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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 28, 1997
Commission File Number 0-18238
TEXAS MICRO INC.
----------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 04-2738973
- -------- ----------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
5959 Corporate Drive, Houston, Texas 77036
- ------------------------------------ -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (713) 541-8200
Indicate by check mark whether 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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at January 30, 1998
----- -------------------------------
Common Stock, $.40 par value 13,549,308
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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CONSOLIDATED BALANCE SHEETS TEXAS MICRO INC. AND SUBSIDIARIES
(in thousands)
ASSETS December 28, June 30,
1997 1997
(unaudited)
---------------------------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,854 $ 8,386
Accounts receivable, net of allowance for doubtful accounts
of $822 at December 28, 1997 and $833 at June 30, 1997 11,896 9,108
Inventories 10,615 9,636
Other current assets 2,288 3,062
---------------------------------------
Total current assets 31,653 30,192
---------------------------------------
Equipment and Improvements, at cost:
Computer equipment 3,413 3,781
Machinery and equipment 4,338 4,014
Furniture and fixtures 1,031 1,005
Leasehold improvements 969 968
---------------------------------------
9,751 9,768
Less - Accumulated depreciation and amortization 6,267 6,113
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3,484 3,655
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Other Assets 120 177
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Total Assets $35,257 $34,024
=======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,959 $ 5,115
Accrued expenses and other 6,758 4,940
---------------------------------------
Total current liabilities 11,717 10,055
---------------------------------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.40 par value:
Authorized--12,500 shares at December 28, 1997 and June 30, 1997
Issued--none -- --
Common stock, $.40 par value:
Authorized--35,000 shares at December 28, 1997 and June 30, 1997
Issued--15,643 shares at December 28, 1997 and June 30, 1997 6,257 6,257
Additional paid-in capital 80,314 80,314
Accumulated deficit (57,991) (57,566)
Treasury stock, at cost, 2,131 shares at December 28, 1997, and
2,157 shares at June 30, 1997 (4,876) (4,938)
Cumulative translation adjustment (164) (98)
---------------------------------------
Total stockholders' equity 23,540 23,969
---------------------------------------
Total Liabilities and Stockholders' Equity $35,257 $34,024
=======================================
The accompanying notes are an integral part of these consolidated financial statements.
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2
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS TEXAS MICRO INC. AND SUBSIDIARIES
(unaudited)
For the three months ended, For the six months ended,
December 28, 1997 December 29, 1996 December 28, 1997 December 29, 1996
----------------- ----------------- ----------------- -----------------
(in thousands, except per share data)
<S> <C> <C> <C><C> <C>
Revenues
Product $18,507 $14,550 $34,544 $29,657
Service and Other 425 390 425 3,932
--------------- --------------- --------------- ---------------
Total revenues 18,932 14,940 34,969 33,589
Cost of Revenues
Product 13,109 10,489 24,202 20,742
Service and Other - 198 - 1,846
--------------- --------------- --------------- ---------------
Total cost of revenues 13,109 10,687 24,202 22,588
Gross profit 5,823 4,253 10,767 11,001
Research and Development Expenses 1,907 1,693 3,858 4,768
Selling, General and Administrative Expenses 3,902 3,539 7,477 8,421
--------------- --------------- --------------- ---------------
Total operating expenses 5,809 5,232 11,335 13,189
Income (loss) from operations 14 (979) (568) (2,188)
Interest Income 69 163 159 257
Other Income (Expense) 17 (24) 38 (13)
--------------- --------------- --------------- ---------------
Income (loss) before provision for income taxes 100 (840) (371) (1,944)
Provision for Income Taxes 28 38 46 64
--------------- --------------- --------------- ---------------
Net income (loss) $72 ($878) ($417) ($2,008)
============== ============== ============== ==============
Basic Income (Loss) Per Share $0.01 ($0.06) ($0.03) ($0.13)
============== ============== ============== ==============
Diluted Income (Loss) Per Share $0.01 ($0.06) ($0.03) ($0.13)
============== ============== ============== ==============
Common Shares Outstanding 13,509 15,135 13,507 15,366
============== ============== ============== ==============
Common Shares Assuming Dilution 13,917 15,135 13,507 15,366
============== ============== ============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS TEXAS MICRO INC. AND SUBSIDIARIES
(unaudited)
For the six months ended,
December 28, December 29,
1997 1996
----------------------------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ($417) ($2,008)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities--
Depreciation 728 917
Amortization 53 131
Provisions for inventories 178 1,093
Provisions for bad debts 32 (2)
Changes in assets and liabilities:
Accounts receivable (2,834) 3,295
Inventories (1,176) 431
Other current assets 894 246
Accounts payable (150) 18
Accrued expenses and other 1,819 (1,657)
Deferred revenue - 510
----------------------------------
Net cash provided by (used in) operating activities (873) 2,974
----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and improvements (680) (500)
Decrease (increase) in other assets 2 (498)
----------------------------------
Net cash used in investing activities (678) (998)
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of obligations under capital leases - (33)
Proceeds from issuance of common stock 53 152
Purchase of treasury stock - (2,614)
----------------------------------
Net cash provided by (used in) financing activities 53 (2,495)
----------------------------------
Effect of exchange rates on cash (34) (9)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,532) (528)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,386 12,287
----------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $6,854 $11,759
==================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest $ - $ 2
Income taxes paid (refunds received) 21 (71)
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
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Notes to Consolidated Financial Statements
Texas Micro Inc. and Subsidiaries
(unaudited)
NOTE 1 - BASIS OF PRESENTATION
- ------
The financial statements included herein have been prepared by Texas Micro Inc.
(the "Company") pursuant to the rules and regulations of the Securities and
Exchange Commission (the "Commission"). Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The Company believes, however, that the
disclosures made are adequate to make the information not misleading. It is
suggested that these financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's latest audited
financial statements, which are contained in the Company's Annual Report on Form
10-K for the year ended June 30, 1997, filed with the Commission on September
23, 1997.
This information includes all adjustments (consisting of normal, recurring
adjustments) which the Company considers necessary for a fair presentation of
such information. The results of operations for the three and six months ended
December 28, 1997 are not necessarily indicative of results to be expected for
the entire year.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain 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 these estimates.
