms and conditions set forth herein, GAI desires to be appointed as
a Master Distributor for the Software and receive a license and MDIS desires
to appoint GAI as a Master Distributor and to license the Software to GAI as
follows:
1. Term. The term of this Agreement, including the grant of license, shall
commence on the date of execution hereof and continue in perpetuity
unless terminated by either party as hereinafter provided.
2. License. MDIS hereby grants to GAI a non-exclusive license, throughout
the world excluding Australia, New Zealand and the United Kingdom (the
"Territory") subject to the terms and conditions of this Agreement (I)
to have and use the Software in source code form to generate
modifications, enhancements, revisions and create derivative works or
additional modules or translations, (ii) to use the Software for GAI's
own internal data processing needs, to provide data processing services,
for demonstration purposes, or for support and maintenance, (iii) to
sub-license the use of the Software through one or more dealers to sub-
license to end-users, (iv) to distribute and sub-license directly to
end-users within the Territory, and (v) to integrate and configure the
Software with various hardware platforms.
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3. Delivery of Technology. Immediately following the execution of this
Agreement, MDIS shall deliver to GAI the Software in both object and
source code form and techniques, user documentation, training manuals
and such other material as are generally available. Further, should GAI
request it, MDIS may deliver to GAI previous versions of the Software in
object and source code form as available.
4. Enhancements. GAI shall retain all right, title and interest to any
enhancements and modifications or new modules or translations made by
GAI to the Software. However, the use of any portion of the Software,
including any portion of the design or external or internal interfaces,
whether they are modified or enhanced, or included in other programmes
or converted to another programming language or operating system, shall
remain subject to all the terms and conditions of this Agreement. No
modification or enhancement, regardless of how material, shall alter
GAI's obligations hereunder.
5. Support Obligation. GAI is solely responsible for providing support to
its value added resellers, dealers, sub-dealers and end-users within the
Territory. GAI specifically acknowledges that MDIS is not obligated to
provide support to GAI's end-users or dealers. GAI further acknowledges
that it is responsible for the supervision, management and control of
the marketing, distribution, sub-licensing and use of the Software to
GAI's end-users and dealers.
6. Upgrade. MDIS agrees to provide GAI with any upgrades or revisions of
the Software which it generally makes available to its distributors in
the future at a fee that is no more than MDIS charges to any of its
other distributors.
7. Rovalty Payments
7.1 Royalty Rate. GAI shall upon execution of the Agreement pay to MDIS
nil royalties. Thereafter upon each anniversary of the date of this
Agreement commencing from 1997, GAI shall pay to MDIS the annual
royalties payment equivalent to the amount specified under each
relevant year in Table 1 Exhibit A. GAI understands and accepts
that the royalty fee has been set by MDIS only on the understanding
that in each year of this Agreement the annual royalty payment
specified in Table 1 Exhibit A shall be paid to MDIS and it shall
constitute an irrevocable commitment on the part of GAI.
7.2 Late Charges. If MDIS does not receive the full amount due on or
before the date upon which such amounts are due and payable, such
outstanding amounts shall thereafter bear interest until payment at
the maximum rate permissible by applicable law, but in no event to
exceed ten percent (10%) per annum.
7.3 Place of Payment. All amounts due to MDIS shall be sent or
delivered by GAI to MDIS at the address first written above or such
other address as MDIS may designate from time to time by written
notice to GAI.
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<PAGE> 3
7.4 Taxes. In addition to all the amounts due to MDIS hereunder, GAI
shall pay to or reimburse MDIS the amount of any sales, use,
excise, property or other federal, state, local or foreign taxes,
duties, tariffs, (other than any tax based solely on MDIS's net
income) and related interest which MDIS is at any time obligated to
pay or collect in connection with or arising out of a transaction
contemplated under this Agreement.
8. GAI Records. GAI shall keep at its principal place of business accurate
books of account relating to the exploitation, marketing, sub-licensing
and use by GAI of the Software. Such books of account shall include the
identity, address and date of delivery or sub-license to an end-user or
dealer and a copy of the original invoice to the end-user dealer.
9. Paid-up Purchase Option. For good and valuable consideration, the
sufficiency of which is hereby acknowledged, MDIS hereby grants to GAI
and GAI hereby accepts an irrevocable option to purchase a paid-up
license of the software. The option may only be exercised after 1st
January 1998 and shall become exercisable upon the payment by GAI to
MDIS in the amount of three million eight hundred and fifty thousand US
dollars ($3,850,000.00) in royalties or a cash payment equal to two
million nine hundred thousand US dollars ($2,900,000.00) less an amount
representing eighty (80) percent of the aggregate of all previously paid
royalty payment. Thereafter GAI shall have the same rights to the
software in perpetuity as provided in this Agreement without further
royalty payments to MDIS.
10. Proprietary Rights
10.1 Title to Software. Notwithstanding the provisions of Section 9
above, full copyright and title to the Software, including
derivative works and related documentation and products delivered
to GAI shall at all times remain with MDIS.
