<PAGE> 1
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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
for the transition period from to ________________ to ___________________
Commission file number 0-5260
GENERAL AUTOMATION, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 95-2488811
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17731 Mitchell North, Irvine, CA 92653-1595
- ---------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (949) 250-4800
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
----------------------------
(Title of class)
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 aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant as of January 7, 2000 was $7,747,812 based on
the average of the bid and asked prices for the Registrant's stock, as traded on
the "Electronic Bulletin Board".
On January 7, 2000, 11,724,307 shares of the Registrant's common stock, $.10 par
value, were issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE> 2
GENERAL AUTOMATION, INC.
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I
ITEM 1. BUSINESS...................................................................... 3
ITEM 2. PROPERTIES..................................................................... 8
ITEM 3. LEGAL PROCEEDINGS.............................................................. 8
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................ 9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......... 9
ITEM 6. SELECTED FINANCIAL DATA........................................................10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS..........................................................12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....................19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA....................................19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE...........................................................19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............................20
ITEM 11. EXECUTIVE COMPENSATION.........................................................21
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K................25
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. BUSINESS
FORWARD-LOOKING STATEMENTS
THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, THAT INVOLVE RISKS AND
UNCERTAINTIES. A NUMBER OF IMPORTANT FACTORS, INCLUDING THOSE CONTAINED BELOW
UNDER THE HEADING "SPECIAL FACTORS", THE TIMELY DEVELOPMENT OF PROPOSED
PRODUCTS, MARKET ACCEPTANCE OF NEW PRODUCTS, ACTIONS BY COMPETITORS AND
CREDITORS, AS WELL AS FACTORS DISCUSSED ELSEWHERE IN THIS REPORT AND IN THE
COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, COULD
AFFECT THE COMPANY'S ACTUAL RESULTS AND CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS.
GENERAL
General Automation, Inc. ("GA" or the "Company") provides computer
hardware maintenance and software support services to several thousand end users
throughout the United States. The Company also integrates computer hardware
manufactured by other companies with proprietary and non-proprietary software to
meet the requirements of its customers' specific applications, and installs and
supports the integrated systems. The Company also sells a line of proprietary
multivalue database software products, and a line of connectivity products and
middleware products designed to allow easy communication and transfer of data
between multivalue databases and other widely used software products such as
Microsoft products and JAVA products. The Company is also developing a line of
products and software tools that enable e-commerce standards-based enterprise
data access and interchange among trading partners. Although the Company's
operations are conducted primarily in the United States, the Company also
conducts operations through subsidiaries in Canada, Australia and the United
Kingdom.
The Company's principal executive offices are located at 17731 Mitchell
North, Irvine, California, and its telephone number is (949) 250-4800. Unless
the context otherwise requires, the "Company" or "GA" refer to General
Automation, Inc. and its consolidated subsidiaries.
SPECIAL FACTORS
Readers of this Report should carefully consider, in addition to the
other information contained in this Report, the following:
Going Concern Qualification. The reports of the Company's independent
public accountants on the financial statements of the Company included in this
Report on Form 10-K contain a going concern qualification. (See "Financial
Statements and Supplementary Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations.")
Recent Operating Losses; Deficit Tangible Net Worth: The Company has
incurred operating losses in four of its last five fiscal years. There can be no
assurance that the Company will be able to achieve or sustain profitable
operations in the future. As of September 30, 1999, the Company had a deficit
net worth of $7.5 million (See "Financial Statements and Supplementary Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations.")
Working Capital Deficiency; Cash Flow Constraints. As of September 30,
1999, the Company had a working capital deficiency of $6.8 million. Accordingly,
the Company continues to operate under severely restricted cash resources, which
requires that the Company carefully manage and monitor its cash position. (See
"Financial Statements and Supplementary Data" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations.")
The Company is in default of its obligations to its primary bank,
Comerica Bank-California ("Comerica"). As of September 30, 1999, the Company was
indebted to Comerica in the amount of $2.1 million. Although there is not
currently in place any formal forbearance agreement, Comerica has; thus far,
continued to work with the Company to enable the Company to meets its short-term
working capital requirements. At the same time, Comerica is encouraging the
Company to move its account to another lender, which the company is attempting
to do. In addition, the company is assessing whether it is advisable, or even
possible, to raise additional funds for operations from private and/or public
investors. Obviously, there can be no assurance that the Company will be
successful in obtaining the debt or equity financing necessary to pay its
obligations to Comerica. If the Company is unable to do so, Comerica could
accelerate collection of the amounts owed to it, which would adversely affect
the ability of the Company to continue its operations. Barring any such action
by Comerica, the Company believes that it will be able to meet its short-term
working capital requirements with the resources available to it.
3
<PAGE> 4
Competition. The Company competes with a number of companies, many of
which have substantially greater financial, technological, marketing and other
resources than the Company. In its service business, the Company's competitors
include Wang, AT&T and IBM. The Company's competitors for the sale of hardware
include Data General Corporation, Digital Equipment Corporation, Hewlett Packard
Company, and IBM. The Company's competitors for software products include Ardent
and Pick Systems. (See "Business - Competition.")
SERVICE AND SUPPORT
GA maintains a high quality service organization dedicated to meeting
the complex hardware and software support requirements of several thousand end
users, and has been delivering highly skilled support services for nearly thirty
years. GA has earned a reputation for excellent quality and responsive service
through an exceptional staff of service professionals, and the Company believes
that this reputation is a key reason that customers with information-critical
applications choose to buy from GA.
GA offers three basic types of service and support, hardware
maintenance services, software support services, and professional services.
Hardware Maintenance
GA provides on-site hardware maintenance services for computer
equipment sold by GA as well as a wide variety of computer systems,
workstations, tape drives, disk subsystems, terminals, communications devices,
printers and other peripherals sold by other companies. These services are
provided primarily by GA employees operating out of one of the Company's field
service offices located throughout the United States. In some areas, however,
the work is performed by subcontractors managed by the Company.
4
<PAGE> 5
Software Support
GA also provides software support services for GA's proprietary
software products as well as the various operating systems on which they run,
such as AIX, UNIX, UnixWare, OS/2, Novell NetWare, Windows 95 - 98, Windows NT
and MS DOS. These services are provided by phone, by remote access to the
customer's system, and on-site, and are provided primarily out of GA's offices
in Irvine, California, Marlborough, Massachusetts, and Hauppauge, New York.
Professional Services
GA also provides various professional services, including performance
tuning, system upgrade services, technical product training, system design and
site preparation, network design and configuration support, and development of
disaster recovery programs. Contract programming and consulting services are
also offered with expertise in Pick, C, C++, Visual Basic, Microsoft Access, and
Pro-IV.
The Company's hardware maintenance and software support services are
typically provided under agreements, which provide for a fixed fee. These
agreements typically provide that they may not be canceled by either the Company
or the customer during the first year of the agreement, but thereafter may be
canceled by either party on ninety days' notice.
SYSTEM SALES
GA sells complete computer systems which are configured by the Company
(or the value-added resellers through which it sells) to meet the specific
requirements of a particular end user. The hardware components for these systems
are purchased by GA from the standard product offerings of other companies, the
operating system software and proprietary GA software are loaded, the system is
tested, and then delivered to the customer. The Company no longer sells any
proprietary hardware, although some of the hardware sold by the Company is
co-labeled with both the manufacturer's and the Company's name.
The systems offered by the Company include both single processor and
multiprocessor Intel-based systems, as well as PowerPC-based single and
multiprocessor systems. These products feature a broad range of system
solutions, from a low-end, single processor, cost-effective system through an
eight-way multiprocessor enterprise server capable of supporting over 1000
users.
The systems sold by the Company are sold by it directly to the end user
as well as through a group of over 200 value-added resellers. The Company and
its value-added resellers focus their system sales on key vertical markets, such
as healthcare, finance, manufacturing, distribution, government, collection
agencies and insurance.
PROPRIETARY SOFTWARE
MultiValue Database Software
The Company offers a line of proprietary multivalue database software
products, which are based on the Pick Operating System. The multivalue database
is based on a file structure that is multi dimensional. Some of these products
are designed to run native (without an underlying operating system), while
others are designed to run in concert with various operating systems, including
UNIX, AIX and Windows NT. The Company believes that among the most distinctive
characteristics of its multi-dimensional database products are their relative
ease of use, English-like information management and retrieval language, and the
speed they offer in the handling of large and complex databases. The Company's
proprietary software line is comprised of the following:
5
<PAGE> 6
mv.BASE - a multivalue database that runs on Windows NT and Windows 95.
mv.ENTERPRISE - a multivalue database that runs on AIX or UNIX.
Power95Plus - a multivalue database that runs on AIX.
Mentor Pro - a multivalue database and operating system that runs
natively on INTEL compatible PC's.
Each of the foregoing products has been developed by the Company, but
is derived from software developed by Pick Systems. Accordingly, the Company
pays royalties to Pick Systems with respect to these products.
The Company offers its proprietary software products both as a stand
alone product as well as integrated into a system solution.
Liberty Software
The Company also offers a line of proprietary connectivity software and
middleware products comprised of the following, which have been
developed by the Company and are marketed under the Liberty name:
Liberty ODBC Connection Manager - a programming tool which allows C/C++
or Visual Basic programmers to design high speed multi-threaded server
environments for Windows 95 or Windows NT to access ODBC (Open Database
Connectivity) data sources.
Liberty ODBC Driver - allows data communication between multivalue
databases and Windows applications.
Liberty Web Publisher - allows multivalue database users a fast, easy
way to create interactive Web applications without compromising the
security of their data.
Liberty Administrator/32 - a Windows administration tool for ODBC (Open
Database Connectivity), enabling new and existing multi-value
applications.
Liberty JDBC Driver - enables communication between JAVA and multivalue
databases.
Liberty Software has also provided the technical expertise and
man-power for development of future products that should extend the
Company's presence in the e-commerce market-place.
("Windows" is a registered trademark of MicroSoft, Inc.)
FOREIGN OPERATIONS AND EXPORT SALES
The Company's foreign sales were approximately 16% of total revenues in
fiscal 1999 and 1998 and approximately 12% in fiscal 1997. These revenues were
generated primarily through the sale, installation and maintenance of computer
systems in Australia and the distribution and support of software in Canada and
the United Kingdom. (See Notes to the Company's Financial Statements included in
this Report on Form 10-K for additional information relating to the Company's
foreign operations, including financial information concerning operations by
major geographic areas.)
6
<PAGE> 7
COMPETITION
The Company faces competition in its three primary areas of business;
software sales, systems sales and service. Companies which General Automation,
Inc. considers its primary competitors in each of the three categories include:
o Software sales - Pick Systems, and Ardent
o System sales - IBM, Data General, Digital Equipment Corp. and
Hewlett-Packard.
o Service - Wang, AT&T and IBM.
Although the Company faces competition it is well positioned to
capitalize on the multivalue market niche as the only single source supplier of
integrated solutions and professional services. Although the larger computer
manufacturers provide hardware into the multivalue market they do so through
various distributors and resellers and do not have a strong focus on this market
today. Both existing multivalue software competitors only provide software and
software services. The Company's Liberty Software has been developed to work
across all multivalue products including database products sold by both Ardent
and Pick Systems. A significant portion of Liberty revenues is derived from
sales to Pick System and Ardent customers.
PRODUCT DEVELOPMENT
Because of rapid technological changes, the market in which the Company
competes requires continuous expenditures to develop and improve its products,
particularly in the area of providing standards-based solutions that enable
e-business and e-partnering. During fiscal 1999, the Company spent approximately
$ 900,000 for product research and development, compared to $2,200,000 in fiscal
1998 and $2,600,000 spent in fiscal 1997. Certain development costs relating to
computer software are capitalized in accordance with Statement No. 86 of the
Financial Accounting Standards Board, while all other costs associated with
product development are charged to operations as incurred. During fiscal 1999
and 1998, the Company capitalized approximately $612,000 and $496,000,
respectively in software development costs.
COPYRIGHTS AND TRADEMARKS
The Company holds trademark registrations protecting certain of its
trademarks. The Company's proprietary software products are protected by
copyright. The Company holds no patents which are significant to its current or
proposed operations.
As noted above, the Company's multi-dimensional database software
products are derived from software developed by Pick Systems, and are
distributed under licenses granted by Pick Systems. Invalidation or cancellation
of those licenses 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 System 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.
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.
7
<PAGE> 8
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 Company's
customers and thereby dramatically influence current period revenues.
At September 30, 1999 the Company had backlog of approximately
$262,653. At September 30, 1998, the Company's backlog was approximately
$1,013,000. Virtually the entire backlog at September 30, 1999 was shipped
subsequent to the fiscal year end.
EMPLOYEES
As of September 30, 1999, the Company had approximately 161 employees,
135 of whom are employed within the U.S. 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 does not operate a type of business whose activities are
likely to require any special measures to ensure compliance with federal, state
or local provisions relating to protection of the environment. Accordingly, the
Company does not believe that any material capital expenditures will be required
for compliance with such provisions or that such provisions will have any
material effect upon its earnings or competitive position.
ITEM 2. PROPERTIES
The Company's headquarters and principal operations are located in a
facility of approximately 20,000 square feet in Irvine, California, which the
Company purchased in February 1995. The Company also leases an additional 10,000
square feet of space used principally for shipping/receiving in Irvine,
California. The Company's engineering and support personnel are located in
leased facilities in Hauppauge, New York and Marlborough, Massachusetts. The
Company also leases space in ten states, primarily for sales and service
offices. The Company's subsidiaries in Australia, Canada and the United Kingdom
also lease their facilities. In management's opinion, the Company's facilities
are adequate for operations in the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
In 1991 a lawsuit was brought against the Company in the Circuit Court
of Cook County, Illinois, County Department, Chancery Division, entitled 520 S.
Michigan Ave. Associates, Ltd. d/b/a Congress Hotel vs. General Automation and
Maxial Systems, Inc., which asserted, among other things, that the Company was
responsible for damages resulting from an allegedly defective computer system
sold by the Company to the Congress Hotel and Convention Center. In December
1999, the Company settled this lawsuit. Under the terms of the settlement, the
Company has paid the plaintiff cash payments totaling $75,000, and has agreed to
pay the plaintiff an additional $225,000, together with interest at the rate of
6.25% per year, in twenty-four equal monthly installments commencing in January
2000. The Company has also issued 125,000 shares of the Company's common stock
to the plaintiff in connection with the settlement. The terms of the settlement
provide that, if the Company defaults in the payment of the monthly installments
referred to above, the plaintiff will be entitled to the entry of judgment
against the Company in the amount of $450,000, less (a) the total of the monthly
payments made by the Company prior to the default giving rise to the entry of
judgment, and (b) if the default occurs after the first anniversary of the
settlement, an amount equal to 60% of the market value, at that time, of the
125,000 shares of the Company's stock issued to the plaintiff in connection with
the settlement.
8
<PAGE> 9
On April 15, 1999, General Automation filed a Complaint in the Orange
County Superior Court against PriceWaterhouseCoopers, LLP, successor to
PriceWaterhouse, which was General Automation's independent auditors from 1991
through 1996. The action asserts that PriceWaterhouse was negligent in its
audits of General Automation's financial statements and procedures, resulting in
substantial reporting errors which were only uncovered after PriceWaterhouse was
replaced as the Company's independent auditors in 1997. General Automation seeks
general and punitive damages, including its audit expenses, and losses resulting
from its reliance upon the inaccurate financial statements. Trial has been set
for July 24, 2000.
In the ordinary course of business, the Company is from time to time
involved in various pending or threatened 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 condition and/or results
of operations of the Company. However, in the opinion of the Company's
management, matters currently pending or threatened 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 A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR THE COMPANY'S COMMON STOCK
The Company's common stock was traded on the American Stock Exchange
until May 20, 1998, when trading was suspended due to the Company's failure to
meet the Exchange's minimum listing requirements. The Company's common stock was
delisted by the American Stock Exchange on September 28, 1998. Since October 9,
1998, the Company's common stock has been quoted on the "Electronic Bulletin
Board."
The following table sets forth (a) the high and low closing prices of
the Company's common stock on the American Stock Exchange for each of the
periods indicated up to May 20, 1998, and (b) commencing on October 9, 1998, the
high and low bid prices of the Company's common stock for each of the periods
indicated as reported on the "Electronic Bulleting Board".
Sale Prices
---------------------
High Low
---- ---
Fiscal Year Ended September 30, 1998
First Quarter 1 7/16 1 3/16
Second 1 5/8 1 1/4
Third Quarter (from April 1 to May 20) 1 1/4 13/16
Third Quarter (From May 21 to June 30) Trading Suspended
Fourth Quarter Trading Suspended
Bid Prices
----------------------
High Low
---- ---
Fiscal Year Ended September 30, 1999
First Quarter (from October 9, 1998) 1.00 .15
Second Quarter .76 .20
Third Quarter .90 .53
Fourth Quarter .87 .47
9
<PAGE> 10
DIVIDEND POLICY
The Company has never paid a dividend on its common stock. 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.
RECORD HOLDERS
The approximate number of holders of record of GA's outstanding common
stock as of January 7, 2000 was 854.
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, 1999,
1998, 1997, 1996, and 1995, 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, 1999; and (b) "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein.
10
<PAGE> 11
<TABLE>
<CAPTION>
YEAR(S) ENDED SEPTEMBER 30 (NOTE 1 & 2)
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
-----------------------------------------------------------------------------
1999 1998 1997(2) 1996 1995(3)
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales 28,868 $ 30,666 $ 36,040 $ 23,668 $ 14,622
Income (loss) from operations (1,919) (11,798) (38) 489 (1,313)
Extraordinary Gain 3,505 -0- -0- -0- -0-
Net income (loss) $ 791 $(12,399) $ (514) $ 275 $ (1,712)
Basic and diluted
Net income (loss) per share $ 0.08 $ (1.33) $ (.06) $ .03 $ (.21)
BALANCE SHEET DATA:
Working capital (deficiency) (6,790) (13,751) (6,123) (865) (1,570)
Total assets 11,166 14,114 24,263 11,251 10,484
Long-term obligations 4,604 2,210 3,269 1,072 1,305
Shareholders' equity (deficit) (7,530) (9,927) 2,688 703 (161)
</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) 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 from the date of the acquisition. (See Note 2 of
the Company's Financial Statements.)
(3) Effective May 22, 1995, the Company and Boundless Technologies,
formerly known as SunRiver Data Systems ("Boundless"), formed a limited
liability company ("GAL") for the purpose of combining GA's Pick based
business and Boundless' Pick based business, with the Company owning
51% and Boundless owning 49% of GAL.
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, THAT INVOLVE RISKS AND
UNCERTAINTIES. A NUMBER OF IMPORTANT FACTORS, INCLUDING THOSE CONTAINED ABOVE
UNDER THE HEADING "SPECIAL FACTORS", THE TIMELY DEVELOPMENT OF PROPOSED
PRODUCTS, MARKET ACCEPTANCE OF NEW PRODUCTS, ACTIONS BY COMPETITORS AND
CREDITORS, AS WELL AS FACTORS DISCUSSED ELSEWHERE IN THIS REPORT AND IN THE
COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, COULD
AFFECT THE COMPANY'S ACTUAL RESULTS AND CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS.
RESULTS OF OPERATIONS
The Company posted net revenues for the year ended September 30, 1999
of $28.9 million, a decline of 5.9% from 1998, and a 14.9% decline between 1997
and 1998. Revenues in 1997 of $36 million, which constituted a significant
increase over fiscal 1996 revenues, were achieved in large part due to
acquisitions completed in fiscals 1995 and 1996.
The decline in revenues is attributed primarily to the attrition of
service contract revenue, which the Company has been experiencing for the past
several years. Management expects this declining trend in service revenues to
continue in the foreseeable future. Management notes that service revenues
contributed almost 65% of total revenues in fiscal 1997 and approximately 50% by
1999. It is the Company's intention to focus its efforts in the future on
product sales, primarily software sales, as opposed to service revenue.
1997 1998 1999
------ ------ ------
PRODUCT SALES 10,694 10,716 13,962
SERVICE/SUPPORT 25,346 19,950 14,906
------ ------ ------
TOTAL REVENUES 36,040 30,666 28,868
====== ====== ======
A review of the above table indicates that while product sales remained
relatively stable between 1997 and 1998, those revenues grew by over 30% between
1998 and 1999. This increase is attributed to both system sales and software
sales. The Service/Support revenue however declined by approximately 21.3% in
fiscal 1998 from 1997, and by 25.3% in 1999. Management estimates that this form
of revenues could decline at a rate of approximately 25-30% per annum in the
foreseeable future.
Revenues for fiscal 1999 were also bolstered by the development and
sale of the Company's Universal Data Exchange (UDA) software which was developed
at the Company's wholly owned subsidiary in Canada, Liberty Integration Software
("Liberty"). In fiscal 1999 Liberty products contributed approximately $1.2
million in software sales, $700 thousand of which was sold to a single customer.
During 1999, all sales efforts and administrative duties regarding Liberty were
relocated to the Irvine, CA headquarters, leaving Liberty to concentrate its
efforts on software development and technical support.
12
<PAGE> 13
Net income for the year ended September 30, 1999 is reported at $791
thousand vs. losses of $12.4 million and $514 thousand for fiscal 1998 and 1997
respectively. The 1999 income includes an extraordinary gain of $3.5 million
resulting from settlement of the Boundless/TMI debt more fully described below.
The 1999 net income reported also includes the effects of a $1.2 million
write-down of goodwill associated with the TMI acquisition, in accordance with
FAS 121. The Company's obligations to Boundless and TMI were significantly
reduced and restructured in a transaction which was completed on September 30,
1999, which is described below under "Liquidity and Capital Resources".
Cost of sales decreased by 25.8% from 1998 to 1999, vs. a 13.6%
increase from 1997 to 1998. Management began taking steps during 1998 and into
1999 to improve its operations and lower cost of sales. The Company downsized
its Marlborough, MA facility and eliminated certain costly contracts during 1998
which contributed to this effort. Additionally, as the Company begins to
increase its efforts on software sales, as was the case during 1999, a higher
gross margin and lower cost of sales should be achieved. Management estimates
the cost of sales incurred from software sales vs hardware/system sales
approximates 30% vs. 70% respectively. As a result, gross profit during 1999
increased by 70.0% over 1998 while 1998 reflected a 53.5% decrease from 1997.
Gross margin during 1999 is reported at 39.5% vs. 23.2% in 1998 and 42.5% in
1997. Both cost of sales and the gross margin were negatively impacted in 1998
and 1999 due to the acquisitions completed with Boundless Technologies and TMI
during 1995 and 1996, respectively. A royalty expense was accrued during all of
those years to Boundless computed on a sliding scale from 12% to 8% of certain
gross revenues. At September 30, 1999 the Company completed a transaction with
Boundless which eliminated that royalty expense, a part of cost of sales, in
future periods. (See the discussion of that transaction below.). Management
estimates approximately $1.6 million annually has been eliminated from its cost
of sales as a result of this transaction. Management anticipates that the
Company's gross margins will continue to improve in the foreseeable future as is
discussed above.
The following table summarizes cost of sales as related to product sales and
service/support (in thousands):
1997 1998 1999
------ ------ ------
COST OF SALES - PRODUCT SALES 6,661 10,162 8,644
COST OF SALES - SERVICE/SUPPORT 14,050 13,376 8,820
GROSS PROFIT 15,329 7,128 11,404
Selling, general and administrative expenses posted in 1999 are down by
6.7% over 1998 while a 23.2% increase was reported between 1997 and 1998. The
increase in 1998 over 1997 is attributed largely to the Company ramping up for
anticipated growth which did not materialize in that time frame. Also, a large
part was due to the increase in goodwill amortization in 1997 and 1998 resulting
from the Boundless Technologies and TMI acquisitions made in 1995 and 1996.
During 1998 and 1999 that goodwill amount was deemed to be impaired in
accordance with FAS 121 resulting in a charge of $3.5 million at the end of 1998
and a $1.2 million charge in 1999. Accordingly, a 66.2% decline in goodwill
expense is reflected for 1999. The impairment amount estimated during 1998,
aligns closely to the $3.5 million in debt forgiveness reflected as a result of
restructuring the terms and price of those acquisitions at the end of fiscal
1999.
13
<PAGE> 14
Research and development costs for 1999 reflect a decrease of 58.3%
from 1998 vs. a 15.5% decrease between 1998 and 1997. This is due in large part
to advances made in product development during 1999, those costs approximating
$600 thousand, being capitalized in accordance with FAS 86. Those products,
while reaching a state of feasibility during 1999, are scheduled for release in
fiscal 2000 and 2001.
Management attributes the increase in interest expense of 24% in 1999
over 1998 and 54.7% increase in 1998 from 1997, to increased borrowing from its
main bank as well as additional borrowings against its corporate headquarters
completed in May 1998. Management expects interest expense to increase in fiscal
2000 and beyond as a result of the private offering of subordinated convertible
debt which was incurred at the end of fiscal 1999. That debt bears a face
interest rate of 10% per annum.
The following table summarizes fourth quarter adjustments:
<TABLE>
<S> <C>
Extraordinary gain from debt forgiveness: See Note 2 to Financial Statements 3,505,000
Impairment of Goodwill: See Note 7 to the Financial Statements (1,170,000)
Write-off Prepaid Royalty: Product sales deemed to be inconsistent with the e-path strategy
adopted in August 1999, were discontinued. (208,000)
Write-off NCE acquisition costs: Funds for acquisition were not raised as part of the
private offering which closed on 9/30/99 as anticipated. See Note 2 to Financial Statements (160,000)
Reserve for Congress Hotel settlement subsequent to year ended September 30, 1999:
See Note 11 to Financial Statements (375,000)
Reserve for Contested Royalty Audit received in July 1999 (346,000)
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 1999, the Company obtained a loan in the amount of
$3,150,000 from Pacific Mezzanine Fund LP ("PMF"). That loan is evidenced by a
Secured Convertible Promissory Note which bears interest at the rate of 10% per
year. Interest only is payable on this Note in monthly installments. The
principal amount of the Note is due on September 30, 2004, subject to
acceleration upon the occurrence of certain events. The Note is convertible at
any time at the election of the holder of the Note into shares of the Company's
common stock at the price of $0.73 per share, is secured by a security interest
in substantially all of the Company's assets, and is subordinated in right of
payment to the company's obligations to Comerica Bank-California. In connection
with this loan, the Company also issued a Warrant to PMF covering 393,750 shares
of the Company's common stock with an exercise price of $0.45 per share, and
granted certain registration and other rights to PMF. (See the Exhibits filed
with this Report on Form 10-K.)
The proceeds of the loan obtained by the Company from PMF were used by
the Company to consummate transactions on September 30, 1999 with each of
Boundless Technologies, Inc. ("Boundless") and RadiSys CPD, Inc., formerly known
as Sequoia Systems, Inc. and also formerly known as Texas Micro, Inc. ("TMI").
Immediately prior to the completion of the transaction with Boundless, the
Company was indebted to Boundless in the amount of approximately $3 million.
This debt consisted of royalties which had been accrued under the Operating
Agreement between Boundless and the Company pertaining to General Automation
LTD, a limited liability company which had been formed by the Company and
Boundless in May 1995. In exchange for the cancellation of that indebtedness,
the Company paid Boundless $1.5 million in cash and issued to Boundless
1,133,333 shares of the Company's common stock. In addition, the Company issued
to Boundless two promissory notes, one in the principal amount of $250,000 which
bears interest at the rate of 10% per year and is due and payable in full on
September 30, 2004. The second note in the principal amount of $500,000, bears
interest at the rate of 10% per year and is due and payable upon the earliest to
occur of:
14
<PAGE> 15
(a) the closing by the Company of any debt or equity financing (other than the
refinancing of the Company's property in Irvine, CA) which yields gross
proceeds to the Company of not less than $1,050,000;
(b) the closing of any refinancing of the Company's property in Irvine, CA
which yields net proceeds to the Company of not less than $1,000,000; or
(c) January 28, 2000.
However, if a financing described in clause (a) or (b) above has not
occurred by January 28, 2000, the Company may, at its election, rather than
paying this Note, satisfy its obligations thereunder by delivering to Boundless
a Secured Convertible Promissory Note in the principal amount of $500,000 with
the same terms and provisions as the Secured Convertible Promissory Note issued
by the Company to PMF on September 30, 1999.
On September 30, 1999, concurrently with the consummation of the
transactions with PMF and Boundless described above, the Company also
consummated a transaction with TMI. Immediately prior to the consummation of
that transaction, the Company was indebted to TMI in the amount of approximately
$6 million which had been incurred by the Company in connection with its October
1996 acquisition of substantially all of the assets and liabilities of Sequoia
Enterprise Systems. In exchange for the cancellation of that indebtedness, the
Company paid TMI $1.5 million in cash and issued to TMI 1,133,333 shares of the
Company's common stock. In addition, the Company issued to TMI two promissory
notes, one in the principal amount of $250,000 which bears interest at the rate
of 10% per year and is due and payable in full on September 30, 2004. The second
note in the principal amount of $500,000 bears interest at the rate of 10% per
year and is due and payable upon the earlier to occur of:
(a) the closing by the Company of any debt or equity financing which yields
net proceeds to the Company of not less than $1,000,000; or
(b) January 28, 2000.
However, if a financing described in clause (a) above has not occurred
by January 28, 2000, the Company may, at its election, rather than paying this
Note, satisfy its obligations thereunder by delivering to TMI a Secured
Convertible Promissory Note in the principal amount of $500,000 with the same
terms and provisions as the Secured Convertible Promissory Note issued by the
Company to PMF on September 30, 1999.
Liquidity and weak capital structure remains a concern of management.
Although improved due to the curing of the default on Boundless and TMI debt
described above, working capital is still a negative $6.8 million versus a
negative $6.2 million and negative $13.8 million at the end of fiscal 1997 and
1998, respectively. Total shareholder's equity at 1999 is reported at a negative
$7.5 million versus a negative $9.9 million in 1998 and a positive $2.7 million
in 1997. Other balance sheet items show improvement at the end of fiscal 1999
primarily due to the restructuring of the Boundless/TMI debt described above.
As of September 30, 1999, the Company was indebted to Comerica in the
amount of $2.1 million. During fiscal 1999 the credit agreement was modified to
accommodate the Company and a workout program is in effect for repayment, or
refinancing. Management continues to seek other sources of financing to pay off
Comerica, though there can be no assurance that the Company will be successful
in obtaining the debtor equity financing necessary to pay its obligations to
Comerica. If the Company is unable to do so, Comerica could accelerate
collection of the amounts owed to it, which would adversely affect the ability
of the Company to continue its operations. Barring any such action by Comerica,
the Company believes that it will be able to meet its short-term working capital
requirements with the resources available to it.
FORWARD OUTLOOK
This forward outlook section contains a number of forward-looking
statements, all of which are based on current expectations. Actual results may
differ materially. These statements do not reflect the potential impact of any
future mergers or acquisitions. These forward-looking statements contain a
number of risks and uncertainties. These could include delays and complications
in developing new technology and software, lack of liquidity and other financial
concerns, as well as customer acceptance and market constraints.
15
<PAGE> 16
The Company believes its future lies with its ability to undertake and
complete an expanded strategic direction, called "ePath," in the year 2000 and
beyond. General Automation, which is already recognized as a leading provider of
enterprise-wide database business solutions and data migration tools for the
multivalue market, believes its expanded strategy will help solve a growing
crisis for its customers by enabling them to perform e-commerce in the new,
Internet-driven economy.
General Automation anticipates that it will bring to the marketplace in
the first calendar quarter of 2000 what it believes will be innovative and
practical products that will save multivalue customers time and provide more
effective communications and data exchange with e-business trading partners.
Users of multivalue software represent a market valued at nearly $3 billion
annually, and they are being pressured by both their customers and suppliers to
enter into e-partnering relationships that facilitate on-line information
exchange. General Automation believes that it has both the expertise and
business acumen needed to develop and bring to market products that can make
existing multivalue data "e-data" -- or in other words, ready to be seamlessly
integrated into e-business. The Company's initiative and commitment was put into
place in July 1999 through expanded budgeted dollars designated for marketing
and technology related to product development through its wholly owned
subsidiary, Liberty Integration Software. The Company fully expects to be
spending additional funds towards this effort well into fiscal 2000; in
particular its first and second fiscal quarters for 2000.
The Company believes that the ePath initiative will bring to life the
Company's goal of partnering with its channels and their customers to leverage
the Web, to help them derive more value from their multivalue data and to
achieve a competitive advantage through becoming e-business ready.
The Company has previewed its ePath strategy, under nondisclosure, to a
number of strategic partners and high-profile customers. To date, the response
has been positive. Management believes the timing has never been better for
General Automation to make a positive impact on the multivalue marketplace as it
makes its move into the new Web-enabled economy.
As it moves into the year 2000, General Automation plans to provide
standards-based, enterprise data access solutions that make it easy for
multivalue customers to use Windows-based and other leading business
intelligence tools and e-business applications with their line-of-business
multivalue data. In addition, the Company believes that its new solutions will
incorporate the most advanced, Web and e-commerce XML technology developed by
Liberty Integration, Vancouver, Canada, a wholly owned subsidiary of General
Automation.
The Company believes that its knowledge of data structures, databases,
data storage and its standards-based approach to data migration and e-business
allows it to develop products that will provide customers with an open path to
the future. This path makes customers' enterprise data e-business ready and
available across platforms and applications without the limitations of existing
systems and proprietary approaches.
General Automation's next-generation solutions are designed to not only
enhance the Company's existing database offerings, but to provide a
standards-based data migration path or ePath, for multivalue customers to
migrate their existing multivalue data to the Web and e-business applications.
YEAR 2000 ISSUES
OVER-VIEW. The Y2K issue exists because many computer systems and
applications, including those embedded in equipment and facilities, use
two-digit rather than four-digit date fields to designate an applicable year. As
a result, the systems and applications utilized by certain companies may not
properly recognize the Year 2000, or certain dates prior or subsequent thereto,
or process data which includes a reference to the Year 2000, potentially causing
data miscalculations or inaccuracies, or operation malfunctions or failures.
Since 1998, General Automation has devoted significant efforts to
address Y2K issues. GA has developed a comprehensive, company-wide plan to
identify, evaluate and remediate Y2K issues and has established a Y2K Project
Committee to coordinate the implementation of GA's Y2K plan. The committee is
comprised of management personnel from all departments in the Company. The
committee reports to the Company's Vice President of Finance.
16
<PAGE> 17
During the last half of 1999 the responsibility for this initiative was
moved under the direction of the Company's engineering department to assure
technical compliance.
GA's Y2K plan is focused on those areas that are critical to
maintaining uninterrupted service to its customers and includes network systems,
applications and infrastructure for the provision of business information
products, and services. In addition, the plan includes a review of the Y2K
readiness of GA's vendors and suppliers who have material relationships with GA
and its subsidiaries. The major phases of the plan with respect to each of these
categories includes an inventory of all hardware and software components with
possible date implications, an assessment of the Y2K readiness of all inventory
items, the remediation of all Y2K issues which have been identified in the
assessment phase, and validation testing and certification as to Y2K compliance.
COMPANY'S STATE OF READINESS
GA's plan with respect to its business systems products includes
computers, operating system software and application/database software. GA has
completed the inventory and assessment phases and continues working towards the
remediation and validation testing of these products. GA intends to continue
periodic Y2K testing of these products into 2000.
GA's Y2K plan for its business information systems and applications
involves all hardware and software components which relate to major internal
business and administrative functions, such as customer service, billing,
inventory, and credit and collections. The remediation effort relating to
certain of GA's business systems involves the decommissioning of certain
hardware and software and the installation of new hardware and software which
has been certified as Y2K compliant. A significant portion of the remaining
remediation and validation testing phases of the Y2K plan related to GA's
business information systems and applications will be completed when such
hardware and software is installed.
The Company has also provided various "patches", etc. to
customers/vendors to help eliminate the Y2K non-compliance that could be in
place in certain software components.
COSTS ASSOCIATED WITH YEAR 2000 ISSUES
GA's estimate of the total cost of its Y2K compliance efforts, based on
amounts expended to date, plus estimated amounts of additional remediation
costs, is immaterial to the operations of the Company. The estimated Y2K costs
have not been independently verified and may vary in the event of unforeseen Y2K
remediation costs or costs related to the implementation of GA's contingency
plan. Certain costs budgeted for the procurement of upgrades or replacements of
GA's network and business information systems have not been included in this
amount since these upgrades or replacements were being made by GA independent of
Y2K readiness. The estimated Y2K costs do not include GA's internal costs, such
as compensation and benefits of employees delegated Y2K responsibilities,
related to its Y2K plan since such costs are not internally allocated by GA. GA
expects to fund its Y2K compliance efforts with cash flows from operations.
RISKS ASSOCIATED WITH YEAR 2000 ISSUES
GA is working directly with various mission-critical external parties
such as its major equipment vendors, telecommunications and data service
providers and utilities. GA has conducted testing procedures with certain of
these external parties in order to confirm Y2K readiness. In addition, GA has
identified and prioritized other external parties that provide equipment and
services for purposes of assessing their Y2K readiness and has forwarded those
results to other external parties in order to obtain reasonable assurance of
their Y2K readiness. GA assesses all the responses it receives from external
parties to evaluate Y2K readiness and to forward follow-up communications when
appropriate. GA is also using the Internet as a resource for determining the Y2K
readiness of external parties.
17
<PAGE> 18
The failure by GA or certain external parties to achieve Y2K readiness
with respect to any mission-critical aspect of GA's business could result in an
interruption in, or failure of, certain normal operations or business activities
of GA. Such failures could materially affect GA's results of operations,
financial condition or liquidity. For example, GA's internal data networks are
interconnected with, or dependent upon, systems operated by third parties,
including telecommunications/data service providers and public utilities. Since
external parties are responsible for addressing their own Y2K readiness, GA is
unable to determine at this time whether any Y2K-related interruptions or
failures will occur or the extent to which any such conditions might have a
material impact on GA's results of operations, financial condition or liquidity.
GA's Y2K plan is expected to reduce the level of uncertainty regarding GA's Y2K
readiness and the Y2K readiness of external parties. GA believes that, as the
Y2K plan described above progresses, the possibility of significant
interruptions or failures of GA's operations as a result of Y2K issues should be
substantially reduced.
CONTINGENCY PLANS
Contingency planning to maintain and restore service in the event of
natural disasters or technical problems has been part of GA's standard operating
procedures, and GA intends to leverage this experience in the development of
certain contingency plans being developed as parts of GA's overall Y2K readiness
activities. The contingency plan will include:
o a business impact analysis designed to identify and quantify the potential
impact on GA in the event of an interruption of normal business operations
o an incident management plan to be used by senior management and support
personnel when responding to incidents that might interrupt or impact GA's
ability to maintain normal business operations
o business resumption plans and procedures to address interruptions or
failures of GA's essential functions and services, such as infrastructure,
business systems and applications or those provided by mission-critical
external parties, and
o Round the clock service and support with contact phone numbers posted on
the Company's web-site and sent to customers/vendors via mail and e-mail.
A full support and help staff will be working through 12/31/99 into
1/1/00.
o The Company has sent letters to customers advising them about holiday
hours and staffing, after hours support, product liability, final Y2K
preparation, GA professional support, Y2K web site support, and Y2K policy
statement.
SUBSEQUENT TO DECEMBER 31, 1999
Subsequent to the year ended December 31, 1999, the Company experienced
no significant events, nor received any significant reports indicating any
material Y2K issues. The Company's Australian subsidiary, which rolled over into
the year 2000 ahead of other operations, reported that some older Sequoia
systems rolled into the year 2036 vs. 2000. That information was forwarded to
other parts of the world ahead of mid-night December 31, 1999 and correction of
the problem was worked on and apparently solved early on January 1, 2000. The
Company is unaware of any uncorrected problems regarding the Y2K issue at this
time, but will continue to monitor for any potential problems throughout 2000.
GOING CONCERN COMMENT AND MANAGEMENT'S PLAN OF ACTION
The Company's independent auditors' reports for the years ended
September 30, 1997,1998 and 1999 contain a "going concern" matter of special
emphasis paragraph. The primary steps which management will focus on in the
immediate future to address this concern include:
18
<PAGE> 19
o Continue to work closely with the Company's primary bank, Comerica Bank,
to insure compliance with all covenants and conditions of the credit line.
o Continue to work with other lending sources who have given indications of
interest in replacing Comerica Bank as the Company's primary lending
source.
o Expand the Company's market niche and its opportunities involving the
Internet, e-commerce, etc.
o Expand market opportunities through technology available from the
Company's foreign subsidiaries; an area which management has a great deal
of confidence in.
o Continue with the upgrade and improvement of operating and reporting
systems within the Company in order to maintain efficiency in daily
operations.
EFFECTS OF INFLATION
SFAS 89 - Financial Reporting and Changing Prices, requires disclosures
about changing prices and inflation which Management deems material to an
understanding of the Company. In this regard, and as discussed above, rapid
advances in technology leads to greater opportunities for a customer base to
continually upgrade their systems and software at a lower cost to that customer.
This lower cost to a customer is translated to lower revenue for companies in
the computer industry, including General Automation. Additionally, the related
revenues associated with maintenance contracts for product and service are
clearly subject to declines as a result of these lower costs. General Automation
has taken steps to partially offset these declines by increasing and
strengthening the inside sales force in order to seek and capture more business.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not use derivative financial instruments in its
non-trading investment portfolio. Cash reserves, when available are placed in
financial instruments that meet high credit quality, typically money market
accounts. The Company does not expect any material loss with respect to its
investment portfolio.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements are filed as a part of this report
on Form 10-K:
<TABLE>
<CAPTION>
Page
-----------
<S> <C>
REPORTS OF INDEPENDENT ACCOUNTANTS 29-30
Consolidated Balance Sheets at September 30, 1998, and 1999 31
Consolidated Statements of Operations for the three years in the period
ended September 30, 1999 32
Consolidated Statements of Stockholder's Equity (deficit) for the three
years in the period ended September 30, 1999 33
Consolidated Statements of Cash Flows for the three years in the period
ended September 30, 1999 34-35
Notes to Consolidated Financial Statements 36-55
AUDITOR'S REPORT ON THE SCHEDULE 56-57
SCHEDULE II -- Valuation and Qualifying Account 58
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
19
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the directors and executive officers of the Company:
<TABLE>
<CAPTION>
Name Age Position(s) with the Company
---- --- ----------------------------
<S> <C> <C>
Robert M. McClure 65 Chairman of the Board, Director
Robert D. Bagby 66 Vice Chairman of the Board, Director
Jane M. Christie 48 President, Chief Executive Officer, Director
Nathan Bell 39 Director
Andrew Dumke 40 Director
Philip T. Noden 57 Director
Richard H. Nance 51 Vice President Finance, Chief Financial
Officer, Secretary & Treasurer
</TABLE>
Robert M. McClure has been a director of the Company since April 1994
and became Chairman of the Board in July 1999. Dr. McClure is the President of
Unidot, Inc., which he founded in 1979 to specialize in the design of
sophisticated computer software and hardware. Dr. McClure also serves as a
director of The Santa Cruz Operation, Inc. and IPT Corporation.
Robert D. Bagby has been a director of the Company since September
1989. From 1987 to 1994, Mr. Bagby was the Company's Vice President of
Operations. In February 1994, he was appointed President and Chief Operating
Officer, and in October 1994 he was appointed Chief Executive Officer. In May
1996, he was appointed Vice Chairman of the Board of Directors and resigned his
positions as President, Chief Operating Officer and Chief Executive Officer.
Jane M. Christie, president and chief executive officer, joined the
company in 1979 and was elected to the board in 1997. In this role, she
spearheaded the acquisitions of Liberty Integration Software and Sequoia
Enterprise Systems. She has held various senior executive positions with the
company before being appointed to her current position in May 1996. In August
1995, she became an officer in the company and was named senior vice president
of sales, marketing and service. Eight years prior, she was made responsible for
the company's services division, where she doubled its size every year during
her tenure. Christie also worked for two computer services companies during her
career. She served as director of services administration for Sorbus and
operated as director of services for First Data Resources. Ms. Christie holds a
Bachelor of Science in Business Administration.
Philip T. Noden has been a director of the Company since January 1989.
Since 1983, he has been a member of the Board of Directors of Sanderson Group
PLC ("Sanderson"), a United Kingdom-based developer and supplier of applications
software.
Mr. Nathan Bell has been a director of the Company since September
1999. Mr. Bell is a founding general partner of Pacific Mezzanine Fund ("PMF")
which was established in 1994. He currently serves as a director of four private
companies in PMF's portfolio. Mr. Bell has been employed in the private equity
and venture capital industry since his graduation from the Harvard Business
School in 1986. Previous to his employment at PMF, Mr. Bell was the managing
director for BW Capital Corporation, a private equity investment firm..
Mr. Andrew Dumke has been a director of the Company since September
1999. Mr. Dumke is a general partner of PMF, and has been employed by PMF since
1994. He currently serves on the board of directors of two private companies in
PMF's portfolio. Prior to his employment by PMF, Mr. Dumke was the con-founder
of Sterling Pacific, Inc., a microcomputer application software company and
founder of Wave Software, a microcomputer utility software company.
20
<PAGE> 21
Richard H. Nance joined the Company in February 1998 as Vice President
Finance, Chief Financial Officer and Secretary/Treasurer. He has more than
twenty-five years of diversified experience in financial management, treasury,
accounting and SEC reporting. His background includes working in senior
management roles of state and nationally chartered banks, a bank examiner with
the Comptroller of the Currency and senior executive officer with companies in
other industries. Mr. Nance is a Certified Public Accountant and holds
professional memberships in the American Institute of Certified Public
Accountants and the California Society of Certified Public Accountants. From
1993 through 1996 he was a principal in Calspectre Management in Mission Viejo,
California, where his responsibilities included managing merger and acquisition
analyses, SEC reporting and strategic planning for the company's clientele. From
September 1996 to October 1997 he was chief financial officer of Wiz Technology,
Inc. He holds two degrees, a Bachelor of Business Administration in Banking and
Finance and a Bachelor of Science in Accounting.
Merssrs. Dumke and Bell serve as directors of the Company pursuant to
the Investors' Rights Agreement dated September 30, 1999 (the "Investors' Rights
Agreement") entered into by the Company and PMF in connection with the loan of
$3,150,000 made to the Company by PMF on that date. Under the Investors' Rights
Agreement, so long as the GA stock held by PMF and/or issuable to PMF under any
warrant or convertible security held by it represents at least 10% of the
Company's total outstanding stock on a fully diluted basis, PMF has the right to
designate two individuals to be included among management's nominees to the
Company's Board of Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's executive officers, directors and persons who own more than 10% of a
registered class of the Company's equity securities to file reports of ownership
and changes in ownership with the Securities and Exchange Commission. Such
persons are also required by the SEC regulations to furnish the Company with
copies of the Section 16(a) forms, which they file.
During the fiscal year ending September 30, 1999, Messrs. Dumke and
Bell, directors of the Company were not timely with respect to the filing of
Form 3, Initial Statement of Beneficial Ownership of Securities. Also, during
the fiscal year ended September 30, 1999, Mr. Nance, an officer of the Company,
was not timely with respect to the filing of one report relating to the grant
of stock options by the Company to Mr. Nance.
ITEM 11. EXECUTIVE COMPENSATION
The following table provides certain summary information concerning
compensation paid or accrued by the Company and its subsidiaries to or on behalf
of the Company's President and Chief Executive Officer and each other executive
officer of the Company whose total annual salary and bonus during fiscal 1999
exceeded $100,000 (hereinafter referred to as the "named executive officers")
for the years ended September 30, 1999, 1998 and 1997:
21
<PAGE> 22
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation(1)
Annual Compensation Awards
------------------------------------ ---------------
Securities
Name and Principal Underlying All Other
Position Year Salary ($) Bonus ($) Options(#) Compensation($)(2)
-------- ---- ---------- --------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Jane M. Christie 1999 171,928 0 0 4,644
President and CEO 1998 176,300 0 100,000
1997 169,000 0 200,000 2,029
Robert D. Bagby 1999 133,644 0 0
Vice Chairman of the Board 1998 147,500 0 0 4,200
1997(3) 145,200 0 50,000 4,000
Richard H. Nance(4) 1999 121,000 0 25,000 0
Vice President Finance 1998 77,000 0 100,000 0
Chief Financial Officer,
Secretary, Treasurer
</TABLE>
- ------------------
(1) The Company made no long-term incentive plan payouts to the named
executive officers during the 1997, 1998 and 1999 fiscal years.
(2) Includes contributions to the Company's Employee Savings Plan on behalf of
the named executive officers to match contributions (included under
salary) made by each to that Plan.
(3) Includes debt forgiveness of $43,612.
(4) Mr. Nance joined the Company in February 1998 as Vice President Finance,
Chief Financial Officer, Secretary & Treasurer.
COMPENSATION OF DIRECTORS
During the fiscal year ended September 30, 1999, directors who were not
employees of the Company were each entitled to receive a monthly retainer of
$1,200 and the Chairman was entitled to receive a monthly retainer of $3,500.
Directors who were also employees of the Company received no additional
remuneration for serving as a Director.
OPTION GRANTS TABLE
During fiscal 1999, only one option was granted by the Company to the
named executive officers of the Company. The following table contains
information concerning that option:
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed Annual
Number of Percent of Rates of Stock Price
Securities Total Options Appreciation for
Underlying Granted to Option Term
Options Employees in Exercise Expiration -----------------------
Name Granted (#) Fiscal Year Price ($/Sh) Date 5%($) 10%($)
- ---- ----------- ------------- -------------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Richard H. Nance 25,000 9% $1.00 10/04 0 $28,184
</TABLE>
22
<PAGE> 23
OPTION EXERCISES AND YEAR-END VALUE
The following table provides information, with respect to the named
executive officers, concerning the exercise of options during fiscal 1999 and
unexercised options held as of the end of fiscal 1999.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options/SARs Options/SARs at
Acquired at FY-End(#) FY-End($)
on Value ---------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- --------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jane M. Christie 0 0 450,000 100,000 0 0
Robert D. Bagby 0 0 535,000 0 0 0
Richard H. Nance 0 0 100,000 25,000 0 0
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 7, 2000 information
regarding the ownership of the Company's common stock by (a) each person known
to the Company to be the beneficial owner of more than 5% of the outstanding
shares of the Company's common stock, (b) each of the directors of the Company
who own common stock, (c) each of the named executive officers, and (d) all
executive officers and directors of the Company as a group.
23
<PAGE> 24
<TABLE>
<CAPTION>
Number of Percentage
Name and Address Shares(1) of Class(2)
- ---------------- --------- -----------
<S> <C> <C>
Pacific Mezzanine Fund LP 4,708,818 40.2%
2200 Powell Street, Suite 1250
Emeryville, CA 94608
Radisys CPD, Inc. 1,733,333 14.7%
5445 NE Dawson Creek Parkway
Hillsboro, Oregon 97124
Boundless Technologies 1,133,333 9.6%
100 Marcus Boulevard
Hauppauge, NY 11788
Richard H. Pickup 1,342,400 11.6%
2501 Monaco Drive
Laguna Beach, CA 92651
Robert D. Bagby(4) 549,800 4.7%
Jane M. Christie(4) 569,090 4.9%
Robert M. McClure(4) 100,000 *
Philip T. Noden(4) 50,000 *
Richard H. Nance(5) 125,000 1%
Andrew Dumke 0(6)
2200 Powell Street, Suite 1250
Emeryville, CA 94608
Nathan Bell 0(7)
2200 Powell Street, Suite 1250
Emeryville, CA 94608
All executive officers
and directors as a group
(7 persons, including those
named above)(8) 1,393,890 11.9%
</TABLE>
- ---------------
* Less than 1%
(1) Except as set forth below, each of the persons included in the above table
has sole voting and investment power over the shares respectively owned,
except shares issuable upon exercise of stock options, and except as to
rights of the person's spouse under applicable community property laws.
24
<PAGE> 25
(2) The number and percentage ownership for each beneficial owner is
calculated as if all options or warrants held by such owner that are
currently exercisable or exercisable within sixty days were exercised and
such shares ("beneficially owned" shares) were included in the numerator
as shares owned and in the denominator as shares outstanding for purposes
of the calculation for such beneficial owner only.
(3) Represents 4,315,068 shares issuable upon conversion of a Secured
Convertible Promissory Note held by Pacific Mezzanine Fund LP, and 393,750
shares issuable upon exercise of a Warrant held by Pacific Mezzanine Fund
LP.
(4) Shares listed for Mr. Bagby, Ms. Christie, Mr. McClure, and Mr. Noden
include 535,000, 450,000, 90,000, and 50,000 shares, respectively, that
may be acquired through the exercise of stock options that are currently
exercisable.
(5) Represents shares issuable upon the exercise of options held by Mr. Nance.
(6) Excludes the shares referred to in footnote (3) above, with respect to
which Mr. Dumke may be deemed to share beneficial ownership by virtue of
Mr. Dumke being a general partner of PMF.
(7) Excludes the shares referred to in footnote (3) above, with respect to
which Mr. Bell may be deemed to share beneficial ownership by virtue of
Mr. Bell being a founding general partner of PMF.
(8) Includes the shares referred to in footnotes 4 and 5 above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NONE
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report on
Form 10-K:
(1) The Financial Statements identified in Item 8.
(2) The following financial Statement Schedule:
Schedule II - Valuation and Qualifying Account
All other financial statement schedules are omitted because
they are not applicable or the required information is shown
in the Company's consolidated financial statements or the
notes thereto.
(3) The exhibits listed in Item 14(c) below are filed as part of
this report on Form 10-K.
(b) Reports on Form 8-K.
During the last quarter of the fiscal year covered by this
report, the Company filed no Reports on Form 8-K.
(c) The following exhibits are filed as part of this report on
Form 10-K:
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.
25
<PAGE> 26
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 Stock Option Agreement dated March 21, 1995 entered into between the
Company and each of Messrs. Lawrence Michels, Robert Bagby and Leonard
Mackenzie, incorporated herein by reference to Exhibit 10.11 to the
Company's 10-K for the year ended September 30, 1997.
10.5 The Company's 1991 Stock Option Plan, as amended, incorporated herein
by reference to Exhibit 10.12 to the Company's 10-K for the year ended
September 30, 1997.
10.6 The Company's 1991 Directors' Stock Option Plan, as amended,
incorporated herein by reference to Exhibit 10.13 to the Company's 10-K
for the year ended September 30, 1997.
10.7 Subordinated Note dated January 21, 1997 in the amount of $500,000
payable to Morgan Stanley and Company, Inc., incorporated herein by
reference to Exhibit 10.14 to the Company's 10-K for the year ended
September 30, 1997.
10.8 License Agreement dated April 26, 1996 between the Company and
McDonnell Information Systems Limited, incorporated herein by reference
to Exhibit 10.15 to the Company's 10-K for the year ended September 30,
1997.
10.9 Letter agreement dated April 15, 1997 between the Company and Leonard
Mackenzie, incorporated herein by reference to Exhibit 10.16 to the
Company's 10-K for the year ended September 30, 1997.
10.10 Agreement by and between General Automation, Inc. and MDIS dated
December 22, 1997, incorporated herein by reference to Exhibit 10.17 to
the Company's 10-K for the year ended September 30, 1997.
10.11 Loan Agreement dated December 18, 1997 between the Company and Comerica
Bank, incorporated herein by reference to Exhibit 10.18 to the
Company's 10-K for the year ended September 30, 1997.
10.12 Letter agreement dated November 5, 1998 between the Company and
Leonard Mackenzie.
10.13 Promissory Note dated May 4, 1998 between the Company and NCR
Corporation.
10.14 Warrant Agreement dated May 4, 1998 entered into by the Company,
Gregory A. Busch and David Keligian, as Trustees of the Lenawee Trust
u/t/d December 30, 1992, Dito Caree Limited Partnership, and Four JM
LLC.
10.15 Secured Promissory Note dated May 4, 1998 in the original principal
amount of $900,000 executed by the Company in favor of Gregory A. Busch
and David Keligian, as Trustees of the Lenawee Trust u/t/d December 30,
1992, Dito Caree Limited Partnership, and Four JM LLC.
10.16 Warrant dated May 4, 1998 executed by the Company in favor of Todd
Martin Pickup and Devon Renee Pickup, Trustees of the Vintage Trust
dated October 28, 1993.
26
<PAGE> 27
10.17 Warrant dated May 4, 1998 executed by the Company in favor of Gregory
A. Busch, Trustee of the 92643 Vintage Trust dated December 29, 1995.
10.18 Warrant dated May 4, 1998 executed by the Company in favor of Four JM
LLC.
10.19 Loan Agreement dated September 30, 1999 between the Company and Pacific
Mezzanine Fund LP.
10.20 Security Agreement dated September 30, 1999 between the Company and
Pacific Mezzanine Fund LP.
10.21 Secured Convertible Promissory Note dated September 30, 1999 executed
by the company in favor of Pacific Mezzanine Fund LP in the original
principal amount of $3,150,000.
10.22 Warrant dated September 30, 1999 executed by the Company in favor of
Pacific Mezzanine Fund LP.
10.23 Investors' Rights Agreement dated September 30, 1999 between the
Company and Pacific Mezzanine Fund LP.
10.24 Second Amendment to Loan and Security Agreement dated September 30,
1999 between the Company and Comerica Bank- California.
10.25 First Amendment to Loan and Security Agreement and Forbearance
Agreement dated December 31, 1998, by and between Comerica
Bank-California and General Automation, Inc.
10.26 Stock Pledge and Security Agreement dated September 30, 1999 between
the Company and Comerica Bank- California.
10.27 Intellectual Property Security Agreement dated September 30, 1999
between the Company and Comerica Bank - California.
10.28 Letter agreement dated September 30, 1999 between the Company and
RadiSys CPD, Inc.
10.29 Promissory Note dated September 30, 1999 executed by the Company in
favor of RadiSys CPD, Inc. in the original principal amount $250,000.
10.30 Promissory Note dated September 30, 1999 executed by the Company in
favor RadiSys CPD, Inc. in the original principal amount of $500,000.
10.31 Registration Rights Agreement dated September 30, 1999 between the
Company and RadiSys CPD, Inc.
10.32 Letter agreement dated September 30, 1999 between the Company and
Boundless Technologies, Inc.
10.33 Promissory Note dated September 30, 1999 executed by the Company in
favor of Boundless Technologies, Inc. in the original principal amount
of $250,000.
10.34 Promissory Note dated September 30, 1999 executed by the Company in
favor of Boundless Technologies, Inc. in the original principal amount
of $500,000.
10.35 Registration Rights Agreement dated September 30, 1999 between the
Company and Boundless Technologies, Inc.
21 Subsidiaries of the Company.
23.1 Consent of Independent Accountants - Cacciamatta Accountancy
Corporation.
23.2 Consent of Independent Accountants - McGladrey & Pullen, LLP.
27 Financial Data Schedule.
27
<PAGE> 28
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.
January 12, 2000 By: /s/ Jane M. Christie
--------------------------------
Jane M. Christie, President and
Chief Executive 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/ Robert D. Bagby Vice Chairman, Director January 12, 2000
- ------------------------------
Robert D. Bagby
/s/ Jane M. Christie President, CEO, Director January 12, 2000
- ------------------------------
Jane M. Christie
/s/ Robert M. McClure Chairman, Director January 12, 2000
- ------------------------------
Robert M. McClure
/s/ Philip T. Noden Director January 12, 2000
- ------------------------------
Philip T. Noden
/s/ Nathan Bell Director January 12, 2000
- ------------------------------
Nathan Bell
/s/ Andrew Dumke Director January 12, 2000
- ------------------------------
Andrew Dumke
/s/ Richard H. Nance Vice President and January 12, 2000
- ------------------------------ Chief Financial &
Richard H. Nance Accounting Officer
</TABLE>
28
<PAGE> 29
INDEPENDENT AUDITORS' REPORT
Board of Directors
General Automation, Inc.
We have audited the accompanying consolidated balance sheets of General
Automation, Inc. and Subsidiaries as of September 30, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the years 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
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, 1999 and 1998, and the results of
their consolidated operations and cash flows for the years then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As disclosed in the financial
statements, the Company has incurred losses from operations on declining
revenues for the last three years. Current liabilities exceed current assets by
$6,790,000 and total stockholders' deficit was $7,530,000 at September 30, 1999.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are described
in Note 18. The consolidated financial statements do not include any adjustments
that may result from the outcome of this uncertainty.
CACCIAMATTA ACCOUNTANCY CORPORATION
Irvine, California
December 22, 1999
29
<PAGE> 30
INDEPENDENT AUDITOR'S REPORT
ON THE FINANCIAL STATEMENTS
To the Board of Directors
General Automation, Inc.
Irvine, California
We have audited the General Automation, Inc. and Subsidiaries consolidated
statements of operations, comprehensive loss, stockholders' equity and cash
flows for the year ended September 30, 1997. 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 results of General Automation, Inc. and
Subsidiaries' operations and their cash flows for the year ended September 30,
1997 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has incurred operating
losses in prior years, has a working capital deficit and a deficit tangible net
worth. In addition, the Company has incurred significant operating losses
subsequent to September 30, 1997. These conditions raise substantial doubt about
the Company's ability to continue as a going concern. The financial statements
do not include any adjustments that may result from the outcome of this
uncertainty.
McGLADREY & PULLEN, LLP
Anaheim, California
December 19, 1997, except for Note 16
and the pro forma disclosures included in Notes 2
and 13 as to which the date is August 19, 1998
30
<PAGE> 31
GENERAL AUTOMATION, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 991,000 $ 856,000
Accounts receivable 4,133,000 4,165,000
Inventories 1,770,000 1,986,000
Prepaid expenses and other 408,000 1,073,000
------------ ------------
Total current assets 7,302,000 8,080,000
Capitalized software 1,725,000 1,639,000
Property and equipment 1,669,000 2,073,000
Goodwill 292,000 2,043,000
Other 178,000 279,000
------------ ------------
$ 11,166,000 $ 14,114,000
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Bank line of credit $ 2,150,000 $ 2,200,000
Current portion of long-term debt 2,663,000 811,000
Note payable and due to TMI -- 6,401,000
Due to Boundless -- 2,043,000
Accounts payable 2,993,000 1,805,000
Accrued expenses 2,670,000 3,860,000
Deferred revenue 3,616,000 4,711,000
------------ ------------
Total current liabilities 14,092,000 21,831,000
Long-term debt 4,604,000 2,210,000
------------ ------------
Total liabilities 18,696,000 24,041,000
------------ ------------
Commitments and contingencies -- --
Stockholders' deficit:
Common stock, $.10 par value; 30,000,000 shares authorized;
11,599,307 and 9,332,641 shares outstanding at
September 30, 1999 and 1998, respectively 1,160,000 933,000
Additional paid-in capital 46,802,000 45,442,000
Accumulated deficit (55,280,000) (56,071,000)
Accumulated other comprehensive income (212,000) (231,000)
------------ ------------
Total stockholders' deficit (7,530,000) (9,927,000)
------------ ------------
$ 11,166,000 $ 14,114,000
============ ============
</TABLE>
See notes to consolidated financial statements
31
<PAGE> 32
GENERAL AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Product $ 13,962,000 $ 10,716,000 $ 10,694,000
Service 14,906,000 19,950,000 25,346,000
------------ ------------ ------------
Total revenues 28,868,000 30,666,000 36,040,000
------------ ------------ ------------
Costs and expenses:
Costs of sales:
Product 8,644,000 10,162,000 6,661,000
Service 8,820,000 13,376,000 14,050,000
Selling, general and administrative 10,619,000 11,436,000 11,383,000
Research and development 917,000 2,197,000 2,599,000
Amortization and impairment of goodwill 1,787,000 5,293,000 1,385,000
------------ ------------ ------------
Total costs and expenses 30,787,000 42,464,000 36,078,000
------------ ------------ ------------
Loss from operations (1,919,000) (11,798,000) (38,000)
Interest income 10,000 14,000 71,000
Interest expense (734,000) (591,000) (382,000)
------------ ------------ ------------
Loss before income taxes and
extraordinary item (2,643,000) (12,375,000) (349,000)
Provision for income taxes 71,000 24,000 165,000
------------ ------------ ------------
Loss before extraordinary item (2,714,000) (12,399,000) (514,000)
Extraordinary gain - settlement with creditors 3,505,000 -- --
------------ ------------ ------------
Net income (loss) $ 791,000 $(12,399,000) $ (514,000)
============ ============ ============
Basic and diluted income (loss) per share:
Loss before extraordinary item $ (0.29) $ (1.33) $ (0.06)
============ ============ ============
Extraordinary item $ 0.38 $ -- $ --
============ ============ ============
Net income (loss) per share $ 0.08 $ (1.33) $ (0.06)
============ ============ ============
Basic and diluted number of common shares 9,338,851 9,312,035 9,003,171
============ ============ ============
</TABLE>
See notes to consolidated financial statements
32
<PAGE> 33
GENERAL AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
------------------------ PAID-IN ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL DEFICIT INCOME (LOSS) TOTAL
---------- ---------- ------------ ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996 8,176,376 $ 818,000 $ 43,043,000 $(43,158,000) $ -- $ 703,000
Comprehensive (loss):
Net (loss) -- -- -- (514,000) -- (514,000)
Foreign currency translation adjustment -- -- -- -- (79,000) (79,000)
------------
Total comprehensive (loss) -- -- -- -- -- (593,000)
Stock options and warrants exercised 155,500 15,000 119,000 -- -- 134,000
Stock and stock warrants issued
for acquisitions 900,715 90,000 2,573,000 -- -- 2,663,000
Adjustment to acquisition purchase price -- -- (219,000) -- -- (219,000)
---------- ---------- ------------ ------------ --------- ------------
Balance at September 30, 1997 9,232,591 923,000 45,516,000 (43,672,000) (79,000) 2,688,000
Comprehensive (loss):
Net (loss) -- -- -- (12,399,000) -- (12,399,000)
Foreign currency translation adjustment -- -- -- -- (152,000) (152,000)
------------
Total comprehensive (loss) -- -- -- -- -- (12,551,000)
Stock options and warrants exercised 100,050 10,000 112,000 -- -- 122,000
Adjustment to acquisition purchase price -- -- (186,000) -- -- (186,000)
---------- ---------- ------------ ------------ --------- ------------
Balance at September 30, 1998 9,332,641 933,000 45,442,000 (56,071,000) (231,000) (9,927,000)
Comprehensive income:
Net income -- -- -- 791,000 -- 791,000
Foreign currency translation adjustment -- -- -- -- 19,000 19,000
------------
Total comprehensive income -- -- -- -- -- 810,000
Common stock issued to creditors 2,266,666 227,000 997,000 -- -- 1,224,000
Forgiveness of Board of Directors' fees -- -- 363,000 -- -- 363,000
---------- ---------- ------------ ------------ --------- ------------
Balance at September 30, 1999 11,599,307 $1,160,000 $ 46,802,000 $(55,280,000) $(212,000) $ (7,530,000)
========== ========== ============ ============ ========= ============
</TABLE>
See notes to consolidated financial statements
33
<PAGE> 34
GENERAL AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 791,000 $(12,399,000) $ (514,000)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Extraordinary gain on settlement with creditors (3,505,000) -- --
Gain from disposal of assets -- -- (42,000)
Write off of inventories -- 1,086,000 --
Depreciation and amortization 1,748,000 2,914,000 2,424,000
Provision for losses on accounts receivable 478,000 293,000 299,000
Provision for losses on inventories 55,000 60,000 60,000
Impairment of goodwill 1,170,000 3,519,000 --
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (446,000) 1,529,000 (557,000)
Inventories 161,000 1,867,000 963,000
Prepaid expenses and other 665,000 (234,000) 196,000
Other assets 101,000 (79,000) (113,000)
Increase (decrease) in:
Accounts payable 2,092,000 1,726,000 (17,000)
Accrued expenses (836,000) 1,617,000 (35,000)
Deferred revenue (1,095,000) (302,000) 485,000
------------ ------------ ------------
Net cash provided by operating activities 1,379,000 1,597,000 3,149,000
------------ ------------ ------------
Cash flows from investing activities:
Acquisitions -- (252,000) (330,000)
Purchase of property and equipment (237,000) (130,000) (401,000)
Proceeds from disposal of assets -- -- 42,000
Capitalized software costs (612,000) (496,000) (1,099,000)
------------ ------------ ------------
Net cash used in investing activities (849,000) (878,000) (1,788,000)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 122,000 134,000
Proceeds from issuance of debt -- 4,031,000 3,075,000
Principal payments on debt (414,000) (4,661,000) (3,953,000)
------------ ------------ ------------
Net cash used in financing activities (414,000) (508,000) (744,000)
------------ ------------ ------------
Effect of exchange rate changes on cash 19,000 (152,000) 61,000
------------ ------------ ------------
Net increase in cash and equivalents 135,000 59,000 678,000
Cash and equivalents, beginning of year 856,000 797,000 119,000
------------ ------------ ------------
Cash and equivalents, end of year $ 991,000 $ 856,000 $ 797,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements
34
<PAGE> 35
GENERAL AUTOMATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------
1999 1998 1997
----------- ---------- -----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 602,000 $ 597,000 $ 339,000
=========== ========== ===========
Income taxes $ 6,000 $ 169,000 $ 271,000
=========== ========== ===========
Supplemental disclosure of non-cash investing and
financing activities:
Forgiveness of Board of Directors' fees $ 363,000 $ -- $ --
=========== ========== ===========
Extraordinary item - settlement with creditors
Forgiveness of notes payable $ 6,401,000 $ -- $ --
Forgiveness of accrued expenses 2,947,000 -- --
New loan proceeds tranferred to creditors (3,000,000) -- --
Notes payable (1,500,000)
Common stock issued to creditors (1,224,000) -- --
Settlement expenses (119,000) -- --
----------- ---------- -----------
Gain on settlement with creditors $ 3,505,000 $ -- $ --
=========== ========== ===========
Acquisition of Sequoia Enterprise Systems
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.
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 $ -- $ -- $ 220,000
=========== ========== ===========
Increase in cash portion of purchase price of acquisition $ -- $ 186,000 $ 219,000
=========== ========== ===========
Conversion of accounts payable to notes payable $ -- $1,549,000 $ --
=========== ========== ===========
</TABLE>
See notes to consolidated financial statements
35
<PAGE> 36
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business
General Automation, Inc. (the "Company) is engaged in the development,
design and sale of computer software and hardware and related field
support services. The Company has subsidiaries in 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, 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.
On September 28, 1998 the Company's common stock was delisted by the
American Stock Exchange due to the Company's failure to meet the
Exchange's minimum listing requirements. Since the delisting, the
Company's stock has traded over the counter and has been quoted on the
"Electronic Bulletin Board".
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of the Company
and 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.
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.
36
<PAGE> 37
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Cash and equivalents
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposit and all highly liquid debt instruments
with original maturities of three months or less.
Accounts receivable
The allowance for doubtful accounts and sales returns includes
management's estimate of the amount expected to be lost on specific
accounts and for losses on other as yet unidentified accounts included in
accounts receivable. In estimating the allowance component for
unidentified losses and returns, management relies on historical
experience. The amounts the Company will ultimately realize could differ
materially in the near term from the amounts assumed in arriving at the
allowance for doubtful accounts and sales returns in the accompanying
financial statements.
Concentrations of credit risk
Financial instruments that potentially subject the Company to
concentration of credit risk consist primarily of temporary cash
investments and trade receivables. The Company restricts investment of
temporary cash investments to financial institutions with investment grade
credit ratings. Credit risk on trade receivables is minimized as a result
of the large and diverse nature of the Company's customer base.
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 sheets. As customers' defective
parts are replaced by inventoried items, the cost to refurbish the part is
expensed and the refurbished part is inventoried. The Company periodically
evaluates the remaining utility and recoverability of the recorded
balances.