NOTE 2 - DISPOSITION OF ASSETS
- ------
On October 11, 1996, the Company completed the sale of substantially all of the
net assets of its Sequoia Enterprise Systems business unit ("SES") to General
Automation, Inc. for approximately $11,000,000 of consideration in General
Automation, Inc. common stock, warrants and deferred payments. Results of
operations, assets, and liabilities related to the operations sold are included
in the Company's consolidated financial statements through October 11, 1996.
The effects of this transaction are reflected in other current assets.
The net book value of the net assets sold and the expenses incurred related to
the transaction approximates $5,140,000. The amount of consideration exceeding
$5,140,000 has not been recognized as a gain due to the uncertainty of realizing
the deferred payments. As consideration is received exceeding $5,140,000, the
Company will recognize the consideration as a gain related to the disposition.
As of December 28, 1997, deferred cash payments of $1,968,000 were received in
connection with the disposition. In January 1998, the Company received $275,000
in deferred payments from General Automation, Inc.
5
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Notes to Consolidated Financial Statements
Texas Micro Inc. and Subsidiaries
(unaudited)
NOTE 3 - INVENTORIES
- ------
Inventories including materials, labor and manufacturing overhead consisted of
the following:
(in thousands)
December 28, June 30,
1997 1997
----------------------
Raw materials $ 6,843 $6,860
Work-in-process 2,756 1,660
Finished goods 1,016 1,116
----------------------
$10,615 $9,636
----------------------
NOTE 4 - INCOME (LOSS) PER SHARE
- ------
In the second quarter of fiscal 1998 the Company adopted the Statement of
Financial Standards (SFAS) No. 128, "Earnings Per Share". The adoption of SFAS
No. 128 did not have a material effect on the Company's reported income (loss)
per share. Basic income (loss) per share is based on the weighted average
number of common shares outstanding during the period, while diluted income
(loss) per share is computed to reflect the potential dilution of common stock
under the Company's stock option plans. For loss periods, weighted average
common share equivalents are excluded from the calculation as their effect would
be antidilutive.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company is a provider of differentiated Intel-based computer systems and
single board computers ("SBCs") for the communications, industrial automation
and mobile computing markets. The Company operates in one segment, computer
systems.
On October 11, 1996, the Company completed the sale of substantially all of the
net assets of SES to General Automation, Inc. for approximately $11,000,000 of
consideration in General Automation, Inc. common stock, warrants and deferred
payments. Results of operations, assets, and liabilities related to the
operations sold are included in the Company's consolidated financial statements
through October 11, 1996. The effects of this transaction are reflected in
other current assets. (See Note 2 to consolidated financial statements).
RESULTS OF OPERATIONS
The following table summarizes the effect of the disposition of SES on
consolidated revenues and gross profit (in thousands).
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For the three months ended, For the six months ended,
December 28, December 29, December 28, December 29,
1997 1996 1997 1996
----------------------------------------------------------------
<S> <C> <C> <C> <C>
Consolidated Revenues $18,932 $14,940 $34,969 $33,589
Less Disposed Operations of SES - 664 - 5,585
---------- ---------- ---------- ----------
Revenues from Ongoing Operations $18,932 $14,276 $34,969 $28,004
---------- ---------- ---------- ----------
Consolidated Gross Profit $ 5,823 $ 4,253 $10,767 $11,001
Less Disposed Operations of SES - 258 - 2,497
---------- ---------- ---------- ----------
Gross Profit from Ongoing Operations $ 5,823 $ 3,995 $10,767 $ 8,504
---------- ---------- ---------- ----------
</TABLE>
REVENUES
- --------
The Company's revenues for the second quarter of fiscal 1998, which ended
December 28, 1997, of $18,932,000 increased 27% from $14,940,000 for the second
quarter of fiscal 1997. The revenue increase was due to an increase in revenues
from ongoing operations, partially offset by the disposition of SES. Revenues
from ongoing operations for the second quarter of 1998 increased 33% from
$14,276,000 for the second quarter of 1997. During the second quarter of 1998,
units shipped from ongoing operations increased 64% and the average unit selling
price declined 21% as compared with the second quarter of 1997. Sales to the
top five customers represented 26% of total revenues from ongoing operations for
both the second quarter of fiscal 1998 and 1997.
The Company's revenues for the first six months of fiscal 1998 of $34,969,000
increased 4% from $33,589,000 for the first six months of fiscal 1997. The
revenue increase was due to an increase in revenues from ongoing operations,
partially offset by the disposition of SES. Revenues from ongoing operations
for the first six months of 1998 were $34,969,000, which increased 25% from
$28,004,000 for the first six months of 1997. During the first six months of
1998, units shipped from ongoing operations increased 42% and the average unit
selling price declined 13% as compared with the first six months of 1997. Sales
to the top five customers
7
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represented 23% of total revenues from ongoing operations for the first six
months of fiscal 1998 compared to 19% of total revenues from ongoing operations
for the same period a year ago.
Revenues from ongoing operations for both the three and six months ended
December 28, 1997 are higher than the comparable periods a year ago resulting
from the recent major 'design wins' - new contracts awarded by original
equipment manufacturers for system products or SBCs.
Sales from ongoing operations outside the United States for the second quarter
of fiscal 1998 increased to $5,448,000 or 29% of total revenues, from
$4,482,000, or 31% of total revenues from ongoing operations for the second
quarter of fiscal 1997. For the six months ended December 28, 1997, sales from
ongoing operations outside the United States comprised $10,697,000, or 31% of
total revenues, as compared to $9,466,000, or 34%, for the comparable period a
year ago.
GROSS MARGIN
- ------------
Gross margin of 31% for the second quarter of fiscal 1998 reflected an increase
of 3 percentage points from 28% in the second quarter of fiscal 1997. The
increase was attributable primarily to "Fulcrum" license revenue, as well as an
increase in gross margin from ongoing product revenues.
Gross margin of 31% for the first six months of fiscal 1998 reflected a decline
of 2 percentage points from 33% for the first six months of fiscal 1997. The
decline in gross margin reflects the disposition of the higher profit margin
revenues associated with the SES business unit. Excluding the effect of SES,
gross margin was 31% for the first six months of 1998 compared to 30% for the
first six months of 1997. The increase was attributable primarily to "Fulcrum"
license revenue.
