FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the fiscal year ended December 31, 1999
Commission File Number 0-17977
BOUNDLESS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3469637
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 MARCUS BLVD. HAUPPAUGE, NY 11788
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 342-7400
Securities registered pursuant to Section 12(b) of the Act
None
Securities registered pursuant to Section 12(g) of the Act
Common Stock, $.01 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. [ ]
Theaggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the last sale price
of the registrant's Common Stock on March 2, 2000, is $42,252,255.
As of March 2, 2000, the registrant had 4,498,035 shares of Common
Stock, $.01 par value per share, outstanding.
-----------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS
General
Boundless Corporation (the "Company") was incorporated in 1988 under
the laws of the State of Delaware. The Company through its subsidiaries-
Boundless Technologies, Inc. ("Boundless Technologies"), Boundless Manufacturing
Services, Inc. ("Boundless Manufacturing"), and Merinta Inc. ("Merinta")- is a
provider of text and Windows-based Terminals, manufacturing services, and
software for the Internet appliances ("IA") market.
Boundless Technologies is engaged in designing and manufacturing
computer terminals for business use. The Company's general strategy is to
provide highly efficient, low cost access to corporate computing environments,
including client/server, mainframes, LANS, WANS, intranets and the Internet.
Boundless Technologies principally designs, assembles, sells and
supports (i) desktop computer display terminals, which generally do not have
graphics capabilities, although some have limited graphics capabilities
("General Display Terminals"); (ii) desktop display devices which enable simple,
easy and cost-effective access to corporate computing environments
("Windows(R)-based Terminals" or "WBTs") and supporting software; and (iii)
other terminal products that are used in multi-user, personal computer and
mini-computer-based environments ("MultiConsole Terminals"). Until September 30,
1999, Boundless Technologies was a limited partner in a partnership (the "GAI
Partnership") formed by Boundless Technologies and General Automation, Inc.
("GA") and managed by GA. The GAI Partnership designs, integrates, sells and
supports multi-user computer systems that can manage large volumes of data
running Boundless' and GA's versions of a data-based system licensed from Pick
Systems ("Pick"). On September 30, 1999, Boundless Technologies sold its
interest in the GAI Partnership to GA for $1,500,000 in cash, 1,133,333 shares
of restricted common stock of GA, notes, and warrants to purchase shares of
common stock of GA.
The Company entered into the General Display Terminal and high
resolution, high performance desktop graphics display terminals ("Network
Graphics Displays") businesses in December 1994 when the Company purchased
Applied Digital Data Systems, Inc. ("ADDS") from NCR Corporation ("NCR"),
formerly AT&T Global Information Solutions Company (the "Boundless
Acquisition"). ADDS changed its name to SunRiver Data Systems, Inc. and, in
1996, to Boundless Technologies, Inc. For more than 25 years, ADDS had been a
supplier of general-purpose desktop display terminals worldwide under either the
customer's or ADDS(R) trademark. Simultaneously, with the Company's acquisition
of ADDS, the Company acquired all of the assets and business of SunRiver Group,
Inc. (the "SunRiver Group Acquisition"). Prior thereto, SunRiver Group, Inc.
("SunRiver Group") had been engaged, for more than nine years, in the
development and manufacture of software and hardware for MultiConsole Terminals.
SunRiver Group, subsequently renamed Morgan Kent Group, Inc. ("Morgan Kent
Group"), was a pioneer in the development of high-speed MultiConsole Terminals
for open system, multi-user platforms.
In October 1995, Boundless Technologies acquired assets relating to the
General Display Terminal products of Digital Equipment Corporation ("Digital")
sold under the VT(R) and Dorio(R) brands, excluding the VT 400 Series (the
"Digital Acquisition"). As no manufacturing facilities were included in the
Digital Acquisition, Boundless Technologies has transferred all production of
the VT and Dorio product lines from Digital's facilities in the Far East to
Boundless' plant in Hauppauge, New York.
Boundless Technologies offers standard and custom models of its General
Display Terminals primarily to retail, financial, telecommunications and
wholesale distribution businesses requiring them for data entry and point of
sale activities. Standard and custom model Windows(R)-based Terminals are being
marketed by Boundless primarily to telecommunications, retail, financial,
general services, healthcare and transportation businesses with light processing
requirements and the need to provide concurrent information to customers on a
variety of topics, such as billing and current and historical product and
service information. MultiConsole Terminals are typically used by
small-to-medium-sized businesses, such as chain stores, requiring predominantly
transaction-oriented applications. Sales of systems by the GAI Partnership are
primarily to large distribution centers, retail establishments, manufacturers,
local governments and databases for credit and collection, which require
management of large volumes of data.
<PAGE>
On September 23, 1999, the Company announced the creation of a new
subsidiary, Boundless Manufacturing, which will pursue opportunities in the
electronic manufacturing services ("EMS") marketplace. Boundless Manufacturing
will utilize the Company's state-of-the-art ISO 9002 certified manufacturing
facility in Hauppauge and acquire additional manufacturing facilities as the
business expands. Services include supply chain optimization, global supply base
management, systems assembly and test, distribution and logistics, repair
centers and end-of-life management. Boundless Manufacturing also offers in-house
engineering expertise- product design, test development, product development- to
significantly reduce time-to-market for OEM customers. Boundless Manufacturing
will provide a complete supply chain that is designed and built to each
customer's specifications.
On March 6, 2000, Boundless Manufacturing acquired the manufacturing
assets of Boca Research Inc. ("Boca") and assumed the lease of a 70,000 sq ft.
facility located in Boca Raton, Florida. The transaction extends Boundless
Manufacturing's existing capabilities by adding printed circuit board assemblies
("PCBAs") to its expertise. The transaction included the immediate employment of
approximately 70 Boca Research manufacturing employees. As part of the agreement
Boundless Manufacturing will manufacture modems and other electronic components
for Boca.
On January 12, 2000, the Company announced the creation of a new
subsidiary, Merinta, a provider of enabling software and technologies for
Internet appliances ("IA"). Merinta will develop solutions to offer end-users an
easy, enjoyable and visually rich Internet browsing experience while providing
companies with a revolutionary way to market and grow online business. Merinta
will initially market and sell hardware, software and services to corporations
including financial services institutions, service providers, and
telecommunications companies allowing these companies to provide their customers
with a customized IA solution that should increase brand awareness, customer
loyalty and retention as well as decrease costs for acquiring customers. Merinta
will license the software on a variety of operating systems- including Linux and
Microsoft Windows CE. Complimentary services will be offered to other consumer
device manufacturers, accelerating the IA market for these organizations.
On March 6, 1998, the Company filed an Information Statement with the
Securities and Exchange Commission announcing, among other items, a one-for-ten
reverse split (the "Reverse Split") of the Company's Common Stock. As the
Reverse Split was effective as of March 26, 1998, information contained within
this Form 10-K has been presented to reflect retroactive application of the
Reverse Split.
Reference is made to Notes 1, 3, 7, and 16 of Notes to Consolidated
Financial Statements for definitions of certain capitalized terms and
information regarding the GAI Partnership and acquisitions and dispositions by
the Company since December 1994.
Risk Factors
The following factors relating to the Company, its business and
management should carefully be considered in evaluating the Company and its
prospects.
Debt Structure and Liquidity. As of December 31, 1999, the Company had
tangible net worth of $14,703,000 and total liabilities of $29,045,000. On April
14, 1999, the Company signed an agreement with The Chase Manhattan Bank
("Chase") to replace the existing credit line with a new three-year $15,000,000
revolving line of credit (the "Chase Credit Line") on terms substantially
similar to those previously in effect. The Chase Credit Line also provides for a
$4,000,000 term loan, payable over a three-year period in equal quarterly
installments beginning June 1999. The Company's cash requirements at December
31, 1999 included repayment of $5,500,000, plus interest, outstanding under the
revolving credit portion of the Chase Credit Line; payment of $3,000,000, plus
interest, under the term loan; and payment of a $6,713,000 mortgage note, plus
interest, on the Company's Hauppauge, NY, facility. The Company believes that
cash generated from operations and available under the Chase Credit Line will be
sufficient to pay its obligations as they become due; however, in the event
there is a decline in the Company's sales and earnings and/or a decrease in
availability under the Chase Credit Line, the Company's cash flow would be
adversely affected. Accordingly, the Company may not have the necessary cash to
fund all of its obligations. The Company's ability to obtain equity financing to
reduce its debt and increase its stockholders' equity is adversely affected by
such leverage and other risks described below. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations Liquidity and Capital
Resources."
2
<PAGE>
Strategy. Approximately 80% of the Company's sales for the year ended
December 31, 1999 were of General Display Terminals. The Company's strategy has
been to increase its share of the General Display Terminals market. However,
other manufacturers have been abandoning the General Display Terminals business,
principally because of the erosion of gross margins and the market trend to
newer technologies. The Company has been increasing its market share in order to
increase its installed base of customers to which it can offer General Display
Terminals or, for those desiring them, alternative products with enhanced
features, such as Windows(R)-based Terminals. The success of the Company's
strategy depends on its ability to compete in the intensely competitive
marketplace for its products. Initially, the success of this strategy is
dependent on the success of the Company's Windows(R)-based Terminals. There can
be no assurance that the Company's strategy is valid. See "-Products and
Services - Windows(R)-based Terminals."
Declining Gross Profit Margins; Competition. The business of the
Company is intensely competitive and characterized by constant pricing pressure.
The computer industry has experienced industry-wide declines in the average
sales prices of computer hardware. As a result, there has been significant
downward pressure on gross margin. Many of the Company's current and anticipated
competitors are much larger companies with substantially greater technical,
financial and other resources than the Company. The Company's ability to compete
favorably is, in significant part, dependent upon its ability to control costs,
react timely and appropriately to short and long term trends, including by
developing and introducing new products that gain wide market acceptance, and
competitively price its products. There is no assurance that the Company will be
able to compete effectively. See "Competition" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Dependence Upon Major Customers. IBM, Digital and NCR were the
Company's most significant customers in 1999, accounting for approximately 15%,
7% and 3%, respectively, of the Company's total revenue. Digital's contractual
commitments to purchase 95% of its terminal requirements from the Company
expired October 23, 1999. In addition, NCR's contractual commitment to purchase
90% of its terminal requirements from the Company expired December 9, 1999.
While the Company believes its product solutions best meet the needs of IBM,
Digital and NCR, a decline in the level of sales to these customers could
adversely affect the Company's results of operations.
Dependence Upon Key Personnel. The Company's success will depend upon
its key management, sales and technical personnel. The Company has an employment
contract with Mr. J. Gerald Combs, its Chairman and Chief Executive Officer. The
Company and Merinta have an employment contract with Mr. Kenneth East, its Chief
Technology Officer. The Company and Boundless Manufacturing have employment
contracts with Mr. Joseph Joy, its President, and Mr. Anthony Giovaniello, its
Executive Vice President, Business Development. The Company does not have
employment contracts with any of its other employees. In addition, the Company
believes that, to succeed in the future, it will be required to continue to
attract, retain and motivate additional skilled executive and technical sales
and engineering employees who are in short supply because of great demand
throughout the industry for their services. The loss of any of its existing key
personnel or the inability to attract and retain key employees in the future
could have a material adverse effect on the Company. See "Directors and
Executive Officers of the Registrant."
New Products and Technological Change. The computer industry is
characterized by a rapid rate of product improvement, technological change and
product obsolescence. As a result, the Company's product lines are subject to
short life cycles. While the Company is engaged in research and development of
new products, no assurance can be given that the Company will be able to bring
any new products to market to replace existing products rendered obsolete by
technological change. The failure of the Company to market new products on a
timely basis could materially and adversely affect the Company's business.
Furthermore, inventory management is critical to decreasing the risk of being
adversely affected by obsolescence and there is no assurance that the Company's
inventory management and flexible manufacturing systems will adequately protect
against this risk.
Dependence Upon Suppliers; Shortages of Subassemblies and Components.
The Company purchases subassemblies and components for its products almost
entirely from more than 40 domestic and Far East suppliers. Purchases from Wong
Electronics Corp. and Tonghah Electronics SDN.BHD, which manufacture plug-in
logic boards in China and Malaysia, respectively, for the Company's General
Display Terminals and Windows(R)-based Terminals, accounted for approximately
25% and 20%, respectively, of the dollar amount of the Company's total purchases
in 1999 of subassemblies and components. While there are at least two qualified
suppliers for the subassemblies and components that are made to the Company's
specifications, they are generally single-sourced so that the Company is able to
take advantage
3
<PAGE>
of volume discounts and more easily ensure quality control. The Company
estimates that the lead-time required before an alternate supplier can begin
providing the necessary subassembly or component would generally be between six
to ten weeks. The disruption of the Company's business during such period of
lead-time could have a material adverse effect on its sales and results of
operations.
The Company has experienced shortages of supplies for components from
time to time as a result of industry-wide shortages, which sometimes result in
market price increases and allocated production runs. However, to date, such
shortages have not had a material adverse effect on the Company's business.
Research and Development. The process of developing new high-technology
products and solutions is inherently complex and uncertain. The development
process requires innovation and anticipation of changing market needs and
technological trends. The Company will need to continue to introduce new
products that match the price/performance levels of competitive products. The
development of new products is inherently risky and expensive and the Company's
working capital may not be sufficient to permit it to fund the research and
development required. Furthermore, there can be no assurance that the Company
will successfully develop new products or that any new products that are
developed will be introduced in a timely manner and receive wide market
acceptance. See "-Manufacturing - Research and Development".
Fluctuations in Quarterly Results. The Company's quarterly operating
results have fluctuated in the past and may fluctuate significantly in the
future due to a number of factors, including timing of new product introductions
by the Company and its competitors; changes in the mix of products sold;
availability and pricing of subassemblies and components from third parties;
timing of orders; difficulty in maintaining margins; and changes in pricing
policies by the Company, its competitors or suppliers. See "-Manufacturing -
Suppliers" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Results of Operations."
Substantial Control by Morgan Kent Group. As of March 2, 2000, Morgan
Kent Group owns approximately 37% (approximately 43% on a fully diluted basis)
of the outstanding shares of the Company's Common Stock (including 457,502
shares underlying warrants) and, accordingly, has the ability to significantly
influence the election of all directors and to otherwise control Company
policies. Morgan Kent Group's substantial ownership position of the Company may
have an adverse effect on the market price of the Common Stock due to the
perception by existing or potential stockholders that influencing or changing
the Company's management or policies, without Morgan Kent Group's consent, would
be difficult, or the perception that public sales of significant amounts of
Common Stock by Morgan Kent Group is likely. In this regard, public sales of
significant amounts the Company's Common Stock by Morgan Kent Group may result
for many reasons, including funding requirements related to other business
activities and investments of Morgan Kent Group. Such control by Morgan Kent
Group would likely discourage hostile bids for control of the Company in which
stockholders may receive premiums for their shares of Common Stock. See
"Security Ownership of Certain Beneficial Owners and Management" for information
regarding a possible future change of control.
Possibility of Volatility of Common Stock Price. There has been
significant volatility in the market price of the Company's Common Stock and of
the securities of companies engaged in businesses similar to the Company's
business. Various factors and events may have a significant impact on the market
price of the Common Stock including fluctuations in the prices of computer
industry and Internet related stocks, generally; announcements by the Company,
its suppliers or its competitors concerning quarterly and year end results of
operations; technological innovations or the introduction of new products;
shortages or failure of components or subassemblies; and public concern about
the economy, generally. See "Market for Registrant's Common Equity and Related
Stockholder Matters."
Forward-Looking Information May Prove Inaccurate. This Form 10-K
contains forward-looking statements and information that are based on
management's beliefs as well as assumptions made by, and information currently
available to, management. When used in this document, the words "anticipate,"
"believe," "estimate," and "expect," and similar expressions are intended to
identify forward-looking statements. Such statements reflect the Company's
current views with respect to future events and are subject to certain risks,
uncertainties and assumptions, including the specific risk factors described
above. Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those anticipated, believed, estimated or expected. The Company does not intend
to update these forward-looking statements and information.
4
<PAGE>
Products and Services
General Display Terminals. The Company's General Display Terminals are
ANSI/ASCII desktop terminals, which generally do not have graphics capabilities,
although some have limited graphics capabilities. The Company offers standard
and custom models, primarily for data entry and point of sale activities.
General Display Terminals are sold by the Company under the Company's ADDS(R),
Dorio(R) and VT(R) trademarks. The ADDS, Dorio and VT brands are complementary
products, providing slightly different features to various user segments.
Windows(R)-based Terminals. The Company's Windows(R)-based Terminals
("WBTs") have no applications storage, utilize the network servers for
processing and are significantly smaller than a general purpose PC. They use
Intel and Intel-compatible processors. The Company believes that the lower total
operating costs and ease of administrating WBTs, generally, will allow WBTs to
compete with PCs used in business networks although there is no assurance the
Company's belief is correct.
Target users for the Company's Windows(R)-based Terminals include
retail, services, financial, education, healthcare, telecommunications and
transportation customers with light processing requirements and the need to
provide concurrent information to customers on a variety of topics, such as
billing and current and historical product and service information.
MultiConsole Terminals. The Company's MultiConsole Terminals were
developed by Morgan Kent Group and are based on patented technology.
MultiConsole Terminals offer a cost-effective upgrade or replacement for serial
character terminals in multi-user, microcomputer and personal computer-based
environments. The MultiConsole Terminal has the same look and feel as a PC.
Nevertheless, MultiConsole Terminals do not have CPUs since they share the CPU
of the host computer. MultiConsole Terminals are best suited for small to
medium-sized businesses requiring predominantly transaction-oriented
applications. Typical users include financial branch offices, hospitals, hotels,
retailers, pharmacies and professional offices, such as accounting firms,
doctors' and dentists' offices and law firms.
During 1998 the Company signed an exclusive alliance agreement with
Infinite Solutions pertaining to its MultiConsole Terminals products. Under
terms of this alliance Infinite Solutions assumes responsibility for sales and
support, product development, maintenance and warranty logistics for the
MultiConsole Product. Boundless will continue to manufacture and service the
MultiConsole product exclusively for Infinite Solutions. Infinite Solutions has
been a Boundless channel partner for over a decade and involved with the
MultiConsole product since the product's development.
GAI Partnership. Up to September 30, 1999, Boundless Technologies was
a limited partner with GA, the managing partner, in the GAI Partnership. The GAI
Partnership combined into a single business the development, distribution,
maintenance and support of Pick-based computer systems and software running
Boundless' version and GA's version of the Pick system on various hardware
platforms. Boundless' systems consisted of Unix software with NCR System 3000
hardware and operating system software under the Mentor(R) Operating Environment
brand name, as well as a lower cost system under the Mentor PRO brand name for
use with standard PCs (collectively, "Mentor Systems"). Mentor Systems are used
to manage large volumes of data. Users of Mentor Systems include large
distribution centers, retail establishments, manufacturers, local governments
and databases for credit and collections. The business and affairs of the GAI
Partnership were managed exclusively by GA subject to consultation from time to
time with Boundless. On September 30, 1999, Boundless Technologies sold its
interest in the GAI Partnership to GA for $1,500,000 in cash, 1,133,333 shares
of restricted common stock of GA, notes, and warrants to purchase shares of
common stock of GA.
Professional Services. Prior to the formation of the GAI Partnership, a
material portion of the Company's revenues was derived from its activities as a
provider of consulting, installation, software and hardware maintenance,
software upgrade and tuning, disaster backup and other professional services.
These services were provided almost exclusively to Mentor Systems users and
value added resellers ("VARs") of systems purchased from the Company as well as
to users of the Company's other products desiring more service and support than
the basic warranty provides. The Company is continuing to provide these services
with respect to its desktop terminals and Windows(R)-based Terminals. Depot
service during normal business hours is also provided within the United States
by the Company for its desktop terminals.
5
<PAGE>
Electronic Manufacturing Services. Boundless Manufacturing Services
participates in the EMS market space and provides services that include
build-to-order mass-customized manufacturing, supply chain optimization, global
supply base management, systems assembly and test, distribution and logistics,
repair centers and end-of-life management. Boundless Manufacturing also offers
in-house engineering expertise- product design, test development, product
development- to significantly reduce time-to-market for OEM customers. Boundless
Manufacturing will provide a complete supply chain that is designed and built to
each customer's specifications.
Internet Appliance Software and Services. Merinta creates tailored,
co-branded IA solutions for corporations. Merinta's solutions and services are
not dependent on any hardware platform, software operating system or
connectivity type. The solutions are adaptable to the multitude of Internet
devices, plug-ins, and server-based applications. These IA solutions facilitate
new revenue opportunities for corporations and assist them in building stronger
relationships with their customers. The Merinta IA solutions are modular,
allowing Merinta's OEM customers to tailor services to their volume and needs.
The Merinta Software Development Kits allow third party software developers,
value-added resellers, systems integrators, and large end users to develop
applications, interfaces, and plug-ins for the Merinta software backplane. The
Merinta software architecture and resultant flexibility allows for fast and easy
customization in specific market segments.
Percentage of Total Revenues. The table below sets forth, for each of
the last three years ended December 31 the percentage of total revenue
contributed by those classes of similar products or services which accounted for
a material portion of consolidated revenue in any of such years.
General Windows(R)-
Display Based
Period Terminals Terminals
- - ------ --------- ---------
1999 80.0% 16.8%
1998 84.9% 9.3%
1997 83.6% 3.3%
6
<PAGE>
Foreign Sales. Net foreign sales were approximately $28,069,000,
$29,544,000 and $30,911,000 for 1999, 1998 and 1997, respectively. The tables
below set forth for each of the last three years ended December 31 the
approximate percentage of total revenue attributable to foreign sales and the
percentage attributable to the European region.
% of Total Revenue
------------------
Period Total Europe
- - ------ ----- ------
1999 34.9% 29.6%
1998 32.8% 28.3%
1997 31.6% 27.0%
Manufacturing
Assembly Operations. The Company's manufacturing operations are
located at its main facility in Hauppauge, New York and include procurement of
components and the assembly and testing of its products. The Company does not
currently manufacture any of the subassemblies or components used in the
assembly of its products. Investment in production equipment is not material to
the Company's manufacturing operations. Semi-skilled and skilled workers
assemble products using a cell-based manufacturing process that allows the
Company to assemble various models at mass production costs. The Company
generally cross-trains its workers so that they are able to work at all work
stations. Once assembled, all systems undergo a test cycle, using sophisticated
diagnostic procedures. The Company has earned ISO 9002 certification for its
manufacturing standards.
The Company has a flexible manufacturing control system that is run
by software developed by the Company. This system provides a flexible,
customer-focused manufacturing approach that enables the Company to quickly
customize products for orders of one to one thousand. Just-in-time systems allow
the Company to achieve efficient asset utilization and fast response time to
customers. The Company is generally able to fill orders within three to five
days after receipt of an order. Accordingly, backlog has not traditionally been
material to the Company.
The Company is using approximately 90,000 of its 155,000 square
feet of space in the Hauppauge, NY, facility for manufacturing and has the
capacity to manufacture approximately 1,000,000 units per year.
Suppliers. The Company purchases subassemblies and components for its
products from more than 40 domestic and Far East sources. Purchases from Wong
Electronics Corp. and Tonghah Electronics SDN.BHD, which manufacture in China
and Malaysia, respectively, of plug-in logic boards for the Company's General
Display Terminals and Windows(R)-based Terminals, accounted for approximately
25% and 20%, respectively, of the total dollar amount of the Company's total
purchases in 1999 of subassemblies and components. While there are at least two
qualified suppliers for the subassemblies and components that are made to the
Company's specifications, they are generally single-sourced so that the Company
is able to take advantage of volume discounts and more easily ensure quality
control. The Company estimates that the lead-time required before an alternate
supplier can begin providing the necessary subassembly or component would
generally be between six to ten weeks. The disruption of the Company's business
during such period of lead-time could have a material adverse effect on its
sales and results of operations. The Company has experienced shortages of
supplies for components from time to time as a result of industry-wide
shortages, which sometimes result in market price increases and allocated
production runs. To date, such shortages have not had a material adverse effect
on its business.
7
<PAGE>
Warranties and Returns. The Company provides a one- to ten-year
warranty covering defective materials and workmanship. The Company's products
are serviced at depots that are geographically dispersed throughout the world.
Users can purchase extended warranties of up to ten years or can pay for repairs
on a time and materials basis. For the years 1997, 1998 and 1999, the Company's
cost of warranty repairs was approximately 2.0% of the Company's total revenues.
Software is not warranted by the Company, but users are permitted to return
software for a refund within 30 days after purchase. Accordingly, customers are
afforded the opportunity to use software on a trial basis through the Company's
evaluation program. Revenue on software sales is recorded upon customer
acceptance.
The Company also grants 90-day stock rotation rights to selected
distributors and, pursuant to an agreement with the Company, NCR can return
products within 90 days of shipment. If the Company cannot resell such products,
NCR is required to pay the Company 15% of the sales price of the returned
products. Because of the Company's ability to provide products using
just-in-time manufacturing techniques, the Company believes that NCR has been
limiting orders to products for which it has firm commitments from its
customers.
A provision for estimated future returns and potential warranty
liability is recorded at the time revenue is recognized.
Research and Development. During 1999, 1998 and 1997, the Company
expended approximately $5,908,000, $3,666,000 and $2,912,000, respectively, on
research and development activities. Boundless' research and development
activities have historically related primarily to General Display Terminals and
Network Graphics Displays. Because General Display Terminals are mature
products, development activities over the past year have only included
enhancements to the existing product family, freeing resources for development
of the Company's Windows(R)-based Terminals and Internet Appliances. The Company
has devoted more efforts to developing and acquiring new products and
technologies that can shorten the time-to-market of the Company's products. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations."
Sales and Marketing
The Company markets its terminal products through original
equipment manufacturers ("OEMs") and reseller distribution channels. OEMs that
do not want to maintain engineering or manufacturing resources can obtain
products with their brand name from Boundless. Customers can buy Boundless'
products from an international network of value-added resellers (VARs) and
regional distributors. In order to reduce its dependence on existing OEM
customers, the Company has been increasing its distribution channel marketing
and sales efforts and seeking additional OEM customers. Through its sales force,
the Company sells directly to large VARs and regional distributors and also
sells to major national and international distributors. The Company's sales
force operates out of six geographically dispersed locations in the United
States and a European office in the Netherlands.
