<PAGE> 1
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, 1996
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
Incorporation or Organization) Identification No.)
433 SOUTH MAIN STREET, WEST HARTFORD, CONNECTICUT 06110
(Address of Principal Executive Office) (Zip Code)
(860) 561-3979
(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 registration 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 revenue for its most recent fiscal year were $5,791,582.
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
$1,415,602 based upon a market value per share of $0.23 per share, representing
the average of the bid and ask price of the Registrant's common stock on April
11, 1997.
There were 9,326,978 shares of the Registrant's $.001 par value per share common
stock outstanding at March 15, 1997.
<PAGE> 2
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 433 South Main
St., West Hartford, CT., 06110 and its telephone number is (860) 561-3979.
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 1996 Dennis DiDonato and Nicholas Garruto, previously co-chief
executive officers resigned as officers of the Company. Mr. DiDonato also
resigned as a director. Mr. David Sklar was appointed to President and Chief
Executive Officer. Mr. William Winakor was appointed to Executive Vice
President and Chief Operating Officer. Mr. John Scanlon was appointed to
Treasurer and Chief Financial Officer. Mr. Scanlon is a certified public
accountant in public practice who has agreed to join the Company on a part
time basis to fulfill the duties of the Chief Financial Officer and
Treasurer.
During 1996 the Company began to diversify its work scope to include the
manufacture and the Overhaul and Repair of jet engine and aircraft components
for the Aerospace industry. The Company received its Overhaul and Repair
license from the Federal Aviation Administration (FAA) in November of 1996
and has been aggressively updating its plant and equipment to meet the needs
of this work.
As part of its efforts to expand, the Company has entered into contracts in
1997 with Chromolloy of CT to perform part refurbishment on a number of
components for jet engine models and with BE Aerospace for the manufacture of
airline seat components used on the Boeing 777 aircraft.
The Company repairs and refurbishes computer parts for resale as spare parts
to International Business Machines Corp. (IBM). During 1996, the Company
continued to experience a decrease in sales of refurbished computer spare
parts. Although the future is uncertain, the Company continues to pursue
sales opportunities with IBM and other computer and office equipment
manufactures and services.
During April 1996, a fire occurred at the Company's manufacturing facility in
Blakely, Pennsylvania. Damage was extensive to the offices at the facility
along with certain production areas. Approximately 15% of the building was
destroyed by the fire.
During June 1996, the Company entered into a sublease for an approximately
28,000 square foot modern manufacturing facility in Scranton, Pennsylvania
and relocated a majority of its production and support functions to the new
facility. The Blakely facility is being utilized for limited production
support and storage.
<PAGE> 3
3
PART I
(Continued)
Principal Products and Services
The Company's principal products are summarized below:
MANUFACTURE AND ASSEMBLY - The Company manufactures mechanical devices
for use by the United States Postal Service (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 United States
Defense Department (USDD) including equipment used in developing night
vision capability and mounting equipment used on certain vehicles. In
addition, the Company manufactures certain electromechanical components
which are used by IBM in its high speed impact printers. The Company
will manufacture various seat components for BE Aerospace to be used on
Boeing 777 aircraft. 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. 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.
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.
OVERHAUL AND REPAIR - The Company has begun to perform part
refurbishment on a number of components of jet engine models in 1997.
Customers
During 1996 approximately 76% of the Company's sales were to the USPS and
approximately 21% of the Company's sales were to IBM. These two customers
have historically been the principal customers of the Company and the loss of
either of these customers could have a material adverse effect on the
Company.
Contracts with the USPS 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. The current contract with the USPS
is expected to be completed in May 1997 and renewal of such arrangements is
unlikely. Orders from IBM are negotiated and are subject to thirty day
cancellation provisions.
Backlog
At December 31, 1996, the Company's sales order backlog was approximately
$1,832,068. These orders will be completed and shipped in 1997.
<PAGE> 4
4
PART I
(Continued)
Competition
The Company's business is very competitive. These are generally numerous
other vendors bidding on the contracts the Company obtains. 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 70 people full time. Three of
these employees are employed in management, four are office personnel and the
remainder are hourly factory employees. The Company's employees are not
represented by a union and the Company believes that its relationship with
employees is good.
Patents
The Company owns several patents relating to the automatic mail sorters. The
Company does not believe these patents are material to its business.
ITEM 2 - DESCRIPTION OF PROPERTY
The Company operates the majority of its production at a 28,000 square foot
leased manufacturing facility in Scranton, Pennsylvania.
The Company owns an 84,000 square foot manufacturing facility in Blakely,
Pennsylvania that had been used for production until June, 1996. It is currently
used for limited production support and storage.
The Company maintains executive offices located in a 2,000 square foot leased
office facility located in West Hartford, Connecticut.
ITEM 3 - LEGAL PROCEEDINGS
There are no legal proceedings pending or, to the Company's knowledge,
threatened against the Company. See Note 7 to the consolidated financial
statements for information concerning settlement of litigation against the
Company by former officers and directors.
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 1996.
<PAGE> 5
5
PART II
ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information - The Company's $.001 par value per share common stock is
traded on the NASDAQ Bulletin Board.
The following table presents the high and low bid prices of the Company's $.001
par value per share of common stock, on a quarterly basis in 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------------------- --------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First quarter $0.250 $0.109 $0.406 $0.406
Second quarter $0.438 $0.125 $0.250 $0.120
Third quarter $0.313 $0.125 $0.375 $0.063
Fourth quarter $0.250 $0.125 $0.313 $0.063
</TABLE>
Quotations reflect inter-dealer prices, without retail markup, markdown or
commission and may not represent actual transactions.
As of March 19, 1997, there were approximately 191 holders of record of the
Company's $.001 par value per share common stock.
The Company did not sell any equity securities of the Company that were not
registered under the Securities Act of 1933 during the period covered by this
report.
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.
1996 vs. 1995 Results of Operations
Sales decreased from $6,920,458 in 1995 to $5,791,582 in 1996, a decrease of
$1,128,876 which is approximately 16% of 1995 sales. Manufacture and assembly
sales increased from $4,708,111 in 1995 to $4,774,666 in 1996, an increase of
$66,555 which is approximately 1% of 1995 sales. Computer spare and service
part sales decreased from $2,212,347 in 1995 to $1,016,916 in 1996, a
decrease of $1,195,431 which is approximately 54% of 1995 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
21% and 32% of the Company's sales during 1996 and 1995, respectively. The
Company experienced a significant reduction in order receipts from IBM during
the third quarter of 1995 and this trend continued through 1996.
Future sales beyond the shipments of items in the Company's backlog cannot be
predicted. The current contract with the USPS is expected to be completed in
May, 1997 and renewal of such arrangements is unlikely.
Cost of sales as a percentage of sales was approximately 80% in 1996 and 74%
in 1995. This increase in the cost of sales percentage is primarily the
result of inefficiencies due to the fire at the Blakely plant, the need to
outsource more work, and rising costs on fixed price contracts.
<PAGE> 6
6
PART II
(Continued)
Selling, general and administrative expenses decreased from $1,405,835 in
1995 to $1,006,356 in 1996, a decrease of $399,479 which is approximately 28%
of 1995 selling, general and administrative expenses. This decrease is
primarily attributable to lower levels of officers' compensation in 1996 and
cost cutting measures implemented by management.
In 1995, the Company incurred product development expenses of $82,590 which
related to the development of Cluster Box Units (CBU) 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. During 1996, product development expenses amounted to only
$15,790 due to management's decision not to pursue the CBU program.
As a result of the factors discussed above, the Company had income from
operations of $133,751 in 1996 and $290,815 in 1995.
Interest expense was $75,072 in 1996 and $147,697 in 1995. Interest expense
decreased in 1996 due to the reduction of debt due to repayments in 1996.
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 1996.
As a result of these factors, the Company had income before income taxes and
extraordinary gain of $58,679 in 1996 and $147,893 in 1995.
In 1996, the Company recorded a provision for income taxes of $2,000
representing minimum taxes currently due for certain state jurisdictions. Due
to a substantial operating loss from 1994, the Company has net operating loss
carryforwards which offset income which would otherwise have been taxable and
therefore resulted in no provision for federal income tax purposes or state
income taxes other than these minimum taxes.
As a result of these factors, the Company had income before extraordinary
gain of $56,679 in 1996 and $147,893 in 1995.
In 1996 the Company had an extraordinary gain of $421,211. This gain results
from insurance proceeds received, due to fire damage incurred at its Blakely
facility, in excess of costs both incurred and due to write off of
capitalized carrying costs of assets destroyed.
As a result of all of the factors discussed above, the Company had net income
of $477,890 in 1996 and $147,893 in 1995.
Liquidity and Capital Resources
Operating activities, net of extraordinary item, provided cash of $380,593
in 1996 and $249,469 in 1995. In addition, the Company used cash of $142,872
in 1996 and $167,872 in 1995 to acquire property and equipment and repaid
long-term debt of $350,000 in both 1996 and 1995. The Company was also able
to repay $21,310 in capital lease obligations and $72,525 against a
non-compete agreement while it borrowed $100,000 under its short-term line
of credit in 1995. The net result was a decrease in cash of $3,916 in 1996
and $125,939 in 1995. The Company had working capital of $354,221 and a
ratio of current assets to current liabilities of approximately 1.26 to 1.00
at December 31, 1996. The Company's fiscal 1997 budget projects a cash
deficit. Management of the Company is aggressively seeking to diversify its
product line and attract new customers, along with expanding services
within its current customer base.