The Company provides its customers with systems and SBCs requiring long product
life cycles. Gross margins are generally lower during the start up phase of the
product life cycle and have the potential to improve as volume increases. In
order to achieve its gross margin targets, while providing its customers with
competitive pricing, the Company continuously monitors its costs and makes
appropriate pricing revisions, which usually result in lower prices to its
customers. Continued fluctuations in future margin levels may result from the
timing of large design wins and component cost reductions, product mix, and the
level of production efficiencies.
RESEARCH AND DEVELOPMENT EXPENSES
- ---------------------------------
The Company's research and development expenses of $1,907,000 for the second
quarter of fiscal 1998 increased 13% from $1,693,000 for the second quarter of
fiscal 1997. As a percent of revenues, research and development expenses
decreased to 10% for the second quarter of 1998, as compared to 11% for the
second quarter of 1997. The Company continues to invest in new product
development, enhancements to existing products and new customer design wins. In
addition, the Company continues its research and development activities on
highly available Intel-based servers.
The Company's research and development expenses of $3,858,000 for the first six
months of fiscal 1998 decreased 19% from $4,768,000 for the first six months of
fiscal 1997. As a percent
8
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of revenues, research and development expenses decreased to 11% for the six
months of 1998 from 14% for the first six months of 1997. The decrease in
research and development expense from the prior year period was primarily due to
the sale of SES.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses increased 10% to $3,902,000, or 21%
of revenues, for the second quarter of fiscal 1998 from $3,539,000, or 24% of
revenues, for the second quarter of fiscal 1997. The increase in selling,
general and administrative expenses was primarily a result of the increase in
sales commissions related to higher revenues.
Selling, general and administrative expenses decreased 11% to $7,477,000, or 21%
of revenues, for the first six months of fiscal 1998 from $8,421,000, or 25% of
revenues, for the first six months of fiscal 1997. The significant decline in
spending from the prior year period was a result of the sale of SES, partially
offset by the increase in sales commissions related to higher revenues.
OPERATING INCOME (LOSS)
- -----------------------
The Company reported income from operations of $14,000 for the second quarter of
fiscal 1998, compared to a loss from operations of $979,000 for the second
quarter of fiscal 1997. For the first six months of fiscal 1998 the Company
reported an operating loss of $568,000, compared to a loss from operations of
$2,188,000 for the prior year period. The improved results resulted from
increasing revenues while minimizing the increase in operating expenses.
OTHER INCOME
- ------------
The Company generated other income, primarily interest income, of $86,000 and
$197,000 during the three and six months ended December 28, 1997, as compared to
$139,000 and $244,000 for the comparable periods a year ago. The decrease in
other income resulted primarily from a decrease in cash and cash equivalents
from which interest income is generated.
INCOME TAXES
- ------------
The Company recorded provisions for income taxes, primarily for state income
taxes, of $28,000 and $46,000 during the three and six months ended December 28,
1997, as compared to $38,000 and $64,000 for the comparable periods a year ago.
LIQUIDITY AND CAPITAL RESOURCES
At December 28, 1997, the Company had cash and cash equivalents of $6,854,000
and working capital of $19,936,000. This compared to cash and cash equivalents
of $8,386,000 and working capital of $20,137,000 at June 30, 1997.
Cash used in operations was $873,000 for the six months ended December 28, 1997.
Cash used in operating activities resulted primarily from increases in accounts
receivable and inventories, partially offset by deferred cash payments of
$889,000 received in connection with the disposition of SES and an increase in
accrued expenses and other current liabilities.
9
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The Company's capital expenditures during the six months ended December 28, 1997
increased by $180,000 as compared to the same period a year ago, primarily due
to expenditures for manufacturing equipment. Capital expenditures for the
remaining portion of fiscal 1998 are expected to continue at the level
experienced in the first half of fiscal 1998.
The Company believes that its present cash flow and cash balances are adequate
for its operating needs and capital expenditures through fiscal 1998.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information about
Capital Structures". The Company intends to adopt this standard in fiscal year
1998. The Company does not expect the adoption of this standard to have a
significant impact on its disclosure.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income".
The Company intends to adopt this standard in fiscal year 1999. SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general-
purpose financial statements. It requires (a) classification of items of other
comprehensive income by their nature in a financial statement and (b) display of
the accumulated balance of other comprehensive income separate from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information". The Company intends to adopt this standard
in fiscal 1999. SFAS No. 131 establishes standards for reporting information
about operating segments in annual financial statements and requires selected
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. This Statement
supersedes SFAS No. 14, "Financial Reporting for Segments of a Business
Enterprise", but retains the requirement to report information about major
customers. The Company does not expect the adoption of this standard to have a
significant impact on its disclosure.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Statements in this Quarterly Report on Form 10-Q that relate to future results
or events are based on the Company's current expectations. There are many
factors that affect the Company's business and the results of its operations and
may cause the actual results to differ materially from those expected, projected
or contained in forward-looking statements. These factors include technological
changes and the ability of the Company to develop new products; the customer
demand and market acceptance of the Company's products; the ability of the
Company to manage its inventory levels to minimize excess inventory, declining
inventory values and obsolescence; the risks and uncertainties relating to the
Company's foreign operations including foreign currency fluctuations and
intellectual property risk. For a discussion of these and other factors
affecting the Company's business, see "ITEM 1. BUSINESS - Certain Factors That
May Affect Future Results" in the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997.
10
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PART II OTHER INFORMATION
- --------------------------
ITEM 1. LEGAL PROCEEDINGS
The Company is from time to time a party to various lawsuits arising in the
ordinary course of business. The Company knows of no pending litigation which
is reasonably likely to have a material adverse impact on its financial
condition or its results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on November 11, 1997, the
following proposals were adopted by the vote specified below:
Proposal 1 - Election of Directors
Proposal 2 - Amend the Company's Long Term Incentive Plan by increasing the
number of shares of the Company's common stock with respect to
which options may be granted from 950,000 to 1,550,000.
Proposal 3 - Ratification of the appointment of Coopers & Lybrand L.L.P. as
the Company's Independent Accountants.
For Withheld Against Abstain No Vote
---------- -------- ------- ------- -------
Proposal 1 -
Dean C. Campbell 11,796,316 151,806 - - -
John F. Smith 11,517,315 430,807 - - -
Proposal 2 10,624,463 - 942,189 68,610 312,860
Proposal 3 11,862,167 - 36,705 49,250 -
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
10.1 Letter Agreement dated October 1, 1997 between the Company and
General Automation, Inc., amending the Asset Purchase Agreement
between the Company and General Automation, Inc. dated October 3,
1996, together with the related Promissory Note dated October 1,
1997 in the original principal amount of $1,428,899 payable by
General Automation, Inc. to the Company.
