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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
DAW TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
UTAH 0-21818 87-0464280
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(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
2700 SOUTH 900 WEST
SALT LAKE CITY, UTAH 84119
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(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (801) 977-3100
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
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Common Stock, $0.01 Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the Common Stock held by non-affiliates of
the Registrant, based upon the closing sale price of the Common Stock on the
NASDAQ National Market System on March 24, 1997, was approximately $22,275,639.
Shares of Common Stock held by each officer and director and by each person who
may be deemed to be an affiliate have been excluded.
As of March 24, 1997, the Registrant had 12,400,543 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The Registrant's definitive Proxy Statement relating to the Annual
Meeting of Shareholders scheduled for May 28, 1997 is incorporated by
reference in Part III of this report.
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TABLE OF CONTENTS
PART I ..................................................................... 1
Item 1. Business ......................................................... 1
Item 2. Properties ....................................................... 8
Item 3. Legal Proceedings ................................................ 8
Item 4. Submission of Matters to a Vote of Security Holders .............. 8
PART II .................................................................... 9
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters ............................................. 9
Item 6. Selected Financial Data .......................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ........................................... 11
Item 8. Financial Statements and Supplementary Data ...................... 16
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ............................................ 16
PART III ................................................................... 17
Item 10, 11, 12 and 13 ..................................................... 17
PART IV .................................................................... 18
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .. 18
SIGNATURES ................................................................. 20
FINANCIAL STATEMENTS ....................................................... F-1
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INFORMATION CONTAINED IN THIS REPORT CONTAINS "FORWARD-LOOKING STATEMENTS"
WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995,
WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY,"
"WILL," "SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE," OR "CONTINUE," OR THE
NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT INCLUDE,
BUT ARE NOT LIMITED TO, THOSE IDENTIFIED IN THIS REPORT, DESCRIBED FROM TIME TO
TIME IN THE COMPANY'S OTHER SECURITIES AND EXCHANGE COMMISSION FILINGS, OR
DISCUSSED IN THE COMPANY'S PRESS RELEASES. ACTUAL RESULTS MAY VARY MATERIALLY
FROM EXPECTATIONS.
PART I
ITEM 1. BUSINESS.
INTRODUCTION
Daw Technologies, Inc. (the "Company") is a leading supplier of
ultra-clean manufacturing environments, or cleanrooms, to the semiconductor
industry. The Company designs, engineers, manufactures, installs and
services all principal component systems for advanced cleanrooms. The Company
is a single-source provider of the entire cleanroom, providing make-up and
recirculating air handling systems, ceiling systems, wall systems and floor
systems. The Company also provides its customers with services to integrate
the design, installation and servicing of cleanrooms, including architectural
engineering and design, installation, testing, certification, tool fit-up,
and continuing on-site service and support. The Company believes its
integrated approach enables customers to benefit from accelerated cleanroom
design and installation, simplified project control, single-source
performance certification and cost effectiveness. The Company's stated
mission is to be the leading worldwide provider of ultraclean manufacturing
environments by providing totally integrated system solutions.
Cleanrooms are critical to the semiconductor manufacturing process.
Process yields are highly dependent upon controlling contamination levels and
other environmental variables. These variables include the number of
particles, humidity, gasses, vibration, temperature and electro-magnetic
fields. To be competitive, semiconductor manufacturers must meet
increasingly stringent standards for cleanliness and environmental control
in their fabrication facilities ("fabs"). Moreover, because of shorter
product life cycles and competitive pressures, semiconductor manufacturers
are demanding that new cleanrooms be operational more quickly. The Company
believes its advanced systems and integrated solution allow it to effectively
address the requirements of efficient cleanroom design and installation.
The Company markets its cleanrooms through a direct sales force to
customers building new fabs or renovating existing facilities. The majority
of its business comes from repeat sales to these customers.
INDUSTRY BACKGROUND
According to industry sources, approximately $100 billion will be spent
to build new semiconductor facilities worldwide between 1995 and 1999. Based
upon its experience, the Company believes that cleanrooms generally account
for approximately 3-5% of total semiconductor capital spending.
The rapid pace of advances in semiconductor technology has led to
shorter semiconductor product and facility life cycles. To bring new
semiconductor products to market more rapidly, semiconductor manufacturers
seek to compress design and construction lead times for new fabs. As feature
sizes shrink and as wafer size, chip densities and the number of process
steps increase, environmental variables must be more stringently controlled.
Even slight deviations in key environmental parameters, most of which are
controlled within the cleanroom, can negatively affect yields. Achieving
higher yields is the motivating force behind many of the progressively more
rigorous cleanroom standards for semiconductor fabs. For example, in 1986,
leading edge semiconductors were manufactured in Class 100 cleanrooms;
currently better than Class 1 cleanrooms are the common standard.
To meet the functional specifications required for these cleanrooms,
each part of the cleanroom must meet stringent technical requirements, and
all systems must be precisely integrated. In addition to the basic
requirements for
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contamination control, semiconductor cleanrooms must function seamlessly as
part of the overall production process. The cleanroom envelope might be
viewed as a process tool in the same manner as the lithography tools,
deposition tools, etching tools and other equipment inside the cleanroom.
Because of shorter product life cycles and the need to ramp new products
up quickly, manufacturers are demanding that cleanrooms be designed and
installed more rapidly. Historically, semiconductor manufacturers have
purchased cleanroom component systems and related services from multiple
vendors. Under this "traditional" approach, vendors are selected through an
iterative process where requests for quotation ("RFQ") are issued, initial
designs are prepared, and revised bids are submitted. This evaluation and
redesign may occur repeatedly until final vendor selections are made.
Following this process, final designs are prepared and the project is
initiated. Component systems purchased in this fashion may be installed by
the original vendor, or by non-affiliated installers.
INTEGRATED SOLUTION
The Company's integrated solution incorporates design, engineering,
manufacturing, installation, testing, product development and on-going
customer support and services. In contrast to the traditional approach, the
Company believes that its integrated cleanroom approach provides customers
with greater project control by reducing the number of vendors,
subcontractors and suppliers and simplifying coordination of the project. The
advantages of the Company's integrated solution include:
ACCELERATED DESIGN AND INSTALLATION. The integrated approach facilitates
improved coordination of the installation process thus allowing the Company
to meet the increasingly demanding schedules for the design and construction
of new fabs. Delays from scheduling conflicts are minimized, since the
Company manufactures and installs its own systems. Problems with system
integration are minimized, since the Company designs its systems for
compatibility. Components for newly-developed systems can be pre-assembled at
the factory to test tolerances and new designs prior to installation. As a
single source supplier, the Company can readily adapt to changes in
scheduling or design of any cleanroom system.
SIMPLIFIED PROJECT CONTROL. The Company's approach offers customers a
single point of contact for the cleanroom, avoiding the need for the customer
to coordinate the activities of multiple vendors. The Company believes that
having one company design, manufacture and install the entire cleanroom
facilitates coordination of the design and manufacturing and installation
process.
SINGLE-SOURCE PERFORMANCE GUARANTEE. The Company certifies that the
cleanroom will meet the agreed upon performance specifications. The Company's
approach provides the customer a single point of accountability for the
entire cleanroom envelope. Although component manufacturers can design
their individual cleanroom components to meet the technical specifications
provided by the fab designer, they cannot effectively guarantee the as-built
performance of the entire cleanroom after their components have been
integrated with other manufacturer's components by a non-affiliated installer.
COST EFFECTIVENESS. Having a single vendor responsible for the design,
manufacture and installation of the entire cleanroom allows for significant
on-site overhead savings over the traditional multi-vendor approach. A portion
of these savings result from reduced administrative costs. By designing,
manufacturing and installing all major cleanroom system components, the
Company is able to avoid the redundancy that typically occurs with large,
complex, multiple supplier projects. In addition, the Company's customers
benefit from increased revenues resulting from bringing a new fab into
operation in a shorter time period.
COMPANY STRATEGY
The Company's stated mission is to be the leading worldwide provider of
ultraclean manufacturing environments by providing totally integrated system
solutions. The Company's strategy for achieving this goal includes the
following elements:
EXPAND MARKET ACCEPTANCE OF INTEGRATED SOLUTION. The Company believes its
integrated solution best
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addresses semiconductor manufacturers' needs to increase yields and expand
or develop fabs as quickly as possible at a lower total cost. A number of
leading semiconductor companies have adopted the Company's integrated
solution, and the Company is focusing its marketing efforts on encouraging
broader market acceptance of this approach.
BUILD LONG-TERM CUSTOMER RELATIONSHIPS WITH INDUSTRY LEADERS. The
semiconductor industry is highly concentrated, with the top 10 semiconductor
manufacturers accounting for approximately 65% of capital expenditures. Most
of the Company's revenue is derived from sales to leading semiconductor
manufacturers. The Company's marketing strategy is focused on building
long-term relationships with the industry leaders, their architectural and
engineering firms and other parties involved in the cleanroom project. By
building such relationships, the Company is positioned to work with those
advanced semiconductor manufacturers that most benefit from its integrated
approach.
EXPAND LOCAL SERVICE NETWORK. In order to provide timely and efficient
local customer service and support, the Company has established project
management, design and sales offices near major semiconductor manufacturing
centers. By expanding the Company's project management network and locating
new offices in major semiconductor manufacturing centers, the Company
believes it is in a better position to compete for service contracts. In
addition, the Company believes a local service network enables it to strengthen
customer relationships, expand sales leads and receive more direct customer
feedback.
EXPAND INTERNATIONAL BUSINESS: Although the majority of the Company's
revenues have been generated from projects in North America, revenues from
international operations have increased over the last several years. The
Company will continue to seek to increase revenues from international
projects by expanding marketing efforts and bidding activities in the
Asia/Pacific Rim region and Europe. To support its international expansion
strategy, the Company has established design and engineering offices in
Hsin-Chu, Taiwan and Livingston, Scotland. Information concerning revenues
summarized by geographical area is set forth in Note C of the footnotes to
the financial statements.
MAINTAIN TECHNOLOGICAL LEADERSHIP. The Company believes technological
capability is a significant factor in the sale of cleanroom solutions. The
Company seeks to develop technologically advanced solutions to its customers'
evolving needs. Many major new cleanrooms designed by the Company are
customized in some way to meet the manufacturer's needs. This customer-driven
innovation allows the Company to regularly improve its systems to respond to
evolving industry requirements. In addition, the Company seeks to expand its
business through strategic relationships, joint ventures and acquisitions and
to extend its business to related industry segments if appropriate.
CLEANROOM SYSTEMS AND SERVICES
Each component of the cleanroom plays an important role. The cleanroom
consists of special high-performance air handling systems, ceiling modules
and highly efficient filters, wall partitions, raised-access flooring and
state of the art control systems. These systems provide a continuous flow
of ultrafiltered air from the ceiling to the floor to flush out particles and
other contaminants. The room is maintained at a slightly higher air pressure
than surrounding rooms so leaks, open doors, or other temporary openings
cause clean air to escape, rather than allow contaminated air to enter.
Several important measures must be considered in cleanroom design. They are:
The "room class" which defines the allowed number of particles per cubic foot
of air, the number of "air changes" which is the number of times per minute
the air in the room is completely replaced and the room "recovery rate" which
is the amount of time it takes for the room to become clean following
contamination. It is also essential that airflow through the cleanroom is
unidirectional, where air flows through all areas in essentially straight
vertical paths, avoiding vortices and eddies that could trap particles. The
cleanroom must be designed to accommodate process manufacturing equipment
including piping and wiring, and permit the movement of materials and
personnel without compromising cleanliness. Cleanrooms are designed to
control humidity, gasses, noise, vibrations, temperature, electro-magnetic
fields, and other environmental variables.
A typical eight-inch wafer production line includes 60,000-150,000
square feet of Class 1 or better cleanroom. Cleanrooms are rated according to
their "Class," the maximum number of particles greater than 0.12 microns
found in any cubic foot of cleanroom space. Leading edge cleanrooms for
advanced semiconductor fabrication are Class 1 or better. Virtually all of
the Company's contracts involve Class 100 or better cleanrooms.
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COMPONENT SYSTEMS.
The Company manufactures all principal component systems which comprise
an integrated cleanroom, including make-up and recirculating air handlers,
filtered ceiling systems, wall systems, floor systems and control systems.
These components may be sold either as part of a fully integrated cleanroom
or as individual components for integration by non-affiliated installers.
Components are manufactured of non-shedding materials to mitigate microscopic
particles in the air stream that may have deleterious effects on the
cleanroom.
The Company's cleanroom component systems include the following:
STRATUS-TM- AIR HANDLERS. Stratus-TM- Air Handling Systems deliver quiet,
efficient and conditioned prefiltered air to clean manufacturing facilities.
The Company manufactures and installs recirculating air handling systems,
make-up air handling systems and localized fan filter units. The Company's
air handlers are designed to reduce noise, vibration and power consumption
and meet stringent standards defined by the industry. The moving elements in
a STRATUS-TM- recirculating air handler are balanced to less than 25
milli-inches per second of vibration and meet stringent noise standards. Fan
and motor bearings are rated in excess of the industry standards for
continuous, uninterupted service. The Company offers digitally controlled
systems that instruct the air handler to adapt to changes in temperature,
relative humidity, pressure drop and other environmental factors using
feedback from an array of specialty sensors.
AIR-FRAME-TM- CEILING SYSTEMS. AIR-FRAME-TM- Ceiling Systems are
designed to provide ultra-clean air filtration and unidirectional airflow for
cleanroom application. Each system fully integrates lighting, ionization and
fire suppression into the ceiling modules for single point connection in the
field. Modules can be fully welded or stick-built in sizes ranging from 1' x
1' to 10' x 24' and each are capable of supporting air handlers in excess of
4,000 lbs. Individual modules can be configured as tunnels or as large
ballrooms to form cleanrooms of virtually unlimited size and shape. The
Company offers twelve different ceiling schemes. Each is tailored to a
particular cleanroom application to create optimal performance while
maintaining absolute flexibility, facilitating rapid modifications to
evolving cleanrooms. Precision modules (tolerance +0", -1/8") are custom-made
of light weight precision-extruded aluminum (tolerance plus or minus .003")
and finished with a nonshedding baked-on powder coat epoxy. Each module is
carefully designed with all appropriate column notches and structural hanging
points to match existing field conditions. Each module is taken directly off
the powder coat line and placed in an on-site Class 10,000 clean packaging
area where they are prewired, prelighted and clean packaged.
The Company's lightweight aluminum modules permit installation by two
men and yet are strong enough to support a 4000lb. hanging load from any
point below the grid and a 250 lb. man-rating above the grid. Ceiling modules
can be designed with each filter individually ducted or as a pressure plenum.
Plenum sides can be closed or open to share airflow with adjacent plenums,
optional filter dampers can be provided for finite airflow control.
The Company has developed, tested and refined the Flushlight-TM- and
Flow Thru-TM- systems using a sophisticated computer airflow model. The
airflow through the grid and light cavity eliminates the vortex created by
the grid. A vortex caused by typical cleanroom ceiling systems is a
turbulent zone below the ceiling grid members that captures particulate and
permits particulate migration throughout the cleanroom.
NETWORK-TM- WALL SYSTEMS. NetWork-TM- Wall Systems separate cleanrooms
into distinct airflow zones. Network-TM- offers five different wall systems:
2" studless self-supporting panels, 1/2" panel on aluminum stud, 1/4" batten
panels on steel stud, 1/4" furring panels, and 1 3/4" 3 in 1 wall. The 1 3/4"
wall can be: A. 1 3/4" studless, self-supporting panels; B. 1 3/4" panel on
aluminum stud; or C. 1/4" panel on aluminum stud all fully compatible with
one another. Each of these wall systems has been developed to permit any or
all systems to be interfaced together maintaining a uniform appearance. A
typical installation might use 1/4" panels furred over existing walls, 2"
panels in the large ballroom areas and 1/2" panels on structural studs to
support Air-Frame-TM- ceiling modules and Stratus-TM- air handlers. Each
panel is constructed of .032" aluminum skins laminated to an aluminum
honeycomb core and finished with a nonshedding baked-on powder coat epoxy.
Panels are held to strict dimensional and structural tolerances with surface
flatness varying less than plus or minus .032", panel length and width
accurate to plus or minus .040" and deflection less than L/240 at 5 lbs. per
square foot. The panel edge is gasketed to provide a seal between varying
cleanroom zones. Their lightweight construction permits ease of installation
and field modification for equipment penetrations and bulkheading. Walls are
demountable
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and non-progressive, meaning individual panel may be removed or replaced
without affecting surrounding panels.
MATRIX-TM- RAISED ACCESS FLOORING. MATRIX-TM- Raised Access Floors have
been designed to meet the exacting air flow, structural and cleanliness
requirements of Class 0.1 to Class 1000 cleanrooms. MATRIX-TM- floors provide
maximum structural capability utilizing easily removable panels which meet
the special material and airflow requirements of cleanrooms. MATRIX-TM-
panels are available in a variety of finishes for corrosion resistance and
conductivity requirements. The Company recently introduced the Vari-Span
structural system, which reduces the number of pedestals needed to support
the floor, allowing design freedom for an open waffle slab and frees
under-floor space for additional process piping and conduits.
CLEANROOM SERVICES
As part of its integrated cleanroom solution, the Company provides its
customers with the services necessary to integrate the design, installation
and ongoing servicing of cleanrooms including:
DESIGN AND ENGINEERING. The Company seeks to become involved in
cleanroom design at an early stage of the semiconductor fab design process.
The Company has a design team of in-house architects, engineers and designers
to provide cleanroom systems which meet customers' specific requirements.
The principal component systems of the Company's cleanroom are designed for
rapid modification and quick expansion, providing flexibility in cleanroom
configuration to meet the changing facilities needs of its customers. Being
involved in the design of a new fabrication facility allows the Company to
provide information early on to its manufacturing teams regarding systems
needs, which further allows the Company to better plan its systems production
schedule and accelerate the delivery of finished product to its customers.
INSTALLATION AND CERTIFICATION. The Company provides on-site
installation, testing and certification services. Cleanroom installation is
enhanced and expedited as Company personnel are cross-trained in all aspects
of cleanroom construction. This enables them to quickly recognize and
correct conflicts which arise during installation. Each cleanroom
installation project is headed by a project manager who is responsible for
logistics and coordination of the entire cleanroom project. The project
manager is the primary contact with the customer during the entire process.
CONTINUING SERVICE AND SUPPORT. The Company offers its installation
customers ongoing service and support at the project site, as well as after
market component sales. The Company intends to place further emphasis on
service and support contracts in the future. Customers often desire to have
rooms modified or to have tools substituted or moved. Ongoing service personnel
working at the project site perform equipment bulkheading, facilitate movement
of process equipment and perform maintenance. The Company's support teams have
a portable aluminum-working shop on-site which allows them to remove, modify,
adapt and re-install wall panels, flooring and other components without shutting
down the facility. Since they are generally the personnel who originally
installed the cleanroom, they are familiar with the design and layout of the
cleanroom and therefore are qualified to expedite layout changes and prevent
downtime. Several customers have had Company personnel on-site performing these
services for periods longer than one year. The Company's ongoing support
program is a key component in the Company's strategy. On-site personnel provide
detailed feedback on customers' ongoing design needs.
For customers who do not elect to have the Company provide on-site
service, the Company provides service and spare parts on demand. Upon
completion of a project, the customer support representative develops
customer profiles and spare parts catalogues which are given to the customer.
CUSTOMERS
The Company's principal customers are semiconductor manufacturers. The
Company has sold its component systems and cleanrooms to many of the world's
leading semiconductor manufacturers. A major component of the Company's
strategy is to develop long-term strategic relationships with such
manufacturers. In addition, the Company sells component systems and
cleanrooms to other manufacturers requiring ultra-clean environments.
Because of the nature of the Company's business and the size of contracts
it enters into with its customers, the
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Company typically has had one to five customers in each year which accounted
for more than 10% each of revenues. Customers that account for a significant
amount of revenues in one year, however, do not necessarily remain
significant in subsequent years.
SALES AND MARKETING
The Company's marketing program is focused on expanding market acceptance
of the Company's integrated cleanroom approach and on building long term
strategic relationships. By offering its customers a full array of cleanroom
services, the Company is able to provide customers a single point of contact for
design, component procurement, installation and ongoing service.
The Company sells its products utilizing a direct sales force in North
America and Europe. The Company uses independent sales representatives as
well as its direct sales force in the Asia/Pacific Rim region. The Company
has a design and engineering office located in Livingston, Scotland, which
serves the European market and an office in Hsin-Chu, Taiwan, which serves
the Asia/Pacific Rim region. Sales are generally accomplished by building
working relationships with semiconductor manufacturers as well as
architecture and engineering firms, industry consultants, construction
management companies and general contractors specializing in the industry.
Leads for new work are generated from a number of sources, including the
Company's in-house salespeople, sales representatives, project managers, and
field personnel who are in regular contact with present and prospective
customers. The Company also participates in industry trade shows. Typically
the Company, as well as the rest of the industry, is aware of the size, end use
and basic design of major projects during the earliest planning phases.
PRODUCT DEVELOPMENT
The Company's product development effort focuses on enhancing existing
products and developing new products to meet customer requirements. The Company
seeks to develop innovative products, be on the cutting edge of new
semiconductor technology including the 300mm manufacturing facility, and modify
existing products to make them less expensive to produce and easier to install.
This is partially accomplished by analyzing feedback from sales and service
personnel on industry needs and developments. The Company regularly tests new
ideas and techniques and measures the performance of new and existing products
using a new AMCA-certifiable semi-reverberant testing laboratory adjacent to its
manufacturing plant. The Company believes that its significant and growing
experience base in designing, installing and servicing cleanrooms and
manufacturing cleanroom components is a competitive advantage. The Company
incurred approximately $282,000, $255,000 and $157,000 in non-project related
research and development costs in 1996, 1995 and 1994, respectively.