As a result of the Digital Acquisition, the Company has expanded
its OEM relationships and worldwide channels of distribution, particularly in
Europe. The Company entered into distribution agreements with approximately ten
Western European distributors in 1997. Sales of VT and Dorio General Display
Terminals have historically been particularly strong in Europe, while sales of
the ADDS General Display Terminals have been stronger in the United States.
In 1998 the Company launched the VARiety Access program to address
the emerging Windows(R)-based terminal market. This program is designed to
facilitate the ease with which Microsoft Certified Solutions Providers and
Citrix Solutions Network Resellers market and sell WBTs. To date, the Company
has recruited over 250 Value Added Resellers into the program.
In selling its General Display Terminals, the Company emphasizes
customization, reliability and compatibility with a broad range of UNIX, Pick
and other operating systems. In selling the Company's Windows(R)-based
Terminals, the Company emphasizes total cost of ownership, ease of
administration, security and the ability to access numerous applications. The
Company's Windows(R)-based Terminals can access the more than 100,000
applications that run under Microsoft Windows, including Windows NT, Windows 95
and Windows 98. The Company's Windows(R)-based Terminals also provide access to
UNIX and legacy applications. The Company believes its expertise in integrating
Windows(R)-based Terminals within the total system architecture is an important
selling benefit.
8
<PAGE>
The Company uses direct mail, telemarketing and cooperative
advertising and promotion to promote its products. The Company's installed user
base of more than 5,000,000 General Display Terminals is the primary target
market for its Windows(R)-based Terminals. The Company believes the most
effective way to reach this market is via cooperative marketing with its channel
partners and an aggressive use of public relations.
The Company's business is not seasonal. The third quarter of the
calendar year contributes slightly less revenue, as a percent of the total
year's revenue, due to extended vacation periods in Europe, where sales of the
Company's VT/Dorio products are strong. Other fluctuations in quarterly sales
result from large orders that are unrelated to the time of year.
Competition
The General Display Terminal market has undergone consolidation and
the two largest competitors that have emerged are Boundless Technologies and
Wyse Technology, Inc. ("Wyse"). General Display Terminal customer purchase
criteria are based on quality, customization, compatibility with other
terminals, and price.
Currently, Boundless Technologies' principal competitors that
manufacture and market Windows(R)-based Terminals are Wyse, Neoware Systems,
Inc., and Network Computing Devices, Inc. The Company's Windows(R)-based
Terminals also compete with low-cost PCs and traditional higher-cost PCs.
Customer purchase criteria for Windows(R)-based Terminals are primarily based
upon reduced total cost of ownership, ease of administration, reliability,
security and the breadth of applications access.
The EMS market in 1998 was estimated to be in excess of $90 billion
and served by over 800 competitors. Within the top 100, based on 1998 revenue,
the competitors ranged in size from approximately $6.5 billion in revenue to $24
million in revenue. Boundless Manufacturing believes it provides an array of
outsourcing services which will allow it to compete in the EMS market space
which is characterized by a need for low cost, high quality, and fast lead
times.
Internet Appliances are defined as low-cost, easy-to-use, consumer
focused electronic devices designed to bring the features and benefits of the
Internet to consumers on a mass scale. The market is evolving rapidly and is
heavily influenced by consumers' adoption of the Internet as a means of
conducting commerce. The market for Internet devices is well served by
manufacturers including Sony, Compaq, Acer, and Palm Computing. Additionally,
startup firms taking advantage of the interest in the Internet, and deploying
various business models including "free" PCs, have entered this market. Merinta
believes its strategy to combine the hardware, software and services into a
series of easily deployable solutions is a competitive advantage in this market.
Patents, Trademarks and Licensing
The Company owns over 30 patents issued in the United States and
various foreign countries, none of which is believed to be material to its
business. The Company believes that the knowledge and experience of its
management and personnel and their ability to develop, manufacture and market
the Company's products in response to specific customer needs is more
significant than its patent rights.
The trademarks ADDS, Viewpoint, VT and Dorio are registered in the
United States Patent and Trademark Office and in a number of foreign countries.
Environmental Regulation
Amounts incurred by Boundless in complying with federal, state and
local legislation pertaining to protection of the environment during the past
three years did not have a material effect upon capital expenditures or the
financial condition of the Company. Employees
9
<PAGE>
At December 31, 1999, the Company had approximately 332 full-time
employees engaged as follows: 39 in product design and engineering, 206 in
manufacturing and repair services, 51 in sales, systems services and marketing
and 36 in administration. None of the Company's employees is covered by a
collective bargaining agreement. The Company considers relations with its
employees to be satisfactory.
ITEM 2. PROPERTIES
The Company owns a 155,000 square foot facility at 100 Marcus
Boulevard, Hauppauge, New York, the principal manufacturing, sales and
distribution facility of Boundless. The Company also leases approximately 11,743
square feet of office space in Austin, Texas. The lease for this facility
expires December 31, 2000. The Company's current annual rent for the Austin
facility is approximately $247,000. The Company leases four other small
facilities throughout the United States for depot repair and support services.
The annual lease commitments for these facilities are not material.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1999 to a vote of
stockholders of the Company through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On March 6, 1998, the Company delivered to its shareholders and filed
with the Securities and Exchange Commission an Information Statement relating
to, among other matters, a one-for-ten reverse split (the "Reverse Split") of
the Common Stock. The Reverse Split became effective March 26, 1998. Unless
otherwise noted, all information in this Annual Report on Form 10-K has been
restated, applying retroactive treatment of the Reverse Split.
The Company's Common Stock is quoted on The American Stock Exchange
("AMEX") under the symbol BND. As of March 1, 2000, there were approximately 948
holders of record of the Company's Common Stock. The following table sets forth
the high and low last sale prices for the Company's Common Stock, as reported by
AMEX, for the periods indicated. Price per share information has been restated
for the one-for-ten reverse split.
Year Ended December 31, 1999: High Low
First quarter........................... $ 6.06 $ 4.25
Second quarter.......................... $ 6.25 $ 4.00
Third quarter........................... $ 5.88 $ 3.88
Fourth quarter.......................... $ 9.81 $ 3.44
Year Ended December 31, 1998:
First quarter........................... $10.00 $ 6.25
Second quarter.......................... $ 9.09 $ 4.88
10
<PAGE>
Third quarter........................... $ 6.38 $ 3.06
Fourth quarter.......................... $ 7.13 $ 3.00
The last sale price of the Company's Common Stock on March 2, 2000 was $ 15.00.
Dividend Policy
The Company presently anticipates that all of its future earnings
will be retained for development of its business and does not anticipate paying
cash dividends on its Common Stock in the foreseeable future. The payment of any
future dividends will be at the discretion of the Company's Board of Directors
and will depend upon, among other things, restrictions on the payment of
dividends imposed by its lenders, future earnings, capital requirements, the
general financial condition of the Company, and general business conditions. The
Chase Credit Line prevents the Company from declaring any dividends on the
Company's Common Stock and any other class of capital stock of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data
for the Company for the periods and the dates indicated. The statement of
operations and balance sheet data for the years ended December 31, 1999, 1998,
1997, 1996 and 1995 set forth below have been derived from the financial
statements of the Company which have been audited by BDO Seidman, LLP,
independent certified public accountants. The selected financial data should be
read in conjunction with, and are qualified in their entirety by, the
Consolidated Financial Statements of the Company and related Notes and other
financial information included elsewhere herein.
11
<PAGE>
Consolidated Statement of Operations Data
For the years ended December 31:
(in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenues $80,510 $90,202 $98,271 $138,225 $94,957
Gross margin 23,812 25,999 24,766 28,557 25,573
Operating expenses:
Sales and marketing 10,292 8,308 7,417 10,433 7,940
General and administrative 6,979 5,845 6,213 8,120 6,337
Research and development 5,908 3,666 2,912 4,855 4,569
Other charges (credits) (3,711) (16) (255) 1,980 --
------ ------ ------ ------ -------
Total operating expenses 19,468 17,803 16,287 25,388 18,846
------ ------ ------ ------ ------
Operating income 4,344 8,196 8,479 3,169 6,727
Interest expense (1,438) (2,539) (3,730) (3,794) (1,907)
Other income -- -- -- -- 572
------ ------ ----- ------ ------
Income (loss) from continuing
operations 2,906 5,657 4,749 (625) 5,392
Income tax (credit) expense (333) 749 (134) 962 (1,323)
Loss from discontinued operations -- -- -- (9,652) (870)
Extraordinary item- loss on
extinguishment of debt -- -- -- -- (589)
------ ------- ------ ------- ------
Net income (loss) $3,239 $4,908 $4,883 $(11,239) $2,610
====== ====== ====== ========= ======
Income (loss) per common share from
continuing operations:
Basic $.72 $.90 $.89 $(.44) $.37
==== ==== ==== ====== ====
Diluted $.71 $.90 $.86 $(.44) $.35
==== ==== ==== ====== ====
Net income (loss) per common share:
Basic $.72 $.90 $.89 $(2.50) $.04
==== ==== ==== ======= =====
Diluted $.71 $.90 $.86 $(2.50) $.04
==== ==== ==== ======= =====
Consolidated Balance Sheet Data
At December 31:
(in thousands)
Working capital $17,942 $9,401 $8,780 $3,172 $15,416
Total assets 50,460 49,348 54,548 69,525 75,856
Revolving credit loan (short-term) -- -- 7,650 13,950 8,000
Long-term obligations 15,125 7,129 10,288 14,300 25,492
Mandatorily redeemable preferred
stock -- 3,555 3,555 3,555 3,555
Stockholders' equity $21,415 $ 16,657 $15,407 $8,802 $12,837
</TABLE>
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
Reference is made to Notes 1,3,7 and 16 of Notes to Consolidated
Financial Statements for definitions of certain capitalized terms and
information regarding the GAI Partnership and acquisitions and dispositions by
the Company since December 1994.
Results of Operations
The numbers and percentages contained in this Item 7 are approximate. Dollar
amounts are stated in thousands.
Years Ended December 31, 1999 and 1998
Revenues: Revenues for the year ended December 31, 1999 were $80,510,
as compared to $90,202 for the year ended December 31, 1998.
Sales of the Company's General Display Terminals declined by 15.8% to
$64,486 for the year ended December 31, 1999 from $76,612 for the year ended
December 31, 1998. The decline is primarily attributable to a reduction in sales
of the Company's VT/Dorio product line and sales to Digital, which, in
combination, accounted for a decline of approximately $7,763, or 20.2% from
sales in 1998. The Company believes the market for General Display Terminals
will continue to decline in the future as customers move toward applications
requiring graphical user interfaces.
Sales of the Company's Windows(R)-based Terminals grew by over 60% to
$13,533 versus $8,409 for the years 1999 and 1998, respectively. The thin client
computing concept has been implemented and in use for over two years. During
this period the market has had the opportunity to validate thin client ease of
use and lower cost of ownership versus alternatives for accessing information,
substantially enhancing market acceptance of thin client computing. In addition,
changes in licensing schemes from software vendors and the creation of the ASP
(application service providers) Consortium, an industry group supporting the
computing concept of delivering software applications to multiple entities from
centralized data servers, were positive driving forces in enhancing the
prospects of the thin client market.
During 1999 the Company released the Capio(R), a new low-cost product
platform, and substantially enhanced the features and functionality of its
administration software. In addition, Boundless Technologies signed a strategic
OEM and distribution agreement with COMPAREX Informationsysteme and eSESIX that
extends the company's WBT product line in Germany and throughout Europe.
Net sales from the Company's repairs and spare parts business
approximated the 1998 results, increasing from $2,428 for the year ended
December 31, 1998 to $2,440 for the year ended December 31, 1999. Reliability
improvements and enhanced product quality have reduced the Company's spare parts
revenues as compared to prior years. In addition the general downtrend in unit
sales have adversely affected this component of the Company's business. Due to
these factors and new designs and engineering changes resulting in fewer
components and increased reliability, the Company anticipates reduced repairs
and spare parts revenue in the future.
IBM was the most significant customer for the Company's products,
accounting for 15% of revenues for the year ended December 31, 1999. Sales to
Digital and NCR accounted for 7% and 3%, respectively, of revenues in 1999. The
loss of IBM, NCR or Digital as a customer, and as a distribution channel for the
Company's General Display Terminals, would have a material adverse effect on the
Company's results of operations and liquidity.
13
<PAGE>
Gross Margin. Gross margin for the year ended December 31, 1999 was
$23,812 (29.6% of revenue), as compared to gross margin for the year ended
December 31, 1998 of $25,999 (28.8% of revenue). Cost reduction activities and
changes in the Company's product mix have enabled the Company to increase its
gross margin percent despite the decline in revenues.
The Company anticipates that increased sales of WBTs will negatively
impact gross margin due to the software license fees associated with the sale of
this product. Gross margin in future periods may be affected by several factors
such as sales volume, shifts in product mix, pricing strategies and absorption
of manufacturing costs.
Changes in retail pricing did not have a material adverse effect on
the Company's gross margin in 1999 or 1998. In a continuing effort to maintain
and improve margins in an industry otherwise characterized by commodity pricing,
management has focused on quality, flexibility, and product cost reductions.
From time-to-time margins are adversely affected by industry shortages
of key components. The Company emphasizes product and cost reductions in its
research and development activities and frequently reviews its supplier
relationships with the view to obtaining the best component prices available.
See "Asset Management."
Total Operating Expenses. For the year ended December 31, 1999,
operating expenses were $19,468 (24.2% of revenue), compared to expenses for
1998 of $17,803 (19.7% of revenue).
Sales and Marketing Expenses. Sales and marketing expenses increased
23.9% from $8,308 (9.2% of revenue) for the year ended 1998 to $10,292 (12.8% of
revenue) for the year ended December 31, 1999. The increase is attributable to
spending to develop the Windows(R)-based Terminal market, including expenses
relating to the introduction of the Company's new Capio(R) WBT. In addition,
sales and marketing expenses for 1999 increased versus the prior period as the
Company increased the sales headcount to accelerate acceptance of Internet
appliances.
The Company promotes its products by means of a balanced mix of media
advertising, direct mail, telemarketing, trade shows, public relations and
cooperative channel marketing programs. The Company's installed base of over
5,000,000 units is the primary target market for the Company's Viewpoint(R) and
Capio WBTs. The Company's plan to reach this market is based on direct mail,
telemarketing and advertising and participating in events with its key partners,
including Microsoft. Within Merinta, spending is targeted at developing
alliances and partnerships to achieve speed to market and leverage technology
partnerships that provide joint marketing relationships or reference selling
opportunities.
General and Administrative Expenses. General and administrative
expenses increased 19.4%, or $1,134, to $6,979 (8.7% of revenue), from $5,845
(6.5% of revenue) for the periods ending December 31, 1999 and 1998,
respectively. The increase stems from spending for professional services
including legal, standard accruals for the Company's employee bonus program
payable within the first quarter of 2000, and expenses related to the
implementation of the Company's new enterprise resource planning ("ERP")
software.
Research and Development Expenses. Research and development expenses
increased to $5,908 in 1999 from $3,666 in 1998. The increase is attributable to
Merinta's development efforts in software related to Internet appliances and
Boundless Technologies' development of its WBTs. Spending increases were
primarily related to the recruitment and retention of key development employees
resulting in an increase of over 50% in headcount-related expenditures.
Research and development expenses will continue to shift to software
and hardware development that will deliver user-friendly Windows-based
applications to the desktop while maintaining current cost and administrative
benefits of the shared resource multi-user computing model. The Company's WBTs
are designed to offer customers simple, easy and cost-effective access to
current and emerging computing environments that include Windows NT, UNIX and
Java applications, corporate intranets and the Internet.
Other Charges (Credits). On September 30, 1999, the Company sold the
entirety of its interest in the GAI
14
<PAGE>
Partnership to GA for $1,500,000 in cash, 1,133,333 shares of restricted
common stock of GA, notes, and warrants to purchase shares of common stock of
GA. The Company previously disclosed that GA was in default of material
obligations under the partnership agreement, including payment of past due
royalties and other fees, which totaled $2,468 as of December 31, 1998. The
Company reserved against all outstanding receivables during 1997, and, since
that time, has recorded revenue attributable to the partnership on a cash basis
only. The Company recorded a credit of $2,324 relating to the sale after having
received a third-party valuation assessment of the value of the securities and
convertible debt components of the settlement. In addition the Company released
a number of overaccruals from prior years including $636 relating to the
estimated warranty liability associated with the shipment of the Company's
products to DEC as well as $494 relating to the estimate of outstanding claims
against the Company's marketing development funds programs.
Interest Expense. Interest expense (net of interest income) amounted to
$1,438 for the year ended December 31, 1999 compared to $2,539 for 1998. The
decline in interest expense stems from a reduction in the amount of the
Company's outstanding debt, completion of the amortization of capitalized debt
financing costs relating to previous acquisitions, as well as a slight reduction
in the rate of interest applicable to the Company's debt obligations.
Income Tax Credit/Expense. The Company recorded an income tax credit of
$333 for the year ended December 31, 1999 compared to an income tax expense of
$749 for the year ended December 31, 1998. In 1999, the Company recorded tax
benefits of $1,531 relating to the reversals of a prior year overaccrual and the
adjustment of deferred taxes as a result of tax examinations. In 1998 the
Company released all of the valuation allowance reserved against its net
deferred tax asset, resulting in an effective tax rate below the federal
statutory rate. At December 31, 1999, the Company had no net operating loss
carryforward credits remaining.
Net Income. For the year ended December 31, 1999, net income was $3,239
(4.0% of revenue), compared to a net income of $4,908 (5.4% of revenue) for the
year ended December 31, 1998.
Years Ended December 31, 1998 and 1997
Revenues. Revenues for the year ended December 31, 1998 were $90,202,
as compared to $98,271 for the year ended December 31, 1997.
Sales of the Company's General Display Terminals declined by 6.8% to
$76,612 for the year ended December 31, 1998 from $82,200 for the year ended
December 31, 1997. The decline is primarily attributable to a reduction in sales
of the Company's VT/Dorio product line. Sales to Digital and to the Company's
distribution channel in the United States increased $8,640 offsetting, in part,
the decline in sales of VT/Dorio products.
Sales of Network Graphics Displays were not significant in 1998 and,
due to the small customer base and low margins associated with Network Graphics
Displays and the emergence of WBTs, the Company announced a discontinuation of
this product family in the first quarter of 1998.
Sales of the Company's Windows(R)-based Terminals amounted to $8,409
versus $3,218 for the years 1998 and 1997, respectively. The increase was
attributable to an increase in market acceptance of this computing technology as
well as the release, in July 1998, of a key enabling server software from
Microsoft(R) Corporation.
Net sales from the Company's repairs and spare parts business decreased
28%, or $922, from $3,350 for the year ended December 31, 1997 to $2,428 for the
year ended December 31, 1998. An increase in the proportion of the Company's
sales to OEMs, who generally provide their own service, reduced the overall
repairs revenue. Also, spare parts sales to Digital and NCR decreased as a
result of the overall decline in unit sales to each of them in recent years. In
addition, reliability improvements and enhanced product quality have reduced the
Company's spare parts revenues
The GAI Partnership agreement provided for the payment of royalties to
the Company as a percentage of
15
<PAGE>
partnership revenues, commencing May 1995, as follows: months 1-12, 12%; months
13-24, 10%; months 25-36, 9%; months 37-48, 8%; and months 49-60, 7%. The
Company has previously disclosed that GA is in default of material obligations
under the partnership agreement, including payment of past due royalties and
other fees. As a result, the Company reserved against all outstanding
receivables during 1997, and, since that time, recorded revenue attributable to
the partnership on a cash basis only.
IBM was the most significant customer for the Company's products,
accounting for 15% of revenues for the year ended December 31, 1998. Sales to
Digital and NCR accounted for 9% and 4%, respectively, of revenues in 1998.
Gross Margin. Gross margin for the year ended December 31, 1998 was
$25,999 (28.8% of revenue), as compared to gross margin for the year ended
December 31, 1997 of $24,766 (25.2% of revenue). Cost reduction activities in
the Company's General Displays Terminals product line increased the gross margin
percent 6.4 points from 1997 to 1998. In addition, sales of the Company's
discontinued Network Graphics Displays accounted for a smaller percentage of the
Company's total revenues in 1998 as compared to 1997. This change in product mix
increased the gross margin percent, year-to-year, due to the relatively low
gross margin associated with Network Graphics Displays.
Total Operating Expenses. For the year ended December 31, 1998,
operating expenses were $17,803 (19.7% of revenue), compared to expenses for
1997 of $16,287 (16.6% of revenue).
Sales and Marketing Expenses. Sales and marketing expenses increased
12.0% from $7,417 (7.5% of revenue) for the year ended 1997 to $8,308 (9.2% of
revenue) for the year ended December 31, 1998. The increase is attributable to
spending to develop the Windows(R)-based Terminal market, including increased
participation at important tradeshows throughout 1998, as well as expenses
relating to the introduction of the Company's new Capio WBT.
General and Administrative Expenses. General and administrative
expenses decreased 5.9% from $6,213 (6.3% of revenue), to $5,845 (6.5% of
revenue) for the periods ending December 31, 1997 and 1998, respectively. The
decline stems from reductions in spending for professional services including
legal and audit fees.
Research and Development Expenses. Research and development expenses
increased to $3,666 in 1998 from $2,912 in 1997. The increase is attributable to
the development efforts in software related to WBTs.
Other Charges. Interest expense (net of interest income) amounted to
$2,539 for the year ended December 31, 1998 compared to $3,730 for 1997. The
decline in interest expense stems from a reduction in the amount of the
Company's outstanding debt as well as a slight reduction in the rate of interest
applicable to the Company's debt obligations.
Income Tax Credit/Expense. The Company recorded income tax expense of
$749 for the year ended December 31, 1998 compared to an income tax credit of
$134 for the year ended December 31, 1997. In 1998 the Company released all of
the valuation allowance reserved against its net deferred tax asset, resulting
in an effective tax rate below the federal statutory rate. In 1997 the tax
credit resulted from the utilization of net operating loss carryforward credits
of $1,481 and a tax adjustment for valuation of the Company's deferred tax
asset.
Net Income. For the year ended December 31, 1998, net income was $4,908
(5.4% of revenue), compared to a net income of $4,883 (5.0% of revenue) for the
year ended December 31, 1997.
16
<PAGE>
Impact of Inflation
The Company has not been adversely affected by inflation because
technological advances and competition within the microcomputer industry have
generally caused prices of products sold by the Company to decline. The Company
has flexibility in its pricing and could, if necessary, pass along price changes
to most of its customers.
Year 2000 Compliance
Year 2000 Update
Through the first two months of the year 2000, the Company's operations
around the world are functioning and have not experienced any significant issues
associated with the Year 2000 problem (as described below). Boundless' customers
have not reported any Year 2000 incidents. The Company has not experienced any
significant Year 2000-related issue that would affect our ability to
manufacture, ship, sell, or service our products.
Year 2000 Readiness
Computers, software and other equipment utilizing microprocessors that
use only two digits to identify a year in a date field may be unable to process
accurately certain date-based information referencing the year 2000. This is
commonly referred to as the "Year 2000 issue." The Company is addressing this
issue on several different fronts. With respect to products the Company offers
for sale, either to OEMs or through distribution, the Company has verified the
products are Year 2000 compliant. The Company has assigned a team to monitor
Year 2000 compliance. This team is charged with ensuring Year 2000 compliance
for all hardware and software products through its purchasing process, as well
as assessing Year 2000 readiness and risk to the Company with respect to the
compliance of its critical vendors and suppliers. Finally, the Company has a
team assigned to coordinate the Year 2000 program for its internal systems and
devices. Year 2000 compliance of the Company's internal systems and devices was
substantially tested and complete by November of 1999, with continued testing of
compliance throughout 1999. To date, the total costs related to the Company's
Year 2000 program have not been material to the Company's financial position or
results of operations, and have been charged to expense as incurred. Based on
current information and assessment, the Company does not believe that the Year
2000 issue discussed above as it relates to products sold to customers or the
Company's internal systems will be material to its financial position or results
of operations or that its business will be adversely affected in any material
respect. Nevertheless, achieving Year 2000 compliance is dependent on many
factors, some of which are not completely within the Company's control. Should
either the Company's internal systems or one or more critical vendors or
suppliers fail due to Year 2000 issues, the Company's business and its results
of operations could be adversely affected.
Liquidity and Capital Resources
The discussion below regarding liquidity and capital resources should
be read together with the information included under Notes 4, 7 and 11 of Notes
to Consolidated Financial Statements.
Working capital was approximately $17,942 as of December 31, 1999,
compared to $9,401 as of December 31, 1998. Historically, the Company has relied
on cash flow from operations, bank borrowings and sales of its common stock to
finance its working capital, capital expenditures and acquisitions.
The Company currently has a bank credit facility that is provided by
Chase. A Revolving Loan with Chase, originally scheduled to expire December 31,
1998, had been extended to April 15, 1999. On April 14, 1999, the Company signed
an agreement with Chase to replace that existing Chase Credit Line with a new
three-year $15,000 revolving line of credit on terms substantially similar to
those previously in effect. The new credit facility also provides for a $4,000
term loan, payable over a three-year period in equal quarterly installments
beginning June 1999. At December 31, 1999, the
17
<PAGE>
Chase Credit Line consisted of a $15,000 revolving line of credit ("Revolving
Loan"). Borrowing under the Revolving Loan is based on a borrowing base formula
of up to 80% of eligible receivables, plus 50% of delineated eligible inventory,
plus 30% of non-delineated eligible inventory. At December 31, 1999, up to
$5,000 was available under the Revolving Loan for letters of credit. At December
31, 1999, the Company owed Chase $3,000 under the term loan and $5,500 under the
line of credit and had availability of $4,000 under the Revolving Loan. As a
result of the borrowing base formula, the credit available to the Company could
be adversely restricted in the event of further declines in the Company's sales
and increased purchases and production to meet increases in orders may not be
able to be financed under the Chase Credit Line.
