<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (FEE REQUIRED) For the fiscal year ended DECEMBER 31, 1995
- -- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED) For the transition period from to
------------
------------
Commission file number 0-17864
DAWN TECHNOLOGIES, INC.
(Name of Small Business Issuer in its Charter)
DELAWARE 13-3493060
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
560 WHITE PLAINS ROAD, TARRYTOWN, NEW YORK 10591
(Address of Principal Executive Office) (Zip Code)
(914) 332 - 4505
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of Each Class Name of Each Exchange on Which Registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK $.001 PAR VALUE PER SHARE
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statement incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ ]
The issuer's revenues for its most recent fiscal year were $6,920,458.
The aggregate market value of the voting stock held by non-affiliates (persons
other than directors and officers of the Registrant) of the Registrant was
$777,973 based upon a market value per share of $0.125 per share, representing
the average of the bid and ask price of the Registrant's common stock on March
15, 1996.
There were 9,036,478 shares of the Registrant's $.001 par value per share common
stock outstanding at March 15, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Information contained in the Proxy Statement for the 1996 Annual Meeting of
Stockholders of the Registrant is incorporated by reference into this Form
10-KSB at Part III, Items 9, 10, 11 and 12.
Transition Small Business Disclosure Format (check one): Yes No X
----
1
<PAGE> 2
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
General
Dawn Technologies, Inc. (the "Company") was incorporated in the state of
Delaware in 1987. As used herein, the Company refers to Dawn Technologies,
Inc. and its wholly owned subsidiaries, Dawn Special Systems Corp. and
Dawn Products Corp. The Company's corporate office is located at 560 White
Plains Road, Tarrytown, New York, 10591 and its telephone number is (914)
332-4505. The Company is primarily involved in the manufacture and
assembly of component parts made to customer specifications and the repair
and resale of certified spare computer parts.
Business Development
During 1995 John McTigue resigned as president and chief executive officer
and a director of the Company. Dennis DiDonato and Nicholas Garruto were
appointed to the "Committee of the Chief Executive Officer and Chief
Operating Officer" of the Company. Mr. Garruto continues to serve as the
Company's Treasurer and Chief Financial Officer. Mr. Garruto is a
certified public accountant in public practice who has agreed to join the
Company on a part time basis to fulfill the duties described above.
The Company concentrated its efforts in the development of its manufacture
and assembly business in 1995. This business is generally subject to
competitive bidding and performance qualification requirements. During
1995, the Company was a frequent bidder on jobs offered by the United
States Defense Department (USDD) and the United States Postal Service
(USPS). The Company continues to review potential bid packages and submit
bids when the item appears to suit the Company's qualifications.
In May 1995, the Company acquired certain design information, including
patents, related to the development of "Cluster Box Units" (CBU) for
potential sale to the USPS. The USPS has developed specifications for
three types of CBUs and is in the process of certifying vendors that have
submitted design information and prototypes which meet the specifications.
In January 1996, the Company submitted a prototype and design information
for one of the CBU types. The Company is in the process of developing
design information for the other two CBU types specified by the USPS. If
approved, the Company will be able to bid on potential future USPS
procurement of CBUs. The USPS has advised the Company that it plans to
limit bidders on CBU procurement to approved vendors; however, even if the
Company is approved, a competitive market will exist.
The Company repairs and refurbishes computer parts for resale as spare
parts to International Business Machines Corp. (IBM). During 1995, the
Company continued to experience a decrease in sales of refurbished
computer spare parts. This decrease was due primarily to the
reorganization taking place at IBM. Although the future is uncertain, the
Company continues to pursue sales opportunities with IBM and other
computer and office equipment manufacturers and servicers.
Principal Products and Services
The Company's principal products are summarized below:
MANUFACTURE AND ASSEMBLY - The Company manufactures mechanical
devices for use by the USPS in the automatic sorting of first
class mail. The Company also provides spare parts for these
items. The Company manufactures parts used by the USDD including
equipment used in developing night vision capability and mounting
equipment used on certain vehicles. In addition, the Company
manufactures certain electro-mechanical components which are used
by IBM in its high speed impact printers. The Company generally
machines the metal parts of these products and uses
subcontractors for certain plating or treating processes required
on these parts. The Company is required to purchase many of the
materials used and, accordingly, is required to maintain
substantial inventory levels of materials at certain times in
order to satisfy production and shipping requirements. The
Company often buys material at the start of a program in order to
lock in its cost of materials creating high inventory levels at
the start of a program. Most materials are available from
numerous sources and the Company has never experienced any
significant difficulty obtaining materials. The Company attempts
to protect itself from price escalations. However, a significant
unanticipated increase in material prices could have a material
adverse effect on the Company because its contracts are generally
fixed-price contracts. Any significant restrictions in the supply
of materials could adversely affect the ability of the Company to
satisfy its delivery obligations.
2
<PAGE> 3
REPAIR AND RESALE OF SPARE COMPUTER PARTS - The Company repairs
computer hardware for resale to IBM as spare parts. In certain
cases the Company has pre-arranged agreements with IBM whereby
certain computer systems are provided to the Company without
charge. In these cases the Company performs refurbishment work,
which may include adding certain parts purchased by the Company,
and sells the refurbished products to IBM at a price which
generally reflects the amount of incremental material and labor
added to the product by the Company. The Company has experienced
a trend of reduced orders for these items since late 1994.
Customers
During 1995 approximately 49% of the Company's sales were to the USPS,
approximately 14% of the Company's sales were to the USDD and
approximately 32% of the Company's sales were to IBM. These three
customers have historically been the principal customers of the Company
and the loss of any of these customers could have a material adverse
effect on the Company.
Contracts with the USPS and the USDD are generally obtained through the
competitive bidding process, require six to eighteen months to complete
and are subject to cancellation or reduction by the contracting agency,
subject to the payment of certain cancellation charges. Orders from IBM
are negotiated and are subject to thirty day cancellation provisions.
Backlog
At December 31, 1995, the Company's sales order backlog was approximately
$6,600,000. These orders will be completed and shipped in 1996 and 1997.
Competition
The Company's business is very competitive. There are generally numerous
other vendors bidding on the contracts the Company obtains with the USPS
and the USDD. The Company also knows of several competitors in its
computer refurbishment, high impact printer and mail sorting cart product
lines. Some of the Company's competitors are larger and have greater
financial resources than the Company. The Company believes that contract
award decisions by its customers are based both on price and performance,
as well as the financial viability of the prospective supplier.
Employees
The Company presently employs approximately 80 full time people. Three of
these employees are employed in management, four are office personnel and
the remainder are hourly employees. The Company's employees are not
represented by a union and the Company believes that its employee
relationships are good.
Patents
The Company owns several patents relating to the automatic mail sorters
and CBUs. The Company does not believe these patents are material to its
business.
ITEM 2 - DESCRIPTION OF PROPERTY
The Company owns an 84,000 square foot manufacturing facility in Blakely,
Pennsylvania and maintains executive offices located in a 1,200 square foot
leased office facility located in Tarrytown, New York.
ITEM 3 - LEGAL PROCEEDINGS
There are no legal proceedings pending or, to the Company's knowledge,
threatened against the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company during
the fourth quarter of 1995.
3
<PAGE> 4
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information - Until October 31, 1994, the Company's $.001 par value per
share common stock was traded on the National Association of Securities Dealers
Automated Quotation System (NASDAQ) "Small Cap" Market under the symbol "DAWN".
Beginning November 1, 1994, the Company's $.001 par value per share common stock
began trading on the NASDAQ Bulletin Board, because the Company did not meet the
NASDAQ "Small Cap" minimum price requirement.
The following table presents the high and low bid prices of the Company's $.001
par value per share common stock, on a quarterly basis in 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---------------------- ----------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First quarter $0.4060 $0.4060 $1.5000 $0.8750
Second quarter $0.2500 $0.1200 $1.0625 $0.6875
Third quarter $0.3750 $0.0630 $0.6875 $0.3750
Fourth quarter $0.3130 $0.0630 $0.5313 $0.1875
</TABLE>
Quotations reflect inter-dealer prices, without retail markup, markdown or
commission and may not represent actual transactions.