37
<PAGE> 38
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Capitalized software development costs
All capitalized software development costs are amortized either on a
straight-line basis over the remaining estimated economic life of the
product, generally five years, or the ratio of the products' current gross
revenues to the total of current and expected gross revenues, whichever
amount is greater. The costs capitalized are those incurred after the
Company has determined the technological 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 amount in excess of net realizable
value is charged to operations.
Long-lived assets
Depreciation and amortization of property and equipment are provided over
the estimated useful lives of the assets using the straight-line method.
Estimated useful lives are as follows:
<TABLE>
<S> <C>
Building 30 years
Machinery and equipment 3-7 years
Furniture and fixtures 3-7 years
Leasehold improvements Lease term or asset life,
whichever is less.
</TABLE>
Goodwill is being amortized on a straight-line basis over its estimated
useful life of sixty months.
Long-lived assets are reviewed annually for impairment whenever events or
changes in circumstances indicate that carrying amount of an asset may not
be recoverable. Impairment is necessary when the undiscounted cash flows
estimated to be generated by the asset are less than the carrying amount
of the asset.
Fair value of financial instruments
The carrying amounts of cash and equivalents, accounts receivable, debt,
accounts payable, and accrued expenses, other than the payable to TMI and
the payable to Boundless, approximate fair value. As discussed in Note 2,
the amounts due TMI and Boundless had payment terms based on a percentage
of revenues; accordingly, it was not practicable to estimate the fair
value of these obligations at September 30, 1998.
38
<PAGE> 39
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Stock options
During 1997, 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. Non-employee 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.
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 balance sheet accounts are
translated at exchange rates in effect at the end of the year. 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' deficit.
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.
Billings for service revenue are mailed prior to the renewal date of the
service contract. Any billings received in advance of commencement of the
contract are recorded as deferred revenue in the accompanying financial
statements and are recognized as revenue when earned. Customers are
required to give a 60-day cancellation notice to terminate their service
contract. Revenue from professional services is recorded as the service is
provided. Advance payments are recorded as deferred revenue.
Warranties
Software products carry a 45 day warranty, and all other products, except
the lowest-end models, carry a one-year warranty, during which all
maintenance, labor and parts are covered. The Company accrues for expected
future warranty costs at the time of sale.
Research and development
Company-sponsored research and development costs are charged to expense as
incurred.
39
<PAGE> 40
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Advertising costs
Costs of advertising are expensed as incurred. Such costs were $141,000,
$135,000 and $158,000 in 1999, 1998 and 1997, respectively.
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.
Earnings per share
Basic EPS is calculated using income available to common stockholders
divided by the weighted average of common shares outstanding during the
year. Diluted EPS is similar to Basic EPS except that the weighted average
of common shares outstanding is increased to include the number of
additional common shares that would have been outstanding if the dilutive
potential common shares, such as options, had been issued. The treasury
stock method is used to calculate dilutive shares which reduces the gross
number of dilutive shares by the number of shares purchasable from the
proceeds of the options assumed to be exercised.
Diluted earnings per share is not materially different from basic earnings
per common share.
Reclassifications
Certain items in the 1997 and 1998 financial statements have been
reclassified to conform with the 1999 presentation.
New accounting pronouncements
The following pronouncements became effective for the Company's 1999
financial statements.
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.
40
<PAGE> 41
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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.
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. Management has determined
the adoption of this Statement will not have a material effect on the
Company's financial statements.
2. ACQUISITIONS AND DISPOSITION
Sequoia Enterprise Systems (SES) Acquisition and Formation of General
Automation LLC (GAL)
SES
In October 1996, the Company entered into an Asset Purchase Agreement with
Texas Micro, Inc., formerly Sequoia Systems, Inc. (TMI), pursuant to which
the Company acquired substantially all the assets and businesses of TMI's
business division known as Sequoia Enterprise Systems. SES manufactures,
services, integrates and distributes fault tolerant Motorola 68K computer
systems which operate under TMI's version of UNIX and Intel based computer
systems running TMI'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 agreed to pay a purchase
price of $11,347,000, assume certain liabilities of SES totaling
approximately $2,700,000, and issue TMI a Stock Purchase Warrant for
250,000 shares valued at $500,000. The excess of the purchase price and
related acquisition costs over the fair value of net assets acquired of
$8,366,000 was recorded as goodwill.
The purchase price was to be paid in a combination of cash, notes payable
and 750,000 shares of the Company's common stock. All 750,000 shares were
issued to TMI in November 1996. The common stock was valued at: (i) $2.50
per share (400,000 shares), (ii) the average closing per share price
during the ten trading days immediately preceding the first anniversary of
the closing date (200,000 shares) and second anniversary (150,000 shares).
Because the closing price of the stock, as defined, was less than $2.50 at
both anniversaries, $219,000 and $186,000 was charged to equity with a
corresponding increase to the TMI payable in fiscal 1997 and 1998,
respectively.
41
<PAGE> 42
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS AND DISPOSITION (CONTINUED)
On October 1, 1997, the asset purchase agreement between the Company and
TMI was amended. The Company signed a $1,429,000 unsecured note payable,
interest at 13%, due in monthly installments of $75,000 plus interest. The
Company also 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. During
fiscal 1998, the Company defaulted on its payments to TMI.
Unaudited pro forma consolidated sales, net loss and loss per common share
for 1997 as though SES had been acquired as of October 1, 1996:
<TABLE>
<CAPTION>
1997
-----------
<S> <C>
Sales $36,730,000
Net loss $ (788,000)
Loss per common share $ (0.09)
</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%.
GAL
In May 1995, the Company and SunRiver Data Systems, since renamed
Boundless Technologies (Boundless), formed a limited liability company,
General Automation, LLC, with the Company owning 51% interest and
Boundless owning a 49% interest. GAL was formed to allow the Company to
acquire Boundless' version of the PICK system. Under the terms of the
Agreement, GAL operated and managed both the Company's and Boundless' PICK
business. Boundless was entitled to receive royalty payments from GAL
equal to 12% of GAL's net revenues in the first year of the Agreement with
decreasing amounts annually to 7% in the fifth year, subject to certain
adjustments. The Company was entitled to retain all the cash generated by
GAL, if any, after the payments of the net revenue percentage to
Boundless. Royalty expense, included in cost of sales, amounted to
$1,408,000, $1,466,000 and $2,000,000 in 1999, 1998 and 1997,
respectively.
42
<PAGE> 43
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS AND DISPOSITION (CONTINUED)
SES and GAL Settlement
On September 30, 1999, TMI and Boundless agreed to forgive all amounts
owed to them and cancel warrants to purchase 250,000 shares of the
Company's common stock in exchange for the following consideration:
<TABLE>
<S> <C>
Amounts forgiven:
Notes payable $ 363,000
Accrued royalties 2,947,000
Other accrued liabilities 6,038,000
----------
9,348,000
----------
Consideration:
Cash 3,000,000
Notes payable 1,500,000
Common stock (2,266,666 shares at fair value) 1,224,000
----------
5,724,000
Settlement expenses 119,000
----------
Extraordinary gain $3,505,000
==========
</TABLE>
The cash component of the consideration was borrowed from Pacific
Mezzanine Fund (see Note 9).
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. The purchase
price consisted of $60,000 Canadian dollars (approximately U.S. $40,000)
and 25,000 shares of common stock valued at fair value of $62,500. 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 fair value of $220,000. The pro forma
effect of these acquisitions was not material.
Disposition of Eurosystems
In 1993, the Company sold its 61% share of Eurosystems to the minority
stockholders of Eurosystems (Krypton Group Ltd.) for a $750,000 note. In
1995, Krypton filed for bankruptcy. In 1996, the Company received a new
$600,000 note bearing interest at 10% from Future Services, Ltd., a newly
formed Company owned by the former Krypton management, to offset the
$570,000 balance on the original note. In 1998, Future Services, Ltd., was
purchased by 4 Front Software Company and the Company accepted 24,540
shares of 4 Front Software Company's common stock valued at $10 per share
in full settlement. The Company sold all 24,540 shares in March 1999 for
$250,000.
43
<PAGE> 44
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Trade receivables $ 4,606,000 $ 4,727,000
Allowance for doubtful accounts (473,000) (562,000)
----------- -----------
$ 4,133,000 $ 4,165,000
=========== ===========
</TABLE>
4. INVENTORIES
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Material and purchased subassemblies $ 1,263,000 $ 1,095,000
Support systems, spare parts and subassemblies 587,000 616,000
Work in process 59,000 217,000
Finished goods 130,000 272,000
----------- -----------
2,039,000 2,200,000
Allowance for obsolescence (269,000) (214,000)
----------- -----------
$ 1,770,000 $ 1,986,000
=========== ===========
</TABLE>
5. CAPITALIZED SOFTWARE
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Capitalized software development costs,
net of accumulated amortizaton of
$2,308,000 in 1999 and $1,952,000 in 1998 $1,679,000 $1,423,000
Purchased software, net of accumulated
amortization of $464,000 in 1999 and
$294,000 in 1998 46,000 216,000
---------- ----------
$1,725,000 $1,639,000
========== ==========
</TABLE>
During 1999, 1998 and 1997, the Company capitalized $612,000, $496,000 and
$1,099,000 of software development costs, respectively, and $526,000,
$651,000 and $492,000 of amortization expense, respectively, was charged
to cost of sales.
44
<PAGE> 45
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Land and building $ 1,436,000 $ 1,436,000
Machinery and equipment 3,907,000 3,670,000
Furniture and fixtures 293,000 293,000
Leasehold improvements 72,000 72,000
----------- -----------
5,708,000 5,471,000
Accumulated depreciation and amortization (4,039,000) (3,398,000)
----------- -----------
$ 1,669,000 $ 2,073,000
=========== ===========
</TABLE>
7. IMPAIRMENT OF GOODWILL
Goodwill represents the excess of acquisition costs over the fair value of
net assets of businesses purchased. As disclosed in Note 2, the SES
acquisition resulted in $8.366 million of goodwill.
In conjunction with its annual impairment evaluation in fiscal 1998, the
Company determined that goodwill was impaired. Among the factors
considered in this evaluation were decreasing revenues, a $1,086,000
writedown of SES parts inventory acquired, and charges of $928,000 for
idle rental facilities related to SES' business. The Company determined
that SES' estimated future undiscounted cash flows were below the carrying
value of SES' goodwill. Accordingly, the Company adjusted the carrying
value of SES' goodwill to its estimated fair value, determined by
calculating the present value of expected cash flows for SES, resulting in
an impairment charge of $3,519,000.
The Company's fiscal 1999 impairment review disclosed additional
impairment based on further declining revenues with projections of
continuing future declines. Estimated future undiscounted cash flows are
below the carrying value of SES' goodwill. Present value calculations of
expected cash flows resulted in an impairment charge of $1,170,000,
reducing the carrying value of the SES' goodwill to zero.
Goodwill at September 30, 1999 results from smaller acquisitions made by
the Company's Australian and Canadian subsidiaries.
8. BANK LINE OF CREDIT
In December 1997, the Company entered into a $5,000,000 line of credit
which was subsequently amended to reduce the maximum borrowing to
$2,200,000 secured by all the Company's assets at prime (9.75% at
September 30, 1999) plus 2%. The line expires 30 days after notice or
immediately upon default. Advances under the line are limited to 80% of
eligible product receivables and 60% of eligible service receivables, as
defined. The Company is in compliance with all debt covenants at September
30, 1999.
45
<PAGE> 46
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. LONG-TERM DEBT
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
10% convertible note payable to
Pacific Mezzanine Fund LP (PMF),
interest only monthly payments, due
September 30, 2004. Note is
convertible at any time at the
election of the Holder into common
shares at $.73 per share, is
secured by substantially all of the
Company's assets and is subordinate
to the bank line of credit. $ 3,150,000 $ --
10% notes payable to TMI and
Boundless, interest only monthly
payments, $1,000,000 due January
28, 2000, $500,000 due September
30, 2004. 1,500,000 --
First mortgage note at prime (9.75%
at September 30, 1999) plus 1.5%,
due in monthly installments of
$9,000 through November 2004 when
the remaining principal and
interest will be due. 962,000 976,000
Second mortgage note at 12%,
interest only monthly payments,
principal due April 2000. 900,000 900,000
18% note payable to vendor, due in
monthly installments of $64,424
through April 2000 when the
remaining principal and interest
will be due. 751,000 947,000
Other 4,000 198,000
----------- ----------
7,267,000 3,021,000
Less current maturities (2,663,000) (811,000)
----------- ----------
$ 4,604,000 $2,210,000
=========== ==========
</TABLE>
Debt maturities for each of the next five years and thereafter are:
$2,663,000, in 2000, $19,000 in 2001, $21,000 in 2002, $23,000 in 2003,
$3,675,000 in 2004 and $866,000 thereafter.
46
<PAGE> 47
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. ACCRUED EXPENSES
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Rent $ 583,000 $1,144,000
Payroll and related taxes 604,000 1,070,000
Consulting fee to related party -- 209,000
Royalties 512,000 635,000
Warranty 150,000 150,000
Board of Directors' fees -- 363,000
Legal settlement 375,000 --
Other 446,000 289,000
---------- ----------
$2,670,000 $3,860,000
========== ==========
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
Operating leases
The Company leases certain facilities and equipment under noncancelable
operating leases. Rental expense for 1999, 1998 and 1997 was $692,000,
$1,899,000 and $1,392,000, respectively.
As of September 30, 1999, the future minimum rental commitments required
under existing noncancelable operating leases are as follows:
<TABLE>
<S> <C> <C>
2000 $ 988,000
2001 281,000
2002 72,000
2003 72,000
2004 72,000
----------
$1,485,000
==========
</TABLE>
Litigation
Since 1991 the Company has been a party to litigation entitled 520 S.
Michigan Ave. Associates, Ltd. d/b/a Congress Hotel v General Automation
and Maxial Systems, Inc. On December 2, 1999 the Company and Congress
Hotel settled their litigation. The Company agreed to pay Congress Hotel
$75,000 in December 1999, $225,000 in 24 monthly installments, plus
interest at 6.25% and issue 125,000 shares of its common stock valued at
$75,000. The settlement totaling $375,000 was included in general and
administrative expense in the 1999 statement of operations.
47
<PAGE> 48
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Litigation (continued)
The Company is a defendant in various other 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.
12. RELATED PARTY TRANSACTION
Receivables
Included in selling, general and administrative expenses in 1997 is
$86,000 for forgiveness of related party receivable.
Consulting agreement
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. In November 1998, the Company negotiated a
termination of the consulting agreement resulting in payments totaling
$209,000 in 1999. Included in selling, general and administrative is
$297,000 in 1998 and $394,000 in 1997 for consulting expenses to this
related party.
13. STOCK OPTIONS AND WARRANTS
The Company has three stock option plans. Under the 1991 Stock Option
Plan, the Company has reserved 2,035,000 shares of common stock. Under the
1991 Directors' Stock Option Plan, the Company has reserved 200,000 shares
of common stock. 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. In addition to the options
available under the stock option plans, in 1995 the Company issued to
certain directors options to acquire 1,455,000 shares of common stock at
$0.86 per share. In 1998, 5,050 of these options were exercised and
479,950 were canceled. These options were vested upon grant and expire in
March 2000. Under the 1999 Stock Option Plan, the Company has reserved
1,000,000 shares of common stock to be 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 ten years from the date of grant
and contain vesting provisions. No options were granted under the 1999
Stock Option Plan.
48
<PAGE> 49
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. STOCK OPTIONS AND WARRANTS (CONTINUED)
A summary of stock options activity follows:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Number Exercise price Exercisable Exercise price
---------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
September 30, 1996 2,183,000 $0.84 2,183,000 $0.84
=========
Granted 960,000 $1.94
Exercised (55,000) $1.02
Canceled (300,000) $0.75
---------- -----
September 30, 1997 2,788,000 $1.23 2,388,000 $1.11
=========
Granted 300,000 $1.23
Exercised (100,050) $1.23
Canceled (734,950) $1.05
---------- -----
September 30, 1998 2,253,000 $1.25 1,903,000 $1.20
=========
Granted 1,220,000 $1.00
Exercised -- --
Canceled (1,040,000) $1.66
---------- -----
September 30, 1999 2,433,000 $0.92 2,058,000 $0.90
========== ===== =========
</TABLE>
<TABLE>
<CAPTION>
Number Number Expiration
Exercise price Outstanding Exercisable Date
-------------- ----------- ----------- ----------------
<S> <C> <C> <C>
$0.75 243,000 243,000 January 30, 2002
$0.86 970,000 970,000 March 21, 2000
$1.00 645,000 545,000 January 30, 2002
$1.00 300,000 300,000 April 30, 2003
$1.00 275,000 -- June 17, 2004
--------- ---------
2,433,000 2,058,000
========= =========
</TABLE>
49
<PAGE> 50
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. STOCK OPTIONS AND WARRANTS (CONTINUED)
The Company applies APB Opinion No. 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 FASB Statement No. 123, the Company's net income (loss) and
income (loss) per common share would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------------ -----------
<S> <C> <C> <C>
Net income (loss)
As reported $791,000 $(12,399,000) $ (514,000)
Pro forma $438,000 $(12,926,000) $(1,048,000)
Basic and diluted earnings (loss) per share:
As reported $ 0.08 $ (1.33) $ (0.06)
Pro forma $ 0.05 $ (1.39) $ (0.12)
</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 1999 and 1998,
respectively: expected volatility of 85% and risk-free interest 5.5%,
expected life of 5 years and no expected dividends for all years. The
estimated weighted-average fair value of stock options granted in 1999,
1998 and 1997 was $.52, $1.23 and $1.24 per share, respectively.
The Company issued warrants to purchase 250,000 shares of stock as part of
the SES acquisition as noted at Note 2. 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. These warrants were canceled as part of the September 30, 1999
settlement agreement as described in Note 2.
In connection with the new loan agreement, the Company issued PMF warrants
to purchase 393,750 shares of common stock at $.45 per share, which
approximated fair value.
14. EMPLOYEE BENEFIT PLANS
The Company has a profit sharing 401(k) plan covering substantially all
its domestic employees. Eligible employees may contribute 2% to 12% of
their compensation up to the maximum dollar amount allowed. 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 make contributions in years when it has no profits.
Contributions for 1999, 1998 and 1997 were $172,000, $74,000 and $94,000,
respectively.
50
<PAGE> 51
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. INCOME TAXES
The provision for income taxes in 1999 consists of federal income taxes of
$91,000 as a result of the Company's settlement with the IRS regarding its
1994 income taxes and an income tax benefit from Sequoia Systems Australia
of $20,000.
The provision for income taxes for 1998 consists solely of $24,000 in
foreign income taxes.
Reasons for differences between income tax expense and the amount computed
by applying the federal statutory income tax rate to income (loss) before
income taxes are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- ----------- ---------
<S> <C> <C> <C>
Tax provision (benefit) calculated at
federal statutory rate $ 302,000 $(4,425,000) $(122,000)
Benefit of operating loss carryforwards -- -- --
Change in valuation allowance (583,000) 2,623,000 218,000
Expenses not currently deductible 352,000 1,826,000 43,000
Other -- -- 26,000
--------- ----------- ---------
$ 71,000 $ 24,000 $ 165,000
========= =========== =========
</TABLE>
The Company has net operating loss (NOL) carryforwards that can be
utilized to offset future taxable income. The U.S. NOL is subject to an
annual limitation on its use of $454,000 due to a change in the Company's
ownership in November 1994. At September 30, 1999, NOL carryforwards
totaled approximately $15 million, of which $5.2 million is subject to the
annual limitation. The carryforwards expire in various years ending
September 30 as follows:
<TABLE>
<S> <C>
2004 $ 766,000
2005 1,427,000
2006 1,631,000
2007 55,000
2008 560,000
2009 788,000
2011 890,000
2018 7,137,000
2019 1,660,000
-----------
$14,914,000
===========
</TABLE>
The Company also has a Canadian NOL of $113,000 at September 30, 1999
which can be applied to offset future Canadian taxable income of its
Liberty subsidiary. The NOL expires in 2004.
51
<PAGE> 52
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. INCOME TAXES (CONTINUED)
Deferred income tax assets at September 30, 1999 and 1998 relate to the
following. A valuation allowance has been established to reduce deferred
tax assets to amounts which management believes are more likely than not
to be realized.
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Inventories $ 94,000 $ 71,000
Accrued royalties -- 756,000
Other accrued expenses 456,000 509,000
Receivables 165,000 191,000
Goodwill 1,140,000 1,948,000
NOL carryforwards 4,908,000 3,871,000
----------- -----------
Deferred tax assets 6,763,000 7,346,000
Less valuation allowance (6,763,000) (7,346,000)
----------- -----------
Net deferred tax asset $ -- $ --
=========== ===========
</TABLE>
In February and April 1998, the Company received from the Internal Revenue
Service (IRS) notices of proposed adjustments. In March 1999, the Company
and the IRS reached a settlement whereas the NOL limitation would not be
adjusted and the Company would agree to reduce its federal income tax
refund by $91,000.
16. BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Numerator
Net loss before extraorinary item $(2,714,000) $12,399,000) $ (514,000)
=========== =========== ==========
Extraordinary item 3,505,000 -- --
=========== =========== ==========
Net income(loss) 791,000 12,399,000) (514,000)
=========== =========== ==========
Denominator
Basic and diluted weighted average number of
common shares outstanding during the period 9,338,851 9,312,035 9,003,171
=========== =========== ==========
Basic and diluted net income(loss) per share:
Before extraordinary item $ (0.29) $ (1.33) $ (0.06)
=========== =========== ==========
Extraordinary item $ 0.38 $ -- $ --
=========== =========== ==========
Net income(loss) $ 0.08 $ (1.33) $ (0.06)
=========== =========== ==========
Vested stock options of 2,058,000, 1,903,000
and 2,388,000 were not included in the
dilutive number of shares at September 30,
1999, 1998 and 1997 since their inclusion
would be antidilutive.
</TABLE>
52
<PAGE> 53
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. SEGMENT INFORMATION
Information concerning the Company's operations by geographic area are as
follows:
<TABLE>
<CAPTION>
U.K. and
1999 United States Australia Canada Eliminations Total
----------------------- ------------ ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues $24,136,000 $2,527,000 $2,578,000 $ (374,000) $28,867,000
Operating (loss) profit (2,748,000) (101,000) 883,000 -- (1,966,000)
Interest expense (734,000) -- -- -- (734,000)
Interest income 10,000 -- -- -- 10,000
Depreciation and amortization 2,677,000 86,000 155,000 2,918,000
-----------
Loss before income taxes
and extraordinary item -- -- -- -- $(2,643,000)
===========
Identifiable assets $ 9,128,000 $1,194,000 $1,361,000 $ (517,000) $11,166,000
Identifiable liabilities $17,745,000 $ 568,000 $ 383,000 $ -- $18,696,000
Capital expenditures $ 708,000 $ 65,000 $ 76,000 -- $ 849,000
</TABLE>
<TABLE>
<CAPTION>
U.K. and
1998 United States Australia Canada Eliminations Total
----------------------- ------------ ---------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 25,739,000 $3,177,000 $1,970,000 $ (220,000) $ 30,666,000
Operating (loss) profit (13,433,000) 29,000 1,606,000 -- (11,798,000)
Interest expense -- -- -- -- (591,000)
Interest income -- -- -- -- 14,000
Depreciation and amortization 6,270,000 89,000 74,000 -- 6,433,000
------------
Loss before income taxes -- -- -- -- $(12,375,000)
============
Identifiable assets $ 13,048,000 $2,235,000 $ 623,000 $(1,792,000) $ 14,114,000
Identifiable liabilities $ 23,382,000 $ 344,000 $ 315,000 $ -- $ 24,041,000
Capital expenditures $ 541,000 $ 85,000 $ -- $ -- $ 626,000
</TABLE>
53
<PAGE> 54
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1997 United States Australia Other Eliminations Total
----------------------- ----------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $31,756,000 $2,367,000 $3,186,000 $(1,269,000) $36,040,000
Operating (loss) profit (201,000) 175,000 (12,000) -- (38,000)
Interest expense -- -- -- -- (382,000)
Interest income -- -- -- -- 71,000
Depreciation and amortization 2,295,000 113,000 16,000 -- 2,424,000
-----------
Loss before income taxes -- -- -- -- $ (349,000)
===========
Identifiable assets $23,346,000 $1,037,000 $ 823,000 $ (943,000) $24,263,000
Identifiable liabilities $21,549,000 $ 322,000 $ -- $ (296,000) $21,575,000
Capital expenditures $ 1,202,000 $ 376,000 $ 141,000 $ -- $ 1,719,000
</TABLE>
18. MANAGEMENT'S PLANS
- Continue to work closely with the Company's primary bank, Comerica
Bank, to insure compliance with all covenants and conditions of the
credit line.
- Continue to work with other lending sources who have given indications
of interest in replacing Comerica Bank as the Company's primary lending
source.
- Expand the Company's market niche and its opportunities involving the
internet, e-commerce, etc.
- Expand market opportunities through technology available from the
Company's foreign subsidiaries.
- Continue with the upgrade and improvement of operating and reporting
systems within the Company in order to maintain efficiency in daily
operations.
54
<PAGE> 55
GENERAL AUTOMATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. FOURTH FISCAL QUARTER ADJUSTMENTS (UNAUDITED)
The following table summarizes fourth quarter adjustments:
<TABLE>
<S> <C>
Extraordinary gain from debt forgiveness: See Note 2 $ 3,505,000
Impairment of Goodwill: See Note 7 (1,170,000)
Write-off Prepaid Royalty: Sales of this product were deemed
inconsistent with the e-path strategy adopted in August 1999 (208,000)
Write-off NCE acquisition cost: Funds for acquisition were not
raised as part of the private offering which closed on
September 30, 1999 as anticipated. See Note 2 (160,000)
Accrual for Congress Hotel settlement. See Note 11 (375,000)
Accrual for contested royalty audit performed in July 1999 (346,000)
</TABLE>
55
<PAGE> 56
INDEPENDENT AUDITOR'S REPORT
ON THE SCHEDULE
Board of Directors
General Automation, Inc.
Our audits were made for the purpose of forming an opinion on the basic 1999 and
1998 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 1999 and 1998 included in this
schedule has been subjected to the auditing procedures applied in our audits 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.
CACCIAMATTA ACCOUNTANCY CORPORATION
Irvine, California
December 22, 1999
56
<PAGE> 57
INDEPENDENT AUDITOR'S REPORT
ON THE SCHEDULE
Board of Directors
General Automation, Inc.
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 AND PULLEN, LLP
Anaheim, California
December 19, 1997
57
<PAGE> 58
GENERAL AUTOMATION INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNT
YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Balance at Provisions Balance at
Beginning Charged to End
of Year Expense Charge-offs of Year
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Allowance for
doubtful accounts:
1999 $562,000 $478,000 $(567,000) $473,000
1998 $309,000 $293,000 $ (41,000) $562,000
1997 $561,000 $299,000 $(551,000) $309,000
Inventory reserves:
1999 $214,000 $ 55,000 $ -- $269,000
1998 $360,000 $ 60,000 $(206,000) $214,000
1997 $300,000 $ 60,000 $ -- $360,000
</TABLE>
58
<PAGE> 59
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Number Description Numbered Page
- ------ ----------- -------------
<S> <C> <C>
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 Stock Option Agreement dated March 21, 1995 entered into between the
Company and each of Messrs. Lawrence Michels, Robert Bagby and Leonard
Mackenzie, incorporated herein by reference to Exhibit 10.11 to the
Company's 10-K for the year ended September 30, 1997.
10.5 The Company's 1991 Stock Option Plan, as amended, incorporated herein
by reference to Exhibit 10.12 to the Company's 10-K for the year ended
September 30, 1997.
10.6 The Company's 1991 Directors' Stock Option Plan, as amended,
incorporated herein by reference to Exhibit 10.13 to the Company's 10-K
for the year ended September 30, 1997.
10.7 Subordinated Note dated January 21, 1997 in the amount of $500,000
payable to Morgan Stanley and Company, Inc., incorporated herein by
reference to Exhibit 10.14 to the Company's 10-K for the year ended
September 30, 1997.
10.8 License Agreement dated April 26, 1996 between the Company and
McDonnell Information Systems Limited, incorporated herein by reference
to Exhibit 10.15 to the Company's 10-K for the year ended September 30,
1997.
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
Sequentially
Number Description Numbered Page
- ------ ----------- -------------
<S> <C> <C>
10.9 Letter agreement dated April 15, 1997 between the Company and Leonard
Mackenzie, incorporated herein by reference to Exhibit 10.16 to the
Company's 10-K for the year ended September 30, 1997.
10.10 Agreement by and between General Automation, Inc. and MDIS dated
December 22, 1997, incorporated herein by reference to Exhibit 10.17 to
the Company's 10-K for the year ended September 30, 1997.
10.11 Loan Agreement dated December 18, 1997 between the Company and Comerica
Bank, incorporated herein by reference to Exhibit 10.18 to the
Company's 10-K for the year ended September 30, 1997.
10.12 Letter agreement dated November 5, 1998 between the Company and
Leonard Mackenzie.
10.13 Promissory Note dated May 4, 1998 between the Company and NCR
Corporation.
10.14 Warrant Agreement dated May 4, 1998 entered into by the Company,
Gregory A. Busch and David Keligian, as Trustees of the Lenawee Trust
u/t/d December 30, 1992, Dito Caree Limited Partnership, and Four JM
LLC.
10.15 Secured Promissory Note dated May 4, 1998 in the original principal
amount of $900,000 executed by the Company in favor of Gregory A. Busch
and David Keligian, as Trustees of the Lenawee Trust u/t/d December 30,
1992, Dito Caree Limited Partnership, and Four JM LLC.
10.16 Warrant dated May 4, 1998 executed by the Company in favor of Todd
Martin Pickup and Devon Renee Pickup, Trustees of the Vintage Trust
dated October 28, 1993.
10.17 Warrant dated May 4, 1998 executed by the Company in favor of Gregory
A. Busch, Trustee of the 92643 Vintage Trust dated December 29, 1995.
10.18 Warrant dated May 4, 1998 executed by the Company in favor of Four JM
LLC.
10.19 Loan Agreement dated September 30, 1999 between the Company and Pacific
Mezzanine Fund LP.
10.20 Security Agreement dated September 30, 1999 between the Company and
Pacific Mezzanine Fund LP.
10.21 Secured Convertible Promissory Note dated September 30, 1999 executed
by the company in favor of Pacific Mezzanine Fund LP in the original
principal amount of $3,150,000.
10.22 Warrant dated September 30, 1999 executed by the Company in favor of
Pacific Mezzanine Fund LP.
</TABLE>
<PAGE> 61
<TABLE>
<CAPTION>
Sequentially
Number Description Numbered Page
- ------ ----------- -------------
<S> <C> <C>
10.23 Investors' Rights Agreement dated September 30, 1999 between the
Company and Pacific Mezzanine Fund LP.
10.24 Second Amendment to Loan and Security Agreement dated September 30,
1999 between the Company and Comerica Bank- California.
10.25 First Amendment to Loan and Security Agreement and Forbearance
Agreement dated December 31, 1998, by and between Comerica
Bank-California and General Automation, Inc.
10.26 Stock Pledge and Security Agreement dated September 30, 1999 between
the Company and Comerica Bank- California.
10.27 Intellectual Property Security Agreement dated September 30, 1999
between the Company and Comerica Bank - California.
10.28 Letter agreement dated September 30, 1999 between the Company and
RadiSys CPD, Inc.
10.29 Promissory Note dated September 30, 1999 executed by the Company in
favor of RadiSys CPD, Inc. in the original principal amount $250,000.
10.30 Promissory Note dated September 30, 1999 executed by the Company in
favor RadiSys CPD, Inc. in the original principal amount of $500,000.
10.31 Registration Rights Agreement dated September 30, 1999 between the
Company and RadiSys CPD, Inc.
10.32 Letter agreement dated September 30, 1999 between the Company and
Boundless Technologies, Inc.
10.33 Promissory Note dated September 30, 1999 executed by the Company in
favor of Boundless Technologies, Inc. in the original principal amount
of $250,000.
10.34 Promissory Note dated September 30, 1999 executed by the Company in
favor of Boundless Technologies, Inc. in the original principal amount
of $500,000.
10.35 Registration Rights Agreement dated September 30, 1999 between the
Company and Boundless Technologies, Inc.
21 Subsidiaries of the Company.
23.1 Consent of Independent Accountants - Cacciamatta Accountancy
Corporation.
23.2 Consent of Independent Accountants - McGladrey & Pullen, LLP.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.12
November 5, 1998
Mr. Leonard N. Mackenzie
2711 N. Haskell, Suite 2050 LB20
Dallas, TX 75204
Re: Termination of Consulting Agreement Dated April 15, 1997
Dear Len:
This letter is written to set forth the agreement which has been reached between
you and General Automation, Inc. (the "Company") concerning the termination of
the letter agreement between you and the Company dated April 15, 1997 (the
"Consulting Agreement"). Our agreement concerning termination of the Consulting
Agreement is as follows:
1. Termination of Consulting Agreement. The Consulting Agreement is hereby
terminated in its entirety, except as stated in the last sentence of this
Section 1. Accordingly, but without limiting the generality of the foregoing,
you shall no longer have any obligation to provide consulting services to the
Company under Section 2 of the Consulting Agreement, and the Company shall no
longer have any obligations to make payments to you or on your behalf under
Section 3 of the Consulting Agreement. The termination of the Consulting
Agreement shall not, however, affect in any manner your resignation as an
employee of the Company effective as of April 15, 1997 as contemplated by
Section 1 of the Consulting Agreement, or the termination of the Incentive Stock
Option dated August 29, 1994 previously held by you, as contemplated by Section
8 of the Consulting Agreement, or your obligations under Section 12 of the
Consulting Agreement.
2. Payments by the Company. In consideration of your execution of this letter
agreement, the Company will pay to you the amount of $75,000, without interest,
in two (2) equal payments. The first payment to be made upon signing of this
letter and the second payment to be made ninety (90) days from signing of this
letter. At your request, GA will pay an additional $134,000, without interest,
to Marian Lenore Mackenzie as additional consideration for your execution of
this letter agreement. The Company will pay this amount to Marian Lenore
Mackenzie as follows: $36,666.66 upon execution of this letter and seven (7)
monthly installments of $12,222.22 each commencing on December 1, 1998 and
continuing on the first day of each calendar month thereafter to and including
June 1, 1999, and one final installment of $11,777.80 on July 1, 1999.
<PAGE> 2
Mr. Leonard Mackenzie
November 5, 1998
Page 2
3. Release of Claims Under Consulting Agreement. You hereby release and
discharge the Company and its officers, directors, employees and agents (each a
"Company Releasee") from any and all claims, demands, causes of action,
obligations, contracts, agreements, obligations, debts and liabilities
whatsoever (collectively, "Claims"), which you now have or have ever had against
any Company Releasee under or arising out of the Consulting Agreement or any
breach or alleged breach of the Consulting Agreement. Without limiting the
generality of the foregoing, you hereby release and discharge any obligation on
the part of the Company to issue the Warrant contemplated by Section 7 of the
Consulting Agreement. In connection with the foregoing, you hereby represent and
warrant to the Company that there has been no assignment or other transfer,
voluntarily or by operation of law, to any other person or entity of any Claims
which are the subject of the release set forth in this Section 3. You further
hereby represent and warrant to the Company that your execution and delivery of
this letter agreement does not require the consent or approval of any other
person or entity.
4. Release by the Company of Claims Under Consulting Agreement. The Company
hereby releases and discharges you from any and all Claims which the Company now
has or has ever had against you under or arising out of the Consulting Agreement
or any breach or alleged breach of the Consulting Agreement, excluding only
Claims pertaining to breach of Section 12 of the Consulting Agreement. In
connection with the foregoing, the Company hereby represents and warrants to you
that there has been no assignment or other transfer, voluntarily or by operation
of law, to any person or entity of any Claims which are the subject of the
release set forth in this Section 4.
5. 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.
6. 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.
<PAGE> 3
Mr. Leonard Mackenzie
November 5, 1998
Page 3
(c) 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.
(d) 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.
(e) Parties in Interest. Nothing in this letter agreement,
express or implied, is intended to confer upon any person or entity,
other than the parties to this letter agreement and their respective
successors and assigns, any rights, remedies, obligations or liabilities
under or by reason of such agreement.
To acknowledge your agreement to the foregoing, please sign the
additional copy of this letter that is enclosed, and return it to me.
Very truly yours,
General Automation, Inc.
By:
------------------------------
Jane Christie, President & CEO
AGREED TO BY:
Leonard N. Mackenzie
<PAGE> 1
EXHIBIT 10.13
PROMISSORY NOTE
May 4, 1998
1. General Automation, Inc. currently owes NCR Corporation ("NCR"), a
Maryland corporation, the principal of $1,723,921.92. For Value
received, General Automation, Inc. promises to make payments to NCR as
set out in this Promissory Note as follows:
2. The payment of the above principal, together with interest at the rate
of 18% per annum shall be paid in a combination of eighteen (18)
consecutive monthly payments of $86,065.25 each and one (1) balloon
payment of $490,329.86. The first payment shall be due on May 1, 1998
with the remaining payments due on the first of each month thereafter.
3. General Automation and NCR agree that the principal amount in Paragraph
1, subject to future reconciliation, will be adjusted up or down to the
agreed upon amount at that time, with an appropriate adjustment to the
monthly payment in Paragraph 2, Amortization will still occur over 24
months, with a balloon payment due in 18 months.
4. PAYMENT SHALL BE SENT VIA WIRE TRANSFER USING THE FOLLOWING INFORMATION
PRIOR TO THE 1ST OF THE MONTH:
BANK NAME WACHOVIA BANK OF NORTH CAROLINA
BANK ADDRESS 10301 DAVID TAYLOR DRIVE
CHARLOTTE, NC2 28262
ABA 053100494
BNF ACCT. NCR CORPORATION
BNF ACCT. NO 8739069518
REFERENCE RFBLB65245
If General Automation fails to pay any monthly installment required to
be paid under this Promissory Note when the installment is due, all
unpaid installments shall, at NCR's option, become immediately due and
payable; and in addition to such right of acceleration, NCR shall be
entitled to any and all remedies available under the law or equity,
including collection charges of 1.5% per month and attorney fees.
Subject to the late fees, General Automation shall have five (5) in
which to cure any defaults under this note.
5. General Automation hereby waives presentment, demand for payment or
notice of dishonor of this note, notice of protest, and protest and all
other notices or demands in connection with the delivery, acceptance,
performance, default, endorsement or guaranty of this instrument.
6. General Automation shall have the right to prepay all or part of the
outstanding principal balance under this note without penalty and
without credit for interest paid or previously due.
7. No act or failure to act or verbal statement can waive or alter any term
or condition of this Promissory Note. This Promissory note shall
constitute the sole agreement in regard to the above-said principal sum
and shall supersede all prior agreements and understandings, whether
oral or written. This Promissory Note may not be altered, and/or any
provision or right waived, except in a signed writing. Any provision
voided by law shall be severable and not impair any remaining provision.
8. This note cannot be assigned by General Automation with the written
consent of NCR. Any attempt to assign or otherwise transfer the
obligation of General Automation without consent shall make this notice
due and immediately payable in full.
NCR Corporation General Automation, Inc.
- ---------------------------- -----------------------------
By Sandra A. Martinez By Richard Nance
Manager, Credit & CFO, General Automation
Third Party Collections, NCR 5/4/98
Date: 5/4/98
<PAGE> 1
EXHIBIT 10.14
WARRANT AGREEMENT
This Warrant Agreement ("Warrant Agreement") is made as of May _____,
1998, by and among General Automation, Inc., a Delaware corporation ("Company"),
Gregory A. Busch and David L. Keligian as Trustees of Lenawee Trust u/t/d
December 30, 1992 ("Lenawee"), Dito Caree Limited Partnership, a Nevada limited
partnership ("Dito Caree"), and Four JM, LLC, a California limited liability
company ("Four JM"). Company, Lenawee, Dito Caree, and Four JM are sometimes
hereinafter individually referred to as a "Party" or collectively referred to as
the "Parties."
1.0 RECITALS.
1.1 Company and Lenders have previously entered into the MOU,
pursuant to which Lenders agreed to make the Loan to Company, all as more fully
set forth in the MOU.
1.2 Pursuant to the provisions of the MOU, as additional
consideration to Lenders for agreeing to make the Loan to Company, Company has
agreed to issue the Original Warrants to Lenders, and Company has also agreed
that if required pursuant to the provisions of this Warrant Agreement, the
Company shall issue the Additional Warrants to Lenders, all as more fully set
forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and terms set
forth herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Parties agree as follows:
2.0 DEFINITIONS.
2.1 "ACT" shall mean the Securities Act of 1933, as amended.
2.2 "ADDITIONAL WARRANTS" shall mean the additional warrants to
be issued by the Company to Lenders' designees representing cumulatively the
right to acquire one hundred thousand (100,000) Shares of common stock of the
Company, pursuant to Section 3.4 herein.
2.3 "CLOSING" shall mean the closing of the Loan and the issuance
of the Original Warrants, which shall occur on the Closing Date.
1
<PAGE> 2
2.4 "CLOSING DATE" shall mean May 4, 1998, or such other date as
mutually agreed to by the Parties.
2.5 "COMPANY" shall mean General Automation, Inc., a Delaware
corporation.
2.6 "DEED OF TRUST" shall mean that certain Deed of Trust, of
even date herewith, granted by Company in favor of Lenders as security for the
Note.
2.7 "DITO CAREE" shall mean Dito Caree Limited Partnership, a
Nevada limited partnership.
2.8 "DUE DATE" shall mean the date that all amounts are due and
payable under the Note.
2.9 "FOUR JM" shall mean Four JM, LLC, a California limited
liability company.
2.10 "LENAWEE" shall mean Gregory A. Busch and David L. Keligian
as Trustees of Lenawee Trust u/t/d December 30, 1992.
2.11 "LENDERS" shall mean, collectively, Dito Caree, Four JM and
Lenawee.
2.12 "LOAN" shall mean that certain loan in the original
principal amount of Nine Hundred Thousand Dollars ($900,000.00), as evidenced by
the Note and secured by the Deed of Trust.
2.13 "LOAN DOCUMENTS" shall collectively mean the Note, the Deed
of Trust, this Warrant Agreement, the Original Warrants, the Additional
Warrants, Loan Brokerage Agreement, and the investment representation letters of
the Lenders or their designees.
2.14 "MOU" shall mean that certain Memorandum of Understanding
dated March 31, 1998, entered into between Company and the Lenders.
2.15 "NOTE" shall mean that certain Secured Note, dated as of
even date herewith, executed by Company in favor of Lenders, a copy of which is
attached hereto as EXHIBIT "A".
2
<PAGE> 3
2.16 "ORIGINAL WARRANTS" shall collectively mean three (3)
separate Warrants issued to each of the Lenders' designees (who are identified
on EXHIBIT "D" hereto and who will execute and deliver to the Company an
investment representation letter in the form attached hereto as EXHIBIT "C"), in
amounts designated by Lenders, representing cumulatively the right of Lenders to
acquire two hundred thousand (200,000) shares of common stock of the Company,
pursuant to the terms and conditions of this Warrant Agreement, in the form
attached hereto as EXHIBIT "B".
2.17 "PARTIES" shall collectively mean Company, Dito Caree, Four
JM and Lenawee, and "Party" shall mean any of the foregoing individually.
2.18 "PERSON" shall mean an individual, a partnership, a
corporation, a limited liability company, a limited liability partnership, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
2.19 "SHARES" shall mean those shares of the Company's common
stock to be issued upon the exercise of the Original Warrants or the Additional
Warrants.
2.20 "TARGET IRR" shall mean a minimum internal rate of return
from and after the Closing Date, through and including the Valuation Date, of
twenty percent (20%), when taking into consideration the interest received under
the Note, as well as the value of the Original Warrants as of the Valuation
Date, as determined pursuant to Section 3.3 herein.
2.21 "TOTAL LOAN CONSIDERATION" shall have the meaning ascribed
in Section 3.3 herein.
2.22 "VALUATION DATE" shall mean the date on which the value of
the Original Warrants is determined pursuant to in Section 3.3 herein, which
shall occur at the earlier of: (i) the Due Date of the Note, or (ii) the date
upon which all amounts due under the Note have been satisfied in full by
Company.
2.23 "VOW" shall have the meaning ascribed to it in Section 3.3
hereof.
2.24 "WARRANT AGREEMENT" shall mean this Warrant Agreement.
3
<PAGE> 4
3.0 AUTHORIZATION AND ISSUANCE OF ORIGINAL WARRANTS.
3.1 AUTHORIZATION BEFORE CLOSING. On or prior to the Closing, the
Company will authorize the issuance of the Original Warrants to the Lenders'
designees to purchase two hundred thousand (200,000) shares of the Company's
common stock in the form attached hereto as EXHIBIT "B."
3.2 ISSUANCE OF ORIGINAL WARRANTS. Subject to the terms and
conditions of this Warrant Agreement, in consideration of the Loan to the
Company, the Company will issue the Original Warrants to the Lenders' designees
at the Closing. The Original Warrants shall have a term of five (5) years and
shall be exercisable as provided in the Warrant attached hereto as EXHIBIT "B."
3.3 VALUATION OF ORIGINAL WARRANTS. The Original Warrants shall
be valued on the Valuation Date to determine whether the Lenders have achieved
the Target IRR. The value of the Original Warrants shall be determined by taking
the weighted average of closing sales prices of the shares of the Company's
common stock sold on the American Stock Exchange or NASDAQ (or such other
national or regional exchange on which the Company's shares are listed for sale
and that then constitutes the principal market for the Company's stock) on each
of the immediately preceding three (3) trading days prior to the Valuation Date,
computed on a per share basis, and subtracting from such average the exercise
price of the Original Warrants and then multiplying said amount by the aggregate
number of shares represented by the Original Warrants , to arrive at the value
of the Original Warrants ("VOW"). The VOW shall be added together with all
interest payments actually received by Lenders under the Note (exclusive of
default interest and provided that all amounts due under the Note have been paid
in full), and such sum shall equal the "Total Loan Consideration." The Total
Loan Consideration shall be used to calculate Lenders' internal rate of return
on the outstanding principal balance of the Loan (as the same may change from
time to time) from the Closing Date to the Valuation Date.
3.4 ISSUANCE OF ADDITIONAL WARRANTS. If either: (i) the internal
rate of return achieved by Lenders on the Loan (calculated as provided in
Section 3.3) is less than the Target IRR, but the Company is not then in default
under the Note, or (ii) the Company defaults under the Note, which default is
not cured within the applicable cure period, then the Company shall immediately
issue the Additional Warrants to the Lenders' designees, provided however, that
(a) all of
4
<PAGE> 5
Lenders' designees shall execute and deliver an investor representation letter
in the form attached as EXHIBIT "C" hereto prior to the Company's issuance of
any Additional Warrants to such designee, and (b) with respect to any Lender's
designee who did not receive an Original Warrant, the Company shall have no
obligation to issue an Additional Warrant to such designee if the Company shall
determine, in good faith, that an Additional Warrant may not be issued to such
designee without registration under the Securities Act of 1933, as amended,
and/or registration or qualification under any applicable state securities laws.
If the Additional Warrants are issued pursuant to Section 3.4(i), then the
exercise price for the Additional Warrants shall be set as necessary to achieve
the Target IRR based on the value of the Company's common stock on the Valuation
Date (as determined in Section 3.3). If the Additional Warrants are issued
pursuant to Section 3.4(ii), then the exercise price shall be One Dollar and
Nineteen Cents ($1.19) per share. Notwithstanding the aforementioned, the
Company, at its option, has the right to pay to the Lenders cash in order to
achieve the Target IRR in lieu of issuing the Additional Warrants pursuant to
this Section 3.0. The Additional Warrants will have a term of one (1) year
commencing on the Valuation Date, and will be in substantially the form of the
Original Warrants, provided, however, that the Additional Warrants will be
exercisable at any time after their issuance.
3.5 CLOSING. The Closing shall occur on the Closing Date or at
such other time and in such manner as the Parties may agree, provided that the
conditions to the Closing set forth in Section 5.0 herein have been satisfied.
At the Closing, the Company will deliver to Lenders' designees the Original
Warrants registered in the name of Lenders' designees.
4.0 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents, warrants, and covenants to the Lenders as follows:
4.1 ORGANIZATION AND STANDING. The Company and each of its
subsidiaries is duly organized and a validly existing corporation in good
standing under the laws of the jurisdiction in which it is organized and has all
requisite corporate power and authority for the ownership and operation of its
properties and for carrying on its business as now conducted and as now proposed
to be conducted. The Company and each of its subsidiaries is duly licensed or
qualified and in good standing as a foreign corporation authorized to do
business in all jurisdictions in which the character of the property owned or
leased, or the nature of the activities conducted by it makes such license or
qualification necessary.
5
<PAGE> 6
4.2 CORPORATE ACTION. The Company has all necessary corporate
power and has taken all corporate action required to enter into the MOU and the
Loan Documents, and any all such Loan Documents when executed will be valid and
enforceable obligations of the Company. Sufficient shares of authorized but
unissued common stock of the Company have been reserved by appropriate corporate
action in connection with the issuance of the Original Warrants. The issuance of
the Shares upon exercise of the Original Warrants and/or the Additional Warrants
are not subject to preemptive or other preferential rights, or similar statutory
or contractual rights, either pursuant to any agreement or instrument to which
the Company is a party or which are otherwise binding upon the Company. Upon
exercise of the Original Warrants and/or the Additional Warrants, the Company
shall comply with all applicable regulations and requirements and take all
necessary actions so that the Shares issued upon exercise of the Warrants shall
be validly authorized and duly issued, including without limitation the listing
of such Shares with any exchanges on which the Company's shares are traded.
Lenders acknowledge that compliance with such regulations and requirements may
delay the issuance of the Shares for approximately thirty (30) days.
Notwithstanding the foregoing, except as required under the Original Warrant or
under the Additional Warrant, in no event shall the Company be required to
register the Shares under the Securities Act of 1933, as amended, or to register
or qualify the Shares under the securities laws of any state. This Warrant
Agreement, the MOU and other Loan Documents are valid and binding obligations of
the Company, enforceable in accordance with their respective terms.
4.3 GOVERNMENTAL APPROVALS. All authorizations, consents,
approvals, licenses, exemptions from or filings, or registrations of any court
or governmental department, commission, board, agency or instrumentality,
domestic or foreign, necessary for, or in connection with, the offer, issuance,
sale, execution, or delivery by the Company or for the performance by it of its
obligations under this Warrant Agreement, the Original Warrants, or the Shares
shall have been made prior to, and shall be effective as of, the Closing.
4.4 LITIGATION. Except as described in the Company's most recent
form 10-K, there is no litigation or governmental proceeding or investigation
pending or threatened against the Company or any of its subsidiaries or
affecting any of its properties or assets that might result, either in any case
or in the aggregate, in a material adverse change in the business, prospects,
operations, affairs, or conditions of the Company or its subsidiaries or any of
their properties
6
<PAGE> 7
or assets, or that might call into question of the validity of this Warrant
Agreement, the Loan or any of the Loan Documents.
4.5 TAXES. The Company has accurately prepared and timely filed
all federal, state and other tax returns required by law to be filed by it, has
paid or made provisions for the payment of all taxes shown to be due and all
additional assessments received by it, and adequate provisions have been made
and are reflected in the Company's financial statements for all current taxes
and other charges to which the Company is subject and which are not currently
due and payable.
4.6 SECURITIES ACT OF 1933. The Company has complied and will
comply with all applicable federal and state securities laws in connection with
the issuance and sale of the Original Warrants, provided that the investor
representation letters delivered to the Company by the Lenders and the Lenders'
designee are accurate in all material respects. Neither the Company nor anyone
acting on its behalf will offer to sell the Shares or similar securities to, or
solicit offers with respect thereto, from, or enter into any preliminary
conversations or negotiations relating thereto, with any Person so as to bring
the issuance and sale of the Original Warrants under the registration provisions
of the Act.
5.0 CONDITIONS TO LENDERS' OBLIGATIONS TO CLOSE. Lenders' obligations to
close and fund the Loan are subject to the issuance of the Original Warrants at
the Closing and the fulfillment, as of the Closing Date, of the following
conditions:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Company in Section 4.0 hereof shall be true and correct
when made and as of the Closing Date.
5.2 COVENANTS. All covenants and agreements and conditions
contained in this Warrant Agreement or in any of the Loan Documents to be
performed by the Company on or prior to the Closing Date shall have been
performed or complied with.
5.3 PERMITS. The Company shall have obtained all consents,
permits and waivers necessary and appropriate for the consummation of the
transactions contemplated by this Warrant Agreement and the Loan Documents,
which need to be obtained prior to the Closing.
7
<PAGE> 8
6.0 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Each and every
representation, warranty and covenant set forth herein is true as of the date of
execution hereof, shall be true as of the Closing Date of the subject
transaction, and shall survive the Closing.
7.0 NO MODIFICATIONS OR WAIVERS.
7.1 MUST BE WRITTEN. Waivers or modifications of this Warrant
Agreement, or any covenant, condition, or limitation contained herein, are valid
only if in writing that is separately signed or initialed by the Parties,
provided however, that any written waiver or modification of this Warrant
Agreement that is signed by Lenawee and Dito Caree on behalf of the Lenders
shall be binding on all of the Lenders.
7.2 NO USE AS EVIDENCE. One or more waivers or modifications of
any covenant, term or condition in this Warrant Agreement by any Party shall not
be construed by any other Party as a waiver or modification applicable to any
subsequent breach of the same covenant, term or condition. Evidence of any such
waiver or modification may not be offered or received in evidence in any
proceeding, arbitration, or litigation between the parties arising out of or
affecting this Warrant Agreement, or a Party's rights or obligations under it.
This limitation does not apply if the waiver or modification is in writing and
duly executed as provided above.
7.3 ENTIRE AGREEMENT. This Warrant Agreement (including any
attachments and exhibits hereto), together with the Loan Documents and the MOU,
contains the Parties' sole and entire agreement regarding the subject matter
hereof, and supersedes any and all other agreements between them. In the event
of any inconsistency or conflict between the MOU and the Loan Documents, the
terms and conditions of the Loan Documents shall prevail.
8.0 JOINT PREPARATION. The Parties to this Warrant Agreement have been
represented by competent counsel. This Warrant Agreement is therefore deemed to
have been jointly prepared by the Parties, and any uncertainty or ambiguity
existing in it shall not be interpreted against any Party under the presumptions
of California Civil Code Section 1654, but rather shall be interpreted according
to the rules generally governing the interpretation of contracts.
8
<PAGE> 9
9.0 COOPERATION AND FURTHER ACTIONS. The Parties agree to perform any
and all acts and to execute and deliver any and all documents necessary to carry
out the terms of this Warrant Agreement.
10.0 PROFESSIONAL FEES. If a lawsuit, arbitration, or other proceedings
are instituted by any Party to enforce any of the terms or conditions of this
Warrant Agreement against any other Party hereto, the prevailing Party in such
litigation, arbitration, or proceedings shall be entitled, as an additional item
of damages, to such reasonable attorneys' and other professional fees (including
but not limited to expert witness fees), court costs, arbitrators' fees,
arbitration administrative fees, travel expenses, and other out-of-pocket
expenses or costs of such other proceedings as may be fixed by any court of
competent jurisdiction, arbitrator, or other judicial or quasi-judicial body
having jurisdiction thereof, whether or not such litigation or proceedings
proceed to a final judgment or award. For the purposes of this Section 10.0, any
Party receiving an arbitration award or a judgment for damages or other amounts
shall be deemed to be the prevailing Party, regardless of amount of the damage
awarded or whether the award or judgment was based upon all or some of such
Party's claims or causes of action.
11.0 COUNTERPARTS. This Warrant Agreement may be executed in several
counterparts, each of which so executed shall be deemed to be an original, but
such counterparts shall together constitute and be one in the same instrument.
12.0 SEVERABILITY. If any part, clause, or condition of this Warrant
Agreement is held to be partially or wholly invalid, unenforceable, or
inoperative for any reason whatsoever, such shall not affect any other provision
or portion hereof, which shall continue to be effective as though such invalid,
inoperative, or unenforceable part, clause or condition had not been made
13.0 BINDING UPON SUCCESSORS. This Warrant Agreement shall be binding
upon and inure to the benefit of the Parties hereto and their respective heirs,
legal representatives, successors and assigns. Any transfer of the Original
Warrants or the Additional Warrants or any of the Shares received upon exercise
of the Warrants shall only be transferred in compliance with the provisions of
such Warrant and applicable law.
14.0 GOVERNING LAW AND VENUE. All questions concerning this Warrant
Agreement, its construction, and the rights and liabilities of the Parties
hereto shall be interpreted and enforced in accordance with the laws of the
State of California as applied to contracts which are executed and performed
entirely within
9
<PAGE> 10
the state. For purposes of this Agreement, sole and proper venue shall be Orange
County, California.
10
<PAGE> 11
15.0 INTERPRETATION.
15.1 SECTION HEADINGS. The section headings of this Warrant
Agreement are included for purposes of convenience only, and shall not affect
the construction or interpretation of any of its provisions.
15.2 CAPITALIZED TERMS. Except as otherwise expressly provided
herein, all capitalized terms defined in this Warrant Agreement shall have the
meaning ascribed to them herein.
15.3 GENDER AND NUMBER. Whenever required by the context, the
singular shall include the plural, the plural shall include the singular, and
the masculine gender shall include the neuter and feminine genders and vice
versa.
16.0 NOTICES. For purposes hereof, delivery of written notice shall be
complete upon receipt of electronic facsimile, provided that any facsimile
notice shall only be deemed received if (a) the transmission thereof is
confirmed, and (b) facsimile notice is followed by written notice, made either
by (i) personal delivery thereof, or (ii) via deposit in certified mail return
receipt requested, postage prepaid, within three (3) business days following the
facsimile notice. Notices shall be addressed to the parties as follows:
Company: General Automation,
a Delaware corporation
Attn: Richard Nance
17731 Mitchell North
Irvine, California 92614
Telephone: (949) 250-4800
Facsimile: (949) 752-6772
With required copy to
Company's Attorney: Scott McConnell, Esq.
Higham, McConnell & Dunning LLP
28202 Cabot Road, Suite 450
Laguna Niguel, California 92677
Telephone: (949) 365-5517
Facsimile: (949) 365-5522
11
<PAGE> 12
Lenders: Dito Caree Limited Partnership
Attn: David B. Hehn
3753 Howard Hughes Parkway, #200
Las Vegas, Nevada 89109
Telephone: (702) 892-3789
Facsimile: (702) 892-3992
Four JM, LLC
Attn: Joseph W. Moody
2532 Dupont Drive
Irvine, California 92612
Telephone: (949) 474-7368
Facsimile: (949) 474-7732
David A. Keligian and
Gregory A. Busch, Trustees of the
Lenawee Trust u/t/d 12/30/92
2532 Dupont Drive
Irvine, California 92612
Telephone: (949) 474-7368
Facsimile: (949) 474-7732
With a required copy to
Attorney for Lenders: The Busch Firm
Attn: Rick S. Weiner, Esq.
2532 Dupont Drive
Irvine, California 92612
Telephone: (949) 474-7368
Facsimile: (949) 474-7732
Notice shall be deemed given on the date it is sent via
facsimile. Any party may change the address to which to send notices by
notifying the other party of such changes in writing in accordance with this
section.
17.0 TIME OF ESSENCE. The Parties acknowledge and agree that time is
strictly of the essence with respect to each and every term, condition,
obligation and provision hereof. Failure to timely perform any of the terms,
conditions, obligations or provisions hereof by any party shall constitute a
material breach of this Warrant Agreement by the party so failing to perform.
12
<PAGE> 13
18.0 RELATIONSHIP CREATED. Nothing contained herein or in any schedule,
attachment, or exhibit hereto shall create any partnership, joint venture or
other agreement between the Parties hereto.
19.0 THIRD PARTY BENEFICIARIES. No term or provision of this Warrant
Agreement is intended to be, or shall be, for the benefit of any person, firm,
organization or corporation not a party hereto, and no such other person, firm,
organization or corporation shall have any right or cause of action hereunder.
IN WITNESS WHEREOF, the Parties have executed this Warrant Agreement as
of the date first written above.
GENERAL AUTOMATION,
a Delaware corporation
By: __________________________
RICHARD NANCE
Its: Chief Executive Officer
By: __________________________
Its:
"COMPANY"
DITO CAREE LIMITED PARTNERSHIP,
a Nevada limited partnership
By: GAMEBUSTERS, INC.,
a Nevada corporation
Its: General Partner
By: _________________________
DAVID B. HEHN
Its: President
[SIGNATURES CONTINUED ON NEXT PAGE]
13
<PAGE> 14
FOUR JM, LLC,
a California limited liability company
By: ___________________________
JOSEPH W. MOODY
Its: President
LENAWEE TRUST,
U/T/D DECEMBER 30, 1992
By: ___________________________
DAVID L. KELIGIAN
Its: Trustee
By: ___________________________
GREGORY A. BUSCH
Its: Trustee
"LENDERS"
14
<PAGE> 15
EXHIBIT "A"
SECURED NOTE
Please see attached.
<PAGE> 16
EXHIBIT "B"
ORIGINAL WARRANT
Please see attached.
<PAGE> 17
EXHIBIT "C"
INVESTOR REPRESENTATION LETTER
Please see attached.
<PAGE> 18
EXHIBIT "D"
Lenders' Designees
<TABLE>
<CAPTION>
LENDER PARTY DESIGNEE NUMBER OF WARRANTS
<S> <C> <C>
Dito Caree Limited Todd Martin Pickup 133,334
Partnership and Devon Renee Pickup
or Successor Trustee, as
Trustees of the Vintage
Trust Dated October
28, 1993
Gregory A. Busch and Gregory A. Busch as Trustee 61,111
David L. Keligian, Trustees of the 92653 Trust Dated
of the Lenawee Trust Dated December 29, 1995
December 30, 1992
Four JM LLC, a Four JM LLC, a 5,555
California limited California limited
liability company liability company
</TABLE>
<PAGE> 1
EXHIBIT 10.15
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 HEREIN 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 BORROWER TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
SECURED NOTE
Date: May ___, 1998 City of: Irvine
Interest Rate: 12% per annum State of: California
Due Date: April 30, 2000
FOR VALUE RECEIVED, GENERAL AUTOMATION, INC., a Delaware corporation
("Borrower"), promises to pay to the order of GREGORY A. BUSCH and DAVID L.
KELIGIAN, as Trustees of THE LENAWEE TRUST U/T/D/ 12/30/92 ("Lenawee"), DITO
CAREE LIMITED PARTNERSHIP, a Nevada limited partnership ("Dito Caree"), and FOUR
J.M., LLC, a California limited liability company ("Four JM"), or its order or
designees (collectively, "Lenders"), at 2532 Dupont Drive, Irvine, California
92612, or at such other place as Lenders may designate in writing, in lawful
money of the United States of America, and in immediately available funds, the
principal sum of Nine Hundred Thousand Dollars ($900,000.00), or so much thereof
as may be advanced and be outstanding, with any accrued interest thereon on the
Due Date.
1.0 DEFINITIONS. As used herein, the following capitalized terms shall
have the following meanings:
1.1 "Borrower" shall mean GENERAL AUTOMATION, INC., a Delaware
corporation.
1
<PAGE> 2
1.2 "Deed of Trust" shall mean that certain Deed of Trust of even
date herewith granted by the Borrower in favor of the Lenders as security for
this Note.
1.3 "Dito Caree" shall mean Dito Caree Limited Partnership, a
Nevada limited partnership.
1.4 "Due Date" shall mean April 30, 2000, which is the date on
which all monetary obligations hereunder are due to Lenders.
1.5 "Event of Default" shall mean any of those occurrences
described in Section 6.0 hereof.
1.6 "Four J.M" shall mean Four J.M., LLC, a California limited
liability company.
1.7 "Interest Law" shall mean any present or future law of the
State of California, the United States of America, or any other jurisdiction
that applies to this Note.
1.8 "Lenawee" shall mean Gregory A. Busch and David L. Keligian
as Trustees of the Lenawee Trust U/T/D December 30, 1992.
1.9 "Lender" shall mean individually, Lenawee, Dito Caree or
Four-J.M.
1.10 "Lenders" shall mean collectively, Lenawee, Dito Caree and
Four-J.M.
1.11 "Lenders' Agent" shall mean T.R. BUSCH REALTY CORPORATION,
II, a California corporation, d/b/a/ BUSCH FINANCIAL SERVICES or such successor
person or entity appointed by a majority in number of the Lenders in a writing
delivered to both Borrower and the other Lenders who have not executed such
notice.
1.12 "Loan" shall mean the principal sum advanced hereunder by
the Lenders to the Borrower.
2
<PAGE> 3
1.13 "Maximum Legal Rate of Interest" shall mean the maximum rate
of interest that the Lenders may charge the Borrower, and under which the
Borrower would have no claim or defense of usury under the Interest Law.
1.14 "National Bank Deed of Trust" shall mean that certain deed
of trust executed by Borrower as trustor in favor of National Bank of Southern
California as beneficiary, recorded on November 18, 1994 as instrument number
94-0669148 in the official records of the Orange County Recorder's office.
1.15 "Note" shall mean this Secured Note executed by Borrower in
the original principal amount of Nine Hundred Thousand Dollars ($900,000.00).
1.16 "Outstanding Principal Balance" shall mean the total amount
advanced hereunder by the Lenders less the amount of principal repayments made
by or for the Borrower.
1.17 "Party(ies)" shall mean, either individually or collectively
as the context may imply, the Borrower and Lenders.
1.18 "Person" shall mean an individual, a partnership, a
corporation, a limited liability company, a limited liability partnership, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
1.19 "Property" shall mean the real property commonly known as
17731 Mitchell North, Irvine, California 92614, which property is more fully
described in Exhibit "A" to the Deed of Trust.
1.20 "Warrant" shall mean three separate warrants issued to each
of the Lenders' designees in amounts designated by Lenders, representing
cumulatively the right of Lenders to acquire at least two thousand (200,000)
shares of common stock of the Borrower pursuant to the terms and conditions of
the Warrant Agreement.
1.21 "Warrant Agreement" shall mean that certain Warrant
Agreement of even date herewith by and between the Lenders and the Borrower,
pursuant to which the Warrant will be issued to the Lenders.
3
<PAGE> 4
2.0 PAYMENTS. All payments due hereunder shall be payable to the
Lenders' Agent at such address as the Lenders' Agent may designate in writing.
All payments made by the Borrower to the Lenders' Agent under this Loan shall be
deemed paid to the Lenders for all purposes hereunder. Such payments will be
paid as follows:
2.1 Accrual of Interest. Interest at the rate of twelve percent
(12%) per annum compounded annually shall accrue on the Outstanding Principal
Balance.
2.2 Interest Computations. All interest computations under this
Note shall be computed on the basis of a three hundred sixty (360) day year,
actual days elapsed.
2.3 Payment of Interest. Monthly interest only payments shall be
made on the last day of each calendar month until the Due Date commencing with
the first payment on May 31, 1998.
2.4 Balloon Payment. The balance of principal and any accrued and
unpaid interest shall be paid as a balloon payment on the Due Date.
2.5 Default Interest. From and after the occurrence of an Event
of Default which is not cured within the applicable cure period, all outstanding
amounts under this Note shall, until paid in full, bear interest at an increased
rate of interest equal to the lesser of: (i) sixteen percent (16%) per annum, or
(ii) the Maximum Legal Rate of Interest.
2.6 Application of Payments. Each payment made on this Note shall
first (1st) be applied to costs, late charges and such other fees owing
hereunder, second (2nd) to the payment of any accrued interest, and third (3rd)
to the payment of principal.
2.7 Failure to Perform. Upon the occurrence of an Event of
Default which is not cured within the applicable cure period, the entire
Outstanding Principal Balance and all accrued and unpaid interest t will at once
become due and payable, without notice, at the Lender's sole option. Failure to
exercise such option will not constitute a waiver of the Lenders' right to
exercise it for any subsequent default.
4
<PAGE> 5
3.0 PREPAYMENT. The Borrower shall have the right at any time to prepay
the entire indebtedness evidenced hereby and shall have the further right to
make partial prepayments hereunder at any time, in the Borrower's sole
discretion.
4.0 USURY. It is the intention of the Borrower and Lenders to conform
strictly to the Interest Law applicable to this loan transaction. Accordingly,
it is agreed that notwithstanding any provision to the contrary in this Note, or
in any of the documents securing payment hereof, any charges or consideration
constituting interest under the Interest Law that is taken, reserved, contracted
for, charged, or received by the Lenders shall not exceed the Maximum Legal Rate
of Interest applicable to this Note. If any excess interest in such respect is
provided for in this Note, or in any of the documents securing payment hereof or
otherwise relating hereto, the provisions of this paragraph shall govern and
control.
4.1 Heirs and Assigns. Neither the Borrower nor the Borrower's
heirs, legal representatives, successors, or assigns shall be obligated to pay
interest in excess of the Maximum Legal Rate of Interest applicable to this loan
transaction.
4.2 Excess Interest. Any excess interest shall be deemed
cancelled automatically and if theretofore already paid, shall be credited on
this Note by the Lenders. If this Note has been paid in full, any excess
interest theretofore already paid shall be refunded to the Borrower.
4.3 Maximum Interest. The effective rate of interest shall be
automatically subject to reduction to the Maximum Legal Rate of Interest allowed
under the Interest Law, as now or hereafter construed by courts of appropriate
jurisdiction. To the extent permitted by the Interest Law, all sums paid or
agreed to be paid to the Lenders for the use, forbearance or detention of the
indebtedness evidenced hereby shall be amortized, prorated, allocated, and
spread throughout the full term of this Note.
5.0 SECURITY.
5.1 Property/Grant of Security Interest. This Note is secured by
the Deed of Trust in favor of Lenders encumbering the Property.
5.2 Due on Sale Clause. The Deed of Trust contains a due on sale
clause that provides if the Property, or any part or interest is sold, conveyed,
assigned, or transferred, or if the Borrower agrees to sell, convey, assign, or
5
<PAGE> 6
transfer the Property by operation of law or otherwise, all obligations secured
by this instrument, regardless of the maturity dates, at the Lenders' option and
without demand or notice, will immediately become due and payable. The Lenders'
failure to exercise such option will not constitute waiver of the Lenders' right
to exercise it in the event of a subsequent sale, conveyance, assignment, or
transfer.
6.0 EVENTS OF DEFAULT AND REMEDIES.
6.1 The occurrence of any of the following shall constitute an
"Event of Default" under this Note:
(a) Failure to Pay. The failure to pay any principal,
interest, fees, or other charges due under this Note or any of the Loan
Documents within ten (10) days of when due.
(b) Bankruptcy. The filing of a petition by or against
the Borrower, under any provisions of the Bankruptcy Code, Title 11 of the
United States Code, as amended or recodified from time to time, or under any
similar or other law relating to bankruptcy, insolvency, reorganization, or
other relief for debtors; the appointment of a receiver, trustee, custodian, or
liquidator of or for any part of the assets or property of Borrower that are
material to the operations of Borrower; or Borrower becoming insolvent, making a
general assignment for the benefit of creditors or generally not paying its
debts as they become due; provided, however, that with respect to any such
action which is taken by any Person other than the Company without the
cooperation or acquiescence of the Company, the same shall not be deemed to be
an Event of Default unless such action shall have remained uncured for a period
of at least forty-five (45) days.
(c) Dissolution. The dissolution or liquidation of the
Borrower.
(d) Financial Information. Any financial statement or
tax return provided by the Borrower to Lenders proves false.
(e) Sale or Transfer of Assets. Any sale or transfer of
all or a substantial or material part of the assets of the Borrower other than
in the ordinary course of business.
