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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended September 30, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file Number 0-5260
GENERAL AUTOMATION, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-2488811
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17731 Mitchell North, Irvine, California 92614
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 250-4800
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.10 par value American Stock Exchange
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Title of class Name of exchange on which registered
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The approximate aggregate market value of voting stock held by non-affiliates of
the registrant was $13,685,800 as of January 6, 1998.
The number of shares of the registrant's Common Stock, $.10 par value,
outstanding as of January 6, 1998 was 9,252,951.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on February 6, 1998 are incorporated by reference into
Part III hereof, to the extent indicated herein
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PART I
ITEM 1. BUSINESS
The discussion in this document 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 throughout this document.
GENERAL
General Automation, Inc. ("GA" or the "Company"), incorporated in
California in 1967 and reincorporated in Delaware in 1986, integrates systems,
software and services for application solutions. GA has positioned itself as a
strong service and support company offering open systems and 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 and
Australian offices through its wholly owned subsidiaries in the United Kingdom
and Australia.
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.
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. 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 $11,347,000 (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 Price will be paid by the Company in a combination of cash,
notes payable and shares of the Company's common stock. The Purchase Agreement
provided 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
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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. In October, 1997, the Company and SSI
agreed to restructure the method in which the deferred Purchase Price must be
paid. Commencing with October, 1997 the Company agreed to make a $300,000
payment in October, 1997 and another $400,000 payment in December, 1997. In
addition, the Company will make monthly payments of $75,000 plus interest for
all amounts due through September 30, 1997, which totals $1,429,000, plus a
varying percentage of the Company's revenue (primarily 10%). Based on current
projections, the Company expects to have the full payment of these obligations
in two years.
The purpose for the October 1997 amendment of the Purchase Agreement was
to enable the Company to preserve more of its cash by lengthening the period for
completing the payment of the Purchase Price. The total Purchase Price is not
affected by the amendment of the Purchase Agreement. The amendment of 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 aggregate monthly
installments 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
($1.87 at October 11, 1997); 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. At September 30, 1997, the value of
the remaining 150,000 shares of common stock has been estimated at $1.87 per
share. The Company charged the stockholders' equity for $219,000 and increased
the recorded amount of the payable to Sequoia Systems, Inc. for the decrease in
the value of the stock which occurred in 1997. Any future changes in the value
of the remaining 150,000 shares of common stock through the final settlement
will also adjust stockholders' equity.
The acquisition was accounted for using the purchase method.
Accordingly, the total consideration 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 $8,366,000 is being amortized over five years.
During 1997, $1,385,000 was amortized.
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. The Company has granted to SSI
piggyback registration rights with respect to the Payment Stock and the shares
issuable upon exercise of the Warrant.
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
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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. For
the current year and the 1998 year, SSI has declined to designate a candidate
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 Boundless Technologies (formerly known as
"SunRiver Data Systems") ("Boundless") formed a limited liability company,
General Automation LLC ("GAL"), with the Company owning 51% and Boundless 49%.
GAL was formed to allow GA to acquire the Pick based business owned by
Boundless. This business had been acquired by Boundless from AT&T Global
Information Systems in December 1994 along with a terminal business which
complemented Boundless's existing business and which Boundless 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 Boundlesss's Pick business. Under the Operating Agreement,
Boundless 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 Boundless 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.
Subsequent to the fifth year of the Operating Agreement, the percentage of net
revenues to be paid to Boundless is to be determined by negotiations between GA
and Boundless. GA is entitled to retain all cash generated by GAL, if any, after
the payment to Boundless 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, Boundless 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 Boundless the percentage of net revenues
to which Boundless is entitled, Boundless has the right to thereafter replace GA
as the sole manager of GAL. The Company has not made the payments discussed
above on a timely basis. The Company has not received any notice regarding its
replacement as GAL manager.
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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 is not entitled to
any compensation for acting as manager of GAL.
In May 2000, GA will have the right to purchase Boundless'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 Boundless, to
register the shares so issued under the Securities Act of 1933.
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). 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.
In October, 1997 the Company agreed with a plan by Future Services Ltd. to
sell its companies in Belgium, France and Italy to a U. S. A. NASDQ firm named 4
Front Software, Inc. For the $600,000 note held by GA, GA received 24,540 shares
of 4 Front common stock valued at $245,000 and a note for $350,000 from Future
Services Ltd. payable in three years.
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 quality and
responsive service through our staff of service professionals. The service
business generates over 70% 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 the acquisition of SES and GA's participation in GAL
with Boundless.
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.
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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. 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.
GA is an authorized service provider for Acer, 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.
In order to properly service the Company's maintenance contracts, the
Company maintains in inventory quantities of parts and subassemblies related to
the systems of its customers with maintenance contracts. Some of these parts do
not use current technologies. However, the Company will continue to utilize them
in service contracts as long as its customer base continues to operate with
older technology.
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 1997, GA added new software products to expand the line for PowerPC
symmetric multiprocessor systems manufactured by Groupe Bull and Motorola.
Called the PowerAdvantage(TM) series, these computers offer excellent
price/performance with a state-of-the-art RISC CPU. The PowerAdvantage product
family coupled with GA's mv.BASE, mv.ENTERPRISE software products offer a price
competitive solution, offer a broad market from entry level to high end level
systems supporting over 1000 users.
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Intel Based Systems
Through its participation in GAL with Boundless, 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 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.
DISCOUNTINUATION OF PROPRIETARY SYSTEMS
During the year, the Company discontinued manufacturing its A200 and
A500 product lines. The revenue and margin impact to the Company were not
significant as the Company replaced these systems with systems purchased by the
Company for resale by it.
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
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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.
For 1998, the Company expects mv.BASE sales to be significantly higher than the
1997 first year level of $400,000.
In August 1997, the Company introduced its second major new product of
the year, mv.Enterprise, a product designed to enable the traditional high-end
SES end-user to migrate to an open systems environment.
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.
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 Boundless, 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. Additionally, the SES
acquisition included companies in Australia, Canada and the United Kingdom;
these operations provide products, and services.
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 1997, the Company continued to expand its marketing and sales
organizations. GA's marketing organization added the product-line manager
concept to foster the rapid acceptance of the two new products discussed above.
Late in the year, the Company appointed a new Executive Vice President of Sales
&
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Marketing. This addition, coupled with the staff improvements earlier in the
year, is expected to strengthen the Company's sales and marketing capabilities.
FOREIGN OPERATIONS AND EXPORT SALES
The Company's export sales were 12% of total revenue in fiscal 1997,
compared to approximately 5% of total revenues in fiscal 1996, and 8% in fiscal
1995. These revenues were generated primarily through operations in Australia
and United Kingdom. The increase in foreign sales was primarily due to the
acquisition of SES and Liberty.
PURCHASED COMPONENTS AND SYSTEMS
The Company purchases computer systems and components from various
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
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environments. The number of firms serving the Pick marketplace continue to
consolidate, with the GA acquisitions earlier in the year and the recently
announced merger of V-Mark Software and Unidata. GA competes through its
differentiated software products with enhanced system administrators, network
integration, database interoperability and performance.
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 which prefers GA's
software and service to that which is available on these competing platforms.
However, these competitors have substantially greater resources than GA.
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 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.
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 1997, the Company spent approximately $2,600,000 for product
research and development, a significant increase over the $1,200,000 spent in
1996 and the $600,000 expended in 1995. The increase in research and development
costs during the year ended September 30, 1997 is primarily due to GA's
development and introduction of it's previously discussed new products during
the year. 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. During 1997, the Company capitalized
$1,100,000 in software development costs compared to under $200,000 in 1996 and
1995. This increase was caused by costs associated with the two new major
products introduced in 1997 which were developed jointly by the Company's
engineering staff in Irvine and the former SES staff.
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
licenses, 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.
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SYSTEM INTEGRATION
The Company provides system integration, acquiring components,
subassemblies and systems. 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, and Marlborough, MA, utilizing highly-skilled system
engineers and technicians to insure product performance and quality.
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.
At September 30, 1997 the Company had a manufacturing backlog of
$275,000. At September 30, 1996 the backlog was approximately $500,000.
EMPLOYEES
As of September 30, 1997, the Company had approximately 163 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 purchased a 20,000 square feet facility in
Irvine, California. This facility is used as the Company's headquarters and
houses its principal operations.
The Company's engineering and support personnel are located in leased
facilities in Hauppauge, New York and Marlborough, MA. 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 leases have been either sublet or renewed at
substantially less space footage and expense. The Company's subsidiaries in
Australia, Canada and United Kingdom have operations in leased facilities.
11
<PAGE> 12
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 issued in December 1997,
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 totaling $1,050,000, funded by the Company's
insurance carriers, to an escrow account which has been established to finance
the remediation of the contamination on and around the Property.
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.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
12
<PAGE> 13
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The table below provides certain information regarding the selling price of the
Company's common stock for each quarter during the two fiscal years ended
September 30, 1997 and September 30, 1996. The Company's common stock is listed
on the American Stock Exchange and is quoted under the symbol GA. The following
table sets forth the range of high and low prices for the common stock of the
Company for the fiscal quarter indicated, as reported by the American Stock
Exchange.
<TABLE>
<CAPTION>
Sale Prices
--------------------
High Low
-------- --------
<S> <C> <C>
Fiscal Year Ended September 30, 1997
Fourth Quarter $2 9/16 $1 7/16
Third Quarter $1 15/16 $1 9/16
Second Quarter $2 5/8 $1 11/16
First Quarter $3 1/8 $1 9/16
Fiscal Year Ended September 30, 1996
Fourth Quarter $3 1/16 $1 15/16
Third Quarter $3 1/16 $2 11/16
Second Quarter $2 1/2 $1 1/16
First Quarter $ 15/16 $ 9/16
</TABLE>
The Company has never paid a dividend on its common stock. The Board of
Directors reviews the financial condition of the Company periodically and
evaluates whether to declare dividends. Given the Company's present financial
condition 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.
The approximate number of holders of record of common stock of the
Company as of January 9, 199 was 899.