<PAGE> 7
7
PART II
(Continued)
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
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 accountants' report
filed as a part of this report:
Page
----
Report of Independent Public Accountants 8
Consolidated Balance Sheet at December 31, 1996 9
Statements for the Years Ended December 31, 1996 and 1995:
Consolidated Statements of Operations 10
Consolidated Statements of Stockholders' Equity 11
Consolidated Statements of Cash Flows 12
Notes to Consolidated Financial Statements 13
<PAGE> 8
8
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,
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the two years in the period ended December 31,
1996. 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, 1996, and the results of their operations and
their cash flows for each of the two years in the period ended December 31,
1996, 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, 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. The Company's long standing
contract with its largest customer will be expiring in 1997 and as such, the
Company's ability to sustain sales levels necessary to support operations is not
assured. 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
Hartford, Connecticut
April 11, 1997
<PAGE> 9
9
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash $ 92,089
Accounts receivable, less allowance for doubtful
accounts of $2,500 637,368
Insurance claim receivable 201,980
Inventories 764,939
Other current assets 25,366
-----------
Total current assets $ 1,721,742
PROPERTY AND EQUIPMENT
Land 52,150
Building and improvements 349,536
Machinery and equipment 727,769
Office equipment 321,543
Leasehold improvements 42,765
-----------
1,493,763
Less accumulated depreciation and amortization (786,920)
-----------
706,843
-----------
$ 2,428,585
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Bank note payable $ 100,000
Current portion of long-term debt 166,667
Current portion of capitalized lease obligations 28,420
Accounts payable and accrued expenses 839,792
Accrued payroll and related liabilities 125,732
Current portion of accrued cost of non-compete agreement 94,700
Income taxes payable 12,210
-----------
Total current liabilities $ 1,367,521
OTHER LIABILITIES
Capitalized lease obligations, less current portion 122,176
Accrued cost of non-compete agreement, less current portion 278,628
-----------
Total other liabilities 400,804
COMMITMENTS AND CONTINGENCIES (Notes 2, 7, 8 and 14)
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 15,000,000 shares
authorized, 9,326,978 shares issued and outstanding 9,327
Capital in excess of par value 2,381,151
Unearned restricted common stock issued (217,372)
Treasury stock (10,625)
Accumulated deficit (1,502,221)
-----------
660,260
-----------
$ 2,428,585
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 10
10
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
SALES $ 5,791,582 $ 6,920,458
----------- -----------
COSTS AND EXPENSES
Cost of sales 4,635,685 5,141,218
Selling, general and administrative expenses 1,006,356 1,405,835
Product development expenses 15,790 82,590
----------- -----------
Total costs and expenses 5,657,831 6,629,643
----------- -----------
INCOME FROM OPERATIONS 133,751 290,815
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (75,072) (147,697)
Gain on sale of equipment -- 24,775
Loss on abandonment of property -- (20,000)
----------- -----------
Total other income (expense) (75,072) (142,922)
----------- -----------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 58,679 147,893
INCOME TAX EXPENSE 2,000 --
----------- -----------
INCOME BEFORE EXTRAORDINARY ITEM 56,679 147,893
EXTRAORDINARY GAIN 421,211 --
----------- -----------
NET INCOME $ 477,890 $ 147,893
=========== ===========
INCOME PER COMMON SHARE BEFORE EXTRAORDINARY GAIN $ 0.006 $ 0.016
EXTRAORDINARY ITEM $ 0.046 $ --
----------- -----------
NET INCOME PER COMMON SHARE $ 0.052 $ 0.016
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 9,190,729 9,016,855
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 11
11
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Unearned
Common Capital Restricted
Common Stock in Excess Common
Shares Par of Par Stock Treasury Accumulated
Outstanding Value Value Issued Stock Deficit
----------- ----- ----- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 8,858,978 $ 8,859 $ 2,307,986 $ (391,750) $ -- $(2,128,004)
Common stock issued under
agreement to acquire
product design information 275,000 275 40,150 -- -- --
Employee stock bonus
shares surrendered upon (25,000) (25) (6,225) 6,250 -- --
termination of
employment
Employee stock bonus -- -- -- 161,434 -- --
shares earned
Net Income -- -- -- -- -- 147,893
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1995 9,108,978 9,109 2,341,911 (224,066) -- (1,980,111)
Common stock issued under 218,000 218 39,240 (39,240) -- --
employee bonus plan
Employee stock bonus -- -- -- 35,309 -- --
shares earned
42,500 stock bonus shares -- -- -- 10,625 (10,625) --
transferred to treasury
Net Income -- -- -- -- -- 477,890
----------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1996 9,326,978 $ 9,327 $ 2,381,151 $ (217,372) $ (10,625) $(1,502,221)
=========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 12
12
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 477,890 $ 147,893
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 112,154 123,957
Allowance for doubtful accounts -- (17,500)
Gain on sales of equipment -- (24,775)
Fire loss of property and equipment 72,367 --
Loss on abandonment of property and equipment -- 20,000
Gain on extinguishment of debt due to fire (7,436) --
Expenses related to restricted common stock earned 35,309 161,434
Common stock issued under agreement to
acquire product design information -- 40,425
Changes in assets and liabilities:
Accounts receivable 378,557 (100,693)
Inventories 62,796 (268,962)
Other assets (501) (54)
Insurance claim receivable (201,980) --
Accounts payable and accrued expenses (123,689) 273,857
Accrued payroll and related liabilities (175,582) (58,032)
Accrued cost of non-compete agreement -- (54,147)
Income taxes payable (47,312) 6,066
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 582,573 249,469
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchases of property and equipment (142,872) (167,872)
Proceeds from sale of equipment -- 43,000
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (142,872) (124,872)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock bonus 218 --
Proceeds from short-term borrowing -- 100,000
Payments on non-compete agreement (72,525) --
Repayments of long-term debt (350,000) (350,000)
Payments on capitalized lease obligations (21,310) (536)
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (443,617) (250,536)
--------- ---------
NET DECREASE IN CASH (3,916) (125,939)
CASH, Beginning of year 96,005 221,944
--------- ---------
CASH, End of year $ 92,089 $ 96,005
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 45,312 $ --
Interest paid $ 101,544 $ 113,131
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
During the years ended December 31, 1996 and 1995, the Company acquired
machinery and equipment valued at $91,743 and $88,135, respectively, under
capitalized lease obligations.
During the year ended December 31, 1996, the
Company wrote off fully depreciated machinery and equipment destroyed during
a fire at the plant. The original cost for this machinery and equipment was
$47,758.
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE> 13
13
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business and Principles and 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").
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. 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.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation and
amortization. The Company records depreciation and amortization as follows:
Estimated
Assets Useful Life Principal Method
------ ----------- ----------------
Building and improvements 31-39 Years Straight-line
Leasehold improvements 39 Years Straight-line
Machinery and equipment 7 Years Declining-balance
Office equipment 7 Years Declining balance
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 deprecation or amortization accounts and any gain or loss on the
disposal is credited or charged to operations.
Earnings per share
Income 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.
Income Taxes
Income taxes are provided for the tax effect of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes. The differences
relate primarily to allowance for doubtful receivables, deduction for
non-compete agreement payments and for operating losses and tax credits that
are available to offset future taxable income. The deferred tax assets and
liabilities represent the future tax return consequences of those
differences, which will either be deductible or taxable when the assets and
liabilities are recovered or settled.
<PAGE> 14
14
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Use of Estimates in the Preparation of Financial Statements
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 certain assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of certain revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Customers
During 1996, approximately 76% of the Company's sales were to the United
States Postal Service (USPS) and approximately 21% of the Company's sales
were to International Business Machines (IBM). These two customers have
historically been the principal customers of the Company and the loss of
either of these customers could have a material adverse effect on the
Company.
Accounting for the Impairment of Long-Lived Assets
Long-lived assets to be held and used have been reviewed for possible
impairment because events or changes in circumstances have indicated that
their carrying amounts may not be recoverable. For purposes of that review,
such assets have been appropriately grouped at the lowest level for which
there are identifiable cash flows that are largely independent of the cash
flows of other groups of assets. The Company's estimates of future cash flows
by group are based on reasonable and supportable assumptions and represent
the best estimate of the cash flows expected to result from the use of the
assets and their eventual disposition. Where appropriate, an impairment loss
has been recognized and such assets have been adjusted to fair value.
NOTE 2 - LIQUIDITY:
As discussed in Note 6 to the consolidated financial statements, as of December
31, 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 1997 reflect
negative cash flows from operations for which funding will be required.
The Company's current sales contracts with USPS will be completed within the
second quarter of 1997 and renewal of this contract is unlikely. However, the
Company has put in place a new management team to pursue new sales contracts in
unrelated industries and to run the Company's manufacturing facility. During
1997, the Company entered into contracts with two aerospace companies. It is
uncertain if the new business will contribute to the Company's results early
enough or in sufficient amounts to offset the loss of existing business. There
is no assurance 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 been 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.
<PAGE> 15
15
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INVENTORIES:
Inventories at December 31, 1996 are summarized as follows:
<TABLE>
<S> <C>
Finished goods $ 55,447
Work in progress 198,980
Raw material 510,512
----------
$ 764,939
==========
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT
At December 31, 1996, machinery and equipment and office equipment includes
$175,878 and $5,300, respectively recorded under capitalized leases. At December
31, 1996, accumulated amortization recorded on assets acquired under capitalized
leases was $43,140.
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.
NOTE 5 - 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 (9.25% at December 31, 1996).
The following is a summary of the Company's long-term debt obligations at
December 31, 1996.
<TABLE>
<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 (9.5% at December 31, 1996), secured by all of
the Company's assets and guaranteed by the Company's
principal stockholders $ 116,667
Subordinated convertible note payable in October 1997,
bearing interest at 10%, convertible into 200,000 shares of
the Company's common stock during the term of the note. 50,000
----------
$ 166,667
==========
Aggregate future principal payments on long-term debt are as follows:
Year ending December 31:
1997 $ 166,667
==========
</TABLE>
<PAGE> 16
16
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - NOTES PAYABLE: (Continued)
The Company's loan agreement with its bank requires the Company to maintain
certain financial ratios, as defined, including total debt not exceeding 1.5
times equity, current assets of no less than 1.5 times current liabilities and
earnings of no less than 1.25 times annual debt service requirements. As of
December 31, 1996, the Company is not in compliance with the financial
requirements. (See Note 2)
On January 31, 1997, the holder of the subordinated convertible note elected to
convert $16,650 of unpaid principal to 92,500 shares of common stock of the
Company. The remaining balance of the note will continue under the terms of the
debenture.
NOTE 6 - CAPITALIZED LEASE OBLIGATIONS
The following is a summary of capitalized leases at December 31, 1996:
<TABLE>
<S> <C>
Five equipment leases payable with monthly installments ranging from
$176 to $1605 including interest ranging from 11.75% to 14.74%. $ 150,596
Less current portion (28,420)
----------
$ 122,176
==========
Aggregate future principal payments on capitalized lease obligations
are as follows:
Year ending December 31:
1997 $ 28,420
1998 32,288
1999 36,652
2000 32,923
2001 20,313
----------
$ 150,596
==========
</TABLE>
NOTE 7 - RELATED PARTY TRANSACTIONS AND COMMITMENTS:
The Company was charged approximately $34,375 and $50,000 for consulting
services rendered by one of its directors in 1996 and 1995, respectively.