6
<PAGE> 7
(f) Breach. Borrower shall have failed to perform any
term, covenant, condition or obligation under this Note, the Deed of Trust or
any of the other Loan Documents, except those requiring the payment of money,
and Borrower shall have failed to cure such breach within thirty (30) days after
written notice from Lender specifying the nature of such breach, provided that
where such failure or breach reasonably could not be cured within said thirty
(30) day period, Borrower shall not be in default if Borrower commences to cure
the default or breach within the thirty (30) day period and thereafter continues
to make diligent and reasonable efforts to cure such breach and complete such
cures as soon as practicable.
(g) Breach of National Bank Deed of Trust. Any
violation or breach of any provision of the National Bank Deed of Trust that
leads to acceleration of the indebtedness secured thereby.
6.2 Remedies. Upon the occurrence of any Event of Default,
Lenders, at Lenders' option, may declare all sums of principal and interest
outstanding hereunder to be immediately due and payable without presentment,
demand, protest or notice of dishonor, all of which are hereby expressly waived
by the Borrower, and the obligation, if any, of the Lenders to extend any
further credit hereunder shall immediately cease and terminate.
6.3 Costs. The Borrower shall pay to Lenders immediately upon
demand the full amount of all payments, advances, charges, costs, and expenses,
including reasonable professionals' fees (to include outside counsel fees and
all allocated costs of the Lenders' in-house counsel), incurred by the Lenders
in connection with the enforcement of the Lenders' rights and/or the collection
of any amounts that become due to the Lenders under this Note, and the
prosecution or defense of any action in any way related to this Note, including
without limitation, any action for declaratory relief, and including any of the
foregoing incurred in connection with any bankruptcy proceeding relating to the
Borrower.
7.0 MISCELLANEOUS.
7.1 Notices. Any notice, request, demand, consent, approval, or
other communication required or permitted hereunder or by law shall be validly
given or made only if in writing and delivered in person or by independent
courier service to the other Party at the address(es) below, or deposited in the
United States mail, duly certified or registered (return receipt requested),
postage prepaid, and addressed to the Party for whom intended, as follows:
7
<PAGE> 8
Borrower: General Automation, Inc.
a Delaware corporation
Attn: Richard Nance
17731 Mitchell North
Irvine, California 92614
Telephone: (949) 250-4800
Facsimile: (949) 752-6772
Lenders: T. R. Busch Realty Corporation II d/b/a
Busch Financial Services
Attn: Timothy R. Busch
2532 Dupont Drive
Irvine, California 92612
Telephone: (949) 474-7368
Facsimile: (949) 474-7732
Notice may also be given by facsimile transmission to any Party
at the respective fax number given above, marked "RUSH - PLEASE DELIVER
IMMEDIATELY", provided receipt of such transmission shall be confirmed
telephonically. Any party may from time to time, by written notice to the other
as provided above, designate a different address that shall be substituted for
that specified above. If any notice or other document is sent by mail as
aforesaid, the same shall be deemed served or delivered forty-eight (48) hours
after mailing thereof as above specified. Notice by any other method shall be
deemed served or delivered upon actual receipt at the address or fax number
listed above.
7.2 No Waiver. No delay, failure, or discontinuance of Lenders in
exercising any right, power, or remedy under this Note or the Deed of Trust
shall affect or operate as a waiver of such right, power, or remedy; nor shall
any single or partial exercise of any such right, power, or remedy preclude,
waive, or otherwise affect any other or further exercise thereof or the exercise
of any other right, power, or remedy. Any waiver, permit, consent, or approval
of any kind by the Lenders of any breach or default must be in writing and shall
be effective only to the extent set forth in such writing.
7.3 No Demand Required. Borrower hereby (other than as expressly
provided in this Note) waives presentment for payment, demand, protest, notice
of non-payment or dishonor, and of protest, and any and all other
8
<PAGE> 9
notices and demands whatsoever, and agrees to remain bound until the principal
and interest due hereunder are paid in full.
7.4 Cumulative Remedies. No right, power, or remedy given Lenders
by the terms of this Note, or by any other instrument now or hereafter securing
this Note, is intended to be exclusive of any other right, power, or remedy.
Each and every right, power, or remedy shall be cumulative in addition to every
other right, power, or remedy given Lenders against Borrower by the terms of any
instrument, any statute, or otherwise.
7.5 Severability. If any part, clause, or condition of this Note
is held to be partially or wholly invalid, unenforceable, or inoperative for any
reason whatsoever, such shall not affect any other provision or portion hereof,
which shall continue to be effective as though such invalid, inoperative, or
unenforceable part, clause, or condition had not been made.
7.6 Transferability. The transfer of this Note or any interest
therein by any Lender is subject to the restrictions contained in the legend
which is set forth on the first page of this Note.
7.7 Governing Law. This Note is made and delivered in the City of
Irvine, County of Orange, State of California, and shall be construed in
accordance with and governed by the laws of the State of California.
7.8 Facsimile Signatures. For purposes hereof, delivery of
written evidence of execution by electronic facsimile shall be deemed to be an
original signature for all purposes and evidence of execution by the Party who
has transmitted such signature via facsimile.
7.9 Waiver of Jury. Borrower hereby waives the right to a trial
by jury in any action or proceeding based upon or related to, the subject matter
of this Note. This waiver is knowingly, intentionally and voluntarily made by
Borrower and Borrower acknowledges that Lenders have not made any
representations of fact to induce this waiver of trial by jury or in any way to
modify or nullify its effect. Borrower further acknowledges that Borrower has
been represented (or has had the opportunity to be represented) in the signing
of this Note and in the making of this waiver by its legal counsel selected by
Borrower, and that Borrower has had the opportunity to discuss this waiver with
counsel.
9
<PAGE> 10
7.10 Waivers, Amendments and Consents. Any consent, approval or
waiver of the Lenders pertaining to this Note shall be binding on all of the
Lenders if such consent, approval or waiver is given in writing by a majority in
number of the Lenders. Similarly, the obligations of the Borrower and the rights
of the Lenders under this Note may be amended, if such amendment is set forth in
writing and is signed by a majority in number of the Lenders, and such amendment
shall be binding on all of the Lenders. A copy of any consent, approval, waiver
or amendment executed pursuant to this Section by less than all of the Lenders
shall be promptly sent to each Lender who has not signed the same.
IN WITNESS WHEREOF, the Borrower has executed this Note as of the date
and year first above written.
GENERAL AUTOMATION, INC.,
A Delaware corporation
By: _________________________
RICHARD NANCE
Its: Chief Financial Officer
"BORROWER"
10
<PAGE> 1
EXHIBIT 10.16
NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED
OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE, AND NEITHER THIS WARRANT
NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE TRANSFERRED
EXCEPT AS PROVIDED IN SECTION 3 OF THIS WARRANT.
WARRANT
to purchase Common Stock of
General Automation, Inc.
Expiring April 30, 2003
FOR VALUE RECEIVED, General Automation, Inc., a Delaware corporation (the
"Company"), hereby grants to Todd Martin Pickup and Devon Renee Pickup, or
successor trustees, as Trustees, Vintage Trust Dated October 28, 1993, or
registered assigns ("Holder"), the right to purchase from the Company, upon and
subject to the terms and conditions set forth in this Warrant, all or any part
of 133,334 fully paid and non-assessable shares of the Common Stock of the
Company for the aggregate exercise price of $158,667.00.
Hereafter, (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 $1.19 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.
This Warrant is issued in connection with the Warrant Agreement dated
May 4, 1998 ("Warrant Agreement") by and between the Company and the "Lenders"
(as defined in the Warrant Agreement) and is issued in consideration of the Loan
made to the Company as described in the Warrant Agreement, which Loan is
evidenced by the "Note" (as defined in the Warrant Agreement").
This Warrant is subject to the following provisions, terms and
conditions:
1
<PAGE> 2
Section 1. EXERCISE OF WARRANT.
To exercise this Warrant in whole or in part, the Holder shall deliver
to the Company at its principal office in Irvine, California, (a) a written
notice, in substantially the form of the Subscription Notice appearing at the
end of this Warrant, of the Holder's election to exercise this Warrant, which
notice shall specify the number of shares of Common Stock to be purchased, (b)
cash or a certified check payable to the Company, in an amount equal to the
aggregate purchase price of the number of shares of Common Stock being purchased
and (c) this Warrant. The Company shall as promptly as practicable, and in any
event within 15 days thereafter, execute and deliver or cause to be executed and
delivered, in accordance with such notice, a certificate or certificates
representing the aggregate number of shares of Common Stock specified in such
notice. The stock certificate or certificates so delivered shall be in the
denomination as may be specified in such notice and shall be issued in the name
of the Holder or such other name as shall be designated in such notice (provided
such designation complies with Section 3 herein). Such certificate or
certificates shall be deemed to have been issued and the Holder or any other
person so designated to be named therein shall be deemed for all purposes to
have become a holder of record of such shares as of the date such notice and
payment are received by the Company as aforesaid. If this Warrant shall have
been exercised only in part, the Company shall, at the time of delivery of said
certificate or certificates, deliver to the Holder a new Warrant evidencing the
rights of the Holder to purchase the remaining shares of Common Stock called for
by this Warrant, which new Warrant shall in all other respects be identical to
this Warrant, or, at the request of the Holder, appropriate notation may be made
on this Warrant and the same returned to the Holder. The Company shall pay all
expenses, taxes (except transfer taxes) and other charges payable in connection
with the preparation, issue and delivery of such stock certificates and new
Warrants.
All shares of Common Stock issued upon the exercise of this Warrant
shall be validly issued, fully paid and nonassessable and, if the Common Stock
is then listed on a national securities exchange or quoted on an automated
quotation system, shall be duly listed or quoted thereon.
The Company shall not be required upon any exercise of this Warrant to
issue a certificate representing any fraction of a share of Common Stock, but,
in lieu thereof, shall pay to the Holder cash in an amount equal to a
corresponding fraction (calculated to the nearest 1/100 of a share) of the
purchase price of one share of Common Stock as of the date of receipt by the
Company of notice of exercise of this Warrant.
2
<PAGE> 3
Section 2. TRANSFER, DIVISION AND COMBINATION.
The Company agrees to maintain at its principal office in Irvine,
California, books for the registration and transfer of this Warrant, and,
subject to the provisions of Section 3 hereof, this Warrant and all rights
hereunder are transferable, in whole, on such books at such office, upon
surrender of this Warrant at such office, together with a written assignment of
this Warrant duly executed by the Holder or his agent or attorney and funds
sufficient to pay any stock transfer taxes payable upon the making of such
transfer; provided, however, that no transfer shall be for less than 10,000
Warrant Shares, except as provided for in Section 10(i) hereof. Upon such
surrender and payment, the Company shall execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the denominations
specified in such instrument of assignment, and this Warrant shall promptly be
canceled. A Warrant may be exercised by a new holder for the purchase of shares
of Common Stock without having a new Warrant issued.
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. No transferee or assignee of this Warrant
shall be eligible to become the registered holder of this Warrant unless the
requirements of Section 3 shall have been complied with in connection with the
transfer or assignment of this Warrant to such transferee or assignee.
Subject to Section 3 below, this Warrant may be divided or combined with
other Warrants upon presentation hereof at such principal office in Irvine,
California, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by the Holder or
his agent or attorney; provided, however, that no transfer shall be for less
than 10,000 Warrant Shares, except as provided for in Section 10(i) hereof.
Subject to compliance with the preceding paragraph as to any transfer that may
be involved in such division or combination, the Company shall execute and
deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be
divided or combined in accordance with such notice.
Section 3. RESTRICTIONS ON EXERCISE AND TRANSFER OF WARRANTS AND COMMON
STOCK.
This Warrant shall be exercisable (a) only under circumstances such that
the issue of Common Stock issuable upon such exercise is exempt from the
3
<PAGE> 4
requirements of registration under the Securities Act of 1933, as amended (or
any similar statute then in effect) (the 1933 Act) and any applicable state
securities law or (b) upon registration of such Common Stock in compliance
therewith. This Warrant shall be transferable only under circumstances such that
the transfer is exempt from the requirements of registration under the 1933 Act
and any applicable state securities law. By acceptance hereof, the Holder agrees
to comply with such legislation. All certificates issued representing the
Warrant Shares will bear a legend referring to the foregoing matters.
Before any transfer or attempted transfer of all or any part of this
Warrant or the Warrant Shares, the Holder shall give the Company written notice
of its intention so to do describing briefly the manner of any such proposed
transfer. Promptly after receiving such written notice, the Company shall
present copies thereof to Company counsel and, if the Company requests the
Holder to designate special counsel therefor, to any special counsel designated
by the Holder that is reasonably satisfactory to the Company. If, in the opinion
of counsel for the Company and counsel, if any, for the Holder, the proposed
transfer may be effected without registration under the 1933 Act and any
applicable state securities law of any such securities, the Company, as promptly
as practicable, shall notify the Holder of such opinion, whereupon the
securities proposed to be transferred may be transferred in accordance with the
terms of such notice. The Company shall not be required to effect any such
transfer before the receipt of such favorable opinion or opinions of the
effectiveness of registration. All costs associated with any counsel review or
issuance of any opinion in connection with the exercise or transfer of this
Warrant shall be borne solely by the Company.
Section 4. CERTAIN COVENANTS.
The Company covenants and agrees that it will at all times reserve and
set apart and have, free from preemptive rights, a number of shares of
authorized but unissued Common Stock, or other stock or securities deliverable
pursuant to this Warrant, sufficient to enable it at any time to fulfill all its
obligations hereunder.
Section 5. NOTICES
In the event that:
(a) the Company proposes to pay any dividend payable in stock (of
any class or classes) or any other security, upon its Common Stock or make any
distribution (other than ordinary cash dividends) to the holders of its Common
Stock,
4
<PAGE> 5
(b) the Company proposes to grant to the holders of its Common
Stock generally any rights or options,
(c) the Company proposes to effect any capital reorganization or
reclassification of capital stock of the Company,
(d) the Company proposes to consolidate with, or merge into, any
other corporation or to transfer its property as an entirety or substantially as
an entirety, or
(e) the Company proposes to effect the liquidation, dissolution
or winding up of the Company,
then the Company shall cause notice of any such intended action to be given to
holder of this Warrant not less than 20 days before the date on which the
transfer books of the Company shall close or a record shall be taken for such
stock dividend, distribution or granting of rights or options, or the date when
such capital reorganization, reclassification, consolidation, merger, transfer,
liquidation, dissolution or winding up shall be effective, as the case may be.
Any notice or other document required or permitted to be given or
delivered to holder of record of Warrants shall be delivered by facsimile,
reliable courier or first-class mail postage prepaid to each such holder at the
last address shown on the books of the Company maintained for the registry and
transfer of the Warrants. Any notice or other document required or permitted to
be given or delivered to holders of record of Warrant Shares pertaining to the
rights granted to such holder under Section 10 below shall be delivered by
facsimile, reliable courier or first-class mail postage prepaid to each such
holder at such holder's address as the same appears on the stock records of the
Company. Any notice or other document required or permitted to be given or
delivered hereunder to the Company shall be delivered by facsimile, reliable
courier or first-class mail postage prepaid to the principal office of the
Company, at Irvine, California, or delivered to the office of one of the
Company's executive officers at such address, or such other address as shall
have been furnished by the Company to the holders of record of such Warrants
and the holders of record of such Warrant Shares.
Section 6. LIMITATION OF LIABILITY; NOT SHAREHOLDERS.
No provision of this Warrant shall be construed as conferring upon the
Holder the right to vote or to consent or to receive dividends or to receive
notice as a shareholder in respect of meetings of shareholders for the election
of directors of the Company or any other matter whatsoever as shareholders of
the Company.
5
<PAGE> 6
No provision hereof, in the absence of affirmative action by the Holder to
purchase shares of Common Stock, and no mere enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of Holder for the
purchase price or as a shareholder of the Company, whether such liability is
asserted by the Company, creditors of the Company or others.
Section 7. LOSS, DESTRUCTION, ETC. OF WARRANT.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
mutilation or destruction of this Warrant, and in the case of any such loss,
theft or destruction upon delivery of a bond of indemnity in such form and
amount as shall be reasonably satisfactory to the Company, or in the event of
such mutilation upon surrender and cancellation of this Warrant, the Company
will make and deliver a new Warrant, of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Warrant. Any Warrant issued under the provisions
of this Section 7 in lieu of any Warrant alleged to be lost, destroyed or
stolen, or of any mutilated Warrant, shall constitute an original contractual
obligation on the part of the Company.
Section 8. EXERCISE AND EXPIRATION OF WARRANT.
This Warrant may be exercised in whole or in part from and after the
"Valuation Date" (as defined in the Warrant Agreement) and prior to the
expiration of this Warrant. Notwithstanding the preceding sentence, in the
event this Warrant is subject to early termination pursuant to Section 9(d)
hereof, then the Holder shall have a right to exercise this Warrant (in whole
or in part) pursuant to Section 9(d) hereof. The expiration time and date of
the Warrant shall be 5:00 P.D.T. on April 30, 2003, subject to earlier
termination pursuant to Section 9(d) below.
Section 9. ADJUSTMENT OF NUMBER OF SHARES ISSUABLE
PURSUANT TO THIS WARRANT.
(a) 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
9(d) 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
6
<PAGE> 7
the date of such exercise, had retained such shares and the securities and
properties receivable by the Holder during such period.
(b) 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 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.
(c) 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.
(d) 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 twenty (20) days after the date of mailing of
the Notice, and the
7
<PAGE> 8
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
twenty (20) 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.
Section 10. REGISTRATION RIGHTS.
(a) DEFINITIONS. The terms defined in this Section 10(a) shall
have the meanings herein specified for all purposes of this Warrant, applicable
to both the singular and plural forms of any of the terms herein defined.
(1) Board. "Board means the Board of Directors of the Company.
(2) Commission. "Commission" means the United States Securities
and Exchange Commission.
(3) Holder's Registrable Securities. "Holder's Registrable
Securities" means (i) the Common Stock issued or issuable upon the exercise of
this Warrant and all other Original Warrants and/or Additional Warrants of which
the Holder is the record holder, and (ii) any securities issued or issuable with
respect to the Common Stock referred to in clause (i) above by way of a stock
dividend or stock split or in connection with a combination of shares,
reclassification, recapitalization, merger or consolidation or reorganization;
provided, however, that such shares of Common Stock shall only be treated as
Holder's Registrable Securities if and so long as they have not been (i) sold to
or through a broker or dealer or underwriter in a public distribution or a
public securities transaction, or (ii) sold in a transaction exempt from the
registration and prospectus delivery requirements of the 1993 Act under Section
4(1) thereof or other applicable exemption so that all transfer restrictions and
restrictive legends with respect to such Common Stock are removed upon the
consummation of such sale, or (iii) issued and outstanding for one year or more.
(4) Other Registrable Securities. "Other Registrable
Securities" means all Common Stock, whether now outstanding or hereafter issued,
which the Company has agreed to register, or may hereafter agree to register,
other than the Holder's Registrable Securities.
(5) Registrable Securities. "Registrable Securities" means all
of the Holder's Registrable Securities and all of the Other Registrable
Securities, collectively.
8
<PAGE> 9
(6) Register, Registered and Registration. The terms
"register," "registered," and "registration" refer to a registration effected by
preparing and filing a registration statement in compliance with the 1933 Act,
and the declaration or ordering of the effectiveness of such registration
statement.
(b) REGISTRATION.
(1) Notice to Holders, Etc. Each time the Company shall
determine to file a registration statement under the 1933 Act in connection with
the public offering of shares of Common Stock for cash on a form which would
also permit the registration of the Holder's Registrable Securities, the Company
will promptly give written notice of its determination to the Holder. Upon the
written request of the Holder given within twenty (20) days after the receipt of
such written notice from the Company, the Company agrees to cause all of the
Holder's Registrable Securities, or such portion thereof as the Holder has
specified to the Company in writing, to be included in such registration
statement and registered under the 1933 Act.
(2) Inclusion in Underwriting. If the registration of which the
Company gives written notice pursuant to Section 10(b)(1) is for a public
offering involving an underwriting, the Company agrees to advise the Holder as a
part of its written notice. In such event, the right of the Holder to
registration pursuant to this Section 10 shall be conditioned upon the Holder's
participation in such underwriting and the inclusion of Holder's Registrable
Securities in the underwriting to the extent provided herein. If any of the
Holder's Registrable Securities are to be distributed through such underwriting,
the Holder shall enter into (together with the Company and the other
shareholders of the Company distributing their securities through such
underwriting) an underwriting agreement with the underwriter or underwriters
selected for such underwriting by the Company, provided that such underwriting
agreement is in customary form.
(3) Limitations. Notwithstanding any other provision of this
Section 10, if the managing underwriter of an underwritten distribution advises
the Company in writing that in its good faith judgment the number of shares of
Registrable Securities requested to be registered exceeds the number of shares
of Registrable Securities which can be sold in such offering, then the number of
shares of Registrable Securities so requested to be included in the offering
shall be reduced to that number of shares which in the good faith judgment of
the managing underwriter can be sold in such offering (except for shares to be
issued by the Company, which shall have priority over the shares of Registrable
Securities), and such reduced number of shares shall be allocated among the
Holder and all other participating holders of Registrable Securities in
proportion, as nearly as
9
<PAGE> 10
practicable, to the respective number of shares of Registrable Securities held
by such persons at the time of filing the registration statement. All Holder's
Registrable Securities which are excluded from the underwriting by reason of the
underwriter's marketing limitation and all Holder's Registrable Securities not
originally requested to be so included shall not be included in such
registration.
(4) Abandonment of Registration. Notwithstanding any other
provision of this Warrant, the Company may at any time, at the discretion of the
Board, abandon or terminate any registration statement, either prior to or after
its filing with the Commission, without liability or obligation to the Holder.
(c) EXPENSES.
(1) Registration Expenses. The Company agrees to bear all fees,
costs and expenses with respect to the inclusion of shares of Holder's
Registrable Securities in any registration statement pursuant to this Section
10.
(2) Company Expenses; Expenses of Holder. The fees, costs and
expenses of registration to be borne as provided in Section 10(c)(1) above shall
consist of all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, fees and disbursements
of counsel for the underwriter or underwriters of such securities (if the
Company and/or selling security holders are otherwise required to bear such fees
and disbursements), and all legal fees and disbursements and other expenses of
complying with state securities or blue sky laws of any jurisdictions in which
the securities to be offered are to be registered or qualified. The fees, costs
and expenses to be borne by the Company under Section 10(c)(1) above shall not
include the fees, costs or expenses of any counsel to Holder or stock transfer
taxes or underwriters' discounts and commissions relating to any of the Holder's
Registrable Securities.
(d) OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 10 to effect the registration of any Holder's Registrable Securities,
the Company shall, as expeditiously as reasonably possible, furnish to the
Holder such numbers of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the 1933 Act, and such other
documents as the Holder may reasonably request in order to facilitate the
disposition of the Holder's Registrable Securities included in the registration;
and
(e) FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 10 that
the Holder shall furnish to the Company such information regarding the Holder,
the
10
<PAGE> 11
Holder's Registrable Securities and the intended method of disposition of such
securities as the Company shall reasonably request and as shall be required in
connection with the action to be taken by the Company.
(f) INDEMNIFICATION. In the event any shares of the Holder's
Registrable Securities are included in the registration statement under this
Section 10:
(1) to the extent permitted by law, the Company will indemnify
and hold harmless the Holder, any underwriter (as defined in the 1933 Act) for
it and each person, if any, who controls the Holder or underwriter within the
meaning of the 1933 Act, against any losses, claims, damages or liabilities,
joint or several, to which they may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based on any untrue or alleged untrue
statement of any material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading or
arise out of any violation by the Company of any rule or regulation promulgated
under the 1933 Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration; and will
reimburse the Holder, such underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that the indemnity agreement contained in this Section 10(f)(l) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld) nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in connection with such
registration statement, preliminary prospectus, final prospectus, or amendments
or supplements thereto, in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
the Holder, or any such underwriter or controlling person;
(2) to the extent permitted by law, the Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
have signed the registration statement, each person, if any, who controls the
Company within the meaning of the 1933 Act and each agent and any underwriter
for the Company and each person who controls such underwriter (within the
meaning of
11
<PAGE> 12
the 1933 Act) against any losses, claims, damages or liabilities to which the
Company or any such director, officer, controlling person, agent or underwriter
may become subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereto) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in such registration
statement, preliminary or final prospectus, or amendments or supplements
thereto, in reliance upon and in conformity with written information furnished
by the Holder expressly for use in connection with such registration, and the
Holder will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, agent or underwriter
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 10(f)(2) shall not apply to amounts paid in settlement of any
such loss, claim damage, liability or action if such settlement is effected
without the consent of the Holder (which consent shall not be unreasonably
withheld); and
(3) promptly after receipt by an indemnified party under this
paragraph of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this paragraph, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties. The failure to notify
an indemnifying party promptly of the commencement of any such action, if
prejudicial to his ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
paragraph, but the omission so to notify the indemnifying party will not relieve
him of any liability that he may have to any indemnified party otherwise than
under this paragraph.
(g) REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
1933 Act and any other rule or regulation of the Securities and Exchange
Commission that may at any time permit the Holder to sell
12
<PAGE> 13
securities of the Company to the public without registration, the Company agrees
to use its reasonable best efforts to:
(1) make and keep public information available, as those terms
are understood and defined in Rule 144;
(2) file with the Securities and Exchange Commission in a
timely manner all reports and other documents required of the Company under the
1933 Act and the Securities Exchange Act of 1934 (the 1934 Act); and
(3) furnish to the Holder so long as the Holder owns any of the
Holder's Registrable Securities forthwith upon request a written statement by
the Company that it has complied with the reporting requirements of Rule 144 and
the 1934 Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as may be
reasonably requested in availing any holder of any rule or regulation of the
Securities and Exchange Commission permitting the selling of any such securities
without registration.
(h) CERTAIN SITUATIONS IN CONNECTION WITH FUTURE GRANTS OF
REGISTRATION RIGHTS. The Company shall not, as long as any shares of Holder's
Registrable Securities are outstanding, enter into any agreement with any holder
or prospective holder of securities of the Company which limits or restricts in
any manner the performance of the Company's obligations under this Section 10 or
alters the allocation provisions in Section 10(b)(3) if marketing factors
require a limitation on the number of securities to be included in an
underwritten offering.
(i) ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register securities granted to the Holder by the Company under this
Section 10 may be transferred or assigned by the Holder only to a transferee or
assignee of not less than 10,000 shares of Registrable Securities, provided that
the Company is given written notice at the time of or within a reasonable time
after such transfer or assignment, stating the name and address of the assignee
or transferee and identifying the securities with respect to which such
registration rights are being transferred or assigned, and, provided, further,
that the transferee or assignee of such rights assumes in writing the
obligations of the Holder under this Section 10. Notwithstanding anything
contained to the contrary in Section 10(i) hereof, Four JM LLC shall be entitled
to transfer or assign the securities granted herein in increments as small as
1,000 shares, provided that such transferees or assignees are then existing
members of Four JM LLC.
13
<PAGE> 14
Section 11. AMENDMENTS.
Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally or in writing, provided that any term of this
Warrant may be amended or the observance of such term may be waived (either
generally or in a particular instance and either retroactively or prospectively)
with, but only with, the written consent of the Company and the holders of
Original Warrants and Additional Warrants, as defined in the Warrant Agreement
(collectively, "Warrants"), and/or shares of Registrable Securities then
outstanding which were issued upon the exercise of any of the Warrants, that
represent, in the aggregate, at least a majority of the sum of (i) all of the
Registrable Securities then outstanding which were issued upon the exercise of
any of the Warrants, and (ii) the total number of shares of Registrable
Securities issuable under all of the Warrants then outstanding.
Section 12. ATTORNEYS FEES.
If a lawsuit, arbitration, or other proceedings are instituted by any
party to enforce any of the terms or conditions of this Warrant against any
other party hereto, the prevailing party in such litigation, arbitration, or
proceedings shall be entitled, as an additional item of damages, to such
reasonable attorneys' and other professional fees(including but not limited to
expert witness fees), court costs, arbitrators' fees, arbitration administrative
fees, travel expenses, and other out-of-pocket expenses or costs of such other
proceedings as may be fixed by any court of competent jurisdiction, arbitrator,
or other judicial or quasi-judicial body having jurisdiction thereof, whether or
not such litigation or proceedings proceed to a final judgment or award. For the
purposes of this Section 12.0, any party receiving an arbitration award or a
judgment for damages or other amounts shall be deemed to be the prevailing
party, regardless of amount of the damage awarded or whether the award or
judgment was based upon all or some of such party's claims or causes of action.
Section 13. GOVERNING LAW.
This Warrant shall be governed by the laws of the State of California
without regard to its conflict of laws principles or rules.
[SIGNATURES COMMENCE ON THE FOLLOWING PAGE]
14
<PAGE> 15
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name by its duly authorized officer.
GENERAL AUTOMATION, INC., a
Delaware corporation
----------------------------------------
By: RICHARD NANCE
Its: Chief Financial Officer
Dated:
15
<PAGE> 16
EXHIBIT A
Notice of Exercise
1. The undersigned hereby elect(s) to purchase _____________ shares of
the Common Stock of General Automation pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
2. Please issue a certificate or certificates representing said shares
in the name(s) of the undersigned or in such other name(s) as specified below:
---------------------------------------------------
(Name)
---------------------------------------------------
---------------------------------------------------
(Address)
3. The undersigned represents the undersigned is acquiring the shares
solely for its own account and not as a nominee for any other party and not with
a view toward the resale or distribution thereof except in compliance with the
applicable securities law.
----------------------------------------
(Signature)
- -----------------------
(Date)
16
<PAGE> 1
EXHIBIT 10.17
NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED
OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE, AND NEITHER THIS WARRANT
NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE TRANSFERRED
EXCEPT AS PROVIDED IN SECTION 3 OF THIS WARRANT.
WARRANT
to purchase Common Stock of
General Automation, Inc.
Expiring April 30, 2003
FOR VALUE RECEIVED, General Automation, Inc., a Delaware corporation (the
"Company"), hereby grants to Gregory A. Busch as Trustee of the 92653 Trust
Dated December 29, 1995, or registered assigns ("Holder"), the right to purchase
from the Company, upon and subject to the terms and conditions set forth in this
Warrant, all or any part of 61,111 fully paid and non-assessable shares of the
Common Stock of the Company for the aggregate exercise price of $72,722.00.
Hereafter, (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 $1.19 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.
This Warrant is issued in connection with the Warrant Agreement dated May
4, 1998 ("Warrant Agreement") by and between the Company and the "Lenders" (as
defined in the Warrant Agreement) and is issued in consideration of the Loan
made to the Company as described in the Warrant Agreement, which Loan is
evidenced by the "Note" (as defined in the Warrant Agreement").
This Warrant is subject to the following provisions, terms and conditions:
1
<PAGE> 2
Section 1. EXERCISE OF WARRANT.
To exercise this Warrant in whole or in part, the Holder shall deliver to
the Company at its principal office in Irvine, California, (a) a written notice,
in substantially the form of the Subscription Notice appearing at the end of
this Warrant, of the Holder's election to exercise this Warrant, which notice
shall specify the number of shares of Common Stock to be purchased, (b) cash or
a certified check payable to the Company, in an amount equal to the aggregate
purchase price of the number of shares of Common Stock being purchased and (c)
this Warrant. The Company shall as promptly as practicable, and in any event
within 15 days thereafter, execute and deliver or cause to be executed and
delivered, in accordance with such notice, a certificate or certificates
representing the aggregate number of shares of Common Stock specified in such
notice. The stock certificate or certificates so delivered shall be in the
denomination as may be specified in such notice and shall be issued in the name
of the Holder or such other name as shall be designated in such notice (provided
such designation complies with Section 3 herein). Such certificate or
certificates shall be deemed to have been issued and the Holder or any other
person so designated to be named therein shall be deemed for all purposes to
have become a holder of record of such shares as of the date such notice and
payment are received by the Company as aforesaid. If this Warrant shall have
been exercised only in part, the Company shall, at the time of delivery of said
certificate or certificates, deliver to the Holder a new Warrant evidencing the
rights of the Holder to purchase the remaining shares of Common Stock called for
by this Warrant, which new Warrant shall in all other respects be identical to
this Warrant, or, at the request of the Holder, appropriate notation may be made
on this Warrant and the same returned to the Holder. The Company shall pay all
expenses, taxes (except transfer taxes) and other charges payable in connection
with the preparation, issue and delivery of such stock certificates and new
Warrants.
All shares of Common Stock issued upon the exercise of this Warrant shall
be validly issued, fully paid and nonassessable and, if the Common Stock is then
listed on a national securities exchange or quoted on an automated quotation
system, shall be duly listed or quoted thereon.
The Company shall not be required upon any exercise of this Warrant to
issue a certificate representing any fraction of a share of Common Stock, but,
in lieu thereof, shall pay to the Holder cash in an amount equal to a
corresponding fraction (calculated to the nearest 1/100 of a share) of the
purchase price of one share of Common Stock as of the date of receipt by the
Company of notice of exercise of this Warrant.
2
<PAGE> 3
Section 2. TRANSFER, DIVISION AND COMBINATION.
The Company agrees to maintain at its principal office in Irvine,
California, books for the registration and transfer of this Warrant, and,
subject to the provisions of Section 3 hereof, this Warrant and all rights
hereunder are transferable, in whole, on such books at such office, upon
surrender of this Warrant at such office, together with a written assignment of
this Warrant duly executed by the Holder or his agent or attorney and funds
sufficient to pay any stock transfer taxes payable upon the making of such
transfer; provided, however, that no transfer shall be for less than 10,000
Warrant Shares, except as provided for in Section 10(i) hereof. Upon such
surrender and payment, the Company shall execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the denominations
specified in such instrument of assignment, and this Warrant shall promptly be
canceled. A Warrant may be exercised by a new holder for the purchase of shares
of Common Stock without having a new Warrant issued.
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. No transferee or assignee of this Warrant
shall be eligible to become the registered holder of this Warrant unless the
requirements of Section 3 shall have been complied with in connection with the
transfer or assignment of this Warrant to such transferee or assignee.
Subject to Section 3 below, this Warrant may be divided or combined with
other Warrants upon presentation hereof at such principal office in Irvine,
California, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by the Holder or
his agent or attorney; provided, however, that no transfer shall be for less
than 10,000 Warrant Shares, except as provided for in Section 10(i) hereof.
Subject to compliance with the preceding paragraph as to any transfer that may
be involved in such division or combination, the Company shall execute and
deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be
divided or combined in accordance with such notice.
Section 3. RESTRICTIONS ON EXERCISE AND TRANSFER OF WARRANTS AND COMMON
STOCK.
This Warrant shall be exercisable (a) only under circumstances such that
the issue of Common Stock issuable upon such exercise is exempt from the
3
<PAGE> 4
requirements of registration under the Securities Act of 1933, as amended (or
any similar statute then in effect) (the 1933 Act) and any applicable state
securities law or (b) upon registration of such Common Stock in compliance
therewith. This Warrant shall be transferable only under circumstances such that
the transfer is exempt from the requirements of registration under the 1933 Act
and any applicable state securities law. By acceptance hereof, the Holder agrees
to comply with such legislation. All certificates issued representing the
Warrant Shares will bear a legend referring to the foregoing matters.
Before any transfer or attempted transfer of all or any part of this
Warrant or the Warrant Shares, the Holder shall give the Company written notice
of its intention so to do describing briefly the manner of any such proposed
transfer. Promptly after receiving such written notice, the Company shall
present copies thereof to Company counsel and, if the Company requests the
Holder to designate special counsel therefor, to any special counsel designated
by the Holder that is reasonably satisfactory to the Company. If, in the opinion
of counsel for the Company and counsel, if any, for the Holder, the proposed
transfer may be effected without registration under the 1933 Act and any
applicable state securities law of any such securities, the Company, as promptly
as practicable, shall notify the Holder of such opinion, whereupon the
securities proposed to be transferred may be transferred in accordance with the
terms of such notice. The Company shall not be required to effect any such
transfer before the receipt of such favorable opinion or opinions of the
effectiveness of registration. All costs associated with any counsel review or
issuance of any opinion in connection with the exercise or transfer of this
Warrant shall be borne solely by the Company.
Section 4. CERTAIN COVENANTS.
The Company covenants and agrees that it will at all times reserve and set
apart and have, free from preemptive rights, a number of shares of authorized
but unissued Common Stock, or other stock or securities deliverable pursuant to
this Warrant, sufficient to enable it at any time to fulfill all its obligations
hereunder.
Section 5. NOTICES
In the event that:
(a) the Company proposes to pay any dividend payable in stock (of
any class or classes) or any other security, upon its Common Stock or make any
distribution (other than ordinary cash dividends) to the holders of its Common
Stock,
4
<PAGE> 5
(b) the Company proposes to grant to the holders of its Common Stock
generally any rights or options,
(c) the Company proposes to effect any capital reorganization or
reclassification of capital stock of the Company,
(d) the Company proposes to consolidate with, or merge into, any
other corporation or to transfer its property as an entirety or substantially as
an entirety, or
(e) the Company proposes to effect the liquidation, dissolution or
winding up of the Company,
then the Company shall cause notice of any such intended action to be given to
holder of this Warrant not less than 20 days before the date on which the
transfer books of the Company shall close or a record shall be taken for such
stock dividend, distribution or granting of rights or options, or the date when
such capital reorganization, reclassification, consolidation, merger, transfer,
liquidation, dissolution or winding up shall be effective, as the case may be.
Any notice or other document required or permitted to be given or
delivered to holder of record of Warrants shall be delivered by facsimile,
reliable courier or first-class mail postage prepaid to each such holder at the
last address shown on the books of the Company maintained for the registry and
transfer of the Warrants. Any notice or other document required or permitted to
be given or delivered to holders of record of Warrant Shares pertaining to the
rights granted to such holder under Section 10 below shall be delivered by
facsimile, reliable courier or first-class mail postage prepaid to each such
holder at such holder's address as the same appears on the stock records of the
Company. Any notice or other document required or permitted to be given or
delivered hereunder to the Company shall be delivered by facsimile, reliable
courier or first-class mail postage prepaid to the principal office of the
Company, at Irvine, California, or delivered to the office of one of the
Company's executive officers at such address, or such other address as shall
have been furnished by the Company to the holders of record of such Warrants and
the holders of record of such Warrant Shares.
Section 6. LIMITATION OF LIABILITY; NOT SHAREHOLDERS.
No provision of this Warrant shall be construed as conferring upon the
Holder the right to vote or to consent or to receive dividends or to receive
notice as a shareholder in respect of meetings of shareholders for the election
of directors of the Company or any other matter whatsoever as shareholders of
the Company.
5
<PAGE> 6
No provision hereof, in the absence of affirmative action by the Holder to
purchase shares of Common Stock, and no mere enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of Holder for the
purchase price or as a shareholder of the Company, whether such liability is
asserted by the Company, creditors of the Company or others.
Section 7. LOSS, DESTRUCTION, ETC. OF WARRANT.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
mutilation or destruction of this Warrant, and in the case of any such loss,
theft or destruction upon delivery of a bond of indemnity in such form and
amount as shall be reasonably satisfactory to the Company, or in the event of
such mutilation upon surrender and cancellation of this Warrant, the Company
will make and deliver a new Warrant, of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Warrant. Any Warrant issued under the provisions
of this Section 7 in lieu of any Warrant alleged to be lost, destroyed or
stolen, or of any mutilated Warrant, shall constitute an original contractual
obligation on the part of the Company.
Section 8. EXERCISE AND EXPIRATION OF WARRANT.
This Warrant may be exercised in whole or in part from and after the
"Valuation Date" (as defined in the Warrant Agreement) and prior to the
expiration of this Warrant. Notwithstanding the preceding sentence, in the event
this Warrant is subject to early termination pursuant to Section 9(d) hereof,
then the Holder shall have a right to exercise this Warrant (in whole or in
part) pursuant to Section 9(d) hereof. The expiration time and date of the
Warrant shall be 5:00 P.D.T. on April 30, 2003, subject to earlier termination
pursuant to Section 9(d) below.
Section 9. ADJUSTMENT OF NUMBER OF SHARES ISSUABLE PURSUANT TO THIS
WARRANT.
(a) 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
9(d) 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
6
<PAGE> 7
the date of such exercise, had retained such shares and the securities and
properties receivable by the Holder during such period.
(b) 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 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.
(c) 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.
(d) 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 twenty (20) days after the date of mailing of
the Notice, and the
7
<PAGE> 8
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
twenty (20) 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.
Section 10. REGISTRATION RIGHTS.
(a) DEFINITIONS. The terms defined in this Section 10(a) shall have the
meanings herein specified for all purposes of this Warrant, applicable to both
the singular and plural forms of any of the terms herein defined.
(1) Board. "Board means the Board of Directors of the Company.
(2) Commission. "Commission" means the United States Securities and
Exchange Commission.
(3) Holder's Registrable Securities. "Holder's Registrable
Securities" means (i) the Common Stock issued or issuable upon the exercise of
this Warrant and all other Original Warrants and/or Additional Warrants of which
the Holder is the record holder, and (ii) any securities issued or issuable with
respect to the Common Stock referred to in clause (i) above by way of a stock
dividend or stock split or in connection with a combination of shares,
reclassification, recapitalization, merger or consolidation or reorganization;
provided, however, that such shares of Common Stock shall only be treated as
Holder's Registrable Securities if and so long as they have not been (i) sold to
or through a broker or dealer or underwriter in a public distribution or a
public securities transaction, or (ii) sold in a transaction exempt from the
registration and prospectus delivery requirements of the 1993 Act under Section
4(1) thereof or other applicable exemption so that all transfer restrictions and
restrictive legends with respect to such Common Stock are removed upon the
consummation of such sale, or (iii) issued and outstanding for one year or more.
(4) Other Registrable Securities. "Other Registrable Securities"
means all Common Stock, whether now outstanding or hereafter issued, which the
Company has agreed to register, or may hereafter agree to register, other than
the Holder's Registrable Securities.
(5) Registrable Securities. "Registrable Securities" means all of
the Holder's Registrable Securities and all of the Other Registrable Securities,
collectively.
8
<PAGE> 9
(6) Register, Registered and Registration. The terms "register,"
"registered," and "registration" refer to a registration effected by preparing
and filing a registration statement in compliance with the 1933 Act, and the
declaration or ordering of the effectiveness of such registration statement.
(b) REGISTRATION.
(1) Notice to Holders, Etc. Each time the Company shall determine to
file a registration statement under the 1933 Act in connection with the public
offering of shares of Common Stock for cash on a form which would also permit
the registration of the Holder's Registrable Securities, the Company will
promptly give written notice of its determination to the Holder. Upon the
written request of the Holder given within twenty (20) days after the receipt of
such written notice from the Company, the Company agrees to cause all of the
Holder's Registrable Securities, or such portion thereof as the Holder has
specified to the Company in writing, to be included in such registration
statement and registered under the 1933 Act.
(2) Inclusion in Underwriting. If the registration of which the
Company gives written notice pursuant to Section 10(b)(1) is for a public
offering involving an underwriting, the Company agrees to advise the Holder as a
part of its written notice. In such event, the right of the Holder to
registration pursuant to this Section 10 shall be conditioned upon the Holder's
participation in such underwriting and the inclusion of Holder's Registrable
Securities in the underwriting to the extent provided herein. If any of the
Holder's Registrable Securities are to be distributed through such underwriting,
the Holder shall enter into (together with the Company and the other
shareholders of the Company distributing their securities through such
underwriting) an underwriting agreement with the underwriter or underwriters
selected for such underwriting by the Company, provided that such underwriting
agreement is in customary form.
(3) Limitations. Notwithstanding any other provision of this Section
10, if the managing underwriter of an underwritten distribution advises the
Company in writing that in its good faith judgment the number of shares of
Registrable Securities requested to be registered exceeds the number of shares
of Registrable Securities which can be sold in such offering, then the number of
shares of Registrable Securities so requested to be included in the offering
shall be reduced to that number of shares which in the good faith judgment of
the managing underwriter can be sold in such offering (except for shares to be
issued by the Company, which shall have priority over the shares of Registrable
Securities), and such reduced number of shares shall be allocated among the
Holder and all other participating holders of Registrable Securities in
proportion, as nearly as
9
<PAGE> 10
practicable, to the respective number of shares of Registrable Securities held
by such persons at the time of filing the registration statement. All Holder's
Registrable Securities which are excluded from the underwriting by reason of the
underwriter's marketing limitation and all Holder's Registrable Securities not
originally requested to be so included shall not be included in such
registration.
(4) Abandonment of Registration. Notwithstanding any other provision
of this Warrant, the Company may at any time, at the discretion of the Board,
abandon or terminate any registration statement, either prior to or after its
filing with the Commission, without liability or obligation to the Holder.
(c) EXPENSES.
(1) Registration Expenses. The Company agrees to bear all fees,
costs and expenses with respect to the inclusion of shares of Holder's
Registrable Securities in any registration statement pursuant to this Section
10.
(2) Company Expenses; Expenses of Holder. The fees, costs and
expenses of registration to be borne as provided in Section 10(c)(1) above shall
consist of all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, fees and disbursements
of counsel for the underwriter or underwriters of such securities (if the
Company and/or selling security holders are otherwise required to bear such fees
and disbursements), and all legal fees and disbursements and other expenses of
complying with state securities or blue sky laws of any jurisdictions in which
the securities to be offered are to be registered or qualified. The fees, costs
and expenses to be borne by the Company under Section 10(c)(1) above shall not
include the fees, costs or expenses of any counsel to Holder or stock transfer
taxes or underwriters' discounts and commissions relating to any of the Holder's
Registrable Securities.
(d) OBLIGATIONS OF THE COMPANY. Whenever required under this Section 10 to
effect the registration of any Holder's Registrable Securities, the Company
shall, as expeditiously as reasonably possible, furnish to the Holder such
numbers of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the 1933 Act, and such other documents as
the Holder may reasonably request in order to facilitate the disposition of the
Holder's Registrable Securities included in the registration; and
(e) FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 10 that
the Holder shall furnish to the Company such information regarding the Holder,
the
10
<PAGE> 11
Holder's Registrable Securities and the intended method of disposition of such
securities as the Company shall reasonably request and as shall be required in
connection with the action to be taken by the Company.
(f) INDEMNIFICATION. In the event any shares of the Holder's Registrable
Securities are included in the registration statement under this Section 10:
(1) to the extent permitted by law, the Company will indemnify and
hold harmless the Holder, any underwriter (as defined in the 1933 Act) for it
and each person, if any, who controls the Holder or underwriter within the
meaning of the 1933 Act, against any losses, claims, damages or liabilities,
joint or several, to which they may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based on any untrue or alleged untrue
statement of any material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading or
arise out of any violation by the Company of any rule or regulation promulgated
under the 1933 Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration; and will
reimburse the Holder, such underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that the indemnity agreement contained in this Section 10(f)(l) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld) nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in connection with such
registration statement, preliminary prospectus, final prospectus, or amendments
or supplements thereto, in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
the Holder, or any such underwriter or controlling person;
(2) to the extent permitted by law, the Holder will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who controls the Company
within the meaning of the 1933 Act and each agent and any underwriter for the
Company and each person who controls such underwriter (within the meaning of
11
<PAGE> 12
the 1933 Act) against any losses, claims, damages or liabilities to which the
Company or any such director, officer, controlling person, agent or underwriter
may become subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereto) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in such registration
statement, preliminary or final prospectus, or amendments or supplements
thereto, in reliance upon and in conformity with written information furnished
by the Holder expressly for use in connection with such registration, and the
Holder will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, agent or underwriter
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 10(f)(2) shall not apply to amounts paid in settlement of any
such loss, claim damage, liability or action if such settlement is effected
without the consent of the Holder (which consent shall not be unreasonably
withheld); and
(3) promptly after receipt by an indemnified party under this
paragraph of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this paragraph, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties. The failure to notify
an indemnifying party promptly of the commencement of any such action, if
prejudicial to his ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
paragraph, but the omission so to notify the indemnifying party will not relieve
him of any liability that he may have to any indemnified party otherwise than
under this paragraph.
(g) REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the 1933 Act
and any other rule or regulation of the Securities and Exchange Commission that
may at any time permit the Holder to sell
12
<PAGE> 13
securities of the Company to the public without registration, the Company agrees
to use its reasonable best efforts to:
(1) make and keep public information available, as those terms are
understood and defined in Rule 144;
(2) file with the Securities and Exchange Commission in a timely
manner all reports and other documents required of the Company under the 1933
Act and the Securities Exchange Act of 1934 (the 1934 Act); and
(3) furnish to the Holder so long as the Holder owns any of the
Holder's Registrable Securities forthwith upon request a written statement by
the Company that it has complied with the reporting requirements of Rule 144 and
the 1934 Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as may be
reasonably requested in availing any holder of any rule or regulation of the
Securities and Exchange Commission permitting the selling of any such securities
without registration.
(h) CERTAIN SITUATIONS IN CONNECTION WITH FUTURE GRANTS OF REGISTRATION
RIGHTS. The Company shall not, as long as any shares of Holder's Registrable
Securities are outstanding, enter into any agreement with any holder or
prospective holder of securities of the Company which limits or restricts in any
manner the performance of the Company's obligations under this Section 10 or
alters the allocation provisions in Section 10(b)(3) if marketing factors
require a limitation on the number of securities to be included in an
underwritten offering.
(i) ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to
register securities granted to the Holder by the Company under this Section 10
may be transferred or assigned by the Holder only to a transferee or assignee of
not less than 10,000 shares of Registrable Securities, provided that the Company
is given written notice at the time of or within a reasonable time after such
transfer or assignment, stating the name and address of the assignee or
transferee and identifying the securities with respect to which such
registration rights are being transferred or assigned, and, provided, further,
that the transferee or assignee of such rights assumes in writing the
obligations of the Holder under this Section 10. Notwithstanding anything
contained to the contrary in Section 10(i) hereof, Four JM LLC shall be entitled
to transfer or assign the securities granted herein in increments as small as
1,000 shares, provided that such transferees or assignees are then existing
members of Four JM LLC.
13
<PAGE> 14
Section 11. AMENDMENTS.
Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally or in writing, provided that any term of this
Warrant may be amended or the observance of such term may be waived (either
generally or in a particular instance and either retroactively or prospectively)
with, but only with, the written consent of the Company and the holders of
Original Warrants and Additional Warrants, as defined in the Warrant Agreement
(collectively, "Warrants"), and/or shares of Registrable Securities then
outstanding which were issued upon the exercise of any of the Warrants, that
represent, in the aggregate, at least a majority of the sum of (i) all of the
Registrable Securities then outstanding which were issued upon the exercise of
any of the Warrants, and (ii) the total number of shares of Registrable
Securities issuable under all of the Warrants then outstanding.
Section 12. ATTORNEYS FEES.
If a lawsuit, arbitration, or other proceedings are instituted by any
party to enforce any of the terms or conditions of this Warrant against any
other party hereto, the prevailing party in such litigation, arbitration, or
proceedings shall be entitled, as an additional item of damages, to such
reasonable attorneys' and other professional fees(including but not limited to
expert witness fees), court costs, arbitrators' fees, arbitration administrative
fees, travel expenses, and other out-of-pocket expenses or costs of such other
proceedings as may be fixed by any court of competent jurisdiction, arbitrator,
or other judicial or quasi-judicial body having jurisdiction thereof, whether or
not such litigation or proceedings proceed to a final judgment or award. For the
purposes of this Section 12.0, any party receiving an arbitration award or a
judgment for damages or other amounts shall be deemed to be the prevailing
party, regardless of amount of the damage awarded or whether the award or
judgment was based upon all or some of such party's claims or causes of action.
Section 13. GOVERNING LAW.
This Warrant shall be governed by the laws of the State of California
without regard to its conflict of laws principles or rules.
[SIGNATURES COMMENCE ON THE FOLLOWING PAGE]
14
<PAGE> 15
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name by its duly authorized officer.
GENERAL AUTOMATION, INC.,
a Delaware corporation
-----------------------------------------
By: RICHARD NANCE
Its: Chief Financial Officer
Dated:
15
<PAGE> 16
EXHIBIT A
Notice of Exercise
1. The undersigned hereby elect(s) to purchase _____________ shares of the
Common Stock of General Automation pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
2. Please issue a certificate or certificates representing said shares in
the name(s) of the undersigned or in such other name(s) as specified below:
---------------------------------------------------
(Name)
---------------------------------------------------
---------------------------------------------------
(Address)
3. The undersigned represents the undersigned is acquiring the shares
solely for its own account and not as a nominee for any other party and not with
a view toward the resale or distribution thereof except in compliance with the
applicable securities law.
-----------------------------------------
(Signature)
- -----------------------
(Date)
16
<PAGE> 1
EXHIBIT 10.18
NEITHER THIS WARRANT NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT
HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED
OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY STATE, AND NEITHER THIS WARRANT
NOR THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT MAY BE TRANSFERRED
EXCEPT AS PROVIDED IN SECTION 3 OF THIS WARRANT.
WARRANT
to purchase Common Stock of
General Automation, Inc.
Expiring April 30, 2003
FOR VALUE RECEIVED, General Automation, Inc., a Delaware corporation (the
"Company"), hereby grants to Four JM LLC, a California limited liability
company, or registered assigns ("Holder"), the right to purchase from the
Company, upon and subject to the terms and conditions set forth in this Warrant,
all or any part of 5,555 fully paid and non-assessable shares of the Common
Stock of the Company for the aggregate exercise price of $6610.45.
Hereafter, (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 $1.19 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.
This Warrant is issued in connection with the Warrant Agreement dated May
4, 1998 ("Warrant Agreement") by and between the Company and the "Lenders" (as
defined in the Warrant Agreement) and is issued in consideration of the Loan
made to the Company as described in the Warrant Agreement, which Loan is
evidenced by the "Note" (as defined in the Warrant Agreement").
This Warrant is subject to the following provisions, terms and conditions:
1
<PAGE> 2
Section 1. EXERCISE OF WARRANT.
To exercise this Warrant in whole or in part, the Holder shall deliver to
the Company at its principal office in Irvine, California, (a) a written notice,
in substantially the form of the Subscription Notice appearing at the end of
this Warrant, of the Holder's election to exercise this Warrant, which notice
shall specify the number of shares of Common Stock to be purchased, (b) cash or
a certified check payable to the Company, in an amount equal to the aggregate
purchase price of the number of shares of Common Stock being purchased and (c)
this Warrant. The Company shall as promptly as practicable, and in any event
within 15 days thereafter, execute and deliver or cause to be executed and
delivered, in accordance with such notice, a certificate or certificates
representing the aggregate number of shares of Common Stock specified in such
notice. The stock certificate or certificates so delivered shall be in the
denomination as may be specified in such notice and shall be issued in the name
of the Holder or such other name as shall be designated in such notice (provided
such designation complies with Section 3 herein). Such certificate or
certificates shall be deemed to have been issued and the Holder or any other
person so designated to be named therein shall be deemed for all purposes to
have become a holder of record of such shares as of the date such notice and
payment are received by the Company as aforesaid. If this Warrant shall have
been exercised only in part, the Company shall, at the time of delivery of said
certificate or certificates, deliver to the Holder a new Warrant evidencing the
rights of the Holder to purchase the remaining shares of Common Stock called for
by this Warrant, which new Warrant shall in all other respects be identical to
this Warrant, or, at the request of the Holder, appropriate notation may be made
on this Warrant and the same returned to the Holder. The Company shall pay all
expenses, taxes (except transfer taxes) and other charges payable in connection
with the preparation, issue and delivery of such stock certificates and new
Warrants.
All shares of Common Stock issued upon the exercise of this Warrant shall
be validly issued, fully paid and nonassessable and, if the Common Stock is then
listed on a national securities exchange or quoted on an automated quotation
system, shall be duly listed or quoted thereon.
The Company shall not be required upon any exercise of this Warrant to
issue a certificate representing any fraction of a share of Common Stock, but,
in lieu thereof, shall pay to the Holder cash in an amount equal to a
corresponding fraction (calculated to the nearest 1/100 of a share) of the
purchase price of one share of Common Stock as of the date of receipt by the
Company of notice of exercise of this Warrant.
2
<PAGE> 3
Section 2. TRANSFER, DIVISION AND COMBINATION.
The Company agrees to maintain at its principal office in Irvine,
California, books for the registration and transfer of this Warrant, and,
subject to the provisions of Section 3 hereof, this Warrant and all rights
hereunder are transferable, in whole, on such books at such office, upon
surrender of this Warrant at such office, together with a written assignment of
this Warrant duly executed by the Holder or his agent or attorney and funds
sufficient to pay any stock transfer taxes payable upon the making of such
transfer; provided, however, that no transfer shall be for less than 10,000
Warrant Shares, except as provided for in Section 10(i) hereof. Upon such
surrender and payment, the Company shall execute and deliver a new Warrant or
Warrants in the name of the assignee or assignees and in the denominations
specified in such instrument of assignment, and this Warrant shall promptly be
canceled. A Warrant may be exercised by a new holder for the purchase of shares
of Common Stock without having a new Warrant issued.
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. No transferee or assignee of this Warrant
shall be eligible to become the registered holder of this Warrant unless the
requirements of Section 3 shall have been complied with in connection with the
transfer or assignment of this Warrant to such transferee or assignee.
Subject to Section 3 below, this Warrant may be divided or combined with
other Warrants upon presentation hereof at such principal office in Irvine,
California, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by the Holder or
his agent or attorney; provided, however, that no transfer shall be for less
than 10,000 Warrant Shares, except as provided for in Section 10(i) hereof.
Subject to compliance with the preceding paragraph as to any transfer that may
be involved in such division or combination, the Company shall execute and
deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be
divided or combined in accordance with such notice.
Section 3. RESTRICTIONS ON EXERCISE AND TRANSFER OF WARRANTS AND COMMON
STOCK.
This Warrant shall be exercisable (a) only under circumstances such that
the issue of Common Stock issuable upon such exercise is exempt from the
3
<PAGE> 4
requirements of registration under the Securities Act of 1933, as amended (or
any similar statute then in effect) (the 1933 Act) and any applicable state
securities law or (b) upon registration of such Common Stock in compliance
therewith. This Warrant shall be transferable only under circumstances such that
the transfer is exempt from the requirements of registration under the 1933 Act
and any applicable state securities law. By acceptance hereof, the Holder agrees
to comply with such legislation. All certificates issued representing the
Warrant Shares will bear a legend referring to the foregoing matters.
Before any transfer or attempted transfer of all or any part of this
Warrant or the Warrant Shares, the Holder shall give the Company written notice
of its intention so to do describing briefly the manner of any such proposed
transfer. Promptly after receiving such written notice, the Company shall
present copies thereof to Company counsel and, if the Company requests the
Holder to designate special counsel therefor, to any special counsel designated
by the Holder that is reasonably satisfactory to the Company. If, in the opinion
of counsel for the Company and counsel, if any, for the Holder, the proposed
transfer may be effected without registration under the 1933 Act and any
applicable state securities law of any such securities, the Company, as promptly
as practicable, shall notify the Holder of such opinion, whereupon the
securities proposed to be transferred may be transferred in accordance with the
terms of such notice. The Company shall not be required to effect any such
transfer before the receipt of such favorable opinion or opinions of the
effectiveness of registration. All costs associated with any counsel review or
issuance of any opinion in connection with the exercise or transfer of this
Warrant shall be borne solely by the Company.
Section 4. CERTAIN COVENANTS.
The Company covenants and agrees that it will at all times reserve and set
apart and have, free from preemptive rights, a number of shares of authorized
but unissued Common Stock, or other stock or securities deliverable pursuant to
this Warrant, sufficient to enable it at any time to fulfill all its obligations
hereunder.
Section 5. NOTICES
In the event that:
(a) the Company proposes to pay any dividend payable in stock (of
any class or classes) or any other security, upon its Common Stock or make any
distribution (other than ordinary cash dividends) to the holders of its Common
Stock,
4
<PAGE> 5
(b) the Company proposes to grant to the holders of its Common Stock
generally any rights or options,
(c) the Company proposes to effect any capital reorganization or
reclassification of capital stock of the Company,
(d) the Company proposes to consolidate with, or merge into, any
other corporation or to transfer its property as an entirety or substantially as
an entirety, or
(e) the Company proposes to effect the liquidation, dissolution or
winding up of the Company,
then the Company shall cause notice of any such intended action to be given to
holder of this Warrant not less than 20 days before the date on which the
transfer books of the Company shall close or a record shall be taken for such
stock dividend, distribution or granting of rights or options, or the date when
such capital reorganization, reclassification, consolidation, merger, transfer,
liquidation, dissolution or winding up shall be effective, as the case may be.
Any notice or other document required or permitted to be given or
delivered to holder of record of Warrants shall be delivered by facsimile,
reliable courier or first-class mail postage prepaid to each such holder at the
last address shown on the books of the Company maintained for the registry and
transfer of the Warrants. Any notice or other document required or permitted to
be given or delivered to holders of record of Warrant Shares pertaining to the
rights granted to such holder under Section 10 below shall be delivered by
facsimile, reliable courier or first-class mail postage prepaid to each such
holder at such holder's address as the same appears on the stock records of the
Company. Any notice or other document required or permitted to be given or
delivered hereunder to the Company shall be delivered by facsimile, reliable
courier or first-class mail postage prepaid to the principal office of the
Company, at Irvine, California, or delivered to the office of one of the
Company's executive officers at such address, or such other address as shall
have been furnished by the Company to the holders of record of such Warrants and
the holders of record of such Warrant Shares.
Section 6. LIMITATION OF LIABILITY; NOT SHAREHOLDERS.
No provision of this Warrant shall be construed as conferring upon the
Holder the right to vote or to consent or to receive dividends or to receive
notice as a shareholder in respect of meetings of shareholders for the election
of directors of the Company or any other matter whatsoever as shareholders of
the Company.
5
<PAGE> 6
No provision hereof, in the absence of affirmative action by the Holder to
purchase shares of Common Stock, and no mere enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of Holder for the
purchase price or as a shareholder of the Company, whether such liability is
asserted by the Company, creditors of the Company or others.
Section 7. LOSS, DESTRUCTION, ETC. OF WARRANT.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
mutilation or destruction of this Warrant, and in the case of any such loss,
theft or destruction upon delivery of a bond of indemnity in such form and
amount as shall be reasonably satisfactory to the Company, or in the event of
such mutilation upon surrender and cancellation of this Warrant, the Company
will make and deliver a new Warrant, of like tenor, in lieu of such lost,
stolen, destroyed or mutilated Warrant. Any Warrant issued under the provisions
of this Section 7 in lieu of any Warrant alleged to be lost, destroyed or
stolen, or of any mutilated Warrant, shall constitute an original contractual
obligation on the part of the Company.
Section 8. EXERCISE AND EXPIRATION OF WARRANT.
This Warrant may be exercised in whole or in part from and after the
"Valuation Date" (as defined in the Warrant Agreement) and prior to the
expiration of this Warrant. Notwithstanding the preceding sentence, in the event
this Warrant is subject to early termination pursuant to Section 9(d) hereof,
then the Holder shall have a right to exercise this Warrant (in whole or in
part) pursuant to Section 9(d) hereof. The expiration time and date of the
Warrant shall be 5:00 P.D.T. on April 30, 2003, subject to earlier termination
pursuant to Section 9(d) below.
Section 9. ADJUSTMENT OF NUMBER OF SHARES ISSUABLE PURSUANT TO THIS
WARRANT.
(a) 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
9(d) 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
6
<PAGE> 7
the date of such exercise, had retained such shares and the securities and
properties receivable by the Holder during such period.
(b) 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 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.
(c) 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.
(d) 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 twenty (20) days after the date of mailing of
the Notice, and the
7
<PAGE> 8
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
twenty (20) 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.
Section 10. REGISTRATION RIGHTS.
(a) DEFINITIONS. The terms defined in this Section 10(a) shall have the
meanings herein specified for all purposes of this Warrant, applicable to both
the singular and plural forms of any of the terms herein defined.
(1) Board. "Board means the Board of Directors of the Company.
(2) Commission. "Commission" means the United States Securities and
Exchange Commission.
(3) Holder's Registrable Securities. "Holder's Registrable
Securities" means (i) the Common Stock issued or issuable upon the exercise of
this Warrant and all other Original Warrants and/or Additional Warrants of which
the Holder is the record holder, and (ii) any securities issued or issuable with
respect to the Common Stock referred to in clause (i) above by way of a stock
dividend or stock split or in connection with a combination of shares,
reclassification, recapitalization, merger or consolidation or reorganization;
provided, however, that such shares of Common Stock shall only be treated as
Holder's Registrable Securities if and so long as they have not been (i) sold to
or through a broker or dealer or underwriter in a public distribution or a
public securities transaction, or (ii) sold in a transaction exempt from the
registration and prospectus delivery requirements of the 1993 Act under Section
4(1) thereof or other applicable exemption so that all transfer restrictions and
restrictive legends with respect to such Common Stock are removed upon the
consummation of such sale, or (iii) issued and outstanding for one year or more.
(4) Other Registrable Securities. "Other Registrable Securities"
means all Common Stock, whether now outstanding or hereafter issued, which the
Company has agreed to register, or may hereafter agree to register, other than
the Holder's Registrable Securities.
(5) Registrable Securities. "Registrable Securities" means all of
the Holder's Registrable Securities and all of the Other Registrable Securities,
collectively.
8
<PAGE> 9
(6) Register, Registered and Registration. The terms "register,"
"registered," and "registration" refer to a registration effected by preparing
and filing a registration statement in compliance with the 1933 Act, and the
declaration or ordering of the effectiveness of such registration statement.
(b) REGISTRATION.
(1) Notice to Holders, Etc. Each time the Company shall determine to
file a registration statement under the 1933 Act in connection with the public
offering of shares of Common Stock for cash on a form which would also permit
the registration of the Holder's Registrable Securities, the Company will
promptly give written notice of its determination to the Holder. Upon the
written request of the Holder given within twenty (20) days after the receipt of
such written notice from the Company, the Company agrees to cause all of the
Holder's Registrable Securities, or such portion thereof as the Holder has
specified to the Company in writing, to be included in such registration
statement and registered under the 1933 Act.
(2) Inclusion in Underwriting. If the registration of which the
Company gives written notice pursuant to Section 10(b)(1) is for a public
offering involving an underwriting, the Company agrees to advise the Holder as a
part of its written notice. In such event, the right of the Holder to
registration pursuant to this Section 10 shall be conditioned upon the Holder's
participation in such underwriting and the inclusion of Holder's Registrable
Securities in the underwriting to the extent provided herein. If any of the
Holder's Registrable Securities are to be distributed through such underwriting,
the Holder shall enter into (together with the Company and the other
shareholders of the Company distributing their securities through such
underwriting) an underwriting agreement with the underwriter or underwriters
selected for such underwriting by the Company, provided that such underwriting
agreement is in customary form.
(3) Limitations. Notwithstanding any other provision of this Section
10, if the managing underwriter of an underwritten distribution advises the
Company in writing that in its good faith judgment the number of shares of
Registrable Securities requested to be registered exceeds the number of shares
of Registrable Securities which can be sold in such offering, then the number of
shares of Registrable Securities so requested to be included in the offering
shall be reduced to that number of shares which in the good faith judgment of
the managing underwriter can be sold in such offering (except for shares to be
issued by the Company, which shall have priority over the shares of Registrable
Securities), and such reduced number of shares shall be allocated among the
Holder and all other participating holders of Registrable Securities in
proportion, as nearly as
9
<PAGE> 10
practicable, to the respective number of shares of Registrable Securities held
by such persons at the time of filing the registration statement. All Holder's
Registrable Securities which are excluded from the underwriting by reason of the
underwriter's marketing limitation and all Holder's Registrable Securities not
originally requested to be so included shall not be included in such
registration.
(4) Abandonment of Registration. Notwithstanding any other provision
of this Warrant, the Company may at any time, at the discretion of the Board,
abandon or terminate any registration statement, either prior to or after its
filing with the Commission, without liability or obligation to the Holder.
(c) EXPENSES.
(1) Registration Expenses. The Company agrees to bear all fees,
costs and expenses with respect to the inclusion of shares of Holder's
Registrable Securities in any registration statement pursuant to this Section
10.
(2) Company Expenses; Expenses of Holder. The fees, costs and
expenses of registration to be borne as provided in Section 10(c)(1) above shall
consist of all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, fees and disbursements
of counsel for the underwriter or underwriters of such securities (if the
Company and/or selling security holders are otherwise required to bear such fees
and disbursements), and all legal fees and disbursements and other expenses of
complying with state securities or blue sky laws of any jurisdictions in which
the securities to be offered are to be registered or qualified. The fees, costs
and expenses to be borne by the Company under Section 10(c)(1) above shall not
include the fees, costs or expenses of any counsel to Holder or stock transfer
taxes or underwriters' discounts and commissions relating to any of the Holder's
Registrable Securities.
(d) OBLIGATIONS OF THE COMPANY. Whenever required under this Section 10 to
effect the registration of any Holder's Registrable Securities, the Company
shall, as expeditiously as reasonably possible, furnish to the Holder such
numbers of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the 1933 Act, and such other documents as
the Holder may reasonably request in order to facilitate the disposition of the
Holder's Registrable Securities included in the registration; and
(e) FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 10 that
the Holder shall furnish to the Company such information regarding the Holder,
the
10
<PAGE> 11
Holder's Registrable Securities and the intended method of disposition of such
securities as the Company shall reasonably request and as shall be required in
connection with the action to be taken by the Company.
(f) INDEMNIFICATION. In the event any shares of the Holder's Registrable
Securities are included in the registration statement under this Section 10:
(1) to the extent permitted by law, the Company will indemnify and
hold harmless the Holder, any underwriter (as defined in the 1933 Act) for it
and each person, if any, who controls the Holder or underwriter within the
meaning of the 1933 Act, against any losses, claims, damages or liabilities,
joint or several, to which they may become subject under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based on any untrue or alleged untrue
statement of any material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not misleading or
arise out of any violation by the Company of any rule or regulation promulgated
under the 1933 Act applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration; and will
reimburse the Holder, such underwriter or controlling person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that the indemnity agreement contained in this Section 10(f)(l) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld) nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in connection with such
registration statement, preliminary prospectus, final prospectus, or amendments
or supplements thereto, in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration by
the Holder, or any such underwriter or controlling person;
(2) to the extent permitted by law, the Holder will indemnify and
hold harmless the Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who controls the Company
within the meaning of the 1933 Act and each agent and any underwriter for the
Company and each person who controls such underwriter (within the meaning of
11
<PAGE> 12
the 1933 Act) against any losses, claims, damages or liabilities to which the
Company or any such director, officer, controlling person, agent or underwriter
may become subject, under the 1933 Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereto) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in such registration
statement, preliminary or final prospectus, or amendments or supplements
thereto, in reliance upon and in conformity with written information furnished
by the Holder expressly for use in connection with such registration, and the
Holder will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, agent or underwriter
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 10(f)(2) shall not apply to amounts paid in settlement of any
such loss, claim damage, liability or action if such settlement is effected
without the consent of the Holder (which consent shall not be unreasonably
withheld); and
(3) promptly after receipt by an indemnified party under this
paragraph of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this paragraph, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties. The failure to notify
an indemnifying party promptly of the commencement of any such action, if
prejudicial to his ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
paragraph, but the omission so to notify the indemnifying party will not relieve
him of any liability that he may have to any indemnified party otherwise than
under this paragraph.
(g) REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the 1933 Act
and any other rule or regulation of the Securities and Exchange Commission that
may at any time permit the Holder to sell
12
<PAGE> 13
securities of the Company to the public without registration, the Company agrees
to use its reasonable best efforts to:
(1) make and keep public information available, as those terms are
understood and defined in Rule 144;
(2) file with the Securities and Exchange Commission in a timely
manner all reports and other documents required of the Company under the 1933
Act and the Securities Exchange Act of 1934 (the 1934 Act); and
(3) furnish to the Holder so long as the Holder owns any of the
Holder's Registrable Securities forthwith upon request a written statement by
the Company that it has complied with the reporting requirements of Rule 144 and
the 1934 Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as may be
reasonably requested in availing any holder of any rule or regulation of the
Securities and Exchange Commission permitting the selling of any such securities
without registration.