13
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth certain selected historical consolidated
financial data for the Company for each of the years ended September 30, 1997,
1996, 1995, 1994 and 1993 which has been derived from audited financial
statements. 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, 1997; and (b) "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended
September 30(1)
---------------
1997(5) 1996 1995(4) 1994(3) 1993(2)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating Data:
Sales, net $ 36,831 $ 25,460 $ 14,269 $ 34,614 $ 42,878
-------- -------- -------- -------- --------
Income (loss) from
operations 678 2,247 (1,666) 1,300 (351)
-------- -------- -------- -------- --------
Net income (loss)
before extraordinary
items 502 1,418 (2,065) 427 (1,477)
Extraordinary items 0 0 0 0 900
-------- -------- -------- -------- --------
Net income (loss) $ 502 $ 1,418 $ (2,065) $ 427 $ (577)
======== ======== ======== ======== ========
Earnings per share:
Income (loss) before
extraordinary items $ .05 $ .18 $ (.26) $ .04 $ (.13)
Extraordinary items 0 0 0 0 .08
-------- -------- -------- -------- --------
Net income (loss) $ .05 $ .18 $ (.26) $ .04 $ (.05)
======== ======== ======== ======== ========
Working capital
(Deficiency)
(3,032) 1,210 (638) 2,725 1,457
====== ===== ==== ===== =====
Total Assets 24,409 10,271 10,484 18,041 22,456
====== ====== ====== ====== ======
Total Debt 10,648 1,835 2,424 4,247 5,397
====== ===== ===== ===== =====
Shareholders' Equity 5,779 2,778 771 3,246 2,264
===== ===== === ===== =====
</TABLE>
(1) No dividends have been paid on the Company's common stock during any of the
periods presented. (See "Market for the Company's Common Equity and Related
Stockholder Matters.")
(2) On October 29, 1993, with retroactive effect to September 30, 1993, the
Company divested its European operations.
(3) On November 10, 1994, with retroactive effect to October 1, 1994, the
Company divested its Pacific Basin operations.
(4) Effective May 22, 1995, the Company and Boundless Technologies
("Boundless") formed a limited liability company ("GAL") for the purpose of
combining GA's Pick based business and Boundless's Pick based business,
with the Company owning 51% and Boundless owning 49% o f GAL.
(5) 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 year ended September 30,1997. includes the results of operations
for SES from the date of the acquisition. (See Note 11 of the Company's
Financial Statements)
14
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
On October 11, 1996, the Company purchased from Sequoia Systems, Inc.
substantially all of the assets and business of Sequoia Enterprise Systems
business division (SES). A comparison of the 1996 and 1997 statement of
operations of SES combined with the Company as if the acquisition had taken
place as of October 1, 1995 is as follows:
<TABLE>
<CAPTION>
Pro-Forma
(In Thousands)
Year Ended September 30
-----------------------
1997 1996
---- ----
<S> <C> <C>
Revenues 37,521 57,255
====== ======
Gross Margin 16,651 20,606
====== ======
Operating Expenses 15,748 18,913
====== ======
Operating income 381 1,693
====== ======
</TABLE>
A comparison of the Company's 1997 financial results follows:
REVENUES
Net Revenues
(In Thousands)
Year Ended September 30
-----------------------
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Product $10,694 $ 9,715 $ 7,020
------- ------- -------
Service and Support $26,137 $15,745 $ 7,249
------- ------- -------
Total Revenues $36,831 $25,460 $14,269
======= ======= =======
</TABLE>
The three-year table above shows a continuing increase in revenues for
both products and service. These increases are a direct result of the Company's
participation in GAL with Boundless and the acquisition of SES.
1997 vs. 1996
15
<PAGE> 16
Total revenues increased $11,371,000 or 44.7% in 1997 over 1996,
primarily due to the acquisition of SES (described in "Business Acquisitions and
Divestitures" above). Product sales increased $979,000, or 10.1%, in fiscal
1997, while service revenues dramatically increased by $10,392,000 or 66.0% The
increase in fiscal 1997 revenues is not the result of pricing actions by the
Company.
The SES/GA Proforma shows a $19,734,000 decline in revenues. This decline
was anticipated by management and was the result of unusually high 1996 sales
levels of the SES TPL systems at discounted prices and the extended selling
cycle to generate new sales due to the change in ownership.
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 Boundless (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.
GROSS MARGIN
<TABLE>
<CAPTION>
Gross Margin
(In Thousands)
Year Ended
September 30
--------------
1997 1996 1995
---- ---- ----
% of % of % of
Amount Sales Amount Sales Amount Sales
------ ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Products 4,033 37.7 $ 1,828 18.8 $ 518 7.4
------ ----- ------- ----- ------- -----
Service and Support 12,012 46.0 $ 6,199 39.4 $ 2,285 31.5
------ ----- ------- ----- ------- -----
Total Sales $16,045 43.6 $ 8,027 31.5 $ 2,803 19.6
======= ==== ======= ==== ======= ====
</TABLE>
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.
1997 vs. 1996
The Company's gross profit margins significantly increased in fiscal
1997 to 43.6% from fiscal 1996 gross profit margins of 31.5%. Gross profit
margins for both product sales and service and support increased during fiscal
1997. Gross profit margin for product sales increased to 37.7% from 18.8% in
1996. This increased is attributed to product sales from the Sequoia operations
for product upgrades and replacements to the traditional customer base. Gross
profit margins in service improved to 46.0% from 39.4% in fiscal 1996
16
<PAGE> 17
due to increase in revenues in excess of subcontracted maintenance costs and
fixed overhead costs and Sequoia's higher profit margin on maintenance
contracts.
The proforma gross margin decreased 19% as a percent of revenues during
the period. The decline is associated with the revenue decline discussed earlier
and higher.
17
<PAGE> 18
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. The increase in service margins is due to increased revenues in
excess of increased overhead and third party maintenance costs.
EXPENSES
<TABLE>
<CAPTION>
Expenses
(In Thousands)
Year Ended September 30
----------------------------------------------------------------
1997 1996 1995
------ ------ ------
% of % of % of
Amount Sales Amount Sales Amount Sales
<S> <C> <C> <C> <C> <C> <C>
Research and $2,599 7.1 $1,156 4.5 $ 584 4.1
Development:
Selling and $11,383 30.9 $4,366 17.1 $3,704 25.9
Administrative:
Other: $1,385 3.8 $ 258 1.0 $ 181 1.3
Interest: $ 311 0.8 $ 214 .8 $ 399 2.8
------- ---- ------ ---- ------ ----
Total $15,678 42.6 $5,994 23.5 $4,868 34.1
======= ==== ====== ==== ====== ====
</TABLE>
Research and Development expenses increased $1,443,000 from fiscal 1996
to fiscal 1997 due to the combining of departments as a result of the SES
acquisition. Management implemented cost reductions to eliminate the duplication
of overhead costs, however, a significant portion of the cost is directly
associated with specific engineering tasks and will continue into the following
year. Research and development expenses increased $572,000 from fiscal 1995 to
fiscal 1996 as a result of activities related to GAL. The Company anticipates
1998 expenses to approximate 1997 historical levels.
Selling and administrative expenses increased $7,017,000 or 161%, from
fiscal 1996. This dramatic increase is due to the combining of departments as a
result of the SES acquisition. The Company incurred one time costs associated
with facility relocation, employee severance compensation, travel and lodging,
and other costs generated by the assimilation of SES. Management implemented
cost reductions to eliminate the duplication of overhead and operating expenses.
The majority of the cost reductions will not be evident until 1998. The 1997
administrative expenses also included a $400,000 charge of a license agreement
with MDIS which was terminated. In addition, in April 1997, the Company entered
into a three-year consulting agreement with a former officer of the Company and
recorded a charge of $394,000.
18
<PAGE> 19
Selling and administrative expenses increased $663,000 from fiscal 1995
to fiscal 1996. This increase reflects the GAL activities for a full year in
fiscal 1996 vs. seven months in fiscal 1995.
Other expense increased $1,127,000 from 1996 primarily due to the amortization
of goodwill associated with the SES acquisition.
Interest expense associated with higher borrowing increased by $97,000
to $311,000 for 1997. The new line of credit effective December 31, 1997 does
not change the borrowing rate but it does expand the borrowing base.
The Company recorded tax benefits of $135,000 in fiscal 1997 versus an
expense of $615,000 in fiscal 1996. At September 30, 1997, the Company had
substantial amounts of deferred tax assets primarily related to net operating
loss carryforwards. In prior years, management has fully reserved these deferred
tax assets. In 1997, management reduced the valuation allowance on the Company's
net deferred tax assets since they believe it is more likely than not that
deferred tax assets of $550,000 will be realized. As a result, income tax
expense was reduced from expected amounts.
Management's belief that it is more likely than not that the deferred
tax assets will be realized is based partially on the Company's 1997 US income
tax payable of $225,000 which is available for refund through 2000. In addition,
the Company's recent history of US taxable income before the utilization of net
operating loss carryforwards for the years ending September 30, 1997, 1996 and
1995 of $2,000,000, $1,300,000, and $1,260,000, supports management's belief
that it is more likely than not that the recorded deferred tax assets will be
realized. Management estimates that the recorded deferred tax assets will be
recovered within the next fiscal year. If the Company is unable to generate the
income necessary to realize the recorded amounts of deferred tax assets, these
assets would be charged to operations. At September 30, 1997, management has
reserved $2,165,000 of the total deferred tax assets of $2,715,000. Even though
the Company has significant reserves on deferred tax assets and significant net
operating loss carryforwards, the Company may be required to pay US income taxes
in the future since the use of its loss carryforwards for US tax purposes is
limited to $545,000 per year.
Net Profit/Loss
1997 vs. 1996
Consolidated net income was $502,000 for fiscal 1997 compared to $1,418,000
in fiscal 1996. The decrease in net income of $916,00 for fiscal 1997 is the
result of increased operating expenses associated with the acquisition of SES.
These expenses were partially offset by a decrease in the deferred tax valuation
reserve of $332,000. The Company experienced significant costs increases in
Research, Development and Administration and an increase in the amortization of
goodwill from the acquisition of SES. In fiscal 1997, the Company capitalized
$1,100,000 in development costs for the mv.BASE and mv.ENTERPRISE new products
which will increase amortization expense in 1998.
The proforma operating income decreased by $1,312,000 or 78%. This
decline is the result of the $19,734,000 decline in revenues and the level of
operating expenses as a percent to sales growing from 33% of revenues in 1996 to
43% in 1997. The Company has taken measures in 1997 to reduce these expenses
which are expected to be realized in 1998.