In April, 1996, Mr. Andrew D'Aloia, a former officer and director who is still a
stockholder of the Company commenced an action against the Company, in the
Supreme Court of the State of New York, Westchester County, to collect
compensation claimed due him for services rendered in 1994 of $197,000 and for
all payments under his noncompetition agreement in the amount of $541,667, of
which $83,333 was claimed to be past due, and interest on these amounts of
approximately $40,000.
On June 4, 1996, a settlement was reached between the Company and Mr. D'Aloia.
The Company was required to pay Mr. D'Aloia $300,000 in lieu of accrued
compensation and payments on the noncompetition agreement accrued through June
1, 1996. $100,000 was paid upon execution of the settlement agreement and
$200,000 was paid from insurance proceeds received from the fire loss. The
Company resumed payments under the noncompetition agreement which will continue
until an additional $447,916 including interest, has been paid.
<PAGE> 17
17
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - RELATED PARTY TRANSACTIONS: (Continued)
In October, 1996, Mr. Dennis DiDonato, a former officer and director of the
Company, filed an action against the Company, it's Chairman of the Board, and
two subsidiaries, in the Supreme Court of the State of New York, Westchester
County, to collect compensation claimed due him for services rendered in 1994
plus interest thereon and for severance allegedly owed him in the sum of
$150,000, plus interest, and for the alleged breach of a unsigned three year
employment contract, in the sum of $500,000 plus interest.
On January 28, 1997, the Company agreed in a settlement to pay Mr. DiDonato
$60,000 in twelve monthly equal installments. The total amount of this
settlement has been accrued and is included in accrued payroll and related
liabilities on the consolidated balance sheet at December 31, 1996.
NOTE 8 - LEASE COMMITMENTS:
The Company entered into a sublease for approximately 28,000 square feet of
manufacturing space in Scranton, Pennsylvania commencing June 17, 1996. The
original term of this sublease expires November 1998 with a renewal option
through January 2002. The minimum annual rental payments on this lease for both
the original term and renewal are $77,000.
The Company entered into a sublease for corporate offices space in West
Hartford, Connecticut commencing July 1, 1996. This lease expires in September
1998 and requires minimum annual rental payments of $28,536.
The Company entered into a sublease for office space, formerly used as corporate
offices in Tarrytown, New York, which commenced November 1, 1994 and expires in
March 1997. This lease requires monthly payments of $2,000.
The future minimum rental payments under these lease obligations are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997 $ 111,536
1998 98,402
1999 77,000
2000 77,000
2001 77,000
</TABLE>
NOTE 9 - MAJOR CUSTOMERS:
Accounts receivable at December 31, 1996 includes approximately $611,337 from
three major customers. Approximate sales to these major customers in 1996 and
1995 are summarized below:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
The United States Postal Service $4,386,403 $3,371,640
The United States Defense Department 107,313 968,992
International Business Machines Corp. 1,233,664 2,197,532
Other 64,202 382,294
---------- ----------
$5,791,582 $6,920,458
========== ==========
</TABLE>
<PAGE> 18
18
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - 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 1995 become vested to
the recipients as future services are provided. Shares granted thereafter
vest in annual 50% increments. 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
131,235 and 420,731 in 1996 and 1995, respectively. The shares vested in 1996
were held by former employees of the Company for which the Board of Directors
approved accelerating vesting prior to the employees' termination of
employment. At December 31, 1996, there are 780,534 unvested shares issued
under the plan which are valued at $217,372.
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, except those granted in
1996, 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. The options granted in 1996 are
exercisable one year from date of grant. Options expire at the end of the
tenth year. The following is a summary of stock option plan activity for 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Option shares available for grant, beginning of year 793,500 306,000
Option shares granted (1,228,500) --
Option shares returned to the plan
upon employee termination 567,000 487,500
---------- ----------
Option shares available for grant, end of year 132,000 793,500
========== ==========
</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>
1992 $ 0.4135 400,000 -- 400,000 400,000
1993 $ 0.4135 100,000 -- 100,000 75,000
1994 $ 0.3750 65,000 -- 65,000 32,500
1996 $ 0.1800 1,228,500 -- 1,228,500 --
--------- --------- --------- ---------
1,793,500 -- 1,793,500 507,500
========= ========= ========= =========
</TABLE>
<PAGE> 19
19
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - FAIR VALUE OF STOCK BASED COMPENSATION
In October 1995, the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 requires the measurement of the fair value of stock
options to be included in the statement of operations or disclosed in the notes
to financial statements. The Company has determined that is will continue to
account for stock-based compensation for employees under Accounting Principles
Board Opinion No. 25 and elect the disclosure-only alternative under SFAS No.
123. The Company has computed the pro forma disclosures required under SFAS No.
123 for options granted in 1996 using the Black-scholes option pricing model as
prescribed by SFAS No. 123. The weighted average assumptions used are as
follows:
Risk free interest rate 6.27%
Expected dividend yield 0.00%
Expected lives 5 Years
Expected volatility 90.30%
Had compensation cost for the Company's stock option plans been determined
consistent with SFAS No. 123, the Company's net income applicable to common
stockholders and net income per common and common equivalent share would have
been the following pro forma amounts:
<TABLE>
<S> <C>
Net income available to common stockholders:
As reported $477,890
Pro forma $464,357
Net income per common and common equivalent share:
As reported $ 0.052
Pro forma $ 0.051
</TABLE>
NOTE 12 - INCOME TAXES:
The provision for income taxes represents minimum state corporate taxes
currently due.
The net operating loss incurred in 1994 created an uncertainty as to whether the
Company will be able to utilize its net operating loss carryforwards and realize
its deferred tax asset. Accordingly, management elected to record a valuation
allowance for the entire amount of its deferred tax asset. At December 31, 1996,
the Company has a net operating loss carryforward of approximately $860,000 for
federal income tax purposes.
The Company's total deferred tax assets and related valuation allowance at
December 31, 1996 are as follows:
<TABLE>
<S> <C>
Deferred tax asset - current $ 5,125
Deferred tax asset - non-current 530,494
---------
535,619
Less valuation allowance (535,619)
---------
$ --
=========
</TABLE>
<PAGE> 20
20
DAWN TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - GAIN FROM INSURANCE PROCEEDS
On April 25, 1996, a fire occurred at the Company's manufacturing facility.
Damage was extensive to the offices at the facility along with certain
production areas. Approximately 15% of the building was destroyed by the fire.
The extraordinary gain from insurance proceeds as shown on the consolidated
statements of operations for the year ended December 31, 1996, represents
insurance recovery proceeds net of related expenses. As the Company had
sufficient net operating loss carryforwards to offset the income generated
therefore, no income tax charge was recorded. At December 31, 1996, $214,874
(less $12,894 due independent adjuster) was still owed to the Company relating
to the fire claim. This final installment was received in February 1997.
NOTE 14 - CONTINGENCIES
At certain times, the Company has amounts on deposit with financial institutions
in excess of the FDIC limit.
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
<PAGE> 21
21
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS
Set forth below is certain information with respect to directors of the Company,
each of whom was elected for a one-year term at the 1996 Annual Meeting of
Stockholders.
WARREN K. NOVICK Mr. Novick, age 62, has been Chairman, Secretary and a
Director since 1987. Mr. Novick is a private investor and
had periodically acted as a consultant to the Company with
respect to business development. Mr. Novick is currently a
principal stockholder of DMI, Inc., a privately held
corporation operating in the cultured marble industry. Mr.
Novick is currently a principal stockholder of New Media
Telecommunications, Inc., a privately held corporation
operating in the telecommunications industry. Mr. Novick is
also a member of the Board of Directors and an officer and
stockholder of Aerocess Inc. a privately held corporation
operating in the aerospace industry.
PLACIDO SARETTO Mr. Saretto, age 75, has been a Director since 1989. Mr.
Saretto is currently retired. Mr. Saretto was previously
President and principal stockholder of Own Instrument, Inc.,
for over thirty years. Own Instrument, Inc. is a specialty
machine jobbing company located in Mount Vernon, New York.
VICTOR WINOGRADO Mr. Winogrado, age 46, has been a Director since 1992.
Since 1994, Mr. Winogrado has been Treasurer and a principal
stockholder of Nova Dye and Print Corp. Mr. Winogrado
previously held positions in the banking industry for over
twenty years with Lloyds Bank, Ltd. and DAIWA Bank, Ltd. Mr.
Winogrado is a member of the American Banking Associates and
the American Management Association.
MURRAY TRACHTEN Mr. Trachten, age 61, has been a director since 1994. Mr.
Trachten has been an attorney engaged in private practice
since 1963.
MANAGEMENT
Set forth below is certain information with respect to the executive officers of
the Company not listed above. Executive officers have terms of office which run
until the next succeeding meeting of the Board of Directors following the annual
meeting of stockholders or until their successors are elected and qualified,
unless they are removed sooner by the Board.
DAVID SKLAR Mr. Sklar, age 36, was elected President and Chief Executive
Officer of the Company in April 1996. Since 1994, Mr. Sklar
has been President and Chief Executive Officer of DMI, Inc.,
Designed Marble, Inc. and Distinctive Marble, Inc.,
manufacturer and installers of cultured marble in the
southwest United States. Mr. Sklar was previously general
manager of the "Steel Door" division of FHA Fire Door Corp.,
a privately owned manufacturer of steel doors and frames
serving the New York area.
WILLIAM WINAKOR Mr. Winakor, age 54, was elected Executive Vice President
and Chief Operating Officer of the Company in April 1996.
From 1995 until April 1996, Mr. Winakor was President and
Chief Executive Officer of Aerocess, Inc., a manufacturer
and distributor of after market aerospace parts. Mr. Winakor
was previously President of AGC, Inc., a manufacturer of
aerospace parts and components.