As of March 13, 1995, there were approximately 216 holders of record of the
Company's $.001 par value per share common stock.
Dividend Policy - The Company has never paid dividends. The payment of dividends
by the Company is at the discretion of the Board of Directors and will depend
upon the Company's earnings, capital requirements, financial condition and other
relevant factors. The Company does not anticipate paying dividends in the
foreseeable future.
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following is management's discussion of certain significant factors which
have affected the Company's financial position and results of operations during
the years included in the accompanying consolidated financial statements.
1995 vs. 1994 Results of Operations
Sales decreased from $8,520,110 in 1994 to $6,920,458 in 1995, a decrease
of $1,599,652 which is approximately 19% of 1994 sales. Manufacture and
assembly sales decreased from $5,167,386 in 1994 to $4,708,111 in 1995, a
decrease of $459,275 which is approximately 9% of 1994 sales. This
decrease is a primarily the result of the scheduled timing of shipments
under the Company's contracts with the USPS. Computer spare and service
part sales decreased from $3,352,724 in 1994 to $2,212,347 in 1995, a
decrease of $1,140,377 which is approximately 34% of 1994 sales. The
decrease in computer spare and service part sales is the result of lower
order levels received from IBM. IBM is a major customer which accounted
for approximately 32% and 36% of the Company's sales during 1995 and 1994,
respectively. The Company experienced a significant reduction in order
receipts from IBM during the third quarter of 1994 and this trend
continued through 1995.
Future sales beyond the shipments of items in the Company's backlog cannot
be predicted.
Cost of sales as a percentage of sales was approximately 74% in 1995 and
79% in 1994. In 1994, the Company recorded certain inventory write-downs
as a result of the significant decrease in orders received from IBM which
contributed to the cost of sales. The Company had no such write-downs in
1995.
Selling, general and administrative expenses decreased from $3,237,205 in
1994 to $1,405,835 in 1995, a decrease of $1,831,370 which is
approximately 57% of 1994 selling, general and administrative expenses.
This decrease is primarily attributable to lower levels of officers'
compensation in 1995.
In 1995, the Company incurred product development expenses of $82,590
which related to the development of CBUs for potential sale to the USPS,
including $20,000 paid in cash and 275,000 shares of its common stock
(valued at $40,425) which were issued in exchange for certain design
information. The Company did not have any product development expenses in
1994.
As a result of the factors discussed above, the Company had income from
operations of $290,815 in 1995 while it had a loss from operations of
$1,453,164 in 1994.
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<PAGE> 5
Interest expense was $147,697 in 1995 and $109,801 in 1994. Interest is
higher in 1995 because it includes interest expense incurred on the amount
payable under the agreement not to compete received from Andrew D'Aloia, a
former president of the Company. The present value of the amount payable
under this agreement was accrued at the end of 1994 and, accordingly, 1994
interest expense did not include interest on this agreement.
In 1995, the Company sold certain equipment for $43,000 and recorded a
gain of $24,775 on these sales. The Company had no such gains in 1994.
During 1995, the Company abandoned certain computer and communications
equipment and recorded a loss on abandonment of $20,000. During 1994, the
Company abandoned certain leasehold improvements which had a book value of
$48,357 and recorded a loss for this amount.
As a result of these factors, the Company had income before income taxes
of $147,893 in 1995 while it had a loss before income taxes of $1,611,322
in 1994.
In 1994 the Company recorded a provision for income taxes of $177,000
while the Company has recorded no provision for income taxes in 1995. The
provision in 1994 results from the Company recording a valuation allowance
on its deferred tax asset resulting from net operating loss carryforwards.
Accordingly, in 1995, the Company received a tax benefit from these net
operating loss carryforwards which offset income which would otherwise
have been taxable and resulted in no provision for income taxes in 1995.
As a result of all of the factors discussed above the Company had net
income of $147,893 in 1995 while it had a net loss of $1,788,322 in 1994.
Liquidity and Capital Resources
Operating activities provided cash of $249,469 in 1995 and $589,144 in
1994. Operating activities provided cash in 1994 despite the significant
net loss of the Company because the Company was nearing the end of a major
contract with the USPS and was liquidating inventory as it was completing
shipments under this contract. In addition, the Company used cash of
$167,872 in 1995 and $245,623 in 1994 to acquire property and equipment
and repaid long-term debt of $350,000 in 1995 and $344,444 in 1994. The
Company was also able to repay $200,000 of short-term borrowings in 1994
while it borrowed $100,000 under its short-term line of credit in 1995.
The net result was a decrease in cash of $125,939 in 1995 and $200,923 in
1994. The Company had a working capital deficit of $81,962 and a ratio of
current assets to current liabilities of approximately 0.96 to 1.00 at
December 31, 1995. The Company's fiscal 1996 budget projects a cash
deficit. Management of the Company intends to pursue renegotiation of its
bank financing in order to reduce the required debt repayments in order to
eliminate the projected cash deficit.
Inflation
The Company does not believe that inflation will have a significant effect
on its operations because in preparing its bids for contract awards and in
pricing its products, the Company factors in potential price increases in
the costs of material, labor and overhead. The Company's contracts and
sales orders are generally satisfied in relatively short periods of time
therefore minimizing the effect that inflation would have on the Company's
operations.
ITEM 7 - FINANCIAL STATEMENTS
The following is an index to the financial statements and auditors' report filed
as a part of this report:
<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Report of Independent Public Accountants 6
Consolidated Balance Sheet at December 31, 1995 7
Statements for the Years Ended December 31, 1995 and 1994:
Consolidated Statements of Operations 8
Consolidated Statements of Stockholders' Equity 9
Consolidated Statements of Cash Flows 10
Notes to Consolidated Financial Statements 11-15
</TABLE>
5
<PAGE> 6
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Dawn Technologies, Inc.
We have audited the accompanying consolidated balance sheet of Dawn
Technologies, Inc. and subsidiaries (a Delaware corporation) as of December 31,
1995 and the related consolidated statements of operations, stockholders' equity
and cash flows for each of the two years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dawn Technologies, Inc. and
subsidiaries as of December 31, 1995, and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, at December 31, 1995, the Company was not in compliance
with certain covenants of its bank loan agreements and, accordingly, the bank
can request repayment of such loans on demand. In addition, the Company's
projections for 1996 reflect a negative cash flow. These conditions, among
others, raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty. Management's plans in regard
to these matters are also described in Note 2.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
February 29, 1996
6
<PAGE> 7
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1995
<TABLE>
<CAPTION>
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 96,005
Accounts receivable, less allowance for doubtful accounts of $2,500 1,015,925
Inventories 827,735
Other current assets 24,865
-------------
Total current assets $ 1,964,530
PROPERTY AND EQUIPMENT:
Land 52,150
Building and improvements 397,985
Machinery and equipment 601,883
Office equipment 337,536
-------------
1,389,554
Less accumulated depreciation and amortization (732,805)
-------------
656,749
-----------
$ 2,621,279
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank note payable $ 100,000
Current portion of long-term debt 516,667
Current portion of capitalized lease obligations 17,798
Accounts payable and accrued expenses 963,481
Accrued payroll and related liabilities 301,314
Current portion of accrued cost of non-compete agreement 87,710
Income taxes payable 59,522
-------------
Total current liabilities $ 2,046,492
OTHER LIABILITIES:
Capitalized lease obligations, less current portion 69,801
Accrued cost of non-compete agreement, less current portion 358,143
-------------
Total other liabilities 427,944
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 15,000,000 shares
authorized, 9,108,978 shares issued and outstanding 9,109
Capital in excess of par value 2,341,911
Unearned restricted common stock issued (224,066)
Accumulated deficit (1,980,111)
-------------
Total stockholders' equity 146,843
$ 2,621,279
===========
</TABLE>
See the accompanying notes to consolidated financial statements.