19
<PAGE> 20
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 Boundless, 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.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had a $3,000,000 deficit working capital
primarily caused by 5,200,000 of current liabilities related to the acquisitions
of Sequoia and the $625,000 payment due to Boundless
During fiscal 1997, the Company generated $3,149,000 of cash flow from
operations as compared to $220,000 for fiscal 1996 and a use of cash from
operations for 1995 of $343,000. The Company's cash generated before
depreciation and amortization and deferred taxes was $2,334,000 for fiscal 1997
compared to $1,727,000 for fiscal 1996 and a use of cash of $1,710,000 for
fiscal 1995. The improvement for 1997 and 1996 was a result of increased sales
levels from the previous year combined with the disposition of unprofitable
operations in fiscal 1995. Working capital requirements increased $1,507,000 in
fiscal 1996 due to increase in inventory levels and decreases in advances from
customers, partially offset by a decrease in receivables.
Cash used in investing activities increased from $201,000 in 1996 to
$1,788,000 in fiscal 1997 primarily due to increased capitalized software
development costs. During fiscal 1997, the Company capitalized $1,100,000 of
software development costs primarily related to mv.Base and mv.Enterprise
products. The decrease from 1995 levels of cash used in investing activities of
$1,527,000 was primarily the result of decrease in facility costs related to the
move to the Company's new facilities.
Cash used in financing activities was $774,000 in fiscal 1997 compared
to break-even in fiscal 1996 and proceeds from financing activities of
$1,741,000 in 1995. During fiscal 1997, the Company repaid amounts primarily
related to the SES. The 1995 proceeds were generated by the sale of SGA Pacific.
The Company had an agreement with Imperial Bank for a revolving line of
credit, not to exceed $2,000,000, collaterized by domestic accounts receivable.
The amount of advances was dependent upon eligible accounts receivable. The
varying domestic sales activities impacted the Company's full utilization of
this facility. At September 30, 1997, the balance of the loan was $1,884,000; on
this date GA was not in compliance with current ratios covenants of the line of
credit. The Company received a waiver from the lender with regards to the
covenant.
Effective December 18, 1997, the Company entered into a $5,000,000 line
of credit with Comerica Bank. The agreement requires interest at prime plus 2%.
Advances under the line are limited to 80% of eligible product receivables and
60% of eligible service receivables. The agreement contains various covenants
and restrictions, including restrictions on the Company's ability to pay
dividends. Management believes that the credit facility is sufficient to meet
its requirements. As of January 9, 1998, $1,900,000 was drawn on this line of
credit and $800,000 available for future borrowings.
20
<PAGE> 21
Effective October 11, 1997, the Company acquired the Sequoia Enterprise
Systems (SES) operations from Sequoia Systems, Inc. The purchase price was
$11,347,000. This acquisition was important because it opened up the high-end
fault tolerant Pick marketplace to GA and it added $12,679,000 in service and
support revenues. (See Note 11 to the Financial Statements). September 30, 1997,
the Company had $7,300,000 in outstanding debt related to this acquisition. The
majority of this debt requires payments based on a percentage of revenues.
Management expects that $5,200,000 of this debt will be paid in 1998.
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 " Certain Relationships and Related
Transactions".) At
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 called for 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 has entered into an agreement
with MDIS to end the contract. GA will make twelve monthly payments in 1998
totaling $400,000, which has been reserved in 1997.
Accounting Pronouncements
The FASB has issued various pronouncements which will be adopted as
required. (See Note 1 to the Financial Statements).
YEAR 2000 ISSUES
Problem:
The Year 2000 Issue is the result of computer programs which do not have
sufficient digits to define the Year 2000. Any company whose computer programs
are date-sensitive may find their systems recognizing the year 2000 as 1900.
This situation could be disruptive to a company's operations, invoicing,
inventory controls and other business activities.
Current Internal Systems:
Based on a recent assessment, the Company has determined that its systems used
to support its operations are compatible with the year 2000. Consequently, the
Company does not feel that its operations will be adversely affected by the Year
2000 nor will it experience material additional costs associated with this.
Service and Support Contracts.
The Company has approximately 4,000 service and support contracts. On those
systems the Company will provide modest upgrades to bring the systems into
compliance. Management does not believe this will be a costly undertaking since
the Pick solution has not used a two digit conversion from its inception.
Certain customers do not have or have acquired elsewhere, hardware and software
from sources other than GA. In these cases, the Company will offer professional
services on a fee basis to bring them into compliance. In some cases, the
customers may have to purchase all or part of new systems.
21
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Schedules on Page 28 of this report.
22
<PAGE> 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On September 11, 1997, the Company dismissed Price Waterhouse LLP as the
Company's independent accountants. The Company's decision to change independent
accountants was approved by the Audit Committee of the Company's Board of
Directors. Neither of the reports of Price Waterhouse LLP on the Company's
financial statements for the two most recent fiscal years preceding the
dismissal contained an adverse opinion or a disclaimer of opinion, nor was
either such report qualified or modified as to uncertainty, audit scope or
accounting principles. During the Company's two most recent fiscal years
preceding the dismissal and through September 11, 1997, there were no
disagreements with Price Waterhouse LLP on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure,
which disagreements, if not resolved to the satisfaction of Price Waterhouse
LLP, would have caused them to make a reference thereto in their report on the
financial statements for such years. During the Company's two most recent fiscal
years preceding and thorough September 11, 1997, there have been no reportable
events (as defined in Regulation S-K Item 304(a)(1)(v). Price Waterhouse LLP has
furnished a letter addressed to the Securities and Exchange Commission stating
that Price Waterhouse LLP agree with the above statements.
The Company engaged McGladrey & Pullen as its new independent
accountants as of October 7, 1997. During the Company's two most recent fiscal
years preceding the dismissal of Price Waterhouse LLP, and through October 7,
1997, neither the Company nor anyone on its behalf consulted with McGladrey &
Pullen regarding either (i) the application of accounting principles to a
specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Company's financial statements; or (ii)
any matter that was ether a subject of disagreement (as defined in Item
304(a)(1)(iv) of Regulation S-K and the related instructions to that Item) or a
reportable event (as described in Item 304(a)(1)(v) of Regulation S-K).
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the directors and executive officers of
the Company, see the information appearing in the Company's Proxy Statement for
the Annual Meeting of Stockholders to be held February 6, 1998 under the caption
"Election of Directors" and under the caption "Compliance with Section 16(a) of
the Securities Exchange Act of 1934", which information is incorporated herein
by reference.
ITEM 11. EXECUTIVE COMPENSATION
For information with respect to the compensation of certain executive
officers of the Company, see the information appearing in the Company's Proxy
Statement for the Annual Meeting of Stockholders to be held February 6, 1998
under the caption "Executive Compensation", which information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information with respect to the security ownership of certain
beneficial owners and management of the Company, see the information appearing
in the Company's Proxy Statement for the Annual Meeting of Stockholders to be
held February 6, 1998 under the caption "Security Ownership of Certain
Beneficial Owners and Management", which information is incorporated herein by
reference.
23
<PAGE> 24
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information with respect to certain relationships and related
transactions, see the information appearing on the Company's Proxy Statement for
the Annual Meeting of Stockholders to be held on February 6, 1998 under the
caption "Certain Relationships and Related Transactions", which information is
incorporated herein by reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
See Index to Consolidated Financial Statements and Schedules on Page 28
of this report.
Reports on Form 8-K
(1) 8-K Filed August 4, 1997 regarding the acquisition of certain assets
from Liberty Project Limited Partnership, and the issuance of securities
by the Company in reliance on the exemption from registration under the
Securities Act of 1933 provided by Regulation S.
(2) 8-K/A filed August 29, 1997 for the purpose of filing the following
financial statements in connection with the acquisition by the Company
of the Sequoia Enterprise Systems division of Sequoia Systems, Inc.
(a) Financial statements of the Sequoia Enterprise Systems Division
of Sequoia Systems, Inc.:
Report of Independent Accountants
Consolidated Balance Sheets as of June 30, 1996 and 1995
Consolidated Statements of Operations for the Three Years Ended
June 30, 1996
Consolidated Statements of Cash Flows for the Three Years Ended
June 30, 1996
Statements of Parent Investment for the Three Years Ended June
30, 1996
Notes to Consolidated Financial Statements
(b) Pro Forma financial Information:
Unaudited Pro Forma Condensed Financial Information - Description
of Transaction
Unaudited Pro Forma Condensed Statement of Operations for the
Nine Months Ended June 30, 1997
Unaudited Pro Forma Condensed Statement of Operations for the
Year Ended September 30, 1996
(3) 8-K filed September 18, 1997, as amended by an 8-K/A filed September 19,
1997, regarding the dismissal of Price Waterhouse LLP as the Company's
independent accountants.
24
<PAGE> 25
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(Continued)
(4) 8-K filed October 8, 1997 regarding the engagement of McGladrey & Pullen
as the Company's independent accountants.
Financial Statements
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.
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.
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.
25
<PAGE> 26
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(Continued)
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 Agreement 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.
10.17 Agreement by and between General Automation, Inc. and MDIS dated
December 22, 1997.
10.18 Loan Agreement dated December 18, 1997 between the Company and
Comerica Bank.
10.19 Letter Agreement dated October 1, 1997 between the Company and
Texas Micro, Inc., formerly Sequoia Systems, Inc. ("Texas
Micro"), amending the Asset Purchase Agreement between the
Company and Texas Micro dated October 3, 1996 and the
Registration Rights Agreement between the Company and Texas Micro
dated October 11, 1996, together with the related Promissory Note
dated October 1, 1997 in the original principal amount of
$1,428,899 payable by the Company to Texas Micro.
21 Subsidiaries of the Company.
23.1 Consent of Independent Accountants - McGladrey & Pullen, LLP.
23.2 Consent of Independent Accountants - Price Waterhouse, LLP.
27 Financial Data Schedule.
26
<PAGE> 27
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GENERAL AUTOMATION, INC.