In order to fund the Company's activities in Boundless Manufacturing,
the Company is negotiating an amendment to the Chase Credit Line which it
expects to complete shortly.
Net cash provided by operating activities related to continuing
operations during the year ended December 31, 1999 was $2,180, principally
related to net income of $3,239 and non-cash expenses, principally depreciation
and amortization, of $2,111. These increases were partially offset by increases
in inventory of $1,526, reductions in accounts payable and other accrued
expenses of $1,266 as well as a change in the Company's deferred tax position of
$827. Net cash provided by investing activities was comprised of $1,500 stemming
from the sale of the Company's partnership interest in the GAI Partnership
offset by capital expenditures of $1,023. Net cash used in financing activities
was principally comprised of the repayment of $8,000 to NCR to retire a note
originally issued in connection with the Boundless Acquisition and the
retirement of the Company's mandatorily redeemable preferred stock in the amount
of $3,555. These amounts were offset by proceeds from the issuance of a $6,750
mortgage note to a financial institution and $4,000 from a term loan which was
obtained in connection with the renewal of the Chase Credit Line.
In addition to obligations previously discussed, long-term capital
requirements at December 31, 1999 included: (i) a mortgage note payable to
Independence Community Bank in the amount of $6,713, bearing interest at 7.75%
per annum and payable monthly over a 25-year amortization schedule due on or
before July 1, 2009 and secured by the Company's facility in Hauppauge, New
York; and (ii) a lease commitment of $247 per year through December 31, 2000 for
Merinta's Austin, Texas facility.
At December 31, 1999, the Company's total long-term liabilities were
approximately $15,125 and its current portion of long-term debt was
approximately $1,650. The Company believes that cash generated by Boundless'
operations will be sufficient to pay the Company's current and long-term debts,
when due.
Asset Management
Inventory. Management has instituted policies and procedures to
maximize product availability and delivery while minimizing inventory levels so
as to lessen the risk of product obsolescence and price fluctuations. Most
components and sub-assemblies are stocked to provide for an order-to-ship cycle
of seven days. The Company follows an inventory cycle count program that
dictates monthly, quarterly, or semi-annual physical inventory counts depending
upon product cost and usage.
The Company utilizes various subcontractors that manufacture component
parts of its products based on specifications supplied by the Company. As a
guideline, the Company attempts to have two qualified subcontractors for each of
its high dollar value, long lead time, customized components that it chooses to
outsource. In certain cases, the Company may decide to purchase components from
only one of the qualified subcontractors in an attempt to control manufacturing
overhead costs tied to supplier management and development. In most cases,
backup qualified subcontractors are identified by the Company in the event that
termination of the primary source should occur. If such a termination occurs,
the Company may experience short-term production delays and increases in
material and freight costs as the alternate subcontractor initiates production
runs and expedites delivery to the Company. Furthermore, worldwide shortages of
raw material creates supply problems for the computer industry from time to
time. Such supply shortages may cause market price increases and allocated
production runs which could have an adverse effect on the Company's business.
Inventory turnover was 4.2 times in 1997, 4.4 times in 1998, and 3.8 times in
1999. The decline in 1999 resulted from the Company's decision to accelerate
receipt of material ahead of December 31, 1999 in order to minimize any
potential Year 2000 disruption. Inventory reserves at December 31, 1999 were
$2,920 and were $3,273 for the year ended December 31,
18
<PAGE>
1998.
Accounts Receivable. The Company sells its products on prepayment and
net 30-day terms. Receivable turnover was 6.0 in 1997, 6.2 in 1998 and 6.0 in
1999.
New Accounting Pronouncement
Statement of Financial Accounting Standard No.133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS No. 133") establishes
accounting and reporting standards for derivative instruments and hedging
activities. SFAS No. 133 requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company is assessing
the impact that the adoption of SFAS No. 133 will have, if any, on its
consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Bulletin No. 101 "Revenue Recognition in Financial Statements." The staff
accounting bulletin is effective no later than January 31, 2001. The Company is
in the process of determining the impact adoption will have on its consolidated
financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates
relates primarily to the Company's revolving credit facility and long-term debt
obligations. The Company manages this risk through utilization of interest rate
swap agreements in amounts not exceeding the principal amount of its outstanding
obligations. At December 31, 1999 the Company had in place interest rate swap
agreements in the amount of $7,000 at an effective average interest rate of
8.66%. Of this dollar amount, $3,000 represents an effective hedge of the
Company's exposure to interest rate changes against the outstanding balance of
the term loan; and such swap amount shall amortize in concert with the term loan
payment schedule. The remaining balance of the swap agreement is intended as an
effective hedge to interest rate changes against the outstanding balance of the
company's Revolving Loan.
The Company places its investments with high credit quality issuers
and, by policy, is averse to principal loss and ensures the safety and
preservation of its invested funds by limiting default risk, market risk and
reinvestment risk. As of December 31, 1999 the Company's investments consisted
of the investment of excess cash balances in overnight time deposits offered by
Chase Manhattan Bank in London.
All sales arrangements with international customers are denominated in
U.S. dollars. These customers are permitted to elect payment of their next
month's orders in local currency based on an exchange rate provided one month in
advance from the Company. The Company does not use foreign currency forward
exchange contracts or purchased currency options to hedge local currency cash
flows or for trading purposes. Foreign currency transaction gains or losses have
not been material to the Company's results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a)(1) and (2) of Part IV of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Positions and Offices
<S> <C> <C>
J. Gerald Combs 50 Chairman of the Board of Directors, Chief Executive Officer
Joseph Joy 46 President, Boundless Manufacturing Services, Inc.
Anthony Giovaniello 44 Executive Vice President- Boundless Manufacturing Services, Inc.
Kenneth East 41 Chief Technology Officer- Merinta, Inc.
Jeffrey K. Moore 30 Vice President, Corporate Development, Director, President- Merinta Inc.
Joseph Gardner 40 Vice President - Finance, Chief Financial Officer
Stephen Maysonave 53 Director
Gary Wood 56 Director
Daniel Matheson 50 Director
</TABLE>
J. Gerald Combs has served as Chairman and Chief Executive Officer of
the Company and its subsidiaries since May 9, 1997. From April 1997 to December
1999 Mr. Combs had been the Chairman and CEO of Morgan Kent Group, the largest
shareholder of the Company. Since 1992 Mr. Combs has been Chairman and CEO of
Merrico Corporation, a privately held financial consulting firm. Mr. Combs also
served as President of All-Quotes, Inc., the predecessor of the Company, from
October 1993 to December 1994.
Joseph Joy has served as President, Boundless Manufacturing Services,
Inc. since September 1999. Mr. Joy has over twenty years experience in the
computer and computer peripherals industries. Mr. Joy's experience includes
general management, supply-based management, marketing, quality assurance and
engineering. Previously Mr. Joy held senior management positions in computer
supply chain management and sales and marketing for both Solectron and NCR
corporations. He received his MBA from Columbia University and BA from
Georgetown University.
Anthony Giovaniello has served as Executive Vice President, Business
Development, for Boundless Manufacturing since August 1999. Mr. Giovaniello has
been a professional in the high technology area for over 20 years. Over that
period he has amassed extensive sales and sales management experience, both in
corporate and indirect sales activities. More recently, Mr. Giovaniello was
Director, Business Development, for Solectron Corporation and had served as
Chief Operating Officer of Boundless Technologies.
20
<PAGE>
Kenneth East has served as Chief Technology Officer of Merinta since
November 1999. Prior thereto, from September 1998 until November 1999, Mr. East
had served as Chief Operating Officer of the Company. Mr. East joined the
Company in February 1998 as Chief Technology Officer. Prior to that time, from
1990 to 1998, Mr. East served as Director of Software Development-Integrated
Network Management Systems at NEC America, Inc., a worldwide leader in high
technology offering products and systems in semiconductors, communications,
computer peripherals, imaging, and computers.
Jeffrey K. Moore has served as a member of the Company's Board and a
Vice President of Boundless since January 1997. He joined the Company in May
1996 as a financial analyst reporting to the Company's Chief Financial Officer
and President. From September 1996 to April 1997, he served as President and
Chairman of the Board, and from February 1999 to December 1999 had served as
Assistant Secretary and as a director, of Morgan Kent Group. In December 1999
Mr. Moore was named Chairman of Morgan Kent Group, and during January 2000 was
named President of Merinta.
Joseph Gardner has served as Vice President- Finance and Chief
Financial Officer of the Company since October 31, 1997. Mr. Gardner has been
employed by Boundless since April of 1990. Prior to October 31, 1997, Mr.
Gardner served as the Controller and Vice President- Quality Assurance of
Boundless.
Stephen Maysonave has been a member of the Company's Board of Directors
since September 1998. Mr. Maysonave has thirty years of experience in the high
technology business, including twenty years of international business
experience. Mr. Maysonave is currently the principal of Maysonave & Associates,
a consulting group specializing in high technology companies. Prior thereto Mr.
Maysonave was employed as Vice President, Global Partners, by Informix Software,
a worldwide supplier of database solutions. Mr. Maysonave is the voting trustee
of 3,330,000 shares of Series B Preferred Stock of Morgan Kent Group, Inc.
pursuant to a voting trust expiring April 30, 2000. (See Item 12). During
January 2000, Mr. Maysonave resigned his position as a member of the Company's
Board of Directors. Mr. Maysonave continues to serve as a member of the Board of
Directors for Merinta.
Gary Wood has been a member of the Company's Board of Directors since
November 1996. Since September 1, 1997, Mr. Wood has been serving as Executive
Vice President and Chief Operating Officer of Collins Financial Services, Inc.
Collins purchases nationwide portfolios of consumer debt and either resells or
collects the accounts. He has served as Staff Economist for Senator John Tower;
was named Chief Economist of the Republican Policy Committee, U.S. Senate; was a
Finance Professor and Director of Governmental Affairs at Baylor University; and
is a former Director of the Federal Reserve Bank of Dallas. He also served as a
member of the Regional Advisory Oversight Board of the R.T.C. as well as the
Boards of The Capital Network and the Mental Health Association in Texas. From
April 1988 to December 1995 Mr. Wood served as President of the Texas Research
League.
Daniel Matheson has been a member of the Company's Board since August
1996. Mr. Matheson received his JD with Honors from the University of Texas in
1974 and his BA from the University of Texas at Austin in 1971. Mr. Matheson's
legal experience has involved counseling and advice to emerging companies on
choice of entity structuring, venture financing, and corporate governance. He is
a member of the American, Texas and Travis County Bar Associations. Mr. Matheson
is the Past Chairman and a Member of the Board of Directors of The Capital
Network, Inc.; Immediate Past-Chairman and a Member of the Board of Directors of
the Mental Health Association of Texas; and a Member of the Board of Directors
and Executive committee of the Paramount Theater, Inc. He also serves as a
Trustee of the Texas Mental Health Foundation and is a member of the Austin
Leadership Council of the University of Texas "We're Texas" Capital Campaign.
The following individuals, although not executive officers or
directors, are key employees and are expected to make significant contributions
to the business of the Company:
James Tillinghast has been serving as Vice President, Sales of
Boundless since January 1999. Prior to joining the Company Mr. Tillinghast was
employed by Informix Software and served as executive director for Global
Partners, responsible for managing sales and business development activities for
Informix's strategic software partners.
21
<PAGE>
Brian L. Hann has been serving as Vice President of Operations of
Boundless since March 1997 after serving as Vice President of Manufacturing of
Boundless since December 1994. Mr. Hann has been employed by Boundless since
March of 1986 and has served as Assistant Vice President of Manufacturing and
Customer Services.
Non-employee members of the Company's Board of Directors receive
$12,000 annually, and $500 for each Board of Director meeting attended, as
compensation for services rendered to the Company in their capacity as directors
of the Company. In addition, non-employee members of the Company's Board of
Directors receive $6,500 annually for services provided as a member of either
the Audit or Compensation Committees. Messrs. Wood, Matheson, and Maysonave were
each granted options on February 18, 1999, to purchase 15,000 shares of Common
Stock at $5.00 per share that expire in February 2004. The options vest over a
four-year period as follows- 25% following the first anniversary of the date of
grant and pro rata over the remaining three-year period. The options granted to
Mr. Maysonave were for consulting services provided to the Company, and the
Company recorded an expense of $40,000 related to the grant. On September 17,
1999, the Company granted to each of Messrs. Wood, Matheson and Maysonave
options to purchase 10,000 shares of Common Stock at $4.125 per share that
expire September 2004. These options vest similarly to the options noted above.
On September 17, 1999 the Company granted to each of Messrs. Wood and Matheson
options to purchase 10,000 shares of Common Stock at $4.125 per share in
connection with their work as members of the company's Compensation Committee.
These shares vest as to 50% one-year following the date of grant and, as to the
remainder, on the second anniversary following the date of grant. In addition,
on September 17, 1999, Mr. Maysonave was granted 15,000 options to purchase
shares of Common Stock at $4.125 per share that expire September 2004. The
15,000 options were granted for services Mr. Maysonave provided as a consultant
to the Company and vested immediately on the date of grant. The Company recorded
an expense of $25,000 relating to the grant of the 15,000 options.
Section 16(a) Beneficial Ownership Reporting Compliance
A review of the Forms 3 and 4 filed or due in 1999 relating to the
Company's securities indicates that the following filing made with the
Commission was not timely: a Form 4 relating to Mr. Maysonave's purchases of
5,000 shares of Common Stock in March 1999 was filed approximately 20 days late.
The Company has been advised that the tardiness of this filing was inadvertent.
22
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The table below discloses all cash compensation awarded to, earned by
or paid to the Company's Chief Executive Officer, the executive officers of the
Company who earned more than $100,000 for services rendered in all capacities to
the Company during the fiscal year ended December 31, 1999, and the two highest
paid individuals who earned more than $100,000 for services rendered to the
Company but who were not executive officers at December 31, 1999 (collectively,
the "named executive officers"). In addition, it provides information with
respect to the compensation paid by the Company to the named executive officers
during 1998 and 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Annual Compensation Long-Term
------------------- Compensation
------------
Name and Principal Other Annual All Other
Position Year Salary Bonus Compensation Options(#) (4) Compensation
- - ----------- ---- ------ ----- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
J. Gerald Combs(1) 12/31/99 $325,000 $ 50,000 - 50,000 -
CEO and Chairman 12/31/98 $291,462 $150,000 - 150,000 -
12/31/97 $123,436 - $ 8,497 65,000 -
Jeffrey K. Moore(5) 12/31/99 $112,500 $25,000 - 50,000 -
Vice President, Corporate 12/31/98 $90,719 - - - -
Development 12/31/97 $69,327 $15,500 - 65,000 -
Kenneth East(3) 12/31/99 $164,640 $50,000 - 20,000 -
Chief Technology Officer 12/31/98 $137,489 $35,000 $17,130 30,000 -
-
Joseph Gardner 12/31/99 $140,193 $40,000 - 20,000 -
Vice President-Finance 12/31/98 $140,962 $25,000 - - -
Chief Financial Officer 12/31/97 $100,000 $25,000 - 10,000 -
James Tillinghast(2) 12/31/99 $140,000 $30,000 $69,448 45,000 -
Vice President,
Sales
Kevin Sieck(2) 12/31/99 $96,924 $10,000 $52,766 25,000 -
Sales Director
</TABLE>
(1) Other annual compensation for 1997 includes taxable fringe benefits. In
1997, Mr. Combs' pre-existing options to purchase 90,000 shares of Common
Stock at an exercise price of $15.00 per share (expiring on January 24,
1999 as to 20,000 options and on October 3, 1999 as to 70,000 options) were
amended so that the exercise price is $6.60 per share and they expire on
July 1, 2002. See "Certain Relationships and Related Transactions" for
options granted in 1999 to Mr. Combs to purchase shares of common stock of
the Company's subsidiaries, Boundless Manufacturing and Merinta, which
options were exercised by Mr. Combs during 1999.
(2) Other annual compensation consisted of commissions and, in addition for Mr.
Tillinghast, consisted of $30,000 for
23
<PAGE>
reimbursement of relocation expenses.
(3) Other annual compensation consisted of relocation expense reimbursement.
(4) With the exception of the options granted to Mr. Tillinghast in 1999, which
have a strike price of $5.31 per share of Common Stock, all other options
granted in 1999 to the named executive officers have a strike price of
$5.00 per share of Common Stock. With the exception of the 150,000 options
granted to Mr. Combs in 1998, which have a strike price of $4.88 per share
of Common Stock, the Company repriced the exercise price of all outstanding
employee options on May 18, 1998 to $5.63 per share of Common Stock.
(5) See "Certain Relationships and Related Transactions" for options granted in
1999 to Mr. Moore to purchase shares of common stock of the Company's
subsidiaries, Boundless Manufacturing and Merinta, which options were
exercised by Mr. Moore during 1999.
Employment Agreements and Change-in-Control Arrangements
The Company has entered into employment agreements with Mr. Combs, the
Company's Chairman of the Board and Chief Executive Officer, and Mr. East, the
Company's Chief Operating Officer. The term of these agreements, as described
below, may be extended beyond the initial term by the mutual agreement of Mr.
Combs and Mr. East, respectively, and the Company and on such basis as Mr. Combs
and Mr. East, respectively, and the Company shall agree. Each such extension,
unless expressly agreed otherwise, will be for one year commencing the year
following the expiration of the initial term or any renewal term. Both
agreements may be terminated at any time by the written mutual consent of the
Company and Mr. Combs and Mr. East, respectively. Both agreements may be
terminated by the Company for cause, as defined in the employment agreements,
and, in such event, the employee will be entitled to such salary and benefits as
have accrued under the employment agreements, respectively, through the
effective date of the termination.
With respect to Mr. Combs, the agreement was entered into June 1, 1998
and expires May 31, 2001. The agreement calls for an annual salary of $325,000,
subject to an annual review by the Compensation Committee of the Board of
Directors, as well as the grant of 150,000 options to purchase shares of the
Company's Common Stock, such shares to vest pro rata on an annual basis over a
three-year period. Should Mr. Combs' employment with the Company be terminated
without cause, Mr. Combs would be entitled to deferred payments totaling two
years salary. In the event of a change-in-control, as defined in the agreement,
Mr. Combs would be entitled to deferred payments totaling two years salary, as
well as immediate vesting of all options.
Mr. East's employment agreement was entered into February 9, 1998 and
expired February 8, 2000. The agreement called for an annual salary of $150,000,
subject to an annual review by the Chairman and Chief Executive of the Company;
as well as the grant of 30,000 options to purchase shares of the Company's
Common Stock, such shares to vest pro rata over a four-year period. Should Mr.
East's employment with the Company be terminated without cause, Mr. East would
be entitled to deferred payments totaling six-month's salary. As the agreement
expired February 8, 2000, the Company and Mr. East have entered negotiations to
extend the contract for one additional year on terms substantially similar to
those of the expired agreement. The Company believes the negotiations will be
successful.
The Company and Boundless Manufacturing Services, Inc. have entered
into employment agreements with Messrs. Joseph Joy and Anthony Giovaniello,
respectively the President of Boundless Manufacturing and Executive Vice
President, Business Development. The terms and conditions of the agreements for
each of Messrs. Joy and Giovaniello are substantially similar, having an initial
term of approximately four years and expiring July 1, 2003, unless sooner
extended or terminated as provided for in the agreements.
The agreements call for the purchase, by each of Messrs. Joy and
Giovaniello, of 12.5% of Boundless Manufacturing Services, Inc.'s issued and
outstanding common stock. These shares may be repurchased by Boundless
Manufacturing Services, in a manner as defined in the agreements, should that
company fail to meet defined minimum performance standards. The agreements call
for annual salaries of approximately $155,000, subject to an annual review; and
a cash bonus of up to $100,000 annually determined by achievement against
specified objectives.
24
<PAGE>
In the event either of Messrs. Joy or Giovaniello is terminated for
failure to attain the minimum performance standards, as defined, he would be
entitled to continuation of base salary for a period not to exceed six months.
In the event of termination without cause, or if either Messrs. Joy or
Giovaniello resigns as a result of a change of control of the Company, he would
be entitled to continuation of base salary for a period not to exceed 18 months.
In addition, in the event of termination without cause or resignation resulting
from a change of control, the employee is entitled to payment of the pro rata
portion of the cash bonus the employee would have been entitled to had he
remained continuously employed through the end of the year within which
termination occurs.
Compensation Committee Interlocks and Insider Participation
Mr. Combs and Mr. Jeffrey Moore, who were executive officers of the
Company during 1999, were also members of the Company's Board of Directors
during such times and participated in deliberations concerning executive officer
compensation. Their joint deliberations gave rise to conflicts of interest,
which could have affected their compensation, and the number of stock options
granted to them individually and as a group. Mr. Combs and Mr. Moore were also
members of the Board and officers of Morgan Kent Group during 1999 which had
certain relationships, and entered into certain transactions, with the Company
during 1999 as described below under "Item 13- Certain Relationships and Related
Transactions."
25
<PAGE>
1995/ 1997 Incentive Plans
The Company's 1995 Incentive Plan covered the issuance of up to 600,000 shares
of Common Stock. As additional shares were no longer available to be issued
under the 1995 Incentive Plan, the Board adopted the 1997 Incentive Plan in July
1997 which covers the issuance of up to 1,000,000 shares of Common Stock.
Option Grants in Last Fiscal Year
The following table sets forth information, as of December 31, 1999,
regarding the outstanding options to purchase the Company's Common Stock granted
in 1999 under the Company's 1997 Incentive Plan ("1997 Plan") to the named
executive officers:
<TABLE>
<CAPTION>
Number of Potential Realizable
Securities Percent of Total Value at Assumed
Underlying Options/SARs Exercise or Annual Rates of Stock
Options/SARs Granted under Base Price Expiration Price Appreciation for
Name Granted (#) 1997 Plan ($/Sh) Date Option Term
---- ----------- --- ---------- -- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
5% ($) 10% ($)
------ -------
J.Gerald Combs (1) 50,000 7.1% $ 5.00 2/18/04 69,070 152,627
Jeffrey K. Moore(1) 50,000 7.1% $ 5.00 2/18/04 69,070 152,627
Kenneth East(2) 20,000 2.8% $ 5.00 2/18/04 27,628 61,051
Joseph Gardner(2) 20,000 2.8% $ 5.00 2/18/04 27,628 61,051
James Tillinghast(2) 45,000 6.4% $ 5.31 1/04/04 66,017 145,881
Kevin Sieck(2) 25,000 3.5% $ 5.00 3/15/04 34,535 76,314
</TABLE>
- - --------------------------
(1) Options were granted 2/18/99 and vest over a three-year period at a
rate of 50%, 25% and 25% respectively, per year, on the anniversary of the date
of grant.
(2) Options were granted 2/18/99, except for Mr. Tillinghast whose
options were granted 1/04/99,and vest 25% one year following the grant date and
the remainder on a pro rata monthly basis over the subsequent three years.
26
<PAGE>
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
The following table provides information on the value of the named
executive officers' unexercised options to purchase shares of Common Stock at
December 31, 1999.
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised Options at In-the-Money Options at
December 31, 1999 (#) December 31, 1999 ($)(1)
------------------------- -------------------------
Shares
Acquired on Value
Name Exercise(#) Realized Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Gerald Combs(2) $0 $0 205,000 150,000 $601,250 $518,750
Kenneth East 0 0 12,500 37,500 34,375 115,625
Jeffrey K. Moore(2) 0 0 50,000 50,000 137,500 168,750
Joseph Gardner 0 0 13,437 22,563 36,952 74,548
James Tillinghast 0 0 0 45,000 0 137,925
Kevin Sieck 0 0 0 25,000 0 84,375
</TABLE>
(1) The last sale price of the Company's Common Stock on December 31, 1999, as
reported by The American Stock Exchange, was $ 8.375.
(2) See "Certain Relationships and Related Transactions" for options granted in
1999 to Mr. Combs and Mr. Moore to purchase shares of common stock of the
Company's subsidiaries, Boundless Manufacturing and Merinta, which options
were exercised by Mr. Combs and Mr. Moore during 1999.
27
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's outstanding Common Stock as of March 2,
2000, by (i) each of the Company's directors and "named executive officers,"
(ii) directors and executive officers of the Company as a group and (iii) each
person believed by the Company to own beneficially more than 5% of its
outstanding shares of Common Stock. Except as indicated each such person has
sole voting and investment powers with respect to his and her shares. The
address of Morgan Kent Group is 145 West 57th Street, 19th Floor, New York, NY
10019. The address of Stephen Maysonave is 3300 Bee Cave Road, Suite 650-221,
Austin, TX 78746.
<TABLE>
<CAPTION>
Number of Shares Percentage of
Name of Beneficial Owner Beneficially Owned Outstanding Shares
- - ------------------------ ------------------ ------------------
<S> <C> <C>
Morgan Kent Group, Inc. 2,128,720(1) 43.0%
Stephen Maysonave, Voting Trustee 2,128,720(1)(2) 43.0%
Stephen Maysonave 78,750(3)(4) 1.7%
J. Gerald Combs 230,000(3) 4.9%
Gary Wood 18,750(3) *
Daniel Matheson 28,750(3) *
Jeffrey Moore 75,000(2)(3) 1.6%
Joseph Gardner 18,916(3) *
Kenneth East 19,375(3) *
James Tillinghast 13,125(3) *
Kevin Sieck 6,250(3) *
All current directors and executive
officers as a group
(seven individuals) 2,598,261(1)(3) 52.4%
- - --------------------------------
</TABLE>
* Less than 1%.
(1) Includes 457,502 shares underlying the warrants held by Morgan Kent Group
(the "Morgan Kent Group Warrants") to purchase shares of Common Stock at an
exercise price of $7.50 per share as to a warrant for 307,502 shares and at
an exercise price of $5.82 as to a warrant for 150,000 shares.