7
<PAGE> 8
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
SALES $ 6,920,458 $ 8,520,110
----------- -----------
COSTS AND EXPENSES:
Cost of sales 5,141,218 6,736,069
Selling, general and administrative expenses 1,405,835 3,237,205
Product development expenses 82,590
----------- -----------
Total costs and expenses 6,629,643 9,973,274
----------- -----------
INCOME (LOSS) FROM OPERATIONS 290,815 (1,453,164)
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (147,697) (109,801)
Gain on sale of equipment 24,775
Loss on abandonment of property (20,000) (48,357)
----------- -----------
Total other income (expense) (142,922) (158,158)
----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 147,893 (1,611,322)
----------- -----------
INCOME TAX EXPENSE:
Deferred federal 153,000
Deferred state 24,000
----------- -----------
Total income tax expense 177,000
----------- -----------
NET INCOME (LOSS) $ 147,893 $(1,788,322)
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE $ 0.016 $ (0.223)
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 9,016,855 8,012,718
=========== ===========
</TABLE>
See the accompanying notes to consolidated financial statements.
8
<PAGE> 9
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Unearned
Common Capital Restricted
Common Stock in Excess Common
Shares Par of Par Stock Accumulated
Outstanding Value Value Issued Deficit
----------- ----- ----- ------ -------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1993 7,861,978 $ 7,862 $ 2,059,733 $(172,500) $ (339,682)
Changes in 1994:
Common stock issued under
employee stock bonus plan 997,000 997 248,253 (249,250)
Employee stock bonus shares
earned 30,000
Net loss (1,788,322)
---------- --------- ----------- --------- -----------
Balances, December 31, 1994 8,858,978 8,859 2,307,986 (391,750) (2,128,004)
Changes in 1995:
Common stock issued under
agreement to acquire product
design information 275,000 275 40,150
Employee stock bonus shares
surrendered upon termination
of employment (25,000) (25) (6,225) 6,250
Employee stock bonus shares
earned 161,434
Net Income 147,893
---------- --------- ----------- --------- -----------
Balances, December 31, 1995 9,108,978 $ 9,109 $ 2,341,911 $(224,066) $(1,980,111)
========== ========= =========== ========= ===========
</TABLE>
See the accompanying notes to consolidated financial statements.
9
<PAGE> 10
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
1995 1994
------ -------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 147,893 $(1,788,322)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 123,957 107,673
Allowance for doubtful accounts (17,500) 20,000
Gain on sale of equipment (24,775)
Loss on abandonment of property and equipment 20,000 48,357
Expenses related to restricted common stock earned 161,434 30,000
Common stock issued under agreement to acquire product design
information 40,425
Loans receivable from officers charged to compensation 300,000
Changes in assets and liabilities:
Accounts receivable (100,693) 208,575
Inventories (268,962) 1,050,586
Other assets (54) 34,917
Deferred income taxes 177,000
Accounts payable and accrued expenses 273,857 (357,794)
Accrued payroll and related liabilities (58,032) 321,001
Accrued cost of non-compete agreement (54,147) 500,000
Income taxes payable 6,066 (62,849)
--------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 249,469 589,144
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of property and equipment (167,872) (245,623)
Proceeds from sale of equipment 43,000
--------- -----------
NET CASH USED IN INVESTING ACTIVITIES (124,872) (245,623)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowing 100,000
Repayments of short-term notes payable (200,000)
Repayments of long-term debt (350,000) (344,444)
Payments on capitalized lease obligations (536)
--------- -----------
NET CASH USED IN FINANCING ACTIVITIES (250,536) (544,444)
--------- -----------
NET DECREASE IN CASH (125,939) (200,923)
CASH, Beginning of year 221,944 422,867
--------- -----------
CASH, End of year $ 96,005 $ 221,944
========= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ - $ 73,514
Interest paid $ 113,131 $ 124,090
========= ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the year ended December 31, 1995, the Company acquired machinery
and equipment valued at $88,135 under capitalized lease obligations.
During the year ended December 31, 1994, loans receivable from officers
in the amount of $300,000 were converted into officers' compensation.
See the accompanying notes to consolidated financial statements.
10
<PAGE> 11
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of Dawn
Technologies, Inc. and its wholly-owned subsidiaries, Dawn Special
Systems Corp. and Dawn Products Corp., (collectively referred to as the
"Company"). All significant intercompany transactions have been
eliminated.
Inventories
Inventories are stated at cost, on a first-in, first-out basis, which
does not exceed market value. Until 1994, the cost of certain inventory
which was purchased in bulk was being charged to cost of sales evenly
over the expected period of usage. During 1994, the carrying value of
this inventory was adjusted to its expected salvage value.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation
and amortization. The Company records depreciation and amortization as
follows:
<TABLE>
<CAPTION>
Estimated
Asset Useful Life Principal Method
----- ----------- ----------------
<S> <C> <C>
Building and improvements 31 Years Straight-line
Leasehold improvements 5 Years Straight-line
Machinery and equipment 7 Years Declining-balance
Office equipment 7 Years Declining-balance
</TABLE>
Maintenance and repairs expenditures are charged to operations and
renewals and betterments are capitalized. Items of property and
equipment which are sold, retired or otherwise disposed of are removed
from the asset and accumulated depreciation or amortization accounts
and any gain or loss on the disposition is credited or charged to
operations.
Income (Loss) per Common Share
Income (loss) per common share is computed based upon the weighted
average number of shares outstanding during the year. The effect of
outstanding convertible debt and common stock options is not dilutive
in each of the years presented.
Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued
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". This statement establishes financial
accounting and reporting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. This statement is effective
for financial statements for fiscal years beginning after December 15,
1995, although earlier application is encouraged. The Company has not
concluded its evaluation of the effect, if any, the adoption of SFAS
No. 121 will have on its financial position or results of operations.
In November 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation". This statement establishes a
fair value based method of accounting for an employee stock option or
similar equity instrument but allows companies to continue to measure
compensation cost for those plans using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees". Companies electing to remain with the
accounting under APB No. 25 must, however, make proforma disclosures of
net income and earnings per share as if the fair value based method of
accounting as defined in SFAS No. 123 had been applied. These
disclosure requirements are effective for years beginning after
December 15, 1995.
11
<PAGE> 12
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - LIQUIDITY:
As discussed in Note 6 to the consolidated financial statements, subsequent to
January 1, 1996, the Company was not in compliance with certain covenants of its
bank loan agreements and, accordingly, the bank can request repayment of such
loans on demand. In addition, the Company's projections for 1996 reflect a
negative cash flow.
The Company is in discussions with the bank to obtain a waiver for its
noncompliance with the loan agreements and to reduce the required debt
repayments in order to eliminate the projected negative cash flow. In addition,
management has taken steps to reduce costs by eliminating certain staff and
management positions and has taken steps to conserve cash by delaying certain
contractual payments to a former president of the Company. There is no assurance
that a waiver from the bank and the reduction in the required debt payments will
be obtained nor that the actions taken by management will be sufficient to
enable the Company to meet its obligations as they come due.
The accompanying financial statements have ben prepared assuming that the
Company will continue as a going concern. The conditions discussed above, among
others, raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
NOTE 3 - NOTES RECEIVABLE FROM OFFICERS:
During 1993, the Company loaned $300,000 to two of its officers. These loans
were extended to reimburse the officers for collateral which they had provided
to the Company's lender in order for the Company to secure its short-term and
long-term bank notes payable. The notes were due six months after the return of
the officers' collateral from the lender and, in April 1994, the Company was
able to refinance its debt and the collateral was returned to the officers. When
the notes were due in October 1994, they were forgiven and charged to officers'
compensation. While they were outstanding, the notes earned interest at the rate
the officers received as interest on their collateral which was held in the form
of certificates of deposit by the lender.