(h) CERTAIN SITUATIONS IN CONNECTION WITH FUTURE GRANTS OF REGISTRATION
RIGHTS. The Company shall not, as long as any shares of Holder's Registrable
Securities are outstanding, enter into any agreement with any holder or
prospective holder of securities of the Company which limits or restricts in any
manner the performance of the Company's obligations under this Section 10 or
alters the allocation provisions in Section 10(b)(3) if marketing factors
require a limitation on the number of securities to be included in an
underwritten offering.
(i) ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to
register securities granted to the Holder by the Company under this Section 10
may be transferred or assigned by the Holder only to a transferee or assignee of
not less than 10,000 shares of Registrable Securities, provided that the Company
is given written notice at the time of or within a reasonable time after such
transfer or assignment, stating the name and address of the assignee or
transferee and identifying the securities with respect to which such
registration rights are being transferred or assigned, and, provided, further,
that the transferee or assignee of such rights assumes in writing the
obligations of the Holder under this Section 10. Notwithstanding anything
contained to the contrary in Section 10(i) hereof, Four JM LLC shall be entitled
to transfer or assign the securities granted herein in increments as small as
1,000 shares, provided that such transferees or assignees are then existing
members of Four JM LLC.
13
<PAGE> 14
Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally or in writing, provided that any term of this
Warrant may be amended or the observance of such term may be waived (either
generally or in a particular instance and either retroactively or prospectively)
with, but only with, the written consent of the Company and the holders of
Original Warrants and Additional Warrants, as defined in the Warrant Agreement
(collectively, "Warrants"), and/or shares of Registrable Securities then
outstanding which were issued upon the exercise of any of the Warrants, that
represent, in the aggregate, at least a majority of the sum of (i) all of the
Registrable Securities then outstanding which were issued upon the exercise of
any of the Warrants, and (ii) the total number of shares of Registrable
Securities issuable under all of the Warrants then outstanding.
Section 12. ATTORNEYS FEES.
If a lawsuit, arbitration, or other proceedings are instituted by any
party to enforce any of the terms or conditions of this Warrant against any
other party hereto, the prevailing party in such litigation, arbitration, or
proceedings shall be entitled, as an additional item of damages, to such
reasonable attorneys' and other professional fees(including but not limited to
expert witness fees), court costs, arbitrators' fees, arbitration administrative
fees, travel expenses, and other out-of-pocket expenses or costs of such other
proceedings as may be fixed by any court of competent jurisdiction, arbitrator,
or other judicial or quasi-judicial body having jurisdiction thereof, whether or
not such litigation or proceedings proceed to a final judgment or award. For the
purposes of this Section 12.0, any party receiving an arbitration award or a
judgment for damages or other amounts shall be deemed to be the prevailing
party, regardless of amount of the damage awarded or whether the award or
judgment was based upon all or some of such party's claims or causes of action.
Section 13. GOVERNING LAW.
This Warrant shall be governed by the laws of the State of California
without regard to its conflict of laws principles or rules.
[SIGNATURES COMMENCE ON THE FOLLOWING PAGE]
14
<PAGE> 15
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in
its name by its duly authorized officer.
GENERAL AUTOMATION, INC.,
a Delaware corporation
-----------------------------------------
By: RICHARD NANCE
Its: Chief Financial Officer
Dated:
15
<PAGE> 16
EXHIBIT A
Notice of Exercise
1. The undersigned hereby elect(s) to purchase _____________ shares of the
Common Stock of General Automation pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
2. Please issue a certificate or certificates representing said shares in
the name(s) of the undersigned or in such other name(s) as specified below:
---------------------------------------------------
(Name)
---------------------------------------------------
---------------------------------------------------
(Address)
3. The undersigned represents the undersigned is acquiring the shares
solely for its own account and not as a nominee for any other party and not with
a view toward the resale or distribution thereof except in compliance with the
applicable securities law.
-----------------------------------------
(Signature)
- -----------------------
(Date)
16
<PAGE> 1
EXHIBIT 10.19
LOAN AGREEMENT
This LOAN AGREEMENT (as amended from time to time, this "Agreement"),
dated as of September 30, 1999 (the "Effective Date") is entered into by and
among GENERAL AUTOMATION, INC., a Delaware corporation "Borrower"), and PACIFIC
MEZZANINE FUND, L.P., a California limited partnership ("PMF") (together with
any subsequent Lender pursuant to Section 1.02(e) hereof, each a "Lender" and
collectively, the "Lenders").
ARTICLE I
DEFINITIONS AND RELATED MATTERS
SECTION 1.01 DEFINITIONS. The following terms with initial capital letters
have the following meanings:
"Affiliate" means, with respect to a Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such first Person. The term
"control" means the possession, directly or indirectly, of the power, whether or
not exercised, to direct or cause the direction of the management or policies of
a Person, whether through the ownership of voting securities or other equity
interests, by contract or otherwise, and the terms "controls", "controlled" and
"common control" have correlative meanings. Notwithstanding the foregoing
provisions of this definition, in no event shall the Lenders or any of their
Affiliates be deemed to be Affiliates of Borrower.
"Agreement" is defined in the Preamble.
"Applicable Law" means all applicable provisions of all (i) constitutions,
treaties, statutes, laws, rules, regulations and ordinances of any Governmental
Authority, (ii) Governmental Approvals and (iii) orders, decisions, judgments,
awards and decrees of any Governmental Authority.
"Bankruptcy Code" means Title II of the United States Code (11 U.S.C.
Section 101 et seq.), as amended from time to time, or any successor statute.
"Base Rate" means, at any time, a rate of interest equal to ten percent
(10%) per annum calculated as specified in Section 2.02.
"Benefit Arrangements" shall have the meaning specified in Section 4.13.
"Best Knowledge" shall mean to the personal knowledge of any officer of
Borrower.
"Borrower" is defined in the Preamble and includes its -successors and
Permitted assigns.
"Borrower's Certificate" means the certificate, executed by Borrower, in
substantially the form of Exhibit D.
"Business Day" any day that is not a Saturday, Sunday or other day on
which banks in San Francisco, California are authorized or obligated to close.
<PAGE> 2
"Capital Expenditure" means, for any period, (i) the aggregate
consolidated capital expenditures (whether paid in cash or accrued as
liabilities) of Borrower for such period, as the same are required to be set
forth, in accordance with GAAP, in the consolidated statement of cash flows of
Borrower for such period and (ii) capitalized lease obligations of Borrower, on
a consolidated basis, incurred during such period.
"Closing" shall mean the time at which Lender makes the Loan.
"Closing Date" means September 30, 1999 or such later date on which all
conditions set forth in Section 3.01 shall have been satisfied or waived in
writing.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral" means the collateral under, and as defined in, the Collateral
Documents.
"Collateral Documents" means the Security Agreement, the Intercreditor
Agreement, the Deposit Notice and all financing statements and other documents
or instruments executed or delivered from time to time in connection therewith
or otherwise to secure the Obligations, in each case as from time to time
amended.
"Commitment" means the obligation of the Lenders to make the Loan under
this Agreement, on the terms and conditions set forth herein.
"Common Stock" means the common stock, $0.10 par value, of Borrower.
"Contingent Obligation" means, as to any Person, any obligation, direct or
indirect, contingent or otherwise, of such Person with respect to any
Indebtedness or other obligation of another Person, including any direct or
indirect guarantee of such Indebtedness or obligation, to maintain the net
worth, solvency or financial condition of the other Person, or otherwise to
assume or hold harmless the holders of Indebtedness or any other obligation of
another Person against loss in respect thereof.
"Contractual Obligation" means, as applied to any Person, any provision of
any security issued by that Person or of any indenture, mortgage, deed of trust,
contract, undertaking, agreement, or other document or instrument to which that
Person is a party or by which it or any of its assets or properties is bound or
to which it or any of its assets or properties is subject.
"Conversion Rate" means the rate at which the notes convert into shares of
Borrower's Common Stock as set forth in Section 2.08 hereof.
"Current Assets" means, at any particular time, all items which would, in
conformity with GAAP, be classified as current assets on a balance sheet of
Borrower, as at such time.
"Current Liabilities" means, at any particular time, all items which
would, in conformity with GAAP, be classified as current liabilities (including
deferred taxes payable and other deferred liabilities) on a balance sheet of
Borrower, as at such time, with the exception of deferred revenues.
2
<PAGE> 3
"Debt Service Coverage Ratio" means, with respect to any period, the ratio
of (a) Borrower's net income after taxes for such period excluding Borrower's
pre-tax extraordinary gains or losses, plus depreciation and amortization
deducted in determining net income for such period, minus Capital Expenditures
for such period, to (b) current maturities of long term Indebtedness and
capitalized leases paid or scheduled to be paid during such period.
"Default" means any condition or event that, with the giving of notice or
lapse of time or both, would, unless cured or waived, become an Event of
Default.
"Distribution" means (i) distributions or dividends on or in respect of
the capital stock of Borrower (except distributions solely in additional shares
of such stock) and (ii) the repurchase, purchase, redemption or acquisition of
capital stock of Borrower or of the warrants or rights or other options to
purchase such stock except for the purchase of the Warrants as provided herein.
"Dollars" and "$" mean the lawful money of the United States.
"EBITDA" means Borrower's earnings determined in accordance with GAAP
before interest, taxes, depreciation and amortization.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Employee Benefit Plans" shall have the meaning specified in Section 4.13.
"Event of Default" is defined in Section 7.01.
"Existing Liens" means such Liens which are described on Schedule 1.01.
"Fees and Expenses" is defined in Section 2.04.
"Financial Statements" shall have the meaning specified in Section 4.03.
"Fundamental Event" means with respect to Borrower the occurrence of any
one or more of the following:
(i) any sale, transfer or other conveyance, whether direct or
indirect, of all or substantially all of the assets of Borrower, on a
consolidated basis, in one transaction or a series of related
transactions;
(ii) the filing with the SEC of any tender or exchange offer by any
"person" or "group" (as such terms are used for purposes of Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended) to acquire,
directly or indirectly, voting stock of Borrower, or the acquisition of
voting stock of the Borrower by way of a tender or exchange offer in a
transaction that is exempt from registration; and
(iii) the occurrence of a merger, sale, joint venture or other
transaction which, in the reasonable opinion of PMF adversely affects
Borrower's ability to generate revenue or earnings.
3
<PAGE> 4
"Funding Date" means the date on which the Lenders make the Loan.
"GAAP" means generally accepted accounting principles, consistently
applied, as in effect from time to time in the United States.
"Governmental Approval" means an authorization, consent, approval, permit,
license, registration or filing with, any Governmental Authority.
"Governmental Authority" means any nation, any state or other political
subdivision thereof, and any entity exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government, including
any government authority, agency, department, board, commission or
instrumentality of the United States, any State of the United States or any
political subdivision thereof, and any tribunal or arbitrator of competent
jurisdiction.
"Indebtedness" means, with respect to any Person, without duplication: (i)
all obligations for borrowed money; (ii) all obligations evidenced by bonds,
debentures, notes or other similar instruments; (iii) all obligations to pay the
deferred purchase price of property or services, except trade accounts payable
arising in the ordinary course of business that are not overdue by more than
ninety (90) days or that are being contested in good faith; (iv) all obligations
constituting capitalized lease obligations under GAAP; (v) all obligations or
liabilities of others secured by a Lien on any asset owned by such Person,
whether or not such obligation or liability is assumed; (vi) all obligations of
such Person, contingent or other-wise, in respect of any letters of credit,
bankers! acceptances or similar instruments, and (vii) all Contingent
Obligations.
"Indemnities" is defined in Section 8.02(a).
"Intercreditor Agreement" means that certain Intercreditor Agreement dated
as of the Effective Date by and among the Lenders and acknowledged by the
Borrower.
"Interest Coverage Ratio" means, with respect to any period, the ratio of
(a) Borrower's net income after taxes for such period (excluding pre-tax
extraordinary gains or losses), plus interest, depreciation and amortization
deducted in determining net income for such period, and minus Capital
Expenditures for such period, to (b) interest expense on Indebtedness deducted
in determining net income for such period.
"Investment" means, as applied to any Person, (i) any direct or indirect
acquisition by that Person of securities or partnership interests of any other
Person, or all or any substantial part of the business or assets of any other
Person, and (ii) any direct or indirect loan, advance or capital contribution by
that Person to any other Person.
"Investment Unit Pricing Agreement" means that certain Investment Unit
Pricing Agreement dated as of the Effective Date among Borrower and Lender.
"Investor's Rights Agreement" means that certain Investor's Rights
Agreement dated as of the Effective Date among Borrower and the Lenders.
4
<PAGE> 5
"Lender" is defined in the Preamble and includes its successors and
assigns.
"Lien" means any lien, mortgage, pledge, security interest, charge, or
encumbrance of any kind (including any conditional sale or other title retention
agreement or any lease in the nature thereof).
"Loan" shall mean the Loan made by the Lenders pursuant to this Agreement
as defined in Section 2.01(a).
"Loan Account" is defined in Section 2.05(a).
"Loan Documents" means, collectively, this Agreement, the Notes, the
Collateral Documents, the Warrants, the Investment Unit Pricing Agreement, the
Investors' Rights Agreement and any other instrument or other writing executed
or delivered by Borrower in connection herewith, and all amendments, appendices,
exhibits and schedules to any of the foregoing.
"Mandatory Prepayment" shall mean a prepayment of the Loan pursuant to
Section 2.03(b).
"Margin Regulations" means Regulation G, T, U and X of the Board of
Governors of the Federal Reserve System, and any successor regulations thereto,
as in effect from time to time.
"Margin Stock" " means "margin stock" as defined in the Margin
Regulations.
"Material Adverse Effect" or "Material Adverse Change" means a material
adverse effect on or a material adverse change in. as the case may be, the
business, assets, income, financial condition or prospects of Borrower, on a
consolidated basis.
"Maturity Date" means September 30, 2004.
"Multiemployer Plan" means a multiemployer plan, as defined in Sections
3(37) and 4001(a)(3) of ERISA.
"Net Cash Proceeds" means: (i) in the case of a sale of assets or similar
transaction, the cash (or the fair value of any other consideration received by
Borrower in respect of such transaction), net of reasonable out-of-pocket
expenses, and (ii) in the case of any issuance of equity Securities, the cash
(or the fair value of any other consideration received by Borrower for such
securities), net of reasonable costs of issuance.
"Notes" means the certain promissory notes in substantially the form of
Exhibit A of even date herewith executed and issued by Borrower to the Lenders
as such notes may from time to time be amended in a writing signed by Borrower.
"Obligations" means all present and future obligations and liabilities of
Borrower of every type and description arising under or in connection with this
Agreement or any other Loan Document due or to become due to Lender or any
Person entitled to indemnification under any
5
<PAGE> 6
of the Loan Documents, or any of their respective successors or assigns,
including all liability of Borrower for payment of principal, interest, fees,
expense reimbursements and indemnifications, whether voluntary or involuntary,
due or not due, absolute or contingent, secured or unsecured, liquidated or
unliquidated, determined or undetermined, and direct or indirect.
"Payment Date" means the first Business Day of each calendar month,
commencing October 1, 1999, and the Maturity Date.
"Permitted Liens" means, collectively, the Liens permitted under Section
6.01.
"Person" means an individual, a corporation, a partnership, a limited
liability company, a trust, an unincorporated organization or any other entity
or organization, including a Governmental Authority or other government or any
agency or political subdivision thereof.
"PMF's Office" means the office of PMF identified as such on the signature
pages hereto, or such other office as PMF may hereafter designate by written
notice to Borrower.
"Post-Default Rate" means: (i) in the event of failure to pay monetary
sums when due, five percent (5%) per annum above the Base Rate; and (ii) in the
event of Events of Default not involving a failure to pay monetary sums, two and
one-half percent (2 1/2%) per annum above the Base Rate.
"Proprietary Rights" shall mean any and all patents, trademarks, service
marks, trade names, copyrights, trade secrets, proprietary information, source
codes and other proprietary rights and processes.
"Qualifying Offering" means a firmly underwritten public offering of any
of Borrower's securities registered under the Securities Act with aggregate net
proceeds of at least $15,000,000 and a per share offering price of at least
$2.00 (or $3.00 if such offering closes more than 12 months after the Closing
Date).
"SBA" means the United States Small Business Administration.
"Security Agreement" means the Security Agreement between Borrower and the
Lenders in substantially the form of Exhibit B, as it may from time to time be
amended in writing.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means a Senior Loan.
"Senior Loan" means a loan to which Lender has agreed to subordinate
Lender's rights under this Agreement and the Note, pursuant to Section 2.01(d).
"Senior Lender" shall mean any lender whose rights are senior to the
Lenders in accordance with the terms hereof, including Comerica Bank and the
holders of the first and second deeds of trust on Borrower's headquarters and
any transferee or assignee thereof in accordance with the terms hereof.
6
<PAGE> 7
"Shareholder" means each holder of equity securities of Borrower and
"Shareholders" means all such holders of equity securities.
"Subsidiary" shall mean any corporation, partnership or limited liability
company of which Borrower owns or controls, directly or indirectly, more than
fifty percent (50%) of the voting stock or membership interests (as the case may
be) or any partnership, joint venture or other entity or organization in which
Borrower owns or controls, directly or indirectly, more than a fifty percent
(50%) equity interest.
"Tangible Net Worth" shall mean, with respect to any date of
determination, Borrower's net worth as determined in accordance with GAAP minus
(i) intangible assets as determined in accordance with GAAP (including, without
limitation, patents, customer lists, franchise agreements, licenses, goodwill,
non-competition agreements, subscription lists, organizational expenses, prepaid
insurance and deposits), (ii) the net undepreciated portion of leasehold
improvements constituting tangible property, (iii) trade receivables converted
to notes, (iv) monies due from officers and directors, (v) direct or indirect
loans to shareholders and Affiliates, (vi) security deposits, prepaid costs and
expenses, (vii) all contributions to equity in any form other than from
Borrower's net profit after taxes after the date hereof, and (viii) "other
assets" and "other current assets" under Borrower's financial statements
pursuant to GAAP.
"Taxes" means any present and future income and other taxes, charges,
fees, duties, imposts, withholdings and other assessments, together with any
interest and penalties, additions to tax and other additional amounts, imposed
by any Governmental Authority upon any Person.
"Warrants" means the Warrants to acquire Common Stock executed and issued
in appropriate form by Borrower to the Lenders, as it may from time to time be
amended in a writing signed by Borrower.
SECTION 1.02 RELATED MATTERS.
(a) Construction. Unless the context of this Agreement clearly
requires otherwise, references herein to the plural include the singular, the
singular includes the plural, the part includes the whole, the word "including"
is not limiting and all pronouns shall be deemed to cover all genders. The words
"hereof" "herein," "hereby," "hereunder" and similar terms in this Agreement
refer to this Agreement as a whole and not to any particular provision of this
Agreement. Article, Section, subsection, Exhibit, preamble, recital and Schedule
references are to this Agreement unless otherwise specified. References in this
Agreement to any agreement, other document or law "as amended" or "as amended
from time to time" shall include any amendments, supplements, waivers,
refinancings, renewals or other modifications.
(b) Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance and
consistent with GAAP.
(c) Governing Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of California.
7
<PAGE> 8
(d) Severability of Provisions. Any provision of this Agreement
that is illegal, invalid or unenforceable for any reason in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such illegality,
invalidity or unenforceability without invalidating or impairing the remaining
provisions hereof or affecting the legality, validity or enforceability of such
provision in any other jurisdiction.
(e) Additional Lenders. The parties acknowledge and agree that
additional parties may lend funds to Borrower under the same terms as PMF
hereunder (up to an additional $1,050,000) with the consent of PMF and Borrower.
Such additional lenders shall execute this Agreement together with an
Intercreditor Agreement (and such additional documents as PMF may reasonably
require) in form and content satisfactory to PMF prior to making such loan.
ARTICLE II
THE LOAN, NOTES AND WARRANTS
SECTION 2.01 LOAN.
(a) The Loan.
(i) Lenders' Commitment. The Lenders agree, upon the terms
and subject to the conditions set forth in this Agreement, to make to
Borrower, upon satisfaction of the conditions precedent set forth in
Article III, a loan in the aggregate original principal amount of a
minimum of Three Million One Hundred Fifty Thousand Dollars ($3,150,000)
and a maximum of Four Million Two Hundred Thousand Dollars ($4,200,000)
(together with the amount loaned by any additional Lenders, the "Loan").
The amount of the Loan funded by PMF shall be Three Million One Hundred
Fifty Thousand Dollars ($3,150,000). Additional Lenders may fund up to an
additional $1,050,000 (unless otherwise agreed by PMF and Borrower).
(ii) Prepayment. Borrower may prepay the Loan at any time, in
whole or in part; provided, that Borrower shall give the holder(s) of the
Note(s) to be prepaid thirty (30) days' written notice of its intention to
prepay one or more Notes, which notice shall set forth the date on which
such prepayment shall be made and the amount of the prepayment. The
holder(s) of the Note(s) to be prepaid may elect to convert their Notes
pursuant to Section 1.08(a) hereof after delivery of the prepayment notice
and before prepayment. In addition, at the time of any partial prepayment
of principal, Borrower shall pay all unpaid Fees and Expenses and accrued
interest on the principal amount being prepaid
(iii) Fundamental Event. The Loan shall immediately become due
and payable or convertible at the sole option of the Lenders, or any of
them, upon the occurrence of a Fundamental Event.
(b) Funding of Loan. Not later than 11:30 am. (San Francisco time)
on the Closing Date and subject to and upon fulfillment of the applicable
conditions set forth in
8
<PAGE> 9
Article III as determined by the Lenders, the Lenders shall arrange for a wire
transfer in the amount of the Loan to the account designated by Borrower
pursuant to the wire instructions set forth in the Notice of Borrowing.
(c) Use of Proceeds. The proceeds of the Loan shall be used to
settle Borrower's obligations to Boundless Technologies and Texas Micro
Incorporated as set forth under Section 3.01(d) hereof. No part of the proceeds
of the Loan shall be used directly or indirectly for the purpose, whether
immediate, incidental or ultimate, of purchasing or carrying any Margin Stock or
maintaining or extending credit to others for such purpose or for any other
purpose that violates the Margin Regulations.
(d) Agreement of Lender to Subordinate. Provided that no Default
or Event of Default has occurred and is continuing and that Borrower has
provided the Lenders with a pro forma compliance certificate (in form acceptable
to the Lenders) demonstrating that no Default or Event of Default will occur
after the incurrence of the proposed Senior Loan, the Lenders agree to
subordinate their rights under this Agreement, the Notes and the Collateral
Documents (including the liens in favor of the Lenders created pursuant to the
Collateral Documents) to one or more Senior Loans; provided that the time of
such subordination, (w) Borrower's EBITDA for the trailing four (4) calendar
quarters exceeds twenty-five percent (25%) of the sum of the maximum amount of
the proposed Senior Loans (including any prior senior Loans permitted hereunder)
plus the Obligations, (x) the terms of the proposed subordination providing such
Senior Loans are substantially similar the terms of the subordination agreement
by and between PMF and Comerica Bank dated September 30, 1999 and (y) the Senior
Lender is approved by PMF (which approval shall not be unreasonably withheld,
delayed or conditioned).
(e) Verification of Use of Proceeds. Within thirty (30) days after
the Closing Date, Borrower shall submit to the Lenders a written statement in
accordance with SBA Regulations and otherwise in form and substance acceptable
to each Lender, verifying that the proceeds of the Loan have been utilized by
Borrower as contemplated in Section 2.01(c).
SECTION 2.02 INTEREST.
(a) Rate.
(i) Subject to Section 2.02 (a)(ii) hereof, the Loan shall
bear, and Borrower agrees to pay, interest on the outstanding principal
balance thereof until due (whether at maturity, by reason of prepayment or
acceleration or otherwise) at an interest rate equal to the Base Rate.
(ii) From and after the occurrence of an Event of Default,
for as long as such Event of Default shall be continuing, without notice
or demand, the outstanding principal balance of the Loan (and overdue
interest thereon, if any), shall bear interest at a rate per annum equal
to the applicable Post-Default Rate. In addition, all amounts from time to
time payable under the Collateral Documents and not paid when due shall
bear interest at the Post-Default Rate which is applicable to payment
defaults until paid.
9
<PAGE> 10
(b) Payment. Interest accrued on the Loan shall be payable in
arrears on each Payment Date and when such Loan shall become due (whether at
maturity, by reason of prepayment, demand, acceleration or otherwise), but only
to the extent then-accrued on the amount then so due; provided that interest
accrued at the Post-Default Rate shall be payable on written demand.
(c) Computations. Interest on the Loan (or other amount due under
the Loan Documents) shall accrue from day-to-day from and including the Closing
Date to and excluding the date of any principal repayment (or payment) thereon.
Interest on the Loan shall be computed on the basis of a three hundred sixty
(360) day year and paid for the actual number of days elapsed.
(d) Maximum Lawful Rate of Interest. The rate of interest payable
on the Loan (or other amount) shall in no event exceed the maximum rate
permissible under Applicable Law. If the rate of interest payable on the Loan
(or other amount) is ever reduced as a result of this subsection and at any time
thereafter the maximum rate permitted by Applicable Law shall exceed the rate of
interest provided for in this Agreement, then the rate provided for in this
Agreement shall be increased to the maximum rate provided by Applicable Law for
such period as is required so that the total amount of interest received by
Lender is that which would have been received by Lender but for the operation of
the first sentence of this subsection.
SECTION 2.03 PRINCIPAL.
(a) Scheduled Principal Payment Dates. No principal payments shall
be due or payable on any Payment Date until the Maturity Date: all unpaid
principal and accrued and unpaid interest shall be due and payable on the
Maturity Date;
(b) Mandatory Prepayments. Upon written request by Lender, upon
the occurrence of a Fundamental Event, Borrower shall immediately prepay the
Loan without Prepayment Penalty, if any.
SECTION 2.04 FEES AND EXPENSES.
(a) In addition to principal and interest with respect to the
Loan, Borrower agrees: (i) to pay PMF on the Closing Date a processing fee (the
"Processing Fee") in an amount equal to two percent (2%) of the Loan amount,
which shall be considered as earned in full at Closing; (ii) on the Closing
Date, to reimburse PMF for (or pay to PMF's counsel directly) the reasonable
fees and expenses of such counsel in connection with the drafting and
negotiation of this Agreement and the other Loan Documents (including a
reasonable estimate of post-closing fees and expenses of such counsel), (iii) to
reimburse the Lenders for (or pay to Lenders' counsel directly) the reasonable
fees and expenses of such counsel in connection with the ongoing administration
of the Loan and the Warrants, whether or not a Default or Event of Default is
continuing; (iv) to reimburse PMF for its reasonable travel and other
out-of-pocket expenses (not including legal fees) incurred in connection with
PMF's due diligence and negotiation of the Loan Documents to the extent that
such expenses exceed the Twenty-Five Thousand Dollars ($25,000) non-refundable
expense deposit (the "Non-refundable Expense Deposit") paid to PMF in connection
with acceptance of the preliminary term sheet with respect
10
<PAGE> 11
to the Loan; and (v) to reimburse the Lenders for their reasonable out-of-pocket
costs incurred in administering the Loan and their ownership of the Warrants,
including, without limitation, the out-of-pocket costs incurred in attending
meetings of the Board of Directors of Borrower. To the extent that they are not
paid on the Closing Date, the fees and expenses described in this Section 2.04
(collectively, "Fees and Expenses") shall be payable within thirty (30) days
after invoice by PMF or other Lender, as the case may be and, if not paid within
such period, shall bear interest at the Post-Default Rate. PMF acknowledges that
any portion of the Non-refundable Expense Deposit which is not utilized to
reimburse PMF for its out-of-pocket expenses described in Sections 2.04(a)(v)
and (vi) above will be promptly returned to Borrower.
SECTION 2.05 ADMINISTRATION.
(a) Loan Account. Each of the Lenders shall maintain in their records
a loan account for such Lender's portion of the Loan hereunder (each, a "Loan
Account") in which shall be recorded (i) the original principal amount of the
Loan, (ii) all increases in the principal amount of the Loan, due to deferred
interest payments; (iii) all other appropriate debits and credits as and when
due in accordance with this Agreement, including all Fees and Expenses; and (iv)
all payments made by Borrower on the Loan and the Obligations. All entries in
the Loan Account shall be made in accordance with the customary accounting
practices of such Lender as in effect from time to time. All payments hereunder
shall be applied: First to such Lender's Fees and Expenses; Second to accrued
and unpaid interest; and Third, to principal payments then due and owing;
provided that upon written notice to Borrower, the Lenders may jointly apply
such payments against the Obligations in any other manner which the Lenders deem
proper and in compliance with the terms hereof.
(b) Statements. The Lenders may (but shall not be obligated to)
deliver to Borrower each month a written statement setting forth the balance of
the Loan Account. Each such statement shall be subject to subsequent review by
Borrower but, absent manifest error, shall be presumed to be correct and shall
be binding upon Borrower. Until such written statements are delivered to
Borrower as provided herein, the balance in the Loan Account shall be
rebuttable, presumptive evidence of the amounts due and owing such Lender by
Borrower with respect to the Loan and other Obligations covered thereby.
(c) Reinstatement. To the extent Borrower makes a payment to a Lender,
or a Lender receives any payment or proceeds of Collateral for Borrower's
benefit, which payment or proceeds or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, receiver or any other party under any bankruptcy law,
other law or equitable cause, then, to the extent of such payment or proceeds
received, the Obligations or the part thereof intended to be satisfied thereby
shall be revived and continue in full force and effect, together with all
collateral security therefor, as if such Payment or proceeds had not been
received by such Lender.
11
<PAGE> 12
SECTION 2.06 MANNER OF PAYMENT.
(a) Borrower shall make each payment hereunder or under the other Loan
Documents to the Lenders in Dollars and in immediately available funds without
any deduction whatsoever.
(b) If any principal of or any interest on the Loan or any other
amount payable hereunder or under the other Loan Documents falls due on a date
that is not a Business Day, then such due date shall be extended to the next
succeeding Business Day, and interest on such principal, interest or other
amount shall be payable in respect of such extension on such next succeeding
Business Day.
(c) All payments of principal and interest on the Notes shall be made
pro rata to all Note holders.
SECTION 2.07 THE NOTE; REGISTER.
(a) The Notes will be a fully-registered note on the books of Borrower
and will be issued only in fully-registered form.
(b) Borrower will cause to be kept at its principal office a register
for the registration and transfer of the Notes. The name and address of each
holder of a Note (or Notes), the transfer thereof and the names and addresses of
any transferee of a Note (or Notes), or any interest therein, shall be recorded
in such register. Until a transfer of a Note is duly registered on the books of
Borrower, Borrower may treat the registered holder thereof as the owner for all
purposes.
(c) Upon surrender for exchange or registration of transfer of a Note
at the office of Borrower designated for notices in accordance with Section 8.04
hereof, Borrower shall execute and deliver, at its expense, one or more new
Notes of any authorized denomination requested by Lender (or any subsequent
holder of any Note) in writing, each dated the date to which interest has been
paid on the Note so surrendered, and registered in the name of such Person as
shall be designated in writing by such holder. Every Note surrendered for
registration of transfer shall be duly endorsed, or be accompanied by a written
instrument of transfer duly executed, by the holder of such surrendered Note.
All transfers of Notes must comply with all applicable state and federal
securities laws.
(d) Upon receipt of evidence reasonably satisfactory to Borrower of
the loss, theft, mutilation or destruction of any Note, and in the case of any
such loss, theft or destruction, upon delivery of an indemnity bond by the
holder thereof Borrower shall, without charge, make and deliver a new Note of
like amount in lieu of such lost, stolen or destroyed Note. Notwithstanding the
foregoing, if any such lost, stolen or destroyed Note is owned by a Lender, then
the affidavit of a duly authorized representative of such Lender setting forth
the fact of loss, theft or destruction and its ownership of the Note at the time
of loss, theft or destruction shall be accepted as satisfactory evidence
thereof, together with an indemnification agreement in form and content
reasonably satisfactory to such Lender, and no indemnity bond shall be required
as a condition to the execution and delivery of the substitute Note.
12
<PAGE> 13
SECTION 2.08 CONVERSION OF THE NOTES.
(a) The Notes shall be convertible by the holders thereof in whole
or in part at any time before repayment by Borrower of all principal and accrued
interest into shares of the Company's Common Stock (the "Conversion Shares") at
conversion rate equal to Seventy Three Cents ($0.73) per Conversion Share (the
"Conversion Rate").
(b) Upon the occurrence of any subdivision, combination or stock
dividend of such class or series of stock, the number of Conversion Shares shall
automatically be proportionally adjusted to reflect the effect on the
outstanding shares of such stock by such subdivision, combination or dividend.
SECTION 2.09 THE WARRANTS.
(a) Issuance, Purchase and Sale of Warrants. Concurrently with the
sale and issuance of the Notes, and subject to the terms and conditions of this
Agreement, at the Closing, Borrower will sell and issue to the Lenders warrants
to purchase shares of Common Stock of Borrower in substantially the form of
Exhibit C hereto (each, a "Warrant," and collectively, the "Warrants") for an
aggregate purchase price of $100. Each $8.00 of principal of Notes sold hereby
shall be accompanied by a detachable Warrant to purchase one share of Common
Stock of Borrower (the "Warrant Shares").
(b) Exercise of the Warrants. At the discretion of the Warrant
holder, each Warrant may be exercised into shares of Common Stock at an exercise
price of Forty Five Cents ($0.45) per share. Warrant Holders may elect to cancel
any outstanding debt and/or accrued interest, including the Notes, as payment of
the exercise price of the Warrant. Warrant Holders may also exchange other
securities of Borrower held at the market price thereof in payment of the
exercise price of Warrants. The Warrants shall expire on the earlier of (i) six
years from the date of repayment of the Notes issued together with such
Warrant(s) or (ii) 10 years from the date of original issuance thereof. The
Warrants shall be detachable the Notes and may be exercised, transferred or sold
independently of the Notes (subject to applicable law).
SECTION 2.10 REPRESENTATIONS AND WARRANTIES OF THE LENDERS.
(a) Minority Shareholder. Each of the undersigned Lenders
understand that upon conversion of the Notes or exercise of the Warrants, such
Lender may be a minority shareholder of Borrower, and as such, Lender may have
very limited rights to manage or to control the business of Borrower.
(b) Due Execution. This Agreement has been duly executed and
delivered by the undersigned Lender, and, upon execution and delivery by
Borrower, will be valid and legally enforceable in accordance with their terms,
except as limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws of general application affecting enforcement of creditors' rights,
and except as limited by application of legal principles affecting the
availability of equitable remedies.
13
<PAGE> 14
(c) Legends. Each of the undersigned understands that the Notes,
Warrants and the shares issuable upon conversion of the Notes and exercise of
the Warrants will bear restrictive legends as deemed necessary by Borrower or
its counsel with regard to the matters set forth in this Agreement or otherwise
as necessary or appropriate.
(d) Compliance with Securities Laws. Each Lender hereby
represents, warrants and covenants that (1) the Notes and Warrants and any
shares of stock purchased upon conversion of the Notes or exercise of the
Warrants shall be acquired for investment only and not with a view to, or for
sale in connection with, any distribution thereof; (2) the Lender has had such
opportunity as such Lender has deemed adequate to obtain from representatives of
Borrower such information as is necessary to permit the Lender to evaluate the
merits and risks of its investment in Borrower; (3) the Lender is able to bear
the economic risk of holding the Notes, Warrants and such shares as may be
acquired pursuant to conversion of the Notes or exercise of the Warrants for an
indefinite period; and (4) the Lender understands that the Notes, Warrants, and
shares of stock acquired pursuant to conversion of the Notes or exercise of the
Warrants will not be registered under the Securities Act unless and until the
Lenders' rights under the Investors' Rights Agreement are exercised in
accordance with the terms thereof, and until such registration is effected, such
securities will be "restricted securities" within the meaning of Rule 144 under
the 1933 Act and that the exemption from registration under Rule 144 will not be
available for at least one year from the date of purchase of the Notes and
Warrants or conversion of the Notes or exercise of the Warrants, as the case may
be, and even then will not be available unless a public market then exists for
the stock, adequate information concerning the Company is then available to the
public, and other terms and conditions of Rule 144 are complied with.
(e) Further Notification. Each of the undersigned agrees to notify
Borrower in writing immediately if any of the statements made herein become
untrue.
ARTICLE III
CONDITIONS TO LOAN
SECTION 3.01 CONDITIONS PRECEDENT TO THE CLOSING. The obligation of the
Lenders to make the Loan shall be subject to satisfaction of all of the
following conditions precedent in a manner reasonably acceptable to Lender (in
its discretion):
(a) Closing Date. The Closing Date shall have occurred on or
before September 30, 1999.
(b) Certain Loan Documents. Lender shall have received the
following:
(i) This Agreement, executed by Borrower, together with all
required Schedules and Exhibits hereto;
(ii) The Notes, executed by Borrower;
14
<PAGE> 15
(iii) The Security Agreement, executed by Borrower, covering
all Collateral;
(iv) A Borrower's Certificate, dated the Closing Date and
(A) certifying authorization of Borrower for the execution, delivery and
performance of this Agreement and the other Loan Documents, (B)
identifying the officers of Borrower having authority to execute and
deliver this Agreement and the other Loan Documents, (C) certifying the
Amended and Restated Bylaws of Borrower, as amended to the Closing Date,
and (D) representing and warranting that no Default or Event of Default
has occurred and is continuing and that the representations and warranties
of Borrower contained in this Agreement and the other Loan Documents are
true and correct in all material respects;
(v) A file-stamped copy of the Amended and Restated
Articles of Incorporation of Borrower, duly filed with the Delaware
Secretary of State;
(vi) A Certificate of "good standing" with respect to
Borrower from the State of Delaware;
(vii) The Warrants duly executed by Borrower;
(viii) The Investors' Rights Agreement, duly executed by the
parties thereto;
(ix) The Investment Unit Pricing Agreement, duly executed by
the parties thereto;
(x) Small Business Administration Forms 480, 652 and 1031
from Borrower;
(xi) A certificate of Borrower to the effect that Borrower
is aware that PMF is a federal licensee under the Small Business
Investment Act of 1958, as amended;
(xii) Financing statements naming Borrower as "debtor" for
the States of Delaware, California, New York and Massachusetts, in form
and substance reasonably satisfactory to Lenders;
(xiii) The Intercreditor Agreement, duly executed by the
parties thereto; and
(xiv) A subordination agreement in form and content
reasonably satisfactory to PMF.
(c) Fees and Expenses. Borrower shall have paid PMF's Processing
Fee and the reasonable fees and disbursements of counsel for PMF incurred in
connection with the drafting and negotiation of the Loan Documents.
15
<PAGE> 16
(d) Boundless Technologies and Texas Micro Incorporated
Conversion.
(i) Borrower shall have converted its obligations to
Boundless Technologies as set forth in the letter agreement by and between
Borrower and Boundless Technologies attached hereto as Schedule
3.01(d)(i); and
(ii) Borrower shall have converted its obligations to Texas
Micro Incorporated as set forth in the letter agreement by and between
Borrower and Texas Micro Incorporated attached hereto as Schedule
3.01(d)(ii).
(e) Financial Statements and Projections. The Lenders shall have
received the Financial Statements described in Section 4.03 an opening balance
sheet (prepared in accordance with GAAP) showing the pro forma financial
condition of Borrower after giving effect to the Loan, the payment of
transactional expenses, and financial projections demonstrating management's
good faith "most likely case" financial performance for the next twelve (12)
months and the next two (2) years.
(f) Solvency Balance Sheet. The Lenders shall have received a
solvency balance sheet demonstrating (based on the fair market value of
Borrower's assets) that after giving effect to the Loan and the payment of
transactional expenses, Borrower will be a solvent entity.
(g) Representations and Warranties. The representations and
warranties of Borrower or the Shareholders, as the case may be, contained in
this Agreement, the Collateral Documents and the Warrants, shall be true on and
as of the Closing Date with the same effect as though such representations and
warranties had been made on and as of the Closing Date.
(h) Performance. Borrower shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement, the
Security Agreement, the Warrants and the Loan Documents that are required to be
performed or complied with by them on or before the Closing Date.
(i) No Other Required Approvals. No Governmental Approval or
consent or approval necessary to avoid default under any material Contractual
Obligations of Borrower shall be required in connection with the consummation of
the transactions contemplated by this Agreement and the other Loan Documents,
except for Governmental Approvals and contractual consents that have been
obtained and filings necessary to perfect liens in favor of the Lenders.
(j) Opinion of Counsel. The Lenders shall have received from
Messrs. Higham, McConnell & Dunning, LLP, counsel for Borrower, an opinion,
dated as of the Closing Date, in form and substance satisfactory to Lender,
addressing the matters set forth in Exhibit E.
(k) Absence of Material Adverse Change. There shall not have
occurred any interruption or change in the continued operation of the business
of Borrower in the ordinary course, which in the reasonable judgment of PMF is
material, or any event or condition of any character which might, in the
reasonable judgment of PMF, result in a Material Adverse Change.
16
<PAGE> 17
(l) Absence of Litigation Events. There shall not have been issued
any injunction, order or decree that prohibits or limits any of the transactions
contemplated by any of the Loan Documents and there shall not be any action,
suit, proceeding or investigation pending or, to the Best Knowledge of Borrower,
currently threatened against Borrower or any of the Lenders which (i) questions
the validity of this Agreement or any other Loan Document or the right of
Borrower or any of the Lenders to enter into this Agreement or any other Loan
Document or to consummate the transactions contemplated hereby or thereby, (ii)
might result, either individually or in the aggregate, in any Material Adverse
Change, or (iii) might result in any change in the current equity ownership of
Borrower.
(m) Searches of UCC and Other Records. Borrower shall have
provided the Lenders (at least five (5) Business Days prior to the Closing
Date), with original Official searches of Uniform Commercial Code filings in the
States of California, New York and Massachusetts as to liens of record naming
Borrower as "debtor."
(n) Litigation Searches. Borrower shall have provided the Lenders
(at least five (5) Business Days before the Closing Date) with a search report
(by an independent company acceptable to Lender) as to litigation in Federal or
state courts in the States of California, New York and Massachusetts, naming
Borrower as defendant.
(o) Sources and Uses Certificate. The Lenders shall have received
a certificate executed by the Chief Executive Officer and Chief Financial
Officer of Borrower, setting forth in reasonable detail the sources and uses of
funds in the transactions contemplated herein and in the other Loan Documents.
(p) Communication with Accountants. The Lenders shall have
received a copy of a letter from Borrower addressed to its independent certified
public accountants authorizing such accountants to disclose to representatives
of the Lenders, and each of them, (but not to its assigns) any and all financial
information concerning Borrower as the Lenders may from time to time reasonably
request in order to determine Borrower's compliance with any of the financial
covenants set forth in Article VI.
(q) No Default. No Default or Event of Default shall have occurred
and be continuing or result from the Loan.
(r) [omitted]
(s) Board Representation. (i) The resignations of at least two (2)
of the current members of the Board of directors shall have been tendered to and
accepted by Borrower and (ii) the appointment or election of PMF's nominee and
the Lenders' nominee to Borrower's Board of Directors, pursuant to the terms of
the Investors' Rights Agreement, shall have been consummated effective as of the
Closing Date.
(t) General. All other documents and legal matters in connection
with the transactions contemplated by this Agreement shall have been delivered,
executed or recorded in form and substance reasonably satisfactory to the
Lenders and the Lenders shall have received all
17
<PAGE> 18
such counterpart originals or certified copies thereof as the Lenders may have
reasonably requested.
SECTION 3.02 POST CLOSING OBLIGATIONS. In addition to the other duties and
obligations of Borrower set forth herein, Borrower shall perform the following:
(a) Brokers' Fees. Borrower shall not pay any brokers' fees
relating to the transactions contemplated hereby, including in connection with
settlement of any claim made by e*offering, without the written consent of PMF
(which shall not be unreasonably withheld, delayed or conditioned).
(b) Refinancing/Sale of Headquarters. Borrower shall, as soon as
practicable after the Closing Date, refinance or sell its headquarters building
located in 17731 North Irvine, Irvine, California 92614, under terms reasonably
acceptable to PMF.
(c) Board Representation. At the next annual meeting of its
shareholders, and at each subsequent meeting of the shareholders until the
termination of Section 1.2 of the Investors' Rights Agreement, Borrower shall
nominate and recommend for election the nominees for the board of directors of
PMF and the Lenders, and shall, if necessary, recommend amendment of its charter
to provide for a Board consisting of not more than five (5) directors.
(d) Patent and Copyright Security Agreements. Should Borrower
enter into or execute any security agreement or instrument granting or
purporting to grant any lien or security interest with respect to any patents,
trademarks, copyrights or other intellectual property of Borrower with any party
or parties, including, without limitation, Comerica Bank, Borrower shall (i)
disclose the terms of such agreements to the Lenders prior to the execution
thereof and (ii) name the Lenders as secured parties, junior only to the Senior
Lenders, in any such agreement or instrument.
(e) Pledge of Securities. Should Borrower enter into or execute
any pledge agreement or instrument granting or purporting to grant any lien or
security interest with respect to securities of Borrower or any of its
subsidiaries with any party or parties, including, without limitation, Comerica
Bank, Borrower shall (i) disclose the terms of such agreements to the Lenders
prior to the execution thereof and (ii) name the Lenders as secured parties,
junior only to the Senior Lenders, in any such agreement or instrument.
(f) Insurance. Borrower shall maintain general liability and
business interruption insurance adequate for a business of its size and type
during all time in which the Loan remains outstanding. In addition, Borrower
shall maintain Directors' and Officers' Insurance adequate for a business of its
size and type for all periods during which the Lenders have a right to nominate
a member or member of the board of directors pursuant to the Investors' Rights
Agreement.
(g) Source Code. Borrower shall, as soon as practicable after the
Closing Date, place the source code for Borrower's proprietary software in a
mutually acceptable source-code escrow, which escrow shall name PMF as a secured
party (together with the Senior Lenders, if any).
18
<PAGE> 19
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to the Lenders as follows:
SECTION 4.01 ORGANIZATION, POWERS AND GOOD STANDING. Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware, and having its principal place of business in, the State of
California, and has all requisite corporate power and authority and the legal
right to own and operate its properties and to carry on its business as
heretofore conducted and as proposed to be conducted. Borrower is duly qualified
to transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a Material Adverse Effect Borrower has all
requisite power and authority to eater into this Agreement and the other Loan
Documents to which it is a party and to carry out the transactions contemplated
hereby and thereby.
SECTION 4.02 AUTHORIZATION, BINDING EFFECT NO CONFLICT, ETC.
(a) All corporate action on the part of Borrower, its directors
and shareholders, necessary for the authorization, execution and delivery of
this Agreement, the Notes the Warrants, and the other Loan Documents, the
performance of all of their obligations hereunder and thereunder and the
authorization, issuance (or reservation for issuance) and delivery of the Notes,
the Warrants and the Common Stock issuable upon the exercise of the Warrants and
conversion of the Notes has been taken or will be taken on or prior to the
Closing Date. Each of the Loan Documents has been (or on the Closing Date will
be) duly executed and delivered by Borrower. Each Loan Document is a legal,
valid and binding obligation of Borrower, enforceable against it in accordance
with its respective terms, except as may be affected by bankruptcy, insolvency,
reorganization, moratorium or other similar laws or by equitable principles
relating to or limiting the rights of creditors generally.
(b) The execution, delivery and performance by Borrower of each of
the Loan Documents, and the consummation of the transactions contemplated
thereby (including the issuance of the Notes, the Warrants and the Common Stock
issuable upon exercise of the Warrants and conversion of the Notes), do not and
cannot (i) conflict with any provision of Borrower's Articles of Incorporation
or Bylaws, (ii) conflict with, result in a breach of, or constitute (or, with
the giving of notice or lapse of time or both, would constitute) a default
under, or require the approval or consent of any Person pursuant to, any
Contractual Obligation of Borrower (except as disclosed in Schedule 4.02 which
consents have been obtained and are in full force and effect), or violate any
provision of Applicable Law binding on Borrower, or (iii) result in the creation
or imposition of any Lien upon any asset of such Person, except for Liens in
favor of the Lenders.
(c) Except for filings and recordings in connection with the
perfection of Liens created by the Collateral Documents, which in each case have
been accurately completed and executed and delivered by Borrower, no
Governmental Approval is or will be required in connection with the execution,
delivery and performance by Borrower of any Loan Document to
19
<PAGE> 20
which it is party or the transactions contemplated thereby or to ensure the
legality, validity or enforceability thereof.
SECTION 4.03 FINANCIAL INFORMATION RELATING TO BORROWER. Borrower has
delivered to the Lenders the audited financial statements (balance sheet,
statement of operations and statement of cash flows) of Borrower at and for the
year ended December 31, 1998, audited by _____________, and the unaudited
financial statements (balance sheet and statement of operations) of Borrower at
and for the three (3) month period ended June 30, 1999 (collectively, the
"Financial Statements"). The Financial Statements are complete and correct in
all material respects, subject to the absence of footnotes, the absence of a
statement of cash flows and normal year-end adjustments in the case of the June
30, 1999 financial statements, and have been prepared in accordance with GAAP.
Without limiting the foregoing, the Financial Statements accurately set out and
describe the financial condition and operating results of Borrower as of the
dates, and for the periods, indicated therein.
SECTION 4.04 LITIGATION. Except as disclosed in Schedule 4.04, there are
no actions, suits or proceedings pending or, to the Best Knowledge of Borrower,
threatened against or affecting Borrower, or its assets or properties before any
Governmental Authority (i) that, if adversely determined, could have a Material
Adverse Effect, (ii) that in any manner draw into question the validity or the
enforceability of this Agreement, any other Loan Document or any transaction
contemplated hereby or thereby, or (iii) that might result in any change in the
current equity ownership of Borrower, nor to Borrower's Best Knowledge is there
any basis for any matter described in the foregoing Sections 4.04(i). (ii) or
(iii). Schedule 4.04 includes, as of the Closing Date, any actions pending or
threatened (or any basis therefor known to Borrower) involving the prior
employment of any of Borrower's employees, their use in connection with the
businesses of Borrower of any information or techniques allegedly proprietary to
any of their former employers, or their obligations under any agreements with
prior employers. On the Closing Date, except as set forth in Schedule 4.04,
Borrower is not a party or subject to the provisions of any order (except as
imposed by laws of general application), writ, injunction, judgment or decree
(except as imposed by laws of general application) of any court, Governmental
Authority or government agency or instrumentality, Except as set forth in
Schedule 4.04, on the Closing Date there is no action, suit, proceeding or
investigation by Borrower currently pending or which Borrower intends to
initiate (as plaintiff), which, if adversely determined, would be material to
Borrower or its business or prospects.
SECTION 4.05 DISCLOSURE. Borrower has fully provided the Lenders with all
of the information which the Lenders has requested for deciding whether to enter
into the transactions contemplated by the Loan Documents. The information in any
document, certificate or written statement furnished to Lender by or on behalf
of Borrower with respect to the business, assets, results of operation,
financial condition or prospects of Borrower for use in connection with the
transactions contemplated by this Agreement and the other Loan Documents is,
when considered as a whole, true and correct and does not omit to state any
material fact required to be stated therein to make the furnished information
not misleading. To Borrower's Best Knowledge, there is no fact (other than
matters of a general economic nature) that has materially and adversely affected
or could reasonably be expected to have a Material Adverse Effect, which has not
been disclosed herein or in such other documents, certificates and statements.
20
<PAGE> 21
SECTION 4.06 SHAREHOLDERS. Schedule 4.06 hereto sets forth a complete and
accurate list of each: (i) Warrant holder with number of shares of Common Stock
the Warrant is convertible into, exercise price, and expiration date; (ii) all
classes of Preferred Stock (if any) and the number of shares of Common Stock
such Preferred is convertible into; (iii) the total number of Common Stock
existing. Schedule 4.06 sets forth an aggregate number of option shares and the
number of Common Shares such option represent.
SECTION 4.07 SUBSIDIARIES. Borrower does not presently own or control,
directly or indirectly, any interest in any other corporation, association,
partnership or other business entity other than as set forth in Borrower's Form
10-K for the fiscal year ended September 30, 1998. Each of Borrower's
subsidiaries is duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it was organized and operates. Each of such
subsidiaries has all requisite power and authority and the legal right to own
its property and carry on its business as heretofore conducted and as proposed.
Each of such subsidiaries is qualified to transact business and is in good
standing in each jurisdiction in which failure to do so would have a Material
Adverse Effect.
SECTION 4.08 VALID ISSUANCE. The outstanding shares of the Common Stock
have been duly authorized, issued and delivered and are validly outstanding,
fully paid and nonassessable. The Warrants, when issued, sold and delivered on
the Closing Date, will be duly and validly issued, fully paid and nonassessable.
The Common Stock issuable upon exercise of the Warrants and conversion of the
Notes has been duly and validly reserved for issuance, and, upon issuance in
accordance with the applicable exercise terms thereof will be duly and validly
issued, fully paid and nonassessable. Borrower represents and warrants that the
issuance and sale of the Notes and the Warrants and the Common Stock issuable
upon conversion of the Warrants and conversion of the Notes are exempt from the
registration requirements of Section 5 of the Securities Act by reason of the
exemption from registration set forth in Section 4(2) of the Securities Act. The
parties acknowledge that Borrower's warranty provided in the preceding sentence
is based upon the Lenders' representations and warranties set forth in Section
2.10 hereof.
SECTION 4.09 PATENTS, TRADEMARKS AND COPYRIGHTS. Except as set forth in
Schedule 4.09 hereto, Borrower has no patents, trademarks and registered
copyrights material to Borrower's business as now conducted and as proposed to
be conducted. Borrower has not received any written communications alleging that
Borrower has violated or, by conducting its business as proposed, could violate
any of the patents, trademarks and copyrights of any other Person. To Borrower's
Best Knowledge, none of Borrower's employees are obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement
or subject to any judgment, decree (except as imposed by laws of general
application) or order (except as imposed by laws of general application) of any
court, Governmental Authority or administrative agency, that would interfere
with the use of his or her best efforts to promote the interests of Borrower or
that would conflict with its business as proposed to be and as currently
conducted. To the best knowledge of Borrower, there is no material violation by
any Person of any right of Borrower with respect to any patents, trademarks and
copyrights owned or used by it.
21
<PAGE> 22
SECTION 4.10 COMPLIANCE WITH LAWS AND AGREEMENTS. Except as set forth in
Schedule 4.10 hereto, Borrower is not in violation or default of any provisions
of any Contractual Obligations to which it is a party or by which it is bound or
of any provision of any Applicable Law, which violation or default could have a
Material Adverse Effect.
SECTION 4.11 CONTRACTUAL OBLIGATIONS AND RECENT ACTION. Except as set
forth on Schedule 4.11 hereto, as of the Closing Date there will be no
Contractual Obligations to which Borrower is a party or by which it is bound
which involve (i) obligations of, or payments by the Borrower in excess of Two
Hundred Fifty Thousand Dollars ($250,000), (ii) the license of any of its
Proprietary Rights, (iii) material obligations to any of Borrower's officers,
directors or Affiliates or (iv) any other agreement material to the business,
operations, or prospects of Borrower. Since June 30, 1999 and prior to the
Closing Date, Borrower has not (i) declared, authorized, paid or made any
Distribution upon or with respect to any class or series of its capital stock,
(ii) incurred any Indebtedness for money borrowed or incurred any other
liabilities individually in excess of One Hundred Thousand Dollars ($100,000) or
in excess of Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate,
other than the Obligations under this Agreement and the other Loan Documents,
(iii) made any loans or advances to any Person, other than ordinary advances for
travel expenses, (iv) made any amendments or other modifications to any
Contractual Obligations which have or could have a Material Adverse Effect, or
(v) sold, exchanged or otherwise disposed of any of its assets or rights, other
than the license or sale of its software products in the ordinary course of
business.
SECTION 4.12 TITLE TO PROPERTY. Borrower owns its property and assets free
and clear of all Liens, except for Permitted Liens. With respect to the property
it leases, Borrower is in compliance with the material provisions of all such
leases and will hold a valid leasehold interest free of any material Liens.
SECTION 4.13 EMPLOYEE BENEFIT PLANS.
(a) Schedule 4.13 sets forth all employee benefit plans, as
defined in Section 3(3) of ERISA, that are sponsored or contributed to by
Borrower covering employees or former employees of it (collectively, "Employee
Benefit Plans") and all material benefit arrangements that are not Employee
Benefit Plans, including each arrangement providing for insurance coverage,
workers' compensation benefits, incentive bonuses, deferred bonus arrangements
and equity compensation plans maintained by Borrower covering employees or
former employees (collectively, "Benefit Arrangements").
(b) Borrower does not sponsor, maintain or contribute to, or
within the five (5) years prior to the Closing Date, has not sponsored,
maintained or contributed to, and does not have an obligation to sponsor,
maintain or contribute to any "employee pension benefit plan" within the meaning
of Section 3(2) of ERISA that is subject to Title IV of ERISA. No Employee
Benefit Plan has participated in, engaged in or been a party to any non-exempt
"prohibited transaction" (as defined in ERISA or the Code) and Borrower has not
incurred any liability for taxes under Code Sections 4971, 4972, 4975, 4976,
4977, 4979, 4980 or 4980B, or for penalties under ERISA Section 502(c)(i) or
(1), with respect to any Employee Benefit Plan. No officer, director or employee
of Borrower has committed a material breach of any responsibility or
22
<PAGE> 23
obligation imposed upon fiduciaries by Title I of ERISA with respect to any
Employee Benefit Plan. There is no material violation of any reporting or
disclosure requirement imposed by ERISA or the Code with respect to any Employee
Benefit Plan. Each Employee Benefit Plan and Benefit Arrangement has at all
times prior hereto been maintained in all material respects, by its terms and in
operation, in accordance with its terms and all Applicable Laws.
(c) With respect to each Employee Benefit Plan and each Benefit
Arrangement, other than ordinary claims for benefits pursuant to the terms of
any Employee Benefit Plan or any Benefit Arrangement, there is no claim pending
or, to the best knowledge of Borrower, threatened, against or involving any
Employment Benefit Plan or any Benefit Arrangement by any Person or any
Governmental Authority.
SECTION 4.14 ABSENCE OF MATERIAL ADVERSE CHANGE. Since June 30, 1999,
other than as disclosed in the Schedules hereto, there has not occurred any
event or condition of any character which could result in a Material Adverse
Change involving Borrower.
SECTION 4.15 TAX RETURNS AND PAYMENT. Except as set forth in Schedule 4.15
(i) Borrower has filed all tax returns and reports as required by Applicable
Law, (ii) those returns and reports are true and complete in all material
respects, and (iii) Borrower has paid all taxes and other assessments due prior
to the time penalties would have accrued thereon. The provision for taxes of
Borrower reflected on its most recent financial statements is adequate for taxes
due or accrued as of the date thereof.
SECTION 4.16 MINUTE BOOKS. The minute books of Borrower provided to the
Lenders for review, together with the certified resolutions delivered on the
Closing Date, contain an accurate and appropriate summary of all meetings of
Borrower's Board of Directors, Committees and stockholders since the date of
incorporation through the Closing Date and reflect all transactions referred to
in such minutes accurately in all material respects.
SECTION 4.17 LABOR AGREEMENTS AND ACTIONS. Borrower is not bound by or
subject to (and none of its assets will be bound by or subject to) any written
or oral, express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested in writing or, to the best knowledge of
Borrower, sought to represent any of the employees of Borrower. There is no
strike or other labor dispute involving Borrower pending, or, to the best
knowledge of Borrower, threatened, which could have a Material Adverse Effect.
Prior to the Closing Date, Borrower has not made any material change in any
compensation arrangements or agreements with any employees that would
substantially increase aggregate salary and employee expenses beyond amounts
reflected in the Financial Statements. Borrower is not a party to any employment
agreement or any agreement with any consultant or adviser performing services
for Borrower, except for the agreements listed in Schedule 4.17. Borrower is not
aware that any officer or key employee (other than the Selling Shareholder), or
that any group of key employees, intends to terminate their employment with
Borrower, nor does Borrower have a present intention to terminate the employment
of any of the foregoing.
23
<PAGE> 24
SECTION 4.18 STATUS UNDER CERTAIN STATUTES. Borrower is not subject to
regulation under the Investment Company Act of 1940, as amended, or any other
statute, law, rule or regulation that limits the ability of Borrower to incur
indebtedness.
SECTION 4.19 ABSENCE OF DEFAULTS. No Default or Event of Default exists as
of the Closing Date.
SECTION 4.20 MARGIN REGULATIONS. No part of the proceeds of the Loan will
be used, directly or indirectly, for the purpose of buying or carrying any
Margin Stock within the meaning of the Margin Regulations or for the purpose of
buying, carrying or trading in any securities under such circumstances as to
involve Borrower or any broker or dealer in a violation of the Margin
Regulations. Margin Stock does not constitute more than ten percent (10%) of the
value of the assets of Borrower on the Closing Date and Borrower does not have
any present intention that Margin Stock will constitute more than ten percent
(10%) of the value of such assets at any time while the Loan is outstanding.
ARTICLE V
AFFIRMATIVE COVENANTS OF BORROWER
Borrower covenants and agrees that, so long as any Obligations shall
remain unpaid, Borrower shall perform all of the following:
SECTION 5.01 FINANCIAL STATEMENTS AND OTHER REPORTS. Borrower shall
deliver to Lenders:
(a) As soon as available and in any event within ninety (90) days
after the end of each fiscal year and fiscal quarter of Borrower, a consolidated
balance sheet of Borrower and its Subsidiaries, if any, as of the end of such
period and the related consolidated statements of operations and cash flow for
such period, setting forth in each case in comparative form the figures for the
previous fiscal year or quarter and comparison to budget, and, in the case of
the fiscal year end, accompanied by an audit report thereon of independent
public accountants of nationally recognized standing reasonably satisfactory to
the Lenders;
(b) As soon as available and in any event within twenty (20) days
after the end of each month, internal financial statements reasonably acceptable
to PMF. These statements must show reasonable estimates of gross revenue,
expenses, and current assets and liabilities. On a monthly basis, Borrower will
send the Lenders copies of all reports sent to Senior Lenders;
(c) Simultaneously with the delivery of each set of financial
statements referred to in Sections 5.01 (a) and (b) above, a certificate of the
Chief Executive Officer and the Chief Financial Officer of Borrower stating
whether any Default or Event of Default exists on the date of such certificate
and, if any Default or Event of Default then-exists, setting forth the material
details thereof and the action which Borrower is taking or proposes to take with
respect thereto;
24
<PAGE> 25
(d) By the forty-fifth (45th) day of each fiscal year, Borrower
shall deliver to the Lenders a comprehensive business plan for such fiscal year
approved by its Board of Directors, in such form and addressing such matters as
may be reasonably requested by any Lender, including projected balance sheets,
statements of operations and statements of cash flow for such fiscal year and
each calendar quarter thereof and a comparison and explanation of the results of
the preceding fiscal year to the projections contained in the business plan for
such fiscal year;
(e) Within five (5) days after any officer of Borrower obtains
knowledge of any Default or Event of Default, a certificate of the Chief
Executive Officer and the Chief Financial Officer of Borrower setting forth the
material details thereof and the action which Borrower is taking or proposes to
take with respect thereto;
(f) Promptly after the release thereof, copies of any press
releases issued by Borrower;
(g) Within five (5) days after any executive Officer Of Borrower
obtains actual knowledge of the threat or commencement of any litigation, or any
material development in any litigation, against Borrower, that includes
allegations of damages in excess of One Hundred Thousand Dollars ($100,000) or
that otherwise could have a Material Adverse Effect in Borrower's judgment,
notice providing reasonable details about the threat or commencement of such
litigation or providing reasonable details on such material development;
(h) Periodically, upon written request by any Lender, Small
Business Administration Form 1031 and such other forms or information as such
the Lender may from time to time request in writing to comply with Small
Business Administration regulations or requests in writing;
(i) Within one hundred twenty (120) days after the end of each
fiscal year of Borrower, and at such other times as a Lender may request in
writing, a capitalization table describing: (v) all outstanding securities of
Borrower; (w) all outstanding options, warrants, or other rights to purchase
securities of Borrower; (x) the names of the owners thereof, (y) the type and
amount of securities held by each such owner; and (z) such other information
regarding the ownership of securities of Borrower as a Lender may reasonably
request.
(j) From time to time such additional information regarding
Borrower as any Lender may reasonably request. The Lenders acknowledge that the
information received by them or their designee(s) pursuant to this Agreement may
be confidential and is for the Lenders' use only. The Lenders will not use such
confidential information in violation of the Securities Exchange Act of 1934, as
amended, or other applicable securities laws, or reproduce, disclose or
disseminate such information to any other person or entity (other than its
officers, partners, employees or agents or other Lenders having a need to know
the contents of such information, and its attorneys, provided such persons also
agree in writing to keep such information confidential), except in connection
with the exercise of rights or remedies under this Agreement, the Investors'
Rights Agreement or any other agreement referred to herein, unless the Company
has made such information available to the public generally or, if the Lender
gives the Company
25
<PAGE> 26
written notice at least twenty (20) days prior to disclosure (or such shorter
notice that may be reasonable in the circumstances), the Lender is required to
disclose such information by a governmental body.
SECTION 5.02 ANNUAL BUDGET AND MILESTONE GOALS. Promptly following receipt
of the business plan described in Section 5.01(d), the Lenders and Borrower
shall jointly agree on a budget for the succeeding fiscal year, which will
reflect the following order of priority: (i) first, compliance with the terms of
this Agreement and the other Loan Documents, and (ii) second, such other goals
as Borrower may desire to pursue. The approval of the budget by the Lenders
shall not be unreasonably withheld. In connection with such budget, the Lenders
and Borrower shall also agree on reasonable "Milestone" goals for Borrower for
such fiscal year, which shall reflect goals to be achieved in addition to
compliance with the budget. The Lenders' approval of the Milestone goals shall
not be unreasonably withheld.
SECTION 5.03 MAINTENANCE OF EXISTENCE, ETC. Until such time as the
Obligations have been fully-performed, Borrower will preserve and keep in full
force and effect its corporate existence and any rights and franchises material
to its business.
SECTION 5.04 MAINTENANCE OF PROPERTIES. Borrower shall maintain or cause
to be maintained in good repair, working order and condition (ordinary wear and
tear excepted), all of the assets or properties useful or reasonably necessary
to its business, and from time to time Borrower shall make or cause to be made
all appropriate repairs, renewals and replacements thereto.
SECTION 5.05 COMPLETE INFORMATION. All data, certificates, reports,
statements, documents and other information furnished to Lender in connection
with this Agreement or the other Loan Documents shall be subject to the
assumptions and qualifications stated therein and, at the time such information
is so furnished, not contain any untrue statement of a material fact, shall be
complete and correct in all material respects to the extent necessary to give
Lender sufficient and accurate knowledge of the subject matter thereof, and
shall not omit to state a material fact necessary in order to make the
statements contained therein not misleading in light of the circumstances under
which such information is furnished.
SECTION 5.06 INSPECTION. Upon reasonable written notice at least one (1)
Business Day in advance, Borrower shall permit any Lender, any holder of a Note
or a Warrant and one or more representatives of the SBA, at such reasonable
times (during normal business hours) as may be requested by any Lender in
writing, to examine Borrower's books of account and records, to inspect
Borrower's properties and to discuss Borrower's business, affairs, finances and
accounts with its officers, auditors and investment bankers. If an Event of
Default shall have occurred and be continuing, Borrower shall reimburse the
Lenders for their reasonable out-of-pocket expenses incurred in connection with
an inspection under this Section 5.06. Otherwise, any such inspection shall be
at the expense of the Lenders.
SECTION 5.07 COMMUNICATIONS WITH ACCOUNTANTS. Borrower will at all times
permit the Lenders to communicate with Borrower's accountant as contemplated by
Section 3.01(g). If for any reason the letter provided to the Lenders pursuant
to Section 3.01 (g) expires
26
<PAGE> 27
or if Borrower engages new accountants, Borrower will provide such new
accountants with written instructions (similar to those provided in Section
3.01(g)) that, upon written request of any Lender, they are directed to
communicate with the Lenders directly.
SECTION 5.08 GOVERNMENTAL APPROVALS. Borrower will at all times obtain and
keep in full force and effect all Governmental Approvals that are necessary for
the ownership, maintenance and operation of its properties and conduct of its
business as now conducted and proposed to be conducted, and shall at all times
operate and comply with such Governmental. Approvals.
SECTION 5.09 SOURCE CODE. Borrower will update all source code in escrow
pursuant to Section 3.01(t) promptly following any amendments or modifications
to the source code to Borrower's proprietary software.
ARTICLE VI
NEGATIVE COVENANTS OF BORROWER
SECTION 6.01 LIENS. Borrower shall not, directly or indirectly (or permit
any Subsidiary, if any, to), create, incur, assume or permit to exist any Lien
on or with respect to any of its assets or properties, except the following
("Permitted Liens"):
(a) Liens securing the Obligations;
(b) Existing Liens as of the Closing Date;
(c) Liens securing purchase money indebtedness and capitalized
lease obligations; provided that such liens affect only the assets acquired with
such purchase money indebtedness or capitalized lease obligations; and provided
further that the aggregate amount of Indebtedness secured by such liens at any
time shall not exceed Two Million Dollars ($2,000,000);
(d) Liens securing Senior Indebtedness;
(e) Liens for taxes, assessments or charges of any Governmental
Authority for claims not yet due or which are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with GAAP;
(f) Statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens (other than any Lien
imposed under ERISA) imposed by Applicable Law and created in the ordinary
course of business and Liens on deposits made to obtain the release of such
Liens if (i) the underlying obligations are not overdue for a period of more
than sixty (60) days or (ii) such Liens are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves or other
appropriate provisions are being maintained in accordance with GAAP;
27
<PAGE> 28
(g) Liens (other than any Lien imposed under ERISA) incurred on
deposits made in the ordinary course of business (including, without limitation,
surety bonds and appeal bonds) in connection with workers' compensation,
unemployment insurance and other types of social security benefits, statutory
obligations and other similar obligations;
(h) Easements (including, without limitation, reciprocal easement
agreements and utility agreements), nights-of-way, covenants, consents,
reservations, encroachments, variations and other restrictions, charges or
encumbrances (whether or not recorded), which do not interfere materially with
the ordinary conduct of the business of Borrower and which do not materially
detract from the value of the property to which they attach or materially impair
the use thereof to Borrower;
(i) Building restrictions, zoning laws and other statutes, laws,
rules, regulations, ordinances and restrictions, and any amendments thereto, now
or at any time hereafter adopted by any Governmental Authority having
jurisdiction;
(j) Any attachment or judgment Lien unless it constitutes an Event
of Default;
(k) Other Liens incidental to the conduct of the business or the
ownership of the assets or property of Borrower which were not incurred in
connection with borrowed money and which do not in the aggregate materially
detract from the value of the assets or property or materially impair the use
thereof in the operation of the Borrower's business and which, in any event, do
not secure obligations aggregating in excess of Twenty-Five Thousand Dollars
($25,000).