(2) Includes the shares beneficially owned by Morgan Kent Group, as a result of
Mr. Maysonave's beneficial ownership, as voting trustee, of 3,330,000
shares of Series B Preferred Stock of Morgan Kent Group (the "Series B
Preferred") pursuant to a voting trust expiring April 30, 2000. Under a
stockholders agreement, the Series B Preferred has the power to elect three
of the five directors constituting Morgan Kent Group's entire board of
directors which has the sole voting power and, with the stockholders of
Morgan Kent Group, shares the investment power with respect to the Common
Stock owned by Morgan Kent Group. The 3,330,000 shares constitute 51.2% of
the 6,500,000 outstanding shares of the Series B Preferred. Messrs. Jeffrey
K. Moore and Matthew R. Moore (the "Moore Brothers") together own a
majority of the outstanding shares of the Series B Preferred and a majority
of the shares in the voting trust, and, voting together, have the power
under the voting trust agreement to replace Stephen Maysonave as voting
trustee at any time for any reason. Each of the Moore Brothers disclaims
beneficial ownership of the other's shares of Morgan Kent Group's Series B
Preferred. There can no assurance that a change of control of the Company
will not occur as a result of (i) sales of Series B Preferred owned by the
Moore Brothers to achieve liquidity, or for any other reason, or (ii) sales
of the Company's Common Stock by Morgan Kent Group to fund other business
activities or investments or for any other reason.
(3) Includes or consists of shares of Common Stock issuable upon exercise of
options as follows: Mr. Combs: 230,000; Mr. Wood: 18,750; Mr. Matheson:
28,750; Mr. Moore: 75,000; Mr. Maysonave: 68,750; Mr. Gardner: 18,916; Mr.
East: 19,375; Mr. Tillinghast: 13,125; and Mr. Sieck: 6,250.
(4) Resigned as a Member of the Board of Directors of the Company effective
January 2000.
28
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April 1997, the Company agreed to pay Morgan Kent Group $20,000 per
month for financial consulting services which services the Company deemed
critical to its success. In October 1997 the Company prepaid this fee in the
amount of $380,000 and for 1998 recorded an expense of $240,000.
In connection with the Digital Acquisition in October 1995, Morgan Kent
Group pledged (the "Pledge") 2,143,938 shares of Common Stock to Chase and
500,000 shares of Common Stock to NCR. In consideration of such Pledge, the
Company had agreed to issue to Morgan Kent Group warrants to purchase such
number of shares of Common Stock at $38.75 per share, subject to adjustment, as
the Board of Directors of the Company determined was appropriate after obtaining
independent advice regarding the fairness of such warrants (a "fairness
opinion"). In December 1997, Morgan Kent Group accepted the Company's offer of
$300,000 in lieu of such warrants, an amount approved by the Board of Directors
after receiving quotations for the cost of a fairness opinion regarding the
value of such warrants and considering the expense of preparing and delivering
an information statement to shareholders prior to issuing such warrants. The
Company paid this obligation during the first quarter of 1998. The Pledge to
Chase was terminated December 1997.
The Company and Morgan Kent Group had anticipated that the operating
results of the Company, as a result of the Digital Acquisition, would enable the
Company to meet its covenants under the Chase Credit Line and terminate the
Chase portion of the Pledge by November 1996. The Company did not achieve the
operating results necessary to release Morgan Kent Group from the Pledge to
Chase and, as a result, the Company agreed to pay Morgan Kent Group, effective
January 1, 1997, an asset utilization fee of $17,500 per month for each month,
or part thereof, that the Pledge, either to Chase or NCR, remains in effect. For
1999 such fees amounted to $52,500. The Pledge to Chase was cancelled December
1997. The Pledge to NCR was cancelled January 1999.
In May 1998 the Company repurchased 600,000 shares of the Company's
then outstanding Common Stock from Morgan Kent Group at $5.00 per share, or
approximately 14% below the closing market price on May 15, 1998 as reported on
the NASDAQ SmallCap Market. The Company repurchased these shares to reduce the
voting power of Morgan Kent Group from approximately 51% to 45% and to set aside
shares enabling the Company to issue up to 600,000 shares of its Common Stock in
acquisitive transactions without diluting public shareholders. As an inducement
to the repurchase transaction, the Company issued a warrant to Morgan Kent Group
to purchase 150,000 shares of the Company's Common Stock at an exercise price of
$5.80 per common share. The warrant is exercisable immediately and has a term of
seven years. The Company recorded an expense of $300,000 relating to the
issuance of the warrant.
Mr. Maysonave, a member of the Board of Directors was granted options
on February 18, 1999, to purchase 15,000 shares of Common Stock at $5.00 per
share that expire in February 2004. The options vest over a four-year period as
follows- 25% following the first anniversary of the date of grant and pro rata
over the remaining three-year period. The options granted to Mr. Maysonave were
for consulting services provided to the Company, and the Company recorded an
expense of $40,000 related to the grant. On September 17, 1999, Mr. Maysonave
was granted 15,000 options to purchase shares of Common Stock at $4.125 per
share that expire September 2004. The 15,000 options were granted for services
Mr. Maysonave provided as a consultant to the Company and vested immediately on
the date of grant. The Company recorded an expense of $25,000 relating to the
grant of the 15,000 options. In addition, the Company recorded as expense
$150,000 paid to Mr. Maysonave relating to Mr. Maysonave's consulting services
to the Company throughout 1999.
In December 1998 the Company repurchased 110,620 shares of the
Company's then outstanding Common Stock from Morgan Kent Group at $4.52 per
share, or approximately 20% below the average of the preceding five day trading
close as reported on the NASDAQ SmallCap Market.
During April 1999 the Company entered into a one-year consulting
agreement with CrossRoads Capital Corporation ("CrossRoads") to render to the
Company financial advisory and investment banking services. CrossRoads is
29
<PAGE>
headed by Mr. Fred Schulman, President, who also is President of the Morgan Kent
Group. Fees associated with the services provided by CrossRoads amount to
$10,000 per month. During March 2000 the consulting agreement was extended for
an additional one-year period.
In 1999 Morgan Kent paid the Company $2,000 in interest accruing on a
$50,000 loan from the Company to Morgan Kent. The note evidencing the loan and
originally due and payable July 1999 was extended to July 2000.
During 1999, Boundless Manufacturing issued shares of its common stock
as follows: 400 shares (12.5% of the outstanding) to each of Joseph Joy and
Anthony Giovaniello for $5.00 per share, 320 shares (10% of the outstanding) to
each of J. Gerald Combs and Jeffrey Moore upon their exercise of employee stock
options at an exercise price of $5.50 per share, and 1,760 shares (55% of the
outsanding) to the Company. Pursuant to their employment agreements, Mr. Joy and
Mr. Giovaniello will have the option, upon the attainment of certain defined
performance standards, to convert their shares of Boundless Manufacturing into
up to an aggregate of 300,000 shares of the Company's Common Stock. See
"Executive Compensation Employment Agreements and Change-in-Control
Arrangements" for terms of Boundless' employment agreements with Messrs. Joy and
Giovaniello. The Company has allocated 160 shares of its Boundless Manufacturing
common stock for future issuance under Boundless Manufacturing's incentive plan.
During 1999, Merinta adopted an incentive plan and reserved 30% of its
common stock for issuance under the plan. Each of Mr. Combs and Mr. J. Moore in
1999 exercised Merinta employee stock options previously issued to him and, as a
result, each was issued shares representing 6.5% of Merinta's outstanding common
stock. Boundless Manufacturing and Merinta received third party fairness
opinions before granting options to Messrs. Combs and Moore.
PART IV
<TABLE>
<CAPTION>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K Page No.
--------------------------------------------------------------- --------
<S> <C> <C>
(a) (1)(2) Financial Statements and Schedules
Index to Financial Statements F-1
</TABLE>
All other financial statements and schedules not listed have been
omitted since the required information is either included in the
Financial Statements and the Notes thereto as included in the Company's
Annual Report on Form 10-K for the Year ended December 31, 1999 or is
not applicable or required.
(3) The exhibits listed in the exhibit index attached to this
Report are filed as part of this Report.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the fourth
quarter of 1999.
30
<PAGE>
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.
Date: March 29, 2000
BOUNDLESS CORPORATION
By: /s/
--------------------------------
J. Gerald Combs
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>
<S> <C> <C>
/s/ Chairman of the Board of Directors, Chief March 29, 2000
- - ------------------------------------ Executive Officer
J. Gerald Combs
/s/ Vice President - Finance, Chief Financial March 29, 2000
- - ------------------------------------ Officer (Principal Accounting Officer)
Joseph Gardner
/s/ Vice President, Director March 29, 2000
- - ------------------------------------
Jeffrey K. Moore
/s/ Director March 29, 2000
- - ------------------------------------
Daniel Matheson
/s/ Director March 29, 2000
- - ------------------------------------
Gary Wood
</TABLE>
31
<PAGE>
EXHIBIT INDEX
Exhibit No.* Description of Exhibit
<TABLE>
<S> <C>
3.1[3] Certificate of Incorporation of Registrant and Certificates of Amendment thereto.
3.2[2] By-Laws of Registrant
10(a)[1] Lease, dated August 22, 1994, between International Software Systems, Inc. and SunRiver
Corporation (now Morgan Kent Group, Inc.) of the premises located at Suite 201,
Building IV, 9430 Research Blvd. Austin, Texas. (Originally filed as exhibit
10(e).)
10(b) Registrant's 1995 Incentive Plan (Incorporated by reference to and filed as Exhibit E to
Registrant's Information Statement, dated September 28, 1995).
10(c) Registrant's 1997 Incentive Plan (Incorporated by reference to and filed as Exhibit A to
Registrant's Information Statement, dated March 6, 1998).
10(d)[4] Employment Agreement, dated June 1, 1998, among the Registrant, Boundless Technologies,
Inc. and J. Gerald Combs (Originally filed as Exhibit 10(aa)).
10(e)[4] Employment Agreement, dated February 9, 1998, among the Registrant, Boundless Technologies,
Inc. and Kenneth East (Originally filed as Exhibit 10(bb)).
10(f)** Employment Agreement, dated July 1, 1999, among Registrant, Boundless Manufacturing
Services, Inc. and Joseph Joy.
10(g)** Employment Agreement, dated July 1, 1999, among Registrant, Boundless Manufacturing
Services, Inc. and Anthony Giovaniello.
10(h)[5] Amended and Restated Credit Agreement and Guaranty (plus exhibits thereto) dated as of
April 14, 1999 among Boundless Technologies, Inc. as borrower, Boundless
Acquisition Corp. and Boundless Corporation, as guarantors, and The Chase
Manhattan Bank, Silicon Valley Bank and National Bank of Canada as the Banks.
(Originally filed as exhibit 10(a)).
10(i)[5] Common Stock Purchase Warrant dated as of April 14, 1999 issued to Chase Manhattan Bank for
the purchase of up to 50,000 shares of the Registrant's common stock (Originally filed
as exhibit 10(b)).
10(j)[6] Restatement, Extension, Assumption and Modification Agreement, dated June 24, 1999, between
Boundless Technologies, Inc. and Independence Community Bank (Originally filed as
Exhibit 10(a)).
10(k)[6] Restated Business Installment Promissory Note, dated June 24, 1999, from Boundless
Technologies, Inc. to Independence Community Bank (Originally filed as Exhibit
10(b)).
</TABLE>
E-1
<PAGE>
Exhibit No.* Description of Exhibit
<TABLE>
<S> <C>
10(l)[6] Restated Mortgage and Security Agreement, dated June 24, 1999, between Boundless
Technologies, Inc. and Independence Community Bank (Originally filed as Exhibit
10(c)).
10(m)** Agreement, dated September 30, 1999, between General Automation, Inc. and Boundless
Technologies, Inc. relating to settlement of obligations and the transfer of
interests in General Automation LLC.
10(n)** Promissory Note, dated September 30, 1999, in the amount of $250,000 from General
Automation, Inc. to Boundless Technologies, Inc.
10(o)** Promissory Note, dated September 30, 1999, in the amount of $500,000 from General
Automation, Inc. to Boundless Technologies, Inc.
10(p)** Form of Secured Convertible Promissory Note from General Automation, Inc. to Boundless
Technologies, Inc.
10(q)** Form of Warrant from General Automation, Inc. to Boundless Technologies, Inc.
11** Statement re Computation of Per Share Earnings. See Consolidated Financial Statements.
21** List of Subsidiaries
23** Consent of BDO Seidman, LLP.
27** Financial Data Schedule.
<CAPTION>
- - ------------------------
* Numbers inside brackets indicate documents from which exhibits have been incorporated by
reference. Unless otherwise indicated, documents incorporated by reference refer to the
identical exhibit number in the original documents from which they are being incorporated.
** Filed herewith.
[1] Incorporated by reference to Registrant's Annual Report on Form 10-K
for the transition period July 1 through December 31, 1994.
[2] Incorporated by reference to Registrant's Registration Statement on Form S-18 (File No.
33-32396-NY).
[3] Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997.
</TABLE>
E-2
<PAGE>
Exhibit No.* Description of Exhibit
<TABLE>
<S> <C>
[4] Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998.
[5] Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999.
[6] Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended July 30, 1999.
</TABLE>
E-3
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
INDEX TO FINANCIAL STATEMENTS
Reports of Independent Certified Public Accountants F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Operations
for the years ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows
for the years ended December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-8
Schedule I - Condensed Financial Information of Registrant
(Parent Company)
Condensed Balance Sheets as of December 31, 1999 and 1998 S-1
Condensed Statements of Operations
for the years ended December 31, 1999, 1998 and 1997 S-2
Condensed Statements of Cash Flows
for the years ended December 31, 1999, 1998 and 1997 S-3
Schedule II - Valuation and Qualifying Accounts S-4
F-1
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Boundless Corporation
Hauppauge, New York
We have audited the accompanying consolidated balance sheets of Boundless
Corporation and Subsidiaries as of December 31, 1999 and 1998 and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1999. We have also audited the
schedules listed in the index on page F-1 of this Form 10-K. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules 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 and schedules are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedules. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Boundless
Corporation and Subsidiaries as of December 31, 1999 and 1998 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
Also, in our opinion, the schedules present fairly, in all material respects,
the information set forth therein.
BDO Seidman, LLP
Melville, New York
February 11, 2000
F-2
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
ASSETS
<CAPTION>
December 31,
--------------------------------
1999 1998
--------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,285 $ 732
Trade accounts receivable, net 12,378 13,274
Income tax refunds 833 1,905
Inventories (Note 4) 13,751 12,565
Deferred income taxes (Note 6) 2,576 2,470
Prepaid expenses and other current assets 1,039 462
-------------- ----------
Total current assets 31,862 31,408
Property and equipment, net (Note 5) 10,987 10,251
Goodwill, net (Note 2) 6,272 7,350
Other assets (Note 3) 1,339 339
-------------- -----------
$ 50,460 $ 49,348
============== ===========
LIABILITIES, REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 7) $ 1,650 $ 8,000
Accounts payable 6,148 6,817
Accrued expenses 5,565 7,074
Deferred revenue 557 116
-------------- -----------
Total current liabilities 13,920 22,007
-------------- -----------
Long-term liabilities:
Long-term debt, less current maturities (Note 7) 14,206 5,500
Deferred income taxes (Note 6) 281 1,002
Other 638 627
-------------- -----------
Total long-term liabilities 15,125 7,129
-------------- -----------
Total liabilities 29,045 29,136
-------------- -----------
Commitments and contingencies (Notes 1 and 12)
Mandatorily redeemable preferred stock of subsidiary - 3,555
-------------- -----------
Stockholders' equity (Note 8):
Preferred stock - -
Common stock 45 44
Additional paid-in capital 32,508 30,940
Accumulated deficit (11,138) (14,327)
--------------- -----------
Total stockholders' equity 21,415 16,657
--------------- -----------
$ 50,460 $ 49,348
=============== ===========
The accompanying notes are an integral part of
these consolidated financial statements
F-3
</TABLE>
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31,
(in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
Revenue:
Product sales $ 78,027 $ 87,774 $ 94,607
Services 2,483 2,428 3,664
--------------- -------------- --------------
Total revenue 80,510 90,202 98,271
--------------- -------------- -------------
Cost of revenue:
Product sales 55,126 62,267 71,477
Services 1,572 1,936 2,028
--------------- -------------- --------------
Total cost of revenue 56,698 64,203 73,505
--------------- -------------- --------------
Gross margin 23,812 25,999 24,766
--------------- -------------- --------------
Operating expenses:
Sales and marketing 10,292 8,308 7,417
General and administrative 6,979 5,845 6,213
Research and development 5,908 3,666 2,912
Other charges (credits) (Note 3) (3,711) (16) (255)
--------------- -------------- --------------
Total operating expenses 19,468 17,803 16,287
--------------- -------------- --------------
Operating income 4,344 8,196 8,479
Interest expense, net 1,438 2,539 3,730
--------------- -------------- --------------
Income before income taxes 2,906 5,657 4,749
Income tax (credit) expense (333) 749 (134)
--------------- -------------- --------------
Net income 3,239 4,908 4,883
Dividend on preferred stock of subsidiary 50 497 497
--------------- -------------- --------------
Net income available for common
stockholders $ 3,189 $ 4,411 $ 4,386
=============== ============== ==============
Weighted average common shares outstanding 4,438 4,893 4,925
=============== ============== ==============
Basic net income per common share $ 0.72 $ 0.90 $ 0.89
=============== ============== ==============
Net income available for common
stockholders adjusted for income
impact of assumed conversions $ 3,189 $ 4,411 $ 4,426
=============== ============== ==============
Weighted average dilutive shares
outstanding 4,490 4,926 5,103
=============== =============================
Diluted net income per common share $ 0.71 $ 0.90 $ 0.86
=============== ============== ==============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
F-4
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Common Stock Additional
---------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------------ --------- ------------ -------------- --------------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 4,857 $ 49 $ 31,877 $ (23,124) $ 8,802
Conversion of notes payable, net of expenses 218 2 1,520 1,522
Options and warrants issued for
services to non-employees 63 63
Stock options exercised 16 116 116
Dividend on preferred stock of subsidiary 35 497 (497) -
Warrants exercised 13 21 21
Net income 4,883 4,883
------------------------------------------------------------------
Balance, December 31, 1997 5,139 51 34,094 (18,738) 15,407
Common stock repurchased and retired (710) (7) (3,493) (3,500)
Options and warrants issued for
services to non-employees 339 339
Dividend on preferred stock of subsidiary (497) (497)
Net income 4,908 4,908
------------------------------------------------------------------
Balance, December 31, 1998 4,429 44 30,940 (14,327) 16,657
Stock options exercised 25 1 163 164
Options and warrants issued for
services to non-employees 504 504
Tax benefit related to employee stock options 901 901
Dividend on preferred stock of subsidiary (50) (50)
Net income 3,239 3,239
------------------------------------------------------------------
Balance, December 31, 1999 4,454 $ 45 $ 32,508 $ (11,138) $ 21,415
==================================================================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
F-5
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
(in thousands)
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1999 1998 1997
------------- ------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,239 $ 4,908 $ 4,883
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,111 3,293 3,725
Loss from disposal of assets 59 160 -
Credit from sale of partnership (2,324) - -
Change in deferred revenues 441 (64) -
Provision (credit) for doubtful accounts 380 216 (20)
Provision (credit) for excess and obsolete inventory 340 808 (595)
Options and warrants issued for services 504 339 -
Deferred taxes (827) (1,338) -
Changes in assets and liabilities:
Trade accounts receivable 516 (201) 6,872
Income tax refunds 1,072
Inventories (1,526) 310 5,438
Other assets (539) 80 (470)
Accounts payable and accrued expenses (1,266) (553) (3,145)
------------- ------------- ------------
Net cash:
Provided by continuing operations 2,180 7,958 16,688
Used in discontinued operations - (4) (3,492)
------------- ------------- ------------
Net cash provided by operating activities 2,180 7,954 13,196
Cash flows from investing activities:
Capital expenditures (1,023) (754) (247)
Proceeds from sale of partnership 1,500 - -
------------- ------------- ------------
Net cash provided by (used in) investing activities 477 (754) (247)
------------- ------------- ------------
Cash flows from financing activities:
Payment of mandatorily redeemable preferred stock (3,555) - -
Proceeds from exercise of employee stock options 164 - 136
Net proceeds from issuance of long-term debt 10,412 - 1,700
Purchase and retirement of common stock - (3,500) -
Payments on loans payable and capital leases (9,075) (5,400) (16,432)
Payment of preferred stock dividend (50) (497) (637)
------------- ------------- ------------
Net cash (used in) financing activities (2,104) (9,397) (15,233)
------------- ------------- ------------
Net increase (decrease) in cash and cash equivalents 553 (2,197) (2,284)
Cash and cash equivalents at beginning of year 732 2,929 5,213
------------- ------------- ------------
Cash and cash equivalents at end of year $ 1,285 $ 732 $ 2,929
============= ============= ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
F-6
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
For the Years Ended
(in thousands)
<TABLE>
<CAPTION>
December 31,
--------------------------------------------
1999 1998 1997
------------- ------------- ----------------
<S> <C> <C> <C>
Non-cash transactions:
Dividend on Preferred Stock of Subsidiary $ - $ - $ 497
Conversion of notes payable to common stock - - 1,700
Options, warrants and common stock issued for services 504 339 63
Equipment acquisitions funded through capital leases 681 - -
Cash paid for:
Interest 1,442 2,200 2,742
Taxes 501 1,194 634
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements
F-7
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(In thousands, except per share data)
1. Background
Boundless Corporation (the "Company") is engaged, through its subsidiary,
Boundless Technologies, Inc. ("Boundless"), in designing and manufacturing
computer terminals and network computers for business use. The Company's general
strategy is to provide highly efficient, low cost access to corporate computing
environments, including client/server, mainframes, LANS, WANS, intranets and the
Internet.
The Company entered into the General Display Terminal and high resolution, high
performance desktop graphics display terminals ("Network Graphics Displays")
businesses in December 1994 when the Company, through its wholly owned
subsidiary, Boundless Acquisition Corp. ("Acquisition"), purchased Applied
Digital Data Systems, Inc. ("ADDS") from NCR Corporation ("NCR"), (the
"Boundless Acquisition"). ADDS, renamed in 1996 to Boundless Technologies, Inc.
had been a supplier of general purpose desktop display terminals worldwide under
either the customer's or ADDS trademark. Simultaneously, with the Company's
acquisition of ADDS, the Company acquired all of the assets and business of
SunRiver Group, Inc. (the "SunRiver Group Acquisition"). Prior thereto, SunRiver
Group, Inc. ("SunRiver Group") had been engaged, for more than nine years, in
the development and manufacture of software and hardware for MultiConsole
Terminals. SunRiver Group, subsequently renamed Morgan Kent Group, Inc. ("Morgan
Kent Group") was a pioneer in the development of high-speed MultiConsole
Terminals for open system, multi-user platforms. In October 1995, Boundless
acquired (the "Digital Acquisition") assets relating to the General Display
Terminal products of Digital Equipment Corporation ("Digital") sold under the
"VT" and "Dorio" brands (excluding the VT 400 Series). A partnership formed in
May 1995 by Boundless and General Automation, Inc. ("GA"), and managed by GA,
designs, integrates, sells and supports multi-user computer systems that can
manage large volumes of data running Boundless' and GA's version of the database
system licensed from Pick Systems.
In April 1995, the Company, through OTW Corporation ("OTW"), formerly TradeWave
Corporation, had been engaged in the business of developing and selling Internet
software and value-added services which enabled businesses to conduct private,
secure communication and electronic commerce transactions over the Internet.
During December 1996, the Company discontinued the operations of OTW and, during
the first quarter of 1997 finalized the discontinuation with the sale of certain
assets of OTW to a company for a combination of cash, a royalty on future
revenue and the assumption of certain liabilities.
On September 23, 1999, the Company announced the creation of a new subsidiary,
Boundless Manufacturing Services, Inc. ("Boundless Manufacturing"), which will
pursue opportunities in the electronic manufacturing services ("EMS")
marketplace. Boundless Manufacturing will utilize the Company's state-of-the-art
ISO 9002 certified manufacturing facility in Hauppauge and acquire additional
manufacturing facilities as the business expands. Services include supply chain
optimization, global supply base management, systems assembly and test,
distribution and logistics, repair centers and end-of-life management. Boundless
Manufacturing also offers in-house engineering expertise- product design, test
development, product development- to significantly reduce time-to-market for OEM
customers. Boundless Manufacturing will provide a complete supply chain that is
designed and built to each customer's specifications.
On January 12, 2000, the Company announced the creation of a new subsidiary,
Merinta, a provider of enabling software and technologies for Internet
appliances ("IA"). Merinta will develop solutions to offer end-users an easy,
enjoyable and visually rich Internet browsing experience while providing
companies with a revolutionary way to market and grow online business. Merinta
will initially market and sell hardware, software and services to corporations
including financial services institutions, service providers, and
telecommunications companies allowing these companies to provide their best
customers with a customized IA solution that should increase brand awareness,
customer loyalty and retention as well as decrease costs for acquiring
customers. Merinta will license the software on a variety of operating systems-
including Linux and Microsoft Windows CE. Complimentary services will be offered
to other consumer device manufacturers, accelerating the IA market for these
organizations.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, after elimination of intercompany accounts and
transactions. Certain reclassifications have been made to prior years' financial
statements to conform to the current year presentation.
Cash and Cash Equivalents
All highly liquid investments with original maturities at purchase of three
months or less are considered cash equivalents.
F-8
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(In thousands, except per share data)
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed on the
straight-line method over the estimated useful lives of the assets. Buildings
and improvements are depreciated over a 25-year period, and machinery and
equipment are depreciated over periods ranging from 2 to 15 years. Expenditures
that increase the value or extend the life of an asset are capitalized, while
costs of maintenance and repairs are expensed as incurred. Gains or losses upon
disposal of assets are recognized in income.