INTELLECTUAL PROPERTY
The Company currently holds seven United States patents with respect to
various aspects of its cleanroom wall systems, floor systems and air handling
systems. The patents expire at various times from May 2007 through January
2010. The Company also has one patent application on file with the U.S. Patent
and Trademark Office and certain foreign offices. The Company may file patent
applications where appropriate to protect its proprietary technologies.
Although the Company's patents have value, the Company believes that the success
of its business depends more on innovation, technical expertise, and know-how of
its personnel and other factors. In addition, no assurance can be given that
any patents issued to the Company will not be challenged, invalidated or
circumvented, or that the rights thereunder will provide competitive advantages
to the Company.
The Company also relies upon trade secret protection for its
confidential and proprietary information. There can be no assurance that
others will not independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to the Company's trade
secrets or disclose such technology or that the Company can meaningfully
protect its trade secrets.
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MANUFACTURING
The Company's Salt Lake facility processes raw materials received in the
form of die-cast panels, extruded aluminum members, sheet metal, honeycomb and
various coverings and fasteners. These materials are modified and assembled
into pre-fabricated modules through a series of automated and manual steps which
may include cutting, milling, welding, perforating, measuring, assembling and
finishing. Each individual module is made in accordance with customized
fabrication drawings prepared by the Company's design staff.
The Company's components are finished in a dry powder applied and baked
hybrid polyester-epoxy coating. After baking, this coating forms a monolithic,
non-particulating seal over the surface of the component. This finish is
available in many colors and is corrosion resistant. This finish outperforms
nickel chrome and other finishes by substantial margins in chemical resistance
and durability tests. This finish is normally conductive, but can be modified
to meet any desired static dissipative or electrical isolation properties.
The Company's production staff is divided into self-directed working
teams. The team manufacturing components for a project interacts directly
with the project manager and the team installing the cleanroom. The close
relationship between the Company's manufacturing teams and installation teams
allows components to be altered rapidly in response to design changes
initiated by the customer's facility management team. The Company believes
this relationship and the accountability of the manufacturing team to site
personnel enhances the Company's quality control.
The Company's installation teams are capable of modifying most components
to accommodate last-second changes and still meet specifications for final fit
and seal. The Company establishes a small shop at major project sites to
support bulkheading, tooling changes and other modifications requested by the
customer.
COMPETITION
The Company believes it is the largest supplier of integrated cleanroom
solutions providing design, engineering, manufacturing, installation, testing,
certification, and ongoing customer support. The Company competes with a number
of companies providing cleanroom products or services, many of which may have
significantly greater financial and capital resources than the Company. The
Company competes with architectural and engineering firms for the provision of
design and engineering services. Where appropriate, the Company attempts to
work with these companies as a subcontractor rather than as a direct competitor.
The Company faces competition from component manufacturers which include Broad
McClung & Pace for air handlers and ceilings, Clestra Compaire for ceilings,
Plascore for walls, and Hitachi and Tate for aluminum raised flooring. The
Company competes with specialized cleanroom integrators, such as Meissner &
Wurst for installation/on-site management services.
The Company believes the principal competitive factors in the cleanroom
industry are quality, time to completion, reliability, responsiveness for design
and installation, product performance and price. The Company believes it
competes favorably with respect to such factors, although there can be no
assurance that it will continue to do so in the future. If the Company
experiences success in marketing its integrated approach, there can be no
assurance that its competitors will not duplicate such approach, through
acquisitions, affiliations, internal development or otherwise.
BACKLOG
The Company's backlog consists of future revenue that the Company expects
to realize from work to be performed on uncompleted contracts, including new
contractual arrangements on which work has not begun. At December 31, 1996, the
Company=s backlog was $28.3 million compared to $57.0 million at December 31,
1995. The Company's contracts, however, frequently allow the customer to
terminate the project at any time. If a customer terminates a project, the
Company would typically be entitled to progress payments earned to the date of
termination, plus reimbursement of certain costs associated with the contract.
Accordingly, the Company's backlog could be reduced if a customer terminates a
contract, and there can be no assurance that a customer will not terminate a
contract.
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EMPLOYEES
The Company employed approximately 524 full-time employees and 44 part-time
employees on December 31, 1996. The Company's employees at its Salt Lake City,
Utah facility are not represented by a labor union. The Company believes that
its relationship with its employees is good. Where required by local practice
or customer contract, the Company utilizes union members for on-site
installation. In those instances, the Company has agreed to be bound by
collective bargaining agreements and has agreed to contribute to union sponsored
pension plans, including multi-employer pension plans. Under the Employee
Retirement Income Security Act of 1974, as amended, the Company may be liable to
a multiemployer plan upon its withdrawal from the plan for the Company's share
of the unfunded liabilities of the plan.
ITEM 2. PROPERTIES.
The Company leases approximately 221,000 square feet in two buildings at
its headquarters in Salt Lake City, Utah, of which approximately 163,000 square
feet are used for manufacturing, 46,000 square feet are used for administrative
functions, and 12,000 square feet are used for testing and research and
development. The Company's principal offices and manufacturing facility are
leased through 2005, with renewal options for four five-year terms.
The Company also leases administrative office space totaling approximately
12,000 square feet in Mesa, Arizona; Austin, Texas; Santa Clara, California;
Hsin-Chu, Taiwan; and Livingston, Scotland, with various lease expiration
dates ranging from 1998 through 2005. The Company believes that its facilities
are adequate for its current needs and it could obtain additional space on
commercially reasonable terms, if needed.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, the Company is subject to routine, non-material
litigation relating to claims made by or against the Company. The Company
believes it has made adequate provisions for these matters, and is not aware of
any material threatened or outstanding litigation against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
8
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The Company's Common Stock is listed and traded on the NASDAQ Stock Market
(National Market System) under the symbol "DAWK." The following table sets
forth, for the periods indicated, the high and low sale prices for the Company's
Common Stock, as reported on the NASDAQ Stock Market for the years ended
December 31, 1996 and 1995, respectively.
HIGH LOW
---------- --------
YEAR ENDED DECEMBER 31, 1996:
First Quarter............ $ 6.375 $ 4.375
Second Quarter........... 7.250 4.500
Third Quarter............ 5.000 3.437
Fourth Quarter........... 4.125 2.625
YEAR ENDED DECEMBER 31, 1995:
First Quarter............ $ 7.125 $ 5.500
Second Quarter........... 9.375 5.875
Third Quarter............ 10.625 6.750
Fourth Quarter........... 7.375 5.375
The Company did not pay or declare dividends on its Common Stock during the
years ended December 31, 1996, 1995 and 1994. The Company currently anticipates
that it will retain all available funds to finance its future growth and
business expansion. The Company does not presently intend to pay cash dividends
in the foreseeable future. Under the terms of the Company's revolving line of
credit agreement, the Company has agreed not to pay any dividends during the
term of this agreement.
As of March 24, 1997, the Company had 12,400,543 shares of its Common Stock
outstanding, held by 126 shareholders of record, which does not include
shareholders whose shares are held in securities position listings.
9
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data of the Company. The
summary financial data in the table is derived from the financial statements of
the Company. The data should be read in conjunction with the financial
statements, related notes and other financial information included therein (in
thousands, except per share data).
<TABLE>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Contract revenue................ $112,826 $70,635 $47,732 $30,444 $24,895
Cost of contracts............... 97,364 63,484 39,579 24,703 $20,186
-------- ------- ------- ------- -------
Gross profit.................... 15,462 7,151 8,153 5,741 4,709
-------- ------- ------- ------- -------
Selling, general and
administrative expenses...... 10,274 6,333 3,584 4,035 3,254
Research & Development.......... 282 255 157 126 122
Depreciation and amortization... 400 219 156 162 141
-------- ------- ------- ------- -------
10,956 6,807 3,897 4,323 3,517
-------- ------- ------- ------- -------
Earnings from operations........ 4,506 344 4,256 1,418 1,192
Other income (expense), net..... 352 119 359 (154) (218)
-------- ------- ------- ------- -------
Earnings before income taxes.... 4,858 463 4,615 1,264 974
Income taxes.................... (1,548) (176) (1,753) (475) (371)
-------- ------- ------- ------- -------
Net earnings.................... $ 3,310 $ 287 $ 2,862 $ 789 $ 603
-------- ------- ------- ------- -------
-------- ------- ------- ------- -------
Net earnings per share
Primary..................... $ 0.27 $ 0.02 $ 0.26 $ 0.09 $ 0.06
Fully diluted............... $ 0.27 $ 0.02 $ 0.25 $ 0.08 $ 0.06
Weighted average common and
dilutive common equivalent shares
outstanding
Primary..................... 12,444 12,338 11,182 8,860 10,659
Fully diluted............... 12,444 12,363 11,370 10,171 10,659
DECEMBER 31,
------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Cash and cash equivalents ..... $ 3,258 $ 5,885 $ 2,711 $ 886 $ 188
Working capital ............... 17,112 15,431 14,155 4,057 4,835
Total assets ................. 49,495 40,072 23,608 16,409 13,306
Total liabilities ............. 26,557 20,663 7,355 10,410 10,109
Total shareholders' equity..... 22,938 19,409 16,253 5,998 3,197
</TABLE>
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The following discussion should be read in conjunction with the financial
statements and notes thereto included elsewhere herein. All data in the tables
are in thousands, except for percentages and per-share data.
The Company is an integrated systems solution provider of cleanrooms and
cleanroom component systems for the semiconductor industry. In recent years,
the Company has typically had one to five significant customers, each of which
accounted for more than 10% of the Company's annual revenues; these customers do
not necessarily remain significant in subsequent years. The semiconductor
industry has been historically cyclical in nature.
During 1996, the semiconductor industry experienced a cyclical downturn
that has resulted in reduced capital spending by semiconductor manufacturers and
the reduction or delay of new cleanroom facilities. Industry analysts attribute
the current downturn to overcapacity in the DRAM market, created by extensive
capital spending from 1994 through the first quarter of 1996. Analysts believe
the downturn is expected to be shorter than past downturns because of the
continued robust forecast for personal computers through the end of the decade.
Management believes that the current downturn has resulted in lower capital
spending by the semiconductor manufacturers over the third and fourth quarters
of 1996 and will continue through the first and second quarters of 1997. The
length and severity of the economic downturn is still subject to significant
uncertainty.
The downturn in the semiconductor industry did not significantly affect the
Company's operating results in 1996 because of the size of the Company's backlog
at the end of 1995 and the Company's ability to secure several large contracts
during the first and second quarters of 1996. The downturn, however, resulted
in fewer contracts available to bid, a significant increase in price competition
on contracts, and reduced margins on such contracts. During the third and
fourth quarters of 1996, the Company experienced a reduction in new contract
awards which has resulted in a decrease in the Company's backlog from $57.0
million at December 31, 1995 to $28.3 million at December 31, 1996. The Company
also experienced one contract reduction during the first quarter of 1996 and one
contract reduction during the third quarter of 1996. These contract changes did
not have a material impact on the Company's financial condition for the year
ended December 31, 1996. Although the Company has experienced an increase in
contract bidding activity during the first quarter of 1997, management
anticipates that the above-described events will adversely affect its revenues
and profitability in the first quarter of 1997. If the industry downturn
continues longer than current expectations, the Company experiences contract
reductions or delays, or the Company is not successful in securing contracts at
reasonable gross margins that it is currently bidding on, the above-described
events could have a significant impact on the Company's operations throughout
the remainder of 1997.
Although there is uncertainty surrounding the length and severity of this
current downturn in the semiconductor industry, management believes that changes
taking place in the industry should result in expanded capital expenditures in
the long-term. In response to the current downturn, management has taken steps
to reduce the Company's cost structure including a reduction in the Company's
work force of approximately five percent. This reduction in force was
implemented in late September 1996. During the remainder of the downturn,
management will monitor the Company's cost structure and take appropriate
actions as considered necessary, but continue to develop state of the art
cleanroom technology and provide world-class support to the Company's customers.
The Company's contract revenue and operating results fluctuate
substantially from quarter to quarter depending on such factors as the timing of
significant customer orders, the timing of revenue and cost recognition,
variations in contract mix, changes in customer buying patterns, fluctuations in
the semiconductor equipment market, utilization of capacity, manufacturing
productivity and efficiency, availability of key components and trends in the
economies of the geographical regions in which the Company operates.
The Company uses the percentage-of-completion method of accounting for its
long-term contracts. The Company recognizes revenue in proportion to the costs
incurred to date in relation to the total anticipated costs.
11
<PAGE>
Revenue recognized may not be the same as progress billings to the customer.
Underbillings are reflected in an asset account (costs and estimated earnings
in excess of billings on contracts in progress), and overbillings are
reflected in a liability account (billings in excess of costs and estimated
earnings on contracts in progress).
The Company generates revenue in three geographic regions; North America,
Asia/Pacific Rim and Europe. Contracts in the Asia/Pacific Rim region are
generally denominated in United States dollars. Although risk of fluctuations
in currency value does not affect such dollar-denominated contracts, changes in
the relative value of the dollar could make the Company less competitive in this
region. Contracts to be performed in Europe may be denominated in local
currency, and the Company bears the risk of changes in the relative value of the
dollar and the local currencies. The Company has in the past and may in the
future attempt to hedge against currency fluctuations on contracts denominated
in local currencies. There can be no assurance, however, that such hedging will
fully insulate the Company from fluctuations or will not expose the Company to
additional risks of loss.
The Company's business and operations have not been materially affected
by inflation during the periods for which financial information is presented.
RESULTS OF OPERATIONS
CONTRACT REVENUE
1996 Change 1995 Change 1994
---- ------ ---- ------ ----
Contract revenue $112,826 59.7% $70,635 48.0% $47,732
Contract revenue for 1996 increased by 59.7% to $112.8 million from
$70.6 million in 1995. The increase is attributable to a large backlog at
the beginning of 1996 that resulted in strong contract activity in the first
half of 1996 and numerous large contracts that the Company was awarded during
the first and second quarters of 1996 that resulted in additional revenue as
the contracts progressed during the third and fourth quarters of 1996. The
decrease in the Company's backlog from December 31, 1995 to December 31, 1996
is attributed to fewer contracts available to bid. See discussions of
industry downturn above. During 1995, contract revenue increased by 48.0% to
$70.6 million from $47.7 million in 1994. This increase is attributed to an
increase in the number of contracts that were awarded to the Company during
1995, an increase in the average size of the contracts awarded and an
increase in the manufacturing capacity of the Company's facilities, resulting
in higher production of cleanroom component parts during 1995 compared to
1994.
NORTH AMERICA - Contract revenue for 1996 increased by 68.6% to $74.4
million from $44.2 million for the year ended December 31, 1995. As a
percentage of total revenue North America increased to 66.0% in 1996 compared
to 62.5% in 1995. The increase is the result of numerous contracts received
in North America. These contracts were larger than the Company has received
historically and were completed on schedules that were much faster than the
Company has historically been required to perform.
Contract revenue for 1995 was relatively even at $44.2 million, or 62.5%
of total contract revenue, as compared to $44.4 million, or 93.1% of total
contract revenue, for 1994. This was the result of a greater emphasis on new
cleanroom construction outside the United States by the Company and the
semiconductor industry as a whole.
ASIA/PACIFIC RIM - Contract revenue for 1996 decreased by 16.6% to $16.6
million from $19.9 million for the year ended December 31, 1995. As a
percentage of total revenue Asia/Pacific decreased to 14.7% in 1996 compared
to 28.1% in 1995. Two factors contributed to the decrease in Asia/Pacific
revenue. First, during 1995 the Company recognized revenue for two
significantly large contracts in Taiwan. These contracts were substantially
completed during 1995. Second, the semiconductor industry downturn impacted
Taiwan and other Asian countries to the extent that the Company did not have
the same opportunity to bid on contracts in 1996 that it had during 1995.
During 1995, the Company increased its sales focus in this region,
including the opening of a design, engineering, contract administration and
sales office in Hsin-Chu, Taiwan. As a result, contract revenue increased to
12
<PAGE>
$19.9 million, or 28.1% of total contract revenue, in 1995 from $1.2 million,
or 2.4% of total contract revenue, in 1994. Although 1996 revenues decreased
from 1995, management believes that the Asia/Pacific Rim area will be its
fastest growing region over the long-term. A significant portion of
contracts awarded in this region are cleanroom system solution contracts
which include two or more cleanroom components.
EUROPE - Contract revenue for 1996 increased by 229.8% to $21.8 million
from $6.6 million for the year ended December 31, 1995. As a percentage of
total revenue Europe increased to 19.3% in 1996 compared to 9.4% in 1995. The
increase is attributed to two contracts of significant size received in early
1996 and substantially completed by the end of the year.
Contract revenue in Europe increased to $6.6 million, or 9.4% of total
contract revenue, in 1995 from $2.1 million, or 4.5% of total contract revenue,
in 1994. This increase is the result of an increased sales effort by the Company
to establish the Company as a significant cleanroom system solutions provider in
the European region. Management believes that revenues attributed to European
contracts will continue to grow in the future.
GROSS PROFIT
1996 Change 1995 Change 1994
---- ------ ---- ------ ----
Gross profit (thousands) $15,462 116.2% $7,151 -12.3% $8,153
Percentage of contract
revenue 13.7% 10.1% 17.1%
Gross profit for the year ended December 31, 1996 increased by 116.2% to
$15.5 million from $7.2 million for the year ended December 31, 1995. Gross
profit increased as a percentage of revenue to 13.7% for 1996 compared to 10.1%
for 1995. The increases are the result of: continual improvement in the
Company's manufacturing facility creating greater efficiencies and less costs to
produce product; and better project management resulting in less problems at the
construction sites which allows the Company to install its product with less
time and labor expense. Contracts received during 1996 also were generally bid
at higher margins than those received during 1995. Also affecting the increase
from 1995 to 1996 were significant events during 1995 that contributed to the
Company realizing smaller margins during 1995. These events included the
Company's continued expansion of manufacturing facilities and a product failure
during the second quarter of 1995. The expansion created manufacturing
inefficiencies, project delays and overruns resulting in higher than expected
cost of contracts during 1995. The product failure was the result of defective
motors purchased from a third party vendor and resulted in a one time charge to
costs of contracts of approximately $1.5 million. Management believes that as a
result of competitive pricing pressure currently taking place as part of the
contract bidding process (see discussion of industry downturn above), during
1997 margins will be less than what the Company experienced during 1996.
Gross profit for 1995 decreased by 12.3% to $7.2 million from $8.2 million
in 1994 and decreased as a percentage of contract revenue to 10.1% in 1995 from
17.1% in 1994. The decrease in gross profit as a percentage of revenue was
primarily the result of manufacturing inefficiencies and a product failure at a
single project location that are discussed above. Also affecting the decrease
from 1994 to 1995 are certain strategic projects awarded at margins less than
the 1994 average.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
1996 Change 1995 Change 1994
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Selling, general and administrative
expenses (thousands) $10,274 62.2% $6,333 76.7% $3,584
Percentage of contract revenue 9.1% 9.0% 7.5%
</TABLE>
Selling, general and administrative expenses for 1996 increased 62.2% to
$10.3 million, or 9.1% of contract revenue, from $6.3 million, or 9.0% of
contract revenue, in 1995. The increase in selling, general and administrative
expenses is the result of increased sales activity worldwide and a full year of
costs associated with the Company's Asia/Pacific office. The Asia/Pacific
office was only operational for six months during 1995. Sales, general and
administrative expenses as a percentage of sales has remained relatively
constant from 1995 to 1996.
13
<PAGE>
Selling, general and administrative expenses for 1995 increased 76.7% to
$6.3 million, or 9.0% of contract revenue, from $3.6 million, or 7.5% of
contract revenue, in 1994. This increase is related to greater selling and
marketing activities required to improve the number and size of contracts
awarded during 1995 as compared to 1994. The Company also increased it's general
and administrative headcount to meet the requirements of the increased sales
volume in 1995.
RESEARCH AND DEVELOPMENT
<TABLE>
1996 Change 1995 Change 1994
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Research and Development expense (thousands) $282 10.6% $255 62.4% $157
Percentage of contract revenue 0.2% 0.4% 0.3%
</TABLE>
Research and development expense remained relatively constant from 1995 to
1996. Management believes that the Company will increase its research and
development expenses during 1997, both in actual dollars spent and as a
percentage of revenue in order to develop innovative products, to be on the
cutting edge of the 300 millimeter manufacturing facility technology and to
modify existing products to be less expensive to produce and easier to install.
Research and development expense increased slightly from 1994 to 1995.
This increase was the result of research and development projects that were
based on specific customers and contracts.
DEPRECIATION AND AMORTIZATION
<TABLE>
1996 Change 1995 Change 1994
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Depreciation and amortization expense (thousands) $400 82.6% $219 40.4% $156
Percentage of contract revenue 0.4% 0.3% 0.3%
</TABLE>
Depreciation and amortization expense during 1996 increased by 82.6% to
$400,000, or 0.4% of contract revenue, from $219,000, or 0.3% of contract
revenue, in 1995. This increase is the result of depreciation on furniture,
fixtures, computer equipment and software required for increased sales,
marketing and administration activities.
Depreciation and amortization expense in 1995 increased by 40.4% to
$219,000, or 0.3% of contract revenue, from $156,000, or 0.3% of contract
revenue, in 1994. This increase is the result of the purchase of furniture,
fixtures, computer equipment and software required for the increased headcount
in sales, marketing and administration including the start up of the
Asia/Pacific office.
OTHER INCOME (EXPENSE), net
<TABLE>
1996 Change 1995 Change 1994
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Other income/expense (thousands) $352 195.8% $119 -66.9% $359
Percentage of contract revenue 0.3% 0.2% 0.8%
</TABLE>
Other income (expense) increased in 1996 to $352,000 from $119,000 in
1995. The increase is generally the result of the net effect of an increase in
interest expense and a settlement on litigation with a third party vendor for
defective motors (see discussion in gross profit above.)
Other income (expense) decreased in 1995 to $119,000 from $359,000 in 1994.
During 1994, the Company earned interest on cash and investments from proceeds
received from the exercise of stock options and warrants. As revenues have
increased, the Company has funded the increase in non-cash current assets by
using cash
14
<PAGE>
on hand and lines of credit as needed, resulting in an increase in interest
expense and a decrease in interest income in 1995.