Date: January 12, 1998 By: /s/ John R. Donnelly
---------------- -------------------------
John R. Donnelly
Vice President, and
Chief Financial & Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Lawrence Michels Chairman of the Board, January 12, 1998
- ------------------------------- Director
Lawrence Michels
/s/ Robert D. Bagby Vice Chairman, Director January 12, 1998
- -------------------------------
Robert D. Bagby
/s/ Jane M. Christie President, CEO, Director January 12, 1998
- -------------------------------
Jane M. Christie
s/ Leonard M. Mackenzie Director January 12, 1998
- -------------------------------
Leonard N. Mackenzie
/s/ Robert M. McClure Director January 12, 1998
- -------------------------------
Robert M. McClure
/s/ Paul L. Morigi Director January 12, 1998
- -------------------------------
Paul L. Morigi
/s/ Philip T. Noden Director January 12, 1998
- -------------------------------
Philip T. Noden
/s/ John R. Donnelly Vice President and January 12, 1998
- ------------------------------- Chief Financial &
John R. Donnelly Accounting Officer
</TABLE>
27
<PAGE> 28
GENERAL AUTOMATION, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
-------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORTS ON THE
FINANCIAL STATEMENTS F-1 and F-2
-------------------------------------------------------------------------------
FINANCIAL STATEMENTS
Consolidated balance sheets F-3 and F-4
Consolidated statements of operation F-5
Consolidated statements of stockholders' equity F-6
Consolidated statements of cash flows F-7 and F-8
Notes to consolidated financial statements F-9 - F-28
-------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
ON THE SCHEDULE F-29 and F-30
-------------------------------------------------------------------------------
SCHEDULE
Schedule II - Valuation and qualifying account F-31
-------------------------------------------------------------------------------
28
<PAGE> 29
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors of
General Automation, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash
flows, present fairly, in all material respects, the financial position of
General Automation, Inc. and its subsidiaries at September 30, 1996 and the
results of their operations and their cash flows for each of the two 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 provides a reasonable basis for our opinion expressed above.
Price Waterhouse LLP
Costa Mesa, California
December 9, 1996
F-1
<PAGE> 30
INDEPENDENT AUDITOR'S REPORT
ON THE FINANCIAL STATEMENTS
To the Board of Directors
General Automation, Inc.
Irvine, California
We have audited the accompanying consolidated balance sheet of General
Automation, Inc. and Subsidiaries as of September 30, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of General Automation,
Inc. and Subsidiaries as of September 30, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
McGLADREY & PULLEN, LLP
Anaheim, California
December 19, 1997
F-2
<PAGE> 31
GENERAL AUTOMATION, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS (Note 6) 1997 1996
- ------------------------------------------------------- ----------- -----------
<S> <C> <C>
Current Assets
Cash $ 797,000 $ 119,000
Accounts receivable, net of allowance for doubtful
accounts of $309,000 in 1997 and $561,000 in 1996 5,358,000 3,600,000
Due from related parties 56,000 86,000
Inventories (Note 2) 4,999,000 2,979,000
Prepaid expenses 569,000 768,000
Deferred tax asset (Note 9) 550,000 -
----------- -----------
TOTAL CURRENT ASSETS 12,329,000 7,552,000
Long-Term Receivable (Note 11) 570,000 570,000
Property, Plant and Equipment (Note 3) 2,431,000 1,392,000
Goodwill, net of accumulated amortization of
$1,385,000 7,085,000 -
Other Assets, net (Note 4) 1,994,000 757,000
----------- -----------
TOTAL ASSETS $24,409,000 $10,271,000
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 32
GENERAL AUTOMATION, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------------------------------ ------------ ------------
<S> <C> <C>
Current Liabilities
Bank line of credit (Note 6) $ 1,884,000 $ 528,000
Accounts payable 3,806,000 2,967,000
Advances from customers 1,338,000 709,000
Accrued expenses, including $258,000 due to a related
party in 1997 (Note 5) 2,838,000 1,903,000
Notes payable and current maturities of long-term
debt (Note 6) 5,495,000 235,000
------------ ------------
TOTAL CURRENT LIABILITIES 15,361,000 6,342,000
------------ ------------
Long-Term Debt, excluding current maturities,
including a note payable to related party of
$350,000 in 1997 (Note 6) 3,269,000 1,072,000
------------ ------------
Deferred Credit - 79,000
------------ ------------
Commitments and Contingencies (Notes 11 and 12)
Stockholders' Equity (Notes 6, 8 and 11)
Common stock, par value $.10 per share:
Authorized 30,000,000 shares;
Issued and outstanding: 1997 9,232,591 shares;
1996 8,176,376 shares 923,000 818,000
Additional paid-in capital 45,516,000 43,043,000
Accumulated deficit (40,581,000) (41,083,000)
Cumulative translation adjustment (79,000) -
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 5,779,000 2,778,000
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $24,409,000 $10,271,000
=========== ===========
</TABLE>
F-4
<PAGE> 33
GENERAL AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF OPERATION
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues
Product $ 10,694,000 $ 9,715,000 $ 7,020,000
Service 26,137,000 15,745,000 7,249,000
------------ ------------ ------------
TOTAL 36,831,000 25,460,000 14,269,000
------------ ------------ ------------
Costs and Expenses
Cost of sales:
Product 6,661,000 7,887,000 6,502,000
Service 14,125,000 9,546,000 4,964,000
Selling and administrative, including
consulting expense of $394,000 in 1997
to a related party and $86,000 in 1997
for forgiveness of related
party receivable (Note 5) 11,383,000 4,366,000 3,704,000
Research and development 2,599,000 1,156,000 584,000
Amortization of goodwill 1,385,000 - -
Other, net - 258,000 181,000
------------ ------------ ------------
TOTAL 36,153,000 23,213,000 15,935,000
------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS 678,000 2,247,000 (1,666,000)
Interest Income 71,000 60,000 35,000
Interest Expense (382,000) (274,000) (434,000)
------------ ------------ ------------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 367,000 2,033,000 (2,065,000)
Provision (Benefit) for Income Taxes (Note 9) (135,000) 615,000 -
------------ ------------ ------------
NET INCOME (LOSS) $ 502,000 $ 1,418,000 $ (2,065,000)
============ ============ ============
Net income (loss) per common and
common equivalent share $ 0.05 $ 0.18 $ (0.26)
============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 34
GENERAL AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Common Stock Additional Cumulative
-------------------------- Paid-In Accumulated Translation
Shares Amount Capital Deficit Adjustment
----------- ----------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1994 11,366,776 $ 1,137,000 $ 42,420,000 $(40,457,000) $ 146,000
Net (loss) - - - (2,065,000) -
Stock retired from sale
of SGA (4,100,000) (410,000) 113,000 21,000 (146,000)
Stock issued for legal
settlement 125,000 12,000 - - -
----------- ----------- ------------ ------------ ---------
Balance at September 30, 1995 7,391,776 739,000 42,533,000 (42,501,000) -
Net income - - - 1,418,000 -
Stock options and warrants
exercised (Note 8) 784,600 79,000 510,000 - -
----------- ----------- ------------ ------------ ---------
Balance at September 30, 1996 8,176,376 818,000 43,043,000 (41,083,000) -
Net income - - - 502,000 -
Stock options and warrants
exercised (Note 8) 155,500 15,000 119,000 - -
Stock and stock warrants
issued for acquisitions
(Note 11) 900,715 90,000 2,573,000 - -
Adjustment to cash portion
of purchase price of
acquisition (Note 11) - - (219,000) - -
Translation adjustment - - - - (79,000)
----------- ----------- ------------ ------------ ---------
Balance at September 30, 1997 9,232,591 $ 923,000 $ 45,516,000 $(40,581,000) $ (79,000)
=========== =========== ============ ============ =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 35
GENERAL AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows Provided by (Used In) Operating
Activities
Net income (loss) $ 502,000 $ 1,418,000 $(2,065,000)
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Gain from disposal of assets (42,000) (55,000) -
Depreciation and amortization 2,424,000 364,000 355,000
Deferred taxes (550,000) - -
Changes in assets and liabilities:
(Increase) decrease:
Receivable (124,000) 1,993,000 (3,846,000)
Inventories 1,023,000 (1,253,000) 563,000
Prepaid expenses 466,000 (583,000) (11,000)
Other assets (113,000) (33,000) 79,000
Increase (decrease):
Accounts payable 58,000 8,000 1,662,000
Advances from customers (440,000) (2,692,000) 3,160,000
Accrued expenses (55,000) 1,053,000 (240,000)
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 3,149,000 220,000 (343,000)
----------- ----------- -----------
Cash Flows (Used In) Investing Activities
Acquisitions (330,000) - -
Purchase of property, plant and equipment (401,000) (101,000) (1,328,000)
Proceeds from disposal of assets 42,000 55,000 -
Capitalized software costs (1,099,000) (168,000) (178,000)
Investment in subsidiary - 13,000 (21,000)
----------- ----------- -----------
NET CASH (USED IN) INVESTING (1,788,000) (201,000) (1,527,000)
ACTIVITIES ------------ ------------ ------------
Cash Flows Provided by (Used In) Financing
Activities
Proceeds from issuance of common stock 134,000 589,000 -
Proceeds from issuance of notes 3,075,000 267,000 1,357,000
Principal payments on notes payable (3,953,000) (857,000) (1,407,000)
Proceeds from sale of SGA Pacific - - 1,791,000
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (744,000) (1,000) 1,741,000
----------- ----------- -----------
Effect of exchange rate changes on cash 61,000 - -
----------- ----------- -----------
INCREASE (DECREASE) IN CASH 678,000 18,000 (129,000)
Cash at beginning of year 119,000 101,000 230,000
----------- ----------- -----------
Cash at end of year $ 797,000 $ 119,000 $ 101,000
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
F-7
<PAGE> 36
GENERAL AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ---------
<S> <C> <C> <C>
Cash Paid During the Period for:
Interest $ 339,000 $ 274,000 $452,000
=========== =========== ========
Income taxes $ 271,000 $ - $ -
=========== =========== ========
Supplemental Disclosure of Noncash Investing
and Financing Activities
Acquisition of Sequoia Enterprise
Systems, Inc. (Note 11)
Working capital acquired, net of cash $ 2,298,000 $ - $ -
Fair value of long-term assets acquired 1,470,000 - -
Goodwill recorded on acquisition 8,366,000 - -
Long-term debt assumed (9,472,000) - -
Common stock and warrants issued (2,375,000) - -
----------- ----------- --------
$ 287,000 $ - $ -
=========== =========== ========
Acquisition of Liberty Integration Software,
Inc. (Note 11)
Working capital acquired, net of cash $ (5,000) $ - $ -
Fair value of long-term assets acquired 12,000 - -
Goodwill recorded on acquisition 104,000 - -
Common stock issued (68,000) - -
----------- ----------- --------
$ 43,000 $ - $ -
=========== =========== ========
Acquisition of Software for Common Stock
(Note 11) $ 220,000 $ - $ -
=========== =========== ========
Increase in Cash Portion of Purchase Price
of Acquisition (Note 11) $ 219,000 $ - $ -
=========== =========== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-8
<PAGE> 37
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS:
The Company is engaged in the development, design and sale of computer software
and hardware and related field support services. The Company has divisions and
subsidiaries located in the United States, Canada, Australia and England. The
Company sells products in the United States through over 200 value-added
resellers based on credit terms established for individual customers. The
Company provides service and support throughout North America to over 3,000
customers.