10.2 Definition and Nature of Confidential Information. GAI acknowledges
and agrees that the "Confidential Information" shall at all times
be and remain a sole and exclusive property of MDIS. For purposes
of this Agreement, the term "Confidential Information" shall
include documentation, and all versions of the foregoing delivered
to GAI by MDIS, and all data, specifications, techniques, know-how,
programs, source code, object code, documentation, diagrams, flow
charts and other materials of any type whatsoever (tangible or
intangible) contained or revealed in any of the foregoing. Such
Confidential Information contains valuable confidential information
and trade secrets developed or acquired by MDIS due to expenditure
of a great deal of time and money. Confidential information does
not include: (a) information which already or otherwise becomes
publicly known through no negligence or breach of any duty of
confidentiality of GAI pursuant to this Agreement or (b)
information which is lawfully received by GAI from third parties;
or can be shown by GAI to have been independently developed by GAI.
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10.3 Obligations of GAI Regarding Confidential Information. GAI agrees
to observe confidentiality with regard to Confidential Information
including, but not limited to, not disclosing or otherwise
permitting any third person or entity access to the Confidential
Information, except as necessary to exercise the rights granted
herein, with MDIS's prior written permission, which will not be
unreasonably withheld (except that such disclosure access shall be
permitted to an employee or consultant of GAI on a need to know
basis) and generally taking any and all other actions reasonably
necessary or appropriate to insure the continued proprietary nature
of the Confidential Information.
11. License of Trademark. MDIS grants to GAI a non-exclusive license to use
MDIS's "Reality" trademark in the Territory only in the use, marketing,
distribution and sale of the Software under this Agreement, GAI shall
place a notice with the trademark in every instance of use by GAI, in a
location and of a form acceptable to MDIS, stating the Reality
trademark is owned by MDIS, or such other notice as MDIS requires. GAI's
use of the trademark shall be subject to MDIS' then prevailing trademark
policies and procedures as advised by MDIS to GAI from time to time, and
GAI shall be given a reasonable period of time to comply with such
changed policies and procedures.
12. Representations and Warranties. MDIS makes representations and
warranties:
12.1 MDIS has the unrestricted right, power and authority to enter into
this Agreement and to grant the license and the option provided
herein to GAI and that MDIS possess all right, title, interest and
copyright to the Software free and clear of all liens,
encumbrances, licenses and other rights.
12.2 The Software does not infringe on any U.S. trade secret, patent,
invention or intellectual property right or otherwise violate the
rights of any third party, and no proceedings have been instituted
or are pending and no action has been threatened and no claim has
been made by a third party alleging any such violation.
12.3 That the Software will perform substantially as stated in the
documentation supplied to GAI and that the Software is not free of
bugs.
12.4 SAVE AS EXPRESSLY PROVIDED IN THIS AGREEMENT, ALL WARRANTIES
EXPRESS OR IMPLIED, ORAL OR IN WRITING, BY LAW CUSTOM OR OTHERWISE,
INCLUDING BUT NOT LIMITED TO ANY WARRANTIES, TERMS AND CONDITIONS
OF MERCHANTABLE QUALITY AND FITNESS FOR ANY PARTICULAR PURPOSE ARE
HEREBY EXCLUDED.
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13. Obligation to Defend. MDIS will defend any action or proceedings brought
against GAI or its dealer's or end-users that is based upon a claim or
allegation that the Software, manuals, documentation, or trademarks, in
the form provided by MDIS to GAI hereunder and as used by GAI,
infringe or misappropriate a United States trademark, trade secret,
patent or copyright. MDIS will pay all resulting costs, damages and
legal fees and costs which may be awarded against those parties in such
action or proceeding which are attributable to such claim or
allegations, provided that GAI: (a) promptly notifies MDIS in writing of
any such action or proceeding; (b) GAI makes no admission or statement
without MDIS' prior written consent; (c) provides MDIS with all such
reasonably necessary assistance and co-operation as MDIS may reasonably
request for the defense thereof; and (d) insofar as any such action or
proceeding directly relates to such claim or allegation, allows MDIS to
direct the defence and enter into any settlement, with the written
consent of GAI (such consent not to be unreasonably withheld).
14. No Warranty to Third Parties. MDIS DOES NOT MAKE A WARRANTY TO ANY
END-USER OR THIRD PARTY (INCLUDING, WITHOUT LIMITATION DEALERS) WITH
RESPECT TO THE SOFTWARE, INCLUDING, WITHOUT LIMITATION, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. GAI
SHALL NOT HAVE THE RIGHT NOR CLAIM TO HAVE THE RIGHT TO MAKE OR PASS ON
BEHALF OF MDIS ANY OF THE WARRANTIES OR REPRESENTATIONS SET OUT IN
SECTION 14 TO ANY END-USER OR THIRD PARTY.
15. Limitation of liability.
15.1 MDIS SHALL INDEMNIFY GAI IN RESPECT OF ANY DIRECT LOSS OR DAMAGE TO
THE TANGIBLE PROPERTY OF GAI WHERE SUCH LOSS OR DAMAGE IS CAUSED BY
THE NEGLIGENCE OF MDIS, ITS SERVANTS OR AGENTS UP TO AN AMOUNT NOT
EXCEEDING US $100,000 FOR EACH EVENT OR SERIES OF CONNECTED EVENTS.