INCOME TAXES
1996 Change 1995 Change 1994
---- ------ ---- ------ ----
Income taxes (thousands) $1,548 779.5% $176 -90.0% $1,753
Percentage of contract revenue 1.4% 0.2% 3.7%
The effective tax rate for 1996 was approximately 32% compared to 38% for
1995. The decrease is primarily the result of a large exemption during 1996
from our foreign sales corporation. The effective tax rate for 1994 was 38%.
The change in income tax expense from year to year is directly related to the
change in earnings before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1996 was $17.1 million compared to $15.4
million at December 31, 1995. This includes cash and cash equivalents of $3.3
million and $5.9 million at December 31, 1996 and 1995 respectively.
Receivables, including retentions, (see Note D of Notes to Financial Statements)
increased to $27.4 million at December 31, 1996 compared to $14.7 million at
December 31, 1995. This increase was the result of increased billing volume
throughout 1996. Days sales outstanding (the ratio between receivables,
excluding retention, and average daily revenue taken over the year) increased to
72 days at December 31, 1996, from 59 days at December 31, 1995.
The Company's operations used $3.4 million of cash in operations during
1996, compared to providing $1.3 million of cash in 1995. During 1996, the
Company experienced an increase in receivables as a result of growth in revenues
and a decrease in accounts payable and accrued expenses of approximately $2.1
million.
At December 31, 1996, the Company had lines of credit totaling $11.5
million, of which $5.8 million was available at year end. Amounts drawn under
the lines bear interest at a commercial loan variable rate index (8.25% at
December 31, 1996) and are due no later than June 1, 1997, with options to renew
the agreement on an annual basis. The lines are secured by all accounts
receivable and inventory.
During 1996, the Company used $2.9 million for the purchase of property and
equipment. The Company anticipates that its capital expenditures in 1997 for
routine additions and replacements of property, plant, and equipment will be
approximately $2.0 million. These purchases will be financed through long-term
debt or capital leases.
Management believes that existing cash balances, borrowings available under
the lines of credit, and cash generated from operations will be adequate to meet
the Company's anticipated cash requirements through December 31, 1997. However,
in the event the Company experiences adverse operating performance or above-
anticipated capital expenditure requirements, additional financing may be
required. There can be no assurance that such additional financing, if
required, would be available on favorable terms if at all.
IMPACT OF FUTURE ACCOUNTING PRONOUNCEMENTS
None.
15
<PAGE>
FACTORS AFFECTING FUTURE RESULTS
The Company's future operations will be impacted by, among other factors,
the length and severity of the current economic downturn in the semiconductor
industry as more fully discussed above. The length and severity of the current
economic downturn in the semiconductor industry remains subject to a high degree
of uncertainty. The Company's operations are also subject to additional risks
and uncertainties that could result in actual operating results differing
materially from anticipated operating results and past operating results and
trends. These risks and uncertainties include pricing pressures, cancellations
of existing contracts, timing of significant customer orders, increased
competition, and changes in semiconductor and cleanroom technology.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's financial statements and notes are included herein beginning
on page F-1. The supplementary data is included herein immediately following
the signature page of this report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There has been no Form 8-K filed reporting a change of accountants or
reporting disagreements on any matter of accounting principle, practice,
financial statement disclosure or auditing scope or procedure during the years
covered by this report.
16
<PAGE>
PART III
ITEM 10, 11, 12 AND 13.
These items are incorporated by reference to the Company's definitive Proxy
Statement relating to the Annual Meeting of Shareholders scheduled for May 28,
1997. The definitive Proxy Statement will be filed with the Commission not
later than 120 days after December 31, 1996, pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended.
17
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents Filed as Part of this Report:
(1) FINANCIAL STATEMENTS. The following financial statements are
filed with this report beginning on page F-1:
- Report of Independent Certified Public Accountants
- Balance Sheets as of December 31, 1996 and 1995
- Statements of Earnings for the Years Ended December 31,
1996, 1995 and 1994
- Statements of Shareholders' Equity for the Years Ended
December 31, 1996, 1995 and 1994
- Statements of Cash Flows for the Years Ended December
31, 1996, 1995 and 1994
- Notes to Financial Statements
(2) FINANCIAL STATEMENT SCHEDULE. The following financial statement
schedule for the years ended December 31, 1996, 1995 and 1994 is included
herein immediately following the signature page to this report:
- Report of Independent Certified Public Accountants on Schedule
- Schedule II - Valuation and Qualifying Accounts
All other schedules have been omitted because the information is not
required, or if required the information required therein is not present in
amounts sufficient to require submission of the schedule or because the
information required is included in the financial statements or notes thereto.
(b) Reports on Form 8-K:
None.
(c) Exhibits:
The following exhibits required by Item 601 of Regulation S-K are
filed herewith or have been filed previously with the Commission as
indicated below:
18
<PAGE>
EXHIBIT INDEX
REGULATION S-K
EXHIBIT NO. DESCRIPTION SEQUENTIAL PAGE NO.
- -------------- ------------------------------------- -------------------
3.1 Restated Articles of Incorporation* [Form 10-KSB for
the year ended
December 31, 1993,
Exhibit No. 3.1]
3.2 Bylaws of the Company* [Form 10-KSB for
the year ended
December 31, 1992,
Exhibit No. 3.2]
10.1 Agreement and Plan of Merger* [Form 8-K dated
October 1992,
Exhibit 10.1]
10.2 1993 Stock Option Plan* [Form 10-KSB for
the year ended
December 31, 1993,
Exhibit 10.4]
10.3 Amendment No. 1 to 1993 Stock [Form 10-Q for
Option Plan* quarter ended
June 30, 1996,
Exhibit 10.1]
10.4 Amendment No. 2 to 1993 Stock Filed herewith.
Option Plan
10.5 Revolving Domestic and Exim Line Filed herewith.
of Credit Agreements
10.6 Lease Agreement for Salt Lake City [Form 10-KSB for
facility* the year ended
December 31, 1993,
Exhibit 10.6]
10.7 Amendment to Lease Agreement* [Form 10-K for
the year ended
December 31, 1995,
Exhibit 10.5]
10.8 Flanders Shareholder Agreement* [Form 10-KSB for
the year ended
December 31, 1994,
Exhibit No. 10.8]
10.9 Flanders Purchase Option Agreement* [Form 10BKSB for
the year ended
December 31, 1994,
Exhibit No. 10.9]
11.1 Earnings Per Share Calculation Filed herewith.
23.1 Consent of Independent Certified Filed herewith.
Public Accountants.
27 Financial Data Schedule Filed herewith.
- -----------------
* These exhibits are incorporated herein by reference.
(d) Financial Statement Schedules:
See Item 14(a)(2) of this report.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on March 24,
1997.
DAW TECHNOLOGIES, INC.
By: /s/ Ronald W. Daw
----------------------------------
Ronald W. Daw
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 24, 1997.
SIGNATURE CAPACITY IN WHICH SIGNED
--------- ------------------------
/s/ Ronald W. Daw Chairman of the Board, President,
- --------------------------- Chief Executive Officer and Director
Ronald W. Daw (Principal executive officer)
/s/ David R. Grow Executive Vice President, Chief Operating
- --------------------------- Officer, Chief Financial Officer (Principal
David R. Grow financial and accounting officer)
/s/ Russell W. Weiss Director
- ---------------------------
Russell W. Weiss
/s/ Robert G. Chamberlain Director
- ---------------------------
Robert G. Chamberlain
/s/ Sterling D. Sessions Director
- ---------------------------
Sterling D. Sessions
/s/ Charles L. Bates, Jr. Director
- ---------------------------
Charles L. Bates, Jr.
/s/ Robert J. Frankenberg Director
- ---------------------------
Robert J. Frankenberg
/s/ James S. Jardine Director
- ---------------------------
James S. Jardine
20
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Daw Technologies, Inc.
We have audited the accompanying balance sheets of Daw Technologies, Inc. as
of December 31, 1996 and 1995, and the related statements of earnings,
shareholders' equity, and cash flows for each of the three 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 audits 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 Daw Technologies, Inc. as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Salt Lake City, Utah
February 14, 1997
F-1
<PAGE>
Daw Technologies, Inc.
BALANCE SHEETS
(in thousands, except share data)
December 31,
-------------------
1996 1995
------- -------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,258 $ 5,885
Contracts receivable, net 27,394 14,714
Costs and estimated earnings
in excess of billings on
contracts in progress 7,169 10,930
Inventories 1,583 1,478
Deferred income tax asset 318 104
Other current assets 1,996 441
------- -------
Total current assets 41,718 33,552
PROPERTY AND EQUIPMENT, NET
AT COST 7,693 6,438
OTHER ASSETS 84 82
------- -------
$49,495 $40,072
------- -------
------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $10,782 $12,272
Billings in excess of costs and estimated
earnings on contracts in progress 7,505 3,699
Lines of credit 5,696 1,500
Current portion of long-term obligations 623 650
------- -------
Total current liabilities 24,606 18,121
LONG TERM OBLIGATIONS, less current portion 1,730 2,390
DEFERRED INCOME TAX LIABILITY 221 152
COMMITMENTS AND CONTINGENCIES
(Notes K, L and N) - -
SHAREHOLDERS' EQUITY
Preferred stock, authorized 10,000,000
shares of $.01 par value; none issued
and outstanding - -
Common stock, authorized 50,000,000
shares of $.01 par value; issued and
outstanding 12,400,543 shares in 1996
and 12,330,254 shares in 1995 124 123
Additional paid-in-capital 15,188 14,970
Retained earnings 7,626 4,316
------- -------
Total shareholders' equity 22,938 19,409
------- -------
$49,495 $40,072
------- -------
------- -------
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
Daw Technologies, Inc.
STATEMENTS OF EARNINGS
(in thousands, except share data)
<TABLE>
Year ended December 31,
------------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Contract revenue $112,826 $70,635 $47,732
Cost of contracts 97,364 63,484 39,579
-------- ------- -------
Gross profit 15,462 7,151 8,153
-------- ------- -------
Selling, general and administrative expenses 10,274 6,333 3,584
Research and development 282 255 157
Depreciation and amortization 400 219 156
-------- ------- -------
10,956 6,807 3,897
-------- ------- -------
Earnings from operations 4,506 344 4,256
Other income (expense)
Interest expense (663) (129) (100)
Other income, net 1,015 248 459
-------- ------- -------
352 119 359
-------- ------- -------
Earnings before income taxes 4,858 463 4,615
Income taxes 1,548 176 1,753
-------- ------- -------
NET EARNINGS $ 3,310 $ 287 $ 2,862
-------- ------- -------
-------- ------- -------
Net earnings per share
Primary $ 0.27 $ 0.02 $ 0.26
Fully diluted 0.27 $ 0.02 $ 0.25
Weighted average common and dilutive
common equivalent shares outstanding
Primary 12,443,848 12,338,198 11,182,295
Fully diluted 12,443,848 12,363,161 11,369,901
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
Daw Technologies, Inc.
STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
Year ended December 31, 1996, 1995 and 1994
<TABLE>
Additional
Common paid-in Retained
Stock capital earnings Total
------ ---------- -------- -------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 $101 $ 4,731 $1,167 $ 5,999
Proceeds from sale of warrants - 150 - 150
Common stock issued pursuant to
exercise of warrants, 1,460,834
shares 14 6,822 - 6,836
Common stock issued pursuant to
exercise of options, 181,250 shares 2 404 - 406
Net earnings for 1994 - - 2,862 2,862
---- ------- ------ -------
Balance at December 31, 1994 117 12,107 4,029 16,253
Common stock issued pursuant to
exercise of warrants, 400,000 shares 4 1,969 - 1,973
Common stock issued pursuant to
exercise of options, 189,000 shares 2 646 - 648
Tax benefit from exercise of stock options - 248 - 248
Net earnings for 1995 - - 287 287
---- ------- ------ -------
Balance at December 31, 1995 123 14,970 4,316 19,409
Common stock issued pursuant to exercise
of 900 warrants and 46,500 options
and purchase of 22,889 shares pursuant
to employee stock purchase plan 1 195 - 196
Tax benefit from exercise of stock options - 23 - 23
Net earnings for 1996 - - 3,310 3,310
---- ------- ------ -------
Balance at December 31, 1996 $124 $15,188 $7,626 $22,938
---- ------- ------ -------
---- ------- ------ -------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
DAW Technologies, Inc.
STATEMENTS OF CASH FLOWS
(in thousands, except share data)
<TABLE>
Year ended December 31,
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net earnings $ 3,310 $ 287 $ 2,862
Adjustments to reconcile net earnings
to net cash provided by (used in) operating
activities
Depreciation and amortization 1,649 875 625
Loss on disposition of property and
equipment 6 35 -
Provision for losses on contracts receivable 330 30 (72)
Deferred taxes (145) 48 -
Changes in assets and liabilities
Contracts and other receivables (13,010) (3,137) (3,027)
Costs and estimated earnings in excess
of billings on contracts in progress 3,761 (5,697) (1,977)
Inventories (105) (303) (497)
Other current assets (1,555) 48 143
Accounts payable, other liabilities and accrued
expenses (2,101) 5,699 (813)
Income taxes payable 611 393 54
Billings in excess of costs and estimated
earnings on contracts in progress 3,806 3,013 (679)
Other assets (2) (41) (8)
-------- -------- --------
Net cash provided by (used in)
operating activities (3,445) 1,250 (3,389)
-------- -------- --------
Cash flows from investing activities
Payments for purchase of property
and equipment (2,929) (4,996) (672)
Proceeds from disposition of property
and equipment 31 - 112
-------- -------- --------
Net cash used in investing activities (2,898) (4,996) (560)
-------- -------- --------
-------- -------- --------
</TABLE>
(continued)
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
DAW Technologies, Inc.
STATEMENTS OF CASH FLOWS-CONTINUED
(in thousands, except share data)
Year ended December 31,
--------------------------
1996 1995 1994
------- ------- -------
Cash flows from financing activities
Proceeds from issuance of long-term obligations - 2,791 -
Net change in line of credit 4,196 1,500 (1,175)
Payments of long-term debt - (92) (77)
Proceeds from issuance of stock 219 2,869 7,392
Payments of obligations under
capital leases (699) (148) (366)
------- ------- -------
Net cash provided by
financing activities 3,716 6,920 5,774
------- ------- -------
Net increase (decrease) in cash and
cash equivalents (2,627) 3,174 1,825
Cash and cash equivalents at beginning of year 5,885 2,711 886
------- ------- -------
Cash and cash equivalents at end of year $ 3,258 $ 5,885 $ 2,711
------- ------- -------
------- ------- -------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE YEAR FOR
Interest $ 663 $ 129 $ 100
Income taxes 1,055 320 1,189
NONCASH INVESTING AND FINANCING ACTIVITIES
During 1996, capital leases of $161 were reclassified in the financial
statements.
Capital lease obligations of $173 and $2,908 for property and equipment
acquisitions were incurred during 1996 and 1995, respectively.
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(in thousands, except share data)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows.
1. BUSINESS ACTIVITY
Daw Technologies, Inc. (the Company) is a supplier of ultra-clean
manufacturing environments, or cleanrooms, to the semiconductor industry
(operating in one business segment). The Company designs, engineers,
manufactures, installs and services all principal component systems for
advanced cleanrooms.
2. METHOD OF ACCOUNTING FOR LONG-TERM CONTRACTS
The accompanying financial statements have been prepared using the
percentage-of-completion method of accounting and, therefore, take into
account the costs, estimated earnings and revenue to date on contracts not
yet completed. For most contracts, the revenue recognized is that portion
of the total contract price that cost incurred to date bears to anticipated
final total cost, based on current estimates of cost to complete. Revenue
from cost-plus-fixed-fee contracts is recognized on the basis of costs
incurred during the period plus the fee earned, measured by the cost-to-
cost method.
Contract costs include all direct and allocable indirect labor, benefits,
materials unique to or installed in the project, subcontractor cost
allocations, including employee benefits and equipment expense. At the
time a loss on a contract becomes known, the entire amount of the estimated
ultimate loss is recognized in the financial statements. As long-term
contracts extend over one year, revisions in cost and earnings estimates
during the course of the work are reflected in the accounting period in
which the facts which require the revision become known. Costs
attributable to contract claims or disputes are carried in the accompanying
balance sheets only when realization is probable. These costs are recorded
at the lesser of actual costs incurred or the amount expected to be
realized. It is reasonably possible that estimates by management related
to contracts can change in the future.
F-7
<PAGE>
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(in thousands, except share data)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
2. METHOD OF ACCOUNTING FOR LONG-TERM CONTRACTS - CONTINUED
The current asset, "costs and estimated earnings in excess of billings on
contracts in progress," represents revenues recognized in excess of amounts
billed (under- billings), and the current liability, "billings in excess of
costs and estimated earnings on contracts in progress," represents billings
in excess of revenues recognized (overbillings). The amount of revenue
recognized is not related to the progress billings to customers.
3. DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost. Depreciation and amortization
are provided for in amounts sufficient to relate the cost of depreciable
assets to operations over their estimated service lives. Leased property
under capital leases and leasehold improvements are amortized over the
shorter of the lives of the respective leases or over the service lives of
the asset. The straight-line method of depreciation is followed for
financial reporting purposes. Accelerated methods of depreciation are used
for tax purposes.
4. INCOME TAXES
The Company utilizes the liability method of accounting for income taxes.
Under the liability method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax bases
of assets and liabilities and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse.
An allowance against deferred tax assets is recorded when it is more likely
than not that such tax benefits will not be realized. Research tax credits
are recognized as utilized. Effective December 1995, the Company changed
its tax year end from September 30 to December 31.
5. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with an original
maturity of three months or less when purchased to be cash equivalents.
F-8
<PAGE>
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(in thousands, except share data)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
6. INVENTORIES
Inventories consist of raw materials and are stated at the lower of cost or
market. Cost is determined principally by the first-in, first-out method.
7. NET EARNINGS PER SHARE
Primary and fully diluted net earnings per share are computed by dividing
net earnings by the weighted average common and dilutive common equivalent
shares outstanding during each period. Common stock equivalents represent
the dilutive effect of the assumed exercise of certain outstanding stock
options and warrants.
8. RESEARCH AND DEVELOPMENT COSTS
The Company conducts research and development to develop new products or
product improvements not directly related to a specific project.
9. CONCENTRATIONS
The Company's financial instruments that are exposed to concentration of
credit risk consist primarily of cash equivalents and receivables. The
Company provides credit according to the terms of the individual project
contracts, in the normal course of business, primarily to semi-conductor
manufacturers.
Approximately 40% (65% in 1995) of receivables are with three different
customers. In addition, approximately 41% (22% in 1995) of receivables are
due from entities located outside of North America, primarily Europe and
Asia. Of the total receivables, approximately 13% are denominated in
foreign currencies (9% at December 31, 1995). The Company routinely
evaluates the financial strength of its customers and monitors each account
to minimize the risk of loss.
The Company maintains cash and cash equivalents at several financial
institutions. Accounts at each North American institution are insured by
the FDIC up to $100,000. Uninsured North American balances aggregate to
approximately $1,412 at December 31, 1996 ($2,816 in 1995). The Company
also maintains cash and cash equivalents in foreign accounts. These
uninsured balances aggregate to $2,413 at December 31, 1996 ($953 in
1995).
F-9
<PAGE>
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(in thousands, except share data)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
10. RETENTIONS
Many of the Company's contracts allow retentions, typically 5-10% of the
amount billed, to be withheld from each progress payment by the customer
until the project reaches substantial completion. The Company typically
evaluates retention financing costs during the bid process.
11. ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents, contracts
receivable and accounts payable and accrued liabilities approximates their
fair values.
13. RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 and 1994 financial
statements to conform with the 1996 presentation.
NOTE B - CAPITAL TRANSACTIONS
During 1996, the Company received $196 from the issuance of 22,889 shares
of common stock, upon the exercise of 46,500 common stock options and the
exercise of 900 shares of common stock warrants.
F-10
<PAGE>
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(in thousands, except share data)
NOTE B - CAPITAL TRANSACTIONS - CONTINUED
During 1996, the shareholders of the Company approved an employee stock
purchase plan. The maximum number of shares of common stock that may be
issued under the plan is 750,000 shares. Employees are eligible upon
completion of 90 days employment. Eligible employees may designate 2 to
15% (up to $25) of eligible compensation to be withheld for the purchase of
stock. Price per share is 85% of the lower closing trading price of the
stock on the applicable offering commencement date or offering termination
date. Offering periods are six months in length beginning on May 1 and
November 1 of each year. Employees purchased 22,889 shares under the plan
in 1996.
During 1995, the Company received $648 from the issuance of 189,000 shares
of common stock upon exercise of outstanding common stock options. Also
during 1995, the Company received $1,973 from the issuance of 400,000
shares of common stock upon exercise of outstanding common stock warrants.
During 1994, the Company extended the expiration dates on its Class B
Warrants to February 28, 1994, from February 2, 1994. During 1994, the
Company received an additional $220 from the exercise of the remaining
73,334 Class A Warrants, $1,477 from the exercise of 369,500 of its Class B
Warrants and $75 from the exercise of 30,000 of its underwriter warrants.
During April and May 1994, the Company sold, through a private placement,
1,200,000 Class 94-C warrants and 400,000 Class 94-S warrants, raising a
total of $150. During June 1995, 988,000 warrants were exercised for
$5.125 per share, resulting in net proceeds to the Company of $5,064. The
remaining 212,000 Class 94-C warrants were not exercised, and expired on
July 1, 1994. The 400,000 Class 94-S warrants were exercised in April of
1995 with 300,000 exercised for $5.00 per share and 100,000 for $5.125 per
share, resulting in net proceeds to the Company of $1,973.
The Company also received $406 during 1994 from the issuance of 181,250
shares of common stock upon exercise of outstanding common stock options at
$2.00 and $2.50 per share.
F-11
<PAGE>
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(in thousands, except share data)
NOTE C - INTERNATIONAL OPERATIONS
Financial information summarized by geographic area for the years ended
December 1996, 1995, and 1994, is as follows.