NOTE 4 - INVENTORIES:
Inventories at December 31, 1995 are summarized as follows:
<TABLE>
<S> <C>
Finished goods $ 32,847
Work in process 180,755
Raw material 614,133
-----------------
$ 827,735
=================
</TABLE>
The carrying values of certain inventory which had been purchased in bulk in
connection with certain sales contracts held by the Company was reduced to its
estimated salvage value during 1994 resulting in accelerated charges to cost of
sales of approximately $200,000. The cost of this inventory was being charged to
cost of sales evenly over the expected period of usage of three years. However,
management of the Company believes that future sales under these contracts may
not be significant and that the carrying value of the related inventory should
not be greater than the expected salvage value at December 31, 1994 of
approximately $75,000.
NOTE 5 - PROPERTY AND EQUIPMENT:
At December 31, 1995, machinery and equipment includes $65,135 and office
equipment includes $23,000 recorded under capitalized leases. At December 31,
1995, accumulated amortization recorded on assets acquired under capitalized
leases was $12,594.
During the year ended December 31, 1995, the Company abandoned certain computer
and communications equipment. This equipment was acquired in 1995 for a cost of
$20,000 and had not been depreciated at the time it was abandoned.
During 1994, the Company determined that it would cease operations in its Mount
Vernon, New York facility and did so during the fourth quarter of 1994.
Accordingly, the Company recorded a write-off of abandoned leasehold
improvements of $48,357 during 1994.
12
<PAGE> 13
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - NOTES PAYABLE:
The Company has a bank note payable on demand of $100,000 which is secured by
all of the Company's assets and guaranteed by the Company's principal
stockholders. The note payable bears interest at 1.0% above the bank's prime
rate (9.5% at December 31, 1995).
The following is a summary of the Company's long-term debt obligations at
December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Bank note payable in equal monthly installments of $29,167 through
April 1997, plus interest at 1.25% above the bank's prime rate (9.75 %
at December 31, 1995), secured by all of the Company's assets and
guaranteed by the Company's principal stockholders $ 466,667
Subordinated convertible note payable in October 1996,
bearing interest at 10%, convertible into 200,000 shares
of the Company's common stock during the term of the note 50,000
----------------
$ 516,667
================
Aggregate future principal payments on long-term debt are as
follows:
Year ending December 31:
1996 $ 400,000
1997 116,167
----------------
$ 516,667
================
</TABLE>
The Company's loan agreement with its bank requires the Company to maintain
certain financial ratios, as defined, including total debt not exceeding 2.1
times equity, current assets not falling below 1.5 times current liabilities and
earnings not falling below 1.25 times annual debt service requirements. The bank
has waived compliance with these specific financial ratio requirements through
January 1, 1996. Subsequent to January 1, 1996, the Company is not in compliance
with the financial ratio requirements and, accordingly, the entire balance due
on the bank term note payable is classified as current at December 31, 1995,
even though $116,167 of the balance is actually scheduled for repayment in 1997.
NOTE 7 - CAPITALIZED LEASE OBLIGATIONS:
<TABLE>
<CAPTION>
<S> <C>
The following is a summary of capitalized leases at December 31, 1995:
Equipment lease payable in equal monthly installments of
$1,605, including interest at 13.81%, through July 2000 $ 65,135
Equipment lease payable in equal monthly installments of $761,
including interest at 11.75%, through November 1998 22,464
-----------------
87,599
Less current portion 17,798
-----------------
$ 69,801
=================
Aggregate future principal payments on capitalized lease obligations are as
follows:
Year ending December 31: $ 17,798
1996 20,258
1997 22,292
1998 16,516
1999 10,735
2000 -----------------
$ 87,599
=================
</TABLE>
13
<PAGE> 14
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - RELATED PARTY TRANSACTIONS:
The Company was charged approximately $50,000 and $108,000 for consulting
services rendered by one of its directors in 1995 and 1994, respectively.
During 1994, the Company's president announced his retirement. The former
president, who is also a current stockholder of the Company and was a director
of the Company until March 1996, has agreed not to compete with the Company for
a five year period ending December 31, 1999. As consideration for his agreement
not to compete with the Company, the former president will receive $125,000 per
year through December 31, 1999. The present value of payments under this
agreement were accrued in 1994. In September 1995, this former president agreed
to defer the payments due him under this agreement in order to allow the Company
to meet other existing cash commitments. In addition, accrued payroll includes
$197,000 and $200,000 at December 31, 1995 and 1994, respectively, payable to
this former president as compensation for services rendered in 1994. Interest
expense in 1995 includes approximately $54,000 to this former president on the
Company's noncompete agreement and the accrued payroll. During 1994, the Company
also leased office and factory space from this former president. Rent expense
under this lease was approximately $83,000 in 1994.
During 1994, the Company agreed to supplement the interest earned on collateral
provided to the Company's lender by certain members of management so that each
of the providers earned approximately 10% interest on their collateral. Interest
expense includes interest supplements of approximately $13,000 in 1994. During
1994, the collateral was released by the lender and, accordingly, the Company's
commitment to supplement interest was terminated.
During 1994, the Company paid $15,000 to an individual related to the Company's
former president for assistance in the development of certain business
proposals.
NOTE 9 - COMMITMENTS:
In connection with the acquisition of certain product design information for
United States Postal Service "Cluster Box Units", the Company entered into a
royalty agreement whereby the Company has agreed to pay a royalty on revenues
from future sales of Cluster Box Units of 2% of the first twenty million dollars
of revenues, 1% of the second twenty million dollars of revenues and 1/2% of the
next sixty million dollars of revenues.
In October 1995, the Company completed an agreement with its president which
included the president's resignation. Upon his resignation the former president
agreed not to compete with the Company for three years. In exchange for his
resignation and agreement not to compete, the Company has agreed to pay him
$60,000 ($15,000 of which was paid in 1995), to pay for his health insurance
until December 31, 1996 (or earlier if he becomes eligible to participate in
another employer's plan), to vest 237,500 shares of unvested stock previously
issued to him under the Company's stock bonus plan and to pay him a commission
of up to 1/2 of 1% on the first $25,000,000 of sales of "Cluster Box Units" to
the United States Postal Service. Except for the potential commission which is
contingent upon future sales, the costs associated with this agreement have been
accrued at December 31, 1995.
The Company entered into a lease for corporate office space commencing January
1, 1995. This lease expires in March 1997 and requires minimum annual rental
payments of $24,000.
NOTE 10 - MAJOR CUSTOMERS:
Accounts receivable at December 31, 1995 includes approximately $987,000 from
three major customers. Approximate sales to these major customers in 1995 and
1994 are summarized below:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
The United States Postal Service $3,372,000 $3,850,000
The United States Defense Department 969,000 844,000
International Business Machines Corp. 2,198,000 3,106,000
---------- ----------
$6,539,000 $7,800,000
========== ==========
</TABLE>
14
<PAGE> 15
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - STOCKHOLDERS' EQUITY:
Stock Bonus Plan
The Company has a stock bonus plan under which the Company grants shares of
common stock as an incentive. Shares granted prior to 1994 become vested to
the recipients as future services are provided. Shares granted in 1994 vest
to the recipients annually, beginning December 31, 1995, based upon the
Company's profit. Vesting occurs in an amount equal to the number of shares
that 10% of the Company's pre-tax earnings could purchase at the market
price of the Company's stock at the date of grant. Shares vested under the
plan were 420,731 and 30,000 in 1995 and 1994, respectively. Shares vested
in 1995 included 355,000 shares held by two former employees of the Company
for which the Board of Directors approved accelerating vesting prior to the
employees' termination of employment. At December 31, 1995 there are
693,769 unvested shares issued under the plan which are valued at $224,066
and there are 218,000 shares available for grant under the plan.