15.2 GAI SHALL INDEMNIFY AND HOLD MDIS HARMLESS AGAINST ANY LOSS, DAMAGE
OR EXPENSE (INCLUDING LEGAL COSTS) SUFFERED BY MDIS AND CAUSED BY
OR ARISING OUT OF ANY ACTUAL OR THREATENED THIRD PARTY PROCEEDINGS,
CLAIMS OR ACTIONS HOWSOEVER ARISING FROM ANY ACT OR OMISSION OF GAI
OR ITS SUB-DISTRIBUTORS, DEALERS OR END-USERS, OR FROM THE SUPPLY,
USE OR SUPPORT OF THE PRODUCTS OR SOFTWARE.
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16. Exclusion of Certain Damages
MDIS' ENTIRE LIABILITY IS AS SPECIFIED IN CLAUSES 14, 16.1 AND 16.2
EXISTENCE OF ONE OR MORE CLAIMS, SUIT OR PROCEEDING SHALL NOT EXPAND OR
ENLARGE THE LIMITATION OF LIABILITY. EACH PARTY HEREBY AGREES THAT EACH
SHALL NOT BE LIABLE FOR INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES
BASED UPON THE USE OF THE SOFTWARE OR RELATED PRODUCTS OR DOCUMENTATION
BY GAI OR THE DISTRIBUTION, MARKETING AND LICENSING OF THE SOFTWARE,
EVEN IF ONE PARTY HAS BEEN NOTIFIED OF THE POSSIBILITIES OF SUCH
DAMAGES. THE PARTIES HEREBY ACKNOWLEDGE THAT THE OTHER PORTIONS OF THE
AGREEMENT HAVE BEEN MADE IN RELIANCE UPON INCLUSION OF THIS SECTION.
17. General
17.1 GAI shall ensure that prior to delivery of the Software to a
sub-licensee, such sub-licensee enters into a distribution
agreement with GAI on substantially the same terms and conditions
as are contained in this Agreement or on terms and conditions which
may be notified to GAI by MDIS from time to time.
18. Default and Termination
18.1 Definition and Right to Terminate for Default. For the purposes of
this Agreement, default by any party occurs upon the (I) failure to
cure a material breach where such breach is capable of cure, other
than a breach due to failure to pay monies within thirty (30) days
following written notice from the other party stating such breach;
(ii) breach of any warranty; (iii) the finding that any
representation made herein proves to be materially false; (iv)
failure of a party to pay monies required to be paid hereunder
within (30) days following written notice from the other party
stating that monies are required to be paid to the other party to
this Agreement. Upon the occurrence of such default, the
non-defaulting party may terminate this Agreement by giving sixty
(60) days written notice to the defaulting party.
18.2 Obligations and Duties upon Termination
(a) Upon termination, except in the event of the exercise of the
pre-paid option, GAI's right to use any Confidential Information
shall terminate and GAI shall immediately deliver to MDIS all such
Confidential Information in its possession and control, subject to
the provision below. All obligations of confidentiality shall
survive the termination of this Agreement. However, all rights
granted by GAI to end-users shall continue in full force and
effect. GAI shall continue to be able to support such end-users
after termination for the remainder of the period of any relevant
Support Agreements. The parties shall mutually agree as to what
Confidential Information GAI requires in order to support the
end-users after termination of the Agreement.
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(b) GAI's right on the license granted hereunder shall immediately
cease and GAI shall immediately discontinue all other use of the
Software and MDIS "REALITY" trademark.
19. Assignment. Neither party shall assign or transfer this Agreement
without the prior written consent of the other which shall not be
unreasonably withheld or delayed.
20. Miscellaneous Provisions
20.1 Entire Agreement and Severability. This Agreement constitutes the
entire understanding and agreement between MDIS and GAI and
supersedes any and all prior, contemporaneous oral or written
communication or representations relating to the subject matter
hereof, all of which are merged herein. This Agreement can only me
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, it shall not be deemed to impair
the validity of the remaining provisions of the Agreement which
shall remain in full force and effect.
20.2 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.
20.3 Relationship of Parties. The relationship between MDIS and GAI is
that of licensor and licensee. Nothing contained herein shall be
deemed or construed as creating a joint venture or partnership
between MDIS and GAI. It is agreed and understood that GAI is an
independent contractor and has no authority or power to bind or
contract in the name of or to create any liability against MDIS in
any way or for any purpose. Further it is not the intention of this
Agreement or the parties hereto to confer a third party beneficiary
right of action upon any person or entity whatsoever.
20.4 Governing Law and Choice of Forum. This Agreement shall be
construed and enforced in accordance with the laws of the State of
California applicable to contracts and wholly executed and wholly
performed therein. The parties agree that, and hereby submit
themselves to the non-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.
20.5 Attorney's Fees. The prevailing party in any action or proceeding
between GAI and MDIS arising out of or related to this Agreement
shall be entitled to recover its reasonable attorney's fees and
costs incurred in connection therewith.
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20.6 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 is by telex,
telegram or facsimile.
EXECUTED as of the date first written above.
McDonnell Information Systems Ltd General Automation, Inc.