<TABLE>
North
1996 American Europe Asia/Pacific Consolidated
------------------------------------- -------- ------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues - unaffiliated customers $74,429 $21,828 $16,569 $112,826
Earnings (loss) from operations 5,341 (794) (41) 4,506
Identifiable assets 30,202 10,389 8,904 49,495
1995
-------------------------------------
Net revenues - unaffiliated customers $44,156 $ 6,619 $19,860 $ 70,635
Earnings (loss) from operations (639) 1,455 (472) 344
Identifiable assets 29,865 4,602 5,605 40,072
1994
-------------------------------------
Net revenues - unaffiliated customers $44,426 $ 2,145 $ 1,161 $ 47,732
Earnings (loss) from operations 4,003 (305) 558 4,256
Identifiable assets 21,170 1,430 1,008 23,608
</TABLE>
Foreign currency transaction gains and losses are not significant and are
included in selling, general and administrative expenses.
NOTE D - CONTRACTS RECEIVABLE
Contracts receivable consist of the following:
1996 1995
---- ----
Current receivables $22,353 $11,377
Retentions receivable 5,417 3,477
------- -------
27,770 14,854
Less allowance for doubtful accounts (376) (140)
------- -------
Contracts receivable $27,394 $14,714
------- -------
------- -------
F-12
<PAGE>
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(in thousands, except share data)
NOTE E - OTHER CURRENT ASSETS
Other current assets consist of the following:
1996 1995
------ ----
Prepaid foreign taxes $1,120 $ 31
Miscellaneous receivables and deposits 552 41
Prepaid expenses 324 369
------ ----
$1,996 $441
------ ----
------ ----
NOTE F - PROPERTY AND EQUIPMENT
Property and equipment and estimated useful lives consist of the
following:
Years 1996 1995
------- ------- --------
Equipment 5-10 $ 4,088 $ 3,130
Furniture and fixtures 5 2,432 1,810
Leasehold improvements life of lease 2,514 1,312
Equipment under capital leases 5-10 4,067 4,067
Vehicles 3-5 331 227
------- --------
13,432 10,546
Less accumulated depreciation and amortization
including $1,653, and $960 for equipment
under capital leases at 1996 and 1995
respectively (5,739) (4,108)
------- --------
$ 7,693 $ 6,438
------- --------
------- --------
F-13
<PAGE>
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(in thousands, except share data)
NOTE G - CONTRACTS IN PROGRESS
Costs incurred to date and estimated earnings and the related progress
billings to date on contracts in progress are as follows:
1996 1995
-------- --------
Total costs and estimated earnings $112,396 $118,144
Progress billings to date 112,732 110,913
-------- --------
$ (336) $ 7,231
-------- --------
-------- --------
The above are included in the balance sheets under the following captions:
1996 1995
-------- --------
Costs and estimated earnings in excess
of billings on contracts in progress $ 7,169 $ 10,930
Billings in excess of costs and estimated
earnings on contracts in progress (7,505) (3,699)
-------- --------
$ (336) $ 7,231
-------- --------
-------- --------
NOTE H - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
1996 1995
-------- --------
Trade accounts payable $ 6,120 $10,900
Accrued income taxes payable 611 -
Reserve for contract estimates and warranties 575 438
Employee salaries, incentive pay,
vacation and payroll taxes 1,808 207
Other accrued liabilities 1,668 727
-------- --------
$10,782 $12,272
-------- --------
-------- --------
F-14
<PAGE>
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(in thousands, except share data)
NOTE I - INCOME TAXES
Components of income taxes are as follows:
1996 1995 1994
------ ------ ------
Current
Federal $1,288 $ 111 $1,518
State 330 17 235
Foreign 75 - -
------ ------ ------
1,693 128 1,753
------ ------ ------
Deferred
Federal (119) 42 -
State (26) 6 -
------ ------ ------
(145) 48 -
------ ------ ------
$1,548 $ 176 $1,753
------ ------ ------
------ ------ ------
The income tax expense reconciled to the tax computed at the statutory
Federal rate is as follows:
1996 1995 1994
------ ------ ------
Tax at federal statutory rate $1,652 $ 157 $1,569
Nondeductible expenses 41 23 13
State income taxes, net of federal
income tax benefit 234 12 152
Foreign sales corporation exemption (333) (54) (13)
All other (46) 38 32
------ ------ ------
$1,548 $ 176 $1,753
------ ------ ------
------ ------ ------
Deferred income taxes related to the following:
1996 1995
---- ----
Current assets
Allowance for doubtful accounts $147 $ 52
Accrued contract losses - 52
Accrued expenses and reserves 171 -
---- ----
$318 $104
---- ----
---- ----
Long-term liability
Accumulated depreciation $221 $152
---- ----
---- ----
F-15
<PAGE>
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(in thousands, except share data)
NOTE J- LINES OF CREDIT
During 1996, the Company had a revolving line of credit with a bank for
$8,000. The interest rate is computed at the bank's prime rate (8.25% at
December 31, 1996) and requires monthly payments of interest. The Company
had $4,216 in borrowings against the line at December 31, 1996. The line
of credit is collateralized by certain North American receivables and
inventories. The line of credit agreement contains restrictive covenants
imposing limitations on payments on cash dividends, purchases or
redemptions of capital stock, indebtedness and other matters.
In addition, during 1996, the Company had a revolving line of credit with a
bank for $3,500 with a variable rate of interest of prime (8.25% at
December 31, 1996). The Company had $1,480 in borrowings against the line
at December 31, 1996. The line is collateralized by certain international
receivables and inventories. This line also contains restrictive covenants
imposing limitations on purchases or redemptions of capital stock,
indebtedness and other matters.
During 1995, the Company had a revolving line of credit with a bank for
$2,000. The interest rate was a variable rate equal to .5% above the
bank's base rate (8.5% at December 31, 1995). The Company had $1,500 in
borrowings against the line at December 31, 1995. The line was guaranteed
by the president of the Company and a shareholder. This line expired
during 1996.
NOTE K - LONG-TERM OBLIGATIONS
The Company has entered into lease obligations with various financial
institutions and leasing organizations that carry interest rates ranging
from 4% to 11.5%. The leases are collateralized by equipment. Payments
approximate $67 monthly including interest.
F-16
<PAGE>
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(in thousands, except share data)
NOTE K - LONG-TERM OBLIGATIONS - CONTINUED
The following is a schedule by year of future minimum lease payments under
capital leases, together with the present value of the net lease payments
as of December 31, 1996.
Year ending December 31,
------------------------
1997 $ 804
1998 779
1999 632
2000 538
2001 10
Thereafter -
------
Total minimum lease payments 2,763
Less amount representing interest (410)
------
Present value of net minimum lease payments 2,353
Less current portion (623)
------
Long-term portion $1,730
------
------
NOTE L - OPERATING LEASES
The Company leases buildings, machinery and equipment under operating
leases. The building leases expire in 2000 and 2005. The machinery and
equipment leases expire through 2000. The following is a schedule by year
of future minimum rental payments as of December 31, 1996.
Year ending December 31,
------------------------
1997 $ 896
1998 880
1999 827
2000 708
2001 545
Thereafter 1,693
------
$5,549
------
------
F-17
<PAGE>
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(in thousands, except share data)
NOTE L - OPERATING LEASES - CONTINUED
The building leases provide for payment of property taxes, insurance, and
maintenance costs by the Company. Rental expense for operating leases was
$737, $564 and $359 for 1996, 1995 and 1994 respectively.
The Company has an option to renew one building lease for four additional
five year periods upon expiration of the current term in 2005.
NOTE M - BENEFIT PLANS
1. SAVINGS PLAN
The Company has established a 401(k) savings plan covering all non-union
employees 21 years of age and older. The Company, at its discretion,
matches 50 percent of employee contributions up to a maximum matching
contribution of 3 percent of the employee's annual salary. Contributions
are made at the discretion of the Board of Directors. The Company's
contributions to the plan were $184, $30 and $98 for the years ended
December 31, 1996, 1995 and 1994, respectively.
2. MULTI-EMPLOYER PENSION PLANS
The Company contributes to several multi-employer pension plans for
employees covered by collective bargaining agreements. Employees covered
by these plans are engaged solely in on-site installation of cleanrooms.
These plans are not administered by the Company and contributions are
determined in accordance with provisions of negotiated labor contracts.
The Company's contributions to the multi-employer pension plans totaled
approximately $484, $263 and $179 or 2.3%, 2.0% and 2.4% of gross payroll,
respectively, for the years ended December 31, 1996, 1995 and 1994.
Information with respect to the Company's proportionate share of the
excess, if any, of the actuarially computed value of vested benefits over
the total pension plans' net assets is not available from the plans'
administrators.
The Multi-Employer Pension Plan Amendments Act of 1980 (The "Act")
significantly increased the pension responsibilities of participating
employers. Under the provision of the Act, if the plans terminate or the
Company withdraws, the Company could be subject to a withdrawal liability.
Management has no intention of undertaking any action which could subject
the Company to any withdrawal liability which would have a material effect
on the Company's financial condition.
F-18
<PAGE>
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(in thousands, except share data)
NOTE N - LEGAL PROCEEDINGS
From time to time, the Company is subject to routine, non-
material litigation relating to claims made by or against the Company.
The Company believes it has made adequate provisions for these
matters, and is not aware of any material threatened or outstanding
litigation against it.
NOTE O - PRIMARY CUSTOMERS
The Company has typically had one to five customers in each year
which accounted for more than 10% each of revenues; these customers do
not necessarily remain significant in subsequent years. These major
customers are typically semiconductor manufacturers.
The Company's major customers for the periods of this report are:
1996 1995 1994
---- ---- ----
Company A $21,371 $ N/A $ N/A
Company B 17,916 N/A N/A
Company C 16,247 N/A N/A
Company D N/A 8,654 11,089
Company E N/A 7,883 N/A
NOTE P - RELATED PARTY TRANSACTIONS
Daw Incorporated is a regional interior specialties contracting company
based in Utah. Certain stockholders of Daw Incorporated own more than 50%
of the Company's common stock.
The Company purchased goods and services from Daw Incorporate totaling
$1,118, $525, and $486 in 1996, 1995, and 1994, respectively.
F-19
<PAGE>
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(in thousands, except share data)
NOTE P - RELATED PARTY TRANSACTIONS - CONTINUED
Although the Company and Daw Incorporated maintain separate insurance
policies, the Company understands that its insurance carriers consider the
experience of both Daw Incorporated and the Company in establishing the
Company's rate for workers compensation coverage because of the common
ownership. This common ownership may also affect the Company's ability to
make elections regarding contributions to its 401(k) plan which differ
materially from Daw Incorporated's separate plan. Management of the
Company does not believe these matters have materially affected the
financial condition or results of operations of the Company.
A member of the board of directors works for a law firm which provided
legal services to the Company approximating $137 and $57 in 1996 and 1995,
respectively.
NOTE Q - WARRANTS AND OPTIONS
During 1996, the Board of Directors and the shareholders amended the
Company's 1993 Stock Option Plan (Plan) to increase the number of shares
reserved for issuance by 250,000. In addition, the amendment extended the
life of the plan for one year, to expire in 1998, and eliminated the limit
on the number of options that can be granted in any given year. Also, the
amendment limits to 100,000 the number of options that can be granted to
any one individual in any given year. The Plan is a non-qualified plan,
and the options granted thereunder are non-qualified stock options.
Under the amended plan, 1,250,000 shares of common stock were reserved for
issuance upon exercise of options. The Plan provides that options to
purchase a maximum of 1,075,000 shares may be granted to eligible employees
(including employees who are directors or officers) and options to purchase
a maximum of 175,000 shares may be granted to non-employee directors.
The exercise price for stock options granted under the Plan may not be less
than 100% of the fair market value of a share of common stock on the date
the option is granted. Options granted under the Plan after October 24,
1996 expire in 2006. Options granted prior to or on October 24, 1996
expire through 2001.
F-20
<PAGE>
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(in thousands, except share data)
NOTE Q - WARRANTS AND OPTIONS - CONTINUED
During 1996, the Company granted options to purchase 272,000 shares (255,000
in 1995 and 224,000 in 1994) of the Company's common stock of which 40,000
shares in 1996 and 30,000 shares in both 1995 and 1994, respectively, were
granted to non-employee directors. Additionally, 111,500 shares, 63,500
shares, and 60,000 shares, were granted to executive officers (including
officers who are directors), during 1996, 1995, and 1994, respectively.
Also, 120,500 shares, 161,500 shares and 134,000 shares in 1996, 1995 and
1994, respectively, were granted to other employees of the Company. On
October 24, 1996 all options with an exercise price greater than $3.50 were
repriced to $3.50, which was the market price of the Company stock on that
date.
The Company has adopted only the disclosure provisions of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
(FAS123). Therefore, the Company accounts for stock based compensation under
Accounting Principles Board Opinion No. 25, under which no compensation cost
has been recognized. Had compensation cost for the stock based compensation
been determined based upon the fair value of the awards at the grant date
consistent with the methodology prescribed by FAS123, the Company's net
earnings and earnings per share would have been reduced to the following pro
forma amounts:
1996 1995
------ ----
Net earnings As reported $3,310 $287
Pro forma $2,976 $185
Primary earnings per share As reported .27 .02
Pro forma .24 .01
Fully diluted earnings per share As reported .27 .02
Pro forma .24 .01
These pro forma amounts may not be representative of future disclosures
because they do not take into effect pro forma compensation cost related to
grants made before 1995. The fair value of these options was estimated at
the date of grant using the modified Black-Scholes American option-pricing
model with the following weighted-average assumptions for 1996 and 1995:
expected volatility of 56%; risk-free interest rate of 6.04%; and expected
life of 4.7 years. The weighted average fair value of options granted was
$2.19 and $1.72 in 1996 and 1995, respectively.
F-21
<PAGE>
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(in thousands, except share data)
NOTE Q - WARRANTS AND OPTIONS - CONTINUED
Option pricing models require the input of highly subjective assumptions
including the expected stock price volatility. Also, the Company's employee
stock options have characteristics significantly different from those of
traded options, and changes in the subjective input assumptions can
materially affect the fair value estimate. Management believes the best
input assumptions available were used to value the options and the resulting
option values are reasonable.
Changes in the Company's stock options and warrants are as follows:
<TABLE>
Weighted
average
Stock Exercise exercise
Warrants options price price
--------- ------- ------------ --------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1994 485,834 508,500 $2.00 -$4.00 $2.83
Granted 1,600,000 224,000 5.00 - 6.63 5.70
Exercised 1,460,834 181,250 2.00 - 5.13 2.22
Canceled or expired 217,500 25,250 3.56 - 5.13 2.86
--------- -------
Outstanding at December 31, 1994 407,500 526,000 2.50 - 6.63 4.23
Granted - 255,000 6.25 - 8.58 6.69
Exercised 400,000 189,000 2.50 - 5.75 3.44
Canceled or expired - 54,500 3.56 - 6.63 5.96
--------- -------
Outstanding at December 31, 1995 7,500 537,500 2.50 - 8.58 5.50
Granted - 272,000 3.00 - 5.88 3.68
Exercised 900 46,500 2.50 - 5.75 2.87
Canceled or expired - 26,500 3.56 - 6.63 6.06
--------- -------
Outstanding at December 31, 1996 6,600 736,500 2.50 - 3.50 3.41
--------- -------
--------- -------
Exercisable at December 31, 1996 6,600 380,750 $2.50 -$3.50 $3.48
--------- -------
--------- -------
</TABLE>
As of December 31, 1996, the outstanding warrants are those warrants granted
to the underwriter of the Company's initial public offering which did expire
on February 10, 1997. The weighted-average remaining contractual life of
options outstanding at December 31, 1996 is 4.7 years.
F-22
<PAGE>
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(in thousands, except share data)
NOTE Q - WARRANTS AND OPTIONS - CONTINUED
Quarterly financial results for the years ended December 31, 1996, 1995, and
1994 are as follows:
<TABLE>
Gross Earnings Net earnings
Contract Profit (loss) from Net earnings (loss) per
revenue (loss) operations (loss) common share
-------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
1996
- ---------------
First quarter $ 23,383 $ 3,341 $ 986 $ 618 $ 0.05
Second quarter 27,049 3,242 575 654 0.05
Third quarter 30,009 4,478 1,713 1,015 0.08
Fourth quarter 32,385 4,401 1,232 1,023 0.09
-------- ------- ------- ------- ------
$112,826 $15,462 $ 4,506 $ 3,310 $ 0.27
-------- ------- ------- ------- ------
-------- ------- ------- ------- ------
1995
- ---------------
First quarter $ 16,803 $ 2,873 $ 1,381 $ 889 $ 0.08
Second quarter 13,948 (591) (2,468) (1,440) (0.12)
Third quarter 17,398 2,489 368 242 0.02
Fourth quarter 22,486 2,380 1,063 596 0.04
-------- ------- ------- ------- ------
$ 70,635 $ 7,151 $ 344 $ 287 $ 0.02
-------- ------- ------- ------- ------
-------- ------- ------- ------- ------
1994
- ---------------
First quarter $ 9,090 $ 1,754 $ 843 $ 502 $ 0.05
Second quarter 10,003 2,173 1,379 948 0.09
Third quarter 13,808 2,040 1,049 776 0.07
Fourth quarter 14,831 2,186 985 636 0.05
-------- ------- ------- ------- ------
$ 47,732 $ 8,153 $ 4,256 $ 2,862 $ .26
-------- ------- ------- ------- ------
-------- ------- ------- ------- ------
</TABLE>
F-23
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE
Board of Directors
Daw Technologies, Inc.
In connection with our audit of the financial statements of Daw Technologies,
Inc. referred to in our report dated February 14, 1997, which is included in
the annual report to shareholders and Form 10-K, we have also audited
Schedule II for each of the three years in the period ended December 31,
1996. In our opinion, this schedule presents fairly, in all material
respects, the information required to be set forth therein.
GRANT THORNTON LLP
Salt Lake City, Utah
February 14, 1997
S-1
<PAGE>
<TABLE>
DAW TECHNOLOGIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
- -------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------------------------------------------------------------------------------------------------
ADDITIONS
- -------------------------------------------------------------------------------------------------
DESCRIPTION BALANCE AT (1) (2) DEDUCTIONS- BALANCE AT
BEGINNING CHARGED TO CHARGED TO WRITE-OFFS END OF
OF COSTS AND OTHER PERIOD
PERIOD EXPENSES ACCOUNTS
DESCRIBE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Allowance for doubtful accounts
Year ended December 31, 1996 $140 $330 $ - $(94) $376
Year ended December 31, 1995 138 30 - (28) 140
Year ended December 31, 1994 210 - - (72) 138
Reserve for contract estimates
Year ended December 31, 1996 $438 $940 $ - $(803) $575
Year ended December 31, 1995 313 513 - (388) 438
Year ended December 31, 1994 337 831 - (855) 313
</TABLE>
S-2
<PAGE>
EXHIBIT 10.4
AMENDMENT NO. 2
TO
DAW TECHNOLOGIES, INC.
1993 STOCK OPTION PLAN
THIS AMENDMENT NO. 2 (the "Amendment"), is executed effective as of
October 24, 1996 by Daw Technologies, Inc., a Utah corporation (the "Company").
RECITALS
WHEREAS, the Company has previously adopted the Daw Technologies, Inc.
1993 Stock Option Plan (the "Plan") on November 19, 1993;
WHEREAS, the Board of Directors and Shareholders previously adopted an
Amendment No. 1 to the Plan (the Plan, as amended, is hereinafter referred to
as the "Plan"); and
WHEREAS, the Board of Directors has determined it would be in the best
interest of the Company to further amend the Plan to: (i) make such changes as
may be necessary to conform with the requirements of the new Section 16 rules,
(ii) extend the term of options granted on or after the effective date of the
amendment to ten years, and (iii) provide the Board of Directors with the
discretion to amend and modify the terms of options granted to directors
pursuant to the formula award provisions of the 1993 Stock Option Plan,
including, without limitation, the authority to reprice such options.
WHEREAS, the Company now desires to document such amendment.
NOW THEREFORE, upon these premises, the Plan is hereby modified, altered
and amended in the following respects only:
1. AMENDMENTS.
a. Section 1.2(a) is amended to read in its entirety as follows:
" (a) Committee. This Plan, other than Article V, shall be
administered by and all Options to Eligible Employees shall be authorized by
the Committee. Action by the Committee with respect to the administration of
this Plan shall be taken pursuant to a majority vote or by written consent of
its members. Article V shall be administered by the Board.
b. The last sentence of Section 1.2(d) is deleted in its entirety.
c. Section 1.6 is hereby amended to read in its entirety as follows:
"1.6 Term of Options
Each Option and all executory rights or obligations under the
related Option Agreement shall expire on such date as shall be determined
by the Committee but not later than ten (10) years after the Grant Date.@
d. Section 4.6(f) is hereby amended to read in its entirety as
follows:
1
<PAGE>
EXHIBIT 10.4
"(f) "Committee" shall mean a committee appointed by the Board,
consisting of not less than a sufficient number of non-employee directors
so as to qualify the committee to administer the Plan and approve the grant
of stock options as contemplated by Rule 16b-3."
e. Section 5.4 is hereby amended to read in its entirety as follows:
"5.4 Option Period and Exercisability
" Each Option granted under this Article V and all rights or
obligations thereunder shall commence on the Grant Date and expire ten
years thereafter and shall be subject to earlier termination as provided
below. Except as otherwise provided under this Plan, no Option granted
under Section 5.2 shall be exercisable until one year after the Grant
Date.@
e. A new Article 5.9 is hereby added to read in its entirety as
follows:
"5.9 Option Repricing and Modification/Waiver of Restrictions
Subject to Section 1.4 and Section 3.6, the Board from time to time
may authorize, generally or in specific cases only, for the benefit of an
Non-Employee Director, any adjustment in the exercise price or other terms
of an Option granted under this Article V by amendment, by waiver or by
other legally valid means. Such amendment or other action may result in,
among other changes, an exercise price which is higher or lower than the
exercise price of the original or prior Option."