The Company's major product line utilizes Pick software as its operating system.
The Company is authorized, on a nonexclusive basis, to use and sublicense the
use of the Pick software indefinitely, in accordance with the terms of license
agreements. Invalidation or cancellation of the Pick license could adversely
impact the Company's business. Management 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 to not
adversely impact the operations of the Company.
A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES IS AS FOLLOWS:
Use of estimates:
The preparation of consolidated 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.
Principles of consolidation:
The consolidated financial statements include the accounts of the Company and
all of its wholly-owned subsidiaries: Sequoia Systems (UK) Limited, Liberty
Integration Software, Inc., General Automation, LLC and General Automation PTY
Ltd. (formally known as Sequoia Asian Pacific PTY Ltd) and its wholly-owned
subsidiary Sequoia Systems (Australia) PTY Ltd. All significant intercompany
transactions and accounts have been eliminated.
Revenue recognition:
Revenues for sales of products are recognized when 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 recorded as a liability
"advances from customers" and recognized as revenue when earned.
F-9
<PAGE> 38
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Warranties:
All products, except the lowest-end models, carry a one-year warranty, during
which all maintenance, labor and parts are covered. The Company defers the
recognition of a portion of the revenue allocated to the maintenance obligation
and accrues for expected future warranty costs at the time of sale.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market.
Cost elements include primarily materials. Market is considered to be selling
price less allowance for normal selling expenses. In order to properly service
the Company's maintenance contracts, the Company maintains quantities of parts
and subassemblies related to the computer systems of its customers with
maintenance contracts. Some of these parts do not use current technologies;
however, the Company will continue to utilize them in service contracts as long
as its customer base continues to operate with older technology. These parts are
classified as inventory in the accompanying consolidated balance sheet. When a
part is placed in a customer's system, the cost to refurbish the replaced part
is expensed and the refurbished part is replaced into inventory. The Company
amortizes the costs of these component parts over a seven-year life and
periodically evaluates the remaining utility and recoverability of the recorded
balances.
Property, plant and equipment:
Depreciation and amortization of property, plant and equipment are provided over
the estimated useful lives of the assets using the straight-line method.
Estimated useful lives are as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<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
</TABLE>
Capitalized Software Development costs:
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 until the time the
product is available for general release to customers The project amortization
does not commence until after the general release of the product and is included
in the cost of sales. Management periodically compares the recorded amount of
capitalized software development costs to the net realizable value of the
software product based on expected future revenues. Any amounts in excess of net
realizable value is charged to operations.
F-10
<PAGE> 39
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Goodwill:
Goodwill is being amortized on a straight-line basis over its estimated useful
life of sixty months. Management periodically evaluates goodwill for impairment
by comparison of the recorded amount to the estimated gross future cash flows.
If permanent impairment is indicated, the Company reduces the recorded amount of
goodwill to its estimated fair value.
Income taxes:
Deferred taxes are accounted for using an asset and liability approach, whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Research and development:
Company-sponsored research and development costs are charged to expenses as
incurred.
Earnings per common and common equivalent share:
Earnings per common and common equivalent share are determined by dividing net
income by the weighted average number of common and common equivalent shares
outstanding during the year. Dilutive common stock equivalents related to stock
options were determined using the treasury stock method. Earnings per common and
common equivalent share assuming full dilution are not materially different from
primary earnings per common and common equivalents shares.
The weighted average shares outstanding used for computing earnings per share
were as follows: 1997 10,102,522; 1996 7,677,627; 1995 8,036,572.
Fair value of financial instruments:
The Company values financial instruments as required by the Financial Accounting
Standards Board (FASB) Statement No. 107, "Disclosure about Fair Value of
Financial Instruments". The carrying amounts of cash, accounts receivable,
accounts payable, accrued liabilities and debt, except for the $5,919,000
payable related to the Sequoia acquisition, approximate fair value. As discussed
in Note 11, it was not practicable to estimate the fair value a portion of the
long-term receivable since the time and amounts of the principal payments are
not fixed. As discussed in Note 6, the payable related to the Sequoia
acquisition has repayment terms based on a percentage of revenues. As the
repayment terms are not fixed, it is not practicable to estimate the fair value
of this payable.
F-11
<PAGE> 40
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Foreign currency translation:
The financial statements of the Company's investment in its foreign operations
are translated into U.S. dollars in accordance with FASB Statement No. 52,
"Foreign Currency Translation". The functional currency of the Company's foreign
investments and operating divisions include the Australian dollar and other
currencies. The net assets of these operations are translated at the current
rate of exchange. Income and expense items are translated at the average
exchange rate for the year. The resulting translation adjustment is recorded
directly as a separate component of stockholders' equity.
Accounting adoptions:
During 1997, the Company adopted FASB Statement No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
This Statement requires that long-lived assets to be held and used by an entity
and certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of the assets may
not be recoverable. The adoption of this Statement did not have an effect on the
consolidated financial statements.
The Company adopted FASB Statement No. 123, "Accounting for Stock-Based
Compensation", which establishes financial accounting and reporting standards
for stock-based employee compensation plans such as a stock option plan. The
Statement generally suggests, but does not require, stock-based compensation
transactions with employees be accounted for based on the fair value of the
consideration received or the fair value of the equity instruments issued,
whichever is more reliably measurable. An enterprise may continue to follow the
requirements of Accounting Principles Board (APB) Opinion No. 25, which does not
require compensation to be recorded if the consideration to be received is at
least equal to the fair value at the measurement date. Nonemployee stock-based
transactions occurring after December 15, 1995 must be accounted for at fair
value. The Company has elected to continue to follow the measurement principles
of APB Opinion No. 25 for stock-based employee compensation, and the adoption of
this pronouncement did not have a material impact on its consolidated financial
statements.
F-12
<PAGE> 41
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New accounting pronouncements:
During the year, FASB issued several accounting pronouncements that will effect
or possibly effect the accounting and reporting of the Company. Following are
the requirements of these pronouncements:
Earnings per share:
FASB issued Statement No. 128, "Earnings Per Share", which supersedes APB
Opinion No. 15. Statement No. 128 requires the presentation of earnings per
share by all entities that have common stock or potential common stock, such
as options, warrants and convertible securities outstanding that trade in a
public market. Those entities that have only common stock outstanding are
required to present basic earnings per share amounts. Diluted per share
amounts assume the conversion, exercise or issuance of all potential common
stock instruments unless the effect is to reduce a loss or increase the
income per common share from continuing operations. All entities required to
present per share amounts must initially apply Statement No. 128 for annual
and interim periods ending after December 15, 1997. Earlier application is
not permitted. Under Statement No. 128, the Company would have reported basic
earnings (loss) per share as follows: 1997 $0.06; 1996 $0.18 and 1995
$(0.26). Diluted earnings per share would have been the same as the amounts
previously reported as primary earnings per share.
Reporting comprehensive income:
In June 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income". Statement No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
consolidated financial statements. It does not address issues of recognition
or measurement for comprehensive income and its components. The Statement
requires a Company to disclose in the financial statements the various
components of comprehensive income. The provisions of this Statement will be
effective for the Company's consolidated financial statements issued for the
year ending September 30, 1999.
Segment disclosure:
The FASB has also issued Statement No. 131 "Disclosures about Segments of an
Enterprise and Related Information." Statement No. 131 modifies the
disclosure requirements for reportable segments and is effective for the
Company's year ending September 30, 1999. The Company has not determined if
the adoption that this Statement will require the Company to report segments.
Software revenue recognition:
In October 1997, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 97-2 "Software Revenue Recognition". SOP 97-2
provides guidance on applying generally accepted accounting principles in
recognizing revenue on software transactions. The SOP is effective for
transactions entered into in fiscal years beginning after December 15, 1997.
Earlier applications is encouraged but management has not decided when they
will adopt the provisions of the SOP. Management has not determined if the
adoption of this Statement will have a material effect on the Company's
consolidated financial statements.
F-13
<PAGE> 42
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. INVENTORIES
Inventories consist of the following at September 30:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Material and purchased subassemblies $3,040,000 $1,549,000
Support systems, spare parts and subassemblies, net 1,311,000 1,606,000
Work-in-process 420,000 115,000
Finished goods, primarily demo equipment 588,000 9,000
---------- ----------
5,359,000 3,279,000
Less inventory reserves 360,000 300,000
---------- ----------
$4,999,000 $2,979,000
========== ==========
</TABLE>
NOTE 3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following at September 30:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land and building $1,436,000 $1,276,000
Machinery and equipment 3,590,000 2,133,000
Furniture and fixtures 268,000 213,000
Leasehold improvements 97,000 50,000
---------- ----------
5,391,000 3,672,000
Less accumulated depreciation
and amortization 2,960,000 2,280,000
---------- ----------
$2,431,000 $1,392,000
========== ==========
</TABLE>
Depreciation and amortization expense relating to property, plant and equipment
for 1997, 1996 and 1995 amounted to $554,000, $64,000 and $60,000, respectively.