SECTION 6.02 INDEBTEDNESS. Borrower shall not, directly or indirectly,
incur, create, issue, assume or guarantee any Indebtedness except:
(a) The Obligations;
(b) Senior Indebtedness not to exceed Five Million Dollars
($5,000,000) (in addition to debt secured by Borrower's headquarters) which
Borrower incurs pursuant to Section 2.01 (d)(ii);
(c) Purchase money indebtedness and capitalized lease obligations;
provided that the aggregate amount of such Indebtedness shall not exceed Two
Million Dollars ($2,000,000);
(d) Trade indebtedness incurred in the ordinary course of
Borrower's business; provided that at the time of incurrence of such trade
indebtedness, Borrower is not delinquent in the repayment of a material amount
of any previously-incurred trade indebtedness.
SECTION 6.03 CURRENT RATIO. Borrower shall not permit the ratio of its
Current Assets to Current Liabilities to be less than (i) 1.00:1.00 at any time
during the period commencing on the Closing Date and ending on December 31,
1999; and (ii) 1.05:1.00 for the period commencing on January 1, 2000 and at all
times thereafter.
28
<PAGE> 29
SECTION 6.04 DEBT SERVICE COVERAGE RATIO. Borrower shall not permit its
Debt Service Coverage Ratio for any calendar quarter to be less than 1.00:1.00.
SECTION 6.05 FUNDAMENTAL CHANGES. Except with the consent of the Lenders
(which shall not be unreasonably withheld, delayed or conditioned), Borrower
shall not voluntarily liquidate or dissolve, or (whether in a single transaction
or a series of transactions) consolidate or merge with any other Person, or
permit any other Person to consolidate or merge with it, or sell, lease,
transfer or otherwise dispose of all or substantially all of any of its
properties or assets (whether now owned or hereafter acquired) to any other
Person.
SECTION 6.06 NATURE OF BUSINESS. Except with the consent of the Lenders
(which shall not be unreasonably withheld, delayed or conditioned), Borrower
shall not, directly or indirectly (or permit any Subsidiary, if any, to), engage
in any line of business in which it is not currently engaged or otherwise alter
its manner of conducting business from that existing as of the Closing Date,
except that Borrower may engage in activities that are ancillary, incidental or
necessary to its ongoing business as presently conducted. For the avoidance of
doubt, it is understood that Borrower is currently in the business of the
development and marketing of software and related hardware and consulting
services.
SECTION 6.07 CAPITAL EXPENDITURES. Except with the consent of the Lenders
(which shall not be unreasonably withheld, delayed or conditioned), Borrower
shall not permit Capital Expenditures for any fiscal year to exceed One Million
Dollars ($1,000,000).
SECTION 6.08 INVESTMENTS. Borrower shall not, directly or indirectly (or
permit any Subsidiary, if any, to), make any advances or loans to, or other
investments in, any other Person other than:
(a) Ordinary advances for travel expenses;
(b) Advances in payment of salaries already earned;
(c) Deposits in commercial. banks to which a Deposit Notice has
been received and acknowledged; and
(d) Loans to employees made in the ordinary course of business and
not exceeding Fifty Thousand Dollars ($50,000) in the aggregate at any time.
Without limiting the foregoing, Borrower shall not make loans
or other advances to any of its Shareholders or to any Affiliates or relatives
of its Shareholders.
SECTION 6.09 Borrower shall not purchase, redeem or retire any stock or
equity security in Borrower, whether now or hereafter outstanding, or pay,
directly or indirectly, any dividends or distributions to its Shareholders (or
Affiliates thereof) in the form of cash, stock or other securities, or other
property other than stock dividends, provided that if no Default or Event of
Default has occurred and is continuing (or will occur after giving effect
thereto), Borrower may redeem stock as permitted in the Amended and Restated
Articles of Incorporation.
29
<PAGE> 30
SECTION 6.10 AMENDMENTS OF CHARTER AND BYLAWS. Borrower will not amend its
Amended and Restated Articles of Incorporation or Amended and Restated Bylaws in
any way with respect to authorized capital, the Board of Directors or
authorization of corporate action or in any other respect that could have an
adverse effect on any Lender or the ability of Borrower to meet its obligations
under the Loan Documents, without obtaining the prior written consent of the
Lenders, which consent shall not be unreasonably withheld, delayed or
conditioned.
SECTION 6.11 TRANSACTIONS WITH AFFILIATES. Borrower, its officers,
directors or employees shall not, directly or indirectly, engage in any material
transactions with any Affiliate or any relatives of any Affiliate.
SECTION 6.12 EMPLOYMENT CONTRACTS AND EXPENSES. Other than with respect to
senior management pursuant to Section 6.12 below,, Borrower shall not, directly
or indirectly, enter into any employment contract with any officer or employee
involving payment in any fiscal year of more than Two Hundred Thousand Dollars
($200,000).
SECTION 6.13 MANAGEMENT COMPENSATION. Borrower shall not, directly or
indirectly, provide any of its senior managers with an aggregate compensation in
excess of: (i) a base salary of Two Hundred Thousand Dollars ($200,000) per
year; (ii) if no Default or Event of Default has occurred and is continuing, a
bonus not to exceed 100% of base salary per year; (iii) health insurance and
other fringe benefits, to the extent that they are made available to Borrower's
employees generally; (iv) Ten Thousand Dollars ($10,000) of annual expenses
(including lease payments, maintenance expenses, insurance and all other
expenses) associated with a leased vehicle for personal and business use. Any
bonus to be paid pursuant to Clause 6.13(ii) shall be approved by the Chairman
of the Compensation Committee of Borrower's Board of Directors, which chairman
shall be an "independent" director.
SECTION 6.14 EMPLOYEE BENEFIT PLANS. Borrower will not sponsor or
contribute to any new Employee Benefit Plan, make any change to any existing
Employee Benefit Plan that would increase its obligations in any material
respect or incur any obligations in respect of any Multiemployer Plan.
SECTION 6.15 ACCOUNTING PRINCIPLES. Borrower will not make any material
change in the accounting principles underlying the Financial Statements, except
for changes mandated by GAAP or applicable federal or state securities laws.
SECTION 6.16 SUBSIDIARIES. Borrower will not create or acquire any new
Subsidiaries, transfer any assets to any Subsidiary except if.
(a) Borrower provides the Lenders with at least sixty (60) days
prior written notice of its intent to form such a Subsidiary;
(b) All of the capital stock of the Subsidiary is pledged to the
Lenders to secure the Obligations pursuant to a pledge agreement in form and
substance acceptable to Lender;
30
<PAGE> 31
(c) The Subsidiary guarantees the obligations pursuant to a
guaranty agreement and provides a lien on all of the Subsidiary's assets to
secure the guaranty, in each case pursuant to documentation in form and
substance acceptable to the Lenders; and
(d) At the time of formation of such Subsidiary no Event of
Default or Default has occurred and is continuing.
In addition, if at any time Borrower's revenues are less than seventy percent
(70%) of the consolidated revenues of Borrower and its subsidiaries, Borrower
shall execute and cause each of its subsidiaries to execute, security and
co-borrower agreements and instruments, in substantially the same form as this
Agreement and the Loan Documents, which, among other things, grants the Lenders
a lien and security interest in all of the assets of Borrower's subsidiaries as
security for the Loan.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.01 EVENTS OF DEFAULT. The occurrence of any one or more of the
following shall constitute an event of default (an "Event of Default"):
(a) Borrower shall fail to pay when due any principal (whether at
stated maturity, upon acceleration, upon demand, upon required prepayment or
otherwise); or
(b) Borrower shall fail to pay within five (5) Business Days of
when due, interest payable hereunder or under the other Loan Documents, or
(c) Borrower shall fail to pay within fifteen (15) days after
written notice any fees, costs, expenses or other amounts payable hereunder or
the other Loan Documents; or
(d) Borrower (i) shall default in the payment, beyond any period
of grace provided therefor, of any principal of or interest on any indebtedness
in an amount exceeding One Hundred Five Thousand Dollars ($105,000), or (ii)
shall commit any breach of or default under any other term of any agreement,
indenture or instrument relating to any indebtedness in an amount exceeding One
Hundred Five Thousand Dollars ($105,000), if the effect of such breach or
default is to cause, or to permit the holder or holders of such indebtedness (or
a Person on behalf of such holder or holders) to cause (upon the giving of
notice or the lapse of time or both, or otherwise), any such indebtedness to
become or be declared due and payable prior to its stated maturity (or to be, or
become required to be, purchased or redeemed prior to its stated maturity) or to
cause, or to permit the holder or holders thereof to cause, Borrower to be
deprived of any of Borrower's assets or property, unless such default is waived
by PMF (which waiver shall not be unreasonably withheld, delayed or conditioned)
(notwithstanding anything to the contrary herein, Borrower shall not be in
default hereof with respect to the Forbearance Agreement by and between Borrower
and Comerica Bank dated _________ or the event(s) of default set forth therein
for which Comerica Bank has agreed to waive or forebear; or
31
<PAGE> 32
(e) Borrower shall fail to perform, comply with or observe any
agreement or obligation to be performed or complied with by it pursuant to
Section 2.01(c), Section 5.01(e), Section 5.05 or any Section of Article VI
hereof; provided that, in the case of any failure to comply with Section 6.03
(Current Ratio) hereof, such failure shall not have been remedied within sixty
(60) days after written notice thereof from a Lender; or
(f) Any representation or warranty or certification made or
furnished by Borrower under this Agreement, the other Loan Documents or any
agreement, instrument or document contemplated thereby shall prove to have been
false or incorrect in any material respect when made (or deemed made); or
(g) Borrower shall fail to perform, comply with or observe any
agreement or obligation to be performed or complied with by it under this
Agreement (other than those provisions referred to in Sections 7.01(a), (b),
(c), and (e) above) or any other Loan Document, and such failure shall not have
been remedied within thirty (30) days after written notice thereof from a Lender
to the Borrower or after the Borrower otherwise becomes aware of such failure;
or
(h) The Lien of the Lenders on the Collateral shall for any reason
fail to constitute a perfected security interest thereon, prior to all other
Liens, except only the Lien of the Senior Lender, or Borrower (or its counsel)
makes an assertion that any Lender's Lien does not constitute such a security
interest; or
(i) There shall be commenced against Borrower an involuntary case
seeking the liquidation or reorganization of Borrower under Chapter 7, 11 or 13,
respectively, of the Bankruptcy Code or any similar proceeding under any other
Applicable Law or an involuntary case or proceeding seeking the appointment of a
receiver, liquidator, sequestrator, custodian, trustee or other officer having
similar powers of Borrower or to take possession of all or a substantial portion
of its property or assets or to operate all or a substantial portion of its
business, and any of the following events occur: (i) Borrower consents in
writing to the institution of the involuntary case or proceeding; (ii) the
petition commencing the involuntary case or proceeding is not timely
controverted, (iii) the petition commencing the involuntary case or proceeding
remains undismissed and unstayed for a period of sixty (60) days, or (iv) an
order for relief shall have been issued or entered therein; or
(j) Borrower shall commence a voluntary case seeking liquidation
or reorganization under Chapter 7, 11 or 13, respectively, of the Bankruptcy
Code or any similar proceeding under any other Applicable Law, or shall consent
in writing thereto; or shall consent to the conversion of an involuntary case to
a voluntary case; or shall file a petition, answer a complaint or otherwise
institute any proceeding seeking, or shall consent or acquire to the appointment
of, a receiver, liquidator, sequestrator, custodian, trustee or other officer
having similar powers of Borrower or to take possession of all or a substantial
portion of its property or assets or to operate all or a substantial portion of
its business; or
(k) Borrower shall suffer any money judgments, writs or warrants
of attachment or similar processes that shall continue unsatisfied and unstayed.
for a period of thirty (30) days or, in any event, within ten (10) days of the
date of any proposed sale thereunder, or a
32
<PAGE> 33
judgment creditor shall obtain possession of any of the property or assets of
Borrower having an aggregate value exceeding Two Hundred Fifty Thousand Dollars
($250,000) by any means, including by levy, distraint, replevin or self-help,
unless waived by PMF (which waiver shall not be unreasonably withheld, delayed
or conditioned);
(l) Any of the Loan Documents, or any material provisions in any
of them, shall cease to be in full force and effect as against Borrower for any
reason other than a release or termination thereof upon the full payment and
satisfaction of the Obligations thereunder pursuant to its terms, or Borrower
shall contest or purport to repudiate or disavow any of its obligations
thereunder or the validity or enforceability thereof;
SECTION 7.02 REMEDIES. Upon the occurrence of an Event of Default, any
Lender may, at its election, without notice of its election and without demand,
do any one or more of the following, all of which is authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this Agreement,
such Lender's the Note, any of the other Loan Documents, immediately due and
payable; provided however that all Obligations shall be immediately due and
payable without notice or demand upon an Event of Default under Section 7.01(i)
or Section 7.01(j) hereof caused by an insolvency proceeding involving Borrower;
(b) Without notice to or demand upon Borrower, make such payments
and do such acts as such Lender considers necessary or reasonable to protect its
Lien in the Collateral. Borrower agrees subject to the rights of any Senior
Lender to assemble the Collateral if such Lender so requires in writing, and to
make the Collateral available to such Lender at such location within California
as such Lender may designate in writing. Borrower authorizes such Lender to
enter the premises where the Collateral is located, to take and maintain
possession of the Collateral, or any part of it, and to pay, purchase, contest
or compromise any Lien which in the reasonable opinion of such Lender appears to
be prior or superior to its Lien and to pay all reasonable expenses incurred in
connection therewith; and
(c) Exercise such Lender's rights and remedies under the
Collateral Documents.
SECTION 7.03 CUMULATIVE REMEDIES. Each Lenders rights and remedies under
this Agreement, a other Loan Documents and all other agreements with Borrower
shall be cumulative. Such Lender shall have all other rights and remedies not
inconsistent herewith as provided under the California Uniform Commercial Code,
by law or in equity. No exercise by a Lender of one right or remedy shall be
deemed an election, and no waiver by Lender of any Event of Default shall be
deemed a continuing waiver. No delay by any Lender shall constitute a waiver,
election or acquiescence by it.
33
<PAGE> 34
SECTION 7.04 APPOINTMENT OF PMF AS LENDERS' AGENT.
The parties hereto acknowledge that the Lenders have appointed PMF as its
Agent pursuant to that certain Intercreditor Agreement of even date herewith.
Subject to the terms and conditions of such agreement, PMF is authorized to
exercise the rights granted the Lenders hereby on behalf of such Lenders. The
parties agree that Borrower may rely on any waiver, approval or consent granted
by PMF.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01 EXPENSES. Borrower agrees to pay on written demand therefor
all reasonable costs and expenses (including reasonable attorneys' fees and
disbursements) incurred by the Lenders in any workout, restructuring or similar
arrangements requested by Borrower or after an Event of Default in connection
with the protection, preservation, exercise or enforcement of any of the terms
hereof or of any of the other Loan Documents or of its rights hereunder or
thereunder or in connection with any foreclosure, collection or bankruptcy
proceedings.
SECTION 8.02 INDEMNIFICATION.
(a) Borrower agrees to indemnify, defend and hold harmless each of
the Lenders and their officers, directors, employees, agents, attorneys and
Affiliates of the Lenders (collectively, the "Indemnities") from and against (A)
all transfer taxes, documentary taxes, assessments or charges made by any
Governmental Authority by reason of the execution and delivery of this Agreement
and the other Loan Documents or the making of the Loan, and (B) all liabilities,
losses, damages, penalties, judgments, claims, costs and expenses of any kind or
nature whatsoever (including the reasonable fees and disbursements of counsel in
connection with any investigative, administrative or judicial proceeding,
whether or not such Indemnitee shall be designated a party thereto) that may be
imposed on, incurred by or asserted against such Indemnitee, in any manner
directly or proximately relating to or arising out of this Agreement or any
other Loan Document, the Loan made hereunder or the use or intended use of the
proceeds of the Loan; provide that no Indemnitee shall have the right to be
indemnified or held harmless hereunder for any liabilities, tosses, damages,
penalties, judgments, claims, costs or expenses which are a direct result of its
own gross negligence or willful misconduct.
(b) The obligations of Borrower under this Section 8.02 shall
survive the termination of this Agreement and the discharge of Borrower's other
obligations hereunder.
SECTION 8.03 AMENDMENTS AND OTHER MODIFICATIONS. No amendment of any
provision of this Agreement (including a waiver thereof or consent relating
thereto) shall be effective unless the same shall be in writing and signed by
the Lenders and Borrower. Any waiver or. consent relating to any provision of
this Agreement shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on Borrower in any case
shall entitle Borrower to any other or further notice or demand in similar
circumstances.
34
<PAGE> 35
SECTION 8.04 NOTICES.
(a) All notices and other communications under this Agreement
shall be in writing and (except for financial statements, other related
informational documents and routine communications, which may be sent by
first-class mail, postage prepaid) shall be personally delivered or sent by
courier, by overnight, registered or certified mail (postage prepaid), or by
telefax or telegram and shall be deemed to be given when received by the
intended recipient thereof, or, if the address of the recipient is unknown, five
(5) Business Days after such notice is mailed by United States certified mail
(postage prepaid) to the last known address of the intended recipient. Unless
otherwise specified in a notice given in accordance with this Section 8.04,
notices and other communications shall be given to the parties hereto at their
respective addresses (or to their respective telephone or telefax numbers)
indicated on the signature page hereof.
(b) Borrower shall notify each Lender in a writing substantially
in the form of Borrower's Certificate of the names of its officers authorized to
execute certificates and agreements deliverable hereunder on behalf of Borrower,
and shall provide each Lender with a specimen signature of each such officer.
The Lenders shall be entitled to rely conclusively on such officers' authority
to request the Loan on behalf of Borrower and on such officers' authority to
execute and deliver such certificates and agreements until Lender receives
written notice to the contrary. The Lenders shall have no duty to verify the
authenticity of any signature appearing on any notice, certificate or agreement
delivered hereunder, including, without limitation, the Borrower's Certificate.
SECTION 8.05 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and, subject to the next sentence, inure to the benefit of the parties hereto
and their respective successors and assigns, subject to applicable state and
federal securities laws. Borrower may not assign or transfer any interest
hereunder without the prior written consent of the Lenders. Each Lender may
assign or transfer all or any portion of its rights and obligations under this
Agreement and the other Loan Documents to any other Person, and such other
Person shall thereupon become vested with all the benefits in respect thereof
granted to such Lender herein or otherwise (and each Lender shall be released
from obligations assumed by such Person) Notwithstanding the foregoing sentence:
(i) any Lender may not assign or transfer any portion of its rights under the
Loan having a principal balance of less than Five Hundred Thousand Dollars
($500,000); and (ii) a Lender may not assign its rights to appoint a member of
Borrower's Board of Directors.
SECTION 8.06 SET OFF. In addition to any rights now or hereafter granted
under Applicable Law and not by way of limitation of any such rights, upon the
occurrence and during the continuance of any Event of Default, the Lenders are
hereby irrevocably authorized by Borrower at any time or from time to time,
without notice to Borrower, any such notice being hereby expressly waived, to
set off and to appropriate and to apply any credits, indebtedness or claims, in
each case whether direct or indirect or contingent or matured or unmatured, at
any time held or owing by the Lenders to or for the credit or the account of
Borrower, against and on account of the Obligations of Borrower to the Lenders
under this Agreement and the other Loan
35
<PAGE> 36
Documents, irrespective of whether or not the Lenders shall have made any demand
for payment and although such Obligations may be contingent and unmatured.
SECTION 8.07 SURVIVAL OF AGREEMENTS, REPRESENTATIONS AND WARRANTIES. All
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement, the making of the Loan hereunder and
the execution and delivery of the other Loan Documents and, except as otherwise
expressly provided herein, shall continue until repayment arid performance of
all Obligations, and any investigation at any time made by or on behalf of
Lender shall not diminish the right of Lender to rely thereon.
SECTION 8.08 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original and ail of which counterparts,
taken together, shall constitute but one and the same agreement. This Agreement
shall become effective upon the execution of a counterpart hereof by each of the
parties hereto.
SECTION 8.09 COMPLETE AGREEMENT. This Agreement, together with the
Exhibits and Schedules to this Agreement and the other Loan Documents, is
intended by the parties as a final expression of their agreement regarding the
subject matter hereof and is intended as a complete statement of the terms and
conditions of such agreement.
SECTION 8.10 LIMITATION OF LIABILITY. No claim may be made by Borrower
against Lender or any of its Affiliates, officers, directors, employees, agents
or attorneys for any special, indirect, consequential or punitive damages in
respect of any breach or wrongful conduct (whether the claim is based on
contract or tort or duty imposed by law) arising out of or related to the
transactions contemplated by this Agreement or the other Loan Documents or any
act, omission or event occurring in connection therewith. Borrower hereby
waives, releases and agrees not to sue upon any claim for any such damages,
whether or not accrued and whether or not known or suspected to exist in its
favor. The foregoing provisions of this Section 8.10 are not intended to
preclude Borrower from bringing a legal action against Lender for Borrower's
direct, actual damages.
SECTION 8.11 WAIVER OF TRIAL BY JURY. THE BORROWER AND THE LENDER WAIVE
THE RIGHT TO A TRIAL BY JURY IN ANY ACTION UNDER THIS AGREEMENT OR ANY OTHER
LOAN DOCUMENT OR ANY OTHER ACTION ARISING OUT OF THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY, REGARDLESS OF WHICH PARTY INITIATES SUCH ACTION OR ACTIONS.
SECTION 8.12 VENUE. The parties hereby submit to the exclusive
jurisdiction of the Superior Court of the State of California, sitting in San
Francisco, California, or the United States District Court for the Northern
District of California for the adjudication of all disputes relating to this
Agreement or any of the other Loan Documents.
36
<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first set forth above.
Borrower:
GENERAL AUTOMATION, INC.,
a Delaware corporation
By:___________________________________
Name: _______________________________
Title: _______________________________
Borrower's principal office:
______________________________________
______________________________________
______________________________________
Lenders:
PACIFIC MEZZANINE FUND, L.P.,
a California limited partnership
By: Pacific Private Capital,
its General Partner
By:___________________________________
Name: _______________________________
Title: General Partner
Lender's principal office:
2200 Powell Street, Suite 1250
Emeryville, California 94608
Attention: Andrew B. Dunike
Telephone: (510) 595-9800
Telefax: (510) 595-9801
37
<PAGE> 1
EXHIBIT 10.20
SECURITY AGREEMENT
This SECURITY AGREEMENT, dated as of September 30, 1999 (as amended from
time to time, this "Agreement"), by and among GENERAL AUTOMATION, INC., a
Delaware corporation (the "Borrower"), and PACIFIC MEZZANINE FUND, L.P., a
California limited partnership ("PMF") (together with any subsequent Lender
pursuant to Section 1.2.6 hereof, each a "Secured Party" and collectively, the
"Secured Parties").
R E C I T A L S
A. Borrower and the Secured Parties have entered into that certain Loan
Agreement dated as of September 30, 1999 (as amended from time to time, the
"Loan Agreement") pursuant to which the Secured Parties have agreed to make a
Loan to the Borrower.
B. It is a condition to the closing of the Loan Agreement that the
Borrower execute this Agreement granting to the Secured Parties a security
interest in the collateral described herein, as set forth herein.
A G R E E M E N T
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS AND RELATED MATTERS
Section 1.1. Definitions. Terms with initial capital letters not
otherwise defined in this Agreement have the meanings set forth in the Loan
Agreement (except as otherwise provided herein). In addition, the following
terms with initial capital letters have the following meanings:
"Account Debtor" means any Person who is or may become obligated to the
Borrower on any Receivable.
"Accounts" is defined in Section 2.1.1.
"Agreement" is defined in the Preamble.
"Approvals" is defined in Section 2.1.10.5.
"Bank" shall mean Comerica Bank.
"Borrower" is defined in the Preamble.
"Charges" means all federal, state, county, city, municipal or other
taxes, liens, assessments or charges that, if not paid when due, may result in a
Lien of any Government Authority.
1
<PAGE> 2
"Chattel Paper" is defined in Section 2.1.3.
"Collateral" is defined in Section 2.1.
"Documents" is defined in Section 2.1.8.
"Equipment" is defined in Section 2.1.6.
"Event of Default" is defined in Section 5.1.
"Fixtures" is defined in section 2.1.7.
"GAAP" means generally accepted accounting principles consistently
applied.
"General Intangibles" is defined in Section 2. 1. 10.
"Intercreditor Agreement" means that certain Intercreditor Agreement by
and among the Secured Parties and acknowledged by the Borrower.
"Inventory" is defined in Section 2.1.5.
"Notes Receivable" is defined in Section 2.1.2.
"Pledged Collateral" is defined in Section 4.8.
"Proceeds" is defined in Section 2.1.14.
"Receivables" means Accounts, Notes Receivable, Chattel Paper and other
rights to the payment of money.
"Secured Documents" means, collectively, the Loan Agreement, the Notes,
the Collateral Documents, and any other instrument or other writing executed or
delivered by the Borrower in connection therewith, and all amendments,
appendices, exhibits and schedules to any of the foregoing, other than the
Warrants, the Investors' Rights Agreement, and the Investment Unit Pricing
Agreement.
"Secured Obligations" is defined in Section 2.2.
"Securities" is defined in Section 2.1.9.
"Security Interest" is defined in Section 2.1.
"Senior Lender" shall mean any Lender whose rights are senior to the
Secured Parties in accordance with the terms of the Loan Agreement, including
the Bank and the holders of the first and second deeds of trust on the Company's
headquarters and any transferee or assignee thereof in accordance with the terms
hereof.
"Special Depository Account" shall mean the bank account established
pursuant to the Special Depository Account Agreement.
2
<PAGE> 3
"Special Depository Account Agreement" shall mean that certain Special
Depository Account Agreement dated as of the date hereof between the Borrower,
the Secured Parties and the Bank.
"Supplemental Documentation" means financing statements, continuation
statements, warehouse receipts, bills of lading, assignments of accounts,
patents, trademarks or copyrights, schedules of Collateral, mortgages and other
instruments or documents necessary or requested by the Secured Parties (i) to
create, perfect and maintain perfected the Security Interest in any Collateral
or (ii) to enable the Secured Parties to receive all interest, dividends and
distributions from time to time paid with respect to, and all Proceeds of, all
Collateral which the Secured Parties is entitled to receive hereunder.
"UCC" means the Uniform Commercial Code (as amended from time to time)
of the State of California.
Section 1.2. Related Matters.
1.2.1. Terms Used in the UCC. Unless the context clearly
otherwise requires, all lower-case terms used and not otherwise defined herein
that are used or defined in Division 9 (or any equivalent subpart) of the UCC
have the same meanings herein.
1.2.2. Constructions. Unless the context of this Agreement
clearly requires otherwise, references to the plural include the singular, the
singular includes the plural, the part includes the whole, "including" is not
limiting and "or" has inclusive meaning represented by the phrase "and/or". The
words "hereof," "herein," "hereby," "hereunder" and similar terms in this
Agreement refer to this Agreement as a whole (including the Preamble, the
Recitals and all Schedules and Exhibits attached hereto) and not to any
particular provision of this Agreement. Article, Section, subsection, Exhibit,
Recital, Preamble and Schedule references in this Agreement are to this
Agreement unless otherwise specified. References in this Agreement to any
agreement, other document or law "as amended" or "as amended from time to time,"
or to amendments of any document or law, shall include any amendments,
supplements, replacements, renewals or other modifications not prohibited by the
Loan Documents.
1.2.3. Governing Law. Except to the extent otherwise required by
Applicable Law, the UCC shall govern the attachment, perfection, priority and
enforcement of the Security Interest and all other matters to which the UCC
applies pursuant to the terms thereof. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
1.2.4. Headings. The Article and Section headings used in this
Agreement are for convenience of reference only and shall not affect the
construction hereof.
1.2.5. Severability. If any provision of this Agreement or any
Lien or other right hereunder shall be held to be invalid, illegal or
unenforceable under Applicable Law in any jurisdiction, such provision, Lien or
other right shall be ineffective only to the extent of such invalidity,
illegality or unenforceability, which shall not affect any other provisions
herein or any other Lien or right granted hereby or the validity, legality or
enforceability of such provision, Lien or right in any other jurisdiction.
3
<PAGE> 4
1.2.6. Additional Secured Parties. The parties acknowledge and
agree that additional parties may lend funds to Borrower under the Loan
Agreement. Such additional lenders shall execute this Agreement together with
such additional documents as PMF may reasonably require in form and content
satisfactory to PMF prior to making such loan.
ARTICLE 2
THE SECURITY INTEREST; SECURED OBLIGATIONS
Section 2.1. Security Interest.
To secure the payment and performance of the Secured Obligations as and
when due, the Borrower hereby grants, conveys, pledges, assigns and transfers to
the Secured Parties a security interest (the "Security Interest") in, all right,
title, claim, estate and interest of the Borrower in and to all property,
wherever located, and interests of the Borrower, tangible or intangible, whether
now owned and existing or hereafter acquired or arising (such property and
interests in property being collectively referred to herein as the
"Collateral"), including the following:
2.1.1. Any and all rights to payment for goods sold or leased or
for services rendered, including any such rights evidenced by Chattel Paper,
whether due or to become due and whether or not earned by performance (excluding
any such rights evidenced by Notes Receivable) (the "Accounts");
2.1.2. Any and all negotiable instruments, promissory notes,
acceptances, drafts, checks, letters of credit, certificates of deposit and
other writings that evidence a right to the payment of money by any other
Person, including (the "Notes Receivable");
2.1.3. Any and all chattel paper, including writings that
evidence both a monetary obligation and a security interest in or lease of
specific goods (the "Chattel Paper");
2.1.4. Any and all rights to payment of money not listed above
and any and all rights, titles, interests, securities, Liens and guaranties
evidencing, securing, guaranteeing payment of or in any way relating to any
Receivables;
2.1.5. Any and all goods that may at any time be held for sale or
lease or furnished under any contract of service, or are sold, leased or
furnished under any contract of service, or constitute raw materials,
work-in-process, parts, supplies or materials that are or might be used or
consumed in a business or in connection with the manufacture, selling or leasing
of such goods ("Inventory");
2.1.6. Any and all equipment and other goods (excluding
Inventory), including the following personal property: machinery, machine tools,
office machinery (including computers, typewriters and duplicating machines),
motor vehicles, trailers, rolling stock, motors, pumps, controls, tools, parts,
works of art, furniture, furnishings and trade fixtures, all athletic equipment
and supplies and all molds, dies, drawings, blueprints, reports, catalogs and
computer programs related to any of the above (together with all related
property described in Section 2.1.12, the "Equipment");
4
<PAGE> 5
2.1.7. Any and all fixtures, including machinery, equipment or
appliances for generating, storing or distributing air, water, heat,
electricity, light, fuel or refrigeration, for ventilating or sanitary purposes,
elevators, safes, laundry, kitchen and athletic equipment, trade fixtures, and
telephone, television and other communications equipment (the "Fixtures");
2.1.8. Any and all documents, whether or not negotiable,
including bills of lading, warehouse receipts, trust receipts and the like (the
"Documents");
2.1.9. Any and all stocks, bonds, general and limited partnership
interests, limited liability company interests, joint venture interests and
other securities, subscription rights, options, warrants, puts, calls and other
rights with respect thereto, and investment and brokerage accounts (the
"Securities");
2.1.10. Any and all general intangibles, contract rights and
other property described below (together with any property listed under Section
2.1.4 above, the "General Intangibles"), including the following:
2.1.10.1. deposit and other accounts, including demand,
time savings, passbook and like accounts maintained with any bank, savings and
loan association, credit union, brokerage or other institution (including the
deposit accounts listed on Schedule 2.1.10.1), the Special Depository Account
and any and all money, instruments and other property from time to time
deposited therein or credited thereto, or received, receivable or otherwise
distributed therefrom, in respect thereof or in exchange therefor, including all
interest accruing thereon;
2.1.10.2. insurance policies and all rights and claims
therein or thereunder (including prepaid and unearned premiums), including
insurance against casualty (including by fire or earthquake) or liability
(including against environmental cleanup costs), title insurance, business
interruption insurance and builders risk insurance, whether covering personal or
real property;
2.1.10.3. any rights, claims, judgments, awards, orders or
decrees arising out of or in connection with any judicial action, litigation,
arbitration, mediation or other proceedings;
2.1.10.4. any and all leases of real or personal property,
licensing agreements and other contracts, and all guarantees, warranties,
royalties, license fees and rights under such contracts;
2.1.10.5. any and all Governmental Approvals, including
permits, licenses, certificates of use and occupancy (or their equivalents) and
zoning and other approvals, and tax and other refunds, compensation, awards,
payments and relief given or made by any Governmental Authority (including
condemnation awards) (the "Approvals");
2.1.10.6. deposits, surety and other bonds, and choses and
things in action;
2.1.10.7. computer programs, computer software (including
all source and object codes, all media of any type or nature on which such
source or object codes are
5
<PAGE> 6
reproduced, copied, stored or maintained), technology processes, proprietary
information, patents, patent applications, copyrights, copyright applications,
trademarks, trademark applications, service marks, trade and other names, trade
secrets, customer lists, the entire goodwill of or associated with the business
now or hereafter conducted by the Borrower, and other Proprietary Rights,
including the intellectual property rights listed on Schedule 2.1.10.8 (the
"Intellectual Property Collateral").
2.1.11. Any and all books and records (including ledgers,
correspondence, credit files, computer software, computer storage media and
electronically recorded data) pertaining to the Borrower or any of the foregoing
and all equipment receptacles, containers and cabinets therefor;
2.1.12. Any and all accessions, appurtenances, components,
repairs, repair parts, spare parts, renewals, improvements, replacements,
substitutions and additions to, of or with respect to any of the foregoing;
2.1.13. Any and all rights, remedies, powers and privileges of
the Borrower with respect to any of the foregoing; and
2.1.14. Any and all proceeds and products of any of the
foregoing, whether now held and existing or hereafter acquired or arising
(collectively, the "Proceeds"). "Proceeds" shall include (i) whatever is now or
hereafter received by the Borrower upon the sale, lease, license, exchange,
collection, other disposition or operation of any item of Collateral, whether
such proceeds constitute accounts, general intangibles, instruments, securities,
documents, letters of credit, chattel paper, deposit accounts, money, goods or
other personal property, (ii) any items that are now or hereafter acquired by
the Borrower with any Proceeds of Collateral, (iii) any amounts now or hereafter
payable under any insurance policy by reason of any loss of or damage to any
Collateral or the business of the Borrower, (iv) all rights to payment for the
sale of services or products in connection with the business of the Borrower,
(v) all royalties, rights to payment, accounts receivable and proceeds of
infringement suits in connection with the Intellectual Property Collateral, and
(vi) the right to further transfer, including by pledge, mortgage, license,
assignment or sale, any of the foregoing.
Section 2.2. Secured Obligations.
The Security Interest shall secure the due and punctual payment and
performance by the Borrower of any and all present and future obligations of the
Borrower under the Secured Documents, including without limitation, all
obligations and liabilities of the Borrower of every type or description to the
Secured Parties, or any Person entitled to indemnification under the Loan
Agreement, and any other Secured Document:
2.2.1. arising under or in connection with the Loan Agreement or
the Notes whether for principal of or premium (if any) or interest on the Loan,
expenses, indemnities or other amounts (including attorneys' fees and expenses);
or
2.2.2. arising under or in connection with the Loan Agreement,
this Agreement or any other Secured Document, including for reimbursement of
amounts permitted to be
6
<PAGE> 7
advanced or expended by the Secured Parties (i) to satisfy amounts required to
be paid by the Borrower under this Agreement or any other Secured Document for
claims and Charges, together with interest thereon to the extent provided, or
(ii) to maintain or preserve any Collateral or to create, perfect, continue or
protect any Collateral or the Security Interest therein, or their priority;
in each case whether due or not due, direct or indirect, joint and/or several,
absolute or contingent, voluntary or involuntary, liquidated or unliquidated,
determined or undetermined, now or hereafter existing, renewed or restructured,
whether or not from time to time decreased or extinguished and later increased,
created or incurred, whether or not arising after the commencement of a
proceeding under the Bankruptcy Code (including post-petition interest) and
whether or not recovery of any such obligation or liability may be barred by a
statute of limitations or such obligation or liability may otherwise be
unenforceable (all obligations and liabilities described in this Section 2.2.
are collectively referred to as the "Secured Obligations").
ARTICLE 3
WARRANTIES AND REPRESENTATIONS
The Borrower represents and warrants that all representations and
warranties made with respect to it, its assets and its obligations in the Loan
Agreement are true and correct and makes the following additional
representations and warranties, all of which shall survive until the termination
of this Agreement pursuant to Section 6.7.
Section 3.1. Filings. Etc.
3.1.1. Duly executed financing statements containing a correct
description of the Collateral have been delivered to the Secured Parties for
filing in every governmental office in every state, county and other
jurisdiction in which the principal or any other place of business or the chief
executive office of the Borrower, or any portion of the Collateral, is located
and in each jurisdiction in which such action is necessary to establish a valid
and perfected Lien in favor of the Secured Parties in all Collateral in which a
Lien may be perfected by filing, and no further or subsequent filing, recording
or registration is necessary in any such jurisdiction, except as provided under
Applicable Law with respect to the filing of continuation statements.
3.1.2. In the event that any filing is made with the United
States Patent and Trademark Office (the "PTO") or the United States Copyright
Office (the "Copyright Office") with respect to the Collateral, Borrower shall
make file such documents or instruments with the PTO or Copyright Office, as the
case may be, as are reasonably necessary to perfect the Security Interest with
respect to such Collateral, junior only to the Senior Lenders.
Section 3.2. Locations of Collateral, Offices and Names.
(i) The Borrower's chief executive office and principal place of
business is located at the address set forth on Schedule 3.2, (ii) all other
places of business of the Borrower and all other locations at which any tangible
Collateral or books and records related to any Collateral are (or during the
past four months were) located are set forth on Schedule 3.2, and (iii) there
are no
7
<PAGE> 8
prior or current trade or legal names used to identify the Borrower in its
business or in the ownership of its properties other than those set forth on
Schedule 3.2.
Section 3.3. Title to Collateral; Validity and Perfection of Security
Interest; Absence of Other Liens.
3.3.1. The Borrower has good and marketable title to, or valid
and subsisting leasehold interests in, all Collateral reflected on its financial
statements as being owned or leased by it and "rights" in all other Collateral
within the meaning of Section 9203 of the UCC. For any Intellectual Property
Collateral for which the Borrower is a licensee pursuant to a license or
licensing agreement regarding such Intellectual Property Collateral, each such
license or licensing agreement is in full force and effect; the Borrower is not
in default of any of its obligations thereunder; and all such licenses material
to the operation of the Borrower's business arise under agreements included as
General Intangibles.
3.3.2. The Security Interest constitutes a valid and, upon the
filing of financing statements covering the Collateral and other documents
referred to in Section 3.1 with the appropriate Governmental Authorities or
other Persons referred to in such Section, perfected Lien in all of the
Collateral securing payment and performance of the Secured Obligations. The
Collateral is free and clear of all Liens other than the Security Interest and
the security interests of the Senior Lenders permitted under the Loan Agreement.
3.3.3. Except for financing statements in favor of the Secured
Parties and the Permitted Liens (as defined in the Loan Agreement), the Borrower
has filed no now-effective financing statement covering the Collateral or any
part thereof.
Section 3.4. Notes Receivable.
Schedule 2.1.2. lists all Notes Receivable of the Borrower. There are no
setoffs or counterclaims or disputes existing or asserted with respect to any
such Notes Receivable.
Section 3.5. Patents, Trademarks and Copyrights.
3.5.1. Schedule 2.1.10.8 lists all Proprietary Rights in which
the Borrower has an interest. Except as disclosed on Schedule 2.1.10.8, all
Proprietary Rights are valid and enforceable and the Borrower is the sole and
exclusive owner of each of the Proprietary Rights, free and clear of any Liens
(other than Liens in favor of the Secured Parties).
3.5.2. Except for filings or recordations in favor of the Secured
Parties and the Senior Lenders, the Borrower has filed or recorded no
now-effective mortgages, transfers or assignments covering the Proprietary
Rights or any part thereof.
3.5.3. Except as set forth on Schedule 2.1.10.8, the Borrower
(directly or through any Subsidiary) does not own, possess or use under any
licensing arrangement any copyrights, patents, trademarks or service marks, nor
is there currently pending before any Governmental Authority any copyright
registration or any application for registration of any patent, trademark or
servicemark.
8
<PAGE> 9
3.5.4. All of the Borrower's Proprietary Rights are subsisting
and have not been adjudged invalid or unenforceable in whole or in part.
3.5.5. All maintenance fees required to be paid on account of any
of the Borrower's patents or patent applications (or any related Collateral)
have been timely paid for maintaining such Collateral in force, and, to the
Borrower's Best Knowledge, each of its patents is valid and enforceable and the
Borrower has notified the Secured Parties in writing of all prior art (including
public uses and sales) of which it is aware.
3.5.6. To the Borrower's Best Knowledge, no material infringement
or unauthorized use is being made of any Intellectual Property Collateral by any
Person.
3.5.7. The past present and contemplated future use of the
Intellectual Property Collateral by the Borrower has not, does not, and will not
infringe or violate any right, privilege or license agreement of or with any
other Person.
3.5.8. The Borrower owns, has material rights under, is a party
to, or an assignee of a party to, all material licenses, patents, patent
applications, copyrights, service marks, servicemark applications, trademarks,
trademark applications, trade names, and all other Intellectual Property
Collateral necessary to continue to conduct its business as heretofore
conducted.
3.5.9. The Borrower has taken and will continue to take all
reasonable steps to protect and preserve the secrecy of all trade secrets
relating to any of its unpublished Intellectual Property Collateral and
Proprietary Rights.
Section 3.6. Investment Property
The names and addresses of all securities intermediaries (as such term
is defined in Section 8102(a)(14) of the UCC) with whom the Borrower maintains
any investment property (as such term is defined in Section 9115(l)(f) of the
UCC), and the account numbers and account names of any securities accounts (as
such term is defined in Section 8501 of the UCC) holding any investment
property, are set forth in Schedule 3.6. Except as set forth in Schedule 3.6,
the Borrower does not have any right, title or interest in or to any investment
property.
9
<PAGE> 10
ARTICLE 4
COVENANTS AND AGREEMENTS
Section 4.1. Further Assurances.
The Borrower shall, at its own expense, perform such acts as may be
necessary, or that the Secured Parties may request in writing at any time, to
assure the attachment and perfection of the Security Interest to exercise the
rights and remedies of the Secured Parties hereunder or to carry out the intent
of this Agreement. The Security Interest shall be junior only to the security
interests of the Senior Lenders. Without limitation, the Borrower shall execute
and deliver (or cause any third party to execute and deliver) to the Secured
Parties, at any time and from time to time, all Supplemental Documentation in
form and substance acceptable to the Secured Parties.
Section 4.2. Inspection and Verification.
The Borrower shall keep or cause to be kept accurate and complete
records of the Collateral at the Borrower's chief executive office. The Secured
Parties and their employees and agents shall have the right, at all times during
the Borrower's usual business hours upon reasonable written notice, but in no
event less than two (2) Business Days' notice (or such shorter period as may be
necessary during the continuance of an Event of Default), to (i) inspect, and
verify the quality, quantity, value and condition of, or any other matter
relating to, the Collateral, (ii) inspect all records relating thereto and to
make (or require the Borrower to provide) copies of such records, and (iii)
enter upon all premises upon which any of the Collateral is located.
Notwithstanding the foregoing, the Secured Parties shall not contact third
parties in making such inspection or verification (and then only after notice to
the Borrower) unless an Event of Default shall then exist.
Section 4.3. Power of Attorney.
The Borrower hereby irrevocably appoints the Secured Parties and their
employees and agents as the Borrower's true and lawful attorneys-in-fact, with
full power of substitution, (i) to do all things required to be done by the
Borrower under this Agreement or the other Loan Documents and (ii) to do all
things that the Secured Parties may deem necessary or advisable to assure the
attachment, perfection and priority of the Security Interest or otherwise to
exercise the rights and remedies of the Secured Parties hereunder or carry out
the intent of this Agreement, provided that the Secured Parties shall not
exercise any of their rights under the foregoing power of attorney unless a
Default or an Event of Default shall have occurred and be continuing. Without
limitation, the Secured Parties and their officers and agents shall be entitled
to do all of the following, as fully as the Borrower might:
4.3.1. to sign the name of the Borrower on any Supplemental
Documentation and to deliver and file such Supplemental Documentation to or with
such Persons as the Secured Parties, in their discretion, may elect;
4.3.2. to sign any certificate of ownership, registration card,
application therefor, affidavits or documents necessary to transfer title to any
of the Collateral, to receive and receipt for all licenses, registration cards
and certificates of ownership;
10
<PAGE> 11
4.3.3. to affix, by facsimile signature or otherwise, the general
or special endorsement of the Borrower, in such manner as the Secured Parties
shall deem advisable, to any Pledged Collateral that has been delivered to or
obtained by the Secured Parties without appropriate endorsement or assignment;
and
4.3.4. during the existence of an Event of Default, upon not less
than three (3) business days written notice to the Borrower and at such time or
times as the Secured Parties in their discretion may determine, in the
Borrower's or in the Secured Parties' name:
4.3.4.1. to collect any and all amounts due to the
Borrower from Account Debtors with respect to Receivables by legal proceedings
or otherwise;
4.3.4.2. to make, settle and adjust any claims under
insurance policies, and make any decisions with respect thereto;
4.3.4.3. to attend and vote at any and all meetings of the
holders of Securities and to execute any and all written consents of such
holders with the same effect as if the Borrower had personally attended and
voted at such meetings or had personally signed such consents; and
4.3.4.4. to execute any and all applications, documents,
papers and instruments necessary for the Secured Parties to use the Intellectual
Property Collateral and to grant or issue any exclusive or non-exclusive license
or sublicense with respect to any Intellectual Property Collateral.
The Secured Parties shall be under no obligation whatsoever to take any
of the foregoing actions, and absent bad faith, gross negligence or willful
misconduct, the Secured Parties and their Affiliates, shareholders, directors,
officers, employees and agents shall have no liability or responsibility for any
act taken or omitted with respect thereto. A copy of this Agreement and, if
applicable, a written statement by the Secured Parties that an Event of Default
exists shall be conclusive evidence of the Secured Parties' right to act under
this Section 4.3 as against all third parties.
Section 4.4. Changes of Locations of Collateral, Offices, Name or
Structure.
The Borrower shall not remove any Collateral, books or records related
to, or keep any Collateral, books or records related thereto or do business at,
a location not set forth on Schedule 3.2, adopt a trade name or change its name,
chief executive office, principal place of business, identity or corporate
structure (other than the changes in structure contemplated by the Loan
Documents) without the prior written consent of the Secured Parties which won't
be unreasonably withheld, delayed or conditioned, except sales in the ordinary
course of business.
Section 4.5. Payment of Charges and Claims.
The Borrower shall pay (i) all Charges lawfully imposed upon any
Collateral and (ii) all claims (including claims for labor, services and
materials) that have become due and payable and, under Applicable Law, have or
may become Liens upon any Collateral, in each case before any material penalty
shall be incurred with respect thereto; provided that, unless foreclosure,
11
<PAGE> 12
levy or similar proceedings shall have commenced, the Borrower need not pay or
discharge any such Charges or claims so long as adequate reserves therefor have
been established in accordance with GAAP. If the Borrower fails to pay or obtain
the discharge of any Charge, claim or Lien required to be paid or discharged
under this Section 4.5, the Secured Parties may, at any time and from time to
time, in their discretion and without waiving or releasing any obligation of the
Borrower under this Agreement or the other Loan Documents or waiving any Default
or Event of Default, make such payment, obtain such discharge or take such other
action with respect thereto as the Secured Parties deems advisable.
Section 4.6. Continuing Obligations of the Borrower; Indemnity.
4.6.1. The Borrower shall remain liable to observe and perform
all agreements and other obligations relating to or included in the Collateral
(the "Contractual Obligations") in accordance with their respective terms. The
Secured Parties shall not have any duty, obligation or liability under or with
respect to any such Contractual Obligations, whether by reason or arising out of
this Agreement, the receipt by the Secured Parties of any payment relating to
any such Contractual Obligation or otherwise, and the Borrower agrees to
indemnify and hold harmless the Secured Parties from any and all such
obligations and liabilities.
4.6.2. The Secured Parties shall not have any duty of care with
respect to the Collateral, other than an obligation to exercise reasonable care
with respect to Collateral in their possession or under their control; provided
that (i) the Secured Parties shall be deemed to have exercised reasonable care
if Collateral in their possession is accorded treatment substantially comparable
to that which such the Secured Parties accords their own property, and (ii) the
Secured Parties shall have no obligation to take any actions to preserve rights
against other parties or property with respect to any Collateral. Without
limitation, the Secured Parties shall (a) bear no risk or expense with respect
to any Collateral and (b) have no duty with respect to calls, conversions,
presentments, maturities, notices or other matters relating to Pledged
Collateral, or to maximize interest or other returns with respect thereto.
4.6.3. The Secured Parties may at any time deliver or redeliver
the Collateral or any part thereof to the Borrower and the receipt of any of the
same by the Borrower shall be complete and full acquittance for the Collateral
so delivered, and the Secured Parties thereafter shall be discharged from any
liability or responsibility therefor.
4.6.4. The Borrower hereby agrees to indemnify and hold harmless
the Secured Parties and their Affiliates, shareholders, directors, officers,
employees and agents against any and all claims, actions, liabilities, costs and
expenses of any kind or nature whatsoever (including reasonable fees and
disbursements of counsel) that may be imposed on, incurred by, or asserted
against any of them, in any way relating to or arising out of this Agreement or
any action taken or omitted by them hereunder, except to the extent a court
holds in a final and nonappealable judgment that they resulted from the gross
negligence or willful misconduct of such Persons.
4.6.5. The Secured Parties agrees not to disclose any proprietary
information of the Borrower that is by its nature confidential, including, but
not limited to, information concerning technology, software, source codes,
financial information, and other confidential or proprietary business
information. This Section 4.6.5 shall not apply to information that is
12
<PAGE> 13
demonstrably in the knowledge of the Secured Parties prior to their receipt from
the Borrower, that is in the public domain on the date of its disclosure without
any breach of this Section 4.6.5 or unauthorized disclosure of such information,
that is rightfully received by the Secured Parties from a third party without
confidentiality limitations, that is required to be disclosed by law or in
connection with a judicial or arbitration proceeding, or that is necessary or
required to be disclosed by the Secured Parties in connection with the exercise
of their remedies hereunder or under any other Loan Document. In addition, this
Section 4.6.5 shall not apply to information that the Secured Parties furnishes
to participants, successors or assigns, or potential participants, successors or
assigns, provided that no information shall be furnished without the written
undertaking of the recipient to keep such information confidential in accordance
with this Section 4.6.5.
Section 4.7. Sale of Collateral; Further Encumbrances.
The Borrower shall not (i) except for dispositions of Inventory, and
other dispositions of Collateral in the ordinary course of the Borrower's
business not prohibited by the Loan Documents (collectively, "Permitted Sales"),
sell, assign, lease, license, sublicense, or otherwise dispose of any
Collateral, or any interest therein, or (ii) except for Liens permitted under
the Loan Agreement, grant or suffer to exist any Lien in or on any Collateral,
or (iii) except as permitted under the Loan Agreement or any other Loan
Document, sign or authorize the filing of any financing statement or the filing
or recordation of any mortgage, transfer or assignment or the delivery of any
notice with respect to any of the Collateral. Concurrently with any Permitted
Sale, the Security Interest shall automatically be released from the Collateral
so disposed of; provided, however, that the Security Interest shall continue in
the Proceeds thereof. If any Collateral, or any interest therein, is disposed of
in violation of these provisions, the Security Interest shall continue in such
Collateral or interest notwithstanding such disposition, the Person to which the
Collateral or interest is being transferred shall be bound by this Agreement and
the Borrower shall deliver all Proceeds thereof to the Secured Parties to be
held as Collateral hereunder.
Section 4.8. Protection of Security; Notice of Levy.
The Borrower shall, at its own cost and expense, take any and all
actions necessary to defend title to the Collateral against all Persons and
against all claims and demands and to preserve, protect and defend the Security
Interest and the priority thereof, against any adverse Liens (other than those
of the Senior Lenders). The Borrower will promptly notify the Secured Parties of
any attachment or other legal process levied against any Collateral.
Section 4.9. Equipment and Fixtures.
The Borrower, at its expense, shall cause the Equipment and Fixtures to
be maintained and preserved in substantially the same condition, repair and
working order as when new, ordinary wear and tear excepted. Notwithstanding the
foregoing sentence, the Borrower shall not be required to maintain and repair
Equipment and Fixtures to the extent that they are either obsolete or the cost
of maintaining them exceeds their fair market value. In the case of any loss or
damage to any of the Equipment or Fixtures, the Borrower shall, as promptly as
practicable after the occurrence thereof, make or cause to be made all repairs,
replacements and other
13
<PAGE> 14
improvements in connection therewith that are necessary or desirable to such end
and promptly furnish to the Secured Parties a written report with respect to any
loss or damage in excess of $5,000 to any Equipment or Fixtures.
Section 4.10. Securities.
4.10.1. Subject to the rights of the Senior Lenders, the Borrower
shall immediately notify the Secured Parties upon being issued a Security
(including an interest in a general or limited partnership or in a limited
liability company that by its terms is a security governed by Division 8 of the
UCC) and shall, at its own cost and expense, take such actions as are necessary,
or that the Secured Parties requests, to cause the Secured Parties to have
"control" over that Security (within the meaning of Section 9115(l)(e) of the
UCC).
4.10.2. Without limiting the foregoing, in the event that any
securities intermediary (other than the Senior Lenders) receives or holds any
investment property in favor of the Borrower as an entitlement holder, the
Borrower will execute and deliver and cause such securities intermediary to
execute and deliver to the Secured Parties a control agreement in form and
substance satisfactory to the Secured Parties in order (among other things) to
establish and maintain control over and to acknowledge the priority of the
Security Interest in such investment property in favor of the Secured Parties.
Without the prior written consent of the Secured Parties, the Borrower shall not
deliver any investment property to any Person other than the Secured Parties,
the Senior Lenders or a securities intermediary that has executed and delivered
a control agreement in favor of the Secured Parties.
Section 4.11. Intellectual Property Collateral.
4.11.1. If any of the Borrower's Intellectual Property
Collateral, including any source code or other Proprietary Rights and including
any Intellectual Property Collateral for which the Borrower is a licensee, is or
shall become subject to any escrow agreement, the Borrower shall give such
notices and obtain such acknowledgments and waivers from such escrow holder and
any other Person who is a beneficiary of any such escrow agreement as the
Secured Parties may request in order to perfect, preserve and protect the
interest and priority of the Secured Parties in such Intellectual Property
Collateral, and each such escrow agreement shall be included as a General
Intangible.
4.11.2. The Borrower will not (without the prior consent of the
Secured Parties) (i) enter into any agreement (including any license or royalty
agreement) pertaining to any Intellectual Property Collateral except in the
ordinary course of the Borrower's business or (ii) allow or suffer any
Intellectual Property Collateral to become abandoned, nor any registration
thereof to be terminated, forfeited, expired or dedicated to the public.
4.11.3. The Borrower will diligently prosecute all applications
for patents, copyrights and trademarks, and file and prosecute any and all
continuations, continuations-in-part, applications for reissue, applications for
certificate of correction and like matters as shall be reasonable and
appropriate in accordance with prudent business practice, and promptly and
timely pay any and all maintenance, license, registration and other fees, taxes
and expenses incurred in connection with any Intellectual Property Collateral.
14
<PAGE> 15
4.11.4. Without limiting the foregoing, the Borrower shall at its
expense do any and all acts reasonably necessary or desirable to preserve, renew
and maintain all rights in all copyrights, registrations and copyright rights.
The Borrower promptly shall give the Secured Parties written notice at least
once each calendar year of any such work or such rights of material value to the
Borrower or the operation of its business. If the Company files an application
for any registration for any copyright, the Borrower shall execute, deliver and
record in all places where this Agreement or any memorandum hereof may be
recorded and such other places as the Secured Parties may reasonably request an
appropriate security agreement, with appropriate modifications, in form and
substance satisfactory to the Secured Parties, pursuant to which the Borrower
shall grant and reaffirm its grant of a Security Interest to the extent of its
interest in such registration as provided herein to the Secured Parties.
4.11.5. Except as provided in Article 5, and notwithstanding
Article 2, the Borrower shall have the right and obligation to commence and
diligently prosecute in its own name, as real party in interest, for its own
benefit and at its own expense, such suits, proceedings or other actions for
infringement or other damage as are reasonably necessary to protect the
Intellectual Property Collateral (or any material portion thereof) or any of the
Borrower's material rights therein. The Secured Parties may be joined as parties
to such proceedings if in their sole discretion it is satisfied that it will not
incur any risk of liability or loss as a consequence thereof, and the Borrower
shall provide at its expense representation acceptable to the Secured Parties
for the common interest of the Borrower and the Secured Parties with respect to
such proceedings. The Borrower shall, promptly upon its becoming aware thereof,
notify the Secured Parties in writing of the written threat of, institution of,
or any adverse determination in, any proceeding, application, suit or action of
any kind regarding the Borrower's claim of ownership in or rights to any of the
Intellectual Property Collateral, its right to register any of the same, or its
right to keep and maintain such registration, whether before the Copyright
Office, the PTO or any United States or foreign court or governmental agency.
The Borrower shall provide promptly to the Secured Parties any information with
respect thereto reasonably requested from time to time by the Secured Parties.
Section 4.12. Subordination.
Subject to and under the circumstances set forth in the Loan Agreement,
the Secured Parties agrees to subordinate the lien created pursuant to this
Agreement in favor of one or more Senior Lenders. The rights of the Lenders
granted hereby shall be subject to the rights of the Senior Lenders. If any
conditions hereof or any rights granted hereby conflict with any conditions of
the security interests granted the Senior Lenders, or any of their rights, then
the Senior Lenders' rights and the conditions of their security interests shall
control.
ARTICLE 5
EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
Section 5.1. Event of Default.
The occurrence of one or more "Events of Default" (as defined in the
Loan Agreement) shall constitute an "Event of Default" hereunder.
15
<PAGE> 16
Section 5.2. Remedies.
If an Event of Default occurs and so long as such Event of Default is
continuing, then, whether or not all the Secured Obligations shall have become
immediately due and payable:
5.2.1. In addition to all their other rights, powers and remedies
under this Agreement and Applicable Law, the Secured Parties shall have, and may
exercise, any and all of the rights, powers and remedies of a Secured Parties
under the UCC, all of which rights, powers and remedies shall be cumulative and
not exclusive, to the extent permitted by Applicable Law.
5.2.2. The Secured Parties shall have the right, all at the
Secured Parties' sole option and as the Secured Parties in their discretion may
deem necessary or advisable, to do any or all of the following:
5.2.2.1. to foreclose the Security Interest by any
available judicial procedure or without judicial process;
5.2.2.2. to enter upon the premises of the Borrower or any
other place or places where Collateral is located through self-help and without
judicial process, without giving the Borrower notice and opportunity for a
hearing on the validity of the Secured Parties' claim and without any obligation
to pay rent;
5.2.2.3. to inspect and appraise the Collateral and to
prepare, repair, assemble or process the Collateral for sale, lease or other
disposition;
5.2.2.4. to remove Collateral to the premises of the
Secured Parties or any other location selected by the Secured Parties, for such
time as the Secured Parties may desire, for any purpose not prohibited hereby;
5.2.2.5. to apply any Collateral or any other assets of
the Borrower in the possession of the Secured Parties to the Secured
Obligations;
5.2.2.6. to notify Account Debtors and other obligors on
the Collateral in writing that the Collateral has been assigned to the Secured
Parties and that all payments thereon are to be made directly and exclusively to
or as specified by the Secured Parties in writing;
5.2.2.7. to collect by legal proceedings or otherwise all
dividends, distributions, interest, principal or other sums now or hereafter
payable upon or on account of the Collateral;
5.2.2.8. to enter into any extension or reorganization
agreement or any other agreement relating to or affecting the Collateral and, in
connection therewith, deposit or surrender control of any Collateral or accept
other property in exchange therefor;
5.2.2.9. to settle, compromise or release, on terms
acceptable to the Secured Parties, in whole or in part, any amounts owing on the
Collateral or any insurance thereof or relating thereto or any disputes with
respect thereto or such insurance;
16
<PAGE> 17
5.2.2.10. to receive, open and dispose of all mail
addressed to the Borrower and notify postal authorities to change the address
for delivery thereof to such address as the Secured Parties may designate,
provided that the Secured Parties agrees that it will promptly deliver over to
the Borrower any such opened mail as does not relate to the Collateral;
5.2.2.11. to exercise all rights and powers under
Contractual Obligations included in the Collateral, including any right of
termination;
5.2.2.12. to use or transfer any of the Borrower's rights
and interests in any Intellectual Property Collateral, by license, by sublicense
(to the extent permitted by an applicable license) or otherwise, on such
conditions and in such manner as the Secured Parties may determine;
5.2.2.13. to exercise any and all other rights, powers,
privileges and remedies of an owner of the Collateral; and
5.2.2.14. to apply (on one or more occasions) any or all
of the funds in the Special Depository Account toward full or partial prepayment
of the Loan and/or payment of any of the other Secured Obligations in such order
as the Secured Parties may determine.
5.2.3. The Borrower shall, at the Secured Parties' written
request, assemble the Collateral and make it available to the Secured Parties at
a place in the State of California to be designated by the Secured Parties in
writing. The Borrower shall make available to the Secured Parties in the State
of California all computer and other equipment of the Borrower containing books
and records pertaining to the Collateral (and the assistance of the employees of
the Borrower having responsibility for such equipment) and to use such computer
and other equipment at no charge for the purpose of obtaining information
pertaining to the Collateral, including by making copies of computer and other
files and records.
5.2.4. Until the Secured Parties is able to effect a sale, lease
or other disposition of Collateral or any part thereof, the Secured Parties
shall have the right to use, process or operate the Collateral or any part
thereof to the extent that it deems appropriate for the purpose of preserving
Collateral or its value or for any other purpose deemed appropriate by the
Secured Parties. The Secured Parties shall have the right, without notice or
demand, either in person or by agent, and without regard to the adequacy of any
security for the Secured Obligations, to take possession of the Collateral or
any part thereof and to collect and receive the rents, issues, profits, income
and proceeds thereof. Taking possession of the Collateral shall not cure, waive
or affect an Event of Default or notice thereof or invalidate any act done
pursuant to such notice.
5.2.5. The Secured Parties may, if it so elects, as a matter of
strict right and without regard to the then fair market value of the Collateral,
seek the appointment of a receiver or keeper to take possession of Collateral
and to enforce any of the Secured Parties' remedies with respect to such
appointment without prior notice or hearing. The rights, remedies and powers of
any receiver appointed by a court shall be as ordered by the court.
5.2.6. The Secured Parties shall have the right to sell, lease or
otherwise dispose of all or any Collateral in its then existing condition, or
after any further assembly, manufacturing or processing thereof, at public or
private sale or sales, with such notice as may be
17
<PAGE> 18
required by Section 5.4, in lots or in bulk, for cash or on credit, with or
without representations or warranties, all as the Secured Parties, in their
discretion, may deem advisable. The Secured Parties shall not be obligated to
make any sale of the Collateral regardless of notice of sale having been given.
If sale of all or any part of the Collateral is made on credit or for future
delivery, the Collateral so sold may be retained by the Secured Parties until
the sale price is paid by the purchaser or purchasers thereof, but the Secured
Parties shall not incur any liability in case any such purchaser or purchasers
thereof shall fail to take up and pay for the Collateral so sold and, in case of
any such failure, such Collateral may be sold again upon like notice. The
Secured Parties shall have the right to conduct such sales on the Borrower's
premises or elsewhere and shall have the right to use the Borrower's premises
without charge for such sales for such duration as the Secured Parties deem
necessary or advisable. The Collateral need not be present at any such sale. To
the extent necessary or desirable, in the judgment of the Secured Parties, to
enable the Secured Parties to dispose of Collateral following an Event of
Default, the Secured Parties is authorized, without any obligation for rent,
license fees or other charge, to use the supplies, equipment, facilities and
space at the Borrower's place of business and is hereby granted a license or
other right to use, without charge, the Proprietary Rights, trade secrets,
names, trade names, customer lists, labels, advertising matter, and all property
of a similar nature that the Borrower owns or is entitled to use, as it pertains
to any Collateral, in preparing, repairing, assembling, processing, advertising
for sale or lease or otherwise in connection with the disposition of any
Collateral, and the Borrower's rights under all licenses and all franchise
agreements shall to such extent and for such purpose inure to the Secured
Parties' benefit. The Secured Parties may purchase all or any part of the
Collateral at public or, if permitted by Applicable Law, private sale, and in
lieu of actual payment of the purchase price, the Secured Parties may apply
against such purchase price any amount of the Secured Obligations. The Borrower
agrees that any sale of Collateral conducted by the Secured Parties in
accordance with the foregoing provisions of this Section and Section 5.3 shall
be deemed to be a commercially reasonable sale under Section 9504 of the UCC.
5.2.7. For the purpose of enabling the Secured Parties to
exercise their rights and remedies under this Article 5 or otherwise in
connection with this Agreement, the Borrower hereby grants to the Secured
Parties an irrevocable, nonexclusive and assignable license (exercisable without
payment or royalty or other compensation to the Borrower) to use, license or
sublicense any Intellectual Property Collateral and any other Collateral. The
Secured Parties agrees not to exercise such license except following the
occurrence of an Event of Default.
Section 5.3. Application of Proceeds.
5.3.1. Any cash proceeds received by the Secured Parties in
respect of any sale of, collection from, or other realization upon, all or any
part of the Collateral following the occurrence of an Event of Default
(including insurance proceeds) shall be applied as follows:
5.3.1.1. first, to the Secured Parties to pay all
advances, charges, costs and expenses payable to the Secured Parties pursuant to
Section 6.1; and
5.3.1.2. second, to pay the Secured Obligations in the
order determined by the Secured Parties.
18
<PAGE> 19
5.3.2. The Borrower shall pay to the Secured Parties on written
demand any deficiency with regard to the Secured Obligations that may remain
after such sale, collection or realization of, from or upon the Collateral.
5.3.3. Payments received from any third party on account of any
Collateral shall not reduce the Secured Obligations until paid in cash to the
Secured Parties. The application of proceeds by the Secured Parties shall be
without prejudice to the Secured Parties' rights as against the Borrower or
other Persons with respect to any Secured Obligations that may then be or remain
unpaid.
5.3.4. If at any time after an Event of Default the Borrower
receives any collections upon or other Proceeds of any Collateral, whether in
the form of cash, Notes Receivable or otherwise, such Proceeds shall be received
in trust for the Secured Parties and the Borrower shall keep all such Proceeds
separate and apart from all other funds and property so as to be capable of
identification as the property of the Secured Parties and, except as otherwise
provided in the Special Depository Account Agreement, promptly deliver such
Proceeds to the Secured Parties in the identical form received.
Section 5.4. Notice of Sale.
Unless the Collateral is perishable or threatens to decline speedily in
value or is of a type customarily sold on a recognized market, the Secured
Parties will send or otherwise make available to the Borrower reasonable written
notice of the time and place of any public sale or of the time on or after which
any private sale of any Collateral is to be made. The Borrower agrees that any
notice required to be given by the Secured Parties of a sale or other
disposition of collateral, or any other intended action by the Secured Parties,
that is received in accordance with the provisions set forth in Section 6.4 ten
(10) days prior to such proposed action, shall constitute commercially
reasonable and fair notice thereof to the Borrower. The Secured Parties may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor and such sale may, without further notice, be made at
the time and place to which it was so adjourned. The Borrower hereby waives any
right to receive notice of any public or private sale of any Collateral or other
security for the Secured Obligations except as expressly provided for in this
Section 5.4.
ARTICLE 6
GENERAL
Section 6.1. The Secured Parties' Expenses, Including Attorneys' Fees.
Regardless of the occurrence of an Event of Default, the Borrower agrees
to pay to the Secured Parties any and all advances, charges, costs and expenses,
including the reasonable fees and expenses of counsel and any experts or agents,
that the Secured Parties may reasonably incur in connection with (i) the
protection of the perfection, continuation or priority of the Security Interest
or protection of the Collateral, including the discharging of any prior or
junior Lien or adverse claim against the Collateral or any part thereof, (ii)
the custody, preservation or sale of, collection from, or other realization
upon, any of the Collateral, (iii) the exercise or enforcement
19
<PAGE> 20
of any of the rights, powers or remedies of the Secured Parties under this
Agreement or under Applicable Law (including reasonable attorneys' fees and
expenses incurred by the Secured Parties in the collection of Collateral
deposited with the Secured Parties and amounts incurred in connection with the
operation, maintenance or foreclosure of the Security Interest) or any
bankruptcy proceeding, or (iv) the failure by the Borrower to perform or observe
any of the provisions hereof All such amounts and all other amounts payable
hereunder shall be payable on written demand, together with interest for the
period from the date of demand at a rate of interest equal to the lesser of (x)
the Post-Default Rate or (y) the maximum rate allowed by Applicable Law, from
and including the due date to and excluding the date of payment.
Section 6.2. Amendments and Other Modifications.
No amendment of any provision of this Agreement (including a waiver
thereof or consent relating thereto) shall be effective unless the same shall be
in writing and signed by the Borrower and PMF. Any waiver or consent relating to
any provision of this Agreement shall be effective only in the specific instance
and for the specific purpose for which given. No notice to or demand on the
Borrower in any case shall entitle the Borrower to any other or further notice
or demand in similar circumstances.
Section 6.3. Cumulative Remedies; Failure or Delay.
The rights and remedies provided for under this Agreement are cumulative
and are not exclusive of any rights and remedies that may be available to the
Secured Parties under Applicable Law, the other Loan Documents or otherwise. No
failure or delay on the part of the Secured Parties in the exercise of any
power, right or remedy under this Agreement shall impair such power, right or
remedy or shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or remedy preclude other or further exercise
of such or any other power, right or remedy.
Section 6.4. Notices, Etc.
All notices and other communications under this Agreement shall be in
writing and shall be personally delivered or sent by prepaid overnight courier,
by registered or certified mail (postage prepaid), or by telecopy, and shall be
deemed given when received by the intended recipient thereof. Unless otherwise
specified in a notice given in accordance with the foregoing provisions of this
Section 6.4. notices and other communications shall be given to the parties
hereto at their respective addresses (or to their respective telecopier numbers)
indicated on the signature pages of the Loan Agreement.
Section 6.5. Successors and Assigns.
This Agreement shall be binding upon and, subject to the next sentence,
inure to the benefit of the Borrower and the Secured Parties and their
respective successors and assigns. The Borrower shall not assign or transfer any
of its rights or obligations hereunder without the prior written consent of the
Secured Parties. The benefits of this Agreement shall pass automatically with
any assignment of the Secured Obligations (or any portion thereof), to the
extent of such assignment.
20
<PAGE> 21
Section 6.6. Payments Set Aside.
Notwithstanding anything to the contrary herein contained, this
Agreement, the Secured Obligations and the Security Interest shall continue to
be effective or be reinstated, as the case may be, if at any time any payment,
or any part thereof, of any or all of the Secured Obligations is rescinded,
invalidated, declared to be fraudulent or preferential or otherwise required by
Applicable Law to be restored or returned by the Secured Parties in connection
with any bankruptcy, reorganization or similar proceeding involving the
Borrower, any other party liable with respect to the Secured Obligations or
otherwise, if the proceeds of any Collateral are required by Applicable Law to
be returned by the Secured Parties under any such circumstances, or if the
Secured Parties elects to return any such payment or proceeds or any part
thereof in their discretion, all as though such payment had not been made or
such proceeds not been received. Without limiting the generality of the
foregoing, if prior to any such rescission, invalidation, declaration,
restoration or return, this Agreement shall have been canceled or surrendered or
the Security Interest or any Collateral shall have been released or terminated
in connection with such cancellation or surrender, this Agreement and the
Security Interest and such Collateral shall be reinstated in full force and
effect, and such prior cancellation or surrender shall not diminish, discharge
or otherwise affect the obligations of the Borrower in respect of the amount of
the affected payment or application of proceeds, the Security Interest or such
Collateral.