2. EFFECTIVENESS. This Amendment was adopted by the Board of Directors on
October 24, 1996 to be effective as of such date.
3. RATIFICATION. In all respects, other than as specifically set forth in
Section 1 above, the Plan shall remain unaffected by this Amendment, the Plan
shall continue in full force and effect, subject to the terms and conditions
thereof, and in the event of any conflict, inconsistency, or incongruity
between the provisions of this Amendment and any provisions of the Plan, the
provisions of this Amendment shall in all respects govern and control.
IN WITNESS WHEREOF, the Company has duly executed this Amendment
effective as of the date first set forth above.
DAW TECHNOLOGIES, INC.,
a Utah corporation
By /s/ David R. Grow
--------------------------------------
Its: Chief Operating Officer and Secretary
<PAGE>
- ------------------------------------------------------------------------------
Exhibit 10.5
REVOLVING LINE OF CREDIT
CREDIT AGREEMENT
entered into by and between
US Bank of UTAH
a Utah banking association
and
DAW TECHNOLOGIES, INC.
a Utah corporation
Effective as of July 25, 1996
Salt Lake City, Utah
- ------------------------------------------------------------------------------
<PAGE>
REVOLVING LINE OF CREDIT
CREDIT AGREEMENT
TABLE OF CONTENTS
Page
----
Recitals ............................................................... 1
Agreement............................................................... 1
ARTICLE 1
DEFINITION OF TERMS..................................................... 1
1.01 "Accounts Payable"........................................... 1
1.02 "Accounts Receivable"........................................ 1
1.03 "Advance".................................................... 1
1.04 "Authorized Officer"......................................... 2
1.05 "Borrower"................................................... 2
1.06 "Borrowing Base"............................................. 2
1.07 "Borrowing Base Certificate"................................. 2
1.08 "Business Day"............................................... 2
1.09 "Change in Control".......................................... 2
1.10 "Closing Date"............................................... 3
1.11 "Code"....................................................... 3
1.12 "Collateral"................................................. 3
1.13 "Commitment"................................................. 3
1.14 "Concentrations"............................................. 3
1.15 "Control".................................................... 3
1.16 "Controlled Group"........................................... 3
1.17 "Current Assets"............................................. 3
1.18 "Current Liabilities"........................................ 3
1.19 "Current Ratio".............................................. 4
1.20 "Debt/Tangible Net Worth Ratio".............................. 4
1.21 "Default Rate"............................................... 4
1.22 "Dollars".................................................... 4
1.23 "DSC"........................................................ 4
1.24 "ERISA"...................................................... 4
1.25 "ESOP"....................................................... 5
1.26 "Event of Default"........................................... 5
1.27 "Exchange Act"............................................... 5
1.28 "Financial Covenants"........................................ 5
1.29 "Foreign Currency Contracts"................................. 5
1.30 "GAAP"....................................................... 5
1.31 "Governmental Authority"..................................... 5
1.32 "Indebtedness"............................................... 5
1.33 "Lender"..................................................... 5
1.34 "Letters of Credit".......................................... 5
Exhibit 10.5
Domestic -i-
<PAGE>
1.35 "Lien"....................................................... 6
1.36 "Loan"....................................................... 6
1.37 "Loan Documents"............................................. 6
1.38 "Loan Fees".................................................. 6
1.39 "Material Adverse Effect".................................... 6
1.40 "Maturity Date".............................................. 6
1.41 "Net Domestic Underbillings Less Domestic Overbillings"...... 6
1.42 "Net Income"................................................. 6
1.43 "Note"....................................................... 6
1.44 "PBGC"....................................................... 6
1.45 "Permitted Liens"............................................ 6
1.46 "Person"..................................................... 7
1.47 "Plan"....................................................... 7
1.48 "Regulation U"............................................... 7
1.49 "Regulatory Change".......................................... 7
1.50 "Reportable Event"........................................... 7
1.51 "Retention".................................................. 7
1.52 "SEC"........................................................ 7
1.53 "Security Agreement"......................................... 7
1.54 "Security Documents"......................................... 7
1.55 "Significant Debt Agreement"................................. 7
1.56 "Subsidiaries"............................................... 8
1.57 "Tangible Net Worth"......................................... 8
1.58 "WOBRR"...................................................... 8
1.59 "Working Capital"............................................ 8
ARTICLE 2
THE LOAN................................................................ 8
2.01 Loan Commitment.............................................. 8
2.02 Revolving Line of Credit..................................... 8
2.03 Note......................................................... 8
2.04 Letters of Credit............................................ 9
2.05 Excess Balance Repayment..................................... 10
2.06 Prepayments.................................................. 10
2.07 Method of Payment............................................ 10
2.08 Conditions................................................... 10
2.09 Other Advances by Lender..................................... 10
2.10 Assignment................................................... 10
ARTICLE 3
FEES.................................................................... 10
3.01 Non-Usage Fee................................................ 11
3.02 Letter of Credit Fees........................................ 11
ARTICLE 4
SECURITY................................................................ 11
4.01 Security..................................................... 11
4.02 Financing Statements......................................... 11
4.03 Security Documents........................................... 11
4.04 Assignment of Particular Contracts........................... 12
Exhibit 10.5
Domestic -ii-
<PAGE>
ARTICLE 5
AFFIRMATIVE COVENANTS...................................................... 12
5.01 Financial Statements, Reports and Documents...................... 12
5.01.01 Consolidated Monthly Statements of Borrower............ 12
5.01.02 Consolidated Quarterly Statements of Borrower.......... 12
5.01.03 Consolidated Annual Statements of Borrower............. 12
5.01.04 Quarterly Certificate Respecting Financial Covenants... 13
5.01.05 Borrowing Base Certificate............................. 13
5.01.06 Compliance Certificate of Borrower..................... 13
5.01.07 Management Letters..................................... 13
5.01.08 Other Information...................................... 14
5.02 Payment of Taxes and Other Indebtedness.......................... 14
5.03 Maintenance of Existence and Rights; Conduct of Business......... 14
5.04 Notice of Default................................................ 14
5.05 Other Notices.................................................... 14
5.06 Compliance with Loan Documents................................... 14
5.07 Compliance with Significant Debt Agreements...................... 14
5.08 Operations and Properties........................................ 14
5.09 Books and Records; Access........................................ 15
5.10 Compliance with Law.............................................. 15
5.11 Authorizations and Approvals..................................... 15
5.12 ERISA Compliance................................................. 15
5.13 Further Assurances............................................... 15
5.14 News Releases.................................................... 15
5.15 Insurance........................................................ 16
5.16 Change in Control................................................ 16
ARTICLE 6
NEGATIVE COVENANTS......................................................... 16
6.01 Amendments to Organizational Documents........................... 16
6.02 Margin Stock..................................................... 16
6.03 Fiscal Year...................................................... 17
6.04 Liens............................................................ 17
6.05 Dividends........................................................ 17
6.06 Insider Loans.................................................... 17
6.07 Stock Buy Backs.................................................. 17
6.08 Transfer Collateral.............................................. 17
6.09 Financial Covenants.............................................. 17
6.10 Fiscal 1995 Capital Expenditures................................. 18
6.11 Fiscal 1996 Capital Expenditures................................. 18
ARTICLE 7
CONDITIONS PRECEDENT....................................................... 18
7.01 Initial Advance.................................................. 18
7.01.01 This Agreement......................................... 18
7.01.02 The Note............................................... 18
7.01.03 Officer's Certificate.................................. 18
7.01.04 Organizational Documents............................... 18
7.01.05 Secretary's Certificate................................ 19
Exhhibit 10.5
Domestic -iii-
<PAGE>
7.01.06 Security Agreement .................................. 19
7.01.07 Filings.............................................. 19
7.01.08 Borrowing Base Certificate........................... 19
7.01.09 Insurance............................................ 19
7.01.10 Additional Information............................... 19
7.02 Inspection..................................................... 19
7.03 Subsequent Advances............................................ 19
7.04 No Event of Default............................................ 20
7.05 No Material Adverse Change..................................... 20
7.06 Representations and Warranties................................. 20
ARTICLE 8
REPRESENTATIONS AND WARRANTIES............................................. 20
8.01 Organization and Good Standing................................. 20
8.02 Authorization and Power........................................ 20
8.03 No Conflicts or Consents....................................... 20
8.04 Enforceable Obligations........................................ 21
8.05 Financial Condition............................................ 21
8.06 Full Disclosure................................................ 21
8.07 No Default..................................................... 21
8.08 Significant Debt Agreements.................................... 21
8.09 No Litigation.................................................. 21
8.10 Taxes.......................................................... 21
8.11 ERISA.......................................................... 22
8.12 Compliance with Law............................................ 22
8.13 Survival of Representations, Etc .............................. 22
8.14 Recitals....................................................... 22
8.15 No Stock Purchase.............................................. 22
8.16 Solvent........................................................ 22
8.17 Advances....................................................... 22
8.18 Title to Collateral............................................ 23
8.19 Security Documents............................................. 23
ARTICLE 9
EVENTS OF DEFAULT.......................................................... 23
9.01 Events of Default.............................................. 23
9.02 Remedies Upon Event of Default................................. 25
9.03 Right of Set Off............................................... 26
9.04 Performance by Lender.......................................... 26
ARTICLE 10
MISCELLANEOUS.............................................................. 26
10.01 Modification................................................... 26
10.02 Waiver......................................................... 26
10.03 Payment of Expenses............................................ 26
10.04 Notices........................................................ 27
10.05 Governing Law.................................................. 27
10.06 Invalid Provisions............................................. 28
10.07 Binding Effect................................................. 28
10.08 Entirety....................................................... 28
Exhibit 10.5
Domestic -iv-
<PAGE>
10.09 Headings....................................................... 28
10.10 Survival....................................................... 28
10.11 No Third Party Beneficiary..................................... 28
10.12 Schedules and Exhibits Incorporated............................ 28
10.13 Counterparts................................................... 29
Exhibit 10.5
Domestic -v-
<PAGE>
REVOLVING LINE OF CREDIT
LOAN AGREEMENT
This REVOLVING LINE OF CREDIT LOAN AGREEMENT (this "Agreement"), dated
as of July 25, 1996, is entered into by and between DAW TECHNOLOGIES, INC., a
Utah corporation ("Borrower"), and US Bank of UTAH, a Utah banking
association ("Lender"). Borrower and Lender are referred to collectively
herein as the "Parties" and sometimes individually herein as a "Party."
RECITALS
A. Borrower has applied to Lender for a revolving line of credit
facility in the principal amount of Eight Million and No/100 Dollars
($8,000,000.00) for the purpose of providing working capital financing for
Borrower's business operations.
B. As a condition for extending such financial accommodations, Lender
has required that Borrower enter into this Agreement establishing the terms
and conditions thereof.
AGREEMENT
THEREFORE, in consideration of the mutual covenants and conditions
herein contained, and for other good and valuable consideration, the
sufficiency and receipt of which are hereby acknowledged, the Parties hereby
agree as follows.
ARTICLE 1
DEFINITION OF TERMS
For purposes of this Agreement, unless otherwise defined herein, the
following terms have the meanings assigned to them below.
1.1 "ACCOUNTS PAYABLE" means, as of any date, accounts payable of
Borrower on a GAAP consolidated basis.
1.2 "ACCOUNTS RECEIVABLE" means, as of any date, accounts receivable of
Borrower on a GAAP consolidated basis.
1.3 "ADVANCE" means an advance and loan of funds to Borrower by Lender
under and subject to the terms of this Agreement and all related documents
contemplated herein. An Advance is made hereunder when cash is loaned
directly to Borrower as provided herein. An Advance is also made hereunder
whenever there is a drawing by the beneficiary thereof of a Letter of Credit
that is issued by Lender as provided herein. (The face amount of issued but
undrawn Letters of Credit reduces Borrower's Borrowing Base, as provided in
ABorrowing Base," below, but the amount of a Letter of Credit does not become
an Advance until the Letter of Credit is actually drawn.)
1.4 "AUTHORIZED OFFICER" means one or more officers of Borrower who are
duly authorized (and who are so certified to Lender by the corporate
secretary of Borrower pursuant to a certificate of authority and incumbency
obtained by Lender from time to time) to request Advances under
Domestic
- 1 -
Exhibit 10.5
<PAGE>
the provisions of this Agreement and execute and deliver documents,
instruments, agreements, reports, statements and certificates in connection
herewith.
1.5 "BORROWER": See the Preamble hereto.
1.6 "BORROWING BASE" means, on any particular date, the amount that is
equal to: (a) seventy-five percent (75%) of the net total of the following
amounts, added and subtracted as follows using financial information as of
the date of calculation of Borrowing Base: the amount of Borrower's Accounts
Receivable from customers that are physically located within the United
States, less the amount of such Accounts Receivable that are more than 90
days past due, less Concentrations, less the amount of Borrower's Accounts
Receivable that are from government customers, less any Retention, less the
amount of contra accounts to Borrower's Accounts Receivable, plus (b) fifty
percent (50%) of the net total of the following amounts, added and subtracted
as follows: Retentions, plus Net Domestic Underbillings less Domestic
Overbillings (provided that fifty percent of such net amount shall in no
event exceed $2,000,000); less (c) the amount of all outstanding Letters of
Credit of Borrower issued under the terms of this Agreement; less (e) any
required margins for Foreign Currency Contracts.
1.7 "BORROWING BASE CERTIFICATE" means a certificate of an Authorized
Officer setting forth a detailed reconciliation of the outstanding balance of
the Loan against the definitional components of the Borrowing Base, in
substantially the form attached hereto as Exhibit A. The form of Borrowing
Base Certificate used by Borrower under this Agreement may be modified from
time to time by Lender in its reasonable discretion.
1.8 "BUSINESS DAY" means a day of the year on which banks are not
required or authorized to close in Salt Lake City, Utah.
1.9 "CHANGE IN CONTROL" means the occurrence or existence of either of
the following events or conditions without the prior written consent of
Lender, if different than the state of affairs as of the Closing Date:
1.9.1 the Acquisition by any Person or two or more Persons "Acting
in concert of "beneficial ownership" (within the meaning of Rule 13d-3
promulgated by the SEC under the Exchange Act or as otherwise specified under
the provisions of this Agreement) of securities of Borrower having more than
50% of the ordinary voting power for the election of directors; or
1.9.2 the Acquisition by any Person or two or more Persons acting
in concert of Control of Borrower.
1.10 "CLOSING DATE" means the date of execution and delivery of this
Agreement by the Parties.
1.11 "CODE" means the Internal Revenue Code of 1986, as amended.
1.12 "COLLATERAL" means all property of Borrower subject to the Security
Documents.
1.13 "COMMITMENT" means the sum of EIGHT MILLION AND NO/100 DOLLARS
($8,000,000.00).
1.14 "CONCENTRATIONS" means, unless otherwise agreed by Lender in
Lender's sole
Domestic
- 2 -
Exhibit 10.5
<PAGE>
discretion, that portion of accounts Receivable that are either (a)
attributable to a single customer of Borrower and which comprise twenty-five
percent (25%) or more of Borrower's total accounts Receivable, or (b) that
are accounts Receivable from a customer of Borrower whose total accounts
Receivable owed Borrower are more than twenty percent (20%) attributable to
accounts Receivable that are more than 90 days past due, or (c) both of the
above. (For example, if Borrower's total accounts Receivable were $100, and
if $30 of Borrower's total accounts Receivable were from customer A, the $30
owed Borrower by customer A would be a Concentration because $30 is more than
25% of $100. Continuing the example, if, of the remaining $70 of Borrower's
accounts Receivable, $10 were attributable to customer B, and if $3 of
customer B's total $10 accounts Receivable owed to Borrower were more than 90
days past due, then all of customer B's $10 accounts Receivable would be a
Concentration because more than 20% of customer B's total accounts Receivable
owed to Borrower would be more than 90 days past due, leaving Borrower with
accounts Receivable net of Concentrations of $60.)
1.15 "CONTROL" when used with respect to any Person means the power,
directly or indirectly, to direct the management policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "Controlling" and "Controlled" have meanings correlative to the
foregoing.
1.16 "CONTROLLED GROUP" means, severally and collectively, the members
of the group controlling, controlled by and/or in common control of Borrower,
within the meaning of Section 4001(b) of ERISA.
1.17 "CURRENT ASSETS" means all assets of Borrower classified as current
assets under GAAP, determined on a consolidated basis.
1.18 "CURRENT LIABILITIES" means all liabilities of Borrower classified
as current liabilities under GAAP, determined on a consolidated basis for the
purpose of this definition, any amount which is outstanding under the Loan
regardless of whether it would be characterized as a current liability in
accordance with GAAP.
1.19 "CURRENT RATIO" means as of any date the ratio of Current Assets as
of such date to Current Liabilities as of such date.
1.20 "DEBT/TANGIBLE NET WORTH RATIO" means the amount of Borrower's
current plus long term debt divided by Borrower's Tangible Net Worth, based
on amounts shown on Borrower's balance sheet.
1.21 "DEFAULT RATE" means an interest rate per annum equal to four
percent (4%) above the rate that would otherwise be payable under the terms
of the respective Notes.
1.22 "DOLLARS" and the sign A$" mean lawful currency of the United
States of America.
1.23 "DSC" means Borrower's debt service coverage ratio. DSC will be
measured on and as of the last day of Borrower's fiscal year end, December
31, 1996. On such dates, DSC will be calculated based on financial statement
information for Borrower from the fiscal year ending. DSC for such fiscal
year ending will be calculated as a fr"Ction, the numerator of which is
Borrower's net income after taxes for the fiscal year ending,
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Exhibit 10.5
<PAGE>
plus Borrower's depreciation expense for the fiscal year ending, plus
Borrower's interest expense for the fiscal year ending, minus Borrower's
dividends for the fiscal year ending, and the denominator of which is
Borrower's current maturity of long term debt as stated on Borrower's
financial statements for the fisical year ending, plus Borrower's interest
expense for the fiscal year ending.
1.24 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, together with all final and permanent regulations issued pursuant
thereto. References herein to sections and subsections of ERISA are deemed to
refer to any successor or substitute provisions therefor.
1.25 "ESOP" means any Employee Stock Ownership Plan, as it may be
amended from time to time, adopted by Borrower.
1.26 "EVENT OF DEFAULT": See Article 9.
1.27 "EXCHANGE ACT" means the Securities Exchange Act of 1934.
1.28 "FINANCIAL COVENANTS": See Section 6.09 hereof.
1.29 "FOREIGN CURRENCY CONTRACTS" means contracts entered into by and
between Lender and Borrower for the purpose of protecting Borrower against
losses from unfavorable changes in foreign currency rates of exchange with
currency of the United States. Such contracts require that Borrower reserve
cash to cover Borrower's possible liabilities under such contracts; the total
amount of such cash reserves is referred to herein as the "margin for Foreign
Currency Contracts."
1.30 "GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the American Institute of Certified
Public accountants acting through its accounting Principles Board or by the
Financial accounting Standards Board or through other appropriate boards or
committees thereof and which are consistently applied for all periods after
the date hereof so as to properly reflect the financial condition, and the
results of operations and changes in the financial position, of Borrower,
including without limitation accounting rules promulgated pursuant to
Regulations SX and SK, except that any accounting principle or practice
required to be changed by the said accounting Principles Board or Financial
accounting Standards Board (or other appropriate board or committee of the
said Boards) in order to continue as a generally accepted accounting
principle or practice may be so changed.
1.31 "GOVERNMENTAL AUTHORITY" means any government (or any political
subdivision or jurisdiction thereof), court, bureau, agency or other
governmental authority having jurisdiction over Borrower or any of its
business, operations or properties.
1.32 "INDEBTEDNESS" means, with respect to any Person, all of its
monetary obligations and liabilities.
1.33 "LENDER": See the Preamble hereto.
1.34 "LETTERS OF CREDIT" mean a letters of credit issued by Lender for
the benefit of Borrower's customers under the terms of this Agreement.
1.35 "LIEN" means any lien, mortgage, security interest, tax lien,
pledge, encumbrance, conditional sale or title retention arrangement, or any
other interest in property designed to
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Exhibit 10.5
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secure the repayment of Indebtedness whether arising by agreement or under
any statute or law, or otherwise.
1.36 "LOAN" means the Loan as defined in Section 2.01 below.
1.37 "LOAN DOCUMENTS" means this Agreement, the Note (including any
renewals, extensions and refundings thereof), the Security Agreement, and any
and all other written agreements, certificates or documents (and with respect
to this Agreement and such other written agreements and documents, any
amendments or supplements thereto or modifications thereof) that are executed
or delivered or contemplated in or pursuant to the terms of this Agreement.
1.38 "LOAN FEES": See Sections 3.01 and 3.02 hereof.
1.39 "MATERIAL ADVERSE EFFECT" means any circumstance or event which
(i) has any material adverse effect upon the validity or enforceability of
any Loan Document, (ii) materially impairs the ability of Borrower to fulfill
its obligations under the Loan Documents, or (iii) causes an Event of Default.
1.40 "MATURITY DATE" means June 30, 1997.
1.41 "NET DOMESTIC UNDERBILLINGS LESS DOMESTIC OVERBILLINGS" means the
net amount of Borrower's underbillings and overbillings to customers located
within the United States, as reported by Borrower in its job in process or
work in processing accounting, prepared in accordance with GAAP.
1.42 "NET INCOME" means for any period the net income of Borrower for
such period in "Ccordance with GAAP, determined on a consolidated basis.
1.43 "NOTE" means the Revolving Promissory Note of even date herewith in
the amount of the Loan, executed by Borrower and delivered pursuant to the
terms of this Agreement, together with any renewals, extensions,
modifications or repl"Cements thereof.
1.44 "PBGC" means the Pension Benefit Guaranty Corporation, and any
successor to all or substantially all of the Pension Benefit Guaranty
Corporation's functions under ERISA.
1.45 "PERMITTED LIENS" means those Liens to which the Collateral is
subject that are prior to the Liens of the Security Documents, and which
consist of the following:
1.45.1 Liens for taxes, assessments or governmental charges not
yet due and payable; and
1.45.2 Liens to which Lender shall consent in writing, in its sole
and absolute discretion.