By: /s/ JOHN KLEIN By: /s/ R. D. Bagby
------------------------------ ---------------------------------
John Klein Robert D. Bagby
Its: President and Chief Executive Its: President and Chief Executive
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EXHIBIT A
GAI will pay MDIS royalty payments of $35 per user for each license sold to its
customer up to the annual minimum payment as scheduled in Table A below.
TABLE 1: ROYALTY PAYMENT COMMITMENT SCHEDULE
Year 1996 1997 1998 1999 2000 2001 2002
NIL $400,000 $650,000 $700,000 $700,000 $700,000 $700,000
Royalty payment will be made on April 26 of each relevant year, i.e. payment for
1997 of $400K will be made on April 26, 1997.
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Exhibit 10.16
April 15, 1997
Mr. Leonard N. Mackenzie
2711 N. Haskell, Suite 2050
Dallas, Texas 75204
Dear Len:
This letter is written to set forth the agreement which has been
reached between you and General Automation, Inc. (the "Company") concerning your
resignation as an employee of the Company, and your continuing role as a
consultant to the Company. That agreement is as follows:
1. RESIGNATION AS EMPLOYEE. You have resigned as an employee of the
Company as of the date of this letter agreement. You will be paid your base
compensation through that date, subject to all applicable withholding
obligations of the Company. All employment benefits, including your car
allowance, will terminate as of the date of this letter agreement. However, as a
member of the Company's Board of Directors, you will continue to be eligible to
participate in the Company's group health insurance plan to the same extent as
the Company's other non-employee directors.
2. CONSULTING SERVICES. During the term of this letter agreement, you
will provide such consulting services to the Company as it may request from time
to time concerning the Company and its operations, including but not limited to
consulting with respect to strategic planning and growth opportunities. The
consulting services to be provided by you shall be provided during normal
business hours at such places as shall be specified by the Company. The Company
will provide you with reasonable notice of the time and place at which services
are requested to be provided by you under this letter agreement.
3. COMPENSATION PAYABLE TO YOU; EXPENSES.
--------------------------------------
(a) During the term of this letter agreement, the Company shall pay
the following compensation to you or on your behalf: monthly payments of $6,250
each, payable to Sunset M, Inc.; and monthly payments of $20,833 each, payable
to you. The payments required by this Section 3(a) shall be due on the first day
of each calendar month. Payments with respect to partial months shall be
prorated. In the event that the Company fails to make any payment when due, and
such failure is not cured within ten days following written notice of the same
given by you to the Company, the
<PAGE> 2
Leonard N. Mackenzie
April 15, 1997
Page 2
amount of the late payment shall thereafter bear interest at the rate of 18% per
annum until paid.
(b) The Company will reimburse you for all reasonable and necessary
out-of-pocket expenses incurred by you in the performance of your duties under
this letter agreement upon your submission to the Company of reasonable
documentation evidencing such expenses.
4. TERM. The term of this letter agreement will commence as of the date
hereof and terminate on the third anniversary of the date hereof, subject to
earlier termination as provided below.
5. TERMINATION. Notwithstanding the term stated in Section 4 above,
this letter agreement shall terminate upon the earliest to occur of the
following:
(a) The expiration of thirty (30) days after receipt by you of
written notice of termination executed by the Company if there shall have been a
material breach by you of any of your obligations or covenants under this letter
agreement, which breach is not cured within such thirty day period.
(b) At the Company's election (exercisable by the Company in its
sole discretion), at any time after the second anniversary of the date of this
letter agreement, effective upon written notice of the Company's election to
terminate given by the Company to you.
(c) The expiration of thirty (30) days after receipt by the Company
of written notice of termination executed by you if there shall have been a
material breach by the Company of any of its obligations or covenants under this
letter agreement, which breach is not cured within such thirty day period.
(d) Your death.
6. EFFECT OF TERMINATION.
----------------------
(a) In the event of termination of this letter agreement by the
Company under Section 5(a) or 5(b) above, you will be entitled to receive the
compensation payable to you or on your behalf under Section 3(a) above through
the date of termination, but will not be entitled to receive any severance pay
or any other termination benefits (except that
<PAGE> 3
Leonard N. Mackenzie
April 15, 1997
Page 3
if this letter agreement is terminated by the Company under Section 5(b), you
will also be entitled to receive the Warrant pursuant to Section 7 below).
(b) If this letter agreement terminates for any reason other than
termination by the Company under Section 5(a) or 5(b) above, then you shall be
entitled to receive the compensation payable to you or on your behalf under
Section 3(a) above through the date of termination, and a severance payment in
an amount equal to the sum of (i) the compensation which would have been payable
on your behalf under Section 3(a)(i) above during the period commencing on the
date of termination of this letter agreement and ending on the second
anniversary of the date of this letter agreement, and (ii) the compensation
which would have been payable to you under Section 3(a)(ii) above during the
period commencing on the date of termination of this letter agreement and ending
on the third anniversary of the date of this letter agreement. The severance
payment referred to in this Section 6(b) shall be paid to you or on your behalf
in equal monthly payments commencing one month following the date of termination
of this letter agreement. If this letter agreement has terminated due to your
death, the payments specified to be made by this Section 6(b), to the extent
that they relate to Section 3(a)(i), shall be made to Sunset M, Inc. and, to the
extent that they relate to Section 3(a)(ii), shall be made to the legal
representative of your estate or other person legally entitled thereto.