10.2 Amendment No. 2 to the 1996 Long-Term Incentive Plan, adopted
November 11, 1997.
10.3 Eighth Amendment to Lease by and between Chevron U.S.A. Inc. and
Texas Micro Inc. dated December 23, 1997.
27 Financial Data Schedule
b) Reports on Form 8-K
None.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TEXAS MICRO INC.
Date: February 9, 1998 By: /s/ J. MICHAEL STEWART
-----------------------
J. Michael Stewart
President and Chief Executive Officer
Date: February 9, 1998 By: /s/ KERMIT R. SUMRALL
----------------------
Kermit R. Sumrall
Secretary and Acting Chief Financial
Officer
12
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EXHIBIT 10.1
TEXAS MICRO INC.
5959 Corporate Drive
Houston, Texas 77036
October 1, 1997
General Automation, Inc.
17731 Mitchell North
Irvine, California 92614
Re: Asset Purchase Agreement
Ladies and Gentlemen:
Reference is made to (a) that certain Asset Purchase Agreement (the
"Purchase Agreement") dated as of October 3, 1996 between Sequoia Systems, Inc.,
a Delaware corporation now known as Texas Micro Inc. ("Texas Micro"), and
General Automation, Inc., a Delaware corporation ("GA"), and (b) that certain
Registration Rights Agreement (the "Registration Rights AGREEMENT") dated as of
October 11, 1997 between Texas Micro and GA. Capitalized terms used but not
defined herein shall have the meanings ascribed to such terms in the Purchase
Agreement.
Notwithstanding anything contained in the Purchase Agreement or the
Registration Rights Agreement to the contrary, Texas Micro and GA hereby agree
as follows:
1. Payment of Purchase Price. Texas Micro and GA hereby agree that the
total Purchase Price, after any adjustment thereto to be made pursuant to
Section 8.6(d) of the Purchase Agreement, is $ 11,346,611, of which $2,717,712
has heretofore been paid by GA to Texas Micro leaving a balance due of
$8,628,899 (the "Remaining Balance"). The Remaining Balance, including, but not
limited to, all Deferred Payments which are due or are to become due and the
payment required to be made by GA on October 11, 1997 pursuant to Section 3.2(f)
of the Purchase Agreement, shall be paid in cash, with $7,200,000 of the
Remaining Balance to be paid pursuant to, and on the terms and conditions
provided in, this letter agreement (the "Letter Agreement Amount") and $
1,428,899 of the Remaining Balance to be paid pursuant to, and on the terms and
conditions provided in, the Promissory Note attached hereto as Exhibit A (the
"Promissory Note"), which is incorporated herein by reference as if set forth
herein in full. Texas Micro and GA acknowledge and
<PAGE>
General Automation, Inc.
October 1, 1997
Page 2
agree, (i) that GA has heretofore delivered 350,000 shares of Stock to Texas
Micro for which no value has been assigned for purposes of the payment of the
Purchase Price, (ii) that such shares of Stock shall be valued at the times and
in the manner provided in Section 3.2(c) of the Purchase Agreement and (iii)
that, in determining whether the Letter Agreement Amount has been paid in full,
the Letter Agreement Amount shall be reduced by an amount equal to the value of
such shares of Stock (as so determined and at such times), it being understood
and agreed that the valuation of such shares of Stock shall not affect the
obligation of GA to make the payments in cash required under Section 2 hereof at
the times and in the amounts required thereunder unless the aggregate cash
payments received by Texas Micro from GA in payment of the Letter Agreement
Amount plus the valuation of such shares equals or exceeds the Letter Agreement
Amount.
2. Mandatory Payments. (a) The following amounts shall be due and payable
by GA to Texas Micro towards the Remaining Balance on the following respective
dates:
(i) an amount equal to $300,000 shall be due and payable on the date
hereof;
(ii) an amount equal to $400,000 shall be due and payable on December
15, 1997; and
(iii)an amount equal to the Percentage Amount (as hereinafter defined)
shall be due and payable on the 1 5th day of each month commencing with
December 15, 1997 and continuing thereafter until the Purchase Price shall
have been paid in full (each such payment, a "Percentage Payment").
Each Percentage Payment shall be accompanied by a worksheet certified by GA's
chief financial of officer which sets forth the calculation of such Percentage
Payment and the cumulative amount paid with respect to all Percentage Payments.
Not more than once every six months, Texas Micro may, following written request
and reasonable notice, inspect the records of GA to verify the calculations of
the Percentage Payments.
(b) For purposes of this letter agreement, "Percentage Amount" means, with
respect to any Percentage Payment, the sum of:
(i) an amount equal to 18% of all gross revenues received by GA from
sales of any products in or manufactured from Inventory and/or any license
fees paid by Texas Micro in connection with the Business prior to the
Closing Date;
(ii) an amount equal to five percent of all gross revenues received by
GA from sales of any products by the Business excluding the sales described
in clause (i) above, and
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General Automation, Inc.
October 1, 1997
Page 3
(iii)during the period commencing on October 1, 1997 and continuing
thereafter until and including April 15, 1998, an amount equal to five
percent of all gross revenues received by GA with respect to all of GA's
service and support operations, and at any time thereafter, subject to
Section 2(c), an amount equal to ten percent of all gross revenues received
by GA with respect to all of GA's service and support operations,
in each case, based on the sales of products or the rendition of services and
support operations by GA, as applicable, during the second full calendar month
ending prior to the date on which such Percentage Payment is due and payable
(i.e., the calculation of the Percentage Amount related to the Percentage
Payment due on December 15, 1997 is to be based on the calendar month ending on
October 31, 1997, the calculation of the Percentage Amount related to the
Percentage Payment due on January 31, 1998 is to be based on the calendar month
ending on November 30, 1997, etc.).
(c) Notwithstanding anything to the contrary contained in Section 2(b),
on and after May 15, 1998, GA shall have the right to transfer any portion of
any Percentage Payment which is based upon the gross revenues received by GA
with respect to GA's service and support operations and which is in excess of
five percent of such gross revenues to the outstanding principal balance of the
Promissory Note, provided that (i) immediately prior to such transfer, the Note
has not been paid in full, (ii) GA shall have provided Texas Micro with written
notice of such election prior to the date on which the applicable PERCENTAGE
PAYMENT IS DUE AND PAYABLE, AND (III) AT THE time of such transfer, the amount
transferred to the outstanding principal balance of the Promissory Note is not
past due.