<PAGE> 22
22
PART III
(Continued)
JOHN SCANLON Mr. Scanlon, age 39, was elected Treasurer, Chief Financial
and Accounting Officer and Assistant Secretary of the
Company in April 1996. Mr. Scanlon is a sole practitioner
Certified Public Accountant who has agreed to fulfill the
duties of Treasurer and Chief Financial and Accounting
Officer of the Company on an as needed basis. From 1990
until 1996, Mr. Scanlon was employed by VSM & Co.,
Certified Public Accountants and Consultants in Farmington,
Connecticut. Mr. Scanlon is a member of the American
Institute of Certified Public Accountants and the
Connecticut Society of Certified Public Accountants.
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE- Section 16(a) of the
Securities Exchange Act of 1934 requires the Company's directors, executive
officers and persons owning more than ten percent of the Company's common stock
("insiders") to file reports of ownership on Form 3 and changes in ownership on
Forms 4 and 5 with the Securities and Exchange Commission and to furnish the
Company with a copy of all Section 16(a) forms they file. Based solely on the
review of Section 16(a) reports received by the Company and representations
received from certain of the Company's directors and executive officers, the
Company is aware of the following instances of non-compliance with Section 16(a)
by insiders regarding 1996 transactions. Mr. Novick was delinquent in the filing
of Form 4 for the month of September 1996 regarding two transactions: Mr. Novick
filed the delinquent Form 4 in November 1996. Mr. D'Aloia, was delinquent in the
filing of a Form 4 for the month of January 1996 regarding one transaction. Mr.
D'Aloia reported the transaction in a delinquently filed Form 5 in April 1997.
ITEM 10 - EXECUTIVE COMPENSATION
Compensation Summary
The following table sets forth certain information concerning total compensation
during each of the last three fiscal years which was earned by or paid to the
President/Chief Executive Officer of the Company, and the most highly
compensated executive officer of the Company which served in such capacities
during 1996 and two former President/Chief Executive Officers of the Company
(collectively referred to as the "named executive officers"). There were no
other executive officers of the Company whose combined salary and bonus for any
of these years exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation Awards
--------------------------- -----------------------
(a) (c)
Other (b) Securities
Annual Restricted Underlying
Compen- Stock Options/
Name and Principal Position Salary Bonus sation Awards SARS
- --------------------------- ------ ----- ------ ------ ----
$ $ $ $ #
<S> <C> <C> <C> <C> <C>
David Sklar, President and CEO
1996 -- -- -- -- 582,000
1995 -- -- -- -- --
1994 -- -- -- -- --
Dennis DiDonato, prior Co-CEO(d)
1996 58,352 -- 1,800 -- --
1995 140,625 -- 7,200 -- --
1994 529,790 93,608 7,200 33,600 250,000
</TABLE>
<PAGE> 23
23
PART III
(Continued)
ITEM 10 - EXECUTIVE COMPENSATION (Continued)
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation Awards
--------------------------- -----------------------
(a) (c)
Other (b) Securities
Annual Restricted Underlying
Compen- Stock Options/
Name and Principal Position Salary Bonus sation Awards SARS
- --------------------------- ------ ----- ------ ------ ----
<S> <C> <C> <C> <C> <C>
Nicholas Garruto, Prior Co-CEO
and Treasurer(d)
1996 55,089 -- -- -- --
1995 110,170 -- -- -- --
1994 85,924 -- -- 16,080 80,000
Andrew D'Aloia, prior President
and CEO(e)
1996 -- -- -- -- --
1995 -- -- -- -- --
1994 193,867 564,969 7,000 36,000 250,000
</TABLE>
(a) Automobile allowances paid during the fiscal year.
(b) A total of 407,000 shares of restricted common stock were awarded to named
executive officers in 1994. Had they remained employed by the Company,
shares granted to Messrs. DiDonato and Garruto would have vested to them at
a rate equal to the number of shares that 10% of the Company's pre-tax
profit, and defined, could purchase at the fair value of the stock at the
time it was awarded in 1994 ($0.25 per share). During 1995, Messrs. DiDonato
and Garruto became vested in 27,718 and 13,625 shares, respectively, that
had been awarded in 1994. The amounts reported in the table reflect the
approximate market value of the shares at the time of grant. At December 31,
1995, Mr. DiDonato held 149,782 restricted shares with an aggregate market
value of approximately $15,000 and Mr. Garruto held 53,735 restricted shares
with an aggregate market value of approximately $5,000 using the closing bid
price at December 31, 1995 without giving effect to the diminution of value
attributable to the restriction on such stock. If the Company were to pay a
dividend, dividends would be paid on the restricted shares reported in this
column.
(c) Options granted in 1994 include options granted in exchange for the
cancellation of options during a Company wide option repricing. Mr. DiDonato
was granted options to purchase 110,000 shares in exchange for options
cancelled and Mr. D'Aloia was granted options to purchase 250,000 shares in
exchange for options cancelled.
(d) Messrs. DiDonato and Garruto ceased to be executive officers in April 1996.
(e) Mr. D'Aloia ceased to be an executive officer in September 1994. Mr.
D'Aloia's bonus compensation for 1994 does not include compensation accrued
with respect to his agreement not to compete with the Company for five
years. See discussion below under "Other Transactions".
<PAGE> 24
24
PART III
(Continued)
Options/SAR - Grants - During 1996, options to purchase 582,000 shares for
$0.18 per share, expiring August 11, 2006 granted to David
Sklar under the Company's stock option plan. This represents
approximately 49% of options granted for the year. No options
were granted to any other named executive officers during
1996.
Options/SAR - Exercises - The following table sets forth certain information
with respect to the exercise of options to purchase the
Company's common stock and SARS by each of the named executive
officers during the year ended December 31, 1996 and the
unexercised options held by each of the named executive
officers (and their value) as of December 31, 1996:
Number of Securities
<TABLE>
<CAPTION>
Number of Securities
Underlying Value of Unexercised
Unexercised Options In-The-Money Options
Shares /SARS at Fiscal Year End /SARS at Fiscal Year End
Acquired Value --------------------------- ---------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- -------- ----------- ------------- ----------- -------------
(#) ($) (#) (#) ($) ($)
<S> <C> <C> <C> <C> <C> <C>
David Sklar -- -- -- 582,000 -- 145,500
Dennis DiDonato -- -- -- -- -- --
Nicholas Garruto -- -- -- -- -- --
Andrew D'Aloia -- -- 237,500 12,500 59,375 3,125
</TABLE>
OTHER TRANSACTIONS
The following is a summary of other transactions with directors, officers and
former directors and officers:
The Company pays a fee of $300 per meeting to its directors who are not
otherwise employees of the Company.
During 1996, the Company paid approximately $34,375 for consulting services
rendered by Warren K. Novick, a director of the Company.
During 1994 Mr. D'Aloia (a director of the Company until March 1996)
announced his retirement as president of the Company. Mr. D'Aloia 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, Mr.
D'Aloia will receive $125,000 per year through December 31, 1999. The present
value of payments under this agreement was accrued in 1994. In September
1995, Mr. D'Aloia 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 at December 31, 1995 payable to
Mr. D'Aloia as compensation for services rendered in 1994. Interest expense
in 1995 includes approximately $54,000 to Mr. D'Aloia on the Company's
non-compete agreement and the accrued payroll.
See Note 7 to the consolidated financial statements.
<PAGE> 25
25
PART III
(Continued)
ITEMS 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 1996, the number of shares and
percentage of the Company' common stock owned, of record and beneficially, be
each person known to the Company to own more than 5% of the outstanding common
stock each director of the Company, each named executive included in the summary
compensation table, all other executive officers and by all executive officers
and directors as a group:
<TABLE>
<CAPTION>
Share Option
Currently Shares Total Percent
Name and Address Owned Available Shares of Class
- ---------------- ----- --------- ------ --------
<S> <C> <C> <C> <C>
Persons known to own more than 5% of
the outstanding common stock:
Warren K. Novick, Director and
nominee(b) 2,703,730 237,500(a) 2,941,230 29.91%
Andrew D'Aloia, former Director,
President and CEO(e) 1,951,000 237,500(a) 2,188,500 22.25%
Directors (excluding
those listed above):
Placido Saretto(b) 7,936 -- 7,936 .01%
Victor Winogrado(b) -- -- -- --
Murray Trachten(b, c) 85,520 -- 85,520 .01%
Executive officers:
David Sklar, President and Chief -- -- -- --
Officer(b,d)
William Winakor, Executive Vice
President and Chief Operating -- -- -- --
Officer(b, d)
John Scanlon, Treasurer(b, d) -- -- -- --
All directors and executive officers 2,797,186 237,500(a) 3,034,686 30.79%
as a group (8 persons)
</TABLE>
(a) Shares that may be acquired upon exercise of stock options within 60 days.
(b) The address of Messrs. Novick, DiDonato, Saretto, Winogrado, Trachten,
Sklar, Winakor, Scanlon and Garruto is care of Dawn Technologies, Inc., 433
South Main Street, West Hartford, Connecticut 06110.
(c) Mr. Trachten's ownership does not include 3,960 shares of common stock owned
by Mr. Trachten as custodian for his minor children who reside with him in
which shares Mr. Trachten disclaims any beneficial interest.
(d) Messrs. Sklar, Winakor and Scanlon became executive officers in April 1996.
(e) Mr. D'Aloia's address is 176 Lynam Road, Stamford, Connecticut 06403.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTION
Not applicable.
<PAGE> 26
26
PART III
(Continued)
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.
Sequentially
Exhibit Numbered
Number Description of Exhibit Page
------ ---------------------- ----
10.18a Amendment to Stock Option Plan 29
10.19a Amendment to Stock Bonus Plan 30
10.20A Settlement agreement with D'Aloia 31
10.23a Form of indemnification agreement with
directors and officers of the company 33
10.25 Settlement agreement with Dennis DiDonato 38
10.26 Sublease agreement for Scanton Manufacturing Facility 42
10.27 Sublease for West Hartford Corporate Office Space 47
23 Consent by accountants to incorporate auditors
report by reference 51
27 Financial data schedule 52
The following exhibits are incorporated by reference:
Sequentially
Exhibit Numbered
Number Description of Exhibit Page
------ ---------------------- ----
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, 1995 f
21 Subsidiaries of the registrant h
-------------------
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
<PAGE> 27
27
PART III
(Continued)
The following management contracts or compensatory plans incorporated by
reference:
The Dawn Technologies, Inc. Stock Bonus Plan, as amended (Exhibits 10.18 and
10.18a) and the Dawn Technologies, Inc. 1989 Stock Option Plan, as amended
(Exhibits 10.19 and 10.19a) 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
<PAGE> 28
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Dawn Technologies, Inc.