Stock Option Plan
The Company has a stock option plan under which options to purchase shares
of the Company's common stock are granted at a price equal to the market
price of the stock at the date of grant (110% of the market price for
owners of 10% or more of the Company's common stock). Options are
exercisable in four equal annual installments beginning one year from the
date of grant and can be accumulated so that all shares may be purchased in
years five through ten. Options expire at the end of the tenth year. The
following is a summary of stock option plan activity for 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------- ---------
<S> <C> <C>
Option shares available for grant, beginning of year 306,000 14,000
Option shares added to the plan for grant 1,000,000
Option shares granted (710,000)
Option shares returned to the plan upon employee termination 487,500 2,000
------- ---------
Option shares available for grant, end of year 793,500 306,000
======= =========
</TABLE>
The following is a summary of options outstanding:
<TABLE>
<CAPTION>
Exercise Options Options Options Options
Date Granted Price Granted Exercised Outstanding Exercisable
------------ -------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1989 $0.3750 160,000 78,000 82,000 82,000
1991 $0.3750 145,000 145,000 145,000
1992 $0.4135 400,000 400,000 300,000
1993 $0.4135 100,000 100,000 50,000
1994 $0.3750 325,000 325,000 81,250
1994 $0.2500 80,000 80,000 20,000
--------- ------- --------- -------
1,210,000 78,000 1,132,000 678,250
========= ======= ========= =======
</TABLE>
NOTE 12 - INCOME TAXES:
A reconciliation of tax at federal statutory rates applied to income before
income taxes to federal income tax expense is as follows:
<TABLE>
<CAPTION>
1995 1994
-------- ---------
<S> <C> <C>
Tax at federal statutory rates $ 73,000 $(548,000)
Federal income tax expense (benefit) of operating loss carryforwards (73,000) 701,000
-------- ---------
Federal income tax expense $ -- $ 153,000
======== =========
</TABLE>
The provision for income taxes in 1994 results from recording a valuation
allowance on the Company's deferred tax asset arising from its net operating
loss carryforward. The net operating loss incurred in 1994 created an
uncertainty as to whether the Company will be able to utilize its net operating
loss carryforward and realize its deferred tax asset. Accordingly, management
has elected to record a valuation allowance for the entire amount of its
deferred tax asset. At December 31, 1995 the Company has a net operating loss
carryforward of approximately $1,150,000 for federal income tax purposes.
15
<PAGE> 16
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information required under Item 9 will be contained in a definitive Proxy
Statement relating to the election of directors which will be filed with the
Securities and Exchange Commission within 120 days after the Company's fiscal
year end and such information is incorporated herein by reference.
ITEM 10 - EXECUTIVE COMPENSATION
Information required under Item 10 will be contained in a definitive Proxy
Statement relating to the election of directors which will be filed with the
Securities and Exchange Commission within 120 days after the Company's fiscal
year end and such information is incorporated herein by reference.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required under Item 11 will be contained in a definitive Proxy
Statement relating to the election of directors which will be filed with the
Securities and Exchange Commission within 120 days after the Company's fiscal
year end and such information is incorporated herein by reference.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
Information required under Item 12 will be contained in a definitive Proxy
Statement relating to the election of directors which will be filed with the
Securities and Exchange Commission within 120 days after the Company's fiscal
year end and such information is incorporated herein by reference.
PART IV
ITEM 13 - EXHIBITS AND REPORTS ON FORM 8-K
A. The following is an index of exhibits which are a part of this report:
The following exhibits are filed as a part of this report:
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description of Exhibit Page
------ ---------------------- ----
<S> <C> <C>
3.2(b) Amendment to the By-laws of the Company 19
10.23a Form of indemnification agreement with directors and officers of the Company, 20
dated September 15, 1995
10.24 Non compete agreement with John McTigue dated October 31, 1995 24
23 Consent by accountants' to incorporate auditors' report by reference 28
27 Financial Data Schedule 29
</TABLE>
16
<PAGE> 17
The following exhibits are incorporated by reference:
<TABLE>
<CAPTION>
Incorporated
Exhibit by Reference
Number Description of Exhibit From
------ ---------------------- ----
<S> <C> <C>
3.1 Certificate of Incorporation, as amended b
3.2 By-laws of Dawn Technologies, Inc., as amended d
3.2a Amendment to the by-laws of Dawn Technologies, Inc. g
10.16 Subordinated convertible note payable to Paul Elliot, dated September 28, 1993 a
10.17 Term loan and line of credit agreement with Citibank, dated April 1994 c
10.18 Dawn Technologies, Inc. Stock Bonus Plan, as amended c
10.19 Dawn Technologies, Inc. 1989 Stock Option Plan, as amended b
10.20 Non compete agreement with Andrew D'Aloia e
10.21 Lease for corporate office facility e
10.22 Asset purchase agreement with Leslie-Locke, Inc. dated May 16, 1996 f
21 Subsidiaries of the registrant h
</TABLE>
a - Form 10-QSB for the period ended September 30, 1993
b - Form 10-KSB for the year ended December 31, 1993
c - Form 10-QSB for the period ended March 31, 1994
d - Form 10-QSB for the period ended September 30, 1994
e - Form 10-KSB for the year ended December 31, 1994
f - Form 10-QSB for the period ended June 30, 1995
g - Form 10-QSB for the period ended September 30, 1995
h - Financial statements at Item 8 of this Form 10-KSB
The following management contracts or compensatory plans are incorporated by
reference:
The Dawn Technologies, Inc. Stock Bonus Plan, as amended (Exhibit 10.18)
and the Dawn Technologies, Inc. 1989 Stock Option Plan, as amended (Exhibit
10.19) are incorporated by reference from the Company's Form 10-QSB for the
period ended March 31, 1994 and Form 10-KSB for the year ended December 31,
1993, respectively.
B. Reports on Form 8-K
None
17
<PAGE> 18
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.
Dawn Technologies, Inc.
/s/ DENNIS DIDONATO March 26, 1996
-----------------------------------------------------
By: Dennis DiDonato Date
Co-Chief Executive Officer and Co-Chief
Operating Officer (Principal Executive Officer)
Dawn Technologies, Inc.
/s/ NICHOLAS GARRUTO March 26, 1996
-----------------------------------------------------
By: Nicholas Garruto Date
Co-Chief Executive Officer and Co-Chief
Operating Officer (Principal Executive Officer)
and Chief Financial and Accounting Officer
(Principal Finance and Accounting Officer)
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report is signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
/s/ WARREN NOVICK March 26, 1996
-----------------------------------------------------
Warren K. Novick, Director Date
-----------------------------------------------------
Placido Saretto, Director Date
/s/ VICTOR WINOGRADO March 26, 1996
-----------------------------------------------------
Victor Winogrado, Director Date
/s/ MURRAY TRACHTEN March 26, 1996
-----------------------------------------------------
Murray Trachten, Director Date
/s/ DENNIS DIDONATO March 26, 1996
-----------------------------------------------------
Dennis DiDonato, Director Date
18
<PAGE> 19
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
EX-3.2(B) By-Laws
EX-10.23(A) Indemnification Agreement
EX-10.24 Noncompetition Agreement
EX-23 Consent of Independent Accountants
EX-27 Financial Data Schedule
<PAGE> 1
Exhibit 3.2(b)
Amendment to By-laws
Article III, Section 1 of the By-laws of Dawn Technologies, Inc. has been
amended to read as follows:
"Section 1. Number, Term of Office and Qualifications. The number of
directors of the Corporation shall be not less than four nor more than ten,
and the number within such limits shall be determined by resolution of the
Board of Directors. Each director shall hold office from the time of his
election and qualification until the annual meeting of the shareholders
next succeeding his election and until his successor shall have been
elected and shall have qualified, or until his death, or until he shall
have resigned, or until he shall have been removed in the manner herein
provided. The directors need not be stockholders of the Corporation."
The first sentence of Article III, Section 8(d)(iii) of the By-laws of Dawn
Technologies, Inc. has been amended to read as follows:
"The Executive Committee shall meet from time to time on call of the
Chairman of the Board or the President or of any two or more members of the
Executive Committee."