Section 6.7. Continuing Security Interest; Termination.
This Agreement shall create a continuing security interest in the
Collateral and, except as provided below, the Security Interest and all
agreements, representations and warranties made herein shall survive until, and
this Agreement shall terminate only upon, the indefeasible payment and
performance in full of the Secured Obligations. Any investigation at any time
made by or on behalf of the Secured Parties shall not diminish the right of the
Secured Parties to rely on any agreements, representations or warranties herein.
Notwithstanding anything in this Agreement or Applicable Law to the
contrary, the agreements of the Borrower set forth in Sections 4.6.1, 4.6.4,
4.6.5 and 6.1 shall survive the payment of all other Secured Obligations and the
termination of this Agreement.
Section 6.8. Waiver and Estoppel.
Except as otherwise provided in this Agreement, the Borrower hereby
waives: (i) presentment protest, notice of dishonor, release, compromise,
settlement, extension or renewal and any other notice of or with respect to the
Secured Obligations and hereby ratifies and confirms whatever the Secured
Parties may do in this regard absent gross negligence or willful misconduct;
(ii) notice prior to taking possession or control of any Collateral or any bond
or security that might be required by any court prior to allowing the Secured
Parties to exercise any of their rights, powers or remedies; (iii) the benefit
of all valuation, appraisement, redemption and exemption laws; (iv) any rights
to require marshaling of the Collateral upon any sale or otherwise to direct the
order in which the Collateral shall be sold; (v) any set-off and (vi) any rights
to require the Secured Parties to proceed against any Person, proceed against or
exhaust any Collateral or any other security interests or guaranties or pursue
any other remedy in the
21
<PAGE> 22
Secured Parties' power, or to pursue any of such rights in any particular order
or manner, or any defenses arising by reason of any disability or defense of any
Person.
Section 6.9. Appointment of PMF as Agent.
The parties acknowledge that PMF has been appointed Agent for the
Secured Parties. Subject to the terms of the Intercreditor Agreement, PMF may
exercise all of the Secured Parties' rights hereunder. The parties agree that
Borrower may rely on any waiver, consent or approval granted by PMF hereunder.
Section 6.10. Execution in Counterparts.
This Agreement may be executed in any number of counterparts, each of
which counterparts, when so executed and delivered, shall be deemed to be an
original and all of which counterparts, taken together, shall constitute but one
and the same Agreement.
Section 6.11. Complete Agreement.
This Agreement, together with the Exhibits and Schedules hereto and the
other Loan Documents, is intended by the parties as a final expression of their
agreement regarding the subject matter hereof and as a complete and exclusive
statement of the terms and conditions of such agreement.
Section 6.12. Limitation of Liability.
No claim shall be made by the Borrower against the Secured Parties or
the Affiliates, shareholders, directors, officers, employees, agents or
attorneys of the Secured Parties for any special, indirect, consequential or
punitive damages in respect of any claim for breach of contract or under any
other theory of liability arising out of or related to the transactions
contemplated by this Agreement, the Loan Agreement and the other Transaction
Documents, or any act, omission or event occurring in connection therewith; and
the Borrower hereby waives, releases and agrees not to sue upon any claim for
any such damages, whether or not accrued and whether or not known or suspected
to exist in its favor. The foregoing provisions of this Section 6.11 are not
intended to preclude Borrower from bringing a legal action against the Secured
Parties for Borrower's direct, actual damages.
Section 6.13. DISPUTE RESOLUTION.
THE PARTIES HEREBY ACKNOWLEDGE THAT THE PROVISIONS OF SECTION 8.11 AND
8.12 OF THE LOAN AGREEMENT SHALL APPLY TO THE RESOLUTION OF ANY DISPUTES
HEREUNDER OR ANY OF THE DOCUMENTS ATTACHED AS SCHEDULES HERETO.
22
<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered as of the date first set forth above.
BORROWER
GENERAL AUTOMATION, INC.
a Delaware corporation
By:
-------------------------------------
Its:
------------------------------------
THE SECURED PARTIES:
PACIFIC MEZZANINE FUND, L.P.,
a California limited partnership
By: Pacific Private Capital,
its General Partner
By:
-------------------------------------
Its:
------------------------------------
23
<PAGE> 1
EXHIBIT 10.21
THE SECURED CONVERTIBLE PROMISSORY NOTE EVIDENCED OR CONSTITUTED HEREBY,
AND ALL SHARES OF COMMON STOCK ISSUABLE HEREUNDER, HAVE BEEN AND WILL BE ISSUED
WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933
ACT") AND MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, PLEDGED OR
HYPOTHECATED WITHOUT REGISTRATION UNDER THE ACT UNLESS EITHER (i) MAKER HAS
RECEIVED AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO
MAKER, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH
DISPOSITION OR (ii) THE SALE OF SUCH SECURITIES IS MADE PURSUANT TO SECURITIES
AND EXCHANGE COMMISSION RULE 144.
SECURED CONVERTIBLE PROMISSORY NOTE
$3,150,000 September 30, 1999
FOR VALUE RECEIVED, the undersigned, GENERAL AUTOMATION, INC., a Delaware
corporation ("Maker"), promises to pay to the order of PACIFIC MEZZANINE FUND,
L.P., a California limited partnership ("Payee", Payee and any subsequent
holder(s) hereof are hereinafter referred to collectively as "Holder"), at the
office of Payee at 2200 Powell Street, Suite 1250, Emeryville, California 94608,
or at such other place as Holder may designate to Maker in writing from time to
time, the principal sum of THREE MILLION, ONE HUNDRED FIFTY THOUSAND DOLLARS
($3,150,000), together with interest on the outstanding principal balance hereof
from the date hereof at the Base Rate (as such term is defined in the Loan
Agreement by and between Maker and Payee of even date herewith (the "Loan
Agreement")). All interest hereunder shall be calculated based on a 360-day year
and paid for the actual number of days elapsed.
Interest only on the outstanding principal balance hereof shall be due and
payable monthly, in arrears, with the first installment being payable on the
first (1st) day of November, 1999, and subsequent installments being payable on
the first (1st) day of each succeeding month thereafter until the Maturity Date
(as such term is defined in the Loan Agreement), at which time the entire
outstanding principal balance, together with all accrued and unpaid interest,
shall be immediately due and payable in full.
The indebtedness evidenced hereby may be prepaid in whole or in part, at
any time and from time to time, without penalty, subject to the terms of the
Loan Agreement. Any such prepayments shall be credited first to any accrued and
unpaid interest and then to the outstanding principal balance hereof.
This Note will be a fully-registered note on the books of Maker and will
be issued only in fully-registered form. Maker will cause to be kept at its
principal office a register for the registration and transfer of the Notes. The
name and address of each Holder hereof, the transfer thereof and the names and
addresses of any transferee hereof, or any interest therein, shall be recorded
in such register. Until a transfer hereof is duly registered on the books of
Maker, Maker
<PAGE> 2
may treat the registered Holder thereof as the owner for all purposes. This Note
is subject to the restrictions on transfer set forth herein and in the Loan
Agreement.
Time is of the essence of this Note. It is hereby expressly agreed that in
the event that any default be made in the payment of principal or interest as
stipulated above, which default is not cured following the giving of any
applicable notice and within five (5) business days; or in the event that any
default or event of default shall occur under the Loan Agreement, which default
or event of default is not cured following the giving of any applicable notice
and within any applicable cure period set forth in said Loan Agreement; or
should any default by Maker be made in the performance or observance of any
covenants or conditions contained in any other instrument or document now or
hereafter evidencing, securing or otherwise relating to the indebtedness
evidenced hereby (subject to any applicable notice and cure period provisions
that may be set forth therein); then, and in such event, the entire outstanding
principal balance of the indebtedness evidenced hereby, together with any other
sums advanced hereunder, under the loan agreement and/or under any other
instrument or document now or hereafter evidencing, securing or in any way
relating to the indebtedness evidenced hereby, together with all unpaid interest
accrued thereon, shall, at the option of Holder and without notice to Maker, at
once become due and payable and may be collected forthwith, regardless of the
stipulated date of maturity. Upon the occurrence of any default as set forth
herein, at the option of Holder and without notice to Maker, all accrued and
unpaid interest, if any, shall be added to the outstanding principal balance
hereof, and the entire outstanding principal balance, as so adjusted, shall bear
interest thereafter until paid at the Default Rate (as such term is defined in
the Loan Agreement), regardless of whether or not there has been an acceleration
of the payment of principal as set forth herein. All such interest shall be paid
at the time of and as a condition precedent to the curing of any such default.
In the event this Note is placed in the hands of an attorney for
collection, or if Holder incurs any costs incident to the collection of the
indebtedness evidenced hereby, Maker and any indorsers hereof agree to pay to
Holder an amount equal to all such costs, including without limitation all
actual reasonable attorney's fees and all court costs.
Presentment for payment, demand, protest and notice of demand, protest and
nonpayment are hereby waived by Maker and all other parties hereto. No failure
to accelerate the indebtedness evidenced hereby by reason of default hereunder,
acceptance of a past-due installment or other indulgences granted from time to
time, shall be construed as a novation of this Note or as a waiver of such right
of acceleration or of the right of Holder thereafter to insist upon strict
compliance with the terms of this Note or to prevent the exercise of such right
of acceleration or any other right granted hereunder or by applicable laws. No
extension of the time for payment of the indebtedness evidenced hereby or any
installment due hereunder, made by agreement with any person now or hereafter
liable for payment of the indebtedness evidenced hereby, shall operate to
release, discharge, modify, change or affect the original liability of Maker
hereunder or that of any other person now or hereafter liable for payment of the
indebtedness evidenced hereby, either in whole or in part, unless Holder agrees
otherwise in writing. This Note may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
2
<PAGE> 3
The indebtedness and other obligations evidenced by this Note are further
evidenced by (i) the Loan Agreement and (ii) certain other instruments and
documents, as may be required to protect and preserve the rights of Maker and
Payee as more specifically described in the Loan Agreement.
Payment of this Note is secured by a security interest in all assets of
Maker pursuant to a Security Agreement, a Pledge Agreement, a Patent and
Trademark Security Agreement and Copyright Security Agreement, each dated as of
the date hereof (collectively, the "Security Agreements").
All or any portion of this Note, including accrued interest, is
convertible at the option of the Holder at any time prior to the Maturity Date
into shares of Maker's Common Stock ("Conversion Stock") at the Conversion Rate
(as such term is defined in the Loan Agreement) and shall also automatically
convert at the Conversion Rate under certain circumstances more particularly
described in the Loan Agreement. The Holder of this Note shall give Maker five
(5) business days' written notice of his election to convert setting forth the
name and address of such Holder and the amount of the principal and accrued
interest of the Note to be converted. Holder shall tender this Note to Maker
together with such election. Maker shall deliver the shares issuable upon
conversion hereof within fifteen (15) business days after receipt of such
conversion notice. If less than all of this Note is converted in shares of
stock, Maker shall issue to Holder a new note for the remaining principal amount
together with an acknowledgment of the remaining accrued interest hereon.
The Holder, by acceptance hereof, agrees that, absent an effective
registration statement filed with the SEC under the 1933 Act, covering the
disposition or sale of this Note or the Conversion Stock issued or issuable upon
conversion hereof, as the case may be, and registration or qualification under
applicable state securities laws, such Holder will not sell, transfer, pledge,
or hypothecate any or all such Note or Conversion Stock, as the case may be,
unless either (i) Maker has received an opinion of counsel, in form and
substance reasonably satisfactory to Maker, to the effect that such registration
is not required in connection with such disposition or (ii) the sale of such
securities is made pursuant to SEC Rule 144.
By acceptance of this Note, the Holder hereby represents, warrants and
covenants that any shares of stock purchased upon conversion of this Note shall
be acquired for investment only and not with a view to, or for sale in
connection with, any distribution thereof; that the Holder has had such
opportunity as such Holder has deemed adequate to obtain from representatives of
Maker such information as is necessary to permit the Holder to evaluate the
merits and risks of its investment in Maker; that the Holder is able to bear the
economic risk of holding such shares as may be acquired pursuant to the
conversion of this Note for an indefinite period; that the Holder understands
that the shares of stock acquired pursuant to conversion of this Note will not
be registered under the 1933 Act (unless otherwise required pursuant to exercise
by the Holder of the registration rights granted to the Holder) and will be
"restricted securities" within the meaning of Rule 144 under the 1933 Act and
that the exemption from registration under Rule 144 will not be available for at
least one year from the date of conversion of this Note, and even then will not
be available unless a public market then exists for the stock, adequate
information concerning Maker is then available to the public, and other terms
and conditions of Rule 144 are
3
<PAGE> 4
complied with; and that all stock certificates representing shares of stock
issued to the Holder upon conversion of this Note may have affixed thereto a
legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY
REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO
THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
All shares of common stock issuable upon conversion of this Note shall be
"Registrable Securities" or such other definition of securities entitled to
registration rights pursuant to the Investors' Rights Agreement dated September
30, 1999, by and among the Maker and the original Payee hereof.
Subject to and under the circumstances set forth in the Loan Agreement,
Payee has agreed to subordinate its rights under the Loan Agreement, this Note
and the Loan Documents (as such term is defined in the Loan Agreement) to
certain senior debt, capital lease and similar obligations.
All agreements herein made are expressly limited so that in no event
whatsoever, whether by reason of advancement of proceeds hereof, acceleration of
maturity of the unpaid balance hereof or otherwise, shall the amount paid or
agreed to be paid to Holder for the use of the money advanced or to be advanced
hereunder exceed the maximum rate of interest allowed by law (the "Maximum
Rate"). If, from any circumstances whatsoever, the fulfillment of any provision
of this Note or any other agreement or instrument now or hereafter evidencing,
securing or in any way relating to the indebtedness evidenced hereby shall
involve the payment of interest in excess of the Maximum Rate, then, ipso facto
the obligation to pay interest hereunder shall be reduced to the Maximum Rate;
and if from any circumstance whatsoever, Holder shall ever receive interest, the
amount of which would exceed the amount collectible at the Maximum Rate, such
amount as would be excessive interest shall be applied to the reduction of the
principal balance remaining unpaid hereunder and not to the payment of interest.
This provision shall control every other provision in any and all other
agreements and instruments
4
<PAGE> 5
existing or hereafter arising between Maker and Holder with respect to the
indebtedness evidenced hereby:
This Note is tended as a contract under and shall be construed and
enforceable in accordance with the laws of the State of California, except to
the extent that federal law may be applicable to the determination of the
Maximum Rate.
MAKER:
GENERAL AUTOMATION, INC.,
a Delaware corporation
By:
-----------------------------------
Title:
5
<PAGE> 1
EXHIBIT 10.22
WARRANT
THE WARRANT EVIDENCED OR CONSTITUTED HEREBY, AND ALL SHARES OF COMMON
STOCK ISSUABLE HEREUNDER, HAVE BEEN AND WILL BE ISSUED WITHOUT REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("THE ACT") AND MAY NOT BE SOLD,
OFFERED FOR SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT REGISTRATION
UNDER THE ACT UNLESS EITHER (i) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL,
IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH DISPOSITION OR (ii) THE
SALE OF SUCH SECURITIES IS MADE PURSUANT TO SECURITIES AND EXCHANGE COMMISSION
RULE 144.
WARRANT TO PURCHASE COMMON STOCK OF _____________________________.
(Subject to Adjustment)
NO. __________________
THIS CERTIFIES THAT, for value received, Pacific Mezzanine Fund, L.P., a
California limited partnership, or its permitted registered assigns ("Holder"),
is entitled, subject to the terms and conditions of this warrant, at any time or
from time to time after the date of issuance hereof and before the expiration
date specified in section 2.8 (the "Expiration Date"), to purchase from
____________________________ (the "Company"), _______________________________
(________) shares of Warrant Stock (as defined in section 1 below) of the
company at a price per share of _______________ ($_____) (the "Purchase Price").
Both the number of shares of Warrant Stock purchasable upon exercise of this
Warrant and the Purchase Price are subject to adjustment and change as provided
herein. This Warrant is issued in connection with that certain Loan Agreement,
dated [DATE] (the "Agreement"), between the Company and Holder.
1. CERTAIN DEFINITIONS. As used in this Warrant the following terms
shall have the following respective meanings:
1.1 "Fair Market Value" of a share of Common Stock as of a
particular date shall mean:
(a) If traded on a securities exchange or the Nasdaq National
Market, the Fair Market Value shall be deemed to be the average of the closing
prices of the Common Stock of the Company on such exchange or market over the 5
business days ending immediately prior to the applicable date of valuation;
(b) If actively traded over-the-counter, the Fair Market Value
shall be deemed to be the average of the closing bid prices over the 30-day
period ending immediately prior to the applicable date of valuation; and
(c) If there is no active public market, the Fair Market Value
shall be the value thereof, as determined in good faith by the Company's board
of directors; provided,
<PAGE> 2
however, that if the Holder objects in good faith to such determination, then
such value shall be determined by an independent valuation firm experienced in
valuing businesses such as that of the Company and jointly selected in good
faith by the Company and the Holder. Fees and expenses of the valuation firm
shall be shared equally by the Company and the Holder.
(d) If the Company has entered into an agreement or has
received a binding letter of intent for a proposed Acquisition Transaction (as
such term is defined in Section 4.6 hereof), the Fair Market Value shall be the
price per share of the Common Stock in the Acquisition Transaction, regardless
of whether such transaction has been publicly announced or consummated. Whenever
the consideration to be paid in any Acquisition Transaction is assets other than
cash or securities, the value thereof shall be determined in good faith by the
Company's board of directors; provided, however, that if the Holder objects in
good faith to such determination, then such value shall be determined by an
independent valuation firm experienced in valuing businesses such as that of the
Company and jointly selected in good faith by the Company and the Holder. Fees
and expenses of the valuation firm shall be shared equally by the Company and
the Holder. If the consideration to be paid in any Acquisition Transaction is
securities, the value of such securities shall be determined in substantially
the same manner used to determine the value of the Company's Common Stock set
forth in Section 1.1(a), (b) and (c) above.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976.
"Registered Holder" shall mean any Holder in whose name this Warrant is
registered upon the books and records maintained by the Company.
"Warrant" as used herein, shall include this Warrant and any warrant
delivered in substitution or exchange therefor as provided herein.
"Warrant Stock" shall mean the Common Stock of the Company and any other
securities at any time receivable or issuable upon exercise of this Warrant.
2. EXERCISE OF WARRANT
2.1 Payment. Subject to compliance with the terms and conditions
of this Warrant and applicable securities laws, this Warrant may be exercised,
in whole or in part at any time or from time to time, on or before the
Expiration Date by the delivery (including, without limitation, delivery by
facsimile) of the form of Notice of Exercise attached hereto as Exhibit 1 (the
"Notice of Exercise"), duly executed by the Holder, at the principal office of
the Company, and as soon as practicable after such date, surrendering
(a) this Warrant at the principal office of the Company, and
(b) payment, (i) in cash (by check) or by wire transfer, (ii)
by cancellation by the Holder of indebtedness of the Company to the Holder;
(iii) by exchange of the Company's securities held by Holder, at the Fair Market
Value thereof or (iv) by a combination of (i), (ii) and (iii), of an amount
equal to the product obtained by multiplying the
2
<PAGE> 3
number of shares of Warrant Stock being purchased upon such exercise by the then
effective Purchase Price (the "Exercise Amount"), except that if Holder is
subject to HSR Act Restrictions (as defined in Section 2.5 below), the Exercise
Amount shall be paid to the Company within five (5) business days of the
termination of all HSR Act Restrictions.
2.2 Net Issue Exercise. In lieu of the payment methods set forth
in Section 2.1(b) above, the Holder may elect to exchange all or some of the
Warrant for shares of Warrant Stock equal to the value of the amount of the
Warrant being exchanged on the date of exchange. If Holder elects to exchange
this Warrant as provided in this Section 2.2, Holder shall tender to the Company
the Warrant for the amount being exchanged, along with written notice of
Holder's election to exchange some or all of the Warrant, and the Company shall
issue to Holder the number of shares of Warrant Stock computed using the
following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Warrant Stock to be issued to
Holder.
Y = the number of shares of Warrant Stock purchasable under the
amount of the Warrant being exchanged (as adjusted to the date of
such calculation).
A = the Fair Market Value of one share of the Company's Common
Stock.
B = Purchase Price (as adjusted to the date of such calculation).
All references herein to an "exercise" of the Warrant shall include an exchange
pursuant to this Section 2.2.
2.3 "Easy Sale" Exercise. In lieu of the payment methods set forth
in Section 2.1(b) above, when permitted by law and applicable regulations
(including Nasdaq and NASD rules), the Holder may pay the Purchase Price through
a "same day sale" commitment from the Holder (and if applicable a broker-dealer
that is a member of the National Association of Securities Dealers (a "NASD
Dealer")), whereby the Holder irrevocably elects to exercise this Warrant and to
sell a portion of the Shares so purchased to pay for the Purchase Price and the
NASD Dealer commits upon receipt of such Shares to forward the Purchase Price
directly to the Company.
2.4 Stock Certificates; Fractional Shares. As soon as practicable
on or after such date, the Company shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of whole shares of Common Stock issuable upon such exercise, together
with cash in lieu of any fraction of a share equal to such fraction of the
current Fair Market Value of one whole share of Common Stock as of the date of
exercise of this Warrant. No fractional shares or scrip representing fractional
shares shall be issued upon an exercise of this Warrant.
3
<PAGE> 4
2.5 HSR Act. The Company hereby acknowledges that exercise of this
Warrant by Holder may subject the Company and/or the Holder to the filing
requirements of the HSR Act and that Holder may be prevented from exercising
this Warrant until the expiration or early termination of all waiting periods
imposed by the HSR Act ("HSR Act Restrictions"). If on or before the Expiration
Date Holder has sent the Notice of Exercise to Company and Holder has not been
able to complete the exercise of this Warrant prior to the Expiration Date
because of HSR Act Restrictions, the Holder shall be entitled to complete the
process of exercising this Warrant in accordance with the procedures contained
herein notwithstanding the fact that completion of the exercise of this Warrant
would take place after the Expiration Date.
2.6 Partial Exercise; Effective Date of Exercise. In case of any
partial exercise of this Warrant, the Company shall cancel this Warrant upon
surrender hereof and shall execute and deliver a new Warrant of like tenor and
date for the balance of the shares of Warrant Stock purchasable hereunder. Any
partial exercise of this Warrant, other than the final exercise, shall be for a
minimum of [1,000] shares of Warrant Stock. This Warrant shall be deemed to have
been exercised immediately prior to the close of business on the date of its
surrender for exercise as provided above together with the payment of the
exercise price pursuant to Sections 2.1, 2.2 and 2.3 hereof. However, if Holder
is subject to HSR Act filing requirements this Warrant shall be deemed to have
been exercised on the date immediately following the date of the expiration of
all HSR Act Restrictions. The person entitled to receive the shares of Warrant
Stock issuable upon exercise of this Warrant shall be treated for all purposes
as the holder of record of such shares as of the close of business on the date
the Holder is deemed to have exercised this Warrant.
2.7 Expiration Date; Notice of Expiration. The Company shall
deliver to Holder a written Notice of Expiration in the form attached hereto as
Exhibit 2 at least thirty (30) days but not more than sixty (60) days before the
Expiration Date. Subject to Section 4.6 hereof, this Warrant shall expire on the
earliest to occur of the following: (i) [the tenth (10th)] anniversary of that
date of issuance hereof or (ii) the [sixth (6th)] anniversary of the date of
repayment in full or conversion of the promissory note issued contemporaneously
herewith pursuant to the Loan Agreement (the "Expiration Date"); provided,
however, that the Expiration Date shall be extended until the date thirty (30)
days after delivery of the Notice of Expiration.
3. VALID ISSUANCE; TAXES. All shares of Warrant Stock issued upon the
exercise of this Warrant shall be validly issued, fully paid and non-assessable,
and the Company shall pay all taxes and other governmental charges that may be
imposed in respect of the issue or delivery thereof. The Company shall not be
required to pay any tax or other charge imposed in connection with any transfer
involved in the issuance of any certificate for shares of Warrant Stock in any
name other than that of the Registered Holder of this Warrant, and in such case
the Company shall not be required to issue or deliver any stock certificate or
security until such tax or other charge has been paid, or it has been
established to the Company's reasonable satisfaction that no tax or other charge
is due.
4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number of
shares of Warrant Stock issuable upon exercise of this Warrant (or any shares of
stock
4
<PAGE> 5
or other securities or property receivable or issuable upon exercise of
this Warrant) and the Purchase Price are subject to adjustment upon occurrence
of the following events:
4.1 Adjustment for Stock Splits, Stock Subdivisions or
Combinations of Shares. The Purchase Price of this Warrant shall be
proportionally decreased and the number of shares of Warrant Stock issuable upon
exercise of this Warrant (or any shares of stock or other securities at the time
issuable upon exercise of this Warrant) shall be proportionally increased to
reflect any stock split or subdivision of the Company's Common Stock. The
Purchase Price of this Warrant shall be proportionally increased and the number
of shares of Warrant Stock issuable upon exercise of this Warrant (or any shares
of stock or other securities at the time issuable upon exercise of this Warrant)
shall be proportionally decreased to reflect any combination of the Company's
Common Stock.
4.2 Adjustment for Dividends or Distributions of Stock or Other
Securities or Property. In case the Company shall make or issue, or shall fix a
record date for the determination of eligible holders entitled to receive, a
dividend or other distribution with respect to the Common Stock (or any shares
of stock or other securities at the time issuable upon exercise of the Warrant)
payable in (a) securities of the Company or (b) assets (excluding cash dividends
paid or payable solely out of retained earnings), then, in each such case, the
Holder of this Warrant on exercise hereof at any time after the consummation,
effective date or record date of such dividend or other distribution, shall
receive, in addition to the shares of Warrant Stock (or such other stock or
securities) issuable on such exercise prior to such date, and without the
payment of additional consideration therefor, the securities or such other
assets of the Company to which such Holder would have been entitled upon such
date if such Holder had exercised this Warrant on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional stock available
by it as aforesaid during such period giving effect to all adjustments called
for by this Section 4.
4.3 Reclassification. If the Company, by reclassification of
securities or otherwise, shall change any of the securities as to which purchase
rights under this Warrant exist into the same or a different number of
securities of any other class or classes, this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities that
were subject to the purchase rights under this Warrant immediately prior to such
reclassification or other change and the Purchase Price therefore shall be
appropriately adjusted, all subject to further adjustment as provided in this
Section 4. No adjustment shall be made pursuant to this Section 4.3 upon any
conversion or redemption of the Common Stock which is the subject of Section
4.5.
4.4 Adjustment for Capital Reorganization. In case of any capital
reorganization of the capital stock of the Company (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), then, as a part of such reorganization, lawful provision shall be made
so that the Holder of this Warrant shall thereafter be entitled to receive upon
exercise of this Warrant, during the period specified herein and upon payment of
the Purchase Price then in effect, the number of shares of stock or other
securities or property of the successor corporation resulting from such
reorganization that a holder of the
5
<PAGE> 6
shares deliverable upon exercise of this Warrant would have been entitled to
receive in such reorganization, if this Warrant had been exercised immediately
before such reorganization, all subject to further adjustment as provided in
this Section 4. The foregoing provisions of this Section 4.4 shall similarly
apply to successive reorganizations and to the stock or securities of any other
corporation that are at the time receivable upon the exercise of this Warrant.
If the per-share consideration payable to the Holder hereof for shares in
connection with any such transaction is in a form other than cash or marketable
securities, then the value of such consideration shall be determined in good
faith by the Company's Board of Directors. In all events, appropriate adjustment
(as determined in good faith by the Company's Board of Directors) shall be made
in the application of the provisions of this Warrant with respect to the rights
and interests of the Holder after the transaction, to the end that the
provisions of this Warrant shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable after
that event upon exercise of this Warrant.
4.5 Conversion of Common Stock. In case all or any portion of the
authorized and outstanding shares of Common Stock of the Company are redeemed or
converted or reclassified into other securities or property pursuant to the
Company's Articles of Incorporation or otherwise, or the Common Stock otherwise
ceases to exist, then, in such case, the Holder of this Warrant, upon exercise
hereof at any time after the date on which the Common Stock is so redeemed or
converted, reclassified or ceases to exist (the "Termination Date"), shall
receive, in lieu of the number of shares of Common Stock that would have been
issuable upon such exercise immediately prior to the Termination Date, the
securities or property that would have been received if this Warrant had been
exercised in full and the Common Stock received thereupon had been
simultaneously converted immediately prior to the Termination Date, all subject
to further adjustment as provided in this Warrant. Additionally, the Purchase
Price shall be immediately adjusted to equal the quotient obtained by dividing
(x) the aggregate Purchase Price of the maximum number of shares of Common Stock
for which this Warrant was exercisable immediately prior to the Termination Date
by (y) the number of shares of Common Stock of the Company for which this
Warrant is exercisable immediately before the Termination Date, all subject to
further adjustment as provided herein.
4.6 Acquisition Transactions. Notwithstanding anything to the
contrary herein, in the event that the Company proposes to enter into any
transaction, or series of transactions, in which substantially all of its
securities are to be acquired by another entity or entities for cash, securities
of another entity or other assets (collectively, an "Acquisition Transaction"),
then the Company shall provide to the Holder thirty (30) days' written notice of
the Acquisition Transaction, which notice shall describe the transaction in
reasonable detail, including the consideration to be paid for the Company's
securities by the acquiring entities and the date of the closing of the
Acquisition Transaction (the "Closing Date"), and the Company shall not
consummate the Acquisition Transaction(s) until after the expiration of such
notice period. The Holder shall have the right to exercise this Warrant at any
time before the Closing Date. If Holder fails to exercise this Warrant before
the Closing Date, this Warrant shall expire on the Closing Date. In addition, if
Holder elects to exercise this Warrant and pay the exercise price, or any
portion thereof, with securities of the Company during any period in which the
Company has entered into discussions regarding an Acquisition Transaction or
otherwise has proposed or received a proposal for such a transaction (and prior
to the delivery of a notice of
6
<PAGE> 7
such transaction as set forth above), the Company shall (i) inform Holder of
such proposal or discussions prior to effectuating such exercise and (ii) give
Holder the option of terminating or delaying the exercise hereof until an
agreement or binding commitment regarding such Acquisition Transaction is
entered into, if any.
5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment in the
Purchase Price, or number or type of shares issuable upon exercise of this
Warrant, the Chief Financial Officer or Controller of the Company shall compute
such adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based, including a statement of the adjusted Purchase
Price. The Company shall promptly send (by facsimile and by either first class
mail, postage prepaid or overnight delivery) a copy of each such certificate to
the Holder.
6. LOSS OR MUTILATION. Upon receipt of evidence reasonably satisfactory
to the Company of the ownership of and the loss, theft, destruction or
mutilation of this Warrant, and of indemnity reasonably satisfactory to it, and
(in the case of mutilation) upon surrender and cancellation of this Warrant, the
Company will execute and deliver in lieu thereof a new Warrant of like tenor as
the lost, stolen, destroyed or mutilated Warrant.
7. RESERVATION OF COMMON STOCK. The Company hereby covenants that at
all times there shall be reserved for issuance and delivery upon exercise of
this Warrant such number of shares of Common Stock or other shares of capital
stock of the Company as are from time to time issuable upon exercise of this
Warrant and, from time to time, will take all steps necessary to amend its
Articles of Incorporation to provide sufficient reserves of shares of Common
Stock issuable upon exercise of this Warrant. All such shares shall be duly
authorized, and when issued upon such exercise, shall be validly issued, fully
paid and non-assessable, free and clear of all liens, security interests,
charges and other encumbrances or restrictions on sale and free and clear of all
preemptive rights, except encumbrances or restrictions arising under federal or
state securities laws. Issuance of this Warrant shall constitute full authority
to the Company's officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the exercise of this Warrant.
8. TRANSFER AND EXCHANGE. Subject to the terms and conditions of this
Warrant and compliance with all applicable securities laws, this Warrant and all
rights hereunder may be transferred to any Registered Holder's parent,
subsidiary or affiliate, in whole or in part, on the books of the Company
maintained for such purpose at the principal office of the Company referred to
above, by the Registered Holder hereof in person, or by duly authorized
attorney, upon surrender of this Warrant together with a properly endorsed form
of Notice of Assignment attached hereto as Exhibit 3 and upon payment of any
necessary transfer tax or other governmental charge imposed upon such transfer.
Upon any permitted partial transfer, the Company will issue and deliver to the
Registered Holder a new Warrant or Warrants with respect to the shares of
Warrant Stock not so transferred. Each taker and holder of this Warrant, by
taking or holding the same, consents and agrees that when this Warrant shall
have been so endorsed, the person in possession of this Warrant may be treated
by the Company, and all other persons dealing with this Warrant, as the absolute
owner hereof for any purpose and as the person entitled to exercise the rights
represented hereby, any notice to the contrary
7
<PAGE> 8
notwithstanding; provided, however that until a transfer of this Warrant is duly
registered on the books of the Company, the Company may treat the Registered
Holder hereof as the owner for all purposes.
9. RESTRICTIONS ON TRANSFER. The Holder, by acceptance hereof, agrees
that, absent an effective registration statement filed with the SEC under the
Securities Act of 1933, as amended (the "1933 Act"), covering the disposition or
sale of this Warrant or the Warrant Stock issued or issuable upon exercise
hereof, as the case may be, and registration or qualification under applicable
state securities laws, such Holder will not sell, transfer, pledge, or
hypothecate any or all such Warrants or Warrant Stock, as the case may be,
unless either (i) the Company has received an opinion of counsel, in form and
substance reasonably satisfactory to the Company, to the effect that such
registration is not required in connection with such disposition or (ii) the
sale of such securities is made pursuant to SEC Rule 144.
10. COMPLIANCE WITH SECURITIES LAWS. By acceptance of this Warrant, the
holder hereby represents, warrants and covenants that any shares of stock
purchased upon exercise of this Warrant or acquired upon conversion thereof
shall be acquired for investment only and not with a view to, or for sale in
connection with, any distribution thereof; that the Holder has had such
opportunity as such Holder has deemed adequate to obtain from representatives of
the Company such information as is necessary to permit the Holder to evaluate
the merits and risks of its investment in the Company; that the Holder is able
to bear the economic risk of holding such shares as may be acquired pursuant to
the exercise of this Warrant for an indefinite period; that the Holder
understands that the shares of stock acquired pursuant to the exercise of this
Warrant or acquired upon conversion thereof will not be registered under the
1933 Act (unless otherwise required pursuant to exercise by the Holder of the
registration rights, if any, previously granted to the Registered Holder) and
will be "restricted securities" within the meaning of Rule 144 under the 1933
Act and that the exemption from registration under Rule 144 will not be
available for at least one year from the date of exercise of this Warrant,
subject to any special treatment by the SEC for exercise of this Warrant
pursuant to Section 2.2, and even then will not be available unless a public
market then exists for the stock, adequate information concerning the Company is
then available to the public, and other terms and conditions of Rule 144 are
complied with; and that all stock certificates representing shares of stock
issued to the Holder upon exercise of this Warrant may have affixed thereto a
legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE
REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
8
<PAGE> 9
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER
OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
11. REGISTRATION RIGHTS. All shares of Warrant Stock issuable upon
exercise of this Warrant shall be "Registrable Securities" or such other
definition of securities entitled to registration rights pursuant to the
Investors' Rights Agreement dated September 30, 1999, by and among the Company,
the Holder and other holders of the Company's securities.
12. NOTICES. All notices and other communications from the Company to
the Holder shall be given in accordance with the Agreement.
13. HEADINGS. The headings in this Warrant are for purposes of
convenience in reference only, and shall not be deemed to constitute a part
hereof.
14. LAW GOVERNING. This Warrant shall be construed and enforced in
accordance with, and governed by, the laws of the State of California.
15. NO IMPAIRMENT. The Company will not, by amendment of its Articles of
Incorporation or bylaws, or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Registered Holder of this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock issuable
upon the exercise of this Warrant above the amount payable therefor upon such
exercise, and (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and non-
assessable shares of Common Stock upon exercise of this Warrant.
16. NOTICES OF RECORD DATE. In case:
16.1 the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable upon the exercise of
this Warrant), for the purpose of entitling them to receive any dividend or
other distribution, or any right to subscribe for or purchase any shares of
stock of any class or any other securities or to receive any other right; or
16.2 of any consolidation or merger of the Company with or into
another corporation, any capital reorganization of the Company, any
reclassification of the Common Stock of the Company, or any conveyance of all or
substantially all of the assets of the Company to another corporation in which
holders of the Company's stock are to receive stock, securities or property of
another corporation; or
9
<PAGE> 10
16.3 of any voluntary dissolution, liquidation or winding-up of the
Company; or
16.4 of any redemption of all outstanding Common Stock; then, and
in each such case, the Company will mail or cause to be mailed to the Registered
Holder of this Warrant a notice specifying, as the case may be, (i) the date on
which a record is to be taken for the purpose of such dividend, distribution or
right, or (ii) the date on which such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation, winding-up,
redemption or conversion is to take place, and the time, if any is to be fixed,
as of which the holders of record of Common Stock or (such stock or securities
as at the time are receivable upon the exercise of this Warrant), shall be
entitled to exchange their shares of Common Stock (or such other stock or
securities), for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be delivered at least
thirty (30) days prior to the date therein specified.
17. SEVERABILITY. If any term, provision, covenant or restriction of
this Warrant is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
18. NO INCONSISTENT AGREEMENTS. The Company will not on or after the
date of this Warrant enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the Holders of this Warrant or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to holders of the Company's securities under any other
agreements, except rights that have been waived.
19. SATURDAYS, SUNDAYS AND HOLIDAYS. If the Expiration Date falls on a
Saturday, Sunday or legal holiday, the Expiration Date shall automatically be
extended until 5:00 p.m. the next business day.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the Effective Date.
By: By:
------------------------------ ------------------------------
Name: Name:
------------------------------ ------------------------------
Title: Title:
------------------------------ ------------------------------
SIGNATURE PAGE TO WARRANT
11
<PAGE> 12
EXHIBIT 1
NOTICE OF EXERCISE
(To be executed upon exercise of Warrant)
General Automation, Inc. WARRANT NO. ___
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, the securities of General Automation, Inc., as provided for therein,
and (check the applicable box):
Tenders herewith payment of the exercise price in full in the form of cash
or a certified or official bank check in same-day funds in the amount of
$____________ for _________ such securities.
Elects the Net Issue Exercise option pursuant to Section 2.2 of the
Warrant, and accordingly requests delivery of a net of ______________ of such
securities, according to the following calculation:
X = Y (A-B)( ) = (____) [(_____) - (_____)]
-----------
A (_____)
Where X = the number of shares of Common Stock to be issued to
Holder.
Y = the number of shares of Common Stock purchasable under the
amount of the Warrant being exchanged (as adjusted to the date of
such calculation).
A = the Fair Market Value of one share of the Company's Common
Stock.
B = Purchase Price (as adjusted to the date of such calculation).
Elects the Easy Sale Exercise option pursuant to Section 2.4 of the
Warrant, and accordingly requests delivery of a net of ______________ of such
securities.
Please issue a certificate or certificates for such securities in the name
of, and pay any cash for any fractional share to (please print name, address and
social security number):
Name:
-----------------------------------
Address:
-----------------------------------
Signature:
-----------------------------------
Note: The above signature should correspond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee appearing in
the assignment form below.
12
<PAGE> 13
EXHIBIT 2
NOTICE OF EXPIRATION
General Automation, Inc. WARRANT NO. ___
Dated:
To __________________, the Holder of this Warrant:
You are hereby notified that the Warrant will expire on __________________
(the "Expiration Date"). The Expiration Date is (check one):
(i) ______ The [sixth (6th)] anniversary of the payment in full or conversion
of the note issued together with the Warrant.
(ii) ______ The [tenth (10th)] anniversary of the date of issuance of the
Warrant.
(iii) ______ Thirty (30) days after the date of delivery of this Notice (if
later than (i) and (ii) above.
In order to exercise the Warrant, you must comply with the provisions of
Section 2 thereof on or before the Expiration Date.
GENERAL AUTOMATION, INC.
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
13
<PAGE> 14
EXHIBIT 3
ASSIGNMENT
(To be executed only upon assignment of Warrant Certificate)
WARRANT NO. ___
For value received, _________________ hereby sells, assigns and transfers
unto _________________ the within Warrant Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
__________________ ___________________ attorney, to transfer said Warrant
Certificate on the books of the within-named Company with respect to the number
of Warrants set forth below, with full power of substitution in the premises:
<TABLE>
NAME(S) OF ASSIGNEE(S) ADDRESS # OF WARRANTS
---------------------- ------- -------------
<S> <C> <C>
- --------------------------- ------------------------- -------------------------
- --------------------------- ------------------------- -------------------------
- --------------------------- ------------------------- -------------------------
- --------------------------- ------------------------- -------------------------
- --------------------------- ------------------------- -------------------------
</TABLE>
And if said number of Warrants shall not be all the Warrants represented
by the Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the Warrants registered by
said Warrant Certificate.
Dated: ______________________________
Signature: ______________________________
Notice: The signature to the foregoing Assignment must correspond to the name as
written upon the face of this security in every particular, without alteration
or any change whatsoever; signature(s) must be guaranteed by an eligible
guarantor institution (banks, stock brokers, savings and loan associations and
credit unions with membership in an approved signature guarantee medallion
program) pursuant to Securities and Exchange Commission Rule 17Ad-15.
14
<PAGE> 1
EXHIBIT 10.23
INVESTORS' RIGHTS AGREEMENT
This INVESTORS' RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of September 30, 1999 by and among GENERAL AUTOMATION, INC., a Delaware
corporation (the "Company"), and PACIFIC MEZZANINE FUND, L.P., a California
limited partnership ("PMF") (together with any subsequent Investor pursuant to
Section 5.12 hereof, each an "Investor" and collectively, the "Investors").
A. The Investors are holders of convertible promissory notes (the
"Notes") and warrants to purchase shares of the Company's Common Stock (the
"Warrants") issued by the Company to such Investors pursuant to a Loan Agreement
by and among the Company and the Investors dated as of the date hereof (the
"Loan Agreement"),
B. The Loan Agreement provides that, as a condition to the Investors'
purchase of Notes and Warrants thereunder, the Company will enter into this
Agreement and the Investors will be granted the rights set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. VOTING AND BOARD REPRESENTATION RIGHTS.
1.1 Board Visitation Rights. PMF, as Agent of the Investors,
(through up to two of its officers, employees or agents) shall (i) be entitled
to attend all meetings of the Company's shareholders and Board of Directors
(including meetings of any Committees thereof), (ii) be given notice of all such
meetings and of all resolutions which are proposed to be adopted by written
consent at the time such notice is given to the Company's shareholders,
directors or Committee members (as the case may be), and (iii) receive all the
minutes, documents and other information as are provided by the Company to the
members of the Board of Directors and Committees thereof. The Investors
acknowledge that the information received by their designee(s) hereunder may be
confidential and is for the Investors' use only. The Investors will not use such
confidential information in violation of the Securities Exchange Act of 1934, as
amended, or any other applicable securities laws, or reproduce, disclose or
disseminate such information to any other person or entity (other than its
officers, partners, employees or agents or other Investors having a need to know
the contents of such information, and its attorneys, provided such persons also
agree in writing to keep such information confidential), except in connection
with the exercise of rights or remedies under this Agreement, the Loan Agreement
or any other agreement referred to in the Loan Agreement, unless the Company has
made such information available to the public generally or, if the Investor
gives the Company written notice at least twenty (20) days prior to disclosure
(or such shorter notice that may be reasonable in the circumstances), the
Investor is required to disclose such information by a governmental body.
1.2 Representation on Board of Directors. So long as the shares
of the Company's Common Stock issued or issuable under the Warrants or Notes (as
defined in the Loan Agreement) and any other equity securities held by the
Investors constitute at least ten
1
<PAGE> 2
percent (10%) of the then-outstanding shares of Common Stock of the Company,
assuming exercise of all then outstanding options and warrants and conversion of
all securities by their terms convertible into or exchangeable for Common Stock
of the Company (collectively, "Fully-Diluted Shares"), (i) PMF shall have the
right, exercisable from time to time at its option by giving written notice to
the Company, to designate one (1) designee to the Company's Board of Directors
and (ii) the Investors (including PMF) shall have the right, exercisable from
time to time at its option by giving written notice to the Company to designate
one (1) designee to the Company's Board of Directors. At the closing of the
transactions contemplated by the Loan Agreement, the Company shall appoint PMF's
and the Investors' nominees to the Board of Directors. The Company shall also
(a) include and or nominate the designees of PMF and the Investors and (b)
notify the shareholders of the Company's contractual obligations pursuant hereto
and to the Loan Agreement, in any proxy statement, or preliminary proxy
statement, request for written consent of shareholders or other solicitation of
the consent or vote of shareholders of the Company for the purpose of (x)
nominating or electing members of the Board of Directors or removing directors,
or (y) amending the Amended and Restated Articles of Incorporation and/or the
Amended and Restated Bylaws of the Company to change the number of authorized
members on the Board of Directors.
1.3 Termination. The parties further agree that Section 1.1 above
shall (i) be in effect only during such periods that the Investors' nominees
have not been appointed or elected directors of the Company pursuant to Section
1.2 above and (ii) shall terminate upon the date that the shares of the
Company's Common Stock issued or issuable under the Warrants and Notes (as
defined in the Loan Agreement) and any other equity securities held by the
Investors do not constitute at least five percent (5%) of the Fully-Diluted
Shares. Section 1.2 above shall terminate upon the date that the shares of the
Company's Common Stock issued or issuable under the Warrants and Notes (as
defined in the Loan Agreement) and any other equity securities held by the
Investors do not constitute at least ten percent (10%) of the Fully-Diluted
Shares.
2. REGISTRATION RIGHTS.
2.1 Definitions. For purposes of this Section 2:
(a) Registration. The terms "register," "registration" and
"registered" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(b) Investors' Registrable Securities. The term
"Investors' Registrable Securities" means: (1) all the shares of Common Stock of
the Company issued or issuable upon the conversion of the Notes or exercise of
the Warrants issued under the Loan Agreement; and (2) any shares of Common Stock
of the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, all such
shares of Common Stock described in clause (1) of this subsection (b); excluding
in all cases, however, any Investors' Registrable Securities sold to the public
or sold pursuant to Rule 144 promulgated under the Securities Act.
2
<PAGE> 3
(c) Holder. For purposes of this Section 2 hereof, the
term "Holder" means any person owning of record Registrable Securities that have
not been sold to the public or pursuant to Rule 144 promulgated under the
Securities Act.
(d) Form S-3. The term "Form S-3" means such form under
the Securities Act as is in effect on the date hereof or any successor
registration form under the Securities Act subsequently adopted by the SEC which
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
(e) SEC. The term "SEC" or "Commission" means the U.S.
Securities and Exchange Commission.
(f) Other Registrable Securities. The term "Other
Registrable Securities" means the approximately 2,666,666 shares of common stock
of the Company that have piggyback registration rights as of the date hereof,
which shares are more fully identified on Schedule 2.1(f).
(g) Registrable Securities. "Registrable Securities" means
the Investors' Registrable Securities and the Other Registrable Securities,
collectively.
2.2 Demand Registration.
(a) Request by Holders. If the Company shall receive at
any time, a written request from the Holders of at least 500,000 shares of the
Investors' Registrable Securities then outstanding that the Company file a
registration statement under the Securities Act covering the registration of
Investors' Registrable Securities pursuant to this Section 2.2, then the Company
shall (1) within twenty (20) days after the receipt of such written request,
give written notice of such request ("Request Notice") to all Holders of
Investors' Registrable Securities, and (2) file a registration statement under
the Securities Act with respect to all Investors' Registrable Securities which
Holders of Investors' Registrable Securities request to be registered and
included in such registration by written notice given by such Holders to the
Company within twenty (20) days after receipt of the Request Notice and use its
reasonable best efforts to effect the registration as soon as practicable,
subject only to the limitations of this Section 2.
(b) Underwriting. If the Holders of Investors' Registrable
Securities initiating the registration request under this Section 2.2 or 2.4
("Initiating Holders") intend to distribute the Investors' Registrable
Securities covered by their request by means of an underwriting, then they shall
so advise the Company as a part of their request made pursuant to this Section
2.2 or 2.4, as the case may be, and the Company shall include such information
in the written notice referred to in subsection 2.2(a) or 2.4(a), as the case
may be. In such event, the right of any Holder to include his Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting
3
<PAGE> 4
agreement in customary form with the managing underwriter or underwriters
selected for such underwriting by the Company and a majority in interest of the
Initiating Holders. Notwithstanding any other provision of this Section 2.2 or
Section 2.4, if the underwriter(s) advise(s) the Company in writing that
marketing factors require a limitation of the number of securities to be
underwritten then the Company shall so advise all Holders of Registrable
Securities that would otherwise be registered and underwritten pursuant hereto,
and the number of Registrable Securities that may be included in the
underwriting shall be reduced as required by the underwriter(s) and allocated
among the Holders of Registrable Securities on a pro rata basis according to the
number of Registrable Securities then outstanding held by each person requesting
registration (including the Initiating Holders); provided, however, that the
number of shares of Registrable Securities to be included in such underwriting
and registration shall not be reduced unless all securities proposed to be
registered for the account of the Company are first entirely excluded from the
underwriting. Any Registrable Securities excluded and withdrawn from such
underwriting shall be withdrawn from the registration.
(c) Maximum Number of Demand Registrations. The Company is
obligated to effect only one (1) such registration pursuant to this Section 2.2.
(d) Deferral. Notwithstanding the foregoing, if the
Company shall furnish to Initiating Holders, a certificate signed by the
President or Chief Executive Officer of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, then the Company shall have the right to defer such
filing for a period of not more than 120 days after receipt of the Request
Notice; provided, however, that the Company may not utilize this right more than
once in any twelve (12) month period.
(e) Expenses. All expenses incurred in connection with a
registration pursuant to this Section 2.2, including without limitation all
registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company, (but excluding underwriters' discounts
and commissions), shall be borne by the Company. Each Holder participating in a
registration pursuant to this Section 2.2 shall bear such Holder's proportionate
share (based on the total number of shares sold in such registration other than
for the account of the Company) of all discounts, commissions or other amounts
payable to underwriters or brokers in connection with such offering and the fees
and disbursements of any counsel for the participating Holders. Notwithstanding
the foregoing, the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to this Section 2.2 if the registration
request is subsequently withdrawn at the request of the Holders of a majority of
the Investors' Registrable Securities to be registered, unless the Holders of a
majority of the Investors' Registrable Securities then outstanding agree to
forfeit their right to one (1) demand registration pursuant to this Section 2.2
(in which case such right shall be forfeited by all Holders of Investors'
Registrable Securities); provided, further, however, that if at the time of such
withdrawal, the participating Holders of Investors' Registrable Securities have
learned of a material adverse change in the condition, business, or prospects of
the Company not known to such Holders at the time of their request for such
registration and have withdrawn their request
4
<PAGE> 5
for registration with reasonable promptness after learning of such material
adverse change, then such Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to this Section 2.2.
2.3 Piggyback Registrations. The Company shall notify all Holders
of Investors' Registrable Securities in writing at least thirty (30) days prior
to filing any registration statement under the Securities Act for purposes of
effecting a public offering of securities of the Company (including, but not
limited to, registration statements relating to secondary offerings of
securities of the Company and demand registrations made by holders of
Registrable Securities but excluding registration statements relating to any
employee benefit plan or a corporate reorganization, including securities issued
by the Company in an acquisition transaction) and will afford each such Holder
of Investors' Registrable Securities an opportunity to include in such
registration statement all or any part of the Investors' Registrable Securities
then held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Investors' Registrable Securities
held by such Holder shall, within twenty (20) days after receipt of the
above-described notice from the Company, so notify the Company in writing, and
in such notice shall inform the Company of the number of Investors' Registrable
Securities such Holder wishes to include in such registration statement. If a
Holder decides not to include all of its Investors' Registrable Securities in
any registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Investors' Registrable
Securities in any subsequent registration statement or registration statements
as may be filed by the Company with respect to offerings of its securities, all
upon the terms and conditions set forth herein.
(a) Underwriting. If a registration statement under which
the Company gives notice under this Section 2.3 is for an underwritten offering,
then the Company shall so advise the Holders of Investors' Registrable
Securities. In such event, the right of any such Holder's Investors' Registrable
Securities to be included in a registration pursuant to this Section 2.3 shall
be conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Investors' Registrable Securities in the underwriting
to the extent provided herein. All Holders proposing to distribute their
Investors' Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriter(s) selected for such underwriting. Notwithstanding any other
provision of this Agreement, if the managing underwriter determine(s) in good
faith that marketing factors require a limitation of the number of shares to be
underwritten, then the managing underwriter(s) may exclude shares (including
Registrable Securities) from the registration and the underwriting, and the
number of shares that may be included in the registration and the underwriting
shall be allocated, first, to the Company, and second, to each of the Holders
requesting inclusion of their Registrable Securities in such registration
statement on a pro rata basis based on the total number of Registrable
Securities then held by each such person. If any Holder of Investor's
Registrable Securities disapproves of the terms of any such underwriting, such
Holder may elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least twenty (20) days prior to the effective date of
the registration statement. Any Investors' Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration. For any Holder that is a
5
<PAGE> 6
partnership or corporation, the partners, retired partners and shareholders of
such Holder, or the estates and family members of any such partners and retired
partners and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "Holder," and any pro rata reduction with respect to such
"Holder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"Holder," as defined in this sentence.
(b) Expenses. All expenses incurred in connection with a
registration pursuant to this Section 2.3 (excluding underwriters' and brokers'
discounts and commissions; and the fees and disbursements of special counsel for
the participating Holders), including, without limitation all federal
registration and qualification fees, "blue sky" registration and qualification
fees for up to ten (10) states, printers' and accounting fees, fees and
disbursements of counsel for the Company shall be borne by the Company.
2.4 Form S-3 Registration. The Company shall use its best efforts
to qualify for registration on Form S-3 or any comparable or successor form or
forms. In case the Company shall receive from any Holder or Holders of
Investors' Registrable Securities then outstanding a written request or requests
that the Company effect a registration on Form S-3 and any related qualification
or compliance with respect to all or a part of the Investors' Registrable
Securities owned by such Holder or Holders, then the Company will:
(a) Notice. Promptly give written notice of the proposed
registration and the Holder's or Holders' request therefor, and any related
qualification or compliance, to all other Holders of Investors' Registrable
Securities; and
(b) Registration. As soon as practicable, file such
registration statement and use its reasonable best efforts to effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Investor's Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any other Holder or Holders requesting to participate in such
registration as are specified in a written request given within twenty (20) days
after receipt of such written notice from the Company; provided, however, that
the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 2.4:
(1) if Form S-3 is not available for such
offering;
(2) if the Holders requesting to participate in
such registration, propose to sell Registrable Securities at an aggregate price
to the public of less than $500,000;
(3) if the Company shall furnish to the requesting
Holders a certificate signed by the President or Chief Executive Officer of the
Company stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its shareholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
6
<PAGE> 7
statement no more than once during any twelve month period for a period of not
more than 120 days after receipt of the request of the Holder or Holders under
this Section 2.4;
(4) if the Company has, within the six (6) month
period preceding the date of such request, already effected one (1) registration
on Form S-3 for any Holders of Investors' Registrable Securities pursuant to
this Section 2.4; or
(5) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Expenses. Subject to the foregoing, the Company shall
file a Form S-3 registration statement covering the Registrable Securities and
other securities so requested to be registered pursuant to this Section 2.4 as
soon as practicable after receipt of the request or requests of the Holders for
such registration. The Company shall pay all expenses incurred in connection
with each registration requested pursuant to this Section 2.4, (excluding
underwriters' or brokers' discounts and commissions and the fees and
disbursements of special counsel for the participating Holders), including
without limitation all filing, federal registration and qualification fees,
"blue sky" registration and qualification fees for up to ten (10) states,
printers' and accounting fees and the reasonable fees and disbursements of
counsel for the Company.
(d) Not Demand Registration. Form S-3 registrations shall
not be deemed to be demand registrations as described in Section 2.2 above.
(e) Underwriting. If the Holders of Investors' Registrable
Securities initiating registration pursuant to this Section 2.4 intend to
distribute the Investors' Registrable Securities covered by their request by
means of an underwriting, then they shall advise the Company as part of their
request made pursuant to this Section 2.4, and the provisions of Section 2.2(b)
above shall apply to such registration.
2.5 Obligations of the Company. Whenever required to effect the
registration of any Investors' Registrable Securities under this Agreement, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement
with respect to such Investors' Registrable Securities and use reasonable,
diligent efforts to cause such registration statement to become effective, and,
upon the request of the Holders of a majority of the Investors' Registrable
Securities registered thereunder, keep such registration statement effective for
up to ninety (90) days.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
7
<PAGE> 8
(c) Furnish to the participating Holders such number of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Investors'
Registrable Securities owned by them that are included in such registration.
(d) Use reasonable, diligent efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions (not to exceed ten states) as
shall be reasonably requested by the participating Holders, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Investors' Registrable
Securities covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Securities Act of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
(g) Furnish, at the request of any Holder requesting
registration of Investors' Registrable Securities, on the date that such
Investors' Registrable Securities are delivered to the underwriters for sale, if
such securities are being sold through underwriters, or, if such securities are
not being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (1) an opinion, dated as of
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering and reasonably satisfactory to a majority in
interest of the Holders of Investors' Registrable Securities requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Investors' Registrable Securities and (2) a "comfort"
letter dated as of such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering
and reasonably satisfactory to a majority in interest of the Holders of
Investors' Registrable Securities requesting registration, addressed to the
underwriters, if any, and to the Holders requesting registration of Investors'
Registrable Securities.
2.6 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 2.2, 2.3 or
2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Investors' Registrable
8
<PAGE> 9
Securities held by them, and the intended method of disposition of such
securities as shall be required to timely effect the registration of their
Investors' Registrable Securities.
2.7 Delay of Registration. No Holder of Investors' Registrable
Securities shall have any right to obtain or seek an injunction restraining or
otherwise delaying any such registration as the result of any controversy that
might arise with respect to the interpretation or implementation of this Section
2.
2.8 Indemnification. In the event any Investors' Registrable
Securities are included in a registration statement under Sections 2.2, 2.3 or
2.4:
(a) By the Company. To the extent permitted by law, the
Company will indemnify and hold harmless each Holder of such Investors'
Registrable Securities, the partners, officers and directors of each such
Holder, any underwriter (as defined in the Securities Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the Securities Act or the Securities Exchange Act of 1934, as amended, (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the 1934 Act
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively, "Violations"
and, individually, a "Violation"):
(1) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto;
(2) the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to make the
statements therein not misleading, or
(3) any violation or alleged violation by the
Company of the Securities Act, the 1934 Act, any federal or state securities law
or any rule or regulation promulgated under the Securities Act, the 1934 Act or
any federal or state securities law in connection with the offering covered by
such registration statement;
and the Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending any
such loss, claim, damage, liability or action; provided however, that the
indemnity agreement contained in this subsection 2.8(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
9
<PAGE> 10
(b) By Selling Holders. To the extent permitted by law,
each selling Holder of Investors' Registrable Securities will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Securities Act, any underwriter and any other Holder
selling securities under such registration statement or any of such other
Holder's partners, directors or officers or any person who controls such Holder
within the meaning of the Securities Act or the 1934 Act, against any losses,
claims, damages or liabilities (joint or several) to which the Company or any
such director, officer, controlling person, underwriter or other such Holder,
partner or director, officer or controlling person of such other Holder may
become subject under the Securities Act, the 1934 Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case to
the extent (and only to the extent) that such Violation occurs in reliance upon
and in conformity with written information furnished by such Holder expressly
for use in connection with such registration; and each such Holder will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, controlling person, underwriter or other Holder,
partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this subsection 2.8(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; and provided further, that the total amounts payable in indemnity by a
Holder under this Section 2.8(b) in respect of any Violation shall not exceed
the net proceeds received by such Holder in the registered offering out of which
such Violation arises.
(c) Notice. Promptly after receipt by an indemnified party
under this Section 2.8 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 2.8,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.8, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 2.8.
(d) Defect Eliminated in Final Prospectus. The foregoing
indemnity agreements of the Company and Holders are subject to the condition
that, insofar as they relate to any Violation made in a preliminary prospectus
but eliminated or remedied in the amended
10
<PAGE> 11
prospectus on file with the SEC at the time the registration statement in
question becomes effective or the amended prospectus filed with the SEC pursuant
to SEC Rule 424(b) (the "Final Prospectus"), such indemnity agreement shall not
inure to the benefit of any person if a copy of the Final Prospectus was
furnished to the indemnified party and was not furnished to the person asserting
the loss, liability, claim or damage at or prior to the time such action is
required by the Securities Act.
(e) Contribution. In order to provide for just and
equitable contribution to joint liability under the Securities Act in any case
in which either (1) any Holder exercising rights under this Agreement, or any
controlling person of any such Holder, makes a claim for indemnification
pursuant to this Section 2.8 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 2.8 provides for indemnification in such case, or (2) contribution
under the Securities Act may be required on the part of any such selling Holder
or any such controlling person in circumstances for which indemnification is
provided under this Section 2.8; then, and in each such case, the Company and
such Holder will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that such Holder is responsible for the portion represented
by the percentage that the public offering price of its Registrable Securities
offered by and sold under the registration statement bears to the public
offering price of all securities offered by and sold under such registration
statement, and the Company and other selling Holders are responsible for the
remaining portion; provided, however, that, in any such case, (A) no such Holder
will be required to contribute any amount in excess of the public offering price
of all such Registrable Securities offered and sold by such Holder pursuant to
such registration statement; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
(f) Survival. The obligations of the Company and Holders
of Investors' Registrable Securities under this Section 2.8 shall survive the
completion of any offering of Investors' Registrable Securities in a
registration statement, and otherwise.
2.9 "Market Stand-Off" Agreement. Each Holder of Investors'
Registrable Securities hereby agrees that it shall not, to the extent requested
by the Company or an underwriter of securities of the Company, sell or otherwise
transfer or dispose of any Investors' Registrable Securities or other shares of
stock of the Company then owned by such Holder (other than to donees or partners
of the Holder who agree to be similarly bound) for up to one hundred eighty
(180) days following the effective date of a registration statement of the
Company filed under the Securities Act; provided, however, that all executive
officers, directors and 1% shareholders of the Company then holding Common Stock
of the Company enter into similar agreements. In order to enforce the foregoing
covenant, the Company shall have the right to place restrictive legends on the
certificates representing the shares subject to this Section and to impose stop
transfer instructions with respect to the Investors' Registrable Securities and
such
11
<PAGE> 12
other shares of stock of each Holder (and the shares or securities of every
other person subject to the foregoing restriction) until the end of such period.
2.10 Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date of the first registration under the Securities
Act filed by the Company for an offering of its securities to the general
public;
(b) Use reasonable, diligent efforts to file with the
Commission in a timely manner all reports and other documents required of the
Company under the Securities Act and the 1934 Act (at any time after it has
become subject to such reporting requirements); and
(c) So long as a Holder owns any Investors' Registrable
Securities, to furnish to such Holder forthwith upon request a written statement
by the Company as to its compliance with the reporting requirements of said Rule
144 (at any time after 90 days after the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public), and of the Securities Act and the 1934 Act (at any time
after it has become subject to the reporting requirements of the 1934 Act), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company as such Holder may reasonably request
in availing itself of any rule or regulation of the Commission allowing such
Holder to sell any such securities without registration (at any time after the
Company has become subject to the reporting requirements of the 1934 Act).
2.11 Other Rights. From and after the date of this Agreement, the
Company shall not, without the prior written consent of the holders of a
majority of the Investors' Registrable Securities, grant to any shareholder of
the Company any demand, piggyback, or S-3 registration rights superior to those
of the Holders of the Investors' Registrable Securities or rights pari passu
with the Holders of the Investors' Registrable Securities with respect to
Sections 2.2(b), 2.3(a) and 2.4(e) hereof. In addition, the Company will grant
Holders of the Investors' Registrable Securities any registration rights granted
to subsequent purchasers of securities of the Company to the extent that such
subsequent rights are superior, as determined in good faith by the Company's
Board of Directors, to those granted to Holders of the Investors' Registrable
Securities.
3. RIGHT OF FIRST REFUSAL.
3.1 General. Each Investor (a "Rights Holder") has the right of
first refusal to purchase such Rights Holder's Pro Rata Share (as defined
below), of all (or any part) of any "New Securities" (as defined in Section 3.2)
that the Company may from time to time issue after the date of this Agreement. A
Rights Holder's "Pro Rata Share" for purposes of this right of first refusal is
the ratio of (a) the number of Investors' Registrable Securities as to which
such Rights
12
<PAGE> 13
Holder is the Holder (and/or is deemed to be the Holder under Section 2.1(b)),
to (b) a number of shares of Common Stock of the Company equal to the sum of (1)
the total number of shares of Common Stock of the Company then outstanding plus
(2) the total number of shares of Common Stock of the Company into which all
then outstanding Warrants and Notes are then convertible plus (3) the number of
shares of Common Stock of the Company reserved for issuance under stock purchase
and stock option plans of the Company and outstanding warrants and other
convertible securities.
3.2 New Securities. "New Securities" shall mean any Common Stock
or Preferred Stock of the Company, whether now authorized or not, and rights,
options or warrants to purchase such Common Stock or Preferred Stock issued
after the date hereof, and securities of any type whatsoever that are, or may
become, convertible or exchangeable into such Common Stock or Preferred Stock,
unless waived by PMF; provided, however, that the term "New Securities" does not
include:
(a) shares of Common Stock issued or issuable upon
conversion of the Notes or exercise of the Warrants;
(b) any shares of Common Stock issued or issuable upon
conversion or exercise of currently outstanding options, warrants or convertible
securities;
(c) shares of Common Stock or Preferred Stock issued
pursuant to the acquisition of another corporation or entity by the Company by
consolidation, merger, purchase of all or substantially all of the assets, or
other reorganization in which the Company acquires, in a single transaction or
series of related transactions, all or substantially all of the assets of such
other corporation or entity or fifty percent (50%) or more of the voting power
of such other corporation or entity or fifty percent (50%) or more of the equity
ownership of such other entity;
(d) shares of the Company's Common Stock or Preferred
Stock issued in connection with any stock split or stock dividend; and
(e) securities offered by the Company to the public
pursuant to a registration statement filed under the Securities Act;
(f) securities issued under the Company's 1999 Stock Plan;
and
(g) up to 1,000,000 shares of Common Stock, or securities
convertible or exercisable into up to 1,000,000 shares of Common Stock, issued
under any new or additional incentive plans of the Company.
3.3 Procedures. In the event that the Company proposes to
undertake an issuance of New Securities of any amount exceeding $50,000, it
shall give to each Rights Holder written notice of its intention to issue New
Securities (the "Notice"), describing the type of New Securities and the price
and the general terms upon which the Company proposes to issue such New
Securities. Each Rights Holder shall have twenty (20) days from the date of
mailing of any such Notice to agree in writing to purchase such Rights Holder's
Pro Rata share of such New
13
<PAGE> 14
Securities for the price and upon the general terms specified in the Notice by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased (not to exceed such Rights Holder's Pro Rata Share).
If any Rights Holder fails to so agree in writing within such twenty (20) day
period to purchase such Rights Holder's full Pro Rata Share of an offering of
New Securities (a "Nonpurchasing Holder"), then such Nonpurchasing Holder shall
forfeit the right hereunder to purchase that part of his Pro Rata Share of such
New Securities that he did not so agree to purchase and the Company shall
promptly give each Rights Holder who has timely agreed to purchase his full Pro
Rata Share of such offering of New Securities (a "Purchasing Holder") written
notice of the failure of any Nonpurchasing Holder to purchase such Nonpurchasing
Rights Holder's full Pro Rata Share of such offering of New Securities (the
"Overallotment Notice"). Each Purchasing Holder shall have a right of
overallotment such that such Purchasing Holder may agree to purchase a portion
of the Nonpurchasing Holders' unpurchased Pro Rata Shares of such offering on a
pro rata basis according to the relative Pro Rata Shares of the Purchasing
Rights Holders, at any time within ten (10) days after receiving the
Overallotment Notice. Rights Holders exercising the right of first refusal set
forth in this Section 3 may pay the purchase price for such securities (i) in
cash (by check) or by wire transfer, (ii) by cancellation by the Rights Holder
of indebtedness of the Company to the Rights Holder; (iii) by exchange of the
Company's securities held by Rights Holder at the Fair Market Value thereof or
(iv) by a combination of (i), (ii) and (iii). Without limiting the foregoing,
Rights Holders may pay the purchase price of securities by exchange of all or
part of the Notes at the greater of (x) the amount of unpaid principal and
accrued interest thereof and (y) the Fair Market Value of the securities
issuable upon conversion thereof.
The term "Fair Market Value" of a share of Common Stock as of a
particular date shall mean:
(i) If traded on a securities exchange or the Nasdaq
National Market, the Fair Market Value shall be deemed to be the average
of the closing prices of the Common Stock of the Company on such
exchange or market over the 5 business days ending immediately prior to
the applicable date of valuation;
(ii) If actively traded over-the-counter, the Fair Market
Value shall be deemed to be the average of the closing bid prices over
the 30-day period ending immediately prior to the applicable date of
valuation; and
(iii) If there is no active public market, the Fair Market
Value shall be the value thereof, as determined in good faith by the
Company's board of directors; provided, however, that if the Rights
Holder objects in good faith to such determination, then such value
shall be determined by an independent valuation firm experienced in
valuing businesses such as that of the Company and jointly selected in
good faith by the Company and the Rights Holder. Fees and expenses of
the valuation firm shall be shared equally by the Company and the Rights
Holder.
14
<PAGE> 15
3.4 Failure to Exercise. In the event that the Rights Holders
fail to exercise in full the right of first refusal within such twenty (20) plus
ten (10) day period, then the Company shall have 120 days thereafter to sell the
New Securities with respect to which the Rights Holders' rights of first refusal
hereunder were not exercised, at a price and upon general terms not materially
more favorable to the purchasers thereof than specified in the Company's Notice
to the Rights Holders. In the event that the Company has not issued and sold the
New Securities within such 120 day period, then the Company shall not thereafter
issue or sell any New Securities without again first offering such New
Securities to the Rights Holders pursuant to this Section 3.
3.5 Termination. This right of first refusal shall terminate upon
(1) the acquisition of all or substantially all the assets of the Company, (2)
an acquisition of the Company by another corporation or entity by consolidation,
merger or other reorganization in which the holders of the Company's outstanding
voting stock immediately prior to such transaction own, immediately after such
transaction, securities representing less than fifty percent (50%) or more of
the voting power of the corporation or other entity surviving such transaction
or (3) upon the date that the shares of the Company's Common Stock issued or
issuable under the Warrants and Notes (as defined in the Loan Agreement) and any
other equity securities held by the Investors do not constitute at least ten
percent (10%) of the Fully-Diluted Shares.
3.6 Other Rights. From and after the date of this Agreement, the
Company will grant the Investors any rights of first refusal granted to
subsequent purchasers of preferred stock of the Company to the extent that such
subsequent rights are superior, as determined in good faith by the Company's
Board of Directors, to those granted to the Investors.