F-14
<PAGE> 43
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4. OTHER ASSETS, NET
Other assets consist of the following at September 30:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Capitalized software development costs, net of accumulated
amortization of $1,403,000 in 1997 and $1,110,000 in 1996 $1,476,000 $670,000
Purchased software, net of accumulated amortization of
$192,000 in 1997 318,000 -
Other 200,000 87,000
---------- --------
$1,994,000 $757,000
========== ========
</TABLE>
During 1997, the Company acquired software of $510,000 through various
acquisitions. During 1997, 1996 and 1995, the Company capitalized $1,099,000,
$168,000 and $178,000 of software development costs, respectively, and $492,000,
$310,000 and $295,000, respectively of such costs were amortized and included in
cost of sales.
NOTE 5. ACCRUED EXPENSES AND RELATED PARTY TRANSACTIONS
Accrued expenses consist of the following at September 30:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Accrued income taxes $ 659,000 $ 615,000
Accrued payroll 771,000 499,000
Accrued consulting fee 258,000 -
Accrued royalties 358,000 252,000
Accrued warranty 135,000 78,000
Other 657,000 459,000
---------- ----------
$2,838,000 $1,903,000
========== ==========
</TABLE>
In April 1997, the Company entered into a consulting agreement with a former
officer for a three-year period at $325,000 per year. In connection with this
agreement, the former officer's employment with the Company was terminated and
outstanding stock options with an intrinsic value of $300,000 were terminated.
The Company expensed the intrinsic value of the stock options upon execution of
the agreement and is amortizing the remaining portion of the amount due over the
life of the agreement. Future amounts due under the agreement are $325,000 in
1998 and 1999 and $189,000 in 2000. The Company may terminate this agreement
after a two-year period. Upon termination of this agreement, the Company is
obligated to issue a warrant to purchase a number of shares of the Company's
common stock equal to any unpaid amount under this agreement divided by the fair
market value of the Company's common stock at that time. The exercise price of
the warrants would be the fair value at the time of issuance. The warrant would
expire two years after issuance. The issuance of the warrant would satisfy any
remaining obligations under this agreement.
F-15
<PAGE> 44
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. NOTES PAYABLE, LONG-TERM DEBT AND SUBSEQUENT EVENT
The Company has a $2,000,000 line of credit with a bank that expires in January
1998. The agreement bears interest at the bank's prime rate (8.5% at September
30, 1997) plus 2%. Borrowings under the line are secured by substantially all
the Company's assets. The agreement requires the Company to maintain certain
financial covenants and also precludes the Company from paying dividends without
the bank's approval. At September 30, 1997, the Company was not in compliance
with the working capital covenant and had received a waiver of this covenant
from the bank for September 30, 1997. The outstanding balance at September 30,
1997 was $1,884,000. On December 18, 1997, the Company entered into a new
$5,000,000 line of credit with a different bank and repaid the previous amount
outstanding. Borrowings under the new line of credit are secured by all assets
of the Company and bear interest at the prime rate plus 2%. The new line expires
30 days after notice or immediately upon default. Advances under the line are
limited to 80% of eligible product receivables plus 60% of eligible service
receivables, as defined. The new line also requires the Company to maintain
certain financial covenants and precludes the payment of dividends or entering
into acquisitions without prior bank approval. Management believes that the
Company will be able to meet the covenants in the new agreement.
Long-term debt at September 30, 1997 consists of the following:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Unsecured note payable to related party bearing
interest at 15%, payable in monthly payments of $24,000,
subordinate to the Company's line of credit. $ 350,000
Mortgage note payable bearing interest at prime
(8.5% at September 30, 1997) plus 1.5%, payable
in monthly payments of $9,000 through November 2004
when the remaining principal and interest is due. 983,000
Note payable related to Sequoia acquisition (A) 1,429,000
Payable related to Sequoia acquisition (A) 5,919,000
Other notes payable 83,000
----------
8,764,000
Less current maturities 5,495,000
----------
$3,269,000
==========
</TABLE>
Payment requirements on principal balances at September 30, 1997 are due as
follows for the years ended September 30: 1998 $5,495,000; 1999 $2,318,000; 2000
$17,000; 2001 $18,000; 2002 $24,000; and thereafter $892,000.
F-16
<PAGE> 45
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. NOTES PAYABLE AND LONG-TERM DEBT (CONTINUED)
(A) On October 1, 1997, an amendment to the asset purchase agreement between
the Company and Sequoia Systems, Inc. (Note 11) was made that modified
certain of the payment terms. In connection therewith, the Company
signed a $1,429,000 note payable. The unsecured note bears interest at
13% and is due in monthly installments of $75,000 plus interest. In
addition, the Company has agreed to pay $5,919,000 as follows: $300,000
on October 1, 1997; $400,000 on December 15, 1997 and the balance due
based upon a percentage of revenues (primarily 10%) as defined in the
agreement. Management has estimated the maturity of this portion of this
payable is as follows: 1998 $3,620,000; 1999 $1,599,000.
NOTE 7. EMPLOYEE BENEFIT PLANS
The Company has a profit sharing 401(k) 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 taxing authorities.
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 1997, 1996 and 1995 were $94,000, $85,000
and $78,000, respectively.
NOTE 8. STOCK OPTIONS AND WARRANTS
The Company has two stock option plans. Under the 1991 Stock Option Plan, the
Company has reserves 2,035,000 shares of common stock. Under the 1991 Director's
Stock Option Plan, the Company has reserved 200,000 shares of common stock. The
1991 Stock Option Plan was amended in January 1997 to increase the authorized
shares from 1,300,000 to 2,035,000. Under terms of the Plans, options are
granted with an exercise price not less than the fair market value of the common
stock at the date the options are granted. All options expire five years from
the date of grant and contain vesting provisions established by the Board of
Directors. In addition to the options available under the stock option plans, in
1995 the Company also issued, to certain directors, options to acquire 1,455,000
shares of common stock at $0.86 per share. These options were vested upon grant
and expire in March 2000.
F-17
<PAGE> 46
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. STOCK OPTIONS AND WARRANTS (CONTINUED)
A summary of stock options at September 30, 1997, 1996 and 1995 and changes
during the years then ended is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ----------------------- ------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
beginning of year 2,183,000 $0.84 2,926,000 $0.80 1,196,000 $0.75
Granted 960,000 1.94 60,000 1.81 1,755,000 0.84
Exercised (55,000) 1.02 (732,000) 0.75 - -
Expired or terminated (300,000) 0.75 (71,000) 0.75 (25,000) 0.75
---------- ----- ---------- ----- ---------- -----
Outstanding,
end of year 2,788,000 $1.23 2,183,000 $0.84 2,926,000 $0.80
========== ===== ========== ===== ========== =====
Exercisable, end
of year 2,388,000 $0.95 2,183,000 $0.84 2,926,000 $0.80
========== ===== ========== ===== ========== =====
Available for grant
under existing
plans, end of year 168,000 93,000 82,000
========== ========== ==========
</TABLE>
A further summary about options outstanding at September 30, 1997 is as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------------- ----------------------------------
Weighted-Average
Remaining Weighted-Average
Number Contractual Life Number Contractual Life
------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
$0.75 343,000 23 months 343,000 23 months
$0.86 1,455,000 30 months 1,455,000 30 months
$1.81 30,000 43 months 30,000 43 months
$1.94 660,000 52 months 560,000 52 months
$1.95 300,000 50 months - -
------------- -------------
2,788,000 2,388,000
============= =============
</TABLE>
F-18
<PAGE> 47
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. STOCK OPTIONS AND WARRANTS (CONTINUED)
The Company applies APB Opinion 25, "Accounting for Stock Issued to Employees,"
and related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized. Had compensation cost for the Company's
stock option plan been determined based on the fair value at the grant dates for
awards under this plan consistent with the method of Statement No. 123, the
Company's net income and earnings per common and common equivalent share would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996
-------- -----------
<S> <C> <C> <C>
Net income As reported $ 502,000 $ 1,418,000
Pro forma (32,000) 1,369,000
Earnings per common and common equivalent
share, primary and fully diluted As reported $ 0.05 $ 0.18
Pro forma - 0.18
</TABLE>
The pro forma compensation cost was recognized for the fair value of the stock
options granted, which was estimated using the Black-Scholes model with the
following weighted average assumptions for 1997 and 1996, respectively: expected
volatility of 85% and 92% and risk-free interest 5.5% and 5.4%, expected life of
5 years and no expected dividends for all years. The estimated weighted average
fair value of stock options granted in 1997 and 1996 was $1.24 and $1.33 per
share, respectively.
The Company issued warrants for purchase of 250,000 shares of stock as part of
the purchase agreement for Sequoia Enterprise Systems as noted at Note 11. The
exercise price for each share of stock subject to the warrant is $2.50 per
share. The fair value of the warrant at the date of issuance was estimated to be
$2.00 per share, totaling $500,000 and was recorded as part of the acquisition
cost. The warrants can be exercised either in whole or in part and expire
October 2000. As discussed in Note 5, the Company also may be required to issue
additional warrants to a related party upon the occurrence of certain events.
On May 2, 1997, Sanderson Computers Ltd. exercised its warrant to purchase
100,000 shares of the Company's common stock for $0.75 per share. This warrant
was available to Sanderson through a "Mirror Rights Agreement" entered into in
1989. In 1996, Sanderson also acquired 56,100 shares through the "Mirror Rights
Agreement". At September 30, 1997, no future "Mirror Rights" exist.
F-19
<PAGE> 48
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Note 9. INCOME TAXES
The provision (benefit) for income taxes consist of the following for the years
ended September 30:
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- ----------
<S> <C> <C> <C>
Current
Federal $ 225,000 $482,000 $ -
State 45,000 133,000 -
Foreign 145,000 - -
Deferred (550,000) - -
--------- -------- ----------
$(135,000) $615,000 $ -
========= ======== ==========
</TABLE>
Reasons for differences between income tax expense (benefit) and the amount
computed by applying the federal statutory income tax rate to income (loss)
before income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Tax provision (benefit) calculated at
Federal statutory rate $ 125,000 $ 691,000 $(702,000)
Change in valuation allowance (332,000) - -
Benefit of operating loss carryforwards - (355,000) -
State income taxes 45,000 133,000 -
Expenses not deductible 43,000 123,000 -
Tax benefits not provided on losses of
domestic and foreign operations - - (405,000)
Income from sale of foreign subsidiary - - 1,054,000
Other (16,000) 23,000 53,000
----------- --------- ---------
Provision (benefit) for income taxes $ (135,000) $ 615,000 $ -
=========== ========= =========
</TABLE>
The Company has net operating loss (NOL) carryforwards which can be utilized to
offset future taxable income. The U.S. NOL is subject to an annual limitation on
its use of $545,000 due to a change in the Company's ownership in November 1994.