19
<PAGE> 1
Exhibit 10.23(a)
INDEMNIFICATION AGREEMENT
AGREEMENT DATED AS OF SEPTEMBER 15, 1995 BETWEEN DAWN TECHNOLOGIES,
INC. AND WARREN NOVICK.
The parties agree as follows:
1. THE PARTIES AND THE CONSIDERATION
(a) The parties to this agreement are Dawn Technologies, Inc. and
Warren Novick.
(b) Dawn Technologies, Inc. is a Delaware corporation. It has an office
at 560 White Plains Road, Tarrytown, New York 10591. It is referred to below as
the "Corporation".
(c) Warren Novick is an individual person. He is referred to below as
"Indemnitee".
(d) At the request of the Corporation, Indemnitee currently serves as a
director and/or officer of the Corporation and may, therefore, be subjected to
actions, suits or proceedings by reason of such service.
(e) As an inducement to Indemnitee to continue to serve as a director
and/or officer, the Corporation has agreed to indemnify Indemnitee against
expenses and costs incurred by Indemnitee in connection with any actions, suits
or proceedings referred to in Section 1(d), to the fullest extent permitted by
law and, to the extent, if any, that such insurance is maintained by the
Corporation for any of its directors, to maintain coverage of Indemnitee under
the Corporation's directors' and officers' liability insurance policies.
(f) This agreement shall cover any act or omission by Indemnitee which
(i) occurs or is alleged to have occurred by reason of his being or having been
a director, (ii) occurs or is alleged to have occurred before, during or after
the time when the Indemnitee served as a director, and (iii) gives rise to, or
is the direct or indirect subject of a claim in any threatened, pending or
completed action, suit or proceedings, whether civil, criminal, administrative
or investigative, at any time or times whether during or after his service as a
director.
2. INDEMNITY.
(a) (i) The Corporation shall indemnify, to the fullest extent
permitted by the Corporation's certificate of incorporation and by law, and
regardless of any by-law provision to the contrary, Indemnitee, from and against
any expenses (including attorneys' fees), judgments, fines, taxes, penalties and
amounts paid in settlement actually and reasonably incurred by Indemnitee in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is or was a director, officer, employee or agent of the Corporation or
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise and whether or not such action is by or in the right of the
Corporation or such other corporation, partnership, joint venture, trust or
other enterprise with respect to which the Indemnitee serves or has served.
(ii) For purposes of this agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan or its
participants or beneficiaries.
(b) Notwithstanding anything to the contrary in Section 2(a), the
Corporation shall indemnify Indemnitee in any action, suit or proceeding
initiated by Indemnitee only if Indemnitee acted with the authorization of the
Corporation in initiating that action, suit or proceeding. However, an
arbitration proceeding brought under Section 10 shall not be subject to this
Section 2(b).
(c) Indemnification under this agreement shall be made by agreement
between the board of directors of the Corporation and Indemnitee. If the board
of directors and the Indemnitee cannot agree, any disagreement they may have
shall be resolved by a decision of the arbitrators in an arbitration proceeding
pursuant to Section 10.
(d) Notwithstanding anything in this agreement to the contrary, if a
claim for indemnification against liabilities arising under the federal
Securities Act of 1933 (other than the payment by the Corporation of expenses
incurred or by Indemnitee in the successful defense
20
<PAGE> 2
of any action, suit or proceeding) is asserted by Indemnitee in connection with
securities being registered or registered thereunder, the Corporation will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the federal
Securities Act of 1933 and both it and Indemnitee will be governed by the final
adjudication of such issue.
3. PARTIAL INDEMNITY; SUCCESSFUL DEFENSE; BURDEN OF PROOF;
SETTLEMENT; NO PRESUMPTION.
(a) If Indemnitee is entitled under any provisions of this agreement to
indemnification by the Corporation for some or a portion of the expenses,
judgments, fines, taxes, penalties and amounts paid in settlement but not for
the total amount thereof, the Corporation shall indemnify Indemnitee for the
portion thereof to which Indemnitee is entitled.
(b) Notwithstanding any other provision of this agreement, to the
extent that Indemnitee has been successful on the merits or otherwise in defense
of any action, suit or proceeding or in defense of any issue or matter therein,
including, without limitation, dismissal without prejudice, Indemnitee shall be
indemnified against any and all expenses, judgments, fines, taxes, penalties and
amounts paid in settlement with respect to such action, suit or proceeding.
(c) Indemnitee shall be presumed to be entitled to indemnification for
any act or omission covered in Section 1. The burden of proof of establishing
that Indemnitee is not entitled to indemnification because of the failure to
fulfill some requirement of Delaware law, the Corporation's certificate of
incorporation or by-laws or this agreement shall be on the Corporation.
(d) The Corporation shall not be liable to indemnify Indemnitee under
this agreement for any amounts paid in settlement of any action or claim
effected without the Corporation's prior written consent. The Corporation shall
not settle any action or claim in any manner which would impose any penalty or
limitation on Indemnitee without Indemnitee's prior written consent. Neither the
Corporation nor Indemnitee shall unreasonably withhold their consent to any
proposed settlement.
(e) For purposes of this agreement, the termination of any action, suit
or proceeding, by judgment, order ,settlement (whether with or without court
approval) or conviction, or upon a plea of nolo contendere, or its equivalent,
shall not create a presumption that Indemnitee did not meet any particular
standard of conduct or have any particular belief or that a court has determined
that indemnification is not permitted by applicable law or this agreement.
4. NOTICE BY INDEMNITEE.
Indemnitee shall notify the Corporation in writing of any matter with
respect to which Indemnitee intends to seek indemnification hereunder as soon as
reasonably practicable following the receipt by Indemnitee of written threat
thereof; provided, however, that failure to so notify the Corporation shall not
constitute a waiver by Indemnitee of his rights hereunder.
5. ADVANCEMENT OF EXPENSES.
In the event of any action, suit or proceeding against Indemnitee which
may give rise to a right of indemnification from the Corporation pursuant to
this agreement, following written request to the Corporation by Indemnitee, the
Corporation shall advance to Indemnitee amounts to cover expenses incurred by
Indemnitee in defending any such action, suit or proceeding in advance of the
final disposition thereof upon receipt of (i) an undertaking by or on behalf of
Indemnitee to repay the amount advanced unless it shall ultimately be determined
in accordance with this agreement that he is entitled to be indemnified by the
Corporation, and (ii) reasonably satisfactory evidence as to the amount of such
expenses. Indemnitee's written certification together with a copy of an expense
statement paid or to be paid by Indemnitee shall constitute satisfactory
evidence as to the amount of expenses.
6. NON-EXCLUSIVITY OF RIGHT OF INDEMNIFICATION.
The indemnification rights granted to Indemnitee under this agreement
shall not be deemed exclusive of, or in limitation of, any other rights to which
Indemnitee may be entitled under Delaware law, the Corporation's certificate of
incorporation or by-laws, any other agreement, any vote of shareholders or
directors or otherwise. To the extent Delaware law, the Corporation's
certificate of incorporation or by-laws or other applicable law, as in effect on
the date hereof or at any time in the future, permit greater or less limited or
conditional indemnification or advance payment of expenses than is provided for
in this agreement, Indemnitee shall enjoy such greater or less limited or
conditional benefits so afforded, and this agreement shall be deemed amended
without any further action by the Corporation or Indemnitee to grant such
greater benefits. Indemnitee shall be entitled, in the sole discretion of
Indemnitee, to elect to have Indemnitee's rights hereunder interpreted on the
basis of applicable law in effect at the time of execution of this agreement, at
the time of the occurrence of the indemnifiable event giving rise to a claim or
at the time indemnification is sought.