/s/ David Sklar April 14, 1997
----------------------------------------- --------------
By: David Sklar Date
President and Chief Executive
Officer (Principal Executive Officer)
Dawn Technologies, Inc.
/s/ John Scanlon April 14, 1997
----------------------------------------- --------------
By: John Scanlon Date
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 included:
/s/ Warren K. Novick, Director April 14, 1997
----------------------------------------- --------------
Warren K Novick, Director Date
/s/ Placido Saretto, Director April 14, 1997
----------------------------------------- --------------
Placido Saretto, Director Date
/s/ Victor Winogrado, Director April 14, 1997
----------------------------------------- --------------
Victor Winogrado, Director Date
/s/ Murray Trachten, Director April 14, 1997
----------------------------------------- --------------
Murray Trachten, Director Date
<PAGE> 1
Exhibit 10.18(a)
Section 2 of the Dawn Technologies, Inc. 1989 Stock Option Plan was
amended effective November 1, 1996 as follows:
The 1989 plan shall be administered, initially, by the Board of
Directors of the Company (the "Board"). The Board may appoint a committee
(the "Committee") to administer the Plan so long as this Committee shall
consist of at least two members of the Board. As used hereafter, the term
"Committee" shall include the Board, so long as it shall administer the Plan
unless the context otherwise requires. Subject to the provisions of the 1989
Plan, the Committee shall hae sole authority, in
its absolute discretion, to determine which of the eligible employees of the
Company and its Subsidiaries shall receive stock options, the time when stock
options shall be granted, the terms of such options, and the number of shares
for which options shall be granted. The Committee shall have the authority to
do everything necessary or appropriate to administer the 1989 Plan including,
without limitation, interpreting the 1989 Plan. All decisions, determinations
and interpretations of the Committe shall be final and binding on all
optionees.
<PAGE> 1
Exhibit 10.19(a)
The following amendment with regards to the Stock Bonus Plan of Dawn
Tehchnologies, Inc. was adopted by the Board of Directors effective November 1,
1996:
Subsection 4(d) of the Dawn Technologies, Inc. Stock Bonus Plan is
deleted and Subsections (e) and (f) are redesignated as Subsections (d) and
(e), respectively.
<PAGE> 1
29
EXHIBIT 10.20a
STIPULATION OF SETTLEMENT
AND CONSENT TO THE ENTRY OF JUDGMENT
IT IS HEREBY STIPULATED BY AND BETWEEN THE PARTIES AS FOLLOWS:
1. Dependents shall pay to the Plaintiff the sum of $300,000.00, as follows:
A. Promptly upon the execution of this stipulation, the Defendants will pay
the Plaintiff the sum of ONE HUNDRED THOUSAND DOLLARS ($100,000.00);
B. The sum of TWO HUNDRED THOUSAND DOLLARS ($200,000.00) will be paid by the
Defendants to the Plaintiff no later than November 30, 1996 (the "outside
payment date"). Notwithstanding the foregoing outside payment date, the
Defendants agree to pay to the Plaintiff 37-1/2% of all fire insurance
proceeds (net of payments to the insurance adjuster) received on or after
the date of this stipulation, from any insurance company concerning the
claim made by the Defendants and relating to the fire which occurred in
April 1996 at its Blakely, Pennsylvania manufacturing facility, as and
when received, and promptly upon receipt, and until the balance of the
agreed upon settlement is paid in full. In no event shall the payments(s)
recited in this paragraph 1(B) be made after than November 30, 1996.
C. Plaintiff acknowledges and agrees that, upon the making of the payments
provided in this paragraph, no amounts shall be due and owing to him by
Defendants, their officers, directors, employees and agents with respect
to any matter prior to June 1, 1996, including, without limitation,
amounts on account of deferred compensation, payments due under the
Noncompetition Agreement between Plaintiff and Defendant Dawn
Technologies, Inc., dated January 1, 1996 (the "Noncompetition
Agreement"), and interest on the foregoing.
2. The parties agree that the next monthly payment due to Plaintiff under the
Noncompetition Agreement will be made on the first day of the first month
after all of the payments(s) recited in paragraph 1(B) of this stipulation
are made, or on December 1, 1996, whichever is sooner, and, subject to his
compliance with the Noncompetition Agreement, payments thereunder shall
continue monthly until $447,916.63 has been paid. Upon any default in the
payment of any installment due to Plaintiff under the Noncompetition
Agreement, which default is not cured within any applicable period to cure,
interest on such unpaid installment shall accrue at the annual rate of
fifteen (15%) percent calculated from the date such installment was due.
Except as expressly provided in this stipulation, the terms of the
Noncompetition Agreement shall be unchanged and in full force and effect.
3. A. This stipulation shall constitute the final order and judgment of the
court in this case, and this action is hereby dismissed with prejudice and
without costs to any party as against the other. The Temporary Restraining
Order previously entered by this court is dissolved, and of no further
force or effect.
B. If Plaintiff has delivered and not revoked the proxy as provided in
Paragraph 4 below, in the event that the Defendants fail to make the
payments specified in paragraph 1 of this stipulation, and Defendants do
not cure such failure within ten (10) days after receipt of written notice
to Dawn Technologies, Inc. (Attention: Warren Novick), 40 Gibraltar Lane,
Avon, CT 06001, with a copy to Michael I. Stolzar, Esq., Zissu Ghumbinger
Stolzar & Wasserman, 950 Third Avenue, New York, NY, 10022, then upon
affidavit of counsel for Plaintiff made after appropriate inquiry, and
without further notice and without further application to this court,
Plaintiff may enter judgment in the sum of $300,000 less all amounts
previously paid pursuant to Paragraph 1 of this stipulation. In the event
that Defendants fail to make the payments as specified in Paragraph 1 of
this stipulation, interest shall accrue on all unpaid amounts at the
annual rate of 9%, calculated from the date hereof.
<PAGE> 2
30
4. Simultaneously with the execution hereof, Plaintiff shall sign in blank and
date an irrevocable proxy in the form attached hereto as Exhibit 1 and
deliver it to counsel for Defendants. Plaintiff shall not revoke said proxy.
Dated: New York, New York
June 4, 1996
JOHN A. TARTAGLIA, ESQ. SHIFF & TISMAN
/s/ JOHN A TARTAGLIA By:/s/ STEPHEN E. TISMAN
- -------------------------- --------------------------
JOHN A. TARTAGLIA, ESQ. STEPHEN E. TISMAN
Attorneys for Plaintiff Attorneys for Defendants
P.O. Box 369, Suite 1808 280 Madison Avenue
White Plains, NY 10603 New York, NY 10016
(914) 289-0800 (212) 751-7600
SO ORDERED:
/s/
/s/ JAMES R. COWHEY, J.S.C.
James R. Cowhey, J.S.C.
<PAGE> 1
31
EXHIBIT 10.23a
INDEMNIFICATION AGREEMENT
Agreement dated as of __________ between Dawn Technologies, Inc. and __________.
The parties agree as follows:
1. THE PARTIES AND THE CONSIDERATION
(a) The parties to this agreement are Dawn Technologies, Inc. and
__________________________.
(b) Dawn Technologies, Inc. is a Delaware corporation. It has an office at
433 South Main Street, West Hartford, Connecticut 06110. It is referred
to below as the "Corporation".
(c) ____________________________ is an individual person. He is referred to
below as "Indemnitee".
(d) At the request of the Corporation, indemnitee currently services 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 serviced 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.
<PAGE> 2
32
(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 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 AND 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 not 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 contender, 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.
<PAGE> 3
33
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.
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
therefore 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.
<PAGE> 4
34
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.
(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:
<PAGE> 5
35
(b) If to the Corporation, to:
Dawn Technologies, Inc.
433 South Main Street
West Hartford, CT 06110
Attention:
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, William J. Winakor 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.
_________________________________
Dawn Technologies, Inc.
By:______________________________
<PAGE> 1
36
EXHIBIT 10.25
AGREEMENT, RELEASE AND COVENANT
NOT TO SUE
This agreement, made the 28th day of January, 1997 by and among Dennis DiDonato
("DiDonato"), residing at 42 Larry's Lane, Pleasantville, New York 10570, Dawn
Technologies Inc., (the "Company" or "Dawn Technologies"), Dawn Special Systems
Corporation, Dawn Products Corp. (collectively "Dawn"); and Warren Novick
("Novick"), residing at 40 Gibraltar Lane, Avon, CT 06001.
WHEREAS, DiDonato has commenced, and withdrawn without prejudice, an action
against Dawn and Novick, entitled Dennis DiDonato v. Warren Novick, Dawn
Technologies, Inc., Dawn Special Systems Corporation, Dawn Products Corp., in
the New York State Supreme Court, Westchester County (Index No. 96-17922) (the
"Action"); and
WHEREAS, DiDonato possesses certain shares of common stock of Dawn Technologies
that the Company contends were not yet vested in him, and DiDonato claims that
the Company is holding 140,000 shares of common stock to which he is entitled;
and
WHEREAS, DiDonato has agreed to obtain for Dawn and general release from David
Hirsch ("Hirsch"), an individual with whom DiDonato is friendly whose claims
against Dawn, if any, will be satisfied from the amounts DiDonato will receive
hereunder, and whose release is required by the Company as a condition of
settling with DiDonato; and
WHEREAS, the parties hereto have agreed to settle all claims existing among
them, including all claims, with respect to ownership of or entitlement to stock
or options, and including the claims raised in the Action, without admission of
fault or liability on the part of any of the parties hereto; and
WHEREAS, it is the intention of the parties that this agreement be construed as
broadly as possible to be given the greatest effect the law will allow;
NOW, THEREFORE, in consideration of the foregoing and for valuable
consideration, the sufficiency of which is hereby acknowledged, the parties
hereto agree as follows:
1. Payments to DiDonato for DiDonato and/or Hirsch
Dawn Technologies agrees to pay to DiDonato the sum of Sixty Thousand
Dollars ($60,000.00) less any withholding taxes, Social Security, Medicare
taxes and other deduction required by law, payable as follows: $5,000 upon
execution of this agreement, and $5,000 on February 3, 1997, and on the
first business day of each of the ten (10) succeeding months. These
payments are in full satisfaction of all monetary amounts due or to become
due, vested or contingent, from Dawn or Novick to DiDonato or Hirsch for
any reason whatsoever (except for payments specifically provided under
this agreement), including without limitation any amount claimed or due on
account of prior compensation, grants of stock or stock options,
severance, amounts based on an employment agreement, interest, or any
other cause.