1.46 "PERSON" includes an individual, a corporation, a joint venture, a
partnership, a trust, a limited liability company, an unincorporated
organization or a government or any agency or political subdivision thereof.
1.47 "PLAN" means an employee defined benefit plan or other plan
maintained by
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Exhibit 10.5
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Borrower for employees of Borrower and covered by Title IV of ERISA, or
subject to the minimum funding standards under Section 412 of the Code.
1.48 "REGULATION U" means Regulation U promulgated by the Board of
Governors of the Federal Reserve System, 12 C.F.R. Part 221, or any other
regulation hereafter promulgated by said Board to replace the prior
Regulation U and having substantially the same function.
1.49 "REGULATORY CHANGE" means any change effective after the date of
this Note in United States federal, state, or foreign law, regulations, or
rules or the adoption or making after such date of any interpretation,
directive, or request applying to a class of banks including Lender, of or
under any United States federal, state, or foreign law, regulation or rule
(whether or not having the force of law) by any court or governmental or
monetary authority charged with the interpretation or administration thereof.
1.50 "REPORTABLE EVENT" means any "reportable event" as described in
Section 4043(b) of ERISA with respect to which the thirty (30) day notice
requirement has not been waived by the PBGC.
1.51 "RETENTION" means amounts otherwise payable to Borrower for work
performed or equipment provided or delivered, when such amounts are withheld
by Borrower's customers as security or pursuant to contractual provisions
until particular projects or jobs are complete. "Retainage" is a synonym for
Retention under this Agreement.
1.52 "SEC" means the Securities and Exchange Commission.
1.53 "SECURITY AGREEMENT": See Section 4.01 hereof; together with any
"additional security agreement delivered to Lender to secure amounts owed as
a result of issuance by Lender of a Letter of Credit, together with any other
security agreement signed by Borrower to secure amounts owed Lender under
this Agreement.
1.54 "SECURITY DOCUMENTS": See Section 4.03 hereof.
1.55 "SIGNIFICANT DEBT AGREEMENT" means all documents, instruments and
agreements executed by Borrower, evidencing, securing or ensuring any
Indebtedness of Borrower or any guaranty in excess of $100,000 in outstanding
principal (or principal equivalent) amount.
1.56 "SUBSIDIARIES" means all business associations directly or
indirectly controlled by Borrower.
1.57 "TANGIBLE NET WORTH" means Borrower's tangible net worth,
determined based on Borrower's balance sheet prepared on a consolidated basis
in accordance with GAAP. Tangible Net Worth equal Borrower's total assets
less total liabilities and less general intangible assets such as, without
limitation, goodwill, patent rights, etc.
1.58 "WOBRR" means Lender's West One Bank, Utah Reference Rate, an
internally prepared and defined index which may or may not be the same as
that quoted by other financial institutions. WOBRR also refers to any
repl"Cement index or interest rate that is used by any successor in interest
to Lender.
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Exhibit 10.5
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1.59 "WORKING CAPITAL" means the excess of Current Assets over Current
Liabilities.
ARTICLE 2
THE LOAN
2.1 LOAN COMMITMENT. Lender agrees to make Advances to Borrower, and
Borrower agrees to accept Advances from Lender, in the manner and upon the
terms and conditions contained in this Agreement. The total amount of
Advances made to Borrower under this Agreement at any particular time shall
not exceed the lesser of the Commitment or the Borrowing Base. The aggregate
of all Advances made to Borrower by Lender as contemplated in this Agreement
is referred to herein as the "Loan."
2.2 REVOLVING LINE OF CREDIT. Subject to the terms and conditions set
forth in this Agreement, the Loan shall be a revolving line of credit,
against which Advances may be made to Borrower, repaid by Borrower, and new
Advances made to Borrower, as Borrower may request, provided that (i) no
Advance shall be made if an Event of Default shall be continuing, (ii) no
Advance shall be made that would cause the outstanding principal balance of
the Loan to exceed the lesser of the Commitment or the Borrowing Base, (iii)
no Advance shall be made on or after the Maturity Date, and (iv) all other
provisions of this Agreement shall apply to Borrower's activities and
borrowings hereunder.
2.3 NOTE. The Loan shall be evidenced by the Note, and shall bear
interest and be payable to Lender upon the terms and conditions contained
therein, which include the following provisions. (In the event of any
conflict between any provision of this Agreement and the Note, the provisions
of this Agreement shall govern.)
2.3.1 Simple interest shall accrue on all Loan amounts that are
unpaid, at the Prime, calculated monthly in arrears.
2.3.2 All accrued interest shall be due and payable on all Loan
amounts monthly, with the first payment due on August 5, 1996, and with
subsequent monthly payments due on the 5th day of each month thereafter. All
outstanding Loan principal shall be due and payable on the Maturity Date.
2.3.3 The entire unpaid principal balance, all accrued and unpaid
interest, and all late charges and other amounts that are payable under the
Note shall be due and payable in full on the Maturity Date.
2.3.4 Each Advance made hereunder shall not exceed the maximum
available under Borrower's most recent Borrowing Base Certificate provided to
Lender.
2.3.5 Notwithstanding any provision of the Loan Documents, if
Lender shall notify Borrower that as a result of a Regulatory Change it is
unlawful for Lender to make, fund or maintain Advances at Prime, the
obligations of Lender to make additional Advances at Prime, shall be
suspended until Lender shall notify Borrower that the circumstances causing
such suspension no longer exist. All other obligations of Borrower hereunder
shall continue, however, to the fullest extent allowed by applicable law.
2.3.6 If any payment required under the Note is not paid within
ten (10) days after the date such payment is due, then, at the option of
Lender, Borrower shall pay a "late charge"
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Exhibit 10.5
<PAGE>
equal to four percent (4%) of the amount of that payment to compensate Lender
for administrative expenses and other costs of delinquent payments. This late
charge may be assessed without notice, shall be immediately due and payable
and shall be in addition to all other rights and remedies available to Lender.
2.3.7 After maturity, including maturity upon acceleration, the
unpaid principal balance, all accrued and unpaid interest and all other
amounts payable under the Note shall bear interest at the Default Rate.
2.4 LETTERS OF CREDIT. Letters of Credit issued by Lender as provided
in this Agreement will have a maturity date of not more than twelve months
beyond the Maturity Date. Amounts drawn under each Letter of Credit will be
treated as Advances under this Agreement and the Note. In addition to and
without limiting the foregoing, if Lender so elects, amounts drawn under any
Letter of Credit may be reimbursable to the Lender as provided in a separate
promissory note in form substantially similar to the Note, and amounts owed
Lender as a result of drawings under such Letters of Credit may be secured by
a security interest in favor of Lender in a specific Account Receivable of
Borrower. Such security interest may, if Lender so elects, be created under a
security agreement that is separate from the Security Agreement or, if Lender
so elects, such security interest may be the security interest created by the
Security Agreement. In the absence of any written agreement of Lender and
Borrower to the contrary, such security interest shall be the security
interest created by the Security Agreement.
2.5 EXCESS BALANCE REPAYMENT. There shall be due and payable from
Borrower to Lender, and Borrower shall immediately repay to Lender, without
notice or demand, from time to time, any amount by which the outstanding
principal balance of the Loan exceeds the lesser of the Commitment or the
Borrowing Base.
2.6 PREPAYMENTS. Borrower may prepay the outstanding principal balance
of the Loan in whole or in part at any time prior to the Maturity Date,
without penalty or premium and without prior notice to Lender, provided that
such prepayment also includes accrued interest to the date of such prepayment
on the principal amount prepaid.
2.7 METHOD OF PAYMENT. All payments of principal of, and interest
payable under, the Note shall be made to Lender at 107 South Main Street,
Salt Lake City, Utah 84111, before 2:00 p.m. (Salt Lake City, Utah time) in
immediately available funds. All payments made on the Note shall be applied,
to the extent of the amount thereof, in the following order: (i) first, to
the payment of costs, fees or other charges incurred in connection with the
Loan; (ii) second, to the payment of accrued interest on the Loan; and (iii)
third, to the reduction of the principal balance of the Loan.
2.8 CONDITIONS. Lender shall have no obligation to make any Advance
unless and until all of the conditions and requirements of this Agreement are
fully satisfied. However, Lender in its sole discretion may elect to make one
or more Advances prior to full satisfaction of one or more such conditions
and/or requirements. Notwithstanding that such an Advance or Advances are
made, such unsatisfied conditions and/or requirements shall not be waived or
released thereby. Borrower shall be and continue to be obligated to fully
satisfy such conditions and requirements, and Lender, at any time, in
Lender's sole discretion, may stop making Advances until all conditions and
requirements are fully satisfied.
2.9 OTHER ADVANCES BY LENDER. Lender, after giving ten (10) days
written notice to
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Exhibit 10.5
<PAGE>
Borrower, from time to time, may make Advances in any amount in payment of
(i) interest accrued and payable upon the Loan, (ii) any charges and expenses
that are the obligation of Borrower under this Agreement or any Security
Document, and (iii) any charges or matters necessary to preserve the property
encumbered by the Security Documents or to cure any Event of Default.
2.10 ASSIGNMENT. Borrower shall have no right to any Advance other than
to have the same disbursed by Lender in accordance with the disbursement
provisions contained in this Agreement. Any assignment or transfer by
Borrower, whether voluntary or involuntary, of this Agreement or of any right
of Borrower under this Agreement shall not be binding upon or in any way
affect Lender without Lender's prior written consent; Lender may make
Advances under the disbursement provisions herein, notwithstanding any such
purported assignment or transfer that is or may be made without Lender's
prior written consent.
ARTICLE 3
FEES
3.1 NON-USAGE FEE. Borrower shall pay to Lender a non-usage fee in the
amount of 0.25 percent (0.25%) of the amount of the Commitment that is not
used by Borrower hereunder. The non-usage fee shall be paid quarterly in
arrears, and shall be calculated as 0.25% of the amount of unused Commitment
on the date that is the last day of each calendar quarter during the term of
this Agreement. Any non-usage fees owed under this Agreement shall be due and
payable within ten Business Days after the date that Borrower receives an
invoice therefor from Lender. The first non-usage fee under this Agreement
will be calculated on and as of September 30, 1996, and on the last day of
every calendar quarter thereafter during the term of this Agreement.
3.2 LETTER OF CREDIT FEES. Borrower shall also pay to Lender, in
addition to the non-usage fee described in the preceding Section, a letter of
credit fee in the amount of 1.5 percent (1.5%) per annum of the total face
amount of Letters of Credit that are issued and outstanding under this
Agreement. The letter of credit fees described in the preceding sentence
shall be paid at time of letter of credit issuance.
ARTICLE 4
SECURITY
4.1 SECURITY. So long as any Loan amount, principal, interest or any
other amount owed Lender under this Agreement remains unpaid, and until the
Note is paid in full, Borrower shall cause the Loans and all of Borrower's
obligations under this Agreement to be secured at all times by a valid and
effective security agreement (the "Security Agreement"), duly executed and
delivered by or on behalf of Borrower, granting Lender a valid and
enforceable security interest in all of the kinds and categories of personal
property described in the Security Agreement, including without limitation
Borrower's Accounts Receivable and inventory, wherever located, in, to, or
under which Borrower now has or hereafter acquires any right, title, or
interest, whether present, future, or contingent, and in Borrower's
expectancy to acquire such property, subject to no prior Liens except for
Permitted Liens.
4.2 FINANCING STATEMENTS. Borrower shall execute and deliver to Lender
for filing UCC-1 statements that will allow Lender to perfect its security
interest as provided in the Security Agreement.
4.3 SECURITY DOCUMENTS. All of the documents required by this Article 4
shall be in
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Exhibit 10.5
<PAGE>
form satisfactory to Lender and Lender's counsel, and, together with any UCC
financing statements for filing and/or recording, and any other items
required by Lender to fully perfect and effectuate the liens and security
interests of Lender contemplated by the Security Agreement and this
Agreement, may heretofore or hereinafter be referred to as the ASecurity
Documents."
4.4 ASSIGNMENT OF PARTICULAR CONTRACTS. From time to time Lender may
wish to obtain a security interest in amounts that Borrower expects to
receive from completion of a particular contract for a customer, and/or in
benefits that Borrower expects to receive from performing Borrower's
obligations under such a contract, even before Borrower has completed work
under the contract sufficiently for such amounts or benefits to be considered
an Account Receivable of Borrower. In such event Lender shall be entitled to
inform Borrower of Lender's wish to receive a security interest in such
amounts, and Borrower shall immediately furnish Lender and Lender's counsel
with copies of all documents pertaining to such amounts and a report of work
currently completed and an estimate, to the best of Borrower's knowledge, of
the amount of Account Receivable that Borrower should record attributable to
the particular contract and the date when Borrower expects to be able to
record such amount as an Account Receivable of Borrower in Borrower's
financial statements. Lender shall then be entitled to prepare for Borrower's
execution and delivery any and all documents, agreements, financings
statements and other documents as Lender determines in its sole discretion
are necessary or proper to permit Lender to acquire a first priority security
interest in amounts that will be payable to Borrower under the particular
contract, and to perfect such security interest. When requested to do so by
Lender, Borrower shall provide Lender with information about all contracts to
which Borrower is a party that might be of interest to Lender for the
purposes described in this Section.
ARTICLE 5
AFFIRMATIVE COVENANTS
Until the Note is paid in full, Borrower agrees that:
5.1 FINANCIAL STATEMENTS, REPORTS AND DOCUMENTS. Borrower shall
deliver, or cause to be delivered, to Lender each of the following:
5.1.1 CONSOLIDATED MONTHLY STATEMENTS OF BORROWER. As soon as
available, and in any event within thirty (30) days after the end of each
month, copies prepared by Borrower of the consolidated balance sheet of
Borrower as of the end of such month and consolidated statements of income of
Borrower for that month and for the portion of the fiscal year ending with
such month, in each case setting forth in comparative form the figures for
the corresponding period of the preceding fiscal year, all in reasonable
detail and fairly stated and prepared in accordance with GAAP, subject to
normal year end adjustments. Each set of financial statements supplied Lender
under this Section shall include a schedule of Borrower's "jobs in process."
5.1.2 CONSOLIDATED QUARTERLY STATEMENTS OF BORROWER. As soon as
available, and in any event within forty-five (45) days after the end of each
fiscal quarter, copies prepared by Borrower of Borrower's SEC form 10-Q with
notes and supporting schedules.
5.1.3 CONSOLIDATED ANNUAL STATEMENTS OF BORROWER. As soon as
available and in any event within ninety (90) days after the close of each
fiscal year of Borrower, consolidated financial statements of Borrower,
audited and prepared by independent certified public accountants of
recognized national standing and reputation, including Borrower's
consolidated balance sheet as of the close of such fiscal year and
consolidated statements of income of Borrower for such fiscal year, in each
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Exhibit 10.5
<PAGE>
case setting forth in comparative form the figures for the preceding fiscal
year, all in reasonable detail and accompanied by an unqualified opinion
thereon of independent public accountants of recognized national standing
selected by Borrower and acceptable to Lender, to the effect that such
financial statements have been prepared in accordance with GAAP and that the
examination of such accounts in connection with such financial statements has
been made in accordance with generally accepted auditing standards and,
accordingly, includes such tests of the accounting records and such other
auditing procedures as were considered necessary in the circumstances,
together with copies of Borrower's SEC form 10-K with notes and supporting
schedules.
5.1.4 QUARTERLY CERTIFICATE RESPECTING FINANCIAL COVENANTS. As
soon as available but in any event within thirty (30) days after the end of
each calendar quarter during the term of this Agreement, a certificate signed
by the chief financial officer of Borrower, or any other financial officer of
Borrower acceptable to Lender, setting forth in such level of detail as
Lender shall reasonably require a calculation of the Financial Covenants as
of the end of that calendar quarter and certifying as to Borrower's
compliance therewith. The first such certificate shall be delivered to Lender
by Borrower on or before April 30, 1996.
5.1.5 BORROWING BASE CERTIFICATE. Within fifteen (15) days after
the end of each month, the Borrowing Base Certificate for that month,
together with appropriate schedules of Accounts Receivable aging and other
supporting schedules and information.
5.1.6 COMPLIANCE CERTIFICATE OF BORROWER. Within fifteen (15) days
after the end of each month (except the last) and within ninety (90) days
after the end of each fiscal year of Borrower hereafter, a certificate in
substantially the form attached as Exhibit B, signed by an Authorized Officer
of Borrower, stating that a review of the activities of Borrower during such
month or year has been made under his supervision, that, as of such date,
Borrower has observed, performed and fulfilled each and every obligation and
covenant contained in this Agreement and no Event of Default exists under any
of the same or, if any Event of Default shall have occurred, specifying the
nature and status thereof, and stating that all financial statements of
Borrower delivered to Lender during the respective period pursuant to Section
5.01.01 and 5.01.03 hereof, to such officer's knowledge after due inquiry,
fairly present in all material respects the financial position of the
Borrower and the results of its operations at the dates and for the periods
indicated, and have been prepared in accordance with GAAP, subject to year
end audit and adjustments.
5.1.7 MANAGEMENT LETTERS. With the audited fiscal year-end
statements submitted under Section 5.01.03 above, the management letter, if
any, of Borrower's certified public accountants issued in connection with
such audit.
5.1.8 OTHER INFORMATION. Such other information concerning the
business, properties or financial condition of Borrower as Lender shall
reasonably request.
5.2 PAYMENT OF TAXES AND OTHER INDEBTEDNESS. Borrower will pay and
discharge (i) all income taxes and payroll taxes, (ii) all taxes,
assessments, fees and other governmental charges imposed upon it or upon its
income or profits, or upon any property belonging to it, before delinquent,
which become due and payable, (iii) all lawful claims (including claims for
labor, materials and supplies), which, if unpaid, might become a Lien upon
any of its property and (iv) all of its Indebtedness as it becomes due and
payable, except as prohibited hereunder; provided, however, that it shall not
be required to pay any such tax, assessment, charge, levy, claims or
Indebtedness if and so long as the amount, applicability or validity thereof
shall currently be contested in good faith by appropriate actions
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Exhibit 10.5
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and appropriate accruals and reserves therefor have been established in
accordance with GAAP.
5.3 MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS. Borrower
will preserve and maintain its corporate existence and all of its rights,
privileges and franchises necessary or desirable in the normal conduct of its
business, and conduct its business in an orderly and efficient manner
consistent with good business practices.
5.4 NOTICE OF DEFAULT. Borrower will furnish to Lender immediately upon
becoming actually aware of the existence of any event or condition that
constitutes an Event of Default, a written notice specifying the nature and
period of existence thereof and the action which Borrower is taking or
proposes to take with respect thereto.
5.5 OTHER NOTICES. Borrower will promptly notify Lender of (a) any
Material Adverse Effect, (b) any waiver, release or default under any
Significant Debt Agreement, (c) except as to any claim in an amount less than
$50,000, not covered as a result of an insurance deductible provision, any
claim not covered by insurance against Borrower or any of Borrower's
properties, and (d) the commencement of, and any material determination in,
any litigation with any third party or any proceeding before any Governmental
Authority affecting it, except litigation or proceedings which, if adversely
determined, would not have a Material Adverse Effect.
5.6 COMPLIANCE WITH LOAN DOCUMENTS. Borrower will comply with any and
all covenants and provisions of this Agreement, the Note and all other Loan
Documents.
5.7 COMPLIANCE WITH SIGNIFICANT DEBT AGREEMENTS. Borrower will comply
in all material respects with all Significant Debt Agreements.
5.8 OPERATIONS AND PROPERTIES. Borrower will keep in good working order
and condition, ordinary wear and tear excepted, all of its assets and
properties which are necessary to the conduct of its business.
5.9 BOOKS AND RECORDS; ACCESS. Borrower will give any authorized
representative of Lender access during normal business hours to, and permit
such representative to examine, copy or make excerpts from, any and all
books, records and documents in its possession of and relating to the Loan,
and to inspect any of its properties. Borrower will maintain complete and
accurate books and records of its transactions in accordance with good
accounting practices. Examinations of Borrower's books, records and documents
as provided in this Section shall be at Lender's expense so long as no Event
of Default has occurred hereunder, and shall be at Borrower's expense if and
for as long as any Event of Default has occurred and is continuing hereunder.
The provisions of this Section shall not limit the provisions of Section 7.02
of this Agreement, which provide that quarterly inspections of Borrower's
business operations shall always be at Borrower's expense.
5.10 COMPLIANCE WITH LAW. Borrower will comply with all applicable laws,
rules, regulations, and all final, nonappealable orders of any Governmental
Authority applicable to it or any of its property, business operations or
transactions, a breach of which could result in a Material Adverse Effect.
5.11 AUTHORIZATIONS AND APPROVALS. Borrower will promptly obtain, from
time to time at its own expense, all such governmental licenses,
authorizations, consents, permits and approvals as may be required to enable
it to comply with its obligations hereunder and under the other Loan
Domestic
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Exhibit 10.5
<PAGE>
Documents and to operate its businesses as presently or hereafter duly
conducted.
5.12 ERISA COMPLIANCE. With respect to its Plans, Borrower shall (a) at
all times comply with the minimum funding standards set forth in Section 302
of ERISA and Section 412 of the Code or shall have duly obtained a formal
waiver of such compliance from the proper authority; (b) at Lender's request,
within thirty (30) days after the filing thereof, furnish to Lender copies of
each annual report/return (Form 5500 Series), as well as all schedules and
attachments required to be filed with the Department of Labor and/or the
Internal Revenue Service pursuant to ERISA, in connection with each of its
Plans for each year of the plan; (c) notify Lender within a reasonable time
of any fact, including, but not limited to, any Reportable Event arising in
connection with any of its Plans, which constitutes grounds for termination
thereof by the PBGC or for the appointment by the appropriate United States
District Court of a trustee to administer such Plan, together with a
statement, if requested by Lender, as to the reason therefor and the action,
if any, proposed to be taken with respect thereto; and (d) furnish to Lender
within a reasonable time, upon Lender's request, such additional information
concerning any of its Plans as may be reasonably requested.