21
<PAGE> 3
7. CONTRIBUTION.
If the indemnification provided for in this agreement is unavailable to
Indemnitee for any reason whatsoever, the Corporation, in lieu of indemnifying
Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for
expenses, judgments, fines, taxes, penalties and amounts paid in settlement in
connection with any action, suit or proceeding, in such proportion as is deemed
fair and reasonable in light of all of the circumstances of such action by board
action, arbitration or by the court before which such action was brought in
order to reflect (a) the relative benefits received by the Corporation and
Indemnitee as a result of the event and/or transaction giving cause to such
action; and/or (b) the relative fault of the Corporation (and its other
directors, officers, employees and agents) and Indemnitee in connection with
such event and/or transaction. Indemnitee's right to contribution under this
Section 7 shall be determined in accordance with, pursuant to and in the same
manner as, the provisions in Sections 2 and 3 relating to Indemnitee's right to
indemnification under this agreement.
8. LIABILITY INSURANCE.
To the extent the Corporation maintains at any time an insurance policy
or policies providing directors' and officers' liability insurance, Indemnitee
shall be covered by such policy or policies, in accordance with its or their
terms, to the maximum extent of the coverage available for any other director or
officer of the Corporation under such insurance policy unless the carrier
refuses to extend such coverage or the rates therefor are more than 15% higher
than for covering any other director or officer covered by the policy. The
purchase and maintenance of such insurance shall not in any way limit or affect
the rights and obligations of the parties hereto, and the execution and delivery
of this agreement shall not in any way be construed to limit or affect the
rights and obligations of the Corporation and/or of the other parties under any
such insurance policy.
9. TERMINATION OF AGREEMENT AND SURVIVAL OF RIGHT OF INDEMNIFICATION.
(a) Subject to Section 9(b), this agreement shall terminate when
Indemnitee's term of office as a director and/or officer ends.
(b) The rights granted to Indemnitee hereunder shall continue after
termination as provided in Section 1 and shall inure to he benefit of
Indemnitee, his personal representatives, heirs, executors, administrators and
beneficiaries, and this agreement shall be binding upon the Corporation and its
successors and assigns.
10. ARBITRATION OF ALL DISPUTES CONCERNING ENTITLEMENT.
Any controversy or claim arising out of or relating to Indemnitee's
entitlement to indemnification under this agreement shall be settled by
arbitration in the City of White Plains, New York or New York, New York. The
arbitration shall be conducted by and in accordance with the rules of the
American Arbitration Association. The location of the arbitration shall be
selected by the party demanding arbitration. The arbitration shall be resolved
by a single arbitrator unless one of the parties specifies that it prefers three
arbitrators, in which case the arbitration shall be resolved by three
arbitrators. Judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof. Interest on any judgment shall be
assessed at a rate or rates the arbitrators consider just under the
circumstances. If it is necessary or desirable for Indemnitee to retain legal
counsel or incur other costs and expenses in connection with enforcement of his
rights under this agreement, the Corporation shall pay his reasonable attorneys'
fees and costs and expenses in connection with enforcement of his rights
(including the enforcement of any arbitration award in court), regardless of the
final outcome, unless the arbitrators determine that under the circumstances
recovery by Indemnitee of all or a part of any such fees and costs and expenses
would be unjust.
11. INTERPRETATION.
(a) Captions and headings used in this agreement are for reference
only.
(b) A male or female person may be referred to in this agreement by a
neuter pronoun. A person other than an individual person may be referred to in
this agreement by a personal pronoun. The singular includes the plural and the
plural includes the singular.
(c) A provision of this agreement which requires a party to perform an
action shall be construed so as to require the party to perform the action or to
cause the action to be performed. A provision of this agreement which prohibits
a party from performing an action shall be construed so as to prohibit the party
from performing the action or permitting others to perform the action on the
party's behalf.
22
<PAGE> 4
(d) "Including" means "including but not limited to". "Any" means "any
and all". "May" means "may but shall not be obligated to".
(e) This agreement may not be changed or cancelled orally.
12. NOTICES.
All notices, requests, demands and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given when delivered by hand or when mailed by certified or registered mail,
return receipt requested, with postage prepaid:
(a) If to Indemnitee, to:
Warren Novick
40 Gibraltar Lane
Avon, Connecticut 06001
(b) If to the Corporation, to:
Dawn Technologies, Inc.
560 White Plains Road
Tarrytown, New York 10591
Attention: John McTigue
or to such person or address as Indemnitee or the Corporation shall furnish to
the other party in writing pursuant to the above.
13. GOVERNING LAW.
(a) Except as provided for in Section 13(b), this agreement shall be
governed by the laws of the State of Delaware, without application of the
principles of conflicts of laws thereof.
(b) Any arbitration under this agreement shall be governed by the laws
of the State of New York.
14. SEVERABILITY.
If any provision of this agreement is determined to be invalid, illegal
or unenforceable, this invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of any other provision of this
agreement, and there shall be substituted for the provision at issue a valid and
enforceable provision as similar as possible to the provision at issue.
To signify his agreement to the foregoing, Warren Novick has executed
this agreement.
To signify its agreement to the foregoing, Dawn Technologies, Inc. has
caused this agreement to be executed and attested to by its duly authorized
officers.
s/WARREN NOVICK
-------------------------------
Warren Novick
Attest: Dawn Technologies, Inc.
By: /s/JOHN McTIGUE
- ------------------------ ----------------------------
John McTigue, President and
Chief Executive Officer
23
<PAGE> 1
Exhibit 10.24
NONCOMPETITION AGREEMENT
AGREEMENT DATED AS OF OCTOBER 31, 1995 BETWEEN DAWN TECHNOLOGIES, INC. AND
JOHN MCTIGUE.
The parties agree as follows:
1. THE PARTIES
(a) The parties to this agreement are Dawn Technologies, Inc. and John
McTigue.
(b) Dawn Technologies, Inc. is a Delaware corporation. It has an office at
560 White Plains Road, Tarrytown, New York 10591. It is referred to below as
"Dawn".
(c) John McTigue is an individual person. His address is 3 Huckelberry
Court, Kinnelon, N 07405. He is referred to below as "Former Employee".
2. ACKNOWLEDGEMENTS
(a) Before the effective date of this agreement, Former Employee was a
senior officer and a director of Dawn. Former Employee acknowledges that during
the course of his employment with Dawn, he gained extensive knowledge concerning
several aspects of Dawn's business. In addition, Former Employee acknowledges
that he gained information of a confidential and proprietary nature relating to
Dawn and its business.
(b) In consideration of the payments and other consideration provided for
herein, Former Employee shall be bound by the covenants set forth herein.
3. COVENANT NOT TO COMPETE
(a) During the term of this agreement, Former Employee shall not do any of
the following:
(i) Former Employee shall not conduct any business involving the
manufacture, assembly or sale of any product actually or proposed to be
manufactured, assembled or sold by Dawn or any of its subsidiaries during his
employment by Dawn.
(ii) Former Employee shall not directly or indirectly render any services
of any nature, including advisory services, to any manufacturer or seller of any
product actually or proposed to be manufactured or sold by Dawn or any of its
subsidiaries at any time during his employment by Dawn.
(iii) Former Employee shall not invest in, solicit others to invest in or
otherwise render financial assistance to any manufacturer or seller of any
product actually or proposed to be manufactured or sold by Dawn or any of its
subsidiaries during his employment by Dawn.
(b) During the term of this agreement and for two years thereafter, Former
Employee shall not do any of the following:
(i) Former Employee shall not disclose any information reasonably known
to him to be proprietary or confidential information belonging to Dawn or any of
its subsidiaries.
24
<PAGE> 2
(ii) Former Employee shall not hire or solicit the employment of any
person who was employed by Dawn or any of its subsidiaries at any time during
the calendar year preceding the hiring or solicitation.
(c) The prohibitions set forth in subsections (a) and (b) shall apply to
the acts of Former Employee individually or the acts of Former Employee through
any corporation, partnership or other entity with which he may be associated.
Former Employee shall be deemed to be associated with any entity of which he is
an officer, director, consultant, agent, employee, stockholder, partner or
owner.
(d)(i) The prohibitions set forth in subsections (a), (b) and (c) shall not
apply to actions taken at the request, or with the consent of or for the benefit
of Dawn.