(c) The provisions of this Section 6 and of Sections 7 and 8 below
shall survive the expiration or termination of this letter agreement.
7. WARRANT. Upon expiration of the term of this letter agreement, or
termination of this letter agreement for any reason other than termination by
the Company under Section 5(a) above, the Company will issue to you a Warrant to
purchase shares of the Company's common stock in substantially the form attached
hereto as Exhibit A (the "Warrant"). The term of the Warrant will be the two
year period commencing on the date of termination or expiration of this letter
agreement. The exercise price of the Warrant will be the fair market value per
share of the Company's common stock on the date of expiration or termination of
this letter agreement. The number of shares purchasable upon exercise of the
Warrant will be a number (rounded to the nearest whole share) calculated using
the following formula:
<PAGE> 4
Leonard N. Mackenzie
April 15, 1997
Page 4
$899,988 - A
------------
P
Where:
A = The aggregate compensation to which you are entitled under
this letter agreement (including all compensation paid or
payable to you or on your behalf under Section 3(a) and/or
Section 6)
P = The fair market value per share of the Company's common stock
on the date of expiration or termination of this letter
agreement
For purposes of this letter agreement, if the Company's common stock is
then listed or admitted to trading on a stock exchange, the fair market value
per share of the Company's common stock on any given day shall be the closing
sale price on such day on the principal stock exchange on which the Company's
common stock is then listed or admitted to trading. If the common stock is not
listed or admitted to trading on a stock exchange, but is traded in the
over-the-counter market, the fair market value of the Company's common stock on
any given day shall be the average of the closing bid price and asked price of
the Company's common stock in the over-the-counter market on such day. If no
closing bid and asked prices are quoted on such day, then the closing bid and
asked prices on the next preceding day on which such prices were quoted shall be
the fair market value of the stock. If the Company's common stock is not then
listed on any stock exchange or traded on the over-the-counter market, the fair
market value of the Company's common stock shall be determined by the Company's
Board of Directors in good faith, consistent with the Board's determination of
the fair market value of the Company's common stock for purposes of other
transactions, if any, entered into by the Company at that time.
8. TERMINATION OF STOCK OPTIONS. The Incentive Stock Option dated
August 29, 1994 between you and the Company, and all rights previously held by
you thereunder to purchase shares of the Company's common stock, are hereby
terminated in their entirety, effective as of the date of this letter agreement.
<PAGE> 5
Leonard N. Mackenzie
April 15, 1997
Page 5
9. INDEPENDENT CONTRACTOR; AUTHORITY. In the performance of your duties
under this letter agreement, you will at all times be an independent contractor,
contracting services to the Company, and you will not be, nor will you represent
yourself to be at any time, an employee of the Company. Accordingly, you will
have no power or authority to enter into any contract, commitment or obligation
which is binding upon the Company.
10. TAXES. You will be solely responsible for, and will pay when due,
all income, self-employment and other taxes attributable to all amounts paid to
you or on your behalf under this letter agreement.
11. COMPETITION. During the term of this letter agreement, you will
not, directly or indirectly (otherwise than by ownership of less than 5% of the
voting stock of a corporation whose shares are actively publicly traded) manage,
operate, join, control, participate in the ownership, management, operation or
control of, or be employed by or a consultant or advisor to, or connected in any
other manner with any other person, corporation, firm, partnership or other
entity whatsoever that is engaged or, to your knowledge, plans to be engaged,
anywhere in the world in any business or activity which is competitive with any
business or activity in which the Company is then engaged. The Company agrees
that the business currently conducted by Boundless Technologies, Inc. shall not
be deemed to be competitive with any business or activity of the Company for
purposes of this Section 11.
12. NO DISCLOSURE OF CONFIDENTIAL INFORMATION. You acknowledge and
agree that (a) by reason of your prior employment by the Company and the
services to be provided under this letter agreement, you have been, and
hereafter will be, given access to various trade secrets and other confidential
and proprietary information of the Company (collectively, "Confidential
Information"), including but not limited to inventions, product plans and
concepts, strategies, procedures, business plans, financial statements and other
financial information; and (b) the Confidential Information constitutes trade
secrets and/or confidential, privileged and proprietary information of the
Company which gravely affect the successful and effective operation of the
Company. You agree that you will not directly or indirectly disclose to any
third person or use for the benefit of anyone other than the Company, or use for
your own benefit or purposes, any Confidential Information, without the
<PAGE> 6
Leonard N. Mackenzie
April 15, 1997
Page 6
express prior written approval of the President of the Company.
13. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This letter agreement contains the entire
understanding between the parties hereto, and supersedes any prior written or
oral agreement between the parties concerning the subject matter contained
herein. There are no representations, agreements, arrangements or
understandings, oral or written, between the parties hereto, relating to the
subject matter contained in this letter agreement, which are not fully expressed
herein.
(b) AMENDMENT. This letter agreement shall not be modified or
amended except by a writing signed by both of the parties hereto.