At September 30, 1997, these carryforwards totaled approximately $5.2 million.
The carryforwards expire in various years ending September 30 as follows:
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
2004 $ 739,000
2005 1,427,000
2006 1,631,000
2007 55,000
2008 560,000
2009 788,000
----------
$5,200,000
==========
</TABLE>
F-20
<PAGE> 49
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. INCOME TAXES (CONTINUED)
The Company also has a Canadian NOL of $215,000 which can be applied to offset
future Canadian taxable income of its Liberty subsidiary. This NOL expires in
2004.
Deferred income tax assets as of September 30, 1997 and 1996, relate to the
following.
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Inventory $ 122,000 $ 102,000
Accrued royalties 331,000 70,000
Other accrued expenses 126,000 159,000
Receivables 102,000 191,000
Goodwill 172,000 -
NOL carryforwards 1,862,000 1,975,000
----------- -----------
TOTAL 2,715,000 2,497,000
Valuation allowance (2,165,000) (2,497,000)
----------- -----------
$ 550,000 $ -
=========== ===========
</TABLE>
Management has reduced the valuation allowance on the Company's net deferred tax
assets available since they believe it is more likely than not that the deferred
tax asset of $550,000 will be realized. Management based this assessment
partially on the Company's 1997 U.S. tax payable of $225,000 which is available
for refund through 2000. In addition, the Company's recent history of U.S.
taxable income before the utilization of net operating loss carryforwards for
the years ended September 30, 1997, 1996 and 1995 of $2,000,000, $1,300,000, and
$1,260,000, supports management's belief that it is more likely than not that
the recorded deferred tax assets will be realized. Management estimates that the
recorded deferred tax assets will be recovered within the next fiscal year. If
the Company is unable to generate the income necessary to realize the recorded
amounts of deferred tax assets, these assets would be charged to operations.
F-21
<PAGE> 50
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10. SEGMENT INFORMATION
In 1996 and 1995, essentially all of the Company's operations were within the
United States. In 1997, due to the acquisitions described in Note 11, the
Company also had operations outside the United States. Information concerning
the Company's operations by geographic area for 1997 is as follows:
<TABLE>
<CAPTION>
United States Australia Other Eliminations Total
------------- --------- ----- ------------ -----
<S> <C> <C> <C> <C> <C>
Revenues $32,547,000 $2,367,000 $3,186,000 $(1,269,000) $36,831,000
Operating profit
(losses) 515,000 175,000 (12,000) - 678,000
Interest expense (382,000)
Interest income 71,000
-----------
INCOME BEFORE
INCOME TAXES $ 367,000
===========
Identifiable assets $23,492,000 $1,037,000 $ 823,000 $ (943,000) $24,409,000
=========== ========== ========== ========== ===========
Identifiable liabilities $18,604,000 $ 322,000 $ - $ (296,000) $18,630,000
=========== ========== ========== ========== ===========
</TABLE>
Sales and transfers between geographic areas are made with reference to
prevailing market prices and at prices approximately equal to those charged to
unaffiliated distributors. Operating income is revenue less related costs and
operating expenses, including other income and expense, but excluding interest
income and expense.
Identifiable assets are those of the Company that are identified with operations
in each geographic area.
No single customer or group of related customers accounted for 10% or more of
consolidated revenues during any of the periods presented. Export revenues of
the U.S. segment were less than 10% of total revenues.
F-22
<PAGE> 51
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. ACQUISITIONS AND DISPOSITIONS
Sequoia Enterprise Systems acquisition:
On October 3, 1996, the Company entered into an Asset Purchase Agreement (the
Agreement) with Sequoia Systems, Inc. (SSI). Pursuant to the Agreement, which
closed on October 11, 1996 (the Closing Date), the Company acquired
substantially all of the assets and businesses of SSI's business division known
as Sequoia Enterprise Systems (SES). SES manufactures, services, integrates and
distributes fault tolerant Motorola 68K computer systems which operate under
SSI's version of UNIX and Intel based computer systems running SSI's Alpha
Micro's versions of the "PICK" application environment and database software
products. This acquisition was accounted for as a purchase business combination.
In exchange for the business of SES, the Company has agreed to pay a purchase
price of $11,347,000 (the Purchase Price), assume certain liabilities of SES
totaling approximately $2,700,000, and issue SSI a Stock Purchase Warrant (the
Warrant) valued at $500,000 (Note 8). The excess of the purchase price and
related acquisition costs over fair value of the net assets acquired of
$8,366,000 was recorded as goodwill.
The Purchase Price is to be paid in a combination of cash, notes payable and
750,000 shares of the Company's common stock (the Payment Stock). All 750,000
shares of the Payment Stock were issued to SSI in November 1996. For purposes of
payment of the Purchase Price, the Payment Stock will be valued as follows: (i)
400,000 shares (the Initial Shares) of the Payment Stock were valued at $2.50
per share, (ii) 200,000 shares will be valued at the average closing per share
price during the ten trading days immediately preceding the first anniversary of
the closing date, ($1.87 at October 11, 1997) and (iii) the remaining 150,000
shares (the Remaining Shares) will be valued at the average closing per share
price during the ten trading days immediately preceding any date on which a
valuation of the remaining shares is made for the purposes of determining the
payment of the Purchase Price; provided however, if the Purchase Price is not
paid in full prior to the second anniversary of the Closing Date, the Remaining
Shares will be valued at the average closing per share price during the ten
trading days immediately preceding the second anniversary of the Closing Date.
At September 30, 1997, the value of the remaining 150,000 shares of common stock
has been estimated at $1.87 per share. The Company charged stockholders' equity
for $219,000 and increased the recorded amount of the payable to SSI for the
decrease in the value of the stock which occurred in 1997. Any future changes in
the value of the remaining 150,000 shares of common stock through the final
settlement date will also adjust stockholder's equity
SSI has agreed not to sell, make any short sale, loan or grant any options for
the purchase of any Payment Stock or until the first anniversary of the Closing
Date, with respect to any of the shares in excess of 400,000 shares of the
Payment Stock, and until, the second anniversary of the Closing Date with
respect to any shares of the Payment Stock in excess of 600,000 shares.
F-23
<PAGE> 52
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
Sequoia Enterprise Systems acquisition: (continued)
The assets acquired by the Company did not include the accounts receivable of
SES. However, SSI was obligated to pay the Company an amount equal to 40% of the
SES accounts receivable collections in existence on the Closing Date, as
collections were made, until the Company received the total amount of
$1,560,000.
Unaudited pro forma consolidated results of operations and earnings per share
for 1997 and 1996 as though Sequoia had been acquired as of October 1, 1995 is
as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ----------
<S> <C> <C>
Sales $37,521,000 $57,255,000
=========== ===========
Net income $ 228,000 $ 985,000
=========== ===========
Earnings per common and common equivalent share $ 0.02 $ 0.12
=========== ===========
</TABLE>
The information presented above reflects adjustments for amortization of
goodwill, additional depreciation on revalued purchased assets, and an estimated
effective tax rate for these differences of 34%. The above information does not
reflect an adjustment of $1,771,000 (unaudited) incurred by SES for
restructuring charges in 1996 which management believes are nonrecurring in
nature.
General Automation, LLC:
In May 1995, the Company and SunRiver Data Systems, now called Boundless
Technologies (Boundless) formed a limited liability company, General Automation,
LLC, (GAL) with the Company owning 51% interest and Boundless owning a 49%
interest. In accordance with the terms of the Operating Agreement (the
Agreement), GAL will be dissolved upon the earlier of certain events as
described in the Agreement or twenty years. GAL was formed to allow the Company
to acquire SunRiver's version of the PICK system.
Under the terms of the Agreement, GAL operates and manages both the Company's
and Boundless' PICK business. Boundless is entitled to receive payments from GAL
in an amount equal to a percentage of GAL's net revenues, as defined in the
Agreement, whether or not GAL is profitable. The percentage of net revenue which
Boundless is entitled to receive is 12% in the first year of the Agreement with
decreasing amounts annually to 7% in the fifth year. However, the percentage of
net revenues payable to Boundless is subject to certain adjustments. Subsequent
to the fifth year of the agreement, the percentage of net revenues to be paid to
Boundless is to be determined by negotiations between the parties. The Company
is entitled to retain all of the cash generated by GAL, if any, after the
payments of the net revenue percentage to Boundless. The Company accounts for
the payments due to Boundless as royalty expense and has included approximately
$2,000,000 in costs of sales relating to this arrangement. Included in accounts
payable and accrued expenses at September 30, 1997 is approximately $625,000,
due to Boundless, in connection with this Agreement.
F-24
<PAGE> 53
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
General Automation, LLC: (continued)
In May 2000, the Company has the option to purchase Boundless' interest in GAL
for common stock in the Company, equal to 9% of each class of the then
outstanding stock in the Company. Upon issuance of the stock to Boundless, the
Company is immediately obligated to register the shares in accordance with the
Securities Act of 1933.
Under the terms of the Agreement, the Company has been designated as the sole
manager of GAL. However, if GAL fails to achieve certain agreed upon revenue or
profit projections, Boundless has the right to jointly manage GAL with the
Company. Further, Boundless may replace the Company as the manager of GAL upon
the occurrence of certain other events, including the failure to pay Boundless
the percentage of net revenues discussed above. The Company has not made the
payments discussed above on a timely basis. The Company has not received any
notice regarding its replacement as the manager of GAL.
During the first year of the Agreement, the Company received a management fee of
$1,031,000, for managing GAL. However, the Company will not be entitled to any
compensation or management fees subsequent to the first year.