(d) Except as otherwise specifically provided in this letter agreement,
(i) all payments hereunder shall be made to Texas Micro on the date when due and
shall be made in lawful money of the United States of America, and (ii) whenever
any payment to be made hereunder shall be stated to be due on a day other than a
business day, the due date thereof shall be extended to the next succeeding
business day and, with respect to payments of principal, interest (if any) shall
be payable thereon during such extension at the rate of interest that otherwise
applied to such payment.
(e) In the event that GA fails to pay any amount when due hereunder,
such amount, to the extent permitted by applicable law, shall bear interest at a
rate per annum equal to the lesser of the Highest Lawful Rate (as defined in the
Promissory Note) and 16%, and such amount (together with such interest) shall be
due and payable by GA on demand.
3. Registration Statement. GA shall not be required to perform any of
its obligations under Section 2.01 or Section 2.02 of the Registration Rights
Agreement. Without limiting the generality of the foregoing, GA shall not be
required to cause the registration statement previously
<PAGE>
General Automation, Inc.
October 1, 1997
Page 4
filed by it with the Securities and Exchange Commission on Form S-1 to become or
remain effective.
4. Prepayments. GA may prepay the Letter Agreement Amount in whole at
any time or from time to time in part without premium or penalty.
5. Release of Claims. (a) Texas Micro hereby releases and discharges GA
and its officers, directors, employees and agents, whether past, present or
future (collectively, the "GA. Released Parties"), from any and all claims,
demands, costs, liabilities, damages, expenses, compensation and actions and
causes of action of every nature, whether in law or in equity (collectively,
"Claims"), which Texas Micro had or now has or makes claim to have against any
of the GA Released Parties, or any of them, to the extent, but only to the
extent, that such Claims directly or indirectly relate to (i) the failure of GA
to make any Deferred Payment in a timely manner or (ii) the failure of GA to
file a registration statement pursuant to the Registration Rights Agreement in a
timely manner or have such registration statement declared effective.
(b) Texas Micro hereby represents and warrants to GA that there has
been no assignment of any Claims which are the subject to the release set forth
in Section 5(a) above.
6. Representations and Warranties. GA hereby represents and warrants to
Texas Micro that this letter agreement has been duly authorized, executed and
delivered on behalf of GA and constitutes a legal, valid and binding obligation
of GA, enforceable against GA in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency or other laws of
general application relating to the enforcement of creditors' rights. Texas
Micro hereby represents and warrants to GA that this letter agreement has been
duly authorized, executed and delivered on behalf of Texas Micro and constitutes
a legal, valid and binding obligation of Texas Micro, enforceable against Texas
Micro in accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency or other laws of general application relating
to the enforcement of creditors' rights
7. Effectiveness. This letter agreement shall not become effective
unless and until (a) it has been duly executed and delivered by each of GA and
Texas Micro and (b) GA shall have duly executed and delivered to Texas Micro the
Promissory Note in the form attached hereto as Exhibit A.
8. Binding Effect. This letter agreement shall be binding upon and
shall inure to the benefit of and be enforceable by GA and Texas Micro and their
respective successors and assigns.
<PAGE>
General Automation, Inc.
October 1, 1997
Page 5
9. Counterparts. This letter agreement may be signed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and it shall not be
necessary in making proof of this letter agreement to produce or account for
more than one such counterpart.
10. Interpretation. To the extent that the terms of this letter
agreement vary from the terms of the Purchase Agreement and/or the Registration
Rights Agreement, this letter agreement shall constitute an amendment of the
Purchase Agreement or the Registration Rights Agreement, as applicable. In this
letter agreement, unless a clear contrary intention appears, the words "herein",
"hereof" and "hereunder" and other words of similar import refer to this letter
agreement as a whole and not to any particular Section or other subdivision. The
headings herein are for convenience only and shall not affect the construction
hereof. No provision of this letter agreement shall be interpreted or construed
against GA or Texas Micro because that party or its legal counsel drafted such
provision.
11. Governing Law. THIS LETTER AGREEMENT SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE
INTERNAL LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO PRINCIPLES OF
CONFLICTS OF LAW.
12. Entire Agreement. This letter agreement and the Promissory Note (a)
constitute the entire contract between GA and Texas Micro relative to the
matters covered hereby, (b) supersede all prior agreements, consents and
understandings relating to such matters and (c) may not be contradicted by
evidence of prior, contemporaneous or subsequent oral agreements of GA and Texas
Micro.
If the foregoing accurately sets forth your agreement with respect to
the matters covered hereby, please execute this letter agreement in the space
provided below.
Very truly yours,
TEXAS MICRO INC.
By: /s/ MICHAEL STEWART
----------------------
Michael Stewart
President and Chief Executive
Officer
<PAGE>
General Automation, Inc.
October 1, 1997
Page 6
AGREED TO AND ACCEPTED as of
the date first above written:
GENERAL AUTOMATION, INC.
By: /s/ JANE M. CHRISTIE
-------------------------
Name: Jane M. Christie
-------------------------
Title: President & CEO
-------------------------
<PAGE>
PROMISSORY NOTE
$1,428,899 October 1, 1997
FOR VALUE RECEIVED, on the dates and in the amounts herein stipulated,
GENERAL AUTOMATION, INC., a Delaware corporation ("Maker"), hereby promises to
pay to the order of TEXAS MICRO INC., a Delaware corporation ("Payee"), the
principal sum of $ 1,428,899, or so much thereof as may be outstanding
hereunder, together with interest on the principal amount hereof remaining
unpaid from time to time, as herein specified. Capitalized terms used but not
defined herein shall have the meanings ascribed to such terms in that certain
Asset Purchase Agreement dated as of October 3, 1996 between Maker and Payee.