Long-Lived Assets
In accordance with Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," management reviews long-lived assets and intangible assets for
impairment whenever events or changes in circumstances indicate the carrying
amount of an asset may not be fully recoverable. As part of the assessment,
management considers undiscounted cash flows for each product that has
significant long-lived or intangible asset values associated with it. As of
December 31, 1999 management does not believe there is any indication of
impairment.
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents and long-term debt reported on
the balance sheets approximate their fair value. The Company estimated the fair
value of long-term debt by comparing the carrying amount to the future cash
flows of the instrument, discounted using the Company's incremental rate of
borrowing for a similar instrument.
Revenue Recognition
The Company recognizes revenue from product sales upon shipment to the customer.
A provision for estimated future returns and potential warranty liability is
recorded at the time revenue is recognized. The Company has recorded an
allowance for doubtful accounts of $627 and $489 as of December 31, 1999 and
1998, respectively. Service revenue is recognized when services are performed
and billable. Revenue from maintenance and extended warranty agreements are
deferred and recognized ratably over the term of the agreement. The Company had
revenue from one customer representing 15% of total revenues in both 1999 and
1998 and 16% in 1997.
Concentration of Credit Risk
The Company is required by SFAS No. 105, "Disclosure of Information about
Financial Instruments with Concentrations of Credit Risk," to disclose
concentrations of credit risk regardless of the degree of such risk. The
Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company's cash policy limits credit exposure; however, for
limited periods of time during the year bank balances may exceed the FDIC
insurance coverage. The Company routinely assesses the financial strength of its
customers and as a consequence, believes that its accounts receivable credit
risk exposure is limited. No collateral is required. The Company extends credit
in the normal course of business to a number of distributors and value-added
resellers in the computer industry.
Advertising
Advertising costs are expensed as incurred. The amount charged to advertising
expense was $2,140, $2,476 and $1,826 for the years ended December 31, 1999,
1998 and 1997.
Goodwill
Goodwill represents the excess of the purchase price and related direct costs
over the fair value of net assets acquired as of the date of the acquisition.
Goodwill is amortized on a straight-line basis over 10 years. Amortization of
goodwill amounted to $1,078 for the years ended December 31, 1999, 1998 and
1997.
Net Income Per Common Share
Net income available for common stockholders includes the effects of preferred
stock dividends of a subsidiary.
SFAS No. 128, "Earnings Per Share" requires a reconciliation of the numerator
and denominator of the basic net income per share computation to the numerator
and denominator of the diluted net income per share computation, which is as
follows:
F-9
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1999
--------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net income $3,239
Preferred stock dividends (50)
-----------------
Basic net income per share:
Income available to common shareholders 3,189 4,438 $0.72
=================
Effect of dilutive securities:
options and warrants - 52
convertible notes - -
----------------- ----------------- -----------------
Diluted net income per share:
Income available to common shareholders
plus assumed conversions $3,189 4,490 $0.71
================= ================= =================
For the Year Ended December 31, 1998
--------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------------- ----------------- -----------------
Net income $4,908
Preferred stock dividends (497)
-----------------
Basic net income per share:
Income available to common shareholders 4,411 4,893 $0.90
=================
Effect of dilutive securities:
options and warrants - 33
--------------- ---------------
Diluted net income per share:
Income available to common shareholders
plus assumed conversions $4,411 4,926 $0.90
================= ================= =================
For the Year Ended December 31, 1997
--------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------------- ----------------- -----------------
Net income $4,883
Preferred stock dividends (497)
-----------------
Basic net income per share:
Income available to common shareholders 4,386 4,925 $0.89
=================
Effect of dilutive securities:
options and warrants - 101
convertible notes 40 77
----------------- -----------------
Diluted net income per share:
Income available to common shareholders
plus assumed conversions $4,426 5,103 $0.86
================= ================= =================
</TABLE>
F-10
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(In thousands, except per share data)
Options to purchase 1,284,759 shares of common stock at a weighted average price
of $8.10 per share were not included in the computation of diluted net income
per share in 1999 because the options' exercise price was greater than the
average market price of the common shares. The options, which range in
expiration date from January 2000 to December 2004, were still outstanding at
December 31, 1999.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
As more fully discussed in Note 6, income taxes are provided in accordance with
the liability method of accounting for income taxes pursuant to SFAS No. 109.
Accordingly, deferred income taxes are recorded to reflect the future tax
consequences of differences between the tax basis of assets and liabilities and
their financial amounts at year-end.
Stock Based Compensation
The Company accounts for stock options and warrants issued to employees in
accordance with APB 25 "Accounting for Stock Issued to Employees." The Company
follows SFAS No. 123 "Accounting for Stock Based Compensation" for financial
statement disclosure purposes and issuances of options and warrants to
non-employees for services rendered.
Comprehensive Income
The Company has no material components of other comprehensive income and
accordingly, net income approximates comprehensive income for all periods
presented.
New Accounting Standard
SFAS No.133, "Accounting for Derivative Instruments and Hedging Activities"
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for all fiscal quarters of fiscal years beginning after June 15, 2000. The
Company is assessing the impact that the adoption of SFAS No. 133 will have, if
any, on its consolidated financial statements.
3. GAI Partnership
On September 30, 1999, the Company sold the entirety of its interest in the GAI
Partnership to GA for $1,500 in cash, 1,133,333 shares of GA common stock,
notes, and warrants to purchase shares of GA common stock. GA was in default of
material obligations under the partnership agreement, including payment of past
due royalties and other fees, which totaled $2,468 as of December 31, 1998. The
Company reserved against all outstanding receivables during 1997, and, since
that time, has recorded revenue attributable to the partnership on a cash basis
only. The Company recorded income of $2,324 relating to the sale after having
received a third-party valuation assessment of the value of the securities and
convertible debt components of the settlement. The value of debt and equity
securities, reported as a long-term asset, at December 1999 was $824. Had the
securities received from GA been unrestricted, the market value, as of December
31, 1999 would have been $708.
4. Inventories
Inventories are stated at the lower of cost or market. Cost is determined on a
first-in first-out basis.
The major components of inventories are as follows:
F-11
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(In thousands, except per share data)
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Raw materials and purchased components $ 11,620 $ 10,264
Finished goods 1,719 1,915
Demonstration equipment 51 71
Service parts 361 315
------------------ ------------------
$ 13,751 $ 12,565
================== ==================
</TABLE>
5. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Land $ 3,780 $ 3,780
Buildings and improvements 6,338 6,271
Machinery and equipment 6,239 5,470
------------------ ------------------
16,357 15,521
Less accumulated depreciation and amortization 5,370 5,270
------------------ ------------------
$ 10,987 $ 10,251
================== ==================
</TABLE>
6. Income Taxes
The provision for income taxes consisted of the following for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ------------------ ------------------
<S> <C> <C> <C>
Current:
Federal $ 221 $ 1,599 $ (347)
State 273 618 213
----------------- ------------------ ------------------
494 2,217 (134)
----------------- ------------------ ------------------
Deferred:
Federal (869) (1,248) -
State 42 (220) -
----------------- ------------------ ------------------
(827) (1,468) -
----------------- ------------------ ------------------
$ (333) $ 749 $ (134)
================= ================== ==================
</TABLE>
The provision for income taxes differs from the amount of income tax determined
by applying the statutory federal income tax rate to operations before income
taxes as a result of the following:
F-12
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(In thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ------------------ ------------------
<S> <C> <C> <C>
Federal income tax at statutory rate $ 988 $ 1,923 $ 1,615
Utilization of prior year net operating
loss carryforwards - (531) (1,481)
State income taxes, net of federal income tax benefit 180 379 278
Reversal of prior year overaccruals (410) - -
Adjustment of deferred taxes as a result of tax
examinations (1,121) - -
Other, net 30 37 754
Change in valuation allowance on deferred
tax assets - (1,059) (1,300)
----------------- ------------------ ------------------
Income tax expense (benefit) $ (333) $ 749 $ (134)
================= ================== ==================
</TABLE>
The components of the net deferred tax assets and liabilities were as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1999 1998
----------------- ------------------
<S> <C> <C>
Current deferred tax assets:
Inventory $ 1,701 $ 1,340
Accounts receivable 238 186
Warranties 637 814
Other - 130
----------------- ------------------
Total current deferred tax assets $ 2,576 $ 2,470
================= ==================
Noncurrent deferred tax assets - Goodwill
and other $ 821 $ 448
Noncurrent deferred tax liabilities - Property
and equipment (1,102) (1,450)
----------------- ------------------
Net noncurrent deferred tax liabilities $ (281) $ (1,002)
================= ==================
</TABLE>
7. Debt
Notes Payable
Notes payable were $5,500 at December 31, 1999 and 1998, under a $15,000
revolving credit agreement with Chase Manhattan Bank for loans and letters of
credit. There was a letter of credit outstanding totaling $2,957 and $1,000 at
December 31, 1999 and 1998 respectively. Borrowing under the Revolving Loan is
based on a borrowing base formula of up to 80% of eligible receivables, plus 50%
of delineated eligible inventory, plus 30% of non-delineated eligible inventory.
The maximum amount of additional credit available under the revolving loan at
December 31, 1999 and December 31, 1998 was $2,043 and $6,045.
At the option of the Company, the interest rate is prime plus 1.25% or LIBOR
plus 2.5% (8.7% at December 31, 1999).
At December 31, 1999, the Company had in place interest rate swap agreements in
the amount of $7,000 at an effective average interest rate of 8.66%.
The commitment fee is 0.5% per year on the average daily unused principal
balance of the revolving loan and the outstanding letters of credit. The
weighted average interest rate on short-term borrowings was 9.1%, 9.1% and
10.25% for the years ended December 31, 1999, 1998 and 1997, respectively.
F-13
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(In thousands, except per share data)
Long-term Debt
Long-term debt at December 31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
<S> <C> <C>
Note payable to Independence Community Bank, bearing interest
at 7.75% payable monthly, balloon payment of $5,417 due on
or before July 1, 2009, collateralized by land and building $ 6,713 $ -
Note payable to NCR, bearing interest at 8% payable
quarterly, principal due on or before June 15, 1999,
collateralized by land and building - 8,000
Term loan 3,000
Revolving loan 5,500 5,500
Capital lease obligation 643 -
------------------ ------------------
15,856 13,500
Less current maturities on long-term debt 1,650 8,000
------------------ ------------------
$ 14,206 $ 5,500
================== ==================
</TABLE>
Boundless is prohibited from declaring or paying dividends on its stock, or
redeeming or otherwise acquiring any class of capital stock during the term of
the Chase agreement without obtaining bank approval. The maximum aggregate
amount that Boundless may loan or advance to the Company in a fiscal year is
$500 less the total cash dividend Boundless paid to the Company in that year.
The term and revolving loan agreement requires the Company to make contingent
payments on the term loan should the Company obtain financing above a certain
level by issuing stock.
Aggregate debt scheduled maturities at December 31, 1999 were as follows:
2000 $ 1,650
2001 1,664
2002 6,140
2003 120
2004 129
2005-2009 6,153
-----------------
$ 15,856
=================
8. Equity
At December 31, 1999 and 1998, stockholders' equity consisted of the following:
F-14
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(In thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998
------------------ ------------------
<S> <C> <C>
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, none issued $ - $ -
Common stock, $0.01 par value, 25,000,000 shares
authorized, 4,457,662 and 4,428,609 shares issued
at December 31, 1999 and 1998, respectively 45 44
Additional paid-in capital 32,508 30,940
Accumulated deficit (11,138) (14,327)
------------------ ------------------
Total stockholders' equity $ 21,415 $ 16,657
================== ==================
</TABLE>
9. Options and Warrants
On March 6, 1998, the Company filed an Information Statement on Schedule 14C
with the Securities and Exchange Commission in connection with, amongst other
items, the Board of Directors of the Company approving the Company's 1997
Incentive Plan permitting the grant of stock options, stock appreciation rights,
performance shares, stock awards, stock units and incentive awards to employees,
directors and others.
The Company had previously adopted its 1995 Incentive Plan which permitted up to
600,000 shares of Common Stock to be issued thereunder. As additional shares
were no longer available to be issued under the 1995 Incentive Plan, the Board
adopted the 1997 Incentive Plan. The maximum number of shares to be issued under
the 1997 Incentive Plan is not to exceed 1,000,000. The exercise price of each
option granted is to be equal to or greater than the market price of the
Company's stock on the date of grant. The terms of the options are generally
over five years with vesting occurring in 25% increments beginning one year
after the grant date.
Prior to the 1995 Plan, the Company had adopted the 1991 Employee and Director
Stock Option Plan (the "1991 Plan"). After the adoption of the 1995 Plan, the
Company amended the 1991 Plan, eliminating any further grants of options under
the 1991 Plan. As of December 31, 1999 there were 95,250 fully vested options
under the 1991 Plan outstanding, expiring in June 2002.
The Company has elected to continue to account for stock options issued to
employees in accordance with APB 25, "Accounting for Stock Issued to Employees".
During the years ended December 31, 1999, 1998 and 1997, all options issued to
officers and employees were granted at an exercise price which equaled or
exceeded the market price per share at the date of grant and accordingly, no
compensation was recorded.
The Company follows the disclosure requirements of FASB Statement 123,
"Accounting for Stock-Based Compensation". This statement requires the Company
to provide pro forma information regarding net income applicable to common
stockholders and net income per share as if compensation cost for the Company's
employee stock options granted had been determined in accordance with the fair
value based method prescribed in SFAS No. 123. The Company estimates the fair
value of each stock option at the grant date by using the Black-Scholes option
pricing model with the following weighted average assumptions used for grants in
1999, 1998 and 1997 as follows:
1. Dividend yield of 0% for all years
2. Expected volatility ranging from 50% to 59%
3. Risk-free interest rates ranging from 4.58% to 6.72%
4. Expected terms ranging from 1 to 5 years.
Under the accounting provisions of SFAS No. 123, the Company's net income
applicable to common stockholders and net income per share would have been
increased to the pro forma amounts indicated below:
F-15
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(In thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ------------------ ------------------
<S> <C> <C> <C>
Net income applicable to common shareholders
As reported $ 3,189 $ 4,411 $ 4,386
Under SFAS No. 123 2,315 3,394 2,269
Net income per share
As reported - basic $ 0.72 $ 0.90 $ 0.89
As reported - diluted 0.71 0.90 0.86
Under SFAS No. 123 - basic 0.52 0.69 0.46
Under SFAS No. 123 - diluted 0.51 0.69 0.44
</TABLE>
A summary of the status of the Company's stock options and warrants as of
December 31, 1999 and 1998, and changes during the years ending on those dates
is presented below:
F-16
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(In thousands, except per share data)
<TABLE>
<CAPTION>
Options
- - -------- 1999 1998
---------------------------------- --------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------------- --------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 923,716 $ 8.26 698,798 $ 11.98
Granted 705,360 5.13 723,885 5.51
Exercised (29,053) (5.60) - -
Forfeited (204,258) (15.30) (498,967) (9.53)
------------------- -------------- ------------------- ------------------
Outstanding at end of year 1,395,765 $ 5.70 923,716 $ 8.26
=================== ============== =================== ==================
Options exercisable at end of year 661,563 $ 6.47 617,131 $ 9.80
=================== ============== =================== ==================
Weighted average fair value
of options granted during the year $ 2.47 $ 2.51
============== ==================
Warrants 1999 1998
- - --------
---------------------------------- --------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------------- -------------- ------------------- ------------------
Outstanding at beginning of year 534,492 $ 8.27 475,609 $ 14.56
Granted 117,340 7.80 150,826 5.82
Exercised - - - -
Forfeited (11,774) (26.08) (91,943) (36.75)
------------------- -------------- ------------------- ------------------
Outstanding at end of year 640,058 $ 7.85 534,492 $ 8.27
=================== ============== =================== ==================
Warrants exercisable at end of year 572,718 $ 7.64 534,492 $ 8.27
=================== ============== =================== ==================
============== ==================
Weighted average fair value
of warrants granted during the year $ 2.32 $ 1.86
============== ==================
</TABLE>
F-17
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(In thousands, except per share data)
<TABLE>
<CAPTION>
The following table summarizes information about fixed stock options and
warrants outstanding at December 31, 1999:
Weighted
Number Average Number
Outstanding at Remaining Exercisable at
December 31, Exercise Contractual Life December 31,
Options 1999 Price (Years) 1999
-------------------- --------------- ------------------- --------------
<S> <C> <C> <C> <C>
57,365 $ 3.00 3.81 52,058
151,680 4.88 3.42 50,420
385,197 5.63 2.26 354,058
17,000 6.00 4.30 5,000
7,500 10.00 2.43 5,625
100,000 10.30 2.25 100,000
8,870 13.50 0.33 8,870
25,000 15.70 2.97 25,000
13,110 8.38 5.00 -
620 7.75 4.92 -
1,580 5.88 4.45 -
10,000 5.81 3.52 2,083
55,290 5.38 4.47 -
2,500 3.25 3.69 781
91,340 4.11 4.50 17,500
16,418 4.21 1.34 16,418
52,250 4.25 4.09 23,750
27,820 4.50 4.28 -
282,225 5.00 4.14 -
90,000 5.18 4.31 -
------------------- -------------- -------------- ---------------
1,395,765 $ 5.70 3.36 661,563
=================== ============== ============== ===============
Weighted
Number Average Number
Outstanding at Remaining Exercisable at
December 31, Exercise Contractual Life December 31,
Warrants 1999 Price (Years) 1999
------------------- ------------- ------------------ ---------------
150,000 $ 5.80 5.38 150,000
307,502 7.50 4.95 307,502
207 8.63 0.44 207
31,375 10.00 0.80 31,375
1,134 13.75 0.44 1,134
2,500 18.40 4.95 2,500
30,000 18.60 2.39 30,000
35,000 4.50 4.28 35,000
15,000 7.00 4.28 15,000
67,340 9.69 3.92 -
------------------- -------------- ---------------- ----------------
640,058 $ 7.85 4.56 572,718
=================== ============== ================ ================
</TABLE>
F-18
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(In thousands, except per share data)
In accordance with SFAS No. 123, the Company is required to account for options
issued to non-employees for services rendered using the fair value method over
their vesting period.
In connection with the February 1997 offerings of securities under Regulation S
of the Securities Act of 1933, the Company issued warrants to financial advisors
to purchase 5,045 shares of Common Stock at exercise price $13.75 per share,
exercisable through February 1999. These warrants were valued at approximately
$19.
A warrant to purchase 30,000 shares of Common Stock of the Company at an
exercise price of $18.70 per share, exercisable through January 31, 2002 was
granted July 1997 in consideration for ongoing services provided in the area of
financial consulting. The warrant is valued at approximately $63.
A warrant to purchase 150,000 shares of Common Stock at an exercise price of
$5.80 per share, exercisable through May 18, 2005 was granted to a stockholder
in May 1998 as an inducement to allow the Company to purchase shares of Common
Stock from the stockholder thereby reducing the stockholder's percentage
ownership in the Company below 50%. This warrant was valued at $300.
An option to purchase 35,000 shares of Common Stock at an exercise price of
$3.00 per share, exercisable through October 21, 2003 was granted in October
1998 in consideration for consulting services. The option is valued at
approximately $39.
In February 1999 the Company granted to its three independent members of its
Board of Directors options to purchase 45,000 shares of Common Stock at $5.00
per share that expire February 2004. The Company recorded an expense of $121
relating to the grant.
In March 1999, the Company granted a member of the Company's Board of Advisors,
10,000 options to purchase shares of Common Stock at $4.25 per share for
consulting services and the Company recorded an expense of $20 for the grant.
In April 1999 the Company granted 20,000 options to purchase shares of Common
Stock at $4.25 per share to The Investor Relations Group for consulting services
and the Company recorded an expense of $37 for the grant.
In April 1999 the Company granted 50, 000 options to purchase shares of Common
Stock at $4.50 per share to Chase Manhattan Bank as part of their debt
refinancing fees. The Company recorded an expense of $50 for the grant.
In May 1999 the Company granted 16,418 options to purchase shares of Common
Stock at $4.213 per share to an individual for consulting services and the
Company recorded an expense of $22 for the grant.
In July 1999 the Company granted 10,000 options to purchase shares of Common
Stock at $5.813 per share to an individual for consulting services and the
Company recorded an expense of $21 for the grant.
In September 1999 the Company granted 35, 000 options to purchase shares of
Common Stock at $4.125 per share for consulting services and the Company
recorded an expense of $63 for the grant.
In November 1999 the Company granted a warrant to purchase 67,340 shares of
Common Stock at $9.69 per share to Stern Stewart, a consulting services firm and
the Company recorded an expense of $150 for the warrant.
The warrants issued to non-employees were recorded based on the fair values of
the warrants on the grant date, using the Black-Scholes option-pricing model.
F-19
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(In thousands, except per share data)
10. Related Party Transactions
During April 1997, the Company agreed to pay Morgan Kent Group an asset
utilization fee of $17 per month, or part thereof, for each month that Common
Stock owned by Morgan Kent Group remained pledged as collateral against the
Company's indebtedness to Chase. Final fees in the amount of $52 were paid in
1999.
In April 1997, the Company signed a consulting agreement with Morgan Kent Group
under which the Company agreed to pay Morgan Kent Group $20 per month to provide
financial advisory services. In October 1997, the Company prepaid this fee in
the amount of $380 for services to be rendered in October 1997 and thereafter.
Expenses for 1998 under this agreement were $240.
On July 18, 1997, Morgan Kent Group issued to the Company a promissory note in
the amount of $50, bearing interest at the rate applicable to the Company under
its revolving credit line, in consideration for a loan made by the Company. The
first interest payment is due one year following the execution of the note and
quarterly thereafter. The note matured July 18, 1999 and is still outstanding.
In May 1998 the Company repurchased 600,000 shares of the Company's then
outstanding Common Stock from Morgan Kent Group at $5.00 per share, or
approximately 14% below the closing market price on May 15, 1998 as reported on
the NASDAQ SmallCap Market. The Company repurchased these shares to reduce the
voting power of Morgan Kent Group from approximately 51% to 45% and to set aside
shares enabling the Company to issue up to 600,000 shares of its Common Stock in
acquisitive transactions without diluting public stockholders. As an inducement
to the repurchase transaction, the Company issued a warrant to Morgan Kent Group
to purchase 150,000 shares of the Company's Common Stock at an exercise price of
$5.80 per common share. The warrant is exercisable immediately and has a term of
seven years. The Company recorded an expense of $300 relating to the issuance of
the warrant.
In December 1998 the Company repurchased 110,620 shares of the Company's then
outstanding Common Stock from Morgan Kent Group at $4.52 per share, or
approximately 20% below the average of the preceding five day trading close as
reported on the NASDAQ SmallCap Market.
In October 1998 the Company granted to Mr. Stephen Maysonave, a member of the
Board of Directors, 35,000 options to purchase shares of Common Stock at $3.00
per share that expire October 2003. These options were granted for services Mr.
Maysonave provided as a consultant to the Company and vest December 1999. The
Company recorded an expense of $39 relating to the grant of the 35,000 options.
In addition, the Company paid Mr. Maysonave $64 during 1998 relating to Mr.
Maysonave's consulting efforts.
Mr. Maysonave was granted options on February 18, 1999, to purchase 15,000
shares of Common Stock at $5.00 per share that expire in February 2004. The
options vest over a four-year period as follows- 25% following the first
anniversary of the date of grant and pro rata over the remaining three-year
period. The options granted to Mr. Maysonave were for consulting services
provided to the Company, and the Company recorded an expense of $40,000 related
to the grant. On September 17, 1999, Mr. Maysonave was granted 15,000 options to
purchase shares of Common Stock at $4.125 per share that expire September 2004.
The 15,000 options were granted for services Mr. Maysonave provided as a
consultant to the Company and vested immediately on the date of grant. The
Company recorded an expense of $25,000 relating to the grant of the 15,000
options. In addition, the Company recorded as expense $150,000 paid to Mr.
Maysonave relating to Mr. Maysonave's consulting services to the Company
throughout 1999.
F-20
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(In thousands, except per share data)
11. Leases
The Company leases certain sales offices and miscellaneous office equipment
under operating lease agreements, which expire at various times through May
2003. Total rent expense was $825, $680, and $572 in 1999, 1998 and 1997,
respectively.
Future minimum rental commitments as of December 31, 1999 were as follows:
2000 $ 363
2001 270
2002 186
2003 160
-----------
$ 979
===========
12. Contingencies
The Company is subject to lawsuits and claims that arose in the normal course of
business. Management is of the opinion that all such matters are without merit,
or are of such kind, or involve such amounts, as would not have a significant
effect on the financial position, results of operations or cash flows of the
Company if disposed unfavorably.
13. Segment Reporting and Geographic Information
The Company views its operations and manages its business in principally one
segment, hardware sales of computer terminals and associated services. As a
result, the financial information disclosed herein represents all of the
material information related to the Company's principal operating segment.
Foreign sales were approximately $28,069, $29,544 and $30,911 for 1999, 1998 and
1997, respectively. The following table shows the approximate percentage of
total revenue attributable to export sales to the regions described for each of
the years ended December 31:
F-21
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(In thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ------------------ ------------------
<S> <C> <C> <C>
United Kingdom 14% 11% 12%
Other European countries 16% 17% 15%
Other foreign countries 5% 5% 5%
----------------- ------------------ ------------------
Total 35% 33% 32%
================= ================== ==================
</TABLE>
14. Defined Contribution Plan
The Company provides a 401(k) retirement savings plan (the "401(k) Plan") for
its full-time employees. Under the provisions of the 401(k) Plan, each
participant may elect to contribute up to 15% of his or her annual salary. At
its discretion, the Company may make contributions to the 401(k) Plan. During
the years ended December 31, 1999, 1998 and 1997 the Company made contributions
of $70, $69 and $33 to the plan.
15. Selected Quarterly Financial Data - (unaudited)
Provided below is the selected unaudited quarterly financial data from 1999 and
1998. The underlying per share information is calculated from the weighted
average shares outstanding each quarter, which may fluctuate. Therefore, the sum
of the quarters per share information may not equal the total year amounts.
Net income for the three months ended December 31, 1999 reflects tax benefits of
$1,531 relating to the reversal of a prior year overaccrual and the adjustment
of deferred taxes as a result of tax examinations.