4. ASSIGNMENT AND AMENDMENT.
4.1 Assignment. The rights of an Investor under Sections 1 and 2
hereof may be assigned to a party who acquires any Note or Warrant issued under
the Loan Agreement; provided, however that any such assignee shall receive such
assigned rights subject to all the terms and conditions of this Agreement,
including without limitation the provisions of this Section 4 and provided
further that the assignor of rights under Sections 1 and 2 hereof shall provide
prompt written notice or such assignment to the Company. The rights of an
Investor under Section 3 hereof may not be assigned.
4.2 Amendment of Rights. Any provision of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and PMF, or its assigns. Any amendment or waiver
effected in accordance with this Section 4.2 shall be binding upon each
Investor, each Holder, each permitted successor or assignee of such Investor or
Holder and the Company.
5. GENERAL PROVISIONS.
5.1 Notices. Any notice, request or other communication required
or permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally
15
<PAGE> 16
delivered or if deposited in the U.S. mail by registered or certified mail,
return receipt requested, postage prepaid, as follows:
(a) if to an Investor, at such Investor's respective
address as set forth on the signature page hereof.
(b) if to the Company, at 17731 North Irvine, Irvine,
California 92624.
Any party hereto (and such party's permitted assigns) may by notice so given
change its address for future notices hereunder. Notice shall conclusively be
deemed to have been given when personally delivered or when deposited in the
mail in the manner set forth above.
5.2 Entire Agreement. This Agreement, together with all the
Exhibits hereto, constitutes and contains the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes any and
all prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof.
5.3 Governing Law. This Agreement shall be governed by and
construed exclusively in accordance with the internal laws of the State of
California as applied to agreements among California residents entered into and
to be performed entirely within California, excluding that body of law relating
to conflict of laws.
5.4 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, then such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
5.5 Third Parties. Nothing in this Agreement, express or implied,
is intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
5.6 Successors And Assigns. Subject to the provisions of Section
4.1, the provisions of this Agreement shall inure to the benefit of, and shall
be binding upon, the successors and permitted assigns of the parties hereto.
5.7 Captions. The captions to sections of this Agreement have
been inserted for identification and reference purposes only and shall not be
used to construe or interpret this Agreement.
5.8 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
5.9 Costs And Attorneys' Fees. In the event that any action, suit
or other proceeding is instituted concerning or arising out of this Agreement or
any transaction contemplated hereunder, the prevailing party shall recover all
of such party's costs and attorneys'
16
<PAGE> 17
fees incurred in each such action, suit or other proceeding, including any and
all appeals or petitions therefrom.
5.10 Adjustments for Stock Splits, Etc. Wherever in this
Agreement there is a reference to a specific number of shares of Common Stock of
the Company, then, upon the occurrence of any subdivision, combination or stock
dividend of such stock, the specific number of shares so referenced in this
Agreement shall automatically be proportionally adjusted to reflect the effect
on the outstanding shares of such stock by such subdivision, combination or
stock dividend.
5.11 Aggregation of Stock. All shares held or acquired by
affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.
5.12 Additional Investors. The parties acknowledge and agree that
additional parties may lend funds to Borrower under the same terms as PMF under
the Loan Agreement. Such additional lenders shall execute this Agreement
together with such additional documents as PMF may reasonably require in form
and content satisfactory to PMF prior to making such loan.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first written above.
GENERAL AUTOMATION, INC.
By:
-----------------------------------------
Its:
----------------------------------------
THE INVESTORS:
PACIFIC MEZZANINE FUND, L.P.
By: Pacific Private Capital
Its: General Partner
By:
-----------------------------------------
General Partner
17
<PAGE> 1
EXHIBIT 10.24
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Second Amendment to Loan and Security Agreement (this "Amendment")
is entered into as of September 30, 1999, by and between Comerica Bank -
California ("Bank") and General Automation, Inc. ("Borrower").
RECITALS
A. Borrower and Bank are parties to that certain Loan and Security
Agreement dated as of December 18,1997 (the "Loan Agreement"), as
modified by that certain Modification to Loan and Security Agreement
dated as of January 8, 1998 (the "First Modification"), and that certain
modification to Loan & Security Agreement dated as of May 28, 1998 (the
" Second Modification"), and that certain First Amendment to Loan and
Security Agreement and Forbearance Agreement dated as of December 31,
1998 (the "First Amendment"), collectively, the "Loan Documents".
Borrower and Bank desire to amend the terms of the Loan Documents in
accordance with the terms of the Amendment.
B. As of the date hereof, there is due and owing under the Loan Documents
the principal amount of TWO MILLION ONE HUNDRED FIFTY THOUSAND AND
NO/100 DOLLARS ($2,150,000.00) together with accrued but unpaid
interest, attorneys' fees and costs. Such amount, plus accruing interest
and ongoing attorneys' fees and costs are hereinafter referred to as the
"Existing Debt".
C. Borrower has requested that Bank amend the Loan Documents. Bank has
agreed to amend the Loan Documents, subject to the terms and conditions
as more particularly set forth below.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Recitals. The foregoing recitals of facts and understandings of the
parties are incorporated herein.
2. Defined Terms. Capitalized terms not otherwise defined herein shall
have the same meanings as set forth in the Loan Documents.
3. Acknowledgement of Liability. As of the date of this Amendment,
Borrower owes Bank an amount equal to the Existing Debt. Borrower reaffirms all
of its obligations under the Loan Documents and hereby forever waives and
relinquishes any and all claims, offsets or defenses that Borrower may have with
respect to the payment of sums due and the performance of other obligations
under the Loan Documents. The security interests in the Collateral granted to
Bank under the Loan Documents remain perfected, first priority liens.
4. Amendments to Loan Documents. The Loan Documents are amended as
follows:
a. Section 6.6 (k) is deleted in its entirety and replaced with the
following:
"Incur any debts outside the ordinary course of Borrower's business
except renewals or extensions of existing debts an interest thereon, and
debt owing Pacific Mezzanine Fund, LP together with debt owing to
Radisys CPD, Inc. and Boundless Technologies, Inc.;"
b. Section 6.9 (a) is deleted in its entirety and replaced with the
following:
"Borrower will not make any distribution or declare or pay any dividend
(in stock or in cash) to any shareholder or on any of its capital stock,
of any class, whether now or hereafter outstanding, or purchase,
acquire, repurchase, or redeem or retire any such capital stock except
under the terms and conditions as set forth under that certain Loan
Agreement and related documents between
<PAGE> 2
Borrower and Pacific Mezzanine Fund, LP together with the related
documents between Borrower and Radisys CPD, Inc. or Boundless
Technologies, Inc.;"
4. Fees and Expenses. Borrower agrees to pay to Bank a fee equal to Five
Thousand Dollars ($5,000.00), which fee shall be deemed to be fully earned,
non-refundable and payable in full as of the date hereof (the "Amendment Fee").
In addition, as a condition to the effectiveness of the Amendment, Borrower
shall pay to Bank all Bank expenses incurred in connection with the preparation
and negotiation of this Amendment.
5. Representations and Warranties. Borrower represents and warrants that
all of the Representations and Warranties contained herein and in the Loan
Documents are true and correct as of the date of this Amendment and that no
Event of Default has occurred.
6. Conditions Precedent. The effectiveness of this Amendment is subject
to the following conditions precedent:
a. Receipt of the following (each in form and substance satisfactory
to Bank and its counsel):
1. this Amendment, and such other agreements and instruments
reasonably requested by Bank pursuant hereto (including
such documents as are necessary to create and perfect
Bank's security interest in the Collateral), each duly
executed by Borrower.
2. the Stock Pledge and Security Agreement duly executed by
Borrower and Pacific Mezzanine Fund, LP.
3. the Intellectual Property Security Agreement duly executed
by Borrower.
4. the Subordination Agreement by and between Pacific
Mezzanine Fund, LP and Bank.
b. Receipt by Bank of the Amendment Fee.
c. Payment by Borrower of all Bank expenses incurred in the
preparation and negotiation of this Amendment; and,
d. Receipt of such other documents and completion of such other
matters as Bank may reasonably deem necessary or appropriate.
7. Further Assurances. Borrower will take such other actions as Bank
may reasonably request from time to time to perfect or continue
Bank's security interests in Borrower's property, and to
accomplish the objectives of this Amendment
8. Counterparts. This Amendment may be signed in counterparts and
all of such counterparts when properly executed by the
appropriate parties thereto together shall serve as a fully
executed document, binding upon the parties.
9. Legal Effect. The Loan Documents remain in full force and effect.
If any provision of this Amendment conflicts with applicable law,
such provision shall be deemed severed from this Amendment, and
the balance of the Amendment shall remain in full force and
effect.
10. WAIVER OF JURY. BANK AND BORROWER ACKNOWLEDGE AND AGREE THAT THE
TIME AND EXPENSE REQUIRED FOR TRIAL BY JURY EXCEED THE TIME AND
EXPENSE REQUIRED FOR A BENCH TRIAL AND HEREBY WAIVE, TO THE
EXTENT PERMITTED BY LAW, TRIAL BY JURY OF ANY CLAIM OR CAUSE OF
<PAGE> 3
ACTION BASED UPON, RELATED TO OR ARISING OUT OF THE TRANSACTIONS
CONTEMPLATED BY THE LOAN DOCUMENTS, INCLUDING CONTRACT CLAIMS,
TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZED AND AGREES THAT THE
FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO
ENTER INTO THIS AMENDMENT. EACH PARTY REPRESENTS AND WARRANTS
THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT
IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
11. Assignment and Indemnity. Borrower consents to Bank's assignment
of all or any part of Bank's rights under this Amendment and the
Loan Documents. Borrower shall indemnify and defend and hold Bank
and any assignee of Bank's interests harmless from any actions,
costs, losses or expenses (including attorneys' fees( arising out
of such assignment , this Amendment and the Loan Documents.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the first date written above.
GENERAL AUTOMATION, INC.
By: _________________________
Richard H. Nance
Chief Financial Officer
COMERICA BANK - CALIFORNIA
By:___________________________
Roland Tucker
Vice President
<PAGE> 1
EXHIBIT 10.25
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
AND FORBEARANCE AGREEMENT
This First Amendment to Loan and Security Agreement and Forbearance
Agreement (this "Amendment") is entered into as of December 31, 1998, by and
between Comerica Bank-California ("Bank") and General Automation, Inc.
("Borrower").
RECITALS
A. Borrower and Bank are parties to that certain Loan and Security Agreement
dated as of December 18, 1997 (the "Loan Agreement"), as modified by that
certain Modification to Loan & Security Agreement dated as of January 8, 1998
(the "First Modification") and that certain modification to Loan & Security
Agreement dated as of May 28, 1998 (the "Second Modification") (collectively,
the "Loan Documents"). Borrower and Bank desire to amend the terms of the Loan
Documents in accordance with the terms of this Amendment.
B. As of the date hereof, there is due and owing under the Loan Documents the
principal amount of TWO MILLION TWO-HUNDRED THOUSAND AND NO/100 DOLLARS
($2,200,000.00) together with accrued but unpaid interest, attorneys' fees and
costs. Such amount, plus accruing interest and ongoing attorneys' fees and
costs are hereinafter referred to as the "Existing Debt."
C. One or more Events of Default have occurred under the Loan Documents by
virtue of (i) Borrower's failure to comply with the covenants of the Loan
Documents as of certain dates from March 31, 1998 through the date hereof and
(ii) Borrower's failure to make required payments of principal and interest
when due. Such Events of Default entitle Bank to immediately enforce all the
remedies set forth in the Loan Documents. Borrower has asked Bank to forbear
from exercising those remedies as a result of such Events of Default and Bank
has agreed, provided Borrower enters into this Amendment.
NOW, THEREFORE, for good and valuable consideration, the parties agree as
follows:
1. Defined Terms. Capitalized terms not otherwise defined herein shall
have the same meanings as set forth in the Loan Documents.
2. Acknowledgment of Liability. As of the date of this Amendment,
Borrower owes Bank an amount equal to the Existing Debt. Borrower reaffirms all
of its obligations under the Loan Documents and hereby forever waives and
relinquishes any and all claims, offsets or defenses that Borrower may now have
with respect to the payment of sums due and the performance of other
obligations under the Loan Documents. The security interests in the Collateral
granted to Bank under the Loan Agreement remain perfected, first priority liens.
3. Forbearance. Borrower acknowledges that there are existing and
uncured Events of Default under the Loan Documents. Borrower further
acknowledges and agrees that Bank is not in any way agreeing to waive such
Events of Default as a result of this Amendment or the
-1-
<PAGE> 2
performance by the parties of their respective obligations hereunder. Subject to
the conditions contained herein and performance by Borrower all of the terms of
this Amendment after the date hereof, Bank shall, until March 31, 1999 or such
date that there shall occur any further Event of Default, which ever occurs
first, forbear from exercising any remedies that it may have against Borrower
as a result of the occurrence of the Events of Default. Such forbearance does
not apply to any other Event of Default or other failure by Borrower to perform
in accordance with the Loan Documents or this Amendment. This forbearance shall
not be deemed a continuing waiver or forbearance with respect to any Event of
Default of a similar nature that may occur after the date of this Amendment.
4. Amendments to Loan Documents. The Loan Documents are amended as
follows:
a. Section 2.1 is amended in its entirety to read as follows:
"Upon the request of Borrower, made at any time and from time to
time during the term hereof, and so long as no Event of Default has
occurred, Bank shall lend to Borrower an amount equal to the
Borrowing Base; provided, however, that in no event shall Bank be
obligated to make advances to Borrower under this Section 2.1
whenever the Daily Balance exceeds, at any time, either the
Borrowing Base or the sum of TWO MILLION TWO-HUNDRED THOUSAND AND
NO/100 DOLLARS ($2,200,000.00), such amount being referred to herein
as "Overadvance"."
b. Section 6.16(c) is amended to read as follows:
"In addition to the financial statements requested above, Borrower
agrees to provide Bank with the following schedules:
Accounts Receivable Aging on a Monthly Basis.
Accounts Payable Aging on a Monthly Basis.
Borrowing Base Certificates on a Monthly Basis -- for both product
sales and service contracts.
Cash Receipts and Disbursements Analysis, as evidenced by
Borrower's Daily Cash Report in form and substance acceptable to
Bank, on a Daily Basis."
c. Section 6.17(b) is deleted in its entirety.
d. Section 6.17(e) is deleted in its entirety.
e. The following is added to Section 6.17(j):
"Cash Flow on a weekly basis, as delineated on the Daily Cash
Receipts and Disbursement Analysis, will be $1.00 or greater."
5. Overadvance. Borrower acknowledges and agrees that as of the date
of this Amendment, there exists an Overadvance, as defined in the Loan
Agreement, in the amount of
-2-
<PAGE> 3
FIVE-HUNDRED EIGHTY-SEVEN THOUSAND AND NO/100 DOLLARS ($587,000.00) (the
"Overadvance").
6. Reduction of Existing Debt and Overadvance. Commencing January 1,
1999, and continuing thereafter until paid in full, Borrower agrees to remit
monthly payments to the Bank in the amount of $50,000 to retire the principal
amount of the Overadvance. In addition, commencing that date and continuing
thereafter, Borrower agrees to make interest-only payments on the balance of
the Existing Debt, on the terms set forth herein and in the Loan Departments.
7. Fees and Expenses. Borrower agrees to pay to Bank a fee equal to
Twenty-Two Thousand Dollars ($22,000), which fee shall be deemed to be fully
earned, nonrefundable and payable in full as of the date hereof (the "Amendment
Fee"). In addition, as a condition to the effectiveness of this Amendment,
Borrower shall pay to Bank all Bank expenses incurred in connection with the
preparation and negotiation of this Amendment.
8. Representations and Warranties. Borrower represents and warrants that
the Representations and Warranties contained herein and in the Loan Documents
are true and correct as of the date of this Amendment (except such
representations and warranties to be expressly true as of a specific date),
and that no Event of Default except as set forth herein, has occurred.
9. Conditions Precedent. The effectiveness of this Amendment is subject
to the following conditions precedent:
1. Receipt by Bank of the following (each of which shall be in form
and substance satisfactory to Bank and its counsel):
a. this Amendment, and such other agreements and instruments
reasonably requested by Bank pursuant hereto (including such documents as are
necessary to create and perfect Bank's security interest in the Collateral),
each duly executed by Borrower.
b. a certificate of the secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Amendment, in form and substance acceptable to Bank;
2. Receipt by Bank of the Amendment Fee;
3. Texas Micro Inc. ("TMI") shall have affirmed the terms of its
Subordination Agreements with Bank; and shall have waived any defaults of
Borrower existing through the date hereof arising under any agreements or
instruments evidencing the Subordinated Debt;
4. Payment by Borrower of all Bank expenses incurred in the
preparation and negotiation of this Amendment; and
5. Receipt of such other documents, and completion of such other
matters as Bank may reasonably deem necessary or appropriate.
-3-
<PAGE> 4
10. Waiver of Notice and Cure. Borrower acknowledges that an Event (or
Events) of Default occurred under the Loan Documents that, but for this
Amendment, would have entitled Bank to exercise all the remedies available to
Bank under the Loan Documents and applicable law. Borrower waives all notices
of default and rights to cure that are otherwise provided in the Loan Documents
or applicable law, including rights to notice and redemption under California
Uniform Commercial Code sections 9504, 9505 and 9506.
11. Release.
1. Borrower acknowledges that Bank would not enter into this
Amendment without Borrower's assurance that Borrower has no claims against Bank
or any of Bank's officers, directors, employees or agents. Except for the
obligations arising hereafter under this Amendment, Borrower releases Bank and
each of Bank's officers, directors and employees from any known or unknown
claims which Borrower now has against Bank of any nature, including any claims
that Borrower, its successors, counsel, and advisors may in the future discover
they would have now had if they had known facts not now known to them, whether
founded in contract, in tort or pursuant to any other theory of liability,
including but not limited to any claims arising out of or related to the Loan
Documents or the transactions contemplated thereby. Borrower waives the
provisions of California Civil Code section 1542, which states:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
2. The provisions, waivers and releases set forth in this section
are binding upon Borrower and Borrower's shareholders, agents, employees,
assigns and successors in interest. The provisions, waivers and releases of this
section shall inure to the benefit of Bank and its agents, employees, officers,
directors, assigns and successors in interest.
3. The provisions of this section shall survive payment in full of
the Obligations, full performance of all the terms of this Amendment and the
Loan Documents, and/or Bank's actions to exercise any remedy available under
the Loan Documents or otherwise.
4. Borrower warrants and represents that Borrower is the sole and
lawful owner of all right, title and interest in and to all of the claims
released hereby and Borrower has not heretofore voluntarily, by operation of
law or otherwise, assigned or transferred or purported to assign or transfer to
any person any such claim or any portion thereof. Borrower shall indemnify and
hold harmless Bank from and against any claim, demand, damage, debt, liability
(including payment of attorneys' fees and costs actually incurred whether or
not litigation is commenced) based on or arising out of any assignment or
transfer.
12. Further Assurances. Borrower will take such other actions as Bank may
reasonably request from time to time to perfect or continue Bank's security
interests in Borrower's property, and to accomplish the objectives of this
Agreement.
-4-
<PAGE> 5
13. Consultation of Counsel. Borrower acknowledges that Borrower has had
the opportunity to be represented by legal counsel of its own choice throughout
all of the negotiations that preceded the execution of this Amendment. Borrower
has executed this Amendment after reviewing and understanding each provision of
this Amendment and without reliance upon any promise or representation of any
person or persons acting for or on behalf of Bank. Borrower further
acknowledges that Borrower and its counsel have had adequate opportunity to
make whatever investigation or inquiry they may deem necessary or desirable in
connection with the subject matter of this Amendment prior to the execution
hereof and the delivery and acceptance of the consideration described herein.
14. Miscellaneous.
1. Successors and Assigns. This Amendment shall be binding upon and
shall inure to the benefit of Borrower and Bank and their respective successors
and assigns; provided, however, that the foregoing shall not authorize any
assignment by Borrower of its rights or duties hereunder.
2. Entire Agreement. This Amendment and the Loan Documents contain
the entire agreement of the parties hereto and supersede any other oral or
written agreements or understandings with respect to the subject matter hereof
and thereof.
3. Course of Dealing; Waivers. No course of dealing on the part of
Bank or its officers, nor any failure or delay in the exercise of any right(s)
by Bank, shall operate as a waiver thereof, and any single or partial exercise
of any such right(s) shall not preclude any later exercise of any such
right(s). Bank's failure at any time to require strict performance by Borrower
of any provision shall not affect any right(s) of Bank thereafter to demand
strict compliance and performance. Any suspension or waiver of a right(s) must
be in writing signed by an officer of Bank.
4. Time is of the Essence. Time is of the essence as to each and
every term and provision of this Amendment and the other Loan Documents.
5. Counterparts. This Amendment may be signed in counterparts and
all of such counterparts when properly executed by the appropriate parties
thereto together shall serve as a fully executed document, binding upon the
parties.
6. Legal Effect. The Loan Documents remain in full force and effect.
If any provision of this Amendment conflicts with applicable law, such
provision shall be deemed severed from this Amendment, and the balance of this
Amendment shall remain in full force and effect.
7. WAIVER OF JURY. BANK AND BORROWER ACKNOWLEDGE AND AGREE THAT THE
TIME AND EXPENSE REQUIRED FOR TRIAL BY JURY EXCEED THE TIME AND EXPENSE
REQUIRED FOR A BENCH TRIAL AND HEREBY WAIVE, TO THE EXTENT PERMITTED BY LAW,
TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON, RELATED TO OR ARISING
OUT OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN
-5-
<PAGE> 6
DOCUMENTS, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AMENDMENT. EACH PARTY REPRESENTS
AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND
THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL.
8. Assignment and Indemnity. Borrower consents to Bank's
assignment of all or any part of Bank's rights under this Amendment and
the Loan Documents. Borrower shall indemnify and defend and hold Bank
and an assignee of Bank's interests harmless from any actions, costs,
losses or expenses (including attorneys' fees) arising out of such
assignment, this Amendment and the Loan Documents.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the first date above written.
GENERAL AUTOMATION, INC.
By:
------------------------------------
Roland Tucker
Title: Vice President
COMERICA BANK--CALIFORNIA
By: /s/ RICHARD H. NANCE
------------------------------------
Richard H. Nance
Title: Chief Financial Officer
-6-
<PAGE> 1
EXHIBIT 10.26
STOCK PLEDGE AND SECURITY AGREEMENT
THIS STOCK PLEDGE AND SECURITY AGREEMENT is made this 30th day of
September, 1999 by and between General Automation, Inc. ("Pledgor"), Comerica
Bank-California ("Bank"), and Pacific Mezzanine Fund, L.P. ("PMF" or "Pledge
Holder").
RECITALS
A. Bank has entered into a Loan and Security Agreement dated
December 18, 1997, as amended from time to time (the "Bank Loan Agreement"),
with Pledgor, as borrower ("Borrower"). All capitalized terms used herein
without definition have the meanings ascribed to them in the Bank Loan
Agreement.
B. PMF has entered into a Loan Agreement dated September __, 1999
(the "PMF Loan Agreement"), with Pledgor, as borrower.
C. Pledgor is the record and beneficial owner of ___% of the
outstanding shares of the Common Stock of Liberty ________, a ___________
corporation (the "Stock"), as more particularly described in Exhibit A hereto,
together with all proceeds and substitutions of any thereof, all interest paid
thereon, and all other cash and noncash proceeds of the foregoing (the "Pledged
Collateral").
D. Bank has required as a condition of entering into the Second
Amendment to the Bank Loan Agreement that Pledgor deliver this Pledge Agreement
to secure the obligations of Borrower under the Bank Loan Agreement. PMF has
required as a condition of entering into the PMF Loan Agreement that Pledgor
deliver this Pledge Agreement to secure the obligations of Borrower under the
PMF Loan Agreement.
NOW, THEREFORE, Pledgor, Bank and PMF agree as follows:
1. Pledge of Collateral. Pledgor hereby pledges to Bank and grants to
Bank a security interest in the Pledged Collateral, as security for the prompt
performance of all of Borrower's obligations under the Loan Agreement (the "Bank
Obligations"). Pledgor also hereby pledges to PMF and grants to PMF a security
interest in the Pledged Collateral, junior and subordinate to Bank's interest,
as security for the prompt performance of all of Borrower's obligations under
the PMF Loan Agreement (the "PMF Obligations").
2. Delivery, Holding and Rights to Pledged Collateral. Any certificate
or certificates for the securities included in the Pledged Collateral,
accompanied by an instrument of assignment duly executed in blank by Pledgor,
have been, or will be immediately upon the subsequent receipt thereof by
Pledgor, delivered by Pledgor to Pledge Holder, and Pledge Holder hereby
acknowledges receipt of the Pledged Collateral and endorsed assignment
instrument. Pledge Holder shall hold the Pledged Collateral first for the
benefit of Bank as security for repayment of the Bank Obligations, and second
for the benefit of PMF as security for repayment of the PMF Obligations. PMF
agrees that its interest in the Pledged Collateral is junior to the interest of
the Bank in the Pledged Collateral.
3. Representations, Warranties and Covenants. Pledgor represents and
warrants to and covenants with Bank and PMF that:
3.1 The Pledged Collateral is owned by Pledgor free and clear of
any security interests, liens, encumbrances, options or other restrictions
created by Pledgor, senior in interest or priority to that granted Bank hereby;
3.2 Pledgor has full power and authority to create a first lien on
the Pledged Collateral in favor of Bank and a second lien on the Pledged
Collateral in favor of PMF and no disability or contractual obligation exists
that would prohibit Pledgor from pledging the Pledged Collateral pursuant to
this Agreement, and Pledgor will not
1
<PAGE> 2
assign, create or permit to exist any other claim to, lien or encumbrance upon,
or security interest in any of the Pledged Collateral senior to the first
priority security interest granted to Bank and the second priority security
interest granted to PMF hereby; and
3.3 The Pledged Collateral is not the subject of any present or
threatened suit, action, arbitration, administrative or other proceeding, and
Pledgor knows of no reasonable grounds for the institution of any such
proceedings.
4. Release of Pledged Collateral. Upon (a) receipt of notice from Bank
that Pledgor has satisfied in full the Bank Obligations and (b) Borrower's
satisfaction in full the PMF Obligations, Pledge Holder shall release the
Pledged Shares to Pledgor and Pledge Holder shall have no further duties or
obligations hereunder.
5. Event of Default as to Bank. Each of the following shall constitute
an event of default by Pledgor as to Bank ("Bank Event of Default") hereunder:
5.1 The occurrence of an Event of Default under the Bank Loan
Agreement; or
5.2 The breach of any provision of this Agreement by Pledgor or
the failure by Pledgor to observe or perform any of the provisions of this
Agreement.
6. Bank's Remedies Upon a Bank Event of Default. Upon the occurrence of
a Bank Event of Default, Bank shall have the right to exercise all such rights
as a secured party under the California Uniform Commercial Code as it, in its
sole judgment, shall deem necessary or appropriate, including the right to
liquidate the Pledged Collateral and apply the proceeds thereof to reduce the
principal amount outstanding under the Bank Loan Agreement. After the disposal
of any of the Pledged Collateral, Bank may deduct all reasonable legal and other
expenses and attorney's fees for protecting its interest and enforcing its
remedies under the Bank Loan Agreement and this Agreement and shall apply the
residue of the proceeds to, or hold as a reserve against, the Bank Obligations
in such manner as Bank in its reasonable discretion shall determine, and shall
pay the balance, if any to Pledgor.
7. Event of Default as to PMF. Termination of the Standstill Period,
defined in and provided for in paragraph 3 of the Subordination Agreement dated
September __, 1999 between Bank and PMF, along with one of the following events,
shall constitute an event of default by Pledgor as to PMF ("PMF Event of
Default") hereunder:
(a) The occurrence of an Event of Default under the PMF Loan
Agreement; or
(b) The breach of any provision of this Agreement by Pledgor or
the failure by Pledgor to observe or perform any of the provisions of this
Agreement.
8. PMF's Remedies Upon a PMF Event of Default. Upon the occurrence of a
PMF Event of Default and five business days after written notice to Bank, PMF
shall have the right to exercise all such rights as a secured party under the
California Uniform Commercial Code as it, in its sole judgment, shall deem
necessary or appropriate, including the right to liquidate the Pledged
Collateral and apply the proceeds thereof to reduce the principal amount
outstanding under the PMF Loan Agreement. After the disposal of any of the
Pledged Collateral, PMF may deduct all reasonable legal and other expenses and
attorney's fees for protecting its interest and enforcing its remedies under the
PMF Loan Agreement and this Agreement and shall apply the residue of the
proceeds to, or hold as a reserve against, the PMF Obligations in such manner as
PMF in its reasonable discretion shall determine, and shall pay the balance, if
any to Pledgor.
9. Amendment of Loan Documents. Pledgor authorizes Bank, without notice
or demand and without affecting its liability hereunder, from time to time to
(a) renew, extend, or otherwise change the terms of the Guaranty or the Loan
Documents or any part thereof; (b) take and hold security for the payment of the
Obligations, and exchange, enforce, waive and release any such security; and (c)
apply such security and direct the order or manner of sale thereof as Bank in
its sole discretion may determine.
2
<PAGE> 3
10. Pledgor Waivers. Pledgor waives any right to require Bank to (a)
proceed against Borrower, any Guarantor or any other person; (b) proceed against
or exhaust any security held from Borrower or any Guarantor; (c) marshal any
assets of Borrower or any Guarantor; or (d) pursue any other remedy in Bank's
power whatsoever. Bank may, at its election, exercise or decline or fail to
exercise any right or remedy it may have against Borrower or any security held
by Bank, including without limitation the right to foreclose upon any such
security by judicial or nonjudicial sale, without affecting or impairing in any
way the liability of Pledgor hereunder. Pledgor waives any defense arising by
reason of any disability or other defense of Borrower or by reason of the
cessation from any cause whatsoever of the liability of Borrower. Pledgor waives
any setoff, defense or counterclaim that Borrower may have against Bank. Pledgor
waives any defense arising out of the absence, impairment or loss of any right
of reimbursement or subrogation or any other rights against Borrower. Until all
of the Obligations Borrower owes to Bank have been paid in full, Pledgor shall
have no right of subrogation or reimbursement, contribution or other rights
against Borrower, and Pledgor waives any right to enforce any remedy that Bank
now has or may hereafter have against Borrower. Pledgor waives all rights to
participate in any security now or hereafter held by Bank. Pledgor waives all
presentments, demands for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor, and notices of acceptance of this
Agreement and of the existence, creation, or incurring of new or additional
indebtedness. Pledgor assumes the responsibility for being and keeping itself
informed of the financial condition of Borrower and of all other circumstances
bearing upon the risk of nonpayment of any indebtedness or nonperformance of any
obligation of Borrower, warrants to Bank that it will keep so informed, and
agrees that absent a request for particular information by Pledgor, Bank shall
have no duty to advise Pledgor of information known to Bank regarding such
condition or any such circumstances. Pledgor waives the benefits of California
Civil Code sections 2809, 2810, 2819, 2845, 2847, 2848, 2849, 2850, 2899 and
3433.
11. Obligations of Pledge Holder.
11.1 Determination of Bank Event of Default. Pledge Holder shall
have no duty or right to determine the existence of a Bank Event of Default, but
may, without any liability whatsoever, rely upon the written notice of Bank that
such default has occurred.
11.2 Notice to Pledge Holder. Unless otherwise provided for in this
Pledge Agreement, no notice, demand or change of instructions of any kind to
Pledge Holder shall be effective unless in writing, signed by both Pledgor and
Bank, and consented to by Pledge Holder in writing.
11.3 Bankruptcy of a Party. Bankruptcy, insolvency, dissolution, or
absence of any party hereto shall not affect performance on the part of the
Pledge Holder.
11.4 Duties of Pledge Holder. Pledge Holder shall carry out its
duties under this Pledge Agreement to the best of its ability and in recognition
of the priorities to the Pledged Collateral as set forth in paragraph 2 hereof.
11.5 Deposit of Pledged Shares in Court. In case any demand is made
by Pledgor, Bank or Pledge Holder, or any of them, which is not assented to by
the other of said parties and which said party has no right to make independent
of the other, Pledge Holder may at its option be relieved from all liability to
either Pledgor or Bank by depositing all of the Pledged Collateral in its
possession or control with the Superior Court for the City and County of Santa
Clara, for the purpose of permitting the Pledgor, Bank and PMF to litigate their
respective rights in said court. The receipt by the Clerk of said court (whether
or not said deposit is made pursuant to court order) shall discharge Pledge
Holder from all liability to Pledgor or Bank, and the same may be pleaded as a
bar to any action against Pledge Holder.
12. Indemnity of Pledge Holder. Pledgor shall indemnify and hold Pledge
Holder harmless from all costs, expenses, damages, losses, attorneys' fees,
liabilities, and judgments which Pledge Holder may incur or suffer by reason of
performance of this Pledge Agreement. In the event of any litigation in respect
of this Pledge Agreement, or in the event Pledge Holder commences an
interpleader action, Pledgor promises to pay and reimburse Pledge Holder for all
costs, expenses, damages, losses, attorneys' fees, liabilities, or judgments
which may be incurred or suffered by Pledge Holder.
3
<PAGE> 4
13. Notices. Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by certified mail,
postage prepaid, return receipt requested, or by prepaid telefacsimile to
Pledgor, Bank or PMF (Pledge Holder), as the case may be, at its addresses set
forth below:
If to Pledgor: General Automation, Inc.
17731 Mitchell North
Irvine, CA 92714
Attn: Richard Nance
Fax: (408) 745-6250
If to Bank: Comerica Bank-California
55 Almaden Blvd., Second Floor
San Jose, CA 95113
Attn: Roland Tucker
Fax: (408) 556-5855
If to Pledge Holder: Pacific Mezzanine Fund, L.P.
2200 Powell Street, Suite 1250
Emeryville, CA 94608
Attn: Andrew B. Dunike
Fax: (510) 595-9801
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
14. Choice Of Law And Venue; Jury Trial Waiver.
This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to principles
of conflicts of law. Each of Pledgor, Bank and PMF hereby submits to the
exclusive jurisdiction of the state and Federal courts located in the County of
Santa Clara, State of California. PLEDGOR, BANK AND PMF EACH HEREBY WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF
DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES
AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO
ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
15. General Provisions.
15.1 Successors and Assigns. This Agreement shall bind and inure to
the benefit of the respective successors and permitted assigns of each of the
parties; provided, however, that neither this Agreement nor any rights hereunder
may be assigned by Pledgor without Bank and PMF's prior written consent, which
consent may be granted or withheld in Bank or PMF's sole discretion. Bank and
PMF shall have the right without the consent of or notice to Pledgor to sell,
transfer, negotiate, or grant participation in all or any part of, or any
interest in, Bank or PMF's obligations, rights and benefits hereunder.
15.2 Time of Essence. Time is of the essence for the performance of
all obligations set forth in this Agreement.
4
<PAGE> 5
15.3 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
15.4 Amendments in Writing, Integration. This Agreement cannot be
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
15.5 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
15.6 Survival. All covenants, representations and warranties made
in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
Bank:
COMERICA BANK-CALIFORNIA
By:
----------------------------------
Title:
-------------------------------
Pledgor:
GENERAL AUTOMATION, INC.
By:
----------------------------------
Title:
-------------------------------
Pledge Holder:
PACIFIC MEZZANINE FUND, L.P.
By:
----------------------------------
Title:
-------------------------------
5
<PAGE> 6
EXHIBIT A
<TABLE>
Pledgor Name Certificate Number Number of Shares/Units
- ------------ ------------------ ----------------------
<S> <C> <C>
</TABLE>
6
<PAGE> 1
EXHIBIT 10.27
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement (the "Agreement") is made
as of September 30, 1999, by and between GENERAL AUTOMATION, INC., a Delaware
corporation ("Grantor"), and COMERICA BANK-CALIFORNIA ("Secured Party").
RECITALS
A. Secured Party has agreed to make certain advances of money and to
extend certain financial accommodation Grantor (the "Loans") in the amounts and
manner set forth in that certain Loan and Security Agreement, dated as of
December 18, 1997 (the "Loan Agreement"), as modified by that certain
Modification to Loan & Security Agreement, dated as of January 8, 1998, as
modified by that certain Modification to Loan & Security Agreement, dated as of
May 28, 1998, as amended by that First Amendment to Loan and Security Agreement
and Forbearance Agreement, dated as of December 31, 1998, all as may be further
amended from time to time (collectively, the "Loan Documents"; all capitalized
terms used herein without definition shall have the meanings ascribed to them in
the Loan Documents).
B. In order to induce Secured Party to enter into the Loan Agreement,
Grantor agreed to grant a security interest in certain intangible property to
Secured Party for purposes of securing the obligations of Grantor to Secured
Party.
C. In order to perfect and give notice of Secured Party's security
interest in the Collateral as defined herein, Grantor has agreed to enter into
this Agreement.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. Grant of Security Interest. As collateral security for the prompt and
complete payment and performance of all of Grantor's present or future
indebtedness, obligations and liabilities to Secured Party, Grantor hereby
grants a security interest and mortgage to Secured Party, as security, in and to
Grantor's entire right, title and interest in, to and under the following (all
of which shall collectively be called the "Collateral"):
(a) Any and all copyright rights, copyright applications, copyright
registrations and like protections in each work or authorship and derivative
work thereof, whether published or unpublished and whether or not the same also
constitutes a trade secret, now or hereafter existing, created, acquired or
held, including without limitation those set forth on Exhibit A attached hereto
(collectively, the "Copyrights");
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing, created, acquired or held;
(c) Any and all design rights which may be available to Grantor now
or hereafter existing, created, acquired or held;
(d) All patents, patent applications and like protections including
without limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same, including without limitation
the patents and patent applications set forth on Exhibit B attached hereto
(collectively, the "Patents");
(e) Any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like protections, and
the entire goodwill of the business of Grantor connected with and symbolized by
such trademarks, including without limitation those set forth on Exhibit C
attached hereto (collectively, the "Trademarks");
(f) Any and all claims for damages by way of past, present and
future infringement of any of the rights included above, with the right, but not
the obligation, to sue for and collect such damages for said use or infringement
of the intellectual property rights identified above;
<PAGE> 2
(g) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights; and
(h) All amendments, renewals and extensions of any of the
Copyrights, Trademarks or Patents; and
(i) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
2. Authorization and Request. Grantor authorizes and requests that the
Register of Copyrights and the Commissioner of Patents and Trademarks record
this security agreement.
3. Covenants and Warranties. Grantor represents, warrants, covenants and
agrees as follows:
(a) Grantor is now the sole owner of the Collateral, except for
non-exclusive licenses granted by Grantor to its customers in the ordinary
course of business;
(b) Performance of this Agreement does not conflict with or result
in a breach of any agreement to which Grantor is party or by which Grantor is
bound, except to the extent that certain intellectual property agreements
prohibit the assignment of the rights thereunder to a third party without the
licensor's or other party's consent and this Agreement constitutes an
assignment;
(c) During the term of this Agreement, Grantor will not transfer or
otherwise encumber any interest in the Collateral, except for non-exclusive
licenses granted by Grantor in the ordinary course of business or as set forth
in this Agreement;
(d) To its knowledge, each of the Patents is valid and enforceable,
and no part of the Collateral has been judged invalid or unenforceable, in whole
or in part, and no claim has been made that any part of the Collateral violates
the rights of any third party;
(e) Grantor shall deliver to Secured Party within (30) days of the
last day of each fiscal quarter, a report signed by Grantor, in form reasonably
acceptable to Secured Party, listing any applications or registrations that
Grantor has made or filed in respect of any patents, copyrights or trademarks
and the status of any outstanding applications or registrations. Grantor shall
promptly advise Secured Party of any material change in the composition of the
Collateral, including but not limited to any subsequent ownership right of the
Grantor in or to any Trademark, Patent or Copyright not specified in this
Agreement;
(f) Grantor shall (i) protect, defend and maintain the validity and
enforceability of the Trademarks, Patents and Copyrights (ii) use its best
efforts to detect infringements of the Trademarks, Patents and Copyrights and
promptly advise Secured Party in writing of material infringements detected and
(iii) not allow any Trademarks, Patents or Copyrights to be abandoned, forfeited
or dedicated to the public without the written consent of Secured Party, which
shall not be unreasonably withheld, unless Grantor determines that reasonable
business practices suggest that abandonment is appropriate;
(g) Grantor shall register or cause to be registered (to the extent
not already registered) with the United States Patent and Trademark Office or
the United States Copyright Office, as applicable, those intellectual property
rights listed on Exhibits A, B and C hereto within thirty (30) days of the date
of this Agreement. Grantor shall register or cause to be registered with the
United States Patent and Trademark Office or the United States Copyright Office,
as applicable, those additional intellectual property rights developed or
acquired by Grantor from time to time in connection with any product prior to
the sale or licensing of such product to any third party (including without
limitation revisions or additions to the intellectual property rights listed on
such Exhibits A, B and C). Grantor shall, from time to time, execute and file
such other instruments, and take such further actions as Secured Party may
reasonably request from time to time to perfect or continue the perfection of
Secured Party's interest in the Collateral;
(h) This Agreement creates, and in the case of after acquired
Collateral, this Agreement will create at the time Grantor first has rights in
such after acquired Collateral, in favor of Secured Party a valid and
2
<PAGE> 3
perfected first priority security interest in the Collateral in the United
States securing the payment and performance of the obligations evidenced by the
Loan Documents upon making the filings referred to in clause (i) below;
(i) To its knowledge, except for, and upon, the filing with the
United States Patent and Trademark office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights
necessary to perfect the security interests created hereunder, and except as has
been already made or obtained, no authorization, approval or other action by,
and no notice to or filing with, any U.S. governmental authority or U.S.
regulatory body is required either (i) for the grant by Grantor of the security
interest granted hereby or for the execution, delivery or performance of this
Agreement by Grantor in the U.S. or (ii) for the perfection in the United States
or the exercise by Secured Party of its rights and remedies hereunder;
(j) All information heretofore, herein or hereafter supplied to
Secured Party by or on behalf of Grantor with respect to the Collateral is
accurate and complete in all material respects;
(k) Grantor shall not enter into any agreement that would materially
impair or conflict with Grantor's obligations hereunder without Secured Party's
prior written consent, which consent shall not be unreasonably withheld. Grantor
shall not permit the inclusion in any material contract to which it becomes a
party of any provisions that could or might in any way prevent the creation of a
security interest in Grantor's rights and interests in any property included
within the definition of the Collateral acquired under such contracts; and
(l) Upon any executive officer of Grantor obtaining actual knowledge
thereof, Grantor will promptly notify Secured Party in writing of any event that
materially adversely affects the value of any Collateral, the ability of Grantor
to dispose of any Collateral or the rights and remedies of Secured Party in
relation thereto, including the levy of any legal process against any of the
Collateral.
4. Secured Party's Rights. Secured Party shall have the right, but not
the obligation, to take, at Grantor's sole expense, any actions that Grantor is
required under this Agreement to take but which Grantor fails to take, after
fifteen (15) days' notice to Grantor. Grantor shall reimburse and indemnify
Secured Party for all reasonable costs and reasonable expenses incurred in the
reasonable exercise of its rights under this section 4.
5. Inspection Rights. Grantor hereby grants to Secured Party and its
employees, representatives and agents the right to visit, during reasonable
hours upon prior reasonable written notice to Grantor, any of Grantor's plants
and facilities that manufacture, install or store products (or that have done so
during the prior six-month period) that are sold utilizing any of the
Collateral, and to inspect the products and quality control records relating
thereto upon reasonable written notice to Grantor and as often as may be
reasonably requested.
6. Further Assurances; Attorney in Fact.
(a) On a continuing basis, Grantor will make, execute, acknowledge
and deliver, and file and record in the proper filing and recording places in
the United States, all such instruments, including appropriate financing and
continuation statements and collateral agreements and filings with the United
States Patent and Trademark Office and the Register of Copyrights, and take all
such action as may reasonably be deemed necessary or advisable, or as requested
by Secured Party, to perfect Secured Party's security interest in all
Copyrights, Patents and Trademarks and otherwise to carry out the intent and
purposes of this Agreement, or for assuring and confirming to Secured Party the
grant or perfection of a security interest in all Collateral.
(b) Grantor hereby irrevocably appoints Secured Party as Grantor's
attorney-in-fact, with full authority in the place and stead of Grantor and in
the name of Grantor, from time to time in Secured Party's discretion, to take
any action and to execute any instrument which Secured Party may deem necessary
or advisable to accomplish the purposes of this Agreement, including (i) to
modify, in its sole discretion, this Agreement without first obtaining Grantor's
approval of or signature to such modification by amending Exhibit A, Exhibit B
and Exhibit C, thereof, as appropriate, to include reference to any right, title
or interest in any Copyrights, Patents or Trademarks acquired by Grantor after
the execution hereof or to delete any reference to any right, title or interest
in any Copyrights, Patents or Trademarks in which Grantor no longer has or
claims any right, title or interest, (ii) to file, in its sole discretion, one
or more financing or continuation statements and amendments thereto, relative to
any of the Collateral without the signature of Grantor where permitted by law
and (iii) after the occurrence of an Event of Default, to transfer the
Collateral into the name of Bank or a third party to the extent permitted under
the California Uniform Commercial Code.
3
<PAGE> 4
7. Events of Default. The occurrence of any of the following shall
constitute an Event of Default under the Agreement:
(a) An Event of Default occurs under the Loan Documents; or
(b) Grantor breaches any warranty or agreement made by Grantor in
this Agreement and, as to any breach that is capable of cure, Grantor fails to
cure such breach within five (5) days of the occurrence of such breach.
8. Remedies. Upon the occurrence and continuance of an Event of Default,
Secured Party shall have the right to exercise all the remedies of a secured
party under the California Uniform Commercial Code, including without limitation
the right to require Grantor to assemble the Collateral and any tangible
property in which Secured Party has a security interest and to make it available
to Secured Party at a place designated by Secured Party. Secured Party shall
have a nonexclusive, royalty free license to use the Copyrights, Patents and
Trademarks to the extent reasonably necessary to permit Secured Party to
exercise its rights and remedies upon the occurrence of an Event of Default.
Grantor will pay any expenses (including reasonable attorneys' fees) incurred by
Secured Party in connection with the exercise of any of Secured Party's rights
hereunder, including without limitation any expense incurred in disposing of the
Collateral. All of Secured Party's rights and remedies with respect to the
Collateral shall be cumulative.
9. Indemnity. Grantor agrees to defend, indemnify and hold harmless
Secured Party and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement, and
(b) all losses or expenses in any way suffered, incurred, or paid by Secured
Party as a result of or in any way arising out of, following or consequential to
transactions between Secured Party and Grantor, whether under this Agreement or
otherwise (including without limitation reasonable attorneys' fees and
reasonable expenses), except for losses arising from or out of Secured Party's
gross negligence or willful misconduct.
10. Course of Dealing. No course of dealing, nor any failure to
exercise, nor any delay in exercising any right, power or privilege hereunder
shall operate as a waiver thereof.
11. Attorneys' Fees. If any action relating to this Agreement is brought
by either party hereto against the other party, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements.
12. Amendments. This Agreement may be amended only by a written
instrument signed by both parties hereto.
13. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
14. California Law and Jurisdiction; Jury Waiver. This Agreement shall
be governed by the laws of the State of California, without regard for choice of
law provisions. Grantor and Secured Party consent to the exclusive jurisdiction
of any state or federal court located in Santa Clara County, California. GRANTOR
AND SECURED PARTY EACH WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THE LOAN DOCUMENTS, THIS
AGREEMENT, OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN, INCLUDING CONTRACT
CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the day and year first above written.
GRANTOR:
Address of Grantor: GENERAL AUTOMATION, INC.
17731 Mitchell North By:
Irvine, CA 92714 -----------------------------
Richard Nance
Its: Chief Financial Officer
Attn: Richard Nance
SECURED PARTY
Address of Secured Party: COMERICA BANK-CALIFORNIA
55 Almaden Blvd., 2nd Floor By:
San Jose, CA 95113 -----------------------------
Roland Tucker
Its: Vice President
Attn: Roland Tucker
5
<PAGE> 6
EXHIBIT A
Copyrights
Title Registration Number Registration Date
- ----- ------------------- -----------------
6
<PAGE> 7
EXHIBIT B
Patents
Description Registration Number Registration Date
- ----------- ------------------- -----------------
7
<PAGE> 8
EXHIBIT C
Trademarks
Registration/ Registration/
Application Application
Description Number Date
- ----------- ------------- -------------
8
<PAGE> 1
EXHIBIT 10.28
September 30, 1999
RadiSys CPD, Inc.
5959 Corporate Drive
Houston, Texas 77036
Gentlemen:
This letter sets forth the agreement which has been reached concerning
the satisfaction of all of the indebtedness of General Automation, Inc., a
Delaware corporation ("GA"), to RadiSys CPD, Inc., a Delaware corporation
formerly known as Sequoia Systems, Inc. and also formerly known as Texas Micro,
Inc. ("RadiSys"), and the release by RadiSys of all other obligations owed to it
by GA in exchange for (a) a cash payment by GA to RadiSys; (b) the issuance of
two promissory notes by GA to RadiSys; and (c) the issuance of shares of GA's
common stock to RadiSys. That agreement is as follows:
1. Payment by GA. Concurrently with the execution of this letter
agreement, GA will pay to RadiSys the amount of $1,500,000, by wire transfer to
an account designated by RadiSys (the "Cash Payment").
2. Issuance of Promissory Notes. Concurrently with the execution of this
letter agreement, GA will execute and deliver to RadiSys two Promissory Notes,
one in the original principal amount of $250,000 in the form of Exhibit A
attached to this letter agreement (the "First Note"), and one in the original
principal amount of $500,000 in the form of Exhibit B attached to this letter
agreement (the "Second Note"). The First Note and the Second Note are at times
referred to collectively in this letter agreement as the "Notes").
3. Issuance of Stock. GA shall issue to RadiSys 1,133,333 shares of GA's
common stock (the "Shares") as soon as is reasonably practicable after the date
of this letter agreement, but in any event within thirty (30) days after the
date of this letter agreement, GA will cause its transfer agent to issue and
deliver to RadiSys a stock certificate, standing in the name of RadiSys,
representing the Shares.
4. Registration Rights Agreement. Concurrently with the execution and
delivery of this letter agreement, GA and RadiSys will execute and deliver a
Registration
<PAGE> 2
RadiSys CPD, Inc.
September 30, 1999
Page 2
Rights Agreement pertaining to the Shares in the form of Exhibit C attached to
this letter agreement.
(a) Satisfaction of GA's Obligations Under the Second Note. The
Second Note provides that it is due and payable in full upon the earlier to
occur of the date which is one hundred twenty (120) days following the date of
the Second Note (the "Maturity Date"); or the third business day following the
closing of a loan to GA pursuant to that certain Loan Agreement (the "Loan
Agreement") of even date herewith between GA and Pacific Mezzanine Fund LLP
("PMF"), which loan yields net proceeds to GA of not less than One Million
Dollars ($1,000,000), excluding the initial $3,150,000 loaned by PMF to the
Company pursuant to the Loan Agreement (a "Qualifying Financing"). (A copy of
the Loan Agreement is attached to this letter agreement as Exhibit D.) The
Second Note also provides, however, that in the event that a Qualifying
Financing has not been consummated on or before the Maturity Date, GA may, in
its sole discretion, elect to satisfy GA's entire obligation under the Second
Note by executing and delivering to the holder of the Second Note (the "Holder")
a Secured Convertible Promissory Note with an original principal amount equal to
the sum of the then outstanding principal balance of the Second Note and all
accrued but unpaid interest then owed on the Second Note. If GA elects to
satisfy its obligations under the Second Note in the manner referred to in the
immediately preceding sentence, it shall send written notification of that
election to the Holder (the "Notice"). Within ten (10) business days following
the Holder's receipt of the Notice:
(b) GA shall execute and deliver to the Holder, against Holder's
execution and delivery to GA of the documents and instruments referred to in
Section 5(b) below, the following:
(i) A Secured Convertible Promissory Note in substantially the
form of Exhibit E attached to this letter agreement (the "Secured Note"), in an
original principal amount equal to the sum of the then outstanding principal
balance of the Second Note and all accrued but unpaid interest then owed on the
Second Note (the conversion rate on which Secured Convertible Promissory Note
shall be the same as the "Conversion Rate" specified in Section 2.08 of the Loan
Agreement); and
(ii) A Warrant in substantially the form of Exhibit F attached
to this letter agreement, covering a number of shares (rounded to the nearest
whole share) calculated by dividing the original principal amount of the Secured
Note by $8.00; and
<PAGE> 3
RadiSys CPD, Inc.
September 30, 1999
Page 3
(iii) Such documents as may reasonably be requested by the
Holder for the purpose of making the Holder a party to the Loan Agreement as a
"Lender" thereunder (provided, however, that (A) in no event shall RadiSys
become obligated thereby to make any loan or advance to GA, other than the loan
evidenced by the Secured Note in the original principal amount specified in
Section 5(a)(i) above, and (B) notwithstanding Section 3.01(j) of the Loan
Agreement, no opinion of GA's counsel will be delivered to RadiSys in connection
with the transactions contemplated by this Section 5); and
(iv) Such documents as may reasonably be requested by the Holder
for the purpose of making the Holder a party to, and a "Secured Party" under,
that certain Security Agreement of even date herewith entered into by PMF and
GA, a copy of which is attached to this letter agreement as Exhibit G; and
(v) Such documents as may reasonably be requested by the Holder
for the purpose of making the Holder a party to, and an "Investor" under, that
certain Investors' Rights Agreement of even date herewith entered into by PMF
and GA, a copy of which is attached to this letter agreement as Exhibit H; and
(vi) Such other documents and instruments (including but not
limited to amendments to the documents referred to in this Section 5(a)) as may
reasonably be requested by the Holder for the purpose of effectuating the
purposes and intent of this Section 5. (xi)
(c) The Holder shall deliver to GA for cancellation the original of
the Second Note, and shall also execute and deliver to GA, against GA's
execution and delivery to the Holder of the documents and instruments referred
to in Section 5(a) above, the following:
(i) A Subordination Agreement in favor of each of the Company's
Senior Lenders (as defined in the Loan Agreement), in substantially the form of
Exhibit I attached to this letter agreement; and
(ii) An Intercreditor Agreement in substantially the form of
Exhibit J attached to this letter agreement; and
<PAGE> 4
RadiSys CPD, Inc.
September 30, 1999
Page 4
(iii) Such other documents and instruments (including but not
limited to amendments to the documents referred to in this Section 5(b) and
Section 5(a) above) as may reasonably be requested by GA for the purpose of
effectuating the purposes and intent of this Section 5.
5. Investment Representations of RadiSys. RadiSys understands that the
Shares will be issued to RadiSys without registration under the Securities Act
of 1933, as amended (the "Act"), and without qualification or registration under
the applicable securities laws of any state (the "State Laws") in reliance on
exemptions from such registration and qualification for non-public offerings.
RadiSys further understands that GA is relying on the representations and
warranties set forth in this letter agreement in determining that such
exemptions are available.
6. RadiSys hereby represents and warrants to GA as follows:
(a) Investment Intent. The acquisition of the Shares is for
investment for RadiSys' own account, not as a nominee or agent, and not with a
view to the resale or distribution of any part thereof or interest therein.
RadiSys will not offer to sell or sell the Shares or any portion thereof or
interest therein to others except in compliance with the Act and the State Laws.
The undersigned does not have any present intention of distributing or selling
any of the Shares.
(b) Lack of Registration; Legend on Certificates. RadiSys has been
advised by GA as to the circumstances under which RadiSys is required to take
and hold the Shares, including, without limitation, the following:
(i) The Shares have not been registered with the Securities and
Exchange Commission (the "SEC") under the Act and must be held for investment
unless subsequently registered under the Act or an exemption from registration
is available.
(ii) Any and all certificates representing the Shares and any
and all replacements thereof shall bear and be subject to a legend in
substantially the following form affecting the transferability of the Shares:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE ACT
OF 1933 (THE "FEDERAL ACT") OR QUALIFIED UNDER THE SECURITIES LAWS OF
ANY STATE,
<PAGE> 5
RadiSys CPD, Inc.
September 30, 1999
Page 5
IN RELIANCE ON EXEMPTIONS FROM SUCH REGISTRATION AND QUALIFICATION FOR
NONPUBLIC OFFERINGS. ACCORDINGLY, THE SALE, TRANSFER OR OTHER
DISPOSITION OF SUCH SECURITIES OR ANY INTEREST THEREIN MAY NOT BE
ACCOMPLISHED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE FEDERAL 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.
(c) Documents Reviewed by RadiSys. RadiSys has reviewed the
following documents pertaining to GA (the "GA SEC Reports"):
(i) GA's Report on Form 10-K for the fiscal year ended September
30, 1998, as filed with the SEC; and
(ii) GA's Proxy Statement relating to the Annual Meeting of GA's
shareholders held on March 25, 1999; and
(iii) GA's Reports on Form 10-Q for the quarters ended December
31, 1998, March 31, 1999 and June 30, 1999, as filed with the SEC; and
(iv) GA's Reports on Form 8-K filed with the SEC on February 19,
1999 and July 14, 1999, respectively.
(d) Availability of Additional Information. RadiSys acknowledges
that inquiries with respect to GA or the documents referred to in Section 6(c)
above may be made by RadiSys to Mr. Richard Nance, GA's Chief Financial Officer,
in writing at 17731 Mitchell North, Irvine, California 92714, or by telephone at
(714) 250-4800. RadiSys has been afforded the opportunity to make inquiries of,
and has received answers from, the officers and directors of GA concerning its
operations, plans and financial condition, and has further been afforded the
opportunity to obtain any additional material necessary to verify the
information so obtained (to the extent GA possesses such material or could
acquire it without unreasonable effort or expense.)
<PAGE> 6
RadiSys CPD, Inc.
September 30, 1999
Page 6
(e) No Reliance on Other Information. RadiSys has not been furnished
with any oral or written information concerning GA other than the documents
referred to in Section 6(c) above, and the information furnished or made
available to RadiSys by GAI described in Section 6(d) above, and RadiSys has
relied solely on the foregoing in connection with its decision to acquire the
Shares.
(f) Accredited Investor. RadiSys is an "accredited investor" within
the meaning of Rule 501(a)(3) promulgated by the SEC under the Act.
7. Representations and Warranties of GA. GA hereby represents and
warrants to RadiSys as follows:
(a) Organization, Powers and Good Standing. GA is a corporation duly
organized, validly existing and in good standing under the laws of Delaware, and
having its principal place of business in the State of California, and has all
requisite corporate power and authority and the legal right to own and operate
its properties and to carry on its business as heretofore conducted and as
proposed to be conducted. GA is duly qualified to transact business and is in
good standing in each jurisdiction in which the failure so to qualify would have
a material adverse effect on GA. GA has all requisite power and authority to
enter into this letter agreement and to execute and deliver the Notes and to
carry out the transactions contemplated hereby and thereby.
(b) Authorization, Binding Effect No Conflict, Etc.
(i) All corporate action on the part of GA necessary for the
authorization, execution and delivery of this letter agreement and the Notes,
the performance of all of GA's obligations hereunder and thereunder and the
authorization, issuance and delivery of the Notes and the Shares has been taken.
This letter agreement and each of the Notes has been duly executed and delivered
by GA. This letter agreement and each of the Notes is a legal, valid and binding
obligation of GA, enforceable against it in accordance with its respective
terms, except as may be affected by bankruptcy, insolvency, reorganization,
moratorium or other similar laws or by equitable principles relating to or
limiting the rights of creditors generally.
(ii) The execution, delivery and performance by GA of this
letter agreement and the Notes, and the consummation of the transactions
contemplated thereby (including the issuance of the Shares), do not and cannot
(A) conflict with any
<PAGE> 7
RadiSys CPD, Inc.
September 30, 1999
Page 7
provision of GA's Certificate of Incorporation or Bylaws, (B) conflict with,
result in a breach of, or constitute (or, with the giving of notice or lapse of
time or both, would constitute) a default under, or require the approval or
consent of any person or entity pursuant to, any material agreement, contract or
instrument to which GA is a party, or violate any provision of applicable law
binding on GA, or (C) result in the creation or imposition of any lien upon any
asset of GA.
(iii) No governmental approval is or will be required in
connection with the execution, delivery and performance by GA of this letter
agreement or the Notes or the transactions contemplated thereby or to ensure the
legality, validity or enforceability thereof.
(c) Financial Information Relating to GA. The financial statements
contained in the GA SEC Reports are complete and correct in all material
respects, subject to the absence of footnotes, the absence of a statement of
cash flows and normal year-end adjustments in the case of the interim financial
statements included, and have been prepared in accordance with GAAP. Without
limiting the foregoing, the financial statements contained in the GA SEC Reports
accurately set out and describe the financial condition and operating results of
GA as of the dates, and for the periods, indicated therein.
(d) Litigation. Except as disclosed in the GA SEC Reports, there are
no actions, suits or proceedings pending or, to the best knowledge of GA,
threatened against or affecting GA, or its assets or properties before any
governmental authority (i) that, if adversely determined, could have a material
adverse effect on GA, (ii) that in any manner draw into question the validity or
the enforceability of this letter agreement or any transaction contemplated
hereby, or (iii) that might result in any change in the current equity ownership
of GA, nor, to GA's Best Knowledge, is there any basis for any matter described
in the foregoing Section 7(d), except as disclosed on Schedule 7(d) attached
hereto. There are no any actions pending or threatened (or any basis therefor
known to GA) involving the prior employment of any of GA's employees, their use
in connection with the businesses of GA of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. GA is not a party or subject to the
provisions of any order (except as imposed by laws of general application),
writ, injunction, judgment or decree (except as imposed by laws of general
application) of any court, governmental authority or government agency or
instrumentality. There is no action, suit, proceeding or investigation by GA
<PAGE> 8
RadiSys CPD, Inc.
September 30, 1999
Page 8
currently pending or which GA intends to initiate (as plaintiff), which, if
adversely determined, would be material to GA or its business or prospects.
(e) Disclosure. GA has fully provided RadiSys with all of the
information which RadiSys has requested for deciding whether to enter into the
transactions contemplated by this letter agreement. The information in any
document, certificate or written statement furnished to RadiSys by or on behalf
of GA with respect to the business, assets, results of operation, financial
condition or prospects of GA for use in connection with the transactions
contemplated by this letter agreement is, when considered as a whole, true and
correct and does not omit to state any material fact required to be stated
therein to make the furnished information not misleading. To GA's best
knowledge, there is no fact (other than matters of a general economic nature)
that has materially and adversely affected or could reasonably be expected to
have a material adverse effect, which has not been disclosed herein, in such
other documents, certificates and statements, or the GA SEC Reports.
(f) Valid Issuance. The outstanding shares of GA's common stock have
been duly authorized, issued and delivered and are validly outstanding, fully
paid and nonassessable. The Shares, when issued, sold and delivered pursuant to
this letter agreement, will be duly and validly issued, fully paid and
nonassessable. Assuming the accuracy of the representations of RadiSys contained
in Section 6 above, the issuance and sale of the Shares to RadiSys pursuant to
this letter agreement are exempt from the registration requirements of Section 5
of the Securities Act of 1933, as amended, (the "Securities Act") by reason of
the exemption from registration set forth in Section 4(2) of the Securities Act.
(g) Compliance with Laws and Agreements. Except as disclosed in the
GA SEC Reports or Schedule 7(d) attached hereto, GA is not in violation or
default of any provisions of any material agreement, contract or instrument to
which it is a party or by which it is bound or of any provision of any
applicable law, which violation or default could have a material adverse effect
on GA.
(h) PMF Consent. PMF has consented to the terms and conditions of
the Second Note, the issuance of the Secured Note in accordance with the
provisions of Section 5 above, and the other transactions contemplated by
Section 5 above.
<PAGE> 9
RadiSys CPD, Inc.
September 30, 1999
Page 9
8. Representations and Warranties of RadiSys. RadiSys hereby represents
and warrants to GA as follows:
(a) Organization, Powers and Good Standing. RadiSys is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware. RadiSys has all requisite power and authority to enter into this
letter agreement and to carry out the transactions contemplated hereby.
(b) Authorization, Binding Effect No Conflict, Etc.
(i) All corporate action on the part of RadiSys necessary for
the authorization, execution and delivery of this letter agreement and the
performance of all of RadiSys's obligations hereunder has been taken. This
letter agreement has been duly executed and delivered by RadiSys, and is a
legal, valid and binding obligation of RadiSys, enforceable against it in
accordance with its terms, except as may be affected by bankruptcy, insolvency,
reorganization, moratorium or other similar laws or by equitable principles
relating to or limiting the rights of creditors generally.
(ii) The execution, delivery and performance by RadiSys of this
letter agreement, and the consummation of the transactions contemplated thereby,
do not and cannot (A) conflict with any provision of RadiSys's Certificate of
Incorporation or Bylaws, (B) conflict with, result in a breach of, or constitute
(or, with the giving of notice or lapse of time or both, would constitute) a
default under, or require the approval or consent of any person or entity
pursuant to, any material agreement, contract or instrument to which RadiSys is
a party, or violate any provision of applicable law binding on RadiSys, or (C)
result in the creation or imposition of any lien upon any asset of RadiSys.
(iii) No governmental approval is or will be required in
connection with the execution, delivery and performance by RadiSys of this
letter agreement or the transactions contemplated hereby or to ensure the
legality, validity or enforceability thereof.
9. Satisfaction of Indebtedness and Release of Other Obligations.
<PAGE> 10
RadiSys CPD, Inc.
September 30, 1999
Page 10
(a) Acknowledgment of Satisfaction; Release of Claims by RadiSys.
RadiSys acknowledges that payment of the Cash Payment to RadiSys and the
issuance of the Notes and the Shares to RadiSys will constitute satisfaction in
full of all of GA's indebtedness to RadiSys and satisfaction in full of all
other obligations of GA to RadiSys, known or unknown. Accordingly, RadiSys
hereby releases and discharges GA, as well as all of its officers, directors,
employees and agents, whether past, present or future (the "GA Released
Parties"), from any and all claims, demands, costs, liabilities, obligations,
damages, expenses, and actions and causes of action of every nature, whether in
law or in equity, known or unknown or suspected or unsuspected (collectively,
"Claims"), which RadiSys ever had or now has or makes claim to have against the
GA Released Parties, or any of them, directly or indirectly arising out of or in
connection with any event, condition, action, failure to act or other
circumstance on or before the date hereof, including but not limited to any and
all Claims arising out of or related to the Asset Purchase Agreement dated
October 3, 1996 entered into by GA and RadiSys (the "Asset Purchase Agreement");
the Registration Rights Agreement dated October 11, 1996 entered into by GA and
RadiSys (the "Prior Registration Rights Agreement"); the Common Stock Purchase
Warrant dated October 11, 1996 granted by GA to RadiSys (the "Prior Warrant");
the Assumption Agreement dated October 11, 1996 executed by GA in favor of
RadiSys (the "Assumption Agreement"); the letter agreement dated October 1, 1997
entered into by GA and RadiSys (the "Prior Letter Agreement"); and the
Promissory Note dated October 1, 1997 in the original principal amount of
$1,428,899 payable by GA to the order of RadiSys (the "Promissory Note").
(b) Release of Claims by GA. GA hereby releases and discharges
RadiSys, as well as all of its officers, directors, employees and agents,
whether past, present or future (the "RadiSys Released Parties"), from any and
all claims, demands, costs, liabilities, obligations, damages, expenses, and
actions and causes of action of every nature, whether in law or in equity, known
or unknown or suspected or unsuspected (collectively, "Claims"), which GA ever
had or now has or makes claim to have against the RadiSys Released Parties, or
any of them, directly or indirectly arising out of or in connection with any
event, condition, action, failure to act or other circumstance on or before the
date hereof, including but not limited to any and all Claims arising out of or
related to the Asset Purchase Agreement; the Prior Registration Rights
Agreement; the Prior Warrant; the Assumption Agreement; the Prior Letter
Agreement; and the Promissory Note.
<PAGE> 11
RadiSys CPD, Inc.
September 30, 1999
Page 11
(c) Waiver of Unknown Claims. RadiSys and GA each understands that
Section 1542 of the Civil Code of California provides as follows:
"A general release does not extend to claims which the creditor
does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially
affected his settlement with the debtor."
SECTION 1542 OF THE CIVIL CODE OF CALIFORNIA IS HEREBY EXPRESSLY WAIVED
BY RADISYS AND GA.
(d) Non-Assignment. RadiSys hereby represents and warrants to GA
that there has been no assignment of any Claims or any other rights which are
the subject of the release set forth in Section 7(a) above. GA hereby represents
and warrants to RadiSys that there has been no assignment of any Claims or any
other rights which are the subject of the release set forth in Section 7(b)
above.
10. Termination of Prior Agreements. RadiSys and GA hereby terminate in
their entirety each of the following agreements and instruments (collectively,
the "Terminated Agreements"): the Asset Purchase Agreement; the Prior
Registration Rights Agreement; the Prior Warrant; the Assumption Agreement; the
Prior Letter Agreement; and the Promissory Note. GA and RadiSys each agrees that
neither party hereto has any ongoing liability to the other party under any of
the Terminated Agreements. Concurrently with the execution of this letter
agreement, RadiSys will deliver to GA for cancellation the original of each of
the Prior Warrant and the Promissory Note.
11. Miscellaneous.
(a) Entire Agreement. This letter agreement is entered into by each
of the parties hereto without reliance upon any statement, representation,
promise, inducement or agreement not expressly contained within this letter
agreement. This letter agreement constitutes the entire agreement between the
parties concerning the subject matter hereof and supersedes all prior oral or
written agreements and understandings concerning such subject matter.
<PAGE> 12
RadiSys CPD, Inc.
September 30, 1999
Page 12
(b) Modification. This letter agreement shall not be amended or
modified except in a writing signed by both GA and RadiSys.
(c) Attorneys' Fees. If any litigation is brought concerning this
letter agreement or the rights or duties of any person in relation thereto, the
prevailing party in such litigation shall be entitled to recover from the other
party reasonable attorneys' fees and costs in such litigation in addition to any
other relief to which such prevailing party may be entitled.
(d) Governing Law. The internal laws of the State of California
shall govern this letter agreement in all respects, including, but not limited
to, matters of construction, validity, enforcement and interpretation.
To acknowledge your agreement to the foregoing and your intent to be
bound thereby, please execute the additional copy of this letter which is
enclosed, and return it to the undersigned.
Very truly yours,
GENERAL AUTOMATION, INC.
By:
--------------------------------------
Jane Christie, Chief Executive Officer
The foregoing is accepted and approved.
RADISYS CPD, INC.
By:
------------------------------------
(Signature)
Its:
(Please print name and title)
<PAGE> 13
RadiSys CPD, Inc.
September 30, 1999
Page 13
SCHEDULE 7(d)
GA is in default of its payment obligations under that certain
Promissory Note payable by GA to NCR Corporation dated May 4, 1998 in the
original principal amount of $1,723,921, the remaining balance of which is
approximately $739,000.
<PAGE> 1
EXHIBIT 10.29
PROMISSORY NOTE
$250,000 September 30, 1999
Irvine, California
The undersigned, General Automation, Inc., a Delaware corporation, for
value received, promises to pay to Boundless Technologies, Inc., a Delaware
corporation formerly known as SunRiver Data Systems, or order (the "Holder"),
the sum of Two Hundred Fifty Thousand Dollars ($250,000), together with interest
on unpaid principal as provided below.
The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject:
1. INTEREST. The unpaid principal balance of this Note outstanding from time to
time shall bear interest from the date hereof until paid at the rate of ten
percent (10%) per annum, compounded quarterly.
2. PAYMENTS. The entire principal amount of this Note, together with all accrued
interest thereon, shall be due and payable on the fifth anniversary of the date
of this Note.