Liberty Acquisition:
Effective October 1, 1996, the Company entered into an agreement whereby it
acquired all of the issued and outstanding shares of Liberty Integration
Software, Inc. (Liberty). Liberty offers products and services which provide
connectivity solutions between MultiValue databases and industry standard
developments such as data warehousing, OLAP engines, client server development
tools and internet applications. Liberty began operations in July 1995. The
purchase price consisted of $60,000 Canadian (approximately $40,000 U.S.
dollars) and 25,000 shares of GAI common stock. This acquisition was accounted
for as a purchase business combination. In July 1997, the Company also acquired
all rights to certain software products which Liberty previously distributed
under a license agreement for 125,715 shares of common stock valued at $220,000.
The pro forma effect of these acquisitions was not material.
Disposition to Sanderson Computers:
The Company entered into an agreement with Sanderson Computers, Inc., (SCI)
effective August 28, 1995, whereby SCI is responsible for the worldwide sales of
the Zebra 2000 Library Automation Software Applications and Maxial Hotel
Management Software Applications systems. Additionally, SCI has assumed the
responsibility for completing the Company's backlog of Zebra 2000 contracts,
which totaled approximately $400,000 at the date of the agreement. The Company
will receive royalty payment from the Maxial software revenues and an annual
exclusivity fee of $20,000. The Company will receive no revenues from the Zebra
2000 systems, as that product is owned by SCI's parent to whom the Company was
paying a royalty. The exclusivity granted to SCI is for a period of one year,
renewable for two consecutive one-year periods and will expire on September 30,
1998. SCI has used the Company employees to provide support to its customers who
use these systems, for which the Company has been compensated at fair value.
F-25
<PAGE> 54
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
SGA acquisition and disposition:
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 $875,000. 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
$1,000,000 in cash, $1,000,000 in a 24-month note, plus transferred 4,100,000
shares of the Company's common stock back to the Company, which were retired.
This brought Sanderson's interest in the Company down to under 10%. The sale was
recorded as capital transaction due to the related party nature of the
transaction.
Disposition of Eurosystems:
Effective September 30, 1993, the Company sold its 61% share of Eurosystems to
the minority stockholders of Eurosystems (Krypton Group Ltd.) for $750,000. The
terms included a note receivable in the amount of $750,000 if paid by December
31, 1993, or $795,000, including $45,000 interest if paid before March 31, 1994.
If not repaid by March 31, 1994, the note was repayable in 33-monthly
installments of $30,000. The note was not paid by March 31, 1994 and after
receiving six-monthly installments, payments were suspended by Krypton. In 1995,
Krypton filed for bankruptcy.
In March 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. Subsequent to September 30, 1997, Future Services, Ltd., was
purchased by 4 Front Software Company. The Company received 24,540 shares of 4
Front Software Company's common stock valued at $245,000. The Company amended
the note and reduced the amount due to $350,000, payable in three years.
Management expects to receive full collection of the remaining $350,000. During
1997, the Company recorded $38,000 of interest income on this note, which was
received in cash.
F-26
<PAGE> 55
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
McDonnell Information Systems Limited:
In April 1996, the Company entered into a license agreement with McDonnell
Information Systems Limited (MDIS) of the United Kingdom. This agreement was to
give the Company rights to sell certain software owned by MDIS. A dispute arose
as to the effectiveness of the software and the agreement was terminated in
December 1997 with the Company agreeing to pay $400,000 in twelve-monthly
payments. This amount has been accrued in the Company's 1997 financial
statements.
NOTE 12. COMMITMENTS AND CONTINGENCIES
Operating leases:
The Company leases certain facilities and equipment under noncancelable
operating leases. Rental expense for the years ended September 30, 1997, 1996
and 1995 were $1,392,000, $200,000 and $305,000, respectively.
As of September 30, 1997, the future minimum rental commitments required under
existing noncancelable operating leases are as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
1998 $ 676,000
1999 564,000
2000 563,000
2001 100,000
----------
$1,903,000
==========
</TABLE>
Litigation:
The Company is a defendant in various lawsuits and claims which have arisen in
the normal 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 is not material to the consolidated financial
statements of the Company.
F-27
<PAGE> 56
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 lawsuit sought relief from alleged environmental damages 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 issued in
December 1997 and the related agreements, the Company will be released from all
liability related to the lawsuit in exchange for payments totaling $1,050,000,
funded by the Company's insurance carriers, to an escrow account, which has been
established to finance the remediation of the contamination on and around the
property. Management believes the ultimate resolution of this matter will not
result in any future liabilities to the Company and no liability has been
recorded.
F-28
<PAGE> 57
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
General Automation, Inc.
Our audits of the consolidated financial statements of General Automation, Inc.
and its subsidiaries referred to in our report dated December 9, 1996 with
respect to the consolidated financial statements included in this Annual Report
on Form 10-K also included an audit of Financial Statement Schedule II of
General Automation, Inc. and its subsidiaries for the years ended September 30,
1996 and 1995. In our opinion, this Financial Statement Schedule of General
Automation, Inc. and its subsidiaries for the years ended September 30, 1996 and
1995 presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements for the years ended September 30, 1996 and 1995.
PRICE WATERHOUSE LLP
Costa Mesa, California
December 9, 1996
F-29
<PAGE> 58
INDEPENDENT AUDITOR'S REPORT
ON THE SCHEDULE
To the Board of Directors
General Automation, Inc.
Irvine, California
Our audit was made for the purpose of forming an opinion on the basic 1997
consolidated financial statements taken as a whole. The supplemental schedule II
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not a part of the basic consolidated financial
statements. The information for 1997 included in this schedule has been
subjected to the auditing procedures applied in our audit of the basic
consolidated financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
McGLADREY & PULLEN, LLP
Anaheim, California
December 19, 1997
F-30
<PAGE> 59
GENERAL AUTOMATION INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNT
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
Balance at Provisions
Beginning Charged to Balance at
of Year Expense Charge-Offs End of Year
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts:
1997 $561,000 $299,000 $(551,000) $ 309,000
======== ======== ========= =========
1996 $444,000 $171,000 $ (54,000) (1) $ 561,000
======== ======== ========= =========
1995 $688,000 $112,000 $(351,000) (2) $ 444,000
======== ======== ========= =========
</TABLE>
(1) Write-offs, net of recoveries.
(2) Represents allowance for doubtful accounts of SGA Pacific, Ltd. which
was sold by the Company effective October 1, 1994.
F-31
<PAGE> 60
EXHIBIT INDEX
Exhibit
Number 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.
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.
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.
<PAGE> 61
Exhibit
Index Description
- ------- -----------
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 Agreement 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.
10.17 Agreement by and between General Automation, Inc. and MDIS dated
December 22, 1997.
10.18 Loan Agreement dated December 18, 1997 between the Company and
Comerica Bank.
10.19 Letter Agreement dated October 1, 1997 between the Company and
Texas Micro, Inc., formerly Sequoia Systems, Inc. ("Texas
Micro"), amending the Asset Purchase Agreement between the
Company and Texas Micro dated October 3, 1996 and the
Registration Rights Agreement between the Company and Texas Micro
dated October 11, 1996, together with the related Promissory Note
dated October 1, 1997 in the original principal amount of
$1,428,899 payable by the Company to Texas Micro.
21 Subsidiaries of the Company.
23.1 Consent of Independent Accountants - McGladrey & Pullen, LLP.
23.2 Consent of Independent Accountants - Price Waterhouse LLP.
27 Financial Data Schedule.
<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.
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<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
2
<PAGE> 3
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.
3
<PAGE> 4
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
4
<PAGE> 5
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
5
<PAGE> 6
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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<PAGE> 7
(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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<PAGE> 8
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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<PAGE> 9
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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<PAGE> 10
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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<PAGE> 11
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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<PAGE> 12
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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<PAGE> 13
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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<PAGE> 14
(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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<PAGE> 1
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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<PAGE> 2
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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<PAGE> 3
(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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<PAGE> 4
(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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<PAGE> 5
(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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<PAGE> 6
"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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<PAGE> 7
(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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<PAGE> 8
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
8
<PAGE> 9
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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<PAGE> 10
(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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<PAGE> 1
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
<PAGE> 2
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
2
<PAGE> 3
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
3
<PAGE> 4
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,
4
<PAGE> 5
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
<PAGE> 1
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.
1
<PAGE> 2
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.
2
<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.
-3-
<PAGE> 4
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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<PAGE> 5
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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<PAGE> 6
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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<PAGE> 7
(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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<PAGE> 8
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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<PAGE> 9
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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<PAGE> 1
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 21
The following are all of the subsidiaries of General Automation, Inc,:
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
- ---- -----------------------------
<S> <C>
GA Mentor Limited United Kingdom
Sequoia Systems (UK) Ltd. United Kingdom
General Automation Pty. Ltd. Australia
Sequoia Systems (Australia) Pty Ltd. Australia
Liberty Integration Software Inc. Canada
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation of our report, dated
December 19, 1997, included in this Form 10-K in the previously filed
Registration Statements of General Automation, Inc. and Subsidiaries on
Forms S-8 (No. 33-433158, 33-79038, 333-37467 and 333-09483).
McGladrey and Pullen, LLP
Anaheim, California
January 9, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-43158, No. 33-79038, No. 333-37467 and No.
333-09483) of General Automation, Inc. of our report dated December 9, 1996
appearing on page F-1 of this Annual Report on Form 10-K. We also consent to
the incorporation by reference of our report on the Financial Statement
Schedule, which appears on page F-29 of this Form 10-K.
Price Waterhouse, LLP
Costa Mesa, California
January 9, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
EXTERNALLY AUDITED STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-K FOR THE YEAR ENDED
SEPTEMBER 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 797
<SECURITIES> 0
<RECEIVABLES> 5,667
<ALLOWANCES> 309
<INVENTORY> 4,999
<CURRENT-ASSETS> 12,329
<PP&E> 5,391
<DEPRECIATION> 2,960
<TOTAL-ASSETS> 24,409
<CURRENT-LIABILITIES> 15,361
<BONDS> 0
0
0
<COMMON> 923
<OTHER-SE> 4,856
<TOTAL-LIABILITY-AND-EQUITY> 24,409
<SALES> 10,694
<TOTAL-REVENUES> 36,831
<CGS> 6,661
<TOTAL-COSTS> 20,786
<OTHER-EXPENSES> 15,068
<LOSS-PROVISION> 299
<INTEREST-EXPENSE> 311
<INCOME-PRETAX> 367
<INCOME-TAX> (135)
<INCOME-CONTINUING> 502
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 502
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