F-22
<PAGE>
BOUNDLESS CORPORATION AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(In thousands, except per share data)
<TABLE>
<CAPTION>
For the three months ended
December 31, September 30, June 30, March 31,
------------------------------------------------------------
1999 1999 1999 1999
---------------- --------------- -------------- ------------
<S> <C> <C> <C> <C>
Net revenue $ 19,254 $ 19,970 $ 20,230 $ 21,056
Cost of product sold and services 13,088 14,011 14,709 14,890
Net income 1,245 1,243 62 689
Per share amounts:
Basic earnings per common share $ 0.28 $ 0.28 $ 0.01 $ 0.14
Diluted earnings per common share $ 0.27 $ 0.28 $ 0.01 $ 0.14
For the three months ended
December 31, September 30, June 30, March 31,
------------------------------------------------------------
1998 1998 1998 1998
---------------- --------------- -------------- ------------
Net revenue $ 21,853 $ 23,555 $ 21,930 $ 22,864
Cost of product sold and services 15,019 16,754 15,827 16,603
Net income 2,333 825 1,005 745
Per share amounts:
Basic earnings per common share $ 0.49 $ 0.15 $ 0.18 $ 0.12
Diluted earnings per common share $ 0.49 $ 0.15 $ 0.18 $ 0.12
</TABLE>
16. Event Subsequent to Auditors' Report
On March 6, 2000, Boundless Manufacturing closed on a transaction to acquire the
manufacturing assets of Boca Research Inc. ("Boca"). The transaction extends
Boundless Manufacturing's existing capabilities by adding printed circuit board
assemblies ("PCBAs") to its expertise. The transaction included the immediate
employment of approximately 70 Boca Research manufacturing employees. As part of
the agreement Boundless Manufacturing will manufacture modems and other
electronic components for Boca.
F-23
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY)
CONDENSED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31,
-------------------------------
ASSETS 1999 1998
-------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 500 $ -
Accounts receivable 50 50
Other current assets 12 130
-------------------------------
Total current assets 562 180
Investments in and advances to subsidiaries
(eliminated in consolidation) 21,461 17,300
Other assets 6 6
-------------------------------
$ 22,029 $ 17,486
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses 614 829
-------------------------------
Total current liabilities 614 829
-------------------------------
Total liabilities 614 829
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, none issued - -
Common stock, $0.01 par value, 25,000,000 shares
authorized, 4,457,662 and 4,428,609 shares issued
at December 31, 1999 and 1998, respectively 45 44
Additional paid-in capital 32,508 30,940
Accumulated deficit (11,138) (14,327)
-------------------------------
Total stockholders' equity 21,415 16,657
-------------------------------
$ 22,029 $ 17,486
===============================
</TABLE>
S-1
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
(In thousands)
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
---------------- ------------- ---------------
Expenses:
General and administrative $ 775 $ 684 $ 234
Interest 5 32 98
Other charges 153 510 250
---------------- ------------- ---------------
933 1,226 582
---------------- ------------- ---------------
Loss before income taxes and other items below (933) (1,226) (582)
Income tax credit 317 162 198
---------------- ------------- ---------------
Loss before equity in income of consolidated subsidiaries (616) (1,064) (384)
Equity in income of consolidated subsidiaries, net of preferred stock
dividend of $50, $497 and $497 in 1999, 1998 and 1997 3,805 5,475 4,770
---------------- ------------- ---------------
Net income available for common stockholders $ 3,189 $ 4,411 $ 4,386
=============== ============= ===============
</TABLE>
S-2
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(PARENT COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
(In thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1999 1998 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
Net cash flows provided by operating activities $ 4,497 $ 5,050 $ 5,497
------------- -------------- ---------------
Cash flows from investing activities:
Increase in investments in subsidiaries (4,161) (1,550) (7,152)
-------------- --------------- ---------------
Net cash used in investing activities (4,161) (1,550) (7,152)
-------------- --------------- ---------------
Cash flows from financing activities:
Proceeds from sale of convertible notes - - 1,700
Costs associated with the issuance of debt - - (187)
Purchase and retirement of common stock - (3,500) -
Proceeds from issuance of common stock 164 - 136
-------------- --------------- ---------------
Net cash provided by financing activities 164 (3,500) 1,649
-------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents 500 - (6)
Cash and cash equivalents at beginning of year - - 6
-------------- --------------- ---------------
Cash and cash equivalents at end of year $ 500 $ - $ -
============== =============== ===============
Non-cash transactions:
Conversion of convertible notes into common stock $ - $ - $ 1
Compensatory value of options and warrants - - 63
Options, warrants and common stock issued for services 504 339 -
Issuance of common stock for preferred dividend of subsibiary - (497) -
</TABLE>
S-3
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31,
(In thousands)
<TABLE>
<CAPTION>
Balance at
Beginning of
Description Period Additions Deductions Balance at End of Period
- - ------------------------- ------------------- ------------------- ------------------ ------------------------
<S> <C> <C> <C> <C>
Allowances:
Doubtful accounts:
1999 $ 489 $ 380 $ 242 (A) $ 627
1998 284 209 4 (A) 489
1997 1,227 (20) 923 (A) 284
Inventory reserves:
1999 3,273 340 693 (B) 2,920
1998 3,996 808 1,531 (B) 3,273
1997 5,853 (595) 1,262 (B) 3,996
</TABLE>
(A) Includes accounts written off during the period.
(B) Includes inventory written off during the period.
S-4
<PAGE>
BOUNDLESS CORPORATION
INDEX OF EXHIBITS ATTACHED
Exhibit No. Description of Exhibits
10(f) Employment Agreement, dated July 1, 1999, among Registrant,
Boundless Manufacturing Services, Inc. and Joseph Joy.
10(g) Employment Agreement, dated July 1, 1999, among Registrant,
Boundless Manufacturing Services, Inc. and Anthony Giovaniello.
10(m) Agreement, dated September 30, 1999, between General Automation,
Inc. and Boundless Technologies, Inc. relating to settlement of
obligations and the transfer of interests in General Automation
LLC.
10(n) Promissory Note, dated September 30, 1999, in the amount of
$250,000 from General Automation, Inc. to Boundless Technologies,
Inc.
10(o) Promissory Note, dated September 30, 1999, in the amount of
$500,000 from General Automation, Inc. to Boundless Technologies,
Inc.
10(p) Form of Secured Convertible Promissory Note from General
Automation, Inc. to Boundless Technologies, Inc.
10(q) Form of Warrant from General Automation, Inc. to Boundless
Technologies, Inc.
21 List of Subsidiaries
23 Consent of BDO Seidman, LLP
27 Financial Data Schedule
Exhibit 10(f)
EMPLOYMENT AGREEMENT
Agreement, dated as of July 1, 1999, between Boundless Manufacturing
Services, Inc., a Delaware corporation, having offices at 100 Marcus Boulevard,
Hauppauge, New York 11788 (the "Company"), Boundless Corporation, a Delaware
corporation, having offices at 100 Marcus Boulevard, Hauppauge, New York 11788
("Boundless") and Joseph Joy, an individual residing at 434 Highwater Court,
Chapin, SC 29063 ("Executive").
WITNESSETH:
WHEREAS, the Company has been recently organized by Boundless
Corporation, an affiliated company which owns 75% of the Company's capital
stock, to provide manufacturing services initially in the electronic
manufacturing services market and subsequently in other markets.
WHEREAS, the Company desires to employ Executive as its Chief Operating
Officer, all pursuant to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, it is agreed as follows:
1. Scope of Employment
1.1 Engagement, Authority and Duties. The Company hereby employs
Executive, and Executive hereby accepts employment, as Chief Operating Officer
of the Company. In such capacity, and subject to the current operating
guidelines and procedures which apply to the
<PAGE>
Company's affiliate, Boundless Technologies, Inc., Executive shall have the
power, authority and responsibility to direct and supervise the daily operations
of the Company pursuant to the Company's business plan (subject to the direction
of the Board of Directors of the Company (the "Board"), including, but not
limited to: (i) preparing a proposed business plan for each year setting forth
the strategic objectives for the Company, the means proposed to accomplish such
objectives and financial projections and assumptions for the Company, for review
and approval by the Company's Board, and proposing revisions thereto at least
annually for review and approval by the Board (as so approved and revised (the
"Business Plan")); (ii) managing the other executives and personnel of the
Company; (iii) evaluating, negotiating, structuring and implementing business
transactions with vendors and others doing business with the Company; and (iv)
performing such other customary duties as are appropriate for a Chief Operating
Officer of a business at the Company's stage of development and growth.
Executive has prepared and submitted to the Board, and the Board has approved, a
Business Plan covering the period beginning on the date hereof and ending 365
days hereafter. Executive and the Board will cooperate in attempting to achieve
the goals established in the Business Plan.
1.2 Location. Executive shall perform his duties from offices at
Chapin, South Carolina, or from such other temporary office(s) as the Company
and Executive, after good faith discussions, may agree is required for Executive
to effectively perform his duties. Executive agrees that the performance of his
duties may require travel by him.
1.3 Full Time. Executive shall devote his full business time, efforts
and energies to the proper discharge of his duties and responsibilities under
this Agreement and shall serve the Company faithfully, diligently and to the
best of his abilities.
2
<PAGE>
1.4 Term. Executive's employment hereunder shall be for a term of four
years commencing the date of this Agreement and expiring the fourth anniversary
of such date, unless sooner terminated or extended as provided below. The term
of Employment shall be extended automatically for successive one year terms,
unless three months prior to the last day of the current term either party
hereto shall have notified the other that such extension shall not occur. The
term of Executive's employment is the Employment Term.
1.5 The Executive Shares. Executive shall purchase, on the date hereof,
400 shares of the Company's common stock, no par value, for an aggregate of
$2,000, which the Company hereby represents constitutes 12.5% of the Company's
issued and outstanding common stock on the date hereof (the "Executive Shares").
The Company hereby represents that it has no other class of capital stock
outstanding. Except as set forth in the immediately succeeding sentence, if the
Company terminates Executive's employment under Section 4.4 of this Agreement
due to the Company's failure to attain the Minimum Performance Standard for any
year, Executive shall sell to the Company and the Company shall purchase from
Executive, not later than 90 days after the last day of any year of the
Employment Term, for $5.00 per share, one hundred (100) of the Executive Shares,
plus an amount of Shares equal to 100 times the number of full and partial years
remaining under the initial four year term of this Agreement. In the event the
immediately preceding sentence applies and the failure to attain Minimum
Performance Standards involves the third or fourth years of the Employment Term
and, provided further, that the Company has attained not less than eighty
percent (80%) of the Minimum Performance Standard for the third or fourth year
of the Employment Term, as the case may be, the number of shares repurchaseable
by the Company shall (a) equal one hundred (100) of the Executive Shares minus
an amount of shares equal to one hundred (100) times the percent of the Minimum
Performance Standard
3
<PAGE>
attained by the Company, plus (b) if the failure to attain the Minimum
Performance Standard involves the third year of the Employment Term, fifty (50)
of the Executive Shares. The Company's obligations described in the two
preceding sentences are hereinafter referred to as the "Repurchase
Requirement(s)." On the 91st day after the close of each year of the Employment
Term, one hundred (100) of the Executive Shares minus that number of shares
subject to the Repurchase Requirement for that year (but not less than zero),
will no longer be subject to the Repurchase Requirement (the "Released Shares").
Consistent therewith, provided (i) the Company attains the Minimum Performance
Standard for such year, or (ii) the Company does not attain the Minimum
Performance Standard for such year and the Company does not elect to terminate
Executive's employment under Section 4.4 within ninety one days after the close
of such year, one hundred (100) of Executive Shares will constitute the Released
Shares. In the event the Executive's employment is terminated as a result of his
Death or Disability under either Sections 4.2 or 4.3 hereof, and provided the
Company attains the Minimum Performance Standard for the year in which such
termination occurs, the number of Shares that will constitute Released Shares
will be determined by multiplying the number of Shares that would otherwise have
constituted Released Shares by a fraction, the numerator of which is the number
of days in the year that have elapsed prior to termination of Executive's
employment and the denominator of which is 365. Except by operation of law,
Executive Shares will not be transferable by Executive prior to becoming
Released Shares and, if transferred, will remain subject to the restrictions
provided for this Agreement, including those contained in this Section with
respect to the Repurchase Requirement.
1.6 Investment Intent. Executive is acquiring the Executive Shares for
his own account for investment and has no present arrangement (whether or not
legally binding) to sell, at
4
<PAGE>
any time, any of the Executive Shares to or through any Person. Executive
understands that the Executive Shares must be held until registered under the
Securities and Exchange Act of 1933 (the "Securities Act") or an exemption from
registration is available.
1.7 Legend. Executive understands that the stock certificates
representing the Executive Shares shall bear legends substantially to the
following effect:
"The Shares represented by the certificates have not been
registered under the Securities Act of 1933. Such Shares have
been acquired for investment and may not be sold, transferred
or assigned in the absence of an effective registration
statement covering such Shares or an opinion of the Company's
counsel that registration is not required under such Act."
"The Shares represented by the certificates are subject to
restrictions on transfer and other restrictions that are
contained in an agreement between Joseph Joy and Boundless
Manufacturing Services, Inc., dated July 1, 1999."
2. Compensation
2.1 Base Salary. Executive shall be paid a base salary at the rate of
$158,700 per annum (the "Base Salary", subject to increase (but not reduction),
at the Board's discretion, for example in recognition of superior performance or
competitive compensation practices). Such salary shall be payable in appropriate
installments to conform with the regular payroll dates for salaried personnel of
Boundless Technologies, Inc.
2.2 Cash Bonus. Within 90 days after the last day of each year of the
Employment Term, Executive shall be paid a cash bonus (the "Cash Bonus") based
on satisfaction of the
5
<PAGE>
EBITDA objectives described in Schedule 1 attached hereto (the "Objective") as
follows: Cash Bonus = Yearly Bonus Target x Bonus Payment Multiplier. For this
purpose, (i) the Yearly Bonus Target for the first year of the Employment Term
shall be $50,000 and the Yearly Bonus Targets for subsequent years shall be
determined by the Board but shall not be less than $50,000, and (ii) for each
year of the Employment Term, the Bonus Payment Multiplier shall be determined
based on the percentage of the Company's Objective that is realized for the
Employment Term year as set forth below:
Percent Objective Realized Bonus Payment Multiplier
- - -------------------------- ------------------------
0-49% 0.00
50-79% 0.75
80-95% 0.85
95-100% 1.00
101-110% 1.15
111-125% 1.35
126-149% 1.70
150-up% 2.00
2.3 Withholding. The Company shall withhold all applicable federal,
state and local taxes, social security and workers' compensation contributions,
and such other amounts as may be required by law or agreed upon by the parties,
with respect to the compensation payable to Executive pursuant to this Section
2.
2.4 Provided the Objective has been attained by the Company, not later
than 90 days after the last day of each year of the Employment Term, Boundless
Corporation will issue to Executive a stock option agreement (the "Stock
Option"), pursuant to which Executive may
6
<PAGE>
purchase from Boundless shares of Boundless common stock, $.01 par value, in
exchange for shares of common stock of the Company. The number of shares of
Boundless common stock purchasable under each Stock Option shall be determined
by the following formula:
x = (b times .25) times d
-
c
For purposes of this formula: (i) x = the number of shares of Boundless common
stock purchasable under the Stock Option, which shall not exceed 75,000 Shares
(the "Option Limit"), (ii) b = Executive's percentage ownership of the capital
stock of the Company on the test date times the earnings available to the
Company's shareholders for the year, (iii) c = the earnings available to
Boundless' shareholders for the year, and (iv) d = the number of shares of
common stock of Boundless Corporation which is outstanding on the test date. The
test date shall mean the last day of the relevant year of the Employment Term.
In the event (b) is greater than (c), (b) over (c) in the formula will equal one
(1).
The exchange ratio between the Company's common stock and the Boundless
common stock covered by the Stock Option shall be 100 Shares of the Company's
common stock for the number of Shares of Boundless common stock equal to "x" in
the above formula, except for this purpose, "x" is computed without reference to
the Option Limit. The Stock Option shall provide that only Released Shares can
be transferred to Boundless in exchange for Boundless common stock. The Stock
Option will be exercisable during the period commencing 12 months after it is
issued by Boundless and ending the earlier of (i) sixty months after its
issuance, or (ii) on the date that the Securities and Exchange Commission (the
"SEC") declares a registration statement or Form 10 filed by the Company
effective under either the Securities and Exchange Acts of 1933 or 1934 (a
"Registration Statement" and "Form 10," respectively). Boundless will have the
option to redeem the common stock purchased on exercise of the Stock Option for
a period of
7
<PAGE>
four (4) months after its exercise for an amount equal to the common stock's
average closing prices for a five day period on the American Stock Exchange or
other market on which the Common Stock is then trading. No Stock Options will be
issued with respect to any year, if the event described in (ii) in the preceding
sentence has occurred.
2.5 Signing Bonus. Executive shall be paid a one time signing
bonus of $10,000 within 30 days of execution of this agreement.
3. Expenses and Additional Benefits
3.1 Expenses. The Company shall reimburse Executive for all ordinary
and necessary expenses incurred by Executive in furtherance of the business and
affairs of the Company, including reasonable travel and entertainment, against
receipt by the Company of appropriate vouchers or other proof of Executive's
expenditures and otherwise in accordance with the Company's expense
reimbursement policy that has been approved by the Board of the Company.
3.2 Vacation. Executive shall be entitled to four weeks of paid
vacation during each year of the Employment Term, or such greater number of days
as the Company makes available to its senior executive officers, as well as such
paid holiday and leave time and sick leave benefits as is provided generally to
the senior executive officers of Boundless Technologies, Inc.
3.3 Fringe Benefits. Executive shall be entitled to participate,
commencing as of the date hereof, in all employee pension, retirement, savings,
deferred compensation, welfare, insurance and other benefit and fringe benefit
plans, programs and arrangements provided to the employees and senior executive
officers of Boundless Technologies, Inc., generally, from time to time,
according to the terms of such plans, programs and arrangements but, except for
8
<PAGE>
discretionary bonuses or awards, in no event on terms and conditions less
favorable than those applicable to the senior executive officers of Boundless
Technologies, Inc. (herein, the "Employee Plans"). Executive shall receive those
perquisites and other personal benefits made available to the other senior
executive officers of Boundless Technologies, Inc., generally, from time to
time.
3.4 Indemnification. The Company shall indemnify Executive to the
fullest extent permitted under the laws of the State of Delaware, and not
inconsistent with the Company's Certificate of Incorporation and By-Laws, as in
effect from time to time. During the term of this Agreement, the Company will
use its best efforts to cause Boundless Corporation to include Executive in its
officers and directors insurance policy, as may exist from time to time.
4. Termination
4.1 By the Company for Cause. The Company may terminate the Employment
Term "for Cause," which shall mean and be limited to the following events: (a)
Executive's conviction in a court of law of a felony or a crime under United
States law punishable by confinement for a period in excess of three months; (b)
Executive's commission of an act of fraud in the performance of his duties
hereunder; or (c) Executive's material breach of his duty of loyalty to the
Company or any of the covenants set forth in Sections 5.2, and 7.
Upon termination pursuant to this Section 4.1 or Executive's
termination of this Agreement other than for Good Reason (as defined below), the
Company shall have no further obligation to Executive under this Agreement
except to pay Executive within 30 days, in lieu of amounts otherwise payable
hereunder, the Base Salary payable to the date of termination and amounts due as
reimbursement of expenses pursuant to Section 3.1. In such case, in addition to
any other remedies the Company may have, the Company shall have no further
obligation to
9
<PAGE>
make any Cash Bonus payments to Executive (as set forth in Section 2.2 hereof),
or any other payments contemplated under this Agreement, to Executive with
respect to the year in which the Executives employment is terminated and for
each succeeding year (but not any prior year), the Stock Options previously
granted to Executive shall be cancelled and the Company shall have the right to
purchase all, or a part of, the Executive Shares for $5.00 per share
(Executive's original out-of-pocket cost per share) not later than one year
after termination.
4.2 Death. If Executive dies during the Employment Term, the Company
shall, within 30 days, pay Executive's estate, in lieu of amounts otherwise
payable hereunder (a) the Base Salary payable to the date of his death, (b) any
Cash Bonus to which Executive is entitled pursuant to Section 2.2 in respect of
the Employment Term year immediately preceding the year of the date of
Executive's death and (c) amounts due as reimbursement of expenses pursuant to
Section 3.1. Furthermore, Executive's rights with respect to the Stock Options
previously granted to Executive shall remain in place and be governed by the
terms of the relevant Stock Option Agreements and the Company shall have the
right to purchase all, or a part of, the Executive Shares which are not Released
Shares for $5.00 per share (Executive's original out-of-pocket cost per share),
by giving written notice to Executive's Estate, Executor, or personal
representative, not later than 60 days after Death; such purchase to take place
as soon as possible thereafter.
4.3 Disability. In the event that (i) Executive is unable substantially
to perform his duties hereunder because he is Disabled (as defined below) for a
period of 45 consecutive days or 60 days within any period of 12 consecutive
months and (ii) the Company shall have given to Executive 10 days notice of its
intention to terminate the Employment Term pursuant to this Section 4.3 and
Executive does not resume substantially all of his duties under this Agreement
10
<PAGE>
before the expiration of 10 days following the date Executive receives such
notice, then the Company may, at any time during the continuance of such
disability, terminate the Employment Term on written notice to Executive. For
purposes of this Agreement, the term "Disabled" shall mean the inability of
Executive for medical reasons certified by a physician selected by the Board and
reasonably satisfactory to Executive or his personal representative(s) to
substantially perform his duties hereunder. Upon such termination, Executive
shall have no further obligation to perform services for the Company under this
Agreement and the Company shall pay Executive promptly (but in no event later
than 20 days), in lieu of the amounts that would otherwise be payable hereunder,
(x) consistent with the policy in effect at Boundless Technologies, Inc. with
respect to employee sick leave, the Base Salary payable for the period ending 5
days after Executive's absence from work first commenced, (y) any Cash Bonus, in
respect of the Employment Term year immediately preceding the year of the date
of such termination, and (z) amounts due as reimbursement of expenses pursuant
to Section 3.1. Furthermore, Executive's rights with respect to the Stock
Options previously granted to Executive shall remain in place and be governed by
the terms of the relevant Stock Option Agreements and the Company shall have the
right to purchase all, or a part of, the Executive Shares which are not Released
Shares for $5.00 per share (Executive's original out-of-pocket cost per share),
by giving written notice to Executive or to his personal representative, as the
case may be, not later than 60 days after Disability; such purchase to take
place as soon as possible thereafter. The Company shall also continue
Executive's health insurance then provided by the Company, at the Company's
expense, for four months following termination of the Employment Term pursuant
to this Section 4.3.
11
<PAGE>
4.3.1 The wage continuation (with respect to Base Salary), sick leave,
and other policies with respect to absences from work due to sickness, which
apply to employees of Boundless Technologies, Inc., will apply to Executive
hereunder.
4.4 By Company for Failure to Attain Minimum Performance Standings. The
Company may terminate the Employment Term due to the Company's failure to attain
Minimum Performance Standards, as set forth on Schedule 1, attached hereto. Upon
such termination, Executive shall have no further obligation to perform services
for the Company under this Agreement and, except as set forth in Section 1.5
hereof, the Company shall be released from all obligations to Executive under
this Agreement and Executive shall receive from the Company a continuation of
his Base Salary (at the rate and pursuant to the payment schedule in effect
prior to the date of termination) for a six-month period following the date of
termination, which amounts will be reduced by amounts received by Executive as a
result of substitute employment. Provided any subsequent employer does not
provide Executive with health insurance coverage, the Company shall also
continue Executive's health insurance then provided by the Company, at the
Company's expense, for six months following the termination of the Employment
Term pursuant to Section 4.4. Furthermore, Executive's rights with respect to
the Stock Options previously granted to Executive shall remain in place and be
governed by the terms of the relevant Stock Option Agreements and the Company
shall have the right to purchase all, or a part of, the Executive Shares which
are not Released Shares for $5.00 per share (Executive's original out-of-pocket
cost per share), by giving written notice to Executive, not later than 60 days
after Termination; such purchase to take place as soon as possible thereafter.
4.5 By the Executive for Good Reason. The Executive may terminate the
Employment Term for Good Reason by giving at least 60 days prior written notice
to the
12
<PAGE>
Company of such election and the facts constituting each Good Reason for
Executive's termination of the Employment Term, provided at least one such Good
Reason continues to be a Good Reason on the effective date of such termination.
4.6 Termination For Other Than: (a) Cause (b) Death,
(c) Disability, (d) Failure of Minimum Performance Standards or Termination by
Executive For Good Reason.
(a) In general. If (i) the Company terminates Executive's
employment hereunder, and such termination of employment is for other than (A)
Cause (pursuant to Section 4.1 hereof), (B) Executive's death or disability
(pursuant to Section 4.2 or 4.3 hereof), or (C) the Company's failure to obtain
the Minimum Performance Standards, (pursuant to Section 4.4 hereof); or (ii)
Executive terminates his employment for Good Reason, Executive shall receive
from the Company, as liquidated damages, the following compensation: (1) a
continuation of his Base Salary (at the rate and pursuant to the payment
schedule in effect immediately prior to the date of termination) for an 18-month
period following the date of termination, (2) on or before 45 days after the
close of the Employment Term year within which the termination occurs, Executive
shall receive from the Company the amount calculated as a pro rata portion
(determined on a pro rata daily basis), through the date of termination, of the
Cash Bonus pursuant to Section 2.2 of this Agreement to which Executive would
have been entitled had he remained continuously employed by the Company through
the end of the Employment Term year within which termination occurs, (3) all
incentive stock options issued to the Executive by the Company prior to his
termination shall become immediately vested and exercisable pursuant to the
terms of the option agreements, and (4) all Executive Shares, which are not
Released Shares, will no longer be subject to the Repurchase Requirement and
will immediately become
13
<PAGE>
Released Shares owned by Executive without any restrictions. The Company shall
also continue Executive's health insurance then provided by the Company, at the
Company's expense, for 18 months following termination of the Employment Term
pursuant to this Section 4.6.