3. ACCELERATION. Notwithstanding Section 2 above, if any of the events specified
in this Section 3 shall occur, the Holder may, so long as such condition exists,
declare the entire principal and unpaid accrued interest hereon immediately due
and payable, by notice in writing to the undersigned:
(a) The institution by the undersigned of proceedings to be adjudicated
as bankrupt or insolvent, or the consent by the undersigned to institution of
bankruptcy or insolvency proceedings against the undersigned, or the filing by
the undersigned 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 the undersigned to the filing of any such petition,
or the making by the undersigned of an assignment for the benefit of creditors;
or
(b) If, within sixty (60) days after the commencement of an action
against the undersigned (and service of process in connection therewith on the
undersigned) seeking any bankruptcy, insolvency or similar relief under any
present or future statute, law or regulation, such action shall not have been
resolved in favor of the undersigned or all orders or proceedings thereunder
affecting the undersigned 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 or acquiescence of the undersigned of any
trustee, receiver or liquidator of all or any substantial part of the properties
of the undersigned, such appointment shall not have been vacated.
4. PREPAYMENT. The undersigned may at any time prepay this Note in whole or in
<PAGE> 2
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 California.
7. TIME IS OF THE ESSENCE. Time is of the essence of this Note.
8. ATTORNEY'S FEE. In the event this Note is placed in the hands of an attorney
for collection, or if the Holder incurs any costs incident to the collection of
the indebtedness evidenced hereby, the undersigned and any endorsers hereof
agree to pay to the Holder an amount equal to all such costs, including without
limitation all actual reasonable attorney's fees and all court costs.
9. WAIVER. The payor and any guarantors and endorsers hereof expressly waive
diligence, presentment, protest and demand, and notice of protest, demand,
dishonor and nonpayment of this Note. No failure to accelerate to the
indebtedness evidence hereby upon the occurrence of any event specified in
Section 3 above, acceptance of a partial payment or other indulgences granted
from time to time shall be construed as a novation of this Note or as a waiver
of the right of the Holder thereafter to insist upon strict compliance with the
terms of this Note or to prevent the exercise of any right granted hereunder or
by applicable laws. No extension of the time for payment of the indebtedness
evidenced hereby, made by agreement with any person now or hereafter liable for
payment of the indebtedness evidenced hereby, shall operate to release,
discharge, modify, change or affect the original liability of the undersigned
hereunder or that of any other person now or hereafter liable for payment of the
indebtedness evidenced hereby, either in whole or in part, unless the Holder
agrees otherwise in writing. This Note may not be changed orally, but only by an
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought.
IN WITNESS WHEREOF, the undersigned, General Automation, Inc., has
executed this Note.
GENERAL AUTOMATION, INC.
By:
-------------------------------------
Its:
------------------------------------
<PAGE> 1
EXHIBIT 10.30
PROMISSORY NOTE
$500,000 September 30, 1999
Irvine, California
The undersigned, General Automation, Inc., a Delaware corporation, for
value received, promises to pay to the order of Radisys CPD, Inc., or any
assignee (the "Holder"), the sum of Five Hundred Thousand Dollars ($500,000),
together with interest on unpaid principal as provided below. This Note has been
executed and delivered pursuant to that certain letter agreement of even date
herewith between the undersigned and Radisys CPD, Inc. (the "Letter Agreement").
The following is a statement of the rights of the Holder of this Note and
the conditions to which this Note is subject:
1. INTEREST. The unpaid principal balance of this Note outstanding from time to
time shall bear interest from the date hereof until paid at the rate of ten
percent (10%) per annum.
2. PAYMENTS. Subject to Section 3 below, the entire principal amount of this
Note, together with all accrued interest thereon, shall be due and payable on
the earlier to occur of the date which is one hundred twenty (120) days
following the date of this Note (the "Maturity Date"); or the third business day
following the closing of a loan to the undersigned pursuant to that certain Loan
Agreement (the "Loan Agreement") of even date herewith between the undersigned
and Pacific Mezzanine Fund LLP ("PMF"), which loan yields net proceeds to the
undersigned of not less than One Million Dollars ($1,000,000), excluding the
initial $3,150,000 loaned by PMF to the Company pursuant to the Loan Agreement
(a "Qualifying Financing").
3. SATISFACTION OF OBLIGATIONS BY UNDERSIGNED. Notwithstanding Section 2 above,
in the event that a Qualifying Financing has not been consummated on or before
the Maturity Date, the undersigned may, in its sole discretion, by written
notice given by the undersigned to the Holder, elect to satisfy the
undersigned's entire obligation under this Note by executing and delivering to
the Holder a Secured Convertible Promissory Note with an original principal
amount equal to the sum of the then outstanding principal balance of this Note
and all accrued but unpaid interest then owed on this Note, upon and subject to
the terms and conditions stated in the Letter Agreement.
4. PREPAYMENT. The undersigned 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.
<PAGE> 2
6. APPLICABLE LAW. This Note shall be governed by and construed in accordance
with the internal laws of the State of California.
7. TIME IS OF THE ESSENCE. Time is of the essence of this Note.
8. ATTORNEYS' FEES. In the event this Note is placed in the hands of an attorney
for collection, or if the Holder incurs any costs incident to the collection of
the indebtedness evidenced hereby, the undersigned and any endorsers hereof
agree to pay to the Holder an amount equal to all such costs, including without
limitation all actual reasonable attorney's fees and all court costs.
9. WAIVER. The payor and any guarantors and endorsers hereof expressly waive
diligence, presentment, protest and demand, and notice of protest, demand,
dishonor and nonpayment of this Note. No acceptance of a partial payment or
other indulgences granted from time to time shall be construed as a novation of
this Note or as a waiver of the right of the Holder thereafter to insist upon
strict compliance with the terms of this Note or to prevent the exercise of any
right granted hereunder or by applicable laws. No extension of the time for
payment of the indebtedness evidenced hereby, made by agreement with any person
now or hereafter liable for payment of the indebtedness evidenced hereby, shall
operate to release, discharge, modify, change or affect the original liability
of the undersigned hereunder or that of any other person now or hereafter liable
for payment of the indebtedness evidenced hereby, either in whole or in part,
unless the Holder agrees otherwise in writing. This Note may not be changed
orally, but only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
IN WITNESS WHEREOF, the undersigned, General Automation, Inc., has
executed this Note.
GENERAL AUTOMATION, INC.
By:
--------------------------------
Its:
--------------------------------
<PAGE> 3
PROMISSORY NOTE
$500,000 September 30, 1999
Irvine, California
The undersigned, General Automation, Inc., a Delaware corporation, for
value received, promises to pay to Boundless Technologies, Inc., a Delaware
corporation formerly known as SunRiver Data Systems, or order (the "Holder"),
the sum of five Hundred Thousand Dollars ($500,000), together with interest on
unpaid principal as provided below. This Note has been executed and delivered
pursuant to that certain letter agreement of even date herewith between the
undersigned and Boundless Technologies, Inc. (the "Letter Agreement").
The following is a statement of the rights of the Holder of this Note and
the conditions to which this Note is subject:
1. INTEREST. The unpaid principal balance of this Note outstanding from time to
time shall bear interest from the date hereof until paid at the rate of ten
percent (10%) per annum.
2. PAYMENTS. Subject to Section 3 below, the entire principal amount of this
Note, together with all accrued interest thereon, shall be due and payable on
the earlier to occur of the date which is one hundred twenty (120) days
following the date of this Note (the "Maturity Date"); or the third business day
following the closing of a loan to the undersigned pursuant to that certain Loan
Agreement (the "Loan Agreement") of even date herewith between the undersigned
and Pacific Mezzanine Fund LLP ("PMF"), which loan yields net proceeds to the
undersigned of not less than One Million Fifty Thousand Dollars ($1,050,000),
excluding the initial $3,150,000 loaned by PMF to the Company pursuant to the
Loan Agreement; or the third business day following the closing of any other
debt or equity financing (other than the refinancing of the undersigned's real
property in Irvine, California) which yields gross proceeds to the undersigned
of not less than One Million Fifty Thousand Dollars ($1,050,000); or the third
business day following the closing of any refinancing of the undersigned's real
property in Irvine, California, which yields net proceeds to the undersigned of
not less than One Million Dollars ($1,000,000). (For purposes of this Note, each
of the financings described in clauses (b), (c) and (b) above is referred to as
a "Qualifying Financing").
3. SATISFACTION OF OBLIGATIONS BY UNDERSIGNED. Notwithstanding Section 2 above,
in the event that a Qualifying Financing has not been consummated on or before
the Maturity Date, the undersigned may, in its sole discretion, by written
notice given by the undersigned to the Holder, elect to satisfy the
undersigned's entire obligation under this Note by executing and delivering to
the Holder a Secured Convertible Promissory Note with an original principal
amount equal to the sum of the then outstanding principal balance of this Note
and all accrued but unpaid interest then owed on this Note, upon and subject to
the terms and conditions stated in the Letter Agreement.
EXHIBIT B
4. PREPAYMENT. The undersigned 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
<PAGE> 4
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 California.
7. TIME IS OF THE ESSENCE. Time is of the essence of this Note.
8. ATTORNEYS' FEES. In the event any action, suit, couterclaim, appeal,
arbitration, or mediation for any relief, declaratory or otherwise, pertaining
to enforcement of the terms of this Note or to the declaration of rights
hereunder (collectively, an "Action"), the losing party shall pay to the
prevailing party a reasonable sum for attorneys' fees and costs (at the
prevailing party's attorneys' then-prevailing rates) incurred in bringing and
prosecuting such action and/or enforcing any judgment, order, ruling, or award
(collectively, a "Decision") granted therein, all of which shall be deemed to
have accrued on the commencement of such Action and shall be paid whether or not
such Action is prosecuted to a Decision. Any Decision entered in such Action
shall contain a specific provision providing for the recovery for attorneys'
fees and costs incurred in enforcing such Decision. The court or arbitrator may
fix the amount of reasonable attorneys' fees and costs on the request of either
party. For the purposes of this section, attorneys' fees shall include, without
limitation, fees incurred in the following: postjudgment motions and collection
actions; contempt proceedings; garnishment, levy, and debtor and third party
examinations; discovery; and bankruptcy litigation. "Prevailing party" within
the meaning of this section includes a party who agrees to dismiss an Action on
the other party's payment of the sums allegedly due or performance of the
covenants allegedly breached, or who obtains substantially the relief sought by
it.
9. WAIVER. The payor and any guarantors and endorsers hereof expressly waive
diligence, presentment, protest and demand, and notice of protest, demand,
dishonor and nonpayment of this Note.
IN WITNESS WHEREOF, the undersigned, General Automation, Inc., has
executed this Note.
GENERAL AUTOMATION, INC.
By:
--------------------------------
Its:
--------------------------------
<PAGE> 1
EXHIBIT 10.31
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated September 30, 1999, is entered
into by General Automation, Inc., a Delaware corporation (the "Company"), and
Radisys CPD, Inc., a Delaware corporation formerly known as Texas Micro, Inc.
and also formerly known as Sequoia Systems, Inc. ("Radisys").
1. Definitions. Unless the context otherwise requires, the terms defined in this
Section 1 shall have the meanings herein specified for all purposes of this
Agreement, applicable to both the singular and plural forms of any of the terms
herein defined.
1.1 Agreement. "Agreement" means this Registration Rights Agreement.
1.2 Board. "Board" means the Board of Directors of the Company.
1.3 Commission. "Commission" means the United States Securities and
Exchange Commission.
1.4 Common Stock. "Common Stock" means the Common Stock of the Company.
1.5 Holder. "Holder" of any security means the record owner of such
security.
1.6 Radisys' Registrable Securities. "Radisys' Registrable Securities"
means the 1,133,333 shares of Common Stock to be issued by the Company to
Radisys pursuant to that certain letter agreement of even date herewith between
the Company and Radisys ; and any securities issued or issuable with respect to
the Common Stock referred to in clause (a) above by way of a stock dividend or
stock split or in connection with a combination of shares, reclassification,
recapitalization, merger or consolidation or reorganization; provided, however,
that such shares of Common Stock shall only be treated as Radisys' Registrable
Securities if and so long as they have not been (i) sold to or through a broker
or dealer or underwriter in a public distribution or a public securities
transaction; or (ii) sold in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4(1)
thereof or other applicable exemption so that all transfer restrictions and
restrictive legends with respect to such Common Stock are removed upon the
consummation of such sale.
1.7 Other Registrable Securities. "Other Registrable Securities" means
all Common Stock, whether now outstanding or hereafter issued, which the Company
has agreed to register, or may hereafter agree to register.
EXHIBIT C
<PAGE> 2
1.8 Person. "Person" includes any natural person, corporation, trust,
association, company, partnership, joint venture and other entity and any
government, governmental agency, instrumentality or political subdivision.
1.9 Register, Registered and Registration. The terms "register,"
"registered" and "registration" refer to a registration effected by preparing
and filing a registration statement in compliance with the Securities Act, and
the declaration or ordering of the effectiveness of such registration statement.
1.10 Registrable Securities. "Registrable Securities" means the Other
Registrable Securities and Radisys' Registrable Securities, collectively.
1.11 Securities Act. "Securities Act" means the United States Securities
Act of 1933, as amended.
2. Incidental Registration.
2.1 Notice to Radisys, Etc. Each time the Company shall determine to
file a registration statement under the Securities Act (other than on Form S-4,
S-8 or a registration statement on any form covering solely an employee benefit
plan) in connection with the proposed offer and sale for money of any of its
securities for its own account, the Company agrees to promptly give written
notice of its determination to Radisys. Upon the written request of Radisys
given within twenty (20) days after the receipt of such written notice from the
Company, subject to Section 2.3 below, the Company agrees to cause all of
Radisys' Registrable Securities, or such portion thereof as Radisys has
specified to the Company in writing, to be included in such registration
statement and registered under the Securities Act, all to the extent requisite
to permit the sale or other disposition by Radisys of Radisys' Registrable
Securities to be so registered.
2.2 Inclusion in Underwriting. If the registration of which the Company
gives written notice pursuant to Section 2.1 is for a public offering involving
an underwriting, the Company agrees to so advise Radisys as a part of its
written notice. In such event, the right of Radisys to registration pursuant to
this Section 2 shall be conditioned upon Radisys' participation in such
underwriting and the inclusion of Radisys' Registrable Securities in the
underwriting to the extent provided herein. If any of Radisys' Registrable
Securities are to be distributed through such underwriting, Radisys shall enter
into (together with the Company and the other Holders distributing their
securities through such underwriting) an underwriting agreement with the
underwriter or underwriters selected for such underwriting by the Company,
provided that such underwriting agreement is in customary form.
2.3 Limitations. Notwithstanding any other provision of this Section 2,
if the managing underwriter of an underwritten distribution advises the Company
in writing that in its good faith judgment the number of shares of Registrable
Securities requested to be registered exceeds the number of shares of
Registrable Securities which can be sold in such offering, then
<PAGE> 3
the number of shares of Registrable Securities so requested to be included in
the offering shall be reduced to that number of shares which in the good faith
judgment of the managing underwriter can be sold in such offering. Such reduced
number of shares to be included in the registration shall be allocated as
follows: first to the Company with respect to all of the shares to be registered
for the account of the Company; and second, to the Holders of shares of
Registrable Securities requesting to participate in such registration, on a pro
rata basis based on the total number of shares of Registrable Securities held by
each such Holder. All shares of Radisys' Registrable Securities which are
excluded from the underwriting by reason of the underwriter's marketing
limitation and all shares of Radisys' Registrable Securities not originally
requested to be so included shall not be included in such registration. (b) 2.4
Abandonment of Registration. Notwithstanding any other provision of this
Agreement, the Company may at any time, at the discretion of the Board, abandon
or terminate any registration statement, either prior to or after its filing
with the Commission, without liability or obligation to Radisys.
3. Expenses.
3.1 Registration Expenses. Subject to Section 3.2 below, the Company
agrees to bear all fees, costs and expenses with respect to the inclusion of
shares of Radisys' Registrable Securities in any registration statement pursuant
to Section 2 hereof.
3.2 Company Expenses; Expenses of Radisys. The fees, costs and expenses
of registration to be borne as provided in Section 3.1 above shall consist of
all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, fees and disbursements
of counsel for the underwriter or underwriters of such securities (if the
Company and/or selling security holders are otherwise required to bear such fees
and disbursements), and all legal fees and disbursements and other expenses of
complying with state securities or blue sky laws of any jurisdictions in which
the securities to be offered are to be registered or qualified. The fees, costs
and expenses to be borne by the Company under Section 3.1 above shall not
include the fees, costs or expenses of any counsel to Radisys or stock transfer
taxes or underwriters' discounts and commissions relating to any of Radisys'
Registrable Securities.
4. Indemnification.
4.1 Indemnification by Company. The Company hereby agrees to indemnify
and hold harmless Radisys, its officers, directors and each Person who controls
Radisys within the meaning of the Securities Act, from and against, and agrees
to reimburse Radisys, its officers, directors and controlling Persons with
respect to, any and all claims, actions (actual or threatened), demands, losses,
damages, liabilities, costs and expenses, including without limitation
attorneys' fees, to which any such indemnified Person may become subject under
the
<PAGE> 4
Securities Act or otherwise, insofar as such claims, actions, demands, losses,
damages, liabilities, costs or expenses arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such registration statement, any prospectus contained therein, or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the Company will
not be liable in any such case to the extent that any such claim, action,
demand, loss, damage, liability, cost or expense suffered by Radisys, its
officers, directors and controlling Persons is caused by an untrue statement or
alleged untrue statement or omission or alleged omission so made in strict
conformity with written information furnished by Radisys specifically for use in
the preparation thereof; provided, further, that with respect to an untrue
statement or alleged untrue statement or omission or alleged omission made in a
preliminary prospectus but eliminated or remedied in the amended prospectus on
file with the Commission at the time the registration statement becomes
effective (or an amended prospectus filed with the Commission pursuant to Rule
424(b)) (the "Final Prospectus"), or made in the Final Prospectus but eliminated
in any amendment or supplement filed subsequent to the Final Prospectus (a
"Subsequent Amendment"), this indemnity shall not inure to the benefit of
Radisys, its officers, directors or controlling Persons if, having previously
been furnished by or on behalf of the Company with copies of the Final
Prospectus or Subsequent Amendment, as applicable, Radisys thereafter fails to
deliver, prior to or concurrently with the sale of securities to such person, a
copy of the Final Prospectus or Subsequent Amendment, as applicable, to the
person asserting the claim, action, demand, loss, damage, liability, cost or
expense.
4.2 Indemnification by Radisys. If any shares of Radisys' Registrable
Securities are included in a registration statement pursuant to the provisions
of this Agreement, Radisys shall indemnify and hold harmless the Company, its
officers, directors, legal counsel and accountants and each Person who controls
the Company within the meaning of the Securities Act, from and against, and
agrees to reimburse the Company, its officers, directors, legal counsel,
accountants and controlling Persons with respect to, any and all claims,
actions, demands, losses, damages, liabilities, costs or expenses, including
without limitation attorneys' fees, to which the Company, its officers,
directors, legal counsel, accountants or such controlling Persons may become
subject under the Securities Act or otherwise, insofar as such claims, actions,
demands, losses, damages, liabilities, costs or expenses are caused by any
untrue or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or are caused by the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was so made in reliance upon and in strict conformity with written
information furnished by Radisys specifically for use in the preparation
thereof.
(i) Indemnification Procedure. Promptly after receipt by a party
indemnified pursuant to the provisions of Section 4.1 or 4.2 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim therefor is to be
made against the indemnifying party pursuant to the provisions of
<PAGE> 5
Section 4.1 or 4.2, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to an indemnified party otherwise than under
this Section 4 and shall not relieve the indemnifying party from liability under
this Section 4; provided that if the indemnifying party has not received notice
of the claim and the indemnified party fails to vigorously defend the claim or
settles or compromises the claim without the approval of the indemnifying party,
the indemnifying party shall be relieved of liability under this Section 4. In
case any such action is brought against any indemnified party, and it notifies
the indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish, to
assume the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party shall have the right,
at its own cost and expense, to select separate counsel (in which case the
indemnifying party shall not have the right to direct the defense of such action
on behalf of the indemnified party or parties). Upon the permitted assumption by
the indemnifying party of the defense of such action, and approval by the
indemnified party of counsel, the indemnifying party shall not be liable to such
indemnified party under Section 4.1 or 4.2 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof (other than reasonable costs of investigation) unless the indemnifying
party shall not have employed counsel reasonably satisfactory to the indemnified
party to represent the indemnified party within a reasonable time, the
indemnifying party and its counsel do not actively and vigorously pursue the
defense of such action, or the indemnifying party has authorized the employment
of counsel for the indemnified party at the expense of the indemnifying party.
No indemnifying party shall be liable to an indemnified party for any settlement
of any action or claim without the consent of the indemnifying party and no
indemnifying party may unreasonably withhold its consent to any such settlement.
No indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability with respect to such claim or litigation.
4.3 Contribution. If the indemnification provided for in Section 4.1 or
4.2 is held by a court of competent jurisdiction to be unavailable to a party to
be indemnified with respect to any claims, actions, demands, losses, damages,
liabilities, costs or expenses referred to therein, then each indemnifying party
under any such Section, in lieu of indemnifying such indemnified party
thereunder, hereby agrees to contribute to the amount paid or payable by such
indemnified party as a result of such claims, actions, demands, losses, damages,
liabilities, costs or expenses, including without limitation attorneys' fees, in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions which resulted in such claims,
actions, demands, losses, damages, liabilities, costs or expenses, as well as
any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue
<PAGE> 6
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
4.4 Limitation on Radisys' Obligations. Notwithstanding the foregoing,
in no event shall Radisys' indemnification or contribution obligations under
this Section 4 exceed an amount equal to the per share public offering price
(less any underwriting discount and commissions) multiplied by the number of
shares of Radisys' Registrable Securities sold pursuant to the registration
statement which gives rise to such obligation to contribute or indemnify (less
the aggregate amount of any damages which Radisys has otherwise been required to
pay in respect of such claim, action, demand, loss, damage, liability, cost or
expense or any substantially similar claim, action, demand, loss, damage,
liability, cost or expense arising from the sale of Radisys' Registrable
Securities).
4.5 Exceptions in Event of Fraud. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution hereunder from any person who was not guilty
of such fraudulent misrepresentation.
5. Radisys Information. If any shares of Radisys' Registrable Securities are to
be included in any registration to be effected pursuant to this Agreement, the
Company may require Radisys to furnish the Company with such information with
respect to Radisys and the distribution of such shares of Radisys' Registrable
Securities as the Company may from time to time reasonably request in writing to
comply with such disclosure obligations as shall be required by law or by the
Commission in connection therewith, and Radisys shall furnish the Company with
such information.
6. Forms. All references in this Agreement to particular forms of registration
statements are intended to include, and shall be deemed to include, references
to all successor forms which are intended to replace, or to apply to similar
transactions as the forms herein referenced.
7. Transfer of Registration Rights. The rights to cause the Company to register
securities granted to Radisys pursuant to this Agreement may not be transferred
or assigned by Radisys.
8. Miscellaneous.
8.1 Waivers and Amendments. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally or by course of
dealing, but only by a statement in writing signed by the Company and Radisys.
<PAGE> 7
8.2 Notices. All notices, requests, demands, and other communications
required to or permitted to be given under this Agreement shall be in writing
and shall be conclusively deemed to have been duly given (i) when hand delivered
to the other party; or (ii) when received when sent by facsimile at the address
and number set forth below (provided, however, that notices given by facsimile
shall not be effective unless either (a) a duplicate copy of such facsimile
notice is promptly given by depositing the same in a United States post office
with first-class postage prepaid and addressed to the parties as set forth
below, or (b) the receiving party delivers a written confirmation of receipt for
such notice either by facsimile or any other method permitted under this
Section; additionally, any notice given facsimile shall be deemed received on
the next business day if such notice is received after 5:00 p.m. (recipient's
time) or on a nonbusiness day); or (iii) three (3) business days after the same
have been deposited in a United States post office with first class or certified
mail return receipt requested postage prepaid and addressed to the parties as
set forth below; or (iv) the next business day after the same have been
deposited with a national overnight delivery service reasonably approved by the
parties (Federal Express and DHL WorldWide Express being deemed approved by the
parties), postage prepaid, addressed to the parties as set forth below with
next-business-day delivery guaranteed, provided that the sending party receives
a confirmation of delivery from the delivery service provider.
To: General Automation, Inc.
17731 Mitchell North
Irvine, CA 92614
Attention: Chief Financial Officer
FAX: (949) 752-6772
To: Radisys CPD, Inc.
5959 Corporate Drive
Houston, TX 77036
Attention: President
FAX: (503) 615-1114
Each party shall make an ordinary, good faith effort to ensure that it will
accept or receive notices that are given in accordance with this Section, and
that any person to be given notice actually receives such notice. A party may
change or supplement the addresses given above, or designate additional
addresses, for purposes of this Section by giving the other party written notice
of the new address in the manner set forth above.
8.3 Severability. Should any one or more of the provisions of this
Agreement or of any agreement entered into pursuant to this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement and of each other agreement entered into pursuant to this Agreement,
shall be given effect separately from the provision or provisions determined to
be illegal or unenforceable and shall not be affected thereby.
<PAGE> 8
8.4 Headings. The headings of the sections, subsections and paragraphs
of this Agreement have been inserted for convenience of reference only and do
not constitute a part of this Agreement.
8.5 Choice of Law. It is the intention of the parties that the internal
substantive laws, and not the laws of conflicts, of the State of California
should govern the enforceability and validity of this Agreement, the
construction of its terms and the interpretation of the rights and duties of the
parties.
8.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
In witness whereof, the parties hereto have executed this Agreement.
GENERAL AUTOMATION, INC. RADISYS CPD, INC.
By: By:
------------------------------ -------------------------------------
Jane Christie, President
Its:
------------------------------------
(Please print name and title)
<PAGE> 1
EXHIBIT 10.32
September 30, 1999
Boundless Technologies, Inc.
711 Fifth Avenue, 5th Floor
New York, NY 10022
Re: General Automation LLC
Gentlemen:
This letter sets forth the agreement which has been reached concerning the
satisfaction by General Automation, Inc., a Delaware corporation ("GA"), of all
of its existing obligations to Boundless Technologies, Inc., a Delaware
corporation formerly known as SunRiver Data Systems ("Boundless"), and the
acquisition by GA of Boundless' entire interest in General Automation LLC, a
Delaware limited liability company ("GAL"). That agreement is as follows:
1. Payment by GA. Concurrently with the execution of this letter agreement,
GA has paid to Boundless the amount of $1,500,000, by wire transfer to an
account designated by Boundless (the "Cash Payment").
2. Issuance of Promissory Notes. Concurrently with the issuance of this
letter agreement, GA has executed and delivered to Boundless two Promissory
Notes, one in the original principal amount of $250,000 in the form of Exhibit A
attached to this letter agreement (the "First Note"), and one in the original
principal amount of $500,000 in the form of Exhibit B attached to this letter
agreement (the "Second Note"). The First Note and the Second Note are at times
referred to collectively in this letter agreement as the "Notes").
3. Issuance of Stock. As soon as is reasonably practicable after the date of
this letter agreement, but in any event within thirty (30) days after the date
of this letter agreement, GA will cause its transfer agent to issue and deliver
to Boundless a stock certificate, standing in the name of Boundless,
representing 1,133,333 shares of GA's common stock (the "Shares").
4. Registration Rights Agreement. Concurrently with the execution and
delivery of this letter agreement, GA and Boundless have executed and delivered
a Registration Rights Agreement pertaining to the Shares in the form of Exhibit
C attached to this letter agreement.
5. Satisfaction of GA's Obligations Under the Second Note. The Second Note
provides that it is due and payable in full upon the earliest to occur of the
date which is one hundred twenty (120) days following the date on which the
Second Note is issued to Boundless
<PAGE> 2
Boundless Technologies, Inc.
September 30, 1999
Page 2
(the "Maturity Date"); or the third business day following the closing of a loan
to GA pursuant to that certain Loan Agreement (the "Loan Agreement") of even
date herewith between GA and Pacific Mezzanine Fund LLP ("PMF"), which loan
yields gross proceeds to GA of not less than One Million Fifty Thousand Dollars
($1,050,000), excluding the initial $3,150,000 loaned by PMF to GA pursuant to
the Loan Agreement; or the third business day following the closing of any other
debt or equity financing (other than the refinancing of GA's real property in
Irvine, California) which yields gross proceeds to GA of not less than One
Million Fifty Thousand Dollars ($1,050,000); or the third business day following
the closing of any refinancing of GA's real property in Irvine, California,
which yields net proceeds to GA of not less than One Million Dollars
($1,000,000). (For purposes of this letter agreement, each of the financings
described in clauses (ii), (iii) and (iv) above is referred to as a "Qualifying
Financing"). (A copy of the Loan Agreement is attached to this letter agreement
as Exhibit D.) The Second Note also provides, however, that in the event that a
Qualifying Financing has not been consummated on or before the Maturity Date, GA
may, in its sole discretion, elect to satisfy GA's entire obligation under the
Second Note by executing and delivering to the holder of the Second Note (the
"Holder") a Secured Convertible Promissory Note with an original principal
amount equal to the sum of the then outstanding principal balance of the Second
Note and all accrued but unpaid interest then owed on the Second Note. If GA
elects to satisfy its obligations under the Second Note in the manner referred
to in the immediately preceding sentence, it shall send written notification of
that election to the Holder (the "Notice"), and it is the intent of GA and
Boundless that the Holder of the Second Note shall be issued a Secured Note (as
defined below) and a Warrant (as defined below) and become a "Lender" under the
Loan Agreement with all of the rights and privileges of a Lender contemplated in
the Loan Agreement, upon substantially the same terms as are applicable to PMF.
Accordingly, within ten (10) business days following the Holder's receipt of the
Notice:
(a) GA shall execute and deliver to the Holder, against Holder's
execution and delivery to GA of the documents and instruments referred to in
Section 5(b) below, the following:
(i) A Secured Convertible Promissory Note in substantially the
form of Exhibit E attached to this letter agreement (the "Secured Note"), in an
original principal amount equal to the sum of the then outstanding principal
balance of the Second Note and all accrued but unpaid interest then owed on the
Second Note (the conversion rate of which Secured Note shall be $0.73 per share,
subject to adjustment as provided in the Loan Agreement); and
(ii) A Warrant in substantially the form of Exhibit F attached to
this letter agreement, covering a number of shares (rounded to the nearest whole
share) calculated by
<PAGE> 3
Boundless Technologies, Inc.
September 30, 1999
Page 3
dividing the original principal amount of the Secured Note by $8.00 (the
exercise price of which Warrant will be $0.45 per share, subject to adjustment
as provided in the Warrant); and
(iii) Such documents as may reasonably be requested by the Holder
for the purpose of making the Holder a party to the Loan Agreement as a "Lender"
thereunder, with all of the rights and privileges of a Lender contemplated in
the Loan Agreement, upon substantially the same terms as are applicable to PMF
(provided, however, that (A) in no event shall Boundless become obligated
thereby to make any loan or advance to GA, other than the loan evidenced by the
Secured Note in the original principal amount specified in Section 5(a)(i)
above, and (B) notwithstanding Section 3.01(j) of the Loan Agreement, no opinion
of GA's counsel will be delivered to Boundless in connection with the
transactions contemplated by this Section 5); and
(iv) Such documents as may reasonably be requested by the Holder
for the purpose of making the Holder a party to, and a "Secured Party" under,
that certain Security Agreement of even date herewith entered into by PMF and
GA, a copy of which is attached to this letter agreement as Exhibit G; and
(v) Such documents as may reasonably be requested by the Holder
for the purpose of making the Holder a party to, and an "Investor" under, that
certain Investors' Rights Agreement of even date herewith entered into by PMF
and GA, a copy of which is attached to this letter agreement as Exhibit H; and
(vi) Such other documents and instruments (including but not
limited to amendments to the documents referred to in this Section 5(a)) as may
reasonably be requested by the Holder for the purpose of effectuating the
purposes and intent of this Section 5.
(b) The Holder shall deliver to GA for cancellation the original of the
Second Note, and shall also execute and deliver to GA, against GA's execution
and delivery to the Holder of the documents and instruments referred to in
Section 5(a) above, the following:
(i) A Subordination Agreement in favor of each of the Company's
Senior Lenders (as defined in the Loan Agreement), in substantially the form of
Exhibit I attached to this letter agreement; and
(ii) An Intercreditor Agreement in substantially the form of
Exhibit J attached to this letter agreement; and
<PAGE> 4
Boundless Technologies, Inc.
September 30, 1999
Page 4
(iii) Such other documents and instruments (including but not
limited to amendments to the documents referred to in this Section 5(b) and
Section 5(a) above) as may reasonably be requested by GA for the purpose of
effectuating the purposes and intent of this Section 5.
(c) GA represents and warrants to Boundless that the documents attached
to this letter agreement as Exhibits D through I are in substantially the form
which have been executed and delivered by GA and PMF in connection with the
consummation of the initial funding under the Loan Agreement. (g)
6. Investment Representations of Boundless. Boundless understands that the
Shares will be issued to Boundless without registration under the Securities Act
of 1933, as amended (the "Act"), and without qualification or registration under
the applicable securities laws of any state (the "State Laws") in reliance on
exemptions from such registration and qualification for non-public offerings.
Boundless further understands that GA is relying on the representations and
warranties set forth in this letter agreement in determining that such
exemptions are available.
7. Boundless hereby represents and warrants to GA as follows:
(a) Investment Intent. The acquisition of the Shares is for investment
for Boundless' own account, not as a nominee or agent, and not with a view to
the resale or distribution of any part thereof or interest therein. Boundless
will not offer to sell or sell the Shares or any portion thereof or interest
therein to others except in compliance with the Act and the State Laws. The
undersigned does not have any present intention of distributing or selling any
of the Shares.
(b) Lack of Registration; Legend on Certificates. Boundless has been
advised by GA as to the circumstances under which Boundless is required to take
and hold the Shares, including, without limitation, the following:
(i) The Shares have not been registered with the Securities and
Exchange Commission (the "SEC") under the Act and must be held for investment
unless subsequently registered under the Act or an exemption from registration
is available.
(ii) Any and all certificates representing the Shares and any and
all replacements thereof shall bear and be subject to a legend in substantially
the following form affecting the transferability of the Shares:
<PAGE> 5
Boundless Technologies, Inc.
September 30, 1999
Page 5
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE ACT
OF 1933 (THE "FEDERAL 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 INTEREST THEREIN MAY NOT BE
ACCOMPLISHED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE FEDERAL 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.
(c) Documents Reviewed by Boundless. Boundless has reviewed the
following documents pertaining to GA (collectively, the "GA SEC Reports"):
(i) GA's Report on Form 10-K for the fiscal year ended September
30, 1998, as filed with the SEC; and
(ii) GA's Proxy Statement relating to the Annual Meeting of GA's
shareholders held on March 25, 1999; and
(iii) GA's Reports on Form 10-Q for the quarters ended December 31,
1998, March 31, 1999 and June 30, 1999, as filed with the SEC; and
(iv) GA's Reports on Form 8-K filed with the SEC on February 19,
1999 and July 14, 1999, respectively.
(d) Accuracy of GA SEC Reports. At the time of their respective filing,
the GA SEC Reports did not contain any untrue statement of any material fact
contained therein nor omitted to state therein a material fact required to be
stated or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading. The information in any
document, certificate or written statement furnished to Boundless by or on
behalf of GA with respect to the business, assets, results of operation,
financial condition or prospects of GA for use in connection with the
transactions contemplated by this letter agreement is, when considered as a
whole, true and correct and does not omit to state any material fact required to
be stated therein to make the furnished information not misleading. Except as
disclosed on Schedule 6(d) attached to this letter agreement, to GA's best
knowledge, there is no
<PAGE> 6
Boundless Technologies, Inc.
September 30, 1999
Page 6
fact (other than matters of a general economic nature) that has materially and
adversely affected or could reasonably be expected to have a material adverse
effect, which has not been disclosed herein, in such other documents,
certificates and statements, or the GA SEC Reports.
(e) Availability of Additional Information. Boundless acknowledges that
inquiries with respect to GA or the documents referred to in Section 6(c) above
may be made by Boundless to Mr. Richard Nance, GA's Chief Financial Officer, in
writing at 17731 Mitchell North, Irvine, California 92714, or by telephone at
(714) 250-4800. Boundless has been afforded the opportunity to make inquiries
of, and has received answers from, the officers and directors of GA concerning
its operations, plans and financial condition, and has further been afforded the
opportunity to obtain any additional material necessary to verify the
information so obtained (to the extent GA possesses such material or could
acquire it without unreasonable effort or expense.)
(f) No Reliance on Other Information. Boundless has not been furnished
with any oral or written information concerning GA other than the documents
referred to in Section 6(c) above, and the information furnished or made
available to Boundless by GAI described in Section 6(e) above, and Boundless has
relied solely on the foregoing in connection with its decision to acquire the
Shares.
(g) Accredited Investor. Boundless is an "accredited investor" within
the meaning of Rule 501(a)(3) promulgated by the SEC under the Act.
7. Transfer of Interest in GAL. Boundless hereby conveys, transfer, assigns
and sells to GA all of Boundless' right, title and interest in and to GAL,
including but not limited to, Boundless' entire membership interest in GAL (the
"GAL Interest"), and relinquishes any and all claims to all of GAL's assets and
properties, tangible and intangible . Boundless hereby represents and warrants
to GA that Boundless has, and hereby conveys, transfers, assigns and sells to
GA, good and marketable title to the GAL Interest, free and clear of any and all
security interests, pledges, liens, claims, encumbrances or defects in title of
any nature whatsoever.
8. Satisfaction of Indebtedness and Release of Other Obligations.
(a) Acknowledgment of Satisfaction; Release of Claims. Boundless
acknowledges that payment of the Cash Payment to Boundless and the issuance of
the Notes and the Shares to Boundless will constitute satisfaction in full of
all indebtedness of GA and/or GAL to Boundless and satisfaction in full of all
other obligations of GA and/or GAL to Boundless, known or unknown, excluding
only (i) the obligations, representations and warranties of GA
<PAGE> 7
Boundless Technologies, Inc.
September 30, 1999
Page 7
and/or GAL under this letter agreement, including those obligations expressly
undertaken by GA under Sections 1, 2, 3, 4, 5 and 10 hereof and under the Notes,
and (i) the obligations, representations and warranties of GA under the
Registration Rights Agreement. GA and GAL acknowledge that other than the
obligations, representations and warranties of Boundless set forth in this
letter agreement, including that set forth in Section 9 hereof and in the
Registration Rights Agreement, Boundless owes no obligations to GA or GAL known
or unknown. Accordingly, excluding only those obligations described in the two
immediately preceding sentences, Boundless hereby releases and discharges GAL
and GA, as well as all of their respective officers, directors, employees and
agents, whether past, present or future (the "GA Released Parties"), and GA and
GAL each hereby release and discharge Boundless and Boundless Corporation, as
well as all of their respective officers, directors, employees and agents,
whether past, present or future (the "Boundless Released Parties") from any and
all claims, demands, costs, liabilities, obligations, damages, expenses, and
actions and causes of action of every nature, whether in law or in equity, known
or unknown or suspected or unsuspected (collectively, "Claims"), which
Boundless, on the one hand, or GAL and/or GA, on the other hand, ever had or now
has or makes claim to have against the GA Released Parties or the Boundless
Released Parties, or any of them, as the case may be, directly or indirectly
arising out of or in connection with any event, condition, action, failure to
act or other circumstance on or before the date hereof, including but not
limited to any and all Claims arising out of or related to the Operating
Agreement entered into by GA and Boundless dated as of May 22, 1995.
(b) Waiver of Unknown Claims. Boundless, GA and GAL each understands
that Section 1542 of the Civil Code of California provides as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his
settlement with the debtor."
SECTION 1542 OF THE CIVIL CODE OF CALIFORNIA IS HEREBY EXPRESSLY WAIVED BY
BOUNDLESS, GA AND GAL.
(c) Factual Differences. Boundless and GA each understands and accepts
the risk that the facts with respect to which this letter agreement is entered
into may be different from the facts now known or believed by it to be true.
This letter agreement shall remain in all respects effective and shall not be
subject to termination or rescission by virtue of any such differences in fact,
absent a showing of intentional fraud by GA in inducing Boundless to enter into
this letter agreement.
<PAGE> 8
Boundless Technologies, Inc.
September 30, 1999
Page 8
(d) Non-Assignment. Boundless hereby represents and warrants to GA that
there has been no assignment of any Claims or any other rights which are the
subject of the release set forth in Section 8(a) above. GA and GAL hereby
represent and warrant to Boundless that there has been no assignment of any
Claims or any other rights which are the subject of the release set forth in
Section 8(a) above.
9. Indemnification. Boundless will defend, indemnify and hold GA, its
officers, directors and each person who controls GA within the meaning of the
Act, from and against, and agrees to reimburse GA, its officers, directors and
controlling persons with respect to, any and all claims, actions, demands,
losses, damages, liabilities, costs or expenses, including without limitation
attorneys' fees, to which GA, its officers, directors or such controlling
persons may become subject insofar as such claims, actions, demands, losses,
damages, liabilities, costs or expenses arise from or are the result of any
breach of any representation or warranty made by Boundless in this letter
agreement, or the assertion by any person or entity of any claim or cause of
action against GA or GAL based upon allegations which, if true, would constitute
a breach of any representation or warranty made by Boundless in this letter
agreement.
10. Indemnification by GA. GA shall defend, indemnify and hold harmless
Boundless, its officers, directors and each person who controls Boundless within
the meaning of the Act, from and against, and agrees to reimburse Boundless, its
officers, directors and controlling persons with respect to, any and all claims,
actions, demands, losses, damages, liabilities, costs or expenses, including
without limitation attorneys' fees, to which Boundless, its officers, directors
or such controlling persons may become subject insofar as such claims, actions,
demands, losses, damages, liabilities, costs or expenses result from the
assertion by any third party against Boundless its officers, directors or such
controlling persons of any claim or cause of action based upon past or future
business activities of GA or GAL, including any act or omission by GA pertaining
to GA's management and/or operation of GAL. The indemnification provided in this
Section applies to claims heretofore made and which may hereinafter be made
against Boundless by Pick Systems and/or Via Systems, Inc. GA and GAL are
jointly and severally responsible for the indemnifications provided in this
Section 10.
11. Indemnification Procedure. Promptly after receipt by a party indemnified
pursuant to the provisions of Section 9 or 10 of this Letter Agreement of notice
of the commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim therefor is to be
made against the indemnifying party pursuant to the provisions of Section 9 or
10 hereof, notify the indemnifying party of the commencement thereof, but the
omission so to notify the indemnifying party shall not relieve the
<PAGE> 9
Boundless Technologies, Inc.
September 30, 1999
Page 9
indemnifying party from liability under this letter agreement; provided that if
the indemnifying party has not received notice of the claim and the indemnified
party fails to vigorously defend the claim, and as a result the rights of the
indemnifying party are substantially prejudiced, or if the indemnified party
settles or compromises the claim without the approval of the indemnifying party,
the indemnifying party shall be relieved of liability under this letter
agreement. In case any such action is brought against any indemnified party, and
it notifies the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that it may
wish, to assume the defense thereof, with counsel satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party shall have the right, at the indemnifying party's own cost and expense, to
select separate counsel (in which case the indemnifying party shall not have the
right to direct the defense of such action on behalf of the indemnified party or
parties). Upon the permitted assumption by the indemnifying party of the defense
of such action, and approval by the indemnified party of counsel, the
indemnifying party shall not be liable to such indemnified party under Section 9
or 10, as the case may be, for any legal or other expenses subsequently incurred
by such indemnified party in connection with the defense thereof (other than
reasonable costs of investigation) unless (i) the indemnifying party shall not
have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time, (ii) the indemnifying
party and its counsel do not actively and vigorously pursue the defense of such
action, or (iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party. No
indemnifying party shall be liable to an indemnified party for any settlement of
any action or claim without the consent of the indemnifying party and no
indemnifying party will consent to entry of any judgment or enter into any
settlement, which does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a release from all
liability with respect to such claim or litigation. In the event of a claim for
indemnification under Section 10 of this Letter Agreement, all notices described
in this Section 11 may be sent exclusively to GA.
10. Miscellaneous.
(a) Entire Agreement. This letter agreement is entered into by each of
the parties hereto without reliance upon any statement, representation, promise,
inducement or agreement not expressly contained within this letter agreement.
This letter agreement constitutes the entire agreement between the parties
concerning the subject matter hereof and supersedes all prior oral or written
agreements and understandings concerning such subject matter.
<PAGE> 10
Boundless Technologies, Inc.
September 30, 1999
Page 10
(b) Modification. This letter agreement shall not be amended or modified
except in a writing signed by both GA and Boundless.
(c) Attorneys' Fees. If any litigation is brought concerning this letter
agreement or the rights or duties of any person in relation thereto, the
prevailing party in such litigation shall be entitled to recover from the other
party reasonable attorneys' fees and costs in such litigation in addition to any
other relief to which such prevailing party may be entitled.
(d) Governing Law. The internal laws of the State of California shall
govern this letter agreement in all respects, including, but not limited to,
matters of construction, validity, enforcement and interpretation.
(e) Further Assurances. The parties shall at their own cost and expense
execute and deliver such further documents and instruments and shall take such
other actions as may be reasonably required or appropriate to carry out the
intent and purposes of this Agreement.
(f) To acknowledge your agreement to the foregoing and your intent to be
bound thereby, please execute the additional copy of this letter which is
enclosed, and return it to the undersigned.
Very truly yours,
GENERAL AUTOMATION, INC.
By:
--------------------------------------
Jane Christie, Chief Executive Officer
GENERAL AUTOMATION LLC
By:
--------------------------------------
The undersigned hereby agrees to the foregoing.
<PAGE> 11
Boundless Technologies, Inc.
September 30, 1999
Page 11
BOUNDLESS TECHNOLOGIES, INC.
By:
--------------------------------------
(Signature)
Its:
--------------------------------------
(Please print name and title)
<PAGE> 12
Boundless Technologies, Inc.
September 30, 1999
Page 12
SCHEDULE 6(d)
GA is in default of its payment obligations under that certain Promissory
Note payable by GA to NCR Corporation dated May 4, 1998 in the original
principal amount of $1,723,921, the remaining balance of which is approximately
$739,000.
<PAGE> 1
EXHIBIT 10.33
PROMISSORY NOTE
$250,000 September 30, 1999
Irvine, California
The undersigned, General Automation, Inc., a Delaware corporation, for
value received, promises to pay to Boundless Technologies, Inc., a Delaware
corporation formerly known as SunRiver Data Systems, or order (the "Holder"),
the sum of Two Hundred Fifty Thousand Dollars ($250,000), together with interest
on unpaid principal as provided below.
The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject:
1. INTEREST. The unpaid principal balance of this Note outstanding from
time to time shall bear interest from the date hereof until paid at the rate of
ten percent (10%) per annum, compounded quarterly.
2. PAYMENTS. The entire principal amount of this Note, together with all
accrued interest thereon, shall be due and payable on the fifth anniversary of
the date of this Note.
3. ACCELERATION. Notwithstanding Section 2 above, if any of the events
specified in this Section 3 shall occur, the Holder may, so long as such
condition exists, declare the entire principal and unpaid accrued interest
hereon immediately due and payable, by notice in writing to the undersigned:
(a) The institution by the undersigned of proceedings to be
adjudicated as bankrupt or insolvent, or the consent by the undersigned to
institution of bankruptcy or insolvency proceedings against the undersigned, or
the filing by the undersigned 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 the undersigned to the filing
of any such petition, or the making by the undersigned of an assignment for the
benefit of creditors; or
(b) If, within sixty (60) days after the commencement of an action
against the undersigned (and service of process in connection therewith on the
undersigned) seeking any bankruptcy, insolvency or similar relief under any
present or future statute, law or regulation, such action shall not have been
resolved in favor of the undersigned or all orders or proceedings thereunder
affecting the undersigned 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 or acquiescence of the undersigned of any
trustee, receiver or liquidator of all or any substantial part of the properties
of the undersigned, such appointment shall not have been vacated.
<PAGE> 2
EXHIBIT A
4. PREPAYMENT. The undersigned 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 Delaware.
7. ATTORNEYS' FEES. In the event of any action, suit, counterclaim,
appeal, arbitration, or mediation for any relief, declaratory or otherwise,
pertaining to enforcement of the terms of this Note or to the declaration of
rights hereunder (collectively, an "Action"), the losing party shall pay to the
prevailing party a reasonable sum for attorneys' fees and costs (at the
prevailing party's attorneys' then-prevailing rates) incurred in bringing and
prosecuting such Action and/or enforcing any judgment, order, ruling, or award
(collectively, a "Decision") granted therein, all of which shall be deemed to
have accrued on the commencement of such Action and shall be paid whether or not
such Action is prosecuted to a Decision. Any Decision entered in such Action
shall contain a specific provision providing for the recovery of attorneys' fees
and costs incurred in enforcing such Decision. The court or arbitrator may fix
the amount of reasonable attorneys' fees and costs on the request of either
party. For the purposes of this section, attorneys' fees shall include, without
limitation, fees incurred in the following: postjudgment motions and collection
actions; contempt proceedings; garnishment, levy, and debtor and third party
examinations; discovery; and bankruptcy litigation. "Prevailing party" within
the meaning of this section includes a party who agrees to dismiss an Action on
the other party's payment of the sums allegedly due or performance of the
covenants allegedly breached, or who obtains substantially the relief sought by
it.
8. WAIVER. The payor and any guarantors and endorsers hereof expressly
waive diligence, presentment, protest and demand, and notice of protest, demand,
dishonor and nonpayment of this Note.
IN WITNESS WHEREOF, the undersigned, General Automation, Inc., has
executed this Note.
GENERAL AUTOMATION, INC.
By:
Its:
<PAGE> 1
EXHIBIT 10.34
PROMISSORY NOTE
$500,000 September 30, 1999
Irvine, California
The undersigned, General Automation, Inc., a Delaware corporation, for
value received, promises to pay to Boundless Technologies, Inc., a Delaware
corporation formerly known as SunRiver Data Systems, or order (the "Holder"),
the sum of Five Hundred Thousand Dollars ($500,000), together with interest on
unpaid principal as provided below. This Note has been executed and delivered
pursuant to that certain letter agreement of even date herewith between the
undersigned and Boundless Technologies, Inc. (the "Letter Agreement").
The following is a statement of the rights of the Holder of this Note
and the conditions to which this Note is subject:
1. INTEREST. The unpaid principal balance of this Note outstanding from time to
time shall bear interest from the date hereof until paid at the rate of ten
percent (10%) per annum.
2. PAYMENTS. Subject to Section 3 below, the entire principal amount of this
Note, together with all accrued interest thereon, shall be due and payable on
the earliest to occur of the date which is one hundred twenty (120) days
following the date of this Note (the "Maturity Date"); or the third business day
following the closing of a loan to the undersigned pursuant to that certain Loan
Agreement (the "Loan Agreement") of even date herewith between the undersigned
and Pacific Mezzanine Fund LLP ("PMF"), which loan yields gross proceeds to the
undersigned of not less than One Million Fifty Thousand Dollars ($1,050,000),
excluding the initial $3,150,000 loaned by PMF to the Company pursuant to the
Loan Agreement; or the third business day following the closing of any other
debt or equity financing (other than the refinancing of the undersigned's real
property in Irvine, California) which yields gross proceeds to the undersigned
of not less than One Million Fifty Thousand Dollars ($1,050,000); or the third
business day following the closing of any refinancing of the undersigned's real
property in Irvine, California, which yields net proceeds to the undersigned of
not less than One Million Dollars ($1,000,000). (For purposes of this Note, each
of the financings described in clauses (b), (c) and (d) above is referred to as
a "Qualifying Financing").
3. SATISFACTION OF OBLIGATIONS BY UNDERSIGNED. Notwithstanding Section 2 above,
in the event that a Qualifying Financing has not been consummated on or before
the Maturity Date, the undersigned may, in its sole discretion, by written
notice given by the undersigned to the Holder, elect to satisfy the
undersigned's entire obligation under this Note by executing and delivering to
the Holder a Secured Convertible Promissory Note with an original principal
amount equal to the sum of the then outstanding principal balance of this Note
and all accrued but unpaid interest then owed on this Note, upon and subject to
the terms and conditions stated in the Letter Agreement.
EXHIBIT B
<PAGE> 2
4. PREPAYMENT. The undersigned 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 Delaware.
7. ATTORNEYS' FEES. In the event of any action, suit, counterclaim, appeal,
arbitration, or mediation for any relief, declaratory or otherwise, pertaining
to enforcement of the terms of this Note or to the declaration of rights
hereunder (collectively, an "Action"), the losing party shall pay to the
prevailing party a reasonable sum for attorneys' fees and costs (at the
prevailing party's attorneys' then-prevailing rates) incurred in bringing and
prosecuting such Action and/or enforcing any judgment, order, ruling, or award
(collectively, a "Decision") granted therein, all of which shall be deemed to
have accrued on the commencement of such Action and shall be paid whether or not
such Action is prosecuted to a Decision. Any Decision entered in such Action
shall contain a specific provision providing for the recovery of attorneys' fees
and costs incurred in enforcing such Decision. The court or arbitrator may fix
the amount of reasonable attorneys' fees and costs on the request of either
party. For the purposes of this section, attorneys' fees shall include, without
limitation, fees incurred in the following: postjudgment motions and collection
actions; contempt proceedings; garnishment, levy, and debtor and third party
examinations; discovery; and bankruptcy litigation. "Prevailing party" within
the meaning of this section includes a party who agrees to dismiss an Action on
the other party's payment of the sums allegedly due or performance of the
covenants allegedly breached, or who obtains substantially the relief sought by
it.
8. WAIVER. The payor and any guarantors and endorsers hereof expressly waive
diligence, presentment, protest and demand, and notice of protest, demand,
dishonor and nonpayment of this Note.
IN WITNESS WHEREOF, the undersigned, General Automation, Inc., has
executed this Note.
GENERAL AUTOMATION, INC.
By:
-------------------------------------
Its:
------------------------------------
<PAGE> 1
EXHIBIT 10.35
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated September 30, 1999, is
entered into by General Automation, Inc., a Delaware corporation (the
"Company"), and Boundless Technologies, Inc., a Delaware corporation formerly
known as SunRiver Data Systems ("Boundless").
1. Definitions. Unless the context otherwise requires, the terms
defined in this Section 1 shall have the meanings herein specified for all
purposes of this Agreement, applicable to both the singular and plural forms of
any of the terms herein defined.
1.1 Agreement. "Agreement" means this Registration Rights Agreement.
1.2 Board. "Board" means the Board of Directors of the Company.
1.3 Boundless' Registrable Securities. "Boundless' Registrable
Securities" means the 1,133,333 shares of Common Stock to be issued by the
Company to Boundless pursuant to that certain letter agreement of even date
herewith between the Company and Boundless; and any securities issued or
issuable with respect to the Common Stock referred to in clause (a) above by way
of a stock dividend or stock split or in connection with a combination of
shares, reclassification, recapitalization, merger or consolidation or
reorganization; provided, however, that such shares of Common Stock shall only
be treated as Boundless' Registrable Securities if and so long as they have not
been (i) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction; or (ii) sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(1) thereof or other applicable exemption so that
all transfer restrictions and restrictive legends with respect to such Common
Stock are removed upon the consummation of such sale.
1.4 Commission. "Commission" means the United States Securities and
Exchange Commission.
1.5 Common Stock. "Common Stock" means the Common Stock of the
Company.
1.6 Holder. "Holder" of any security means the record owner of such
security.
1.7 Other Registrable Securities. "Other Registrable Securities"
means all Common Stock, whether now outstanding or hereafter issued, which the
Company has agreed to register, or may hereafter agree to register, other than
Boundless' Registrable Securities.
1.8 Person. "Person" includes any natural person, corporation,
trust, association, company, partnership, joint venture and other entity and any
government, governmental agency, instrumentality or political subdivision.
<PAGE> 2
1.9 Register, Registered and Registration. The terms "register,"
"registered" and "registration" refer to a registration effected by preparing
and filing a registration statement in compliance with the Securities Act, and
the declaration or ordering of the effectiveness of such registration statement.
1.10 Registrable Securities. "Registrable Securities" means the
Other Registrable Securities and Boundless' Registrable Securities,
collectively.
1.11 Securities Act. "Securities Act" means the United States
Securities Act of 1933, as amended.
2. Incidental Registration.
2.1 Notice to Boundless, Etc. Each time the Company shall determine
to file a registration statement under the Securities Act (other than on Form
S-4, S-8 or a registration statement on any form covering solely an employee
benefit plan) in connection with the proposed offer and sale for money of any of
its securities for its own account, the Company agrees to promptly give written
notice of its determination to Boundless. Upon the written request of Boundless
given within twenty (20) days after the receipt of such written notice from the
Company, subject to Section 2.3 below, the Company agrees to cause all of
Boundless' Registrable Securities, or such portion thereof as Boundless has
specified to the Company in writing, to be included in such registration
statement and registered under the Securities Act, and included in all related
state registrations and/or qualifications, if any, all to the extent requisite
to permit the sale or other disposition by Boundless of Boundless' Registrable
Securities to be so registered.
2.2 Inclusion in Underwriting. If the registration of which the
Company gives written notice pursuant to Section 2.1 is for a public offering
involving an underwriting, the Company agrees to so advise Boundless as a part
of its written notice. In such event, the right of Boundless to registration
pursuant to this Section 2 shall be conditioned upon Boundless' participation in
such underwriting and the inclusion of Boundless' Registrable Securities in the
underwriting to the extent provided herein. If any of Boundless' Registrable
Securities are to be distributed through such underwriting, Boundless shall
enter into (together with the Company and the other Holders distributing their
securities through such underwriting) an underwriting agreement with the
underwriter or underwriters selected for such underwriting by the Company,
provided that such underwriting agreement is in customary form.
2.3 Limitations. Notwithstanding any other provision of this Section
2, if the managing underwriter of an underwritten distribution advises the
Company in writing that in its good faith judgment the number of shares of
Registrable Securities requested to be registered exceeds the number of shares
of Registrable Securities which can be sold in such offering, then the number of
shares of Registrable Securities so requested to be included in the offering
shall be reduced to that number of shares which in the good faith judgment of
the managing underwriter can be sold in such offering. Such reduced number of
shares to be included in the registration
<PAGE> 3
shall be allocated as follows: first to the Company with respect to all of the
shares to be registered for the account of the Company; and second, to the
Holders of shares of Registrable Securities requesting to participate in such
registration, on a pro rata basis based on the total number of shares of
Registrable Securities held by each such Holder. All shares of Boundless'
Registrable Securities which are excluded from the underwriting by reason of the
underwriter's marketing limitation and all shares of Boundless' Registrable
Securities not originally requested to be so included shall not be included in
such registration.
2.4 Abandonment of Registration. Notwithstanding any other provision
of this Agreement, the Company may at any time, at the discretion of the Board,
abandon or terminate any registration statement, either prior to or after its
filing with the Commission, without liability or obligation to Boundless.
3. Expenses.
3.1 Registration Expenses. Subject to Section 3.2 below, the Company
agrees to bear all fees, costs and expenses with respect to the inclusion of
shares of Boundless' Registrable Securities in any registration statement
pursuant to Section 2 hereof.
3.2 Company Expenses; Expenses of Boundless. The fees, costs and
expenses of registration to be borne as provided in Section 3.1 above shall
consist of all registration, filing and NASD fees, printing expenses, fees and
disbursements of counsel and accountants for the Company, fees and disbursements
of counsel for the underwriter or underwriters of such securities (if the
Company and/or selling security holders are otherwise required to bear such fees
and disbursements), and all legal fees and disbursements and other expenses of
complying with state securities or blue sky laws of any jurisdictions in which
the securities to be offered are to be registered or qualified. The fees, costs
and expenses to be borne by the Company under Section 3.1 above shall not
include the fees, costs or expenses of any counsel to Boundless or stock
transfer taxes or underwriters' discounts and commissions relating to any of
Boundless' Registrable Securities.
4. Indemnification.
4.1 Indemnification by Company. The Company hereby agrees to
indemnify and hold harmless Boundless, its officers, directors and each Person
who controls Boundless within the meaning of the Securities Act, from and
against, and agrees to reimburse Boundless, its officers, directors and
controlling Persons with respect to, any and all claims, actions (actual or
threatened), demands, losses, damages, liabilities, costs and expenses,
including without limitation attorneys' fees, to which any such indemnified
Person may become subject under the Securities Act or otherwise, insofar as such
claims, actions, demands, losses, damages, liabilities, costs or expenses arise
out of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in such registration statement, any prospectus contained
therein, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged
<PAGE> 4
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that the Company will
not be liable in any such case to the extent that any such claim, action,
demand, loss, damage, liability, cost or expense suffered by Boundless, its
officers, directors and controlling Persons is caused by an untrue statement or
alleged untrue statement or omission or alleged omission so made in strict
conformity with written information furnished by Boundless specifically for use
in the preparation thereof; provided, further, that with respect to an untrue
statement or alleged untrue statement or omission or alleged omission made in a
preliminary prospectus but eliminated or remedied in the amended prospectus on
file with the Commission at the time the registration statement becomes
effective (or an amended prospectus filed with the Commission pursuant to Rule
424(b)) (the "Final Prospectus"), or made in the Final Prospectus but eliminated
in any amendment or supplement filed subsequent to the Final Prospectus (a
"Subsequent Amendment"), this indemnity shall not inure to the benefit of
Boundless, its officers, directors or controlling Persons if, having previously
been furnished by or on behalf of the Company with copies of the Final
Prospectus or Subsequent Amendment, as applicable, Boundless thereafter fails to
deliver, prior to or concurrently with the sale of securities to such person, a
copy of the Final Prospectus or Subsequent Amendment, as applicable, to the
person asserting the claim, action, demand, loss, damage, liability, cost or
expense.
4.2 Indemnification by Boundless. If any shares of Boundless'
Registrable Securities are included in a registration statement pursuant to the
provisions of this Agreement, Boundless shall indemnify and hold harmless the
Company, its officers, directors, legal counsel and accountants and each Person
who controls the Company within the meaning of the Securities Act, from and
against, and agrees to reimburse the Company, its officers, directors, legal
counsel, accountants and controlling Persons with respect to, any and all
claims, actions, demands, losses, damages, liabilities, costs or expenses,
including without limitation attorneys' fees, to which the Company, its
officers, directors, legal counsel, accountants or such controlling Persons may
become subject under the Securities Act or otherwise, insofar as such claims,
actions, demands, losses, damages, liabilities, costs or expenses are caused by
any untrue or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or are caused by the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was so made in reliance upon and in strict conformity with written
information furnished by Boundless specifically for use in the preparation
thereof.
4.3 Indemnification Procedure. Promptly after receipt by a party
indemnified pursuant to the provisions of Section 4.1 or 4.2 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions, such indemnified party will, if a claim therefor is to be
made against the indemnifying party pursuant to the provisions of Section 4.1 or
4.2, notify the indemnifying party of the commencement thereof; but the omission
<PAGE> 5
so to notify the indemnifying party will not relieve it from any liability which
it may have to an indemnified party otherwise than under this Section 4 and
shall not relieve the indemnifying party from liability under this Section 4;
provided that if the indemnifying party has not received notice of the claim and
the indemnified party fails to vigorously defend the claim or settles or
compromises the claim without the approval of the indemnifying party, the
indemnifying party shall be relieved of liability under this Section 4. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, to assume
the defense thereof, with counsel satisfactory to such indemnified party;
provided, however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party shall have the right,
at its own cost and expense, to select separate counsel (in which case the
indemnifying party shall not have the right to direct the defense of such action
on behalf of the indemnified party or parties). Upon the permitted assumption by
the indemnifying party of the defense of such action, and approval by the
indemnified party of counsel, the indemnifying party shall not be liable to such
indemnified party under Section 4.1 or 4.2 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof (other than reasonable costs of investigation) unless the indemnifying
party shall not have employed counsel reasonably satisfactory to the indemnified
party to represent the indemnified party within a reasonable time, the
indemnifying party and its counsel do not actively and vigorously pursue the
defense of such action, or the indemnifying party has authorized the employment
of counsel for the indemnified party at the expense of the indemnifying party.
No indemnifying party shall be liable to an indemnified party for any settlement
of any action or claim without the consent of the indemnifying party and no
indemnifying party may unreasonably withhold its consent to any such settlement.
No indemnifying party will consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such indemnified party of a release from all
liability with respect to such claim or litigation.
4.4 Contribution. If the indemnification provided for in Section 4.1
or 4.2 is held by a court of competent jurisdiction to be unavailable to a party
to be indemnified with respect to any claims, actions, demands, losses, damages,
liabilities, costs or expenses referred to therein, then each indemnifying party
under any such Section, in lieu of indemnifying such indemnified party
thereunder, hereby agrees to contribute to the amount paid or payable by such
indemnified party as a result of such claims, actions, demands, losses, damages,
liabilities, costs or expenses, including without limitation attorneys' fees, in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions which resulted in such claims,
actions, demands, losses, damages, liabilities, costs or expenses, as well as
any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged
<PAGE> 6
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the indemnifying party or by
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
4.5 Limitation on Boundless' Obligations. Notwithstanding the
foregoing, in no event shall Boundless' indemnification or contribution
obligations under this Section 4 exceed an amount equal to the per share public
offering price (less any underwriting discount and commissions) multiplied by
the number of shares of Boundless' Registrable Securities sold pursuant to the
registration statement which gives rise to such obligation to contribute or
indemnify (less the aggregate amount of any damages which Boundless has
otherwise been required to pay in respect of such claim, action, demand, loss,
damage, liability, cost or expense or any substantially similar claim, action,
demand, loss, damage, liability, cost or expense arising from the sale of
Boundless' Registrable Securities).
4.6 Exceptions in Event of Fraud. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution hereunder from any person who was not guilty
of such fraudulent misrepresentation.
5. Boundless Information. If any shares of Boundless' Registrable
Securities are to be included in any registration to be effected pursuant to
this Agreement, the Company may require Boundless to furnish the Company with
such information with respect to Boundless and the distribution of such shares
of Boundless' Registrable Securities as the Company may from time to time
reasonably request in writing to comply with such disclosure obligations as
shall be required by law or by the Commission in connection therewith, and
Boundless shall furnish the Company with such information.
6. Forms. All references in this Agreement to particular forms of
registration statements are intended to include, and shall be deemed to include,
references to all successor forms which are intended to replace, or to apply to
similar transactions as the forms herein referenced.
7. Transfer of Registration Rights. The rights to cause the Company to
register securities granted to Boundless pursuant to this Agreement may be
assigned by Boundless to any transferee of not less than 100,000 shares of
Boundless' Registrable Securities, provided that (a) the Company is notified in
writing of such assignment and of the name and address of the transferee; and
(b) the transferee agrees to be bound by the terms and conditions of this
Agreement in writing in a form reasonably acceptable to the Company.
8. Miscellaneous.
8.1 Waivers and Amendments. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally or by course of
dealing, but only by a statement in writing signed by the Company and Boundless.
<PAGE> 7
8.2 Notices. All notices, requests, demands, and other
communications required to or permitted to be given under this Agreement shall
be in writing and shall be conclusively deemed to have been duly given (i) when
hand delivered to the other party; or (ii) when received when sent by facsimile
at the address and number set forth below (provided, however, that notices given
by facsimile shall not be effective unless either (a) a duplicate copy of such
facsimile notice is promptly given by depositing the same in a United States
post office with first-class postage prepaid and addressed to the parties as set
forth below, or (b) the receiving party delivers a written confirmation of
receipt for such notice either by facsimile or any other method permitted under
this Section; additionally, any notice given facsimile shall be deemed received
on the next business day if such notice is received after 5:00 p.m. (recipient's
time) or on a nonbusiness day); or (iii) three (3) business days after the same
have been deposited in a United States post office with first class or certified
mail return receipt requested postage prepaid and addressed to the parties as
set forth below; or (iv) the next business day after the same have been
deposited with a national overnight delivery service reasonably approved by the
parties (Federal Express and DHL WorldWide Express being deemed approved by the
parties), postage prepaid, addressed to the parties as set forth below with
next-business-day delivery guaranteed, provided that the sending party receives
a confirmation of delivery from the delivery service provider.
To: General Automation, Inc.
17731 Mitchell North
Irvine, CA 92614
Attention: Chief Financial Officer
FAX: (949) 752-6772
To: Boundless Technologies, Inc.
100 Marcus Boulevard
Hauppauge, NY 11788-3762
Attention: Joseph Gardner
FAX: ________________
With a copy to:
Boundless Corporation
711 Fifth Avenue, 5th Floor
New York, NY 10022
Attention: Chairman
FAX: ________________
Each party shall make an ordinary, good faith effort to ensure that it will
accept or receive notices that are given in accordance with this Section, and
that any person to be given notice actually receives such notice. A party may
change or supplement the addresses given above, or
<PAGE> 8
designate additional addresses, for purposes of this Section by giving the other
party written notice of the new address in the manner set forth above.
8.3 Severability. Should any one or more of the provisions of this
Agreement or of any agreement entered into pursuant to this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement and of each other agreement entered into pursuant to this Agreement,
shall be given effect separately from the provision or provisions determined to
be illegal or unenforceable and shall not be affected thereby.
8.4 Headings. The headings of the sections, subsections and
paragraphs of this Agreement have been inserted for convenience of reference
only and do not constitute a part of this Agreement.
8.5 Choice of Law. It is the intention of the parties that the
internal substantive laws, and not the laws of conflicts, of the State of
Delaware should govern the enforceability and validity of this Agreement, the
construction of its terms and the interpretation of the rights and duties of the
parties.
8.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
8.7 In witness whereof, the parties hereto have executed this
Agreement.
GENERAL AUTOMATION, INC. BOUNDLESS TECHNOLOGIES, INC.
By: By:
--------------------------- -----------------------------
Jane Christie, President
Its:
-----------------------------
(Please print name and title)
<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 22, 1999
included in this Form 10-K in the previously filed Registration Statements of
General Automation, Inc. and Subsidiaries on Form S-8 (No. 33-43158, 33-79038,
333-37467 and 333-09483).
CACCIAMATTA ACCOUNTANCY CORPORATION
Irvine, California
January 12, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation of our report, dated December 19, 1997,
except for Notes 16 and 18 and the pro forma disclosures included in Notes 2 and
14 as to which the date is August 19, 1998, included in this Form 10-K in the
previously filed Registration Statements of General Automation, Inc. and
Subsidiaries on Forms S-8 (No. 33-43158, 33-79038, 333-37467, and 333-09483).
McGladrey & Pullen, LLP
Anaheim, California
January 11, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED FOR
TWELVE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-K FOR THE YEAR ENDED SEPTEMBER 30, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 991,000
<SECURITIES> 0
<RECEIVABLES> 4,606,000
<ALLOWANCES> 473,000
<INVENTORY> 1,770,000
<CURRENT-ASSETS> 7,302,000
<PP&E> 5,708,000
<DEPRECIATION> 4,039,000
<TOTAL-ASSETS> 11,166,000
<CURRENT-LIABILITIES> 14,092,000
<BONDS> 0
0
0
<COMMON> 1,160,000
<OTHER-SE> (8,690,000)
<TOTAL-LIABILITY-AND-EQUITY> 11,166,000
<SALES> 13,962,000
<TOTAL-REVENUES> 28,868,000
<CGS> 8,644,000
<TOTAL-COSTS> 17,464,000
<OTHER-EXPENSES> 13,151,000
<LOSS-PROVISION> 172,000
<INTEREST-EXPENSE> 734,000
<INCOME-PRETAX> (2,643,000)
<INCOME-TAX> 71,000
<INCOME-CONTINUING> (2,714,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 3,505,000
<CHANGES> 0
<NET-INCOME> 791,000
<EPS-BASIC> .08
<EPS-DILUTED> .08
</TABLE>