(c) ASSIGNMENT. You may not assign your obligations or duties under
this letter agreement without the express written consent of the Company, which
consent may be withheld in the Company's sole discretion, and any attempted or
purported assignment or any delegation of your duties or obligations arising
under this letter agreement to any third party or entity shall be deemed to be
null and void, and shall constitute a material breach by you of your duties and
obligations under this letter agreement. Notwithstanding the foregoing, however,
you may, from time to time, utilize the assistance of other persons in
performing the services required of you under this letter agreement, provided
that such other persons are under your supervision and control. This letter
agreement shall inure to the benefit of and be binding upon any successors of
the Company.
(d) COUNTERPARTS. This letter agreement may be executed in
counterparts, each of which shall be deemed to be an original, but such
counterparts, when taken together, shall constitute one and the same agreement.
(e) ATTORNEYS' FEES. If any action at law or equity is brought
concerning any provision of this letter agreement or the rights and duties of
any person in relation thereto, the prevailing party in such action shall be
entitled to reasonable attorneys' fees and costs in such action in addition to
any other relief to which it may be entitled.
<PAGE> 7
Leonard N. Mackenzie
April 15, 1997
Page 7
(f) NOTICES. All notices, requests, demands and other communications
under this letter agreement shall be given in writing and shall be served either
personally, by facsimile or delivered by first class mail, registered or
certified, return receipt requested, postage prepaid, and properly addressed as
follows:
If to the Company:
General Automation, Inc.
17731 Mitchell North
Irvine, California 92714
Attention: President
If to you:
Leonard Mackenzie
2711 N. Haskell, Suite 2050
Dallas, Texas 75204
Notices shall be deemed received upon the earliest of actual receipt,
confirmed facsimile or three (3) days following mailing pursuant to this
Section.
To acknowledge your agreement to the foregoing, please sign the
additional copy of this letter which is enclosed, and return it to me.
Very truly yours,
General Automation, Inc.
By: /s/ JANE CHRISTIE
------------------------
Jane Christie, President
AGREED TO BY:
/s/ LEONARD N. MACKENZIE
- --------------------------------
Leonard N. Mackenzie
<PAGE> 8
No. W -
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR
QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE, AND HAVE BEEN
ISSUED IN RELIANCE UPON EXEMPTIONS FROM SUCH REGISTRATION AND
QUALIFICATION FOR NONPUBLIC OFFERINGS. ACCORDINGLY, THE SALE,
TRANSFER, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION OF ANY SUCH
SECURITIES OR ANY INTEREST THEREIN MAY NOT BE ACCOMPLISHED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
ACT AND QUALIFICATION UNDER APPLICABLE STATE SECURITIES LAWS, OR
PURSUANT TO AN OPINION OF COUNSEL SATISFACTORY IN FORM AND
SUBSTANCE TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS
NOT REQUIRED.
GENERAL AUTOMATION, INC.
Stock Purchase Warrant
FOR VALUE RECEIVED, General Automation, Inc., a Delaware corporation
(the "Company"), hereby grants to Leonard N. Mackenzie the right to purchase
from the Company, at any time or from time to time, prior to 5:00 p.m. Pacific
Time on , subject to earlier termination as hereinafter specified, _______fully
paid and non-assessable shares of the Common Stock of the Company for the
aggregate exercise price of $_______.
Hereinafter, (i) the Common Stock of the Company, together with any
other equity securities which may be issued by the Company in substitution
therefor, is referred to as the "Common Stock", (ii) the shares of the Common
Stock purchasable hereunder are referred to as the "Warrant Shares", (iii) the
aggregate exercise price payable for all of the Warrant Shares is referred to as
the "Aggregate Exercise Price", and (iv) the price payable hereunder for each of
the Warrant Shares is referred to as the "Per Share Exercise Price", which shall
initially be $ _______ per share. The Per Share Exercise Price and the number of
Warrant Shares are subject to adjustment as hereinafter provided. The Aggregate
Exercise Price is not subject to adjustment.
1. Exercise of Warrant. This Warrant may be exercised, in whole at any time or
in part from time to time, prior to 5:00 p.m. Pacific Time on (subject to
earlier termination as hereinafter provided), by the holder of this Warrant (the
"Holder") by the surrender of this Warrant (with the
Exhibit A
<PAGE> 9
subscription form at the end hereof duly executed) at the principal office of
the Company, which is currently located at 17731 Mitchell North, Irvine,
California, together with proper payment of the Per Share Exercise Price for
each of the Warrant Shares as to which the Warrant is being exercised. Payment
for Warrant Shares shall be made by certified or bank cashier's check, payable
to the order of the Company.
If this Warrant is exercised in part, this Warrant must be exercised
for a number of whole shares of the Common Stock and the Holder shall be
entitled to receive a new Warrant covering the number of Warrant Shares with
respect to which this Warrant has not been exercised. Upon such surrender of
this Warrant, together with the subscription form at the end hereof duly
executed and proper payment of the Per Share Exercise Price for each of the
Warrant Shares as to which the Warrant is being exercised, the Company will (i)
issue a certificate or certificates in the name of the Holder for the largest
number of whole shares of the Common Stock to which the Holder shall be entitled
and, if this Warrant is exercised in whole, in lieu of any fractional share of
the Common Stock to which the Holder shall be entitled, cash equal to the fair
value of such fractional share (determined in such reasonable manner as the
Board of Directors of the Company shall determine), and (ii) deliver the other
securities and properties receivable upon the exercise of this Warrant, if any,
or the proportionate part thereof if this Warrant is exercised in part, pursuant
to the provisions of this Warrant.