5.13 FURTHER ASSURANCES. Borrower will make, execute or endorse, and
acknowledge and deliver or file or cause the same to be done, all such
notices, certifications and additional agreements, undertakings or other
assurances, and take any and all such other action, as Lender may, from time
to time, deem reasonably necessary or proper to fully evidence the Loan.
5.14 NEWS RELEASES. Borrower shall promptly forward to Lender copies of
all news releases made by it to the news media as to anything of material
significance with respect to its financial status.
5.15 INSURANCE. Borrower shall maintain in full force and effect at all
times all insurance coverages required under the terms of this Agreement
and/or the Security Documents to which it is a party. In addition, it shall
maintain in full force and effect at all times:
5.15.1 Policies of insurance evidencing personal liability and
property damage liability coverages in amounts not less than $2,000,000.00
(combined single limit for bodily injury and property damage), and an
umbrella excess liability coverage in an amount not less than $20,000,000.00
shall be in effect with respect to Borrower.
5.15.2 Policies of workers' compensation insurance in amounts and
with coverages as legally required.
5.15.3 Without limiting the foregoing, Borrower shall at all times
maintain insurance coverages in scope and amount not less than, and not less
extensive than, the scope and amount of insurance coverages customary in the
trades or businesses in which it is from time to time engaged. All of the
aforesaid insurance coverages shall be issued by insurers reasonably
acceptable to Lender. Copies of all policies of insurance evidencing such
coverages in effect from time to time shall be delivered to Lender prior to
the initial Advance under this Agreement and upon reasonable notice upon
issuance of new policies thereafter. From time to time, promptly upon
Lender's request, Borrower shall provide evidence satisfactory to Lender (i)
that required coverage in required amounts is in effect, and (ii) that Lender
is shown as an additional insured and loss payee with respect to all such
coverages, as Lender's interest may appear, by standard (non-attribution)
loss payable endorsement, additional insured endorsement, insurer's
certificate or other means acceptable to Lender in its reasonable discretion.
At Lender's option, Borrower shall deliver to Lender certified copies of all
such policies of insurance in
Domestic
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Exhibit 10.5
<PAGE>
effect from time to time, to be retained by Lender so long as Lender shall
have any commitment to lend hereunder and so long as any amounts remain
unpaid under the Note. All such insurance policies shall provide for at least
thirty (30) days prior written notice of the cancellation or modification
thereof to Lender.
5.16 CHANGE IN CONTROL. Should there be a Change in Control as to
Borrower, the Loans and all amounts owed under the Note shall be immediately
due and payable.
ARTICLE 6
NEGATIVE COVENANTS
Until the Note is paid in full, Borrower agrees that:
6.1 AMENDMENTS TO ORGANIZATIONAL DOCUMENTS. Borrower will not amend its
organizational documents if the result thereof could result in the occurrence
directly or indirectly of a Material Adverse Effect.
6.2 MARGIN STOCK. Borrower shall not use any proceeds of the Loans, or
any proceeds of any other or future financial accommodation from Lender for
the purpose, whether immediate, incidental or ultimate, of purchasing or
carrying any "margin stock", as that term is defined in Regulation U or to
reduce or retire any indebtedness undertaken for such purposes within the
meaning of said Regulation U, and will not use such proceeds in a manner that
would involve Borrower in a violation of Regulation U or of any other
Regulation of the Board of Governors of its Federal Reserve System, nor use
such proceeds for any purpose not permitted by Section 7 of the Securities
Exchange Act of 1934, as amended, or any of the rules or regulations
respecting the extensions of credit promulgated thereunder.
6.3 FISCAL YEAR. Except with prior notice to Lender, Borrower will not
change the times of commencement or termination of its fiscal year or other
accounting periods; or change its methods of accounting other than to conform
to GAAP applied on a consistent basis. After any such changes, its method of
accounting shall conform to GAAP.
6.4 LIENS. On and after the date hereof, it will not create or suffer
to exist Liens upon the Collateral, except (i) Liens, if any, for the benefit
of Lender, and (ii) Permitted Liens.
6.5 DIVIDENDS. It will not declare or pay cash dividends.
6.6 INSIDER LOANS. Borrower will not make loans, receivables or
investments, on a consolidated basis, to officers of Borrower or any other
companies of said officers, except for normal advances for travel and
entertainment.
6.7 STOCK BUY BACKS. Unless pursuant to and as required by any
qualified employee stock purchase plan, Borrower will not buy back any of
Borrower's stock from any shareholder of Borrower.
6.8 TRANSFER COLLATERAL. It will not assign, transfer or convey any of
its right, title and interest in the Collateral encumbered by the Security
Documents except in the ordinary course of Borrower's business and for good
and full consideration.
6.9 FINANCIAL COVENANTS. Borrower will not permit:
Domestic
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Exhibit 10.5
<PAGE>
6.9.1 Its Current Ratio to be less than 1.30 at the end of any
fiscal quarter;
6.9.2 Its Debt/Tangible Net Worth Ratio to be more than 1.25 at
the end of any fiscal quarter;
6.9.3 Its Tangible Net Worth to be less than $19,000,000.00 at the
end of any fiscal quarter; and
6.9.4 Its DSC to be less than 1.5 at the end of any fiscal quarter.
6.10 FISCAL 1996 CAPITAL EXPENDITURES. Borrower shall not make
expenditures for capital investment in equipment or property for Borrower's
fiscal year 1996 in excess of $3,000,000.
ARTICLE 7
CONDITIONS PRECEDENT
The obligation of Lender to make the Loans and to make the initial
Advance hereunder is subject to the full and prior satisfaction of each of
the following conditions precedent and, as to each future Advance, to the
full prior satisfaction at each such time of each of the conditions precedent
in Sections 7.04 and 7.05 hereof:
7.1 INITIAL ADVANCE. Prior to its making the initial Advance, Lender
shall have received original copies of all of the following, each in form and
substance satisfactory to Lender:
7.1.1 THIS AGREEMENT. This Agreement, duly executed and delivered
to Lender by Borrower.
7.1.2 THE NOTE. The Note, duly executed, drawn to the order of
Lender and otherwise as provided herein.
7.1.3 OFFICER'S CERTIFICATE. A certificate signed by an Authorized
Officer of Borrower, stating that (to the best knowledge and belief of
Borrower, after reasonable inquiry and review of matters pertinent to the
subject matter of such certificate): (i) all of the representations and
warranties contained in this Agreement and in the other Loan Documents are,
in all material respects, true and correct as of the date hereof (other than
those of such representations which by their express terms speak to a date
prior to such date, which representations are, in all material respects, true
and correct as of such respective dates); (ii) no event has occurred and is
continuing, or would result from the advance of the proceeds of the Loans,
which would constitute an Event of Default, and (iii) no change or changes
having a Material Adverse Effect have occurred in the business or financial
condition of Borrower since the date of the last financial statements of
Borrower heretofore delivered to Lender.
7.1.4 ORGANIZATIONAL DOCUMENTS. A copy of the current Certificate
of Incorporation (or other charter documents, however named) of Borrower,
including all amendments thereto, certified as current and complete by the
appropriate authority of the state of said corporation's incorporation,
together with evidence of said corporation's good standing in said
corporation's state of incorporation and in every other state in which it is
doing business or the conduct of said corporation's business requires such
standing for the enforcement of material contracts.
Domestic
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Exhibit 10.5
<PAGE>
7.1.5 SECRETARY'S CERTIFICATE. A certificate of the corporate
secretary of Borrower, signed by the duly appointed secretary thereof and
issued as of the Closing Date, certifying that (i) attached thereto is a true
and complete copy of the corporate by-laws of said corporation in effect on
the date of passage of the corporate resolutions described immediately below
and at all subsequent times to and including the date of the certificate,
(ii) attached thereto is a true and complete copy of the resolutions adopted
by the Board of Directors of said corporation authorizing the Loans, the
execution, delivery, and performance of this Agreement, the Note, the Loan
Documents, and all advances of credit hereunder, and that such resolutions
have not been modified, rescinded, or amended and are in full force and
effect, (iii) no change has been made to said corporation's charter documents
other than as reflected in the certified copies submitted in connection with
the delivery of this Agreement or as approved in writing by Lender, and (iv)
set forth therein and appropriately identified are the names, current
official titles, and signatures of the officers of said corporation
authorized to sign this Agreement and other documents to be delivered
hereunder and/or to act as Authorized Officers hereunder.
7.1.6 SECURITY AGREEMENT. The Security Agreement, duly executed
and delivered to Lender by Borrower.
7.1.7 FILINGS. Completion of all filings necessary to perfect
Lender's Liens with respect to the Collateral.
7.1.8 BORROWING BASE CERTIFICATE. An initial Borrowing Base
Certificate, dated as of the Closing Date.
7.1.9 INSURANCE. Original copies of policies of insurance and
certificates of insurance in compliance with Section 5.15 hereof.
7.1.10 ADDITIONAL INFORMATION. Such other information and documents
as may reasonably be required by Lender or Lender's counsel.
7.2 INSPECTION. Also prior to its making the initial Advance, Lender
shall have satisfactorily completed a pre-loan credit quality inspection of
Borrower's business operations in Salt Lake City, Utah. After the first such
inspection, Lender shall be entitled to conduct, at Borrower's expense,
credit quality inspections of Borrower's business operations in Salt Lake
City, Utah on a quarterly basis. Satisfactory completion of each such future
inspection shall be a condition precedent to Lender's obligation to make any
Advance after the initial Advance hereunder.
7.3 SUBSEQUENT ADVANCES. Prior to its making any Advance after the
initial Advance, Lender shall have received from Borrower a Borrowing Base
Certificate that is less than thirty (30) days old and that shows, by proper
calculations, that Borrower is entitled to receive an additional Advance
under the terms of this Agreement. Borrower shall be entitled to submit a new
Borrowing Base Certificate justifying an additional Advance at any time.
7.4 NO EVENT OF DEFAULT. It shall be a condition precedent to Lender's
obligation to make any Advance under this Agreement that no Event of Default
known to Borrower shall have occurred and be continuing, or result from
Lender's making of the Advance.
7.5 NO MATERIAL ADVERSE CHANGE. It shall be a condition precedent to
Lender's obligation to make any Advance under this Agreement that since the
date of the most recent financial statements provided to Lender by Borrower,
no change shall have occurred in the business or financial
Domestic
- 16 -
Exhibit 10.5
<PAGE>
condition of Borrower that could have a Material Adverse Effect.
7.6 REPRESENTATIONS AND WARRANTIES. It shall be a condition precedent
to Lender's obligation to make any Advance under this Agreement that the
representations and warranties of Borrower contained in this Agreement shall
be true and correct in all material respects, with the same force and effect
as though made on the date of the requested Advance, (other than those of
such representations which by their express terms speak to a date prior to
that date, which representations shall, in all material respects, be true and
correct as of such respective date).
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
To induce Lender to make the Loans, Borrower represents and warrants to
Lender that:
8.1 ORGANIZATION AND GOOD STANDING. Borrower is duly organized in the
State of Utah, and is validly existing and in good standing under the laws of
the State of Utah. Borrower has the legal power and authority to own its
properties and assets and to transact the business in which Borrower is
engaged and is or will be qualified in those states or foreign countries
wherein the nature of Borrower's proposed business and property will make
such qualifications necessary or appropriate in the future.
8.2 AUTHORIZATION AND POWER. Borrower has the corporate power and
requisite authority to execute, deliver and perform this Agreement, the Note
and the other Loan Documents to be executed by Borrower; Borrower is duly
authorized to, and has taken all action, corporate or otherwise, necessary to
authorize Borrower to, execute, deliver and perform this Agreement, the Note
and all other Loan Documents to which Borrower is a party and Borrower is and
will continue to be duly authorized to perform its obligations under this
Agreement, the Note and such other Loan Documents.
8.3 NO CONFLICTS OR CONSENTS. Neither the execution and delivery of
this Agreement, the Note or the other Loan Documents to which Borrower is a
party, nor the consummation of any of the transactions herein or therein
contemplated, nor compliance with the terms and provisions hereof or with the
terms and provisions thereof, (a) will materially contravene or conflict
with: (i) any provision of law, statute or regulation to which Borrower is
subject, (ii) any judgment, license, order or permit applicable to Borrower,
(iii) any indenture, agreement, mortgage, deed of trust, or other agreement
or instrument to which Borrower is a party or by which it may be bound, or to
which Borrower may be subject, the violation of which would cause or result
in a Material Adverse Effect, or (b) will violate any provision of Borrower's
Certificate of Incorporation. No consent, approval, authorization or order of
any court or Governmental Authority or other Person is required in connection
with the execution and delivery by Borrower of the Loan Documents or to
consummate the transactions contemplated hereby or thereby, or if required,
such consent, approval, authorization or order shall have been obtained.
8.4 ENFORCEABLE OBLIGATIONS. This Agreement, the Note and the other
Loan Documents are the legal, valid and binding obligations of Borrower,
enforceable against Borrower in accordance with their respective terms,
except as limited by bankruptcy, insolvency or other laws or equitable
principles of general application relating to the enforcement of creditors=
rights.
8.5 FINANCIAL CONDITION. Borrower has delivered to Lender copies of the
Borrower's audited consolidated financial statements as of December 31, 1995,
and unaudited quarterly financial statements as of March 31, 1996. Such
financial statements, in all material respects, fairly present the
Domestic
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Exhibit 10.5
<PAGE>
financial position of Borrower as of such date and have been prepared in
accordance with GAAP subject, in the case of unaudited financial statements,
to normal year end adjustments. Since the date thereof, Borrower has not
discovered any obligations, liabilities or indebtedness (including contingent
and indirect liabilities and obligations or unusual forward or long-term
commitments) which in the aggregate are material and adverse to the financial
position or business of Borrower that should have been but were not reflected
in such financial statements. All changes having a Material Adverse Effect
that have occurred since January 1, 1995 have been disclosed to Lender in
writing by Borrower.
8.6 FULL DISCLOSURE. There is no material fact that Borrower has not
disclosed to Lender that would have a Material Adverse Effect. No certificate
or statement delivered herewith or heretofore by Borrower to Lender in
connection with negotiations of this Agreement, contains any untrue statement
of a material fact or omits to state any material fact necessary to keep the
statements contained herein or therein from being misleading.
8.7 NO DEFAULT. No event or condition has occurred and is continuing
that constitutes an Event of Default.
8.8 SIGNIFICANT DEBT AGREEMENTS. Borrower is not in default in any
material respect under any Significant Debt Agreement.
8.9 NO LITIGATION. There are no actions, suits or legal, equitable,
arbitration or administrative proceedings pending, or to Borrower's actual
knowledge overtly threatened, against Borrower that would, if adversely
determined, have a Material Adverse Effect.
8.10 TAXES. Borrower has filed or caused to be filed all returns and
reports which are required to be filed by any jurisdiction, and has paid or
made provision for the payment of all taxes, assessments, fees or other
governmental charges imposed upon Borrower's properties, income or
franchises, as to which the failure to file or pay would have a Material
Adverse Effect, except such assessments or taxes, if any, which are being
contested in good faith by appropriate proceedings.
8.11 ERISA. (a) No Reportable Event has occurred and is continuing with
respect to any Plan; (b) PBGC has not instituted proceedings to terminate any
Plan; (c) neither the Borrower, any member of the Controlled Group, nor any
duly-appointed administrator of a Plan (i) has incurred any liability to PBGC
with respect to any Plan other than for premiums not yet due or payable or
(ii) has instituted or intends to institute proceedings to terminate any Plan
under Section 4041 or 4041A of ERISA; and (d) each Plan of Borrower has been
maintained and funded in all material respects in accordance with the Plan's
terms and in all material respects in accordance with all provisions of ERISA
applicable thereto. Neither the Borrower nor any of its Subsidiaries
participates in, or is required to make contributions to, any Multi-employer
Plan (as that term is defined in Section 3(37) of ERISA).
8.12 COMPLIANCE WITH LAW. Borrower is in compliance with all laws,
rules, regulations, orders and decrees that are applicable to Borrower, or
its properties, noncompliance with which would have a Material Adverse Effect.
8.13 SURVIVAL OF REPRESENTATIONS, ETC. All representations and
warranties by Borrower herein shall survive the making of the Loans and the
execution and delivery of the Note; any investigation at any time made by or
on behalf of Lender shall not diminish Lender's right to rely on the
representations and warranties herein.
Domestic
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Exhibit 10.5
<PAGE>
8.14 RECITALS. The recitals and statements of intent appearing in this
Agreement are true and correct.
8.15 NO STOCK PURCHASE. No part of the proceeds of any financial
accommodation made by Lender in connection with this Agreement will be used
to purchase or carry Amargin stock," as that term is defined in Regulation U,
or to extend credit to others for the purpose of purchasing or carrying such
margin stock.
8.16 SOLVENT. Borrower (both before and after giving effect to the Loan
contemplated hereby) is solvent, has assets having a fair value in excess of
the amount required to pay its probable liabilities on Borrower's existing
debts as they become absolute and matured, and has, and will have, access to
adequate capital for the conduct of Borrower's business and the ability to
pay Borrower's debts from time to time incurred in connection therewith as
such debts mature.
8.17 ADVANCES. Each request for an Advance or for the extension of any
financial accommodation by Lender whatsoever shall constitute an affirmation
that the representations and warranties contained herein are, true and
correct as of the time of such request. All representations and warranties
made herein shall survive the execution of this Agreement, all advances of
proceeds of the Loans and the execution and delivery of all other documents
and instruments in connection with the Loans and/or this Agreement, so long
as Lender has any commitment to lend hereunder and until the Loans have been
paid in full and all of Borrower's obligations under this Agreement, the Note
and all Security Documents have been fully discharged.
8.18 TITLE TO COLLATERAL. Borrower has good and marketable title to the
Collateral, free of any Liens except for Permitted Liens, if any.
8.19 SECURITY DOCUMENTS. The liens, security interests and assignments
created by the Security Documents will, when granted, be valid, effective and
enforceable first priority liens, security interests and assignments, except
to the extent (if any) otherwise agreed in writing by Lender.
ARTICLE 9
EVENTS OF DEFAULT
9.1 EVENTS OF DEFAULT. An "Event of Default" shall exist if any one or
more of the following events (herein collectively called "Events of Default")
shall occur and be continuing:
9.1.1 Failure by Borrower to pay any principal of, or interest on,
the Note when the same shall become due or payable and such failure continues
for five (5) days after notice thereof to Borrower;
9.1.2 Any failure or neglect by Borrower to perform or observe any
of the covenants, conditions, provisions or agreements of Borrower contained
herein, or in any of the other Loan Documents (other than a failure or
neglect described in one or more provisions of this Section 9.01) and such
failure or neglect continues unremedied for a period of thirty (30) days
after notice thereof from Lender to Borrower;
9.1.3 Any material warranty, representation or statement contained
in this Agreement or any of the other Loan Documents, or which is contained
in any certificate or statement furnished or made to Lender pursuant hereto
or in connection herewith or with the Loans, shall be or
Domestic
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Exhibit 10.5
<PAGE>
shall prove to have been false when made or furnished;
9.1.4 The occurrence of any material Aevent of default" or
Adefault" by Borrower under any agreement, now or hereafter existing, to
which Lender and Borrower are a party;
9.1.5 Borrower shall (i) fail to pay any Indebtedness of Borrower
due under any Significant Debt Agreement, or any interest or premium thereon,
when due (whether by scheduled maturity, required prepayment, acceleration,
demand, or otherwise) or within any applicable grace period, (ii) fail to
perform or observe any term, covenant, or condition on its part to be
performed or observed under any agreement or instrument relating to such
Indebtedness, within any applicable grace period when required to be
performed or observed, if the effect of such failure to perform or observe is
to accelerate the maturity of such Indebtedness, or any such Indebtedness
shall be declared to be due and payable, or required to be prepaid (other
than by a regularly scheduled prepayment), prior to the stated maturity
thereof, or (iii) allow the occurrence of any materially adverse event of
default with respect to such Indebtedness;
9.1.6 Any one or more of the Loan Documents shall have been
determined to be invalid or unenforceable against Borrower executing the same
in accordance with the respective terms thereof, or shall in any way be
terminated or become or be declared ineffective or inoperative, so as to deny
Lender the substantial benefits contemplated by such Loan Document or Loan
Documents;
9.1.7 Borrower shall (i) apply for or consent to the appointment
of a receiver, trustee, custodian, intervenor or liquidator of itself or of
all or a substantial part of its assets, (ii) file a voluntary petition in
bankruptcy or admit in writing that it is unable to pay its debts as they
become due, (iii) make a general assignment for the benefit of creditors,
(iv) file a petition or answer seeking reorganization of an arrangement with
creditors or to take advantage of any bankruptcy or insolvency laws, (v) file
an answer admitting the material allegations of, or consent to, or default in
answering, a petition filed against it in any bankruptcy, reorganization or
insolvency proceeding, or (vi) take corporate action for the purpose of
effecting any of the foregoing;
9.1.8 An involuntary petition or complaint shall be filed against
Borrower, seeking bankruptcy or reorganization of Borrower, or the
appointment of a receiver, custodian, trustee, intervenor or liquidator of
Borrower, or all or substantially all of its assets, and such petition or
complaint shall not have been dismissed or stayed within sixty (60) days of
the filing thereof; or an order, order for relief, judgment or decree shall
be entered by any court of competent jurisdiction or other competent
authority approving a petition or complaint seeking reorganization of
Borrower, appointing a receiver, custodian, trustee, intervenor or liquidator
of Borrower, or all or substantially all of its assets, and such order,
judgment or decree shall continue unstayed and in effect for a period of
sixty (60) days;
9.1.9 Any final judgment(s) (excluding those the enforcement of
which is suspended pending appeal) for the payment of money in excess of the
sum of $50,000.00 in the aggregate (other than any judgment covered by
insurance where coverage has been acknowledged by the insurer) shall be
rendered against Borrower, and such judgment or judgments shall not be
satisfied, settled, bonded or discharged at least ten (10) days prior to the
date on which any of its assets could be lawfully sold to satisfy such
judgment;
9.1.10 Either (i) proceedings shall have been instituted to
terminate, or a notice of termination shall have been filed with respect to,
any Plans (other than a Multi-Employer Pension Plan as that term is defined
in Section 4001(a)(3) of ERISA) by Borrower, any member of the Controlled
Domestic
- 20 -
Exhibit 10.5
<PAGE>
Group, PBGC or any representative of any thereof, or any such Plan shall be
terminated, in each case under Section 4041 or 4042 of ERISA, and such
termination shall give rise to a liability of the Borrower or the Controlled
Group to the PBGC or the Plan under ERISA having an effect in excess of
$50,000.00 or (ii) a Reportable Event, the occurrence of which would cause
the imposition of a lien in excess of $50,000.00 under Section 4062 of ERISA,
shall have occurred with respect to any Plan (other than a Multi-Employer
Pension Plan as that term is defined in Section 4001(a)(3) of ERISA) and be
continuing for a period of sixty (60) days;
9.1.11 Any of the following events shall occur with respect to any
Multi-Employer Pension Plan (as that term is defined in Section 4001(a)(3) of
ERISA) to which Borrower contributes or contributed on behalf of its
employees and Lender determines in good faith that the aggregate liability
likely to be incurred by Borrower, as a result of any of the events specified
in Subsections (i), (ii) and (iii) below, will have an effect in excess of
$50,000.00; (i) Borrower incurs a withdrawal liability under Section 4201 of
ERISA; (ii) any such plan is Ain reorganization" as that term is defined in
Section 4241 of ERISA; or (iii) any such Plan is terminated under Section
4041A of ERISA;
9.1.12 The occurrence of a Change in Control without the written
consent of Lender;
9.1.13 The dissolution, liquidation, sale, transfer, lease or
other disposal of all or substantially all of the assets or business of
Borrower; or
9.1.14 Any levy or execution upon, or judicial seizure of, any
property of Borrower that has a fair market value in excess of $50,000.00
that is not bonded or released within thirty (30) days.