2. Vesting of Stock and Cancellation and/or Acknowledgment of Expiration of
Rights or Options to Acquire Stock or Awards of Stock.
<PAGE> 2
37
Upon the effective date of this agreement, all common stock of Dawn
Technologies registered in the name of DiDonato, including the 140,000
shares represented by certificate no. DCN 1122 in the possession of the
Company (the "140,000 shares") shall be deemed fully vested in DiDonato,
and the Company waives any claim to return of any such shares. Other than
shares represented by certificates already in his possession or in "street
name" held for him as beneficial owner, any other shares, options, grants,
awards or other rights or claims to shares of stock of Dawn Technologies,
under any written plan or otherwise, whether vested or contingent, and any
shares registered in the name of Hirsch in the possession of the Company,
shall be deemed to have expired, or to have been waived, or to have been
transferred to, or at the direction of the Company, as it in its sole
discretion shall deem appropriate. DiDonato shall execute and deliver to
the Company, at no charge, promptly upon request, all documents reasonably
required by the Company to evidence or effect the foregoing, and DiDonato
shall cause Hirsch to do the same.
3. Purchase and Sale of the 140,000 Shares
(a) Novick hereby purchases from DiDonato, and DiDonato hereby sells to
Novick, the 140,000 shares for the sum of fifteen ($0.15) per share.
(b) Payment shall be made by check payable to DiDonato, to be delivered
promptly following the effective date of this agreement. DiDonato
shall cause to be delivered in escrow, to be delivered to Novick the
certificate representing the 140,000 shares, and duly executed stock
powers, in blank, for the 140,000 shares, with signature guaranty
sufficient to cause the Company's transfer agent to effect the
transfer of stock.
(c) The sale of stock under this paragraph is conditioned upon the
effectiveness of this agreement in its entirety and, if this agreement
does not become effective as provided in paragraph 7 below, then
neither Novick nor DiDonato shall have any obligations under this
paragraph.
(d) DiDonato represents and warrants to Novick that: (I) upon the
effective date of this settlement agreement, and at the time of his
sale of the 140,000 shares, he has or will have full right, title and
interest in and to the 140,000 shares; (ii) he has not transferred,
assigned, conveyed, pledged or encumbered all or any part of the
140,000 shares; and (iii) upon delivery to Novick of the
certificates(s) and stock powers as provided hereunder, Novick will
have full right, title and interest in and to the 140,000, free of all
claims, liens or encumbrances of any person, entity or taxing
authority.
4. (a) Documents to be Delivered by DiDonato
DiDonato shall execute and delivery his general releases in the forms
annexed hereto as Exhibit A, and a stock power for the 140,000 shares
in the form annexed hereto as Exhibit B. DiDonato shall obtain from
Hirsch and deliver Hirsch's duly executed general releases in the
forms annexed hereto as Exhibit C, and a stock power for 60,000 shares
in the form annexed hereto as Exhibit D. The stock powers shall have
signature guarantees sufficient to cause the Company's transfer agent
to effect transfer of stock.
(b) Documents to be Delivered by Dawn
Dawn shall execute and deliver to DiDonato its general release of
DiDonato in the form annexed hereto as Exhibit E, and its general
release of Hirsch, in the form annexed hereto as Exhibit F.
5. DiDonato's Representations
DiDonato hereby represents that: (a) he has not filed any complaint or
claim against Dawn, any of their affiliated companies or entities, or
their employees, with any other court or governmental agency, except
for the action; and (b) he has not transferred, assigned, pledged or
conveyed all or any part of his interest in any claim or property
which is the subject of this agreement or the release to be delivered
by him hereunder. The foregoing representations shall survive the
closing of the transactions provided for hereunder.
<PAGE> 3
38
6. Covenant Not to Sue
DiDonato, on behalf of himself, his heirs, executors, administrators,
and assigns agrees never to directly or indirectly commence or
prosecute, or assist in the commencement or prosecution, or in any way
cause, or advise to be commenced or prosecuted, any complaint, action
or proceeding against Dawn, its subsidiaries, affiliates, divisions,
successors and assigns and their past, present or future officers,
directors, agents or employees, with respect to any matter, whether or
not known, based upon any act, transaction practice, conduct or
omission that occurred prior to the date of this agreement.
7. Effective Date
(a) This agreement, when signed by DiDonato and delivered to Shiff &
Tisman with the documents to be held in escrow pursuant to
subparagraph 7(b) shall promptly be submitted for approval by the
Board of Directors of Dawn Technologies. This agreement shall be
effective immediately upon such approval.
(b) All documents required to be delivered hereunder by DiDonato, the
check from Novick for purchase of the 140,000 shares, the general
releases executed by Dawn, and the check for the first payment by
Dawn Technologies to DiDonato shall be delivered to Shiff &
Tisman, Attention: Stephen E. Tisman, Esq., to be held in escrow
pending the effectiveness of this agreement. Upon the
effectiveness of the agreement, the escrow shall be released and
Shiff & Tisman, promptly shall cause to be delivered to John
Tartaglia, Esq., counsel for DiDonato, a copy of this agreement
duly signed by Dawn and Novick, the general releases by Dawn of
DiDonato and Hirsch, and the two checks held in escrow. If this
agreement is not approved by the Board of Dawn Technologies by
January 24, 1997, then all documents and checks shall be returned
by Shiff & Tisman to the person or entity which provided them, and
this agreement shall be of no further force or effect.
8. Further Proceedings in the Event of Default
(a) In the event that all payments required to be made to DiDonato by
Novick and Dawn Technologies hereunder are made, then the
stipulation of discontinuance of the action previously filed shall
be deemed to be with prejudice.
(b) In the event that DiDonato has complied with all of his
obligations hereunder, and Dawn Technologies fails to make any
payment specified in paragraph 1 of this agreement, and the
Company does not cure such failure within ten (10) days after
receipt of written notice to Dawn Technologies, Inc. (Attention:
Warren Novick), 40 Gibraltar Lane, Avon, CT 06001, with a copy to
Michael I. Stolzar, Esq., Zissu Gumbinger Stolzar & Wasserman, 950
Third Avenue, New York NY 10022), or such other address as may be
notified to DiDonato at his address first listed above, then
DiDonato may, upon affidavit of counsel for DiDonato made after
appropriate inquiry, and without further notice and without
further application, refile the action and enter judgment against
Dawn Technologies, only, therein in the sum of $60,000 less all
amounts previously paid pursuant to paragraph 1 of this
stipulation. In the event that Dawn Technologies fails to made the
payments as specified in paragraph 1 of this agreement, interest
shall accrue on all unpaid amounts at the annual rate of 9%,
calculated from the date hereof.
<PAGE> 4
39
9. MISCELLANEOUS
This agreement, release and covenant not to sue: is made and entered
into in the State of New York and shall be governed by the laws of New
York applicable to contracts made and wholly to be performed in New York;
may be amended or canceled only by a writing signed by DiDonato, Dawn
Technology and Novick; and sets forth the entire agreement among the
parties, and fully supersedes any and all prior agreements or
understandings among the parties.
DAWN TECHNOLOGIES, INC.
__________________________ By:__________________________
DENNIS DIDONATO Authorized Official
DAWN SPECIAL SYSTEMS
CORPORATION
By:__________________________
Authorized Official
DAWN PRODUCTS CORP.
By:__________________________
Authorized Official
__________________________
WARREN NOVICK
<PAGE> 1
40
EXHIBIT 10.26
SUBLEASE
THIS SUBLEASE is made as of the 17th day of June, 1996 between SPECIALTY
PRINTERS OF AMERICA, INC. (hereinafter called "Landlord") and Dawn Special
Systems Corp. (hereinafter called "Tenant").
WITNESSETH:
WHEREAS, landlord is currently the lessee under a certain lease dated July 10,
1981, by and between Frandale Enterprise as lessor ("Lessor") and Specialty
Printers of America, Inc. which lease was amended as of July 31, 1990 and the
lessee's interest thereunder assigned to landlord as of May 1, 1991 (the lease
as amended and assigned hereinafter referred to as the "Prime Lease").
WHEREAS, the prime lease covers the buildings and improvements located on the
real property described on Exhibit A attached hereto ("Leased Premises").
WHEREAS, the tenant desires to sublease from landlord a portion of the building
comprising the leased premises as hereinafter described.
NOW, THEREFORE, in consideration of the mutual promises contained herein, the
parties hereto agree as follows:
1. Landlord hereby subleases and rents to tenant that portion of the leased
premises as designated on the plan attached hereto as Exhibit B
("Subleased Premises") subject to all of the terms, covenants and
conditions of the prime lease and, which terms and conditions except as
otherwise expressly provided herein as to the leased premises are hereby
incorporated by reference. Tenant acknowledges that landlord does not
pursuant to this sublease covenant and agree to do or perform any
obligations undertaken or assumed by the lessor under the prime lease;
provided, however, landlord agrees to use reasonable efforts to obtain
performance by lessor under the prime lease.
2. (a) Notwithstanding anything contained in the prime lease, the term of
this sublease shall be from June 17, 1996 through November 30, 1997
and the rent hereunder for the entire term shall be $126,000.00, due
and payable by tenant in advance in equal monthly installments of
$7,000 per month beginning June 17, 1996 and continuing monthly
thereafter; with a seven day grace period to accommodate mailing.
(b) Tenant shall be responsible for its own telephone costs and tenant
will bear all charges related to electricity, HVAC, gas, water, and
other utilities serving the leased premises to the extent such costs,
in the aggregate, exceed $1,000.00 per monthly billing cycle This is
subject to change with the addition of any other renter. These
amounts will be billed monthly by landlord to tenant (accompanied by
verification of bills) and payment shall be reimbursed to landlord
within 5 days. In addition to the foregoing, tenant will be
responsible for 51.0% of all common area maintenance payable by
landlord to lessor under the prime lease which changes shall be paid
to landlord within 15 days of billing.