(ii) The prohibitions set forth in subsections (a), (b) and (c) shall not
prohibit Former Employee from owning publicly traded investment securities in
any corporation or other entity if he owns no more than five (5%) percent of the
total outstanding securities of any class of that corporation or other entity or
no more than five (5%) percent of the total voting securities of that
corporation or other entity.
4. REMEDIES
Former Employee acknowledges that the rights of Dawn under this agreement
are of a specialized and unique character and that a breach, or threatened
breach of this agreement by Former Employee, will cause Dawn irreparable injury
and damage which cannot be reasonably or adequately compensated in damages or in
action at law. In the event of a violation of the terms of this agreement, Dawn
shall, in addition to any other relief, be entitled to injunctive relief in any
court of competent jurisdiction.
5. PROVISIONS CONCERNING REMEDIES
(a) The failure of either party to require performance by the other party
of any provision of this agreement shall in no way affect the right of that
party to enforce that provision at any other time, nor shall it affect the
party's right to enforce any other provision of this agreement. The waiver by
any party of a breach of any provision of this agreement shall not be taken or
held to be a waiver of any subsequent breach of the provision or as a waiver of
the provision itself.
(b) If it is determined that any provision of this agreement is too broad
or otherwise unenforceable for any reason, Former Employee expressly agrees that
any court of competent jurisdiction may narrow the terms of the provision so as
to render them enforceable according to their intent and purpose.
6. COMPENSATION
(a) As full compensation for his compliance with his covenants contained
herein, Dawn shall provide Former Employee with the consideration set forth
below in this subsection.
(i) Dawn shall pay Former Employee his salary at the rate previously
paid to him during calendar year 1995 through October 31, 1995.
(ii) Dawn shall pay Former Employee Sixty Thousand ($60,000.00)
Dollars on or before March 31, 1996. At least Fifteen Thousand ($15,000.00)
Dollars of the foregoing Sixty Thousand ($60,000.00) Dollars has been paid to
Former Employee.
(iii) Dawn shall provide Former Employee with health insurance
coverage to the same extent previously provided to him by Dawn until the
earlier to occur of his eligibility to participate in a new employer's health
insurance plan or December 31, 1996.
(iv) Dawn has previously issued to Former Employee 237,500 shares of
its Common Stock pursuant to Dawn's Stock Bonus Plan which have, as of the date
hereof, not become vested. The foregoing 237,500 shares of Common Stock of Dawn
are deemed vested and the property of Former Employee. Dawn waives any rights
pursuant to its Stock Bonus Plan to repurchase said shares.
25
<PAGE> 3
(v) (1) Dawn shall pay Former Employee an amount (the "Commission")
equal to one-half of one percent (1/2 of 1%) of "CBU Revenues" for any calendar
quarter if the net profits on sales of CBU's for that quarter were at least ten
(10%) percent, or one-quarter of one percent (1/4 of 1%) of "CBU Revenues" if
the net profits on sales of CBU's for that calendar quarter were at least five
(5%) percent. A "CBU" is a collection box unit which was the subject of the
agreement made the 16th day of May, 1995 by and among Dawn and Leslie Locke,
Inc. Commissions shall not be payable on CBU Revenues in excess of Twenty-five
Million ($25,000,000.00) Dollars.
(2) "Revenues" mean all cash compensation actually received by
Dawn on a cumulative basis from all sales, leases, licenses and other
conveyances of all CBU's hereafter manufactured by, or under authority of, Dawn
and/or any of its subsidiaries, less sales taxes, shipping costs, and actual
returns for which refunds or credits have been given.
(3) The Commission shall be payable quarterly within twenty (20)
days after the end of each calendar quarter with respect to Revenues received by
Dawn and/or any of its subsidiaries during the preceding quarter, less an amount
equal to the aggregate refunds or credits actually given by Dawn for returned
items. Payment of the Commission shall be accompanied by a written report
setting forth sufficient information to permit the calculation by Former
Employee of the Commission due hereunder.
(b) Except as provided in subsection (a), this agreement shall not entitle
Former Employee to receive any benefits made available by Dawn to any of its
officers or other employees.
7. TERM
(a) The term of this agreement shall continue until the third anniversary
of the date hereof.
(b) This agreement shall terminate automatically upon the death of Former
Employee. However, Dawn shall be required to pay Former Employee's estate any
amounts payable to him hereunder which accrue before that date.
8. CHOICE OF LAW
This agreement shall be governed by and construed in accordance with the
laws of the State of New York, without regard to principles of conflicts of law.
9. NOTICES
Notices given under this agreement shall be valid only if in writing and
properly mailed. A notice shall be properly mailed only if mailed by certified
or registered mail, postage prepaid, and if the notice is properly addressed. A
notice to a party shall be properly addressed only if addressed to the address
of the party set forth in Article 1 or to any other address as the party may
designate by giving notice to the other party. A notice shall be deemed given
when it is properly mailed.
10. INTERPRETATION
(a) Captions and headings used in this agreement are for reference only.
(b) A male or female person may be referred to in this agreement by a
neuter pronoun. A person other than an individual person may be referred to in
this agreement by a personal pronoun. The singular includes the plural and the
plural includes the singular.
(c) A provision of this agreement which requires a party to perform an
action shall be construed so as to require the party to perform the action or to
cause the action to be performed. A provision of this agreement which prohibits
a party from performing an action shall be construed so as to prohibit the party
from performing the action or permitting others to perform the action on the
party's behalf.
(d) "Including" means "including but not limited to". "Any" means "any and
all". "May" means "may but shall not be obligated to".
26
<PAGE> 4
For purposes of this agreement, Former Employee's employment by Dawn shall be
deemed to have continued through the term of this agreement.
(e) This agreement may not be changed or cancelled orally.
11. BINDING EFFECT
This agreement shall be binding upon the parties and their respective
successors and assigns. The submission of any unexecuted copy of this agreement
shall not constitute an offer to be legally bound by the provisions of the
document submitted, and no party shall be bound by this agreement until it is
executed by all of the parties designated in Article 1. This instrument has been
executed in counterparts and each counterpart constitutes an original document.
12. SEVERABILITY
If any provision of this agreement or the application of any provision to
any person or circumstance shall be invalid or unenforceable, neither the
balance of this agreement nor the application of the provision to other persons
or circumstances shall be affected. Each provision of this agreement shall be
valid and shall be enforced to the full extent permitted by law.
To signify their agreement to the foregoing, Dawn has caused this agreement
to be executed and attested to by its duly authorized officers and Former
Employee has signed this agreement.
Witness: Dawn Technologies, Inc.
By: /s/ NICHOLAS GARRUTO
- ----------------------- --------------------------
Nicholas Garruto,
Chief Financial Officer
/s/ JOHN McTIGUE
------------------------------
John McTigue
27
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Dawn Technologies, Inc.
As independent public accountants, we hereby consent to the incorporation by
reference in the registration statements (Nos. 33-79234 and 33-79236) on Form
S-8 of our report dated February 29, 1996 included in the Dawn Technologies,
Inc. Form 10-KSB for the year ended December 31, 1995.
/s/ ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 20, 1996
28
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 96006
<SECURITIES> 0
<RECEIVABLES> 1018425
<ALLOWANCES> 2500
<INVENTORY> 827735
<CURRENT-ASSETS> 1964530
<PP&E> 1389554
<DEPRECIATION> 732805
<TOTAL-ASSETS> 2621279
<CURRENT-LIABILITIES> 2046492
<BONDS> 427944
0
0
<COMMON> 9109
<OTHER-SE> 137734
<TOTAL-LIABILITY-AND-EQUITY> 2621279
<SALES> 6920458
<TOTAL-REVENUES> 6920458
<CGS> 5141218
<TOTAL-COSTS> 6629643
<OTHER-EXPENSES> 142922
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 147893
<INCOME-TAX> 0
<INCOME-CONTINUING> 147893
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 147893
<EPS-PRIMARY> .016
<EPS-DILUTED> .016
</TABLE>