The outstanding principal hereof, and accrued and unpaid interest
thereon, shall be due AND PAYABLE in installments as follows:
(a) installments, each in an amount equal to $75,000 plus accrued and
unpaid interest thereon, shall be due and payable, the first such
installment to be due and payable on November 15, 1997, and successive
installments to be due and payable on the 15th of each month thereafter
until the outstanding principal balance of this Note is less than $75,000;
and
(b) a final installment, in an amount equal to the outstanding
principal balance hereof plus any and all accrued and unpaid interest
thereon, shall be due and payable on the 15th day of the first month
following the date of the last payment due under clause (a) above.
The outstanding principal balance hereof shall bear interest prior to
maturity at a varying rate per annum which shall from day to day be equal to the
lesser of the Highest Lawful Rate (as hereinafter defined) and 13%, each such
change in the rate of interest charged on the indebtedness hereunder to become
effective on the effective date of each change in the Highest Lawful Rate.
Maker and Payee, by its acceptance of this Note, acknowledge and agree
that, in addition to the indebtedness of Maker to Payee evidenced by this Note
and the Letter Agreement (as hereinafter defined), certain inter-company
accounts are in existence as of the date of this Note between Maker and Payee.
If, upon final reconciliation of such inter-company accounts, it is determined
that Payee is indebted to Maker for any amount, Payee shall retain such amount
and the amount so retained shall be deemed to be a prepayment of installments
due under this Note in reverse order of maturity, provided, however, that if the
amount so retained is in excess of the outstanding principal balance under this
Note plus all accrued and unpaid interest thereon, the excess shall be promptly
paid by Payee to Maker. In addition, if Payee shall hereafter receive any funds
from former customers of Sequoia Systems, Inc. related to the business sold by
Payee to Maker on
Page 1 of Six
<PAGE>
October 11, 1996 which belong to Maker, Payee shall retain such funds and the
amount so retained shall be deemed to be a prepayment of installments due under
this Note in the order of maturity; provided, however, that if the amount so
retained is in excess of the outstanding principal balance under this Note plus
all accrued and unpaid interest thereon, the excess shall be promptly paid by
Payee to Maker. Payee shall promptly notify Maker in writing of its receipt and
application of any such funds, which notice shall specify the amount received,
the date of receipt of the same by Payee and the party from whom such funds were
received.
For purposes of this Note:
(a) "Business Day" means any day, excluding Saturday, Sunday and any
other day on which banks are required or authorized to close in Houston,
Texas; and
(b) "Highest Lawful Rate" means the maximum nonusurious interest rate,
if any, that at any time or from time to time may be contracted for, taken,
reserved, charged or received by Payee with respect to the indebtedness of
Maker to Payee evidenced by this Note under laws applicable to Payee.
Except as otherwise specifically provided in this Note, (a) all
payments under this Note shall be made to Payee on the date when due and shall
be made in lawful money of the United States of America, and (b) whenever any
payment to be made under this Note shall be stated to be due on a day other than
a Business Day, the due date thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest shall be
payable thereon during such extension at the rate of interest that otherwise
applied to such installment.
In the event that Maker fails to pay any amount when due hereunder,
such amount, to the extent permitted by applicable law, shall bear interest at a
rate per annum equal to the lesser of the Highest Lawful Rate and 16%, and such
amount (together with such interest) shall be due and payable by Maker on
demand.
Maker may prepay this Note in whole at any time or from time to time in
part without premium or penalty but with accrued interest to the date of
prepayment on the amount so prepaid. All prepayments shall be applied first to
unpaid interest accrued to the date of such prepayment, and the balance, if any,
shall be applied to the outstanding principal of this Note and interest on the
amount of principal so prepaid shall thereupon cease to accrue.
For so long as any indebtedness is outstanding hereunder or under that
certain letter agreement of even date herewith between Maker and Payee (the
"Letter Agreement"), Maker shall not, without the consent of Payee, incur any
indebtedness in connection with the acquisition of any entity or business (by
purchase of assets, purchase of stock or other equity interests, merger or
otherwise) unless either (a) such indebtedness is subordinate in all respects,
including in right of payment, to the indebtedness of Maker to Payee hereunder
and under the Letter Agreement, or (b)
Page 2 of Six
<PAGE>
the outstanding principal balance of this Note and all accrued and unpaid
interest thereon is paid in full prior to or concurrently with the incurrence of
such indebtedness.
If any of the following events (each an "Event of Default") shall occur
and be continuing:
(a) Maker shall fail to pay when due any amount owing to Payee under
this Note or under the Letter Agreement and such failure shall not have
been remedied within five days following written notice thereof by Payee to
Maker;
(b) Maker shall fail to perform any other term, covenant or agreement
contained in this Note and such failure shall not have been remedied within
30 days following written notice thereof by Payee to Maker;
(c) Maker shall be adjudicated insolvent, or shall generally not pay,
or admit in writing its inability to pay, its debts as they mature, or
shall make a general assignment for the benefit of creditors, or any
proceeding shall be instituted by Maker seeking to adjudicate itself
insolvent, seeking liquidation, winding-up, reorganization, arrangement,
adjustment, protection, relief or composition of it or its debts under any
law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of
a receiver, trustee or other similar of official for it or for any
substantial part of its assets or properties, or Maker shall take any
action in furtherance of any of such actions;
(d) any proceeding of the type referred to in clause (c) above is filed
or commenced against Maker, or Maker by any act indicates its approval
thereof, consents thereto or acquiesces therein, or an order for relief is
entered in an involuntary case under the bankruptcy laws of the United
States, or an order, judgment or decree is entered appointing a trustee,
receiver, custodian, liquidator or similar of official or adjudicating
Maker insolvent, or approving the petition in any such proceedings, and
such order, judgment or decree remains in effect for 60 days; or
(e) this Note or the Letter Agreement shall (other than with the
consent of Payee), at any time after its execution and delivery and for any
reason, cease to be in full force and effect, or be declared to be null and
void, or the validity or enforceability hereof or thereof shall be
contested by any person or entity, or Maker (other than in good faith)
shall deny that it has any further liability hereunder or thereunder;
then, (i) upon the occurrence of any Event of Default described in clause (c) or
(d) above, the entire unpaid principal amount of this Note, all interest accrued
and unpaid thereon and all other amounts payable by Maker under this Note, shall
automatically become immediately due and payable, without presentment for
payment, demand, protest, notice of intent to accelerate, notice of acceleration
or further notice of any kind, all of which are hereby expressly waived by
Maker, and Payee may thereupon exercise any and all rights and remedies
available to it at law, in equity or otherwise. Upon the occurrence of any other
Event of Default, Payee may, by written notice to
Page 3 of Six
<PAGE>
Maker, declare the entire unpaid principal amount of this Note, all interest
accrued and unpaid thereon and all other amounts payable by Maker under this
Note, to be forthwith due and payable, whereupon all such amounts shall become
and be forthwith due and payable, without presentment for payment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by Maker, and Payee may thereupon exercise any and all rights and remedies
available to it at law, in equity or otherwise.