2. Reservation of Warrant Shares. The Company agrees that, prior to the
expiration of this Warrant, the Company will at all times have authorized and in
reserve, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the shares of the Common Stock and other securities
and properties as from time to time shall be receivable upon the exercise of
this Warrant.
3. Adjustments.
3.1 Distribution With Respect to Common Stock. If, at any time or from
time to time after the date of this Warrant, the Company shall distribute
to the holders of the Common Stock, without payment therefor, (i)
securities, other than shares of the Common Stock, or (ii) property, other
than cash, with respect to the Common Stock, then, and in each such case,
subject to Section 3.4 below, the Holder, upon the exercise of this
Warrant, shall be entitled to receive the securities and properties which
the Holder would hold on the date of such exercise if, on the date of such
distribution, the Holder had been the holder of record of the number of
shares of the Common Stock subscribed for upon such exercise and, during
the period from the date of such distribution to and including the date of
such exercise, had retained such shares and the securities and properties
receivable by the Holder during such period.
3.2 Stock Splits, Etc. If, at any time or from time to time after the date
of this Warrant, the Company shall issue to the holders of the Common Stock
shares of the Common Stock by way of a stock dividend or stock split, then,
and in each such
2
<PAGE> 10
case, the Per Share Exercise Price shall be adjusted, or further adjusted,
to a price (to the nearest tenth of one cent) determined by dividing (i) an
amount equal to the number of shares of the Common Stock outstanding
immediately prior to such issuance multiplied by the Per Share Exercise
Price as it existed immediately prior to such issuance by (ii) the total
number of shares of the Common Stock outstanding immediately after such
issuance. Upon each such adjustment in the Per Share Exercise Price, the
number of Warrant Shares shall be adjusted by dividing the Aggregate
Exercise Price by the Per Share Exercise Price in effect immediately after
such adjustment.
3.3 Reverse Splits, Etc. If, at any time or from time to time after the
date of this Warrant, the number of shares of Common Stock outstanding is
decreased by way of combination of shares or reverse split, then, and in
each such case, the Per Share Exercise Price shall be adjusted, or further
adjusted, to a price (to the nearest tenth of one cent) determined by
dividing (i) an amount equal to the number of shares of the Common Stock
outstanding immediately prior to such event multiplied by the Per Share
Exercise Price as it existed immediately prior to such event by (ii) the
total number of shares of the Common Stock outstanding immediately after
such event. Upon each such adjustment in the Per Share Exercise Price, the
number of Warrant Shares shall be adjusted by dividing the Aggregate
Exercise Price by the Per Share Exercise Price in effect immediately after
such adjustment.
3.4 Reorganization; Termination of Warrant. In the event that the Company
at any time proposes to (i) merge into, consolidate with or enter into any
other reorganization (including the sale of substantially all of its
assets) in which the Company is not the surviving corporation (other than a
merger solely for the purpose of effecting a change in the Company's
corporate domicile), or (ii) enter into a merger or other reorganization as
a result of which the outstanding shares of Common Stock of the Company
will be changed into or exchanged for shares of the capital stock or other
securities of another corporation or for cash or other property (other than
a merger solely for the purpose of effecting a change in the Company's
corporate domicile), the Company shall mail notice thereof (the "Notice")
to the Holder and shall not consummate any such transaction nor make any
distribution to shareholders with respect thereto, until the expiration of
thirty (30) days after the date of mailing of the Notice, and the record
date for shareholders entitled to participate in such transaction or
distribution, if applicable, shall not be earlier than a date which is at
least thirty (30) days after the date of mailing of the Notice.
Notwithstanding any other provision hereof, the right to exercise this
Warrant shall automatically expire and terminate upon consummation of the
transaction to which the Notice relates.
4. Fully Paid Stock; Taxes. The Company agrees that the shares of the Common
Stock represented by each and every certificate for Warrant Shares delivered on
the exercise of this Warrant shall, at the time of such delivery, be validly
issued and outstanding, fully paid and non-assessable. The Company further
covenants and agrees that it will pay, when due and payable, any and all federal
and
3
<PAGE> 11
state stamp, original issue or similar taxes which may be payable in
respect of the issue of any Warrant Share or certificate therefor;
provided, however, that the Company shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance of
any certificate for Warrant Shares in a name other than that of the Holder
upon any exercise of this Warrant.
5. Restrictions on Transferability of Securities; Compliance with Securities
Act.
5.1 Restrictions on Transferability. The transferability of this Warrant
and the Warrant Shares (as well as any other securities issued in respect
of the Warrant Shares upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event) shall be subject
to the conditions specified in this Section 5, which conditions are
intended to ensure compliance with the provisions of the Securities Act of
1933 (the "Act") and applicable state securities laws. The Holder, and any
transferee of this Warrant or the Warrant Shares, by his acceptance hereof
or thereof, agree that this Warrant and the Warrant Shares will be taken
and held subject to the provisions and upon the conditions specified in
this Section 5.