(b) Good Reason. For purposes of this Agreement, "Good
Reason" shall mean any of the following:
(i) the assignment to Executive of any duties inconsistent
substantially with Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities under this
Agreement (other than in the nature of a promotion);
(ii) any reduction by the Company of Executive's Base Salary
or reduction of the Yearly Bonus Target below $50,000 for any year;
(iii)any material breach by either the Company or Boundless
Corporation of any provision of this Agreement not cured within any cure period
provided in this Agreement, or in the absence thereof, not cured within 45 days
after written notice by Executive to the Company;
(iv) abandonment by the Company of its contract
manufacturing business;
(v) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than Boundless Corporation, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing 40% or more of
the combined voting power of the outstanding securities of the Company except
where the events described in this paragraph result in the incumbent directors
of the Company prior to such events continuing to constitute more than 50% of
the Board of Directors;
(vi) the shareholders of the Company approve (A) a merger or
consolidation of the Company with any other entity (other than a merger or
consolidation which would result in
14
<PAGE>
the voting securities of the Company outstanding immediately prior thereto
continuing to represent, either by remaining outstanding or by being converted
into voting securities of the surviving entity, at least 50% of the combined
voting power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation), (B) a plan of
complete liquidation or dissolution of the Company or (C) the sale or
disposition, in a single transaction or series of related transactions, by the
Company of all or substantially all of the property and assets of the Company,
except where the events described in the foregoing (A) or (C) result in the
incumbent directors of the Company prior to such events constituting at least a
majority of the board of the surviving corporation or its parent (as such term
is defined in Rule 12b-2 under the Exchange Act); or
(vii)removal of the Executive from the Board.
5. Protection of Confidential Information
5.1 Confidential Information. As used in this Section 5, the term
"Confidential Information" shall mean information relating to the Company or any
of its affiliates including, but not limited to, information relating to the
Business Plan and the Company's strategies, intellectual property, products and
products being developed, customer lists and potential customer lists, strategic
partners or participants and marketing and sales methods unique to the Company.
Confidential Information excludes information which is independently developed
by a recipient of the information, or which is in the public domain, or which
becomes available to a recipient on a non-confidential basis without violating
Section 5 of this Agreement, or which is required to be disclosed by law.
5.2 Nondisclosure of Confidential Information. Executive shall not, at
any time during the Employment Term (other than as may be required in connection
with the performance
15
<PAGE>
by his of her duties hereunder) and for two years or
thereafter, directly or indirectly, use, communicate, disclose or disseminate
any Confidential Information in any manner whatsoever.
In the event Executive is requested or required (by oral questions,
interrogatories, requests for information or similar legal process) to disclose
any Confidential Information, Executive will provide the Company with prompt
notice thereof so that the Company may seek an appropriate protective order
and/or waive Executive's compliance with the provisions of this Section 5.2.
6. Non-Competition
6.1 Material Inducement. Executive acknowledges that his
agreements contained in Section 6.2 are an important inducement to the Company's
executing this Agreement.
6.2 Covenants.
(a) If (i) the Company terminates Executive's employment
hereunder, and such termination of employment is for Cause (pursuant to Section
4.1 hereof), or (ii) Executive terminates his employment for other than Good
Reason, then during the period commencing on the date of termination of
Executive's Employment and ending 12 months following the termination of the
Executive's employment with the Company, Executive shall not, except on behalf
of the Company, directly or indirectly, whether as an officer, director,
shareholder, partner, member, associate, employee, consultant, agent or
representative, become or be interested in, or associated with, any other
person, firm, company, partnership or other entity whatsoever, engaged in a
business that is similar or comparable and competitive with the business
conducted by the Company during the Employment Term in any of the markets where
the Company is carrying on such business or has targeted for business
development; provided, however, that Executive may own as an investor securities
of any Company whose securities are
16
<PAGE>
registered under the Securities Act, so long as she is not an affiliate (as
defined in Rule 405 under such Act) of such Company.
(b) In all events, Executive shall not, directly or
indirectly, during the period commencing on termination of Executive's
Employment, and ending 12 months after Executive's employment with the Company
expires or terminates for any reason, induce or attempt to induce any employee
or agent of, or consultant to, the Company or any of the Company's affiliates to
terminate his or her employment or consultancy with the Company.
(c) Except for those persons described in Section 6.2(c)
above, in no event, at any time, shall Executive request any person or entity
to curtail or cancel its business relationship with the Company.
7. Inventions
(a) Executive agrees to disclose to the Company all
inventions, designs, product developments, technological innovations, know-how,
tests, performance data and processes ("Inventions"), whether or not patentable,
copyrightable or subject to trademark or service mark, made or conceived by
Executive, directly or indirectly, during the term of this Agreement and that
relate in any way to the business of the Company, whether or not made or
conceived by Executive during working hours. Executive agrees that all such
Inventions shall inure to, and be the property of, the Company.
(b) Executive agrees (i) to assign to the Company, its
successors and assigns, all of Executive's right, title and interest in and to
any such Inventions, (ii) during and after the term of this Agreement, at the
Company's expense, cooperate with the Company in the preparation and filing of
such patent applications and other documents and instruments as the Company
shall deem appropriate to perfect and protect its rights in and to such
Inventions, and
17
<PAGE>
(iii) to protect and defend the Company's right, title and interest in and to
any such Inventions, at the Company's expense.
(c) Except as required in the conduct of the Company's
business or in the discharge of his duties and responsibilities hereunder,
Executive will not publish or disclose, or authorize or permit anyone to publish
or disclose, during or after the term of this Agreement, any proprietary
knowledge or information concerning any Invention.
8. Injunctive Relief
(a) Executive agrees that a violation of the covenants set
forth in Sections 5.2, 6 and 7, or any provision thereof, will cause irreparable
injury to the Company and that the Company shall be entitled, in addition to any
other rights and remedies it may have, at law or in equity, to an injunction
enjoining and restraining Executive from doing or continuing to do any such act
or other violations or threatened violations of Sections 5.2, 6 and 7.
9. Dispute Resolution
(a) Any and all disputes, claims or controversies arising out
of or relating to this Agreement that are not resolved within 10 business days
shall be submitted to final and binding arbitration in New York City before
J-A-M-S/ENDISPUTE, or its successor, pursuant to the United States Arbitration
Act, 9 U.S.C. Sec. 1 et seq. Either party may commence the arbitration process
called for in this Agreement by filing a written demand for arbitration with
J-A-M-S/ENDISPUTE, with a copy to the other party. The arbitration will be
conducted in accordance with the provisions of J-A-M-S/ENDISPUTE's Streamlined
Arbitration Rules and Procedures in effect at the time of filing of the demand
for arbitration. The parties will cooperate with J-A-M-S/ENDISPUTE and with one
another in selecting an arbitrator from J-A-M-S/ ENDISPUTE's panel of neutrals,
and in scheduling the arbitration proceedings so that a final
18
<PAGE>
determination can be made within 30 days after submission to arbitration. The
parties covenant that they will participate in the arbitration in good faith,
and that they will share equally in its costs. However, once an award is
rendered, the losing party shall be responsible for paying all of the winner's
reasonable costs and expenses of the arbitration, including reasonable
attorney's fees. The provisions of this Section 9 may be enforced by any Court
of competent jurisdiction, and the party seeking enforcement shall be entitled
to an award of all reasonable costs, fees and expenses, including attorneys'
fees, to be paid by the party against whom enforcement is ordered.
10. Company Operational Issues
10.1 Plant Capacity. Boundless Corporation will use its reasonable
efforts to make available to the Company the underutilized manufacturing
capacity, as it may exist from time to time, at its manufacturing facility,
located at 100 Marcus Boulevard, Hauppauge, New York 11788, for which the
Company will be charged based on costs competitive with that prevailing in the
EMS Industry. Boundless Corporation will use best efforts to advance to the
Company the working capital required under the Company's Business Plan,
consistent with Boundless Corporation's and its affiliates' working capital
requirements and with the consent of Boundless Corporation's lenders, as may be
required under its loan agreements. Boundless Corporation understands that the
provision of the capital required for the operation of the Company's business is
a material inducement for the Executive to enter into this Agreement.
10.2 Board of Directors. The Company's Board of Directors will consist
of Joseph Joy, Anthony Giovaniello and three individuals nominated by Boundless
Corporation. Boundless Corporation will select the Chairman of the Board and
until the SEC declares a Registration Statement or a Form 10 filed by the
Company effective and provided Executive
19
<PAGE>
remains employed by the Company, the Company will vote its shares to Elect
Executive to the Board. Subject to the Company's By-Laws, each director shall
serve until his successor is elected, or appointed or qualified, or until his
earlier death, resignation or removal.
10.3 Officers. The initial officers of the Company shall consist of J.
Gerald Combs, who shall serve as the Company's Chief Executive Officer, Joseph
Joy, as the Chief Operating Officer, Anthony Giovaniello, as Executive
Vice-President, and Joseph Gardner, as Chief Financial Officer.
11. Miscellaneous
11.1 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed duly given when delivered by
hand receipt acknowledged (which shall include delivery by Federal Express or
similar service and by facsimile) or three days after mailing, if mailed
registered or certified mail, postage prepaid, return receipt requested, in each
case addressed to Executive at his address in the Company's records and or to
the Company at its address above, with copies sent in the same manner:
If sent to the Company, to:
Boundless Manufacturing Services, Inc.
c/o Boundless Technologies
100 Marcus Boulevard
Hauppauge, NY 11788
with a copy to:
20
<PAGE>
FischbeinoBadillooWagneroHarding
909 Third Avenue
New York, NY 10022
Attn: Joseph L. Cannella, Esq.
If sent to Executive, to:
Joseph Joy
434 Highwater Court
Chapin, SC 29063
with a copy to:
Tony Giovaniello
3400 Forest Hills Court
Redding, CA 96002
or to such other address as either party hereto shall have designated by like
notice to the other party hereto.
11.2 Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements and undertakings of the parties hereto, oral and
written, with respect to the subject matter hereof.
11.3 Applicable Law. This Agreement shall be governed by the laws
of the State of New York, without regard to principles of conflict of laws.
21
<PAGE>
11.4 Headings. The headings herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
11.5 Assignment. This Agreement and the benefits hereunder are personal
to the Company and Executive and are not assignable or transferable by either of
them, nor may the services to be performed hereunder be assigned by the Company
to any person, firm or company; provided, however, that this Agreement and the
benefits hereunder may be assigned by the Company to any company acquiring all
or substantially all of the assets of the Company or to any company into which
the Company may be merged or consolidated, and this Agreement and the benefits
hereunder will automatically be deemed assigned to any such company; provided
further, however, that nothing herein shall preclude Executive's beneficiary,
legatee or devisee or the legal representative of Executive or his estate from
receiving any amount or benefit that may be payable or provided to or in respect
of Executive hereunder following his death or legal incompetency.
11.6 Severability. If in any jurisdiction any term or provision hereof
is invalid or unenforceable, (a) the remaining terms and provisions thereof
shall be unimpaired, (b) any such invalidity or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction and (c) the invalid or unenforceable term or provision shall,
for purposes of such jurisdiction, be deemed replaced by a term or provision
that is valid and enforceable and that comes closest to expressing the intention
of the invalid or unenforceable term or provision (but such replacement shall
not in any case be more restrictive or burdensome on Executive or the Company).
22
<PAGE>
11.7 Amendment; Waiver. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended and the terms or covenants hereof may
be waived, only by a written instrument executed by both of the parties hereto,
or in the case of a waiver, by the party waiving compliance. The failure of
either party at any time or times to require performance of any provision hereof
shall in no manner affect the right at a later time to enforce the same. No
waiver by either party of the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or construed as, a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in
this Agreement.
11.8 Right of First Refusal. If, at any time prior to the Company's
consummating a "public offering" of its Capital Stock, pursuant to a
registration statement declared effective by the Securities and Exchange
Commission under the Securities and Exchange Act of 1933, the Executive receives
a bona fide written offer from a third party to purchase all or a part of the
Executive Shares or any Shares Acquired by Executive by exercise of incentive
stock options ("Option Shares") (a "Purchase Offer"), then the Executive shall
immediately give notice enclosing a copy of the Purchase Offer to Boundless, and
Boundless shall have the option, exercisable within thirty (30) days after such
notice is given, to purchase the Executive Shares and/or Option Shares at the
same price and upon the same terms as those contained in the Purchase Offer. In
the absence of such purchase by Boundless Corporation, Executive may sell all or
a portion of the Executive Shares to the third party, pursuant to the terms
described in the Purchase Offer. Any modification of such bona fide written
offer by said third party shall constitute a new offer hereunder and thus must
be submitted by Executive to Boundless Corporation under this Section 11.8.
23
<PAGE>
11.9 Survival. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
11.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the date first above written.
BOUNDLESS MANUFACTURING SERVICES, INC.
By: /s/
---------------------------------
Authorized Signatory
/s/
---------------------------------
Joseph Joy
The undersigned hereby guarantees the performance of the
Company's obligations set forth this Agreement.
BOUNDLESS CORPORATION
By: /s/
---------------------------------
24
Exhibit 10(g)
EMPLOYMENT AGREEMENT
Agreement, dated as of July 1, 1999, between Boundless Manufacturing
Services, Inc., a Delaware corporation, having offices at 100 Marcus Boulevard,
Hauppauge, New York 11788 (the "Company"), Boundless Corporation, a Delaware
corporation, having offices at 100 Marcus Boulevard, Hauppauge, New York 11788
("Boundless") and Tony Giovaniello, an individual residing at 3400 Forest Hills
Court, Redding, CA 96002 ("Executive").
WITNESSETH:
WHEREAS, the Company has been recently organized by Boundless
Corporation, an affiliated company which owns 75% of the Company's capital
stock, to provide manufacturing services initially in the electronic
manufacturing services market and subsequently in other markets.
WHEREAS, the Company desires to employ Executive as its Executive
Vice-President, all pursuant to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, it is agreed as follows:
1. Scope of Employment
1.1 Engagement, Authority and Duties. The Company hereby employs
Executive, and Executive hereby accepts employment, as Executive Vice President
of the Company. In
<PAGE>
such capacity, and subject to the current operating guidelines and procedures
which apply to the Company's affiliate, Boundless Technologies, Inc., Executive
shall have the power, authority and responsibility to assist the Company's Chief
Operating Officer in the direction and supervision of the daily operations of
the Company pursuant to the Company's business plan (subject to the direction of
the Board of Directors of the Company (the "Board"), including, but not limited
to: (i) assist in the preparation of a proposed business plan for each year
setting forth the strategic objectives for the Company, the means proposed to
accomplish such objectives and financial projections and assumptions for the
Company, for review and approval by the Company's Board, and proposing revisions
thereto at least annually for review and approval by the Board (as so approved
and revised (the "Business Plan")); (ii) participation in managing the other
executives and personnel of the Company; (iii) participate in evaluating,
negotiating, structuring and implementing business transactions with vendors and
others doing business with the Company; and (iv) performing such other customary
duties as are appropriate for a Executive Vice President of a business at the
Company's stage of development and growth. Working together with the Company's
Chief Operating Officer, Executive has prepared and submitted to the Board, and
the Board has approved, a Business Plan covering the period beginning on the
date hereof and ending 365 days hereafter. Executive and the Board will
cooperate in attempting to achieve the goals established in the Business Plan.
1.2 Location. Executive shall perform his duties from offices at
Redding, California, or from such other temporary office(s) as the Company and
Executive, after good faith discussions, may agree is required for Executive to
effectively perform his duties. Executive agrees that the performance of his
duties may require travel by him.
2
<PAGE>
1.3 Full Time. Executive shall devote his full business time, efforts
and energies to the proper discharge of his duties and responsibilities under
this Agreement and shall serve the Company faithfully, diligently and to the
best of his abilities.
1.4 Term. Executive's employment hereunder shall be for a term of four
years commencing the date of this Agreement and expiring the fourth anniversary
of such date, unless sooner terminated or extended as provided below. The term
of Employment shall be extended automatically for successive one year terms,
unless three months prior to the last day of the current term either party
hereto shall have notified the other that such extension shall not occur. The
term of Executive's employment is the Employment Term.
1.5 The Executive Shares. Executive shall purchase, on the date hereof,
400 shares of the Company's common stock, no par value, for an aggregate of
$2,000, which the Company hereby represents constitutes 12.5% of the Company's
issued and outstanding common stock on the date hereof (the "Executive Shares").
The Company hereby represents that it has no other class of capital stock
outstanding. Except as set forth in the immediately succeeding sentence, if the
Company terminates Executive's employment under Section 4.4 of this Agreement
due to the Company's failure to attain the Minimum Performance Standard for any
year, Executive shall sell to the Company and the Company shall purchase from
Executive, not later than 90 days after the last day of any year of the
Employment Term, for $5.00 per share, one hundred (100) of the Executive Shares,
plus an amount of Shares equal to 100 times the number of full and partial years
remaining under the initial four year term of this Agreement. In the event the
immediately preceding sentence applies and the failure to attain Minimum
Performance Standards involves the third or fourth years of the Employment Term
and, provided further, that the Company has attained not less than eighty
percent (80%) of the Minimum Performance Standard for the third
3
<PAGE>
or fourth year of the Employment Term, as the case may be, the number of shares
repurchaseable by the Company shall (a) equal one hundred (100) of the Executive
Shares minus an amount of shares equal to one hundred (100) times the percent of
the Minimum Performance Standard attained by the Company, plus (b) if the
failure to attain the Minimum Performance Standard involves the third year of
the Employment Term, fifty (50) of the Executive Shares. The Company's
obligations described in the two preceding sentences are hereinafter referred to
as the "Repurchase Requirement(s)." On the 91st day after the close of each year
of the Employment Term, one hundred (100) of the Executive Shares minus that
number of shares subject to the Repurchase Requirement for that year (but not
less than zero), will no longer be subject to the Repurchase Requirement (the
"Released Shares"). Consistent therewith, provided (i) the Company attains the
Minimum Performance Standard for such year, or (ii) the Company does not attain
the Minimum Performance Standard for such year and the Company does not elect to
terminate Executive's employment under Section 4.4 within ninety one days after
the close of such year, one hundred (100) of Executive Shares will constitute
the Released Shares. In the event the Executive's employment is terminated as a
result of his Death or Disability under either Sections 4.2 or 4.3 hereof, and
provided the Company attains the Minimum Performance Standard for the year in
which such termination occurs, the number of Shares that will constitute
Released Shares will be determined by multiplying the number of Shares that
would otherwise have constituted Released Shares by a fraction, the numerator of
which is the number of days in the year that have elapsed prior to termination
of Executive's employment and the denominator of which is 365. Except by
operation of law, Executive Shares will not be transferable by Executive prior
to becoming Released Shares and, if transferred, will remain subject to the
4
<PAGE>
restrictions provided for this Agreement, including those contained in this
Section with respect to the Repurchase Requirement.
1.6 Investment Intent. Executive is acquiring the Executive Shares for
his own account for investment and has no present arrangement (whether or not
legally binding) to sell, at any time, any of the Executive Shares to or through
any Person. Executive understands that the Executive Shares must be held until
registered under the Securities and Exchange Act of 1933 (the "Securities Act")
or an exemption from registration is available.
1.7 Legend. Executive understands that the stock certificates
representing the Executive Shares shall bear legends substantially to the
following effect:
"The Shares represented by the certificates have not been
registered under the Securities Act of 1933. Such Shares have
been acquired for investment and may not be sold, transferred
or assigned in the absence of an effective registration
statement covering such Shares or an opinion of the Company's
counsel that registration is not required under such Act."
"The Shares represented by the certificates are subject to
restrictions on transfer and other restrictions that are
contained in an agreement between Tony Giovaniello and
Boundless Manufacturing Services, Inc., dated July 1, 1999."
2. Compensation
2.1 Base Salary. Executive shall be paid a base salary at the rate of
$150,000 per annum (the "Base Salary", subject to increase (but not reduction),
at the Board's discretion, for example in recognition of superior performance or
competitive compensation practices). Such
5
<PAGE>
salary shall be payable in appropriate installments to conform with the regular
payroll dates for salaried personnel of Boundless Technologies, Inc.
2.2 Cash Bonus. Within 90 days after the last day of each year of the
Employment Term, Executive shall be paid a cash bonus (the "Cash Bonus") based
on satisfaction of the EBITDA objectives described in Schedule 1 attached hereto
(the "Objective") as follows: Cash Bonus = Yearly Bonus Target x Bonus Payment
Multiplier. For this purpose, (i) the Yearly Bonus Target for the first year of
the Employment Term shall be $50,000 and the Yearly Bonus Targets for subsequent
years shall be determined by the Board but shall not be less than $50,000, and
(ii) for each year of the Employment Term, the Bonus Payment Multiplier shall be
determined based on the percentage of the Company's Objective that is realized
for the Employment Term year as set forth below:
Percent Objective Realized Bonus Payment Multiplier
- - -------------------------- ------------------------
0-49% 0.00
50-79 0.75
80-95 0.85
95-10 1.00
101-110% 1.15
111-125% 1.35
126-149% 1.70
150-up% 2.00
2.3 Withholding. The Company shall withhold all applicable federal,
state and local taxes, social security and workers' compensation contributions,
and such other amounts as may
6
<PAGE>
be required by law or agreed upon by the parties, with respect to the
compensation payable to Executive pursuant to this Section 2.
2.4 Provided the Objective has been attained by the Company, not later
than 90 days after the last day of each year of the Employment Term, Boundless
Corporation will issue to Executive a stock option agreement (the "Stock
Option"), pursuant to which Executive may purchase from Boundless shares of
Boundless common stock, $.01 par value, in exchange for shares of common stock
of the Company. The number of shares of Boundless common stock purchasable under
each Stock Option shall be determined by the following formula:
x = (b times .25) times d
-
c
For purposes of this formula: (i) x = the number of shares of Boundless common
stock purchasable under the Stock Option, which shall not exceed 75,000 Shares
(the "Option Limit"), (ii) b = Executive's percentage ownership of the capital
stock of the Company on the test date times the earnings available to the
Company's shareholders for the year, (iii) c = the earnings available to
Boundless' shareholders for the year, and (iv) d = the number of shares of
common stock of Boundless Corporation which is outstanding on the test date. The
test date shall mean the last day of the relevant year of the Employment Term.
In the event (b) is greater than (c), (b) over (c) in the formula will equal one
(1).
The exchange ratio between the Company's common stock and the Boundless
common stock covered by the Stock Option shall be 100 Shares of the Company's
common stock for the number of Shares of Boundless common stock equal to "x" in
the above formula, except for this purpose, "x" is computed without reference to
the Option Limit. The Stock Option shall provide that only Released Shares can
be transferred to Boundless in exchange for Boundless common stock. The Stock
Option will be exercisable during the period commencing 12 months after it is
7
<PAGE>
issued by Boundless and ending the earlier of (i) sixty months after its
issuance, or (ii) on the date that the Securities and Exchange Commission (the
"SEC") declares a registration statement or Form 10 filed by the Company
effective under either the Securities and Exchange Acts of 1933 or 1934 (a
"Registration Statement" and "Form 10," respectively). Boundless will have the
option to redeem the common stock purchased on exercise of the Stock Option for
a period of four (4) months after its exercise for an amount equal to the common
stock's average closing prices for a five day period on the American Stock
Exchange or other market on which the Common Stock is then trading. No Stock
Options will be issued with respect to any year, if the event described in (ii)
in the preceding sentence has occurred.
3. Expenses and Additional Benefits
3.1 Expenses. The Company shall reimburse Executive for all ordinary
and necessary expenses incurred by Executive in furtherance of the business and
affairs of the Company, including reasonable travel and entertainment, against
receipt by the Company of appropriate vouchers or other proof of Executive's
expenditures and otherwise in accordance with the Company's expense
reimbursement policy that has been approved by the Board of the Company.
3.2 Vacation. Executive shall be entitled to four weeks of paid
vacation during each year of the Employment Term, or such greater number of days
as the Company makes available to its senior executive officers, as well as such
paid holiday and leave time and sick leave benefits as is provided generally to
the senior executive officers of Boundless Technologies, Inc.
3.3 Fringe Benefits. Executive shall be entitled to participate,
commencing as of the date hereof, in all employee pension, retirement, savings,
deferred compensation, welfare,
8
<PAGE>
insurance and other benefit and fringe benefit plans, programs and arrangements
provided to the employees and senior executive officers of Boundless
Technologies, Inc., generally, from time to time, according to the terms of such
plans, programs and arrangements but, except for discretionary bonuses or
awards, in no event on terms and conditions less favorable than those applicable
to the senior executive officers of Boundless Technologies, Inc. (herein, the
"Employee Plans"). Executive shall receive those perquisites and other personal
benefits made available to the other senior executive officers of Boundless
Technologies, Inc., generally, from time to time.
3.4 Indemnification. The Company shall indemnify Executive to the
fullest extent permitted under the laws of the State of Delaware, and not
inconsistent with the Company's Certificate of Incorporation and By-Laws, as in
effect from time to time. During the term of this Agreement, the Company will
use its best efforts to cause Boundless Corporation to include Executive in its
officers and directors insurance policy, as may exist from time to time.
4. Termination
4.1 By the Company for Cause. The Company may terminate the Employment
Term "for Cause," which shall mean and be limited to the following events: (a)
Executive's conviction in a court of law of a felony or a crime under United
States law punishable by confinement for a period in excess of three months; (b)
Executive's commission of an act of fraud in the performance of his duties
hereunder; or (c) Executive's material breach of his duty of loyalty to the
Company or any of the covenants set forth in Sections 5.2, and 7.