Except for the notices specified herein, if default is made in the
prompt payment of this Note when due or declared due and the same is placed in
the hands of an attorney for collection, or suit is brought on same, or the same
is collected through probate, bankruptcy or other judicial proceedings, then
Maker agrees to pay to Payee all reasonable attorneys' fees and other reasonable
expenses incurred by Payee in the enforcement or collection hereof, including
costs of court.
Maker and any and all endorsers, guarantors and sureties severally
waive all notices, demands for payment, presentment for payment, protest and
notice of protest, notice of intent to accelerate, notice of acceleration, any
other notices of any kind, the filing of suit hereon for the purpose of fixing
liability and diligence in taking any action to collect amounts called for
hereunder, and consent that the time of payment hereof may be extended and
re-extended from time to time without notice to them or any of them.
It is the intention of the parties hereto to comply with the usury laws
of the State of Delaware and of the United States of America. The parties hereto
do not intend to contract for, charge or receive any interest or other charge
which is usurious and, by execution of this Note, Maker acknowledges and agrees
that Payee has no such intent. This Note is hereby expressly limited so that in
no event whatsoever, whether by reason of acceleration of maturity hereof, or
otherwise, shall the amount paid, or agreed to be paid, to Payee or any other
holder hereof for the use, forbearance or detention of the money to be due
hereunder, or otherwise, or for the payment or performance of any covenant or
obligation contained herein, exceed the Highest Lawful Rate. If from any
circumstance whatsoever fulfillment of any provisions hereof, at the time
performance of such provisions shall be due, shall involve exceeding the valid
limits prescribed by law, then the obligation to be fulfilled shall be reduced
to the Highest Lawful Rate, and if from any such circumstance Payee, or any
other holder hereof, shall ever receive as interest or otherwise an amount which
will exceed the Highest Lawful Rate, such amount which would be excessive
interest shall be applied to the reduction of the principal amount owing
hereunder or under the Letter Agreement and not to the payment of interest, or
if such excessive interest exceeds the unpaid balance of principal hereof and
the Letter Agreement, such excess shall be refunded to Maker. All sums paid and
agreed to be paid to Payee, or any other holder hereof, for the use, forbearance
or detention of the indebtedness of Maker shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread throughout the
period until payment in full on this Note (or any renewals, extensions and
rearrangements hereof) so that the actual rate of interest on account of this
indebtedness evidenced by this Note is uniform throughout the term of this Note
(and all renewals, extensions and rearrangements hereof) and does not exceed the
Highest Lawful Rate. The terms and provisions of this paragraph shall control
and supersede any other provision of this Note.
Page 4 of Six
<PAGE>
Any and all notices, requests or other communications hereunder shall
be given in writing and delivered by (a) regular, overnight or registered or
certified mail (return receipt requested), with first class postage prepaid, (b)
hand delivery, (c) facsimile transmission, (d) electronic mail or (e) overnight
courier service, to the parties at the following addresses or facsimile numbers:
(i) if to Maker, to
General Automation, Inc.
17731 Mitchell North
Irvine, California 92614
Attention: Chief Financial Officer
Facsimile Number: (714) 752-6772; and
(ii) if to Payee, to
Texas Micro Inc.
5959 Corporate Drive
Houston, Texas 77036
Attention: Michael Stewart
Facsimile Number: (713) 541-8231
or at such other address or number as shall be designated by Maker or Payee in a
notice to the other given in accordance with this paragraph. Except as otherwise
provided in this Note, all such communications shall be deemed to have been duly
given, (A) in the case of a notice sent by regular mail, three Business Days
after it is duly deposited in the mails, (B) in the case of a notice sent by
registered or certified mail, on the date received for (or refused) on the
return receipt, (C) in the case of a notice delivered by hand, when personally
delivered, (D) in the case of a notice sent by facsimile or electronic mail,
upon transmission subject to telephone confirmation of receipt, and (E) in the
case of a notice sent by overnight mail or overnight courier service, the date
delivered at the designated address, in each case given or addressed as
aforesaid.
This Note shall be binding upon Maker and its successors and permitted
assigns and shall inure to the benefit of Payee and its successors and assigns.
No amendment, modification, restatement or supplement of this Note
shall be valid unless the same is in writing and signed by Maker and Payee. No
waiver of any provision of this Note shall be valid unless in writing and signed
by the person or entity against whom that waiver is sought to be enforced. No
failure or delay on the part of Payee in exercising any right, power or
privilege hereunder and no course of dealing between Maker and Payee shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder. No
Page 5 of Six
<PAGE>
notice to or demand on Maker in any case shall entitle Maker to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of Payee to any other or further action in any
circumstances without notice or demand.
Neither this Note nor any right, interest or obligation hereunder may
be assigned by Maker without the prior written consent of Payee and any attempt
to do so shall be null and void; provided, however, that no assignment by Maker
of any of its rights, interests or obligations hereunder shall relieve Maker of
its obligations under this Note unless Payee expressly agrees otherwise in
writing. Payee may assign any of its rights, interests and obligations under
this Note to any person or entity; provided, however, that Maker shall not be
obligated to make any payment under this Note to such assignee until notice of
such assignment is given by Payee to Maker.
Should any clause, sentence or paragraph of this Note be judicially
declared to be invalid, unenforceable or void, such decision will not have the
effect of invalidating or voiding the remainder of this Note, and the part or
parts of this Note so held to be invalid, unenforceable or void will be deemed
to have been stricken herefrom as if such stricken part or parts had never been
included herein.
Time is of the essence of this Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF DELAWARE AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA,
WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
EXECUTED to be EFFECTIVE as of the day and year first above written.
GENERAL AUTOMATION, INC.