(c) It is acknowledged that the rent set forth in this paragraph is based
upon the subleased premises constituting approximately 28,000 square
feet. If tenant desires to utilize additional portions of the leased
premises, subject to landlord's approval, such additional space shall
become part of the subleased premises, the rent hereunder shall
increase by $3,00 excluding real estate taxes (net, net, net) per
square foot per annum for each additional square foot and tenant's
share of the carrying charges shall be increased proportionately.
<PAGE> 2
41
3. Tenant shall use the leased premises exclusively for electromechanical
assembly operations, a machine shop (to the extent permitted under local
laws, statutes, ordinances, rules or regulations) and general and
administrative offices.
4. Tenant may assign this sublease or further sublet any portion of the
subleased premises, by first obtaining the express written consent to
landlord which consent landlord may not unreasonably withhold, and
obtaining written consent of Frandale Enterprises which consent may be
withheld for any or no reason.
5. Tenant shall, at tenant's sole cost and expense, secure a policy of
public liability insurance providing limits of $1,000,000 with respect to
each person, $1,000,000 with respect to each occurrence, and $50,000
properly damage, protecting landlord and tenant against liability for
each accident occurring in or on the leased premises including parking
and other areas under control of landlord or tenant. Tenant shall also
carry, at tenant's sole cost and expense, worker's compensation insurance
to cover tenant's operations at the subleased premises. Tenant shall
promptly provide landlord with copies of each insurance policy to be
carried hereunder and each policy shall provide that it may be canceled
only upon thirty (30) days prior written notice to landlord. Tenant's
insurance may be in the form of a blanket policy or policies provided
there is no reduction in the coverage required hereunder. Tenant shall
have landlord designated as an additional "named insured" on all
applicable policies.
6. (a) Tenant shall indemnify, defend and hold landlord harmless, from and
against any and all claims, demands, actions, loss, cost or expense,
including attorneys' fees (collectively referred to hereafter as
"claims") of any nature whatsoever, arising out of or in any way
connected with (i) any work or thing done in, on or about the
subleased premises; (ii) any use, non-use, possession, occupation,
condition, operation, maintenance or management of the leased
premises or any part thereof; (iii) any act or forbearance on the
part of tenant or any of its agents, contractors, servants,
employees, subtenants, licensees or invitees or any other person
acting with the consent or knowledge of tenant; (iv) any failure by
tenant to perform or comply with any of the covenants, agreements,
terms or conditions contained in this sublease; (v) any action or
proceeding brought against landlord in any way related to or
connected with the use of the subleased premises, and any activity
being conducted thereon; and (vi) any accident, injury or damage to
any person or property occurring in, on or about or adjacent to the
subleased premises, arising out of any act or forbearance occurring
thereon, but nothing herein set forth shall release the landlord from
any liability for landlord's negligence or adversely affect tenant's
immunity under the workers' compensation laws.
(b) Landlord shall indemnify, defend and hold tenant harmless, from and
against any and all claims, demands, actions, loss, cost or expense,
including attorney's fees (collectively referred to hereafter as
"claims") of any nature whatsoever, arising out of or in any way
connected with (i) any work or thing done in, on or about the leased
premises (excluding the subleased premises); (ii) any use, non-use,
possession, occupation, condition, operations, maintenance or
management of the leased premises or any part thereof (excluding the
subleased premises); (iii) any act or forbearance on the part of
landlord or any of its agents, contractors, servants, employees,
subtenants, licensees or invitees or any other person acting with the
consent or knowledge of landlord, (iv) any failure by landlord to
perform or comply with any of the covenants, agreements, terms or
conditions contained in this sublease; (v) any action or proceeding
brought against tenant in any way related to or connected with the
use of the leased premises (excluding the subleased premises), and
any activity being conducted thereon; and (vi) any accident, injury
or damage to any person or property occurring, on or about or
adjacent to the leased premises (excluding the subleased premises),
arising out of any act or forbearance occurring thereon.
<PAGE> 3
42
7. In the event tenant shall default in any way in the performance of this
sublease, landlord may exercise all remedies available to landlord at law
or in equity, and landlord shall be entitled to reasonable costs and
expenses and attorneys' fees incurred by landlord in connection with any
such default or in the retaking and possession of the subleased premises;
provided, however, in the event tenant shall fail to do or perform any
act, obligation or thing herein agreed to be done by and/or performed by
tenant hereunder other than the failure to pay rent or other sums due
hereunder, landlord shall not exercise any rights or remedies unless such
default shall continue for a period of thirty (30) days after landlord
has given written notice to tenant specifying the nature of the
non-monetary default; provided further if the nature of the default is
such that it cannot reasonably be cured within thirty (30) days and
tenant within such thirty (30) days has commenced such cure and is
diligently prosecuting such cure, landlord shall withhold exercising its
remedies hereunder for such additional time as may be reasonable to cure
such default.
8. Tenant agrees at all times during the term of this sublease to comply
with the requirements of all laws, ordinances, orders, rules and
regulations or any state, federal, municipal or other agency pertaining
to tenant's use of the subleased premises (including without limitation
any health or safety act), provided, however, in the event the cost of
such compliance would exceed $10,000, tenant shall have the option to
terminate this sublease unless landlord agrees to pay such cost in excess
of $10,000 in which event this sublease shall not be terminated by
tenant. Tenant agrees to indemnify and hold landlord harmless from any
liability, claim or damage arising as a result of a breach of this
paragraph 8 and from all costs, expenses, and charges arising therefrom,
including, without limitation, reasonable attorney's fees and court costs
incurred by landlord in connection therewith, which indemnify shall
survive the expiration or termination of this lease.
9. Tenant accepts the subleased premises in their present "as is" condition.
Landlord represents that the existing utility systems are in operating
order and all utilities will be available for tenant's use.
10. Upon execution of this sublease, tenant shall deposit $7,000.00 as a
security deposit, which will be held in an interest bearing account to
secure tenant's obligations under this sublease, and which will be
returned to the tenant at the termination of the lease unless tenant is
in default as designated under any or all of the conditions of this
agreement as set forth herein beyond any applicable notice and/or cure
period.
11. Tenant acknowledges that the subleased premises comprise a portion of the
larger leased premises which as of the date hereof is not separately
partitioned and that access to portions of the subleased premises may be
through portions of the leased premises not leased hereunder and to that
extent, tenant shall have non-exclusive access through such areas,
subject to landlord's reasonable rules and regulations. Tenant agrees
that at such time as landlord obtains additional tenants for the leased
premises, it may be necessary to relocate all or a portion of the
subleased premises, provided such relocation shall be at landlord's sole
cost and expense and tenant shall continue to have reasonable access as
required for the operation of its business.
12. Tenant shall not bring upon the premises, allow to be brought upon the
premises, store upon the premises or dispose of upon the premises, any
substances which are characterized or defined as hazardous substances,
hazardous materials, hazardous wastes, or any similar characterization or
definitions, by any federal, state or local law, statute, ordinance, rule
or regulation. Tenant shall indemnify, defined and hold landlord harmless
from any breach of this paragraph and additionally hold landlord harmless
for any actions brought forth by an environmental agency or act,
including but not limited to federal, state and local agencies, CERCLA,
RCRA, et al. This will apply only to those substances that tenant brought
to premises.
<PAGE> 4
43
13. (a) In the event landlord desires to sublease any portion of the leased
premises not leased hereunder to tenant to a third party, landlord
shall notify tenant in writing of its intention to sublease such
space which notice shall set forth the premises to be subleased, the
base and additional rent, the terms of the sublease and such other
terms and conditions which the landlord proposes to be included.
Tenant shall have ten (10) days following landlord's notice to accept
landlord's offer to sublease such additional space. If tenant elects
not to sublease such space or fails to timely notify landlord of its
intention to sublease such space which shall be deemed an election
not to sublease, landlord shall be free to sublease the space
enumerated in the notice to a third party on substantially the terms
and conditions offered to tenant as set forth in landlord's notice
and tenant shall have no further rights with respect to such space
except as hereinafter set forth.
(b) In the event landlord receives a bona fide offer from a third party
to sublease the leased premises (including the subleased premises),
landlord shall provide tenant written notice of such offer by
delivering to tenant a copy of the proposed sublease to be entered
into by landlord containing the terms and conditions of the proposed
sublease, whereupon tenant shall have the right to enter into the
proposed sublease as presented by landlord which election shall be
made within ten (10) days following landlord's notice to tenant.
Tenant's failure to timely notify landlord of its intention to accept
the proposed sublease shall constitute tenant's election not to
accept the proposed sublease whereupon landlord shall have the right,
upon ninety (90) days prior written notice, to terminate this
sublease and tenant agrees to vacate the subleased premises upon the
expiration of said ninety (90) day period.
14. Tenant shall maintain and repair the subleased premises and shall make no
alterations or improvements of any kind or nature, structural or
non-structural without the landlord's written consent, which consent
shall not be unreasonably withheld. Notwithstanding anything contained in
the prime lease or this sublease to the contrary, in the event of any
damage to the subleased premises by reason of fire or other casualty this
sublease shall terminate. Tenant shall not be responsible to repair any
part of the subleased premises for which damage is caused by any third
party which is not related in any way, shape or to the tenant or any
repairs that are structured in nature.
15. Tenant shall, upon vacating the premises for whatever reason, return
premises to the landlord in the like condition as they existed at the
inception of this sublease, including operation of all HVAC equipment,
plumbing, electrical apparatus, access facilities, windows and doors,
excepting only the allowance for normal wear and tear due to usage and/or
damage resulting from an insurance casualty.
16. (a) Landlord hereby represents and warrants that:
(i) Except for the consent of lessor hereunder, no other consents
or approvals are required to be obtained by landlord and
landlord has the power and authority to execute this sublease.
(ii) Except for Hinerfield Realty, whose commission is payable by
landlord, landlord has not dealt with any other broker or
finder in connection with this sublease.
(iii) There are sufficient number of parking spaces available for
use by tenant and landlord.
(iv) The prime lease is in full force and effect and landlord is
not in default thereunder.
(b) Tenant hereby represents and warrants that:
(i) No consents or approvals are required to be obtained by tenant
and tenant has the power and authority to execute this
sublease.
(ii) Except for Hinerfield Realty, tenant has not dealt with any
broker or finder in connection with this sublease.