9.2 REMEDIES UPON EVENT OF DEFAULT. If an Event of Default shall have
occurred and be continuing, then Lender may, at its sole option, exercise any
one or more of the following rights and remedies, and any other remedies
provided in any of the Loan Documents, as Lender in its sole discretion may
deem necessary or appropriate, all of which remedies shall be deemed
cumulative, and not alternative: (i) cease making Advances or extensions of
financial accommodations in any form to or for the benefit of Borrower and
declare the principal of, and all interest then accrued on, the Note and any
other liabilities hereunder to be forthwith due and payable, whereupon the
same shall become immediately due and payable without presentment, demand,
protest, notice of default, notice of acceleration or of intention to
accelerate or other notice of any kind all of which Borrower hereby expressly
waives, anything contained herein or in the Note to the contrary
notwithstanding, (ii) reduce any claim to judgment, and/or (iii) without
notice of default or demand, pursue and enforce any of Lender= rights and
remedies under the Loan Documents, or otherwise provided under or pursuant to
any applicable law or agreement; provided, however, that if any Event of
Default specified in Sections 9.01.07 or 9.01.08 shall occur, the principal
of, and all interest on, the Note and other liabilities hereunder shall
thereupon become due and payable concurrently therewith, without any further
action by Lender and without presentment, demand, protest, notice of default,
notice of acceleration or of intention to accelerate or other notice of any
kind, all of which Borrower hereby expressly waives.
9.3 RIGHT OF SET OFF. Upon the occurrence and during the continuance of
any Event of Default, Lender is hereby authorized at any time and from time
to time, without notice to Borrower (any such notice being expressly waived
by Borrower), to set off and apply any and all moneys, securities or other
property of Borrower and the proceeds therefrom, now or hereafter held or
received by or in transit to Lender or its agents, from or for the account of
Borrower, whether for safe keeping, custody,
Domestic
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Exhibit 10.5
<PAGE>
pledge, transmission, collection or otherwise, and also upon any and all
deposits (general or special) and credits of Borrower, and any and all claims
of Borrower against Lender at any time existing. Lender agrees promptly to
notify Borrower after any such set off and application, provided that the
failure to give such notice shall not affect the validity of such set off and
application. The rights of Lender under this Section 9.03 are in addition to
other rights and remedies (including, without limitation, other rights of set
off) which Lender may have.
9.4 PERFORMANCE BY LENDER. Should Borrower fail to perform any
covenant, duty or agreement with respect to the payment of taxes, obtaining
licenses or permits, or any other requirement contained herein or in any of
the Loan Documents within the period provided herein, if any, for correction
of such failure, Lender may, at its option, perform or attempt to perform
such covenant, duty or agreement on behalf of Borrower. In such event,
Borrower shall, at the request of Lender, promptly pay any amount expended by
Lender in such performance or attempted performance to Lender at its main
office in Salt Lake City, Utah together with interest thereon at the Default
Rate, from the date of such expenditure until paid. Notwithstanding the
foregoing, it is expressly understood that Lender does not assume any
liability or responsibility for the performance of any duties of Borrower
hereunder or under any of the Loan Documents or other control over the
management and affairs of Borrower.
ARTICLE 10
MISCELLANEOUS
10.1 MODIFICATION. All modifications, consents, amendments or waivers
of any provision of any Loan Document, or consent to any departure by
Borrower therefrom, shall be effective only if the same shall be in writing
and accepted by Lender.
10.2 WAIVER. No failure to exercise, and no delay in exercising, on the
part of Lender, any right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise thereof preclude any other further
exercise thereof or the exercise of any other right. The rights of Lender
hereunder and under the Loan Documents shall be in addition to all other
rights provided by law. No modification or waiver of any provision of this
Agreement, the Note or any Loan Documents, nor consent to departure
therefrom, shall be effective unless in writing and no such consent or waiver
shall extend beyond the particular case and purpose involved. No notice or
demand given in any case shall constitute a waiver of the right to take other
action in the same, similar or other instances without such notice or demand.
10.3 PAYMENT OF EXPENSES. Borrower shall pay all costs and expenses of
Lender (including, without limitation, the attorneys= fees of Lender's legal
counsel) incurred by Lender in connection with the documentation of the
Loan, and the preservation and enforcement of Lender's rights under this
Agreement, the Note, and/or the other Loan Documents, and any filing and
recording fees; provided, however, that notwithstanding the aforesaid,
with respect to any legal action between the parties hereto that is pursued
to judgment the prevailing party only shall be reimbursed by the other party
for all costs and expenses (including, without limitation, reasonable
attorneys= fees and costs) incurred in connection with the preservation and
enforcement of its rights under this Agreement, the Note and/or other Loan
Documents. In addition, Borrower shall pay all costs and expenses of Lender
in connection with the negotiation, preparation, execution and delivery of
any and all amendments, modifications and supplements of or to this
Agreement, the Note or any other Loan Document.
10.4 NOTICES. Except for telephonic notices permitted herein, any
notices or other communications required or permitted to be given by this
Agreement or any other documents and
Domestic
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Exhibit 10.5
<PAGE>
instruments referred to herein must be (i) given in writing and
personally delivered or mailed by prepaid certified or registered
mail, or (ii) made by facsimile delivered or transmitted, to the
party to whom such notice or communication is directed, to the
address of such party as follows:
Borrower: Chief Financial Officer
DAW Technologies
2700 South 900 West
Salt Lake City, Utah 84119
Lender: Corporate Banking Department
US Bank of Utah
Post Office Box 30177
Salt Lake City, Utah 84130
Any notice to be personally delivered may be delivered to the principal
offices (determined as of the date of such delivery) of the party to whom
such notice is directed. Any such notice or other communication shall be
deemed to have been given (whether actually received or not) on the day it is
personally delivered as aforesaid; or, if mailed, on the third day after it
is mailed as aforesaid; or, if transmitted by telefacsimile, on the day that
such notice is transmitted as aforesaid if such day is a Business Day, and
otherwise in the case of any notice transmitted by telefacsimile on other
than a Business Day, on the next Business Day. Any party may change its
address for purposes of this Agreement by giving notice of such change to the
other parties pursuant to this Section 10.04.
10.5 GOVERNING LAW. This Agreement has been prepared, is being executed
and delivered, and is intended to be performed in the State of Utah. The
substantive laws of the State of Utah and the applicable federal laws of the
United States of America shall govern the validity, construction,
enforcement and interpretation of this Agreement and all of the other Loan
Documents, without regard to Utah conflicts of law rules.
10.6 INVALID PROVISIONS. If any provision of any Loan Document is held
to be illegal, invalid or unenforceable under present or future laws during
the term of this Agreement, such provision shall be fully severable; such
Loan Document shall be construed and enforced as if such illegal, invalid
or unenforceable provision had never comprised a part of such Loan Document;
and the remaining provisions of such Loan Document shall remain in full force
and effect and shall not be affected by the illegal, invalid or unenforceable
provision or by its severance from such Loan Document. Furthermore, in lieu
of each such illegal, invalid or unenforceable provision there shall be added
as part of such Loan Document a provision mutually agreeable to Borrower and
Lender as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
10.7 BINDING EFFECT. The Loan Documents shall be binding upon and inure
to the benefit of Borrower and Lender and their respective successors,
assigns and legal representatives; provided, however, that Borrower may not,
without the prior written consent of Lender, assign any rights, powers,
duties or obligations thereunder.
10.8 ENTIRETY. The Loan Documents embody the entire agreement between
the parties and supersede all prior agreements and understandings, if any,
relating to the subject matter hereof and
Domestic
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Exhibit 10.5
<PAGE>
thereof.
10.9 HEADINGS. Section headings are for convenience of reference only
and shall in no way affect the interpretation of this Agreement.
10.10 SURVIVAL. All representations and warranties made by Borrower
herein shall survive delivery of the Note and the making of the Loans.
10.11 NO THIRD PARTY BENEFICIARY. The parties do not intend the
benefits of this Agreement to inure to any third party, nor shall this
Agreement be construed to make or render Lender liable to any materialman,
supplier, contractor, subcontractor, purchaser or lessee of any property
owned by Borrower, or for debts or claims accruing to any such persons
against Borrower. Notwithstanding anything contained herein or in the Note,
or in any other Loan Document, or any conduct or course of conduct by any or
all of the parties hereto, before or after signing this Agreement or any of
the other Loan Documents, neither this Agreement nor any other Loan Document
shall be construed as creating any right, claim or cause of action against
Lender, or any of its officers, directors, agents or employees, in favor of
any materialman, supplier, contractor, subcontractor, purchaser or lessee of
any property owned by Borrower, nor to any other person or entity other than
Borrower.
10.12 SCHEDULES AND EXHIBITS INCORPORATED. All schedules and exhibits
attached hereto are hereby incorporated into this Agreement by each reference
thereto as if fully set forth at each such reference.
10.13 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which, when so executed, shall be deemed an original
but all such counterparts shall constitute but one and the same agreement.
Domestic
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Exhibit 10.5
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed and delivered this
Agreement on the dates set forth below, to be effective as of the day and
year first above written.
US Bank of UTAH
Date: July 25, 1996 By: /s/ C. Watson Nichols
-------------------- ----------------------------------
Name: Same
---------------------------
Title: Vice President
---------------------------
DAW TECHNOLOGIES, INC.
Date: July 25, 1996 By: /s/ David R. Grow
-------------------- ----------------------------------
Name: Same
---------------------------
Title: Executive Vice President/CFO
---------------------------
Date: July 25, 1996 By: /s/ Ronald W. Daw
-------------------- ----------------------------------
Name: Same
---------------------------
Title: President/CEO
---------------------------
-25-
<PAGE>
LOAN AGREEMENT
Borrower: DAW TECHNOLOGIES, INC.
2700 SOUTH 9O0 WEST
SALT Lake(E CITY, UT 84119
Lender: U.S. Bank to Utah
International Banking
107 South Main Street
Salt Lake City, UT U111
THIS LOAN AGREEMENT between DAW TECHNOLOGIES INC. ("Borrower") and U.S. Bank
to Utah ("Lender") Is made and executed on the following terms and
conditions. Borrower has received prior commercial loans from Lender or has
applied to Lender for a commercial loan or loans and other financial
accommodations Including those which may be described on any exhibit or
schedule attached to this Agreement. All such loans and financial
accommodations together with all future loans and financial accommodations
from Lender to Borrower, are referred to In this Agreement Individually as
the "Loan" and collectively as the "Loans." Borrower understands and agrees
that: (a) In granting, renewing, or extending any Loan, Lender Is retying
upon Borrower's representations, warranties, and agreements, as set forth In
this Agreement. (b) the granting, renewing, or extending of any Loan by
Lender d all times shall be subject to Lender's sole judgment and discretion;
and (c) all such Loans shall be and shall remain subject to the following
terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of November 12,1996, and shall
continue thereafter until all Indebtedness of Borrower to Lender has been
performed in full and the parties terminate this Agreement in writing.
DEFINITIONS. The following words shall have the following meanings when used
in this Agreement. Terms not otherwise defined In this Agreement shall have
the meanings attributed to such terms in the Uniform Commercial Code. All
references to dollar amounts shall mean amounts in lawful money of the United
States of America.
Agreement. The word "Agreement means this Loan Agreement, as this Loan
Agreement may be amended or modified from time to time, together with all
exhibits and schedules attached to this Loan Agreement from time to fume.
Account. The word "Account" means a trade account, account receivable, or
other right to payment for goods sold or services rendered owing to Borrower
(or to a third party grantor acceptable to Lender).
Account Debtor. The words "Account Debtor" mean the person or entity
obligated upon an Account.
Advance. The word "Advance", means a disbursement of Loan funds under this
Agreement.
Borrower. The word "Borrower" means DAW TECHNOLOGIES, INC.. The word
"Borrower" also includes, as applicable, all subsidiaries and affiliates of
Borrower as provided below in the paragraph titled "Subsidiaries and
Affiliates:
Exim
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Exhibit 10.5
<PAGE>
Borrowing Base. The words Borrowing Base, mean, as determined by Lender from
time to time, the lesser of (a) S3,500,000.00; or (b) 9o.oon% of the
aggregate amount of Eligible Accounts.
Business Day. The words "Business Day, mean a day on which commercial banks
are open for business in the State of Utah.
CERCLA. The word ~CERCLA means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
Cash Flow. The words "Cash Flow" mean net income after taxes, and exclusive
of extraordinary gains and Income, plus depreciation and amortization.
Collateral. The word "Collateral" means and includes without limitation all
properly end assets granted as collateral security for a Loan, whether real
or personal properly, whether granted directly or indirectly, whether granted
now or in the future, and whether granted in the form of a security interest,
mortgage, deed of trust, assignment, pledge, chattel mortgage, chattel trust,
factor's lien, equipment trust, conditional sale, trust receipt, lien,
charge, lien or title retention contract, tease or consignment Intended as a
security device, or any other security or lien interest whatsoever whether
created by law, contract, or otherwise. The word Collateral includes without
limitation all collateral described below in the section titled "COLLATERAL."
Debt. The word "Debt" means all of Borrower's liabilities excluding
Subordinated Debt.
Eligible Accounts. The words "Eligible Accounts mean, at any time, all of
Borrower's Accounts which contain selling terms and conditions acceptable to
Lender. The net amount of any Eligible Account against which Borrower may
borrow shall exclude all returns, discounts, credits, and offsets of any
nature. Unless otherwise agreed to by Lender in writing, Eligible Accounts do
not include:
(a) Accounts with respect to which the Account Debtor is an officer, an
employee or agent of Borrower.
(b) Accounts with respect to which the Account Debtor b a subsidiary of, or
affiliated with or related to Borrower or its shareholders, officers, or
directors.
(c) Accounts with respect to which goods are placed on consignment,
guaranteed sale, or other terms by reason of which the payment by the Account
Debtor may be conditional.
(d) Accounts with respect to which Borrower is or may become liable to the
Account Debtor for goods sold or services rendered by the Account Debtor to
Borrower.
(e) Accounts which are subject to dispute, counterclaim, or setoff.
(t) Accounts with respect to which the goods have not been shipped or
delivered, or the services have not been rendered, to the Account Debtor.
(g) Accounts with respect to which Lender, in its safe discretion, deems the
creditworthiness or financial condition of the Account Debtor to be
unsatisfactory.
Exim
2
Exhibit 10.5
<PAGE>
(h) Accounts of any Account Debtor who has filed or has had filed against It
a petition in bankruptcy or an application for relief under any provision of
any state or federal bankruptcy, insolvency, or debtor-in-relief acts; or who
has had appointed a trustee, custodian, or receiver for the assets of such
Account Debtor, or who has made an assignment for the benefit of creditors or
has become insolvent or fails generally to pay its debts (including its
payrolls) as such debts become due.
(i) Accounts with respect to which the Account Debtor Is the United States
government or any department or agency of the United States.
0) Accounts which have not been paid In full within 60 CALENDAR DAYS from the
due date.
(k) See paragraph titled EXCLUSIONS FROM THE BORROWING BASK' on page #5 of
this Loan Agreement.
ERISA. The word ~ERISA means the Employee Retirement Income tncome Security
Act of 1974, as amended:
Event of Default. The words Event of Default mean and include without
limitation any of the Events of Default set forth below in the section titled
EVENTS OF DEFAULT.
Expiration Date. The words "Expiration Date mean the date of termination of
Lender's commitment to lend under this Agreement.
Grantor. The word "Grantor" means and includes without limitation each and
all of the persons or entities granting a Security Interest in any Collateral
for the Indebtedness, including without limitation all Borrowers granting
such a Security Interest.
Guarantor. The word "Guarantor" means and Includes without limitation each
and all of the guarantors, sureties, and accommodation parties In connection
with any Indebtedness.
Indebtedness. The word "Indebtedness" means and includes without hmita0On all
Loans, together with all other obligations, debt and liabilities of Borrower
to Lender, or any one or more of them, as well as all claims by Lender
against Borrower, or any one or more of them, whether now or hereafter
existing, voluntary or involuntary, due or not due, absolute or contingent,
liquidated or unliquidable; whether Borrower may be liable individually or
jointly with others; whether Borrower may be obligated as a guarantor, surety
or otherwise; whether recovery upon such Indebtedness may be or hereafter may
become barred by any statute of limitations; and whether; such Indebtedness
may be or hereafter may become otherwise unenforceable.
Lender. The word "Lender" means U.S. Bank of Utah, its successors and assigns.
Line of Credit. The words "Line of Credit" mean the credit facility described
in the Section titled "LINE OF CREDITA below.
Liquid Assets. The words Liquid Assets mean Borrower's cash on hand plus
Borrower's readily marketable securities.
Exim
3
Exhibit 10.5
<PAGE>
Loan. The word "Loan or Loans" means and includes without limitation any and
all commercial loans and financial accommodations from Lender to Borrower,
whether now or hereafter existing, and however evidenced, including without
limitation those loans and financial accommodations described herein or
described on any exhibit or schedule attached to this Agreement from time to
time.
Note. The word "Note" means and includes without limitation Borrower's
promissory note or notes, it any, evidencing Borrower's Loan obligations in
favor of Lender, as well as any substitute, replacement or refinancing note
or notes therefor.
Permitted Liens. The words "Permitted Liens, mean: (a) liens and security
interests securing Indebtedness owed by Borrower to Lender; (b) liens for
taxes, assessments, or similar charges either not yet due or being contested
in good faith; (c) liens of materialmen, mechanics, warehousemen, or
carriers, or other like liens arising in the ordinary course of business and
securing obligations which are not yet delinquent; (d) purchase money liens
or purchase money security interests upon or in any property acquired or held
by Borrower in the ordinary course of business to secure Indebtedness
outstanding on the date of this Agreement or permitted to be incurred under
the paragraph of this Agreement titled "Indebtedness and Liens", (e) liens
and security interests which, as of the date of this Agreement, have been
disclosed to and approved by the Lender in writing; and (t) those liens and
security interests which in the aggregate constitute an immabr41 and
insignificant monetary amount with respect to the net value of Borrower's
assets.
Related Documents. The words "Related Documents" mean and include without
limitation all promissory notes, credit agreements, loan agreements,
environmental agreements, guaranties, security agreements, mortgages, deeds
of trust, and all other investments; agreements and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
Security Agreement. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements, understandings
or other agreements, whether created by law, contract, or otherwise,
evidencing, governing, representing, or creating a Security Interest.
Security interest. The words "Security Interest" mean and include without
limitation any type of collateral security, whether in the form of a lien
charge, mortgage, deed of trust, assignment, pledge, chattel mortgage,
chattel Trust, factor's lien, equipment trust, conditional sale, trust
receipt lien or title retention contract, lease or consignment intended as a
security device, or any other security or lien interest whatsoever, whether
created by law, contract, or otherwise.
SARA. The word ~SARA means the Superfund Amendments and Reauthorization Act
of 1986 as now or hereafter amended.
Subordinated Debt. The words "Subordinated Debt" mean indebtedness and
liabilities of Borrower which have been subordinated by written agreement to
indebtedness owed by Borrower to Lender in form and substance acceptable to
Lender.
Tangible Net Worth. The words Tangible Net Worth mean Borrower's total assets
excluding all intangible assets (i.e., goodwill, trademarks, patents,
copyrights, organizational expenses, and similar intangible items, but
including leaseholds and leasehold improvements) less total Debt.
Exim
4
Exhibit 10.5
<PAGE>
Working Capital. The words "Working Capital" mean Borrower's current assets,
excluding prepaid expenses, less Borrower's current liabilities.
LINE OF CREDIT. Lender agrees to make Advances to Borrower from time to time
from the date of this Agreement to the Expiration Date, provided the
aggregate amount of such Advances oustanding at any time does not exceed the
Borrowing Base. Within the foregoing limits, Borrower may borrow, partially
or wholly prepay, and reborrow under this Agreement as follows.
Conditions Precedent to Each Advance. Lender's obligation to make any Advance
to or for the account of Borrower under this Agreement is subject to the
following conditions precedent