By: /s/ JANE M. CHRISTIE
----------------------------------
Printed Name: Jane M. Christie
------------------------
Title: President & CEO
-------------------------------
Page 6 of Six
<PAGE>
TEXAS MICRO INC. EXHIBIT 10.2
Amendment No. 2 to
------------------
1996 Long-Term Incentive Plan
-----------------------------
The 1996 Long-Term Incentive Plan is hereby amended by deleting sub-section (a)
of Section 4, Number and Source of Shares Subject to the Plan, and replacing it
with the following:
(a) The Company may grant Awards (including, without limitation, Incentive
Stock Options) under the Plan with respect to not more than 1,550,000 Shares,
subject, however, to the limitations provided in Section 7(a) and (c) and
adjustment as provided in Section 12 hereof. Shares shall be provided from
Shares in the Company's treasury, by the issuance of Shares authorized but
unissued, or from outstanding Shares purchased in the open market or in private
transactions.
This Amendment shall be effective from and after November 11, 1997. Except as
specified above, all terms and conditions of the Plan remain in full force and
effect.
Texas Micro Inc.
By /s/ J. MICHAEL STEWART
----------------------
J. Michael Stewart
President and CEO
Attest: /s/ K.R. SUMRALL November 11, 1997
---------------- -----------------
K.R. Sumrall Date
Secretary
<PAGE>
EIGHTH AMENDMENT TO LEASE EXHIBIT 10.3
-------------------------
THIS EIGHTH AMENDMENT TO LEASE (this "Amendment") is made by and between
CHEVRON U.S.A. INC., a Pennsylvania corporation ("Landlord") and TEXAS MICRO
INC., a Delaware corporation ("Tenant"), effective the 23rd day of December,
1997.
W I T N E S S E T H:
--------------------
WHEREAS, Landlord and Tenant did enter into that certain lease (the
"Lease") dated December 11, 1992, as amended effective February 24, 1993, and
October 28, 1993, and July 10, 1995, and July 31, 1995, and October 17, 1995,
and April 28, 1997, and November 12, 1997 for certain leased space situated in
the Building known as 5959 Corporate Drive, Houston, Texas; and
WHEREAS, Landlord and Tenant again desire to amend the Lease as set forth
herein;
NOW THEREFORE, Landlord and Tenant in consideration of the premises and the
mutual benefits to be derived therefrom, do hereby covenant, stipulate and
agree, each with the other, to the following terms, covenants, conditions and
obligations as an amendment to the Lease:
1. All terms, covenants, obligations and conditions in this Amendment
which conflict with a like provision in the Lease shall be controlling
over and supersede any like provision in the Lease.
2. All terms, covenants, obligations and conditions in the Lease not
superseded and/or amended by any provision in this Amendment shall
remain in full force and effect. All defined terms in the Lease shall
have the same meaning in this Amendment.
3. Article 1, Section 1.01 of the Lease is amended to include within the
Basement Space approximately 14,093 square feet of Net Rentable Area
("NRA") (the "New Basement Space") shown on the floor plan attached
hereto as Exhibit A.
4. The Rental Commencement Date for the New Basement Space is the earlier
of the date upon which the Tenant occupies the New Basement Space for
purposes other than construction and build-out or February 1, 1998.
5. The Base Rent for the New Basement Space is $9.00 per square foot of
NRA beginning upon the Rental Commencement Date through June 30, 2000.
6. Tenant hereby exercises its option under Article 26, Section 26.01 (a)
of the Lease, to renew the Lease for a 5 year term beginning July 1,
2000 and terminating June 30, 2005 (the "Renewal Term").
<PAGE>
7. The Base Rent for the Renewal Term is as follows:
Existing Space (as defined in Lease): $9.50/per sq. ft. of NRA
Improvement Space (as defined in Lease): $9.00/per sq. ft. of NRA
Basement Space (as defined in Lease and
First Amendment): $8.50/per sq. ft. of NRA
Northwest Quadrant Space (as defined in the
Third and Fourth Amendments to Lease): $9.50/per sq. ft. of NRA
New Basement Space (as defined in this
Eighth Amendment to Lease): $9.00/per sq. ft. of NRA
Additional Basement Space (as defined in the
Third, Fourth and Seventh Amendments to
Lease): $5.50/per sq. ft. of NRA
8. Subject to Article 12 and the other provisions of the Lease, Tenant
will remodel the entrance and lobby of the Premises, remodel the New
Basement Space, and install a fully finished (both sides) demising
wall in the large meeting room area and the adjoining office (such
work is generally described as the "Tenant Improvements"). Upon
Tenant's presentation of paid architectural and construction invoices
to Landlord for the Tenant Improvements, Landlord will reimburse
Tenant for up to $125,000 (the "Tenant Improvements Allowance") of
such invoices. Landlord shall not be responsible for any costs of the
Tenant Improvements in excess of the Tenant's Improvements Allowance,
and any such excess shall be Tenant's sole responsibility. The Tenant
Improvements Allowance may only be drawn upon by Tenant upon
presentation of invoices for the construction described herein. Any
unused portion of the Tenant Improvements Allowance shall be forfeited
by Tenant.
9. Any preferential rights or options to expand granted to the Tenant in
the Lease, as amended, are extinguished.
Made as of the date first written above.
LANDLORD TENANT
- -------- ------
CHEVRON U.S.A. INC. TEXAS MICRO INC.
By /s/ Steven A. Berg By /s/ Michael Stewart
------------------------------- ------------------------------
Its Acting President, Chevron Real Its C.E.O.
------------------------------ --------------------------
Estate Management Company
------------------------------
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<PAGE>
<ARTICLE> 5
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<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> SEP-29-1997
<PERIOD-END> DEC-28-1997
<EXCHANGE-RATE> 1
<CASH> 6,854
<SECURITIES> 0
<RECEIVABLES> 12,718
<ALLOWANCES> 822
<INVENTORY> 10,615
<CURRENT-ASSETS> 31,653
<PP&E> 9,751
<DEPRECIATION> 6,267
<TOTAL-ASSETS> 35,257
<CURRENT-LIABILITIES> 11,717
<BONDS> 0
6,257
0
<COMMON> 0
<OTHER-SE> 17,283
<TOTAL-LIABILITY-AND-EQUITY> 35,257
<SALES> 34,544
<TOTAL-REVENUES> 34,969
<CGS> 24,202
<TOTAL-COSTS> 24,202
<OTHER-EXPENSES> 11,335
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (371)
<INCOME-TAX> 46
<INCOME-CONTINUING> (417)
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<NET-INCOME> (417)
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