<PAGE> 5
44
17. Subject to the approval of the lessor, tenant may erect signs at the
leased premises which are not affixed to the building provided tenant
complies with all laws, statutes, ordinances, rules and regulations.
18. Landlord and tenant acknowledge that this sublease is conditioned upon
landlord obtaining lessor's consent hereto. If such consent is not
obtained by _____________________, this sublease shall terminate and be
of no force or effect.
19. Tenant is hereby granted an option exercisable by written notice to
landlord no later than thirty (30) days prior to expiration of this
sublease, to sublease the subleased premises and any portion of the
demised premises not occupied by landlord or any other sublessee as of
the date of exercise for the remainder of the term of the prime lease
which expires in January of 2002 on the same financial terms as herein
set forth (adjusted pro rata for any additional space); provided, however
tenant's right to sublease shall be conditioned upon the execution of a
new sublease between landlord and tenant the terms and conditions of
which shall be mutually agreed to by the parties and shall take into
account the term of the new sublease with respect to the rights and
obligations of the parties; it being understood that the terms and
conditions of this sublease contemplated a term of less than two (2)
years.
IN WITNESS WHEREOF, the parties hereto executed this lease as of the day and
year stated in the introductory paragraph hereof.
LAIRD, INC.
c/o Laird Management Corporation
231 Bradley Place, Suite 206
Palm Beach, FL 33480
By:___________________________________
Stephen A. Lepow, Vice President-Finance
SPECIALTY PRINTERS OF AMERICA, INC.
c/o Laird Management Corporation
231 Bradley Place, Suite 206
Palm Beach, FL 33480
By:___________________________________
Stephen A. Lepow, Vice President-Finance
DAWN SPECIAL SYSTEMS, CORP.
By:___________________________________
Warren Novick, Chairman
<PAGE> 1
45
EXHIBIT 10.27
SUBLEASE
This sublease is made as of this 4th day of September, 1996 by and between
SHAWMUT MORTGAGE COMPANY, with an address c/o Corporate Properties, One Federal
Street, MA/OF/0803, Boston, Massachusetts 02211 ("landlord") and DAWN SPECIAL
SYSTEMS, a _______________ corporation, with an address of 40 Jabaltre Lane,
Avon, Connecticut 06110 ("tenant").
PRELIMINARY STATEMENT
Tenant desires to lease certain premises from landlord, and landlord desires to
lease certain premises to tenant upon the terms and conditions herein set forth.
The following capitalized terms shall have meaning set forth below:
PREMISES Approximately 1,784 square feet on the third floor at
433 South Main Street, West Hartford, Connecticut, as
shown on the plan attached hereto as Exhibit A.
MONTHLY FIXED RENT: $2,378.00/Mo.
TENANT'S PERCENTAGE N/A
COMMENCEMENT DATE: July 1, 1996
TERM: July 1, 1996 - September 30, 1998
EXPIRATION DATE: September 30, 1998
LANDLORD'S WORK: Repaint the premises, shampoo carpets. Create framed
second entrance. Erect demising wall.
FURNITURE USE: During the term of the lease, Dawn Special Systems shall
have the use of the furniture outlined on Exhibit B
attached hereto.
SECURITY DEPOSIT: $4,757.32. The security deposit shall be held and may be
applied at landlord's reasonable discretion as security
against (A) the performance of tenant's obligation under
this lease, and (B) the return of the furniture in its
present condition, minor wear and tear excepted.
PRIMARY LEASE: Office lease, dated January 27, 1994, by and between
Corporate Center West Associates, as landlord, and
Shawmut Mortgage Company, as tenant.
Therefore, in considering of the mutual covenants herein contained, the parties
agree as follows:
<PAGE> 2
46
ARTICLE ONE
DESCRIPTION OF PREMISES
Landlord leases to tenant, and tenant leases from landlord the premises to be
used for general office purposes and no other use.
ARTICLE TWO
TERM
The term of this sublease shall commence on the commencement date and shall
continue thereafter until the expiration date, provided however that this
sublease shall terminate upon the termination of the primary lease if such
termination is prior to the expiration date. At tenant's request, landlord may
permit tenant to occupy so much of the premises as tenant wishes to occupy prior
to the commencement date. Landlord will cooperate with tenant in order to
facilitate tenant's moving into the premises. If tenant occupies the premises
prior to the commencement date with landlord's permission, all of the provisions
of this lease will be in effect from the beginning of the occupancy; however,
rent otherwise due under this lease will be abated up to the commencement date.
ARTICLE THREE
RENT
For the period of July 1, 1996 through August 31, 1996 there shall be no base
rent due and payable. For the period of September 1, 1996 through September 30,
1998 and monthly fixed rent shall be payable in equal monthly installments of
TWO THOUSAND THREE HUNDRED SEVENTY EIGHT AND 00/100 ($2,378.00) DOLLARS in
advance on the first day of each month of the term. Tenant will pay the monthly
fixed rent without deduction or demand to landlord at its address set forth
above.
ARTICLE FOUR
SERVICES AND PROPERTY CONDITION
Heat, light and air-conditioning, janitorial service and other services will be
provided to tenant on the same basis as provided to other portions of the office
where the premises are located. Tenant, having inspected the premises, accepts
same in "as is" condition. Tenant shall look solely to the landlord under the
primary lease for all utilities, services and landlord repair and maintenance
with respect to the premises. Tenant shall repair any damage to the premises
caused by the negligence or misuse of tenant, its employees, agents, customers,
suppliers, invitees or visitors. Tenant shall make no alterations or
modifications to the premises, structural or non structural, without landlord's
prior written consent. Upon the expiration date or earlier termination of this
sublease, tenant shall, without further demand or notice, return the premises to
landlord broom-clean and in good condition and repair, free of trash and debris,
reasonable wear and tear excepted. Any personal property not removed by tenant
shall be deemed abandoned.
<PAGE> 3
47
ARTICLE FIVE
PRIMARY LEASE
Attached hereto is a copy of the primary lease with the rental information
deleted. Tenant acknowledges that it is familiar with the terms of the primary
lease, to which this sublease is subject and subordinate. Except to the extent
inconsistent with the terms hereof, all of the terms, covenants and conditions
in the primary lease shall be applicable to this lease and the premises with the
same force and effect as if landlord were the landlord under the primary lease
and tenant were the tenant thereunder, and in case of any default or breach by
tenant in the observance or performance of any such term, covenant or condition
on its part to be observed or performed under or by virtue of the primary lease,
landlord shall have all of the rights against tenant as would be available to
landlord against tenant under the primary lease by reason of such breach.
Without limiting the foregoing, the following provisions shall not be
incorporated into this sublease: sections 13, 51, 52 and the second sentence of
section 53. For the purposes of this sublease only, the provisions of the
primary lease shall be deemed amended so as to delete therefrom those time
periods for tenant's performance time periods set forth in Column B hereof (but
nothing herein shall be deemed to reduce the applicable time periods for the
performance by the primary landlord of its obligations under the primary lease):
A B
- -
If the number of days for tenant's The number of days for the tenant's
performance under the primary performance under this sublease
lease is: shall be:
3...........................2
5...........................3
10..........................7
15.........................10
30.........................20
60.........................45
90.........................60
120........................90
ARTICLE SIX
NO FORFEITURE
Neither tenant nor landlord shall do or permit anything to be done which would
cause the primary lease to be germinated by the landlord thereunder or
forfeited.
ARTICLE SEVEN
ASSIGNMENT AND SUBLETTING
Tenant shall not have the right to assign or sublease the premises without the
prior written consent of landlord, which the landlord may withhold in its
reasonable discretion.
<PAGE> 4
48
ARTICLE EIGHT
BROKER
Tenant and landlord each represent to the other that it death with no broker or
brokers in connection with the negotiations, execution and delivery of this
lease other than Hurwit & Simons.. Fleet Bank shall be responsible to pay such
brokers pursuant to the terms of a separate agreement. Each party shall
indemnify the other for all costs and damages incurred in connection with a
breach by the indemnifying party with respect to such representation. This
article shall survive the expiration or termination of this sublease.
ARTICLE NINE
MISCELLANEOUS
This sublease fully sets forth the understandings of the parties with respect to
the premises, and this sublease shall not be changed or terminated orally or in
any manner other than by written agreements signed by the parties. Any notice or
demand which either party may or must give to the other under this sublease
shall be in writing and delivered personally or sent by certified mail address
to the addresses set forth above. Either party may, by such notice to the other,
direct that future notices or demands be sent to a different address. The
covenants and agreements in this sublease shall bind and inure to the benefit of
landlord and tenant and their respective successors and permitted assigns.
This sublease shall take effect as a sealed agreement as of the date first
written above.
FLEET MORTGAGE CORP. DAWN SPECIAL SYSTEMS
By:_____________________________ By:_____________________________
Name: Rich F. Carmon Name: Warren K. Novick
Title: Broker-In-Charge Title: Chairman
The master landlord's acceptance of the terms contained herein shall not
diminish or alter the terms of the primary lease.
CORPORATE CENTER WEST ASSOCIATES
By:_____________________________
Name: Robert A. Simons
Title: General Partner
<PAGE> 1
12
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 April 11, 1997 included in Dawn Technologies, Inc. Form
10-KSB for the year ended December 31, 1996.
/s/ ARTHUR ANDERSEN LLP
Hartford, Connecticut
April 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 92,089
<SECURITIES> 0
<RECEIVABLES> 841,848
<ALLOWANCES> 2,500
<INVENTORY> 764,939
<CURRENT-ASSETS> 1,721,742
<PP&E> 1,493,763
<DEPRECIATION> 786,920
<TOTAL-ASSETS> 2,428,585
<CURRENT-LIABILITIES> 1,367,521
<BONDS> 0
0
0
<COMMON> 9,327
<OTHER-SE> 650,933
<TOTAL-LIABILITY-AND-EQUITY> 2,428,585
<SALES> 5,791,582
<TOTAL-REVENUES> 5,791,582
<CGS> 4,635,685
<TOTAL-COSTS> 5,657,831
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 75,072
<INCOME-PRETAX> 58,679
<INCOME-TAX> 2,000
<INCOME-CONTINUING> 56,679
<DISCONTINUED> 0
<EXTRAORDINARY> 421,211
<CHANGES> 0
<NET-INCOME> 477,890
<EPS-PRIMARY> .052
<EPS-DILUTED> .052
</TABLE>