5.2 Restrictive Legend. This Warrant and each certificate representing (i)
the Warrant Shares or (ii) any other securities issued in respect of the
Warrant Shares upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event, shall (unless otherwise permitted
or unless the securities evidenced by such certificate shall have been
registered under the Act) be stamped or otherwise imprinted with a legend
substantially in the following form (in addition to any legend required
under applicable state securities laws), and shall be subject to the
provisions thereof:
4
<PAGE> 12
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, (THE "ACT"), OR
QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE, IN RELIANCE ON
EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION FOR
NONPUBLIC OFFERINGS. ACCORDINGLY, THE SALE, TRANSFER OR OTHER
DISPOSITION OF SUCH SECURITIES OR ANY PORTION THEREOF MAY NOT BE
ACCOMPLISHED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND QUALIFICATION UNDER APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY TO THE EFFECT THAT SUCH REGISTRATION AND QUALIFICATION
ARE NOT REQUIRED.
6. Warrant Register. This Warrant is transferable only on the books of the
Company which it shall cause to be maintained for such purpose. The Company may
treat the registered holder of this Warrant as he, she or it appears on the
Company's books at any time as the Holder for all purposes, notwithstanding the
Company's receipt of any notice to the contrary.
7. Loss, Etc., of Warrant. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Warrant if mutilated, and upon
reimbursement of the Company's reasonable incidental expenses, the Company shall
execute and deliver to the Holder a new Warrant of like date, tenor and
denomination.
8. Warrant Holder Has No Shareholder Rights. This Warrant does not confer upon
the Holder any right to vote or to consent or to receive notice as a shareholder
of the Company, as such, with respect to any matters whatsoever, or any other
rights or liabilities as a shareholder, prior to the exercise hereof.
9. Communication. Any notice required or permitted to be given hereunder
(including but not limited to the Notice referred to in Section 3.4) shall be in
writing and shall be deemed to have been given forty-eight (48) hours after
having been deposited in the United States mail, postage prepaid, registered or
certified, return receipt requested, addressed to each party in the following
manner:
To the Company: General Automation, Inc.
17731 Mitchell North
Irvine, California 92714
Attention: President
5
<PAGE> 13
To Holder: Leonard N. Mackenzie
2711 N. Haskell, Suite 2050
Dallas, Texas 75204
The Company and the Holder may change the address to which such notices
are to be addressed to them by giving the other party notice in the manner set
forth herein.
10. Headings. The headings of this Warrant have been inserted as a matter of
convenience and shall not affect the construction hereof.
11. Applicable Law. This Warrant shall be governed by and construed in
accordance with the internal laws of the State of California.
IN WITNESS WHEREOF, General Automation, Inc. has caused this Warrant to
be signed on its behalf as of .
General Automation, Inc.
By:
6
<PAGE> 14
FORM OF ASSIGNMENT
(To Be Signed Only Upon Assignment)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto the right to purchase shares of Common Stock
evidenced by the within Warrant, and hereby appoints to
transfer the same on the books of General Automation, Inc. with full power of
substitution in the premises.
Date: ________
___________________________________________
(Signature)
Note: Signature must conform in all
respects to the name of the Warrant
Holder as specified on the face of
this Warrant in every particular,
without alteration or enlargement or
any change whatsoever, and the
signature must be guaranteed in the
usual manner.
Signature Guaranteed:
__________________________
7
<PAGE> 15
EXERCISE FORM
(To Be Executed By The Warrant Holder If the Holder Desires
to Exercise the Warrant in Whole or in Part)
TO: General Automation, Inc.
The undersigned ( )
Please insert Social Security or other
identifying number of Holder
hereby irrevocably elects to exercise the right of purchase represented by the
within Warrant for, and to purchase thereunder, shares of Common Stock provided
for therein and tenders payment herewith to the order of General Automation,
Inc. in the amount of $ . The undersigned requests that certificates for such
shares of Common Stock be issued as follows:
Name:
Address:
Deliver to:
Address:
Date:
(Signature)
Note: Signature must conform in all
respects to the name of the Warrant
Holder as written upon the face of
this Warrant in every particular,
without alteration or enlargement or
any change whatsoever, and the
signature must be guaranteed in the
normal manner.
Signature Guaranteed:
8
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated December 9, 1996
relating to the financial statements of General Automation, Inc., which appears
in such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
- -----------------------------
Price Waterhouse LLP
Costa Mesa, California
September 2, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report, which includes an explanatory paragraph, dated February 27, 1997, on
our audits of the financial statements of Sequoia Enterprise Systems Divison of
Sequoia Systems, Inc. The explanatory paragraph states that certain costs and
expenses presented in the financial statements represent management's estimates
of the costs of services provided to Sequoia Enterprise Systems, a division of
Sequoia Systems, Inc., by Sequoia Systems Inc. As a result, the consolidated
financial statements presented may not be indicative of the financial position
or results of operations that would have been achieved had Sequoia Enterprise
Systems operated as a nonaffiliated entity. We also consent to the reference to
our firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
- ------------------------------
Coopers & Lybrand L.L.P.
Boston, Massachusetts
September 2, 1997