Upon termination pursuant to this Section 4.1 or Executive's
termination of this Agreement other than for Good Reason (as defined below), the
Company shall have no further obligation to Executive under this Agreement
except to pay Executive within 30 days, in lieu of
9
<PAGE>
amounts otherwise payable hereunder, the Base Salary payable to the date of
termination and amounts due as reimbursement of expenses pursuant to Section
3.1. In such case, in addition to any other remedies the Company may have, the
Company shall have no further obligation to make any Cash Bonus payments to
Executive (as set forth in Section 2.2 hereof), or any other payments
contemplated under this Agreement, to Executive with respect to the year in
which the Executives employment is terminated and for each succeeding year (but
not any prior year), the Stock Options previously granted to Executive shall be
cancelled and the Company shall have the right to purchase all, or a part of,
the Executive Shares for $5.00 per share (Executive's original out-of-pocket
cost per share) not later than one year after termination.
4.2 Death. If Executive dies during the Employment Term, the Company
shall, within 30 days, pay Executive's estate, in lieu of amounts otherwise
payable hereunder (a) the Base Salary payable to the date of his death, (b) any
Cash Bonus to which Executive is entitled pursuant to Section 2.2 in respect of
the Employment Term year immediately preceding the year of the date of
Executive's death and (c) amounts due as reimbursement of expenses pursuant to
Section 3.1. Furthermore, Executive's rights with respect to the Stock Options
previously granted to Executive shall remain in place and be governed by the
terms of the relevant Stock Option Agreements and the Company shall have the
right to purchase all, or a part of, the Executive Shares which are not Released
Shares for $5.00 per share (Executive's original out-of-pocket cost per share),
by giving written notice to Executive's Estate, Executor, or personal
representative, not later than 60 days after Death; such purchase to take place
as soon as possible thereafter.
4.3 Disability. In the event that (i) Executive is unable substantially
to perform his duties hereunder because he is Disabled (as defined below) for a
period of 45 consecutive days
10
<PAGE>
or 60 days within any period of 12 consecutive months and (ii) the Company shall
have given to Executive 10 days notice of its intention to terminate the
Employment Term pursuant to this Section 4.3 and Executive does not resume
substantially all of his duties under this Agreement before the expiration of 10
days following the date Executive receives such notice, then the Company may, at
any time during the continuance of such disability, terminate the Employment
Term on written notice to Executive. For purposes of this Agreement, the term
"Disabled" shall mean the inability of Executive for medical reasons certified
by a physician selected by the Board and reasonably satisfactory to Executive or
his personal representative(s) to substantially perform his duties hereunder.
Upon such termination, Executive shall have no further obligation to perform
services for the Company under this Agreement and the Company shall pay
Executive promptly (but in no event later than 20 days), in lieu of the amounts
that would otherwise be payable hereunder, (x) consistent with the policy in
effect at Boundless Technologies, Inc. with respect to employee sick leave, the
Base Salary payable for the period ending 5 days after Executive's absence from
work first commenced, (y) any Cash Bonus, in respect of the Employment Term year
immediately preceding the year of the date of such termination, and (z) amounts
due as reimbursement of expenses pursuant to Section 3.1. Furthermore,
Executive's rights with respect to the Stock Options previously granted to
Executive shall remain in place and be governed by the terms of the relevant
Stock Option Agreements and the Company shall have the right to purchase all, or
a part of, the Executive Shares which are not Released Shares for $5.00 per
share (Executive's original out-of-pocket cost per share), by giving written
notice to Executive or to his personal representative, as the case may be, not
later than 60 days after Disability; such purchase to take place as soon as
possible thereafter. The Company shall also continue Executive's health
insurance then provided by the
11
<PAGE>
Company, at the Company's expense, for four months following termination of the
Employment Term pursuant to this Section 4.3.
4.3.1 The wage continuation (with respect to Base Salary), sick leave,
and other policies with respect to absences from work due to sickness, which
apply to employees of Boundless Technologies, Inc., will apply to Executive
hereunder.
4.4 By Company for Failure to Attain Minimum Performance Standings. The
Company may terminate the Employment Term due to the Company's failure to attain
Minimum Performance Standards, as set forth on Schedule 1, attached hereto. Upon
such termination, Executive shall have no further obligation to perform services
for the Company under this Agreement and, except as set forth in Section 1.5
hereof, the Company shall be released from all obligations to Executive under
this Agreement and Executive shall receive from the Company a continuation of
his Base Salary (at the rate and pursuant to the payment schedule in effect
prior to the date of termination) for a six-month period following the date of
termination, which amounts will be reduced by amounts received by Executive as a
result of substitute employment. Provided any subsequent employer does not
provide Executive with health insurance coverage, the Company shall also
continue Executive's health insurance then provided by the Company, at the
Company's expense, for six months following the termination of the Employment
Term pursuant to Section 4.4. Furthermore, Executive's rights with respect to
the Stock Options previously granted to Executive shall remain in place and be
governed by the terms of the relevant Stock Option Agreements and the Company
shall have the right to purchase all, or a part of, the Executive Shares which
are not Released Shares for $5.00 per share (Executive's original out-of-pocket
cost per share), by giving written notice to Executive, not later than 60 days
after Termination; such purchase to take place as soon as possible thereafter.
12
<PAGE>
4.5 By the Executive for Good Reason. The Executive may terminate the
Employment Term for Good Reason by giving at least 60 days prior written notice
to the Company of such election and the facts constituting each Good Reason for
Executive's termination of the Employment Term, provided at least one such Good
Reason continues to be a Good Reason on the effective date of such termination.
4.6 Termination For Other Than: (a) Cause (b) Death,
(c) Disability, (d) Failure of Minimum Performance Standards or Termination by
Executive For Good Reason.
(a) In general. If (i) the Company terminates Executive's
employment hereunder, and such termination of employment is for other than (A)
Cause (pursuant to Section 4.1 hereof), (B) Executive's death or disability
(pursuant to Section 4.2 or 4.3 hereof), or (C) the Company's failure to obtain
the Minimum Performance Standards, (pursuant to Section 4.4 hereof); or (ii)
Executive terminates his employment for Good Reason, Executive shall receive
from the Company, as liquidated damages, the following compensation: (1) a
continuation of his Base Salary (at the rate and pursuant to the payment
schedule in effect immediately prior to the date of termination) for an 18-month
period following the date of termination, (2) on or before 45 days after the
close of the Employment Term year within which the termination occurs, Executive
shall receive from the Company the amount calculated as a pro rata portion
(determined on a pro rata daily basis), through the date of termination, of the
Cash Bonus pursuant to Section 2.2 of this Agreement to which Executive would
have been entitled had he remained continuously employed by the Company through
the end of the Employment Term year within which termination occurs, (3) all
incentive stock options issued to the Executive by the Company prior to his
termination shall become immediately vested and exercisable pursuant
13
<PAGE>
to the terms of the option agreements, and (4) all Executive Shares, which are
not Released Shares, will no longer be subject to the Repurchase Requirement and
will immediately become Released Shares owned by Executive without any
restrictions. The Company shall also continue Executive's health insurance then
provided by the Company, at the Company's expense, for 18 months following
termination of the Employment Term pursuant to this Section 4.6.
(b) Good Reason. For purposes of this Agreement, "Good
Reason" shall mean any of the following:
(i) the assignment to Executive of any duties inconsistent
substantially with Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities under this
Agreement (other than in the nature of a promotion);
(ii) any reduction by the Company of Executive's Base Salary
or reduction of the Yearly Bonus Target below $50,000 for any year;
(iii)any material breach by either the Company or Boundless
Corporation of any provision of this Agreement not cured within any cure period
provided in this Agreement, or in the absence thereof, not cured within 45 days
after written notice by Executive to the Company;
(iv) abandonment by the Company of its contract
manufacturing business;
(v) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than Boundless Corporation, becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing 40% or more of
the combined voting power of the outstanding securities of the Company except
where the events described in this paragraph result in the incumbent directors
of the Company prior to such events continuing to constitute more than 50% of
the Board of Directors;
14
<PAGE>
(vi) the shareholders of the Company approve (A) a merger or
consolidation of the Company with any other entity (other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent, either by
remaining outstanding or by being converted into voting securities of the
surviving entity, at least 50% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation), (B) a plan of complete liquidation or dissolution
of the Company or (C) the sale or disposition, in a single transaction or series
of related transactions, by the Company of all or substantially all of the
property and assets of the Company, except where the events described in the
foregoing (A) or (C) result in the incumbent directors of the Company prior to
such events constituting at least a majority of the board of the surviving
corporation or its parent (as such term is defined in Rule 12b-2 under the
Exchange Act); or
(vii)removal of the Executive from the Board.
5. Protection of Confidential Information
5.1 Confidential Information. As used in this Section 5, the term
"Confidential Information" shall mean information relating to the Company or any
of its affiliates including, but not limited to, information relating to the
Business Plan and the Company's strategies, intellectual property, products and
products being developed, customer lists and potential customer lists, strategic
partners or participants and marketing and sales methods unique to the Company.
Confidential Information excludes information which is independently developed
by a recipient of the information, or which is in the public domain, or which
becomes available to a recipient on a non-confidential basis without violating
Section 5 of this Agreement, or which is required to be disclosed by law.
15
<PAGE>
5.2 Nondisclosure of Confidential Information. Executive shall not, at
any time during the Employment Term (other than as may be required in connection
with the performance by his of her duties hereunder) and for two years or
thereafter, directly or indirectly, use, communicate, disclose or disseminate
any Confidential Information in any manner whatsoever.
In the event Executive is requested or required (by oral questions,
interrogatories, requests for information or similar legal process) to disclose
any Confidential Information, Executive will provide the Company with prompt
notice thereof so that the Company may seek an appropriate protective order
and/or waive Executive's compliance with the provisions of this Section 5.2.
6. Non-Competition
6.1 Material Inducement. Executive acknowledges that his
agreements contained in Section 6.2 are an important inducement to the Company's
executing this Agreement.
6.2 Covenants.
(a) If (i) the Company terminates Executive's employment
hereunder, and such termination of employment is for Cause (pursuant to Section
4.1 hereof), or (ii) Executive terminates his employment for other than Good
Reason, then during the period commencing on the date of termination of
Executive's Employment and ending 12 months following the termination of the
Executive's employment with the Company, Executive shall not, except on behalf
of the Company, directly or indirectly, whether as an officer, director,
shareholder, partner, member, associate, employee, consultant, agent or
representative, become or be interested in, or associated with, any other
person, firm, company, partnership or other entity whatsoever, engaged in a
business that is similar or comparable and competitive with the business
conducted by the Company during the Employment Term in any of the markets where
16
<PAGE>
the Company is carrying on such business or has targeted for business
development; provided, however, that Executive may own as an investor securities
of any Company whose securities are registered under the Securities Act, so long
as she is not an affiliate (as defined in Rule 405 under such Act) of such
Company.
(b) In all events, Executive shall not, directly or
indirectly, during the period commencing on termination of Executive's
Employment, and ending 12 months after Executive's employment with the Company
expires or terminates for any reason, induce or attempt to induce any employee
or agent of, or consultant to, the Company or any of the Company's affiliates to
terminate his or her employment or consultancy with the Company.
(c) Except for those persons described in Section 6.2(c)
above, in no event, at any time, shall Executive request any person or entity to
curtail or cancel its business relationship with the Company.
7. Inventions
(a) Executive agrees to disclose to the Company all
inventions, designs, product developments, technological innovations, know-how,
tests, performance data and processes ("Inventions"), whether or not patentable,
copyrightable or subject to trademark or service mark, made or conceived by
Executive, directly or indirectly, during the term of this Agreement and that
relate in any way to the business of the Company, whether or not made or
conceived by Executive during working hours. Executive agrees that all such
Inventions shall inure to, and be the property of, the Company.
(b) Executive agrees (i) to assign to the Company, its
successors and assigns, all of Executive's right, title and interest in and to
any such Inventions, (ii) during and after the term of this Agreement, at the
Company's expense, cooperate with the Company in the
17
<PAGE>
preparation and filing of such patent applications and other documents and
instruments as the Company shall deem appropriate to perfect and protect its
rights in and to such Inventions, and (iii) to protect and defend the Company's
right, title and interest in and to any such Inventions, at the Company's
expense.
(c) Except as required in the conduct of the Company's
business or in the discharge of his duties and responsibilities hereunder,
Executive will not publish or disclose, or authorize or permit anyone to publish
or disclose, during or after the term of this Agreement, any proprietary
knowledge or information concerning any Invention.
8. Injunctive Relief
(a) Executive agrees that a violation of the covenants set
forth in Sections 5.2, 6 and 7, or any provision thereof, will cause irreparable
injury to the Company and that the Company shall be entitled, in addition to any
other rights and remedies it may have, at law or in equity, to an injunction
enjoining and restraining Executive from doing or continuing to do any such act
or other violations or threatened violations of Sections 5.2, 6 and 7.
9. Dispute Resolution
(a) Any and all disputes, claims or controversies arising out
of or relating to this Agreement that are not resolved within 10 business days
shall be submitted to final and binding arbitration in New York City before
J-A-M-S/ENDISPUTE, or its successor, pursuant to the United States Arbitration
Act, 9 U.S.C. Sec. 1 et seq. Either party may commence the arbitration process
called for in this Agreement by filing a written demand for arbitration with
J-A-M-S/ENDISPUTE, with a copy to the other party. The arbitration will be
conducted in accordance with the provisions of J-A-M-S/ENDISPUTE's Streamlined
Arbitration Rules and Procedures in effect at the time of filing of the demand
for arbitration. The parties will cooperate
18
<PAGE>
with J-A-M-S/ENDISPUTE and with one another in selecting an arbitrator from
J-A-M-S/ ENDISPUTE's panel of neutrals, and in scheduling the arbitration
proceedings so that a final determination can be made within 30 days after
submission to arbitration. The parties covenant that they will participate in
the arbitration in good faith, and that they will share equally in its costs.
However, once an award is rendered, the losing party shall be responsible for
paying all of the winner's reasonable costs and expenses of the arbitration,
including reasonable attorney's fees. The provisions of this Section 9 may be
enforced by any Court of competent jurisdiction, and the party seeking
enforcement shall be entitled to an award of all reasonable costs, fees and
expenses, including attorneys' fees, to be paid by the party against whom
enforcement is ordered. 10. Company Operational Issues
10.1 Plant Capacity. Boundless Corporation will use its reasonable
efforts to make available to the Company the underutilized manufacturing
capacity, as it may exist from time to time, at its manufacturing facility,
located at 100 Marcus Boulevard, Hauppauge, New York 11788, for which the
Company will be charged based on costs competitive with that prevailing in the
EMS Industry. Boundless Corporation will use best efforts to advance to the
Company the working capital required under the Company's Business Plan,
consistent with Boundless Corporation's and its affiliates' working capital
requirements and with the consent of Boundless Corporation's lenders, as may be
required under its loan agreements. Boundless Corporation understands that the
provision of the capital required for the operation of the Company's business is
a material inducement for the Executive to enter into this Agreement.
10.2 Board of Directors. The Company's Board of Directors will consist
of Joseph Joy, Anthony Giovaniello and three individuals nominated by Boundless
Corporation.
19
<PAGE>
Boundless Corporation will select the Chairman of the Board and until the SEC
declares a Registration Statement or a Form 10 filed by the Company effective
and provided Executive remains employed by the Company, the Company will vote
its shares to Elect Executive to the Board. Subject to the Company's By-Laws,
each director shall serve until his successor is elected, or appointed or
qualified, or until his earlier death, resignation or removal.
10.3 Officers. The initial officers of the Company shall consist of J.
Gerald Combs, who shall serve as the Company's Chief Executive Officer, Joseph
Joy, as the Chief Operating Officer, Anthony Giovaniello, as Executive
Vice-President, and Joseph Gardner, as Chief Financial Officer.
11. Miscellaneous
11.1 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed duly given when delivered by
hand receipt acknowledged (which shall include delivery by Federal Express or
similar service and by facsimile) or three days after mailing, if mailed
registered or certified mail, postage prepaid, return receipt requested, in each
case addressed to Executive at his address in the Company's records and or to
the Company at its address above, with copies sent in the same manner:
If sent to the Company, to:
Boundless Manufacturing Services, Inc.
c/o Boundless Technologies
100 Marcus Boulevard
Hauppauge, NY 11788
with a copy to:
20
<PAGE>
Fischbein Badillo Wagner Harding
909 Third Avenue
New York, NY 10022
Attn: Joseph L. Cannella, Esq.
If sent to Executive, to:
Tony Giovaniello
3400 Forest Hills Court
Redding, CA 96002
with a copy to:
Joseph Joy
434 Highwater Court
Chapin, SC 29063
or to such other address as either party hereto shall have designated by like
notice to the other party hereto.
11.2 Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements and undertakings of the parties hereto, oral and
written, with respect to the subject matter hereof.
11.3 Applicable Law. This Agreement shall be governed by the laws
of the State of New York, without regard to principles of conflict of laws.
21
<PAGE>
11.4 Headings. The headings herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
11.5 Assignment. This Agreement and the benefits hereunder are personal
to the Company and Executive and are not assignable or transferable by either of
them, nor may the services to be performed hereunder be assigned by the Company
to any person, firm or company; provided, however, that this Agreement and the
benefits hereunder may be assigned by the Company to any company acquiring all
or substantially all of the assets of the Company or to any company into which
the Company may be merged or consolidated, and this Agreement and the benefits
hereunder will automatically be deemed assigned to any such company; provided
further, however, that nothing herein shall preclude Executive's beneficiary,
legatee or devisee or the legal representative of Executive or his estate from
receiving any amount or benefit that may be payable or provided to or in respect
of Executive hereunder following his death or legal incompetency.
11.6 Severability. If in any jurisdiction any term or provision hereof
is invalid or unenforceable, (a) the remaining terms and provisions thereof
shall be unimpaired, (b) any such invalidity or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction and (c) the invalid or unenforceable term or provision shall,
for purposes of such jurisdiction, be deemed replaced by a term or provision
that is valid and enforceable and that comes closest to expressing the intention
of the invalid or unenforceable term or provision (but such replacement shall
not in any case be more restrictive or burdensome on Executive or the Company).
22
<PAGE>
11.7 Amendment; Waiver. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended and the terms or covenants hereof may
be waived, only by a written instrument executed by both of the parties hereto,
or in the case of a waiver, by the party waiving compliance. The failure of
either party at any time or times to require performance of any provision hereof
shall in no manner affect the right at a later time to enforce the same. No
waiver by either party of the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or construed as, a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in
this Agreement.
11.8 Right of First Refusal. If, at any time prior to the Company's
consummating a "public offering" of its Capital Stock, pursuant to a
registration statement declared effective by the Securities and Exchange
Commission under the Securities and Exchange Act of 1933, the Executive receives
a bona fide written offer from a third party to purchase all or a part of the
Executive Shares or any Shares Acquired by Executive by exercise of incentive
stock options ("Option Shares") (a "Purchase Offer"), then the Executive shall
immediately give notice enclosing a copy of the Purchase Offer to Boundless, and
Boundless shall have the option, exercisable within thirty (30) days after such
notice is given, to purchase the Executive Shares and/or Option Shares at the
same price and upon the same terms as those contained in the Purchase Offer. In
the absence of such purchase by Boundless Corporation, Executive may sell all or
a portion of the Executive Shares to the third party, pursuant to the terms
described in the Purchase Offer. Any modification of such bona fide written
offer by said third party shall constitute a new offer hereunder and thus must
be submitted by Executive to Boundless Corporation under this Section 11.8.
23
<PAGE>
11.9 Survival. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
11.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the date first above written.
BOUNDLESS MANUFACTURING SERVICES, INC.
By: /s/
---------------------------------
Authorized Signatory
/s/
---------------------------------
Tony Giovaniello
The undersigned hereby guarantees the performance of the
Company's obligations set forth this Agreement.
BOUNDLESS CORPORATION
By: /s/
-------------------------------------
24
Exhibit 10(m)
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.
<PAGE>
Boundless Technologies, Inc.
September 30, 1999
Page 2
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 (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
<PAGE>
Boundless Technologies, Inc.
September 30, 1999
Page 3
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 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
<PAGE>
Boundless Technologies, Inc.
September 30, 1999
Page 4
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
(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.
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.
Boundless hereby represents and warrants to GA as follows:
<PAGE>
Boundless Technologies, Inc.
September 30, 1999
Page 5
(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:
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
<PAGE>
Boundless Technologies, Inc.
September 30, 1999
Page 6
(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 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.
<PAGE>
Boundless Technologies, Inc.
September 30, 1999
Page 7
(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 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.
<PAGE>
Boundless Technologies, Inc.
September 30, 1999
Page 8
(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.
(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,
<PAGE>
Boundless Technologies, Inc.
September 30, 1999
Page 9
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 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
<PAGE>
Boundless Technologies, Inc.
September 30, 1999
Page 10
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.
12. 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.
(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.
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.
<PAGE>
Boundless Technologies, Inc.
September 30, 1999
Page 11
By: /s/ Jane Christie
--------------------------------------
Jane Christie, Chief Executive Officer
GENERAL AUTOMATION LLC
By: /s/ Jane Christie
The undersigned hereby agrees to the foregoing.
BOUNDLESS TECHNOLOGIES, INC.
By: /s/ J Gerald Combs
--------------------------------------
(Signature)
Its: J. G. Combs, CEO
(Please print name and title)
<PAGE>
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>
LIST OF EXHIBITS TO AGREEMENT
between General Automation, Inc. and
Boundless Technologies, Inc.
dated September 30, 1999
A. $250,000 Promissory Note - Filed with 10-K
B. $500,000 Promissory Note - Filed with 10-K
C. Registration Rights Agreement*
D. Loan Agreement*
E. Form of Secured Convertible Promissory Note - Filed with 10-K
F. Form of Warrant - Filed with 10-K
G. Form of Security Agreement*
H. Form of Investors' Rights Agreement*
I. Form of Subordination Agreement*
J. Form of Intercreditor Agreement*
* These exhibits have been omitted from Registrant's filing with the
Commission but Registrant will provide any such omitted exhibits to the
Commission upon its request.
Exhibit 10(n)
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>
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: /s/ Jane Christie
---------------------------------
Its: President & CEO
2
Exhibit 10(o)
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.
<PAGE>
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: /s/ Jane Christie
-----------------
Its: President & CEO
2
Exhibit 10(p)
THE SECURED CONVERTIBLE PROMISSORY NOTE EVIDENCED OR CONSTITUTED
HEREBY, AND ALL SHARES OF COMMON STOCK ISSUA13LE HEREUNDER, HAVE BEEN AND WILL
BE ISSUED WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 19332 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
September 30, 1999
FOR VALUE RECEIVED, the undersigned, GENERAL AUTOMATION, INC., a Delaware
corporation ("Maker"), promises to pay to the order of
., 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 or at such other place as Holder may designate to Maker in
writing from time to time, the principal sum of
., 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 (lst) 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 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.
<PAGE>
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 endorsers 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.
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
<PAGE>
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 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:
Exhibit 10(q)
WARRANT
THE WARRANT EVIDENCED OR CONSTITUTED HEREBY, AND ALL SHARES OF COMMON
STOCK ISSUABLE HEREUNDER, HAVE BEEN AND WILL BE ISSUED WITHOUT REGISTRATION
LINDER 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 GENERAL AUTOMATION, INC.
(Subject to Adjustment)
NO._________________
THIS CERTIFIES THAT, for value received, , 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 General Automation,
Inc., a Delaware corporation (the "Company"),
shares of Warrant Stock (as defined in
section 1 below) of the company at a price per share of Forty Five Cents ($0.45)
(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 September 30, 1999 (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, however, that if the Holder objects in good faith to
such determination, then such value shall be determined by an independent
valuation firm
<PAGE>
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 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.
<PAGE>
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.
2.5 HSR. 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
<PAGE>
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"); provide,
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
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 Share . 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
<PAGE>
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 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.
<PAGE>
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 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
<PAGE>
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 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 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.
<PAGE>
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
nonassessable 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
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,
<PAGE>
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.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the Effective Date.
GENERAL AUTOMATION, INC.
By: By:
EXHIBIT 21
LIST OF SUBSIDIARIES OF
BOUNDLESS CORPORATION
I. Boundless Acquisition Corp. (a Delaware corporation), a non-operating
subsidiary of Boundless Corporation.
Boundless Technologies, Inc. (a Delaware corporation), a subsidiary of
Boundless Acquisition Corp.
Boundless Technologies International, B.V. (a Netherlands corporation), a
subsidiary of Boundless Technologies, Inc.
II. Boundless Manufacturing Services, Inc. (a Delaware corporation), a
subsidiary of Boundless Corporation.
III. Merinta Inc. (a Delaware corporation), a subsidiary of Boundless
Corporation.
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
Boundless Corporation
We hereby consent to the incorporation by reference in the registration
statements of Boundless Corporation on Form S-8 (File Nos. 33-95846, 33-81106,
33-86896 and 333-76597) of our report dated February 11, 2000 on our audits of
the consolidated financial statements and schedules of Boundless Corporation and
Subsidiaries, which report is included in this Annual Report on Form 10-K for
the year ended December 31, 1999.
BDO Seidman, LLP
Melville, New York
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000837472
<NAME> Boundless Corporation
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Dec-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,285
<SECURITIES> 0
<RECEIVABLES> 13,005
<ALLOWANCES> 627
<INVENTORY> 13,751
<CURRENT-ASSETS> 31,862
<PP&E> 16,357
<DEPRECIATION> 5,370
<TOTAL-ASSETS> 50,460
<CURRENT-LIABILITIES> 13,920
<BONDS> 14,206
0
0
<COMMON> 45
<OTHER-SE> 21,370
<TOTAL-LIABILITY-AND-EQUITY> 50,460
<SALES> 80,510
<TOTAL-REVENUES> 80,510
<CGS> 56,698
<TOTAL-COSTS> 56,698
<OTHER-EXPENSES> (3,711)
<LOSS-PROVISION> 380
<INTEREST-EXPENSE> 1,438
<INCOME-PRETAX> 2,906
<INCOME-TAX> (333)
<INCOME-CONTINUING> 3,239
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,239
<EPS-BASIC> 0.72
<EPS-DILUTED> 0.72
</TABLE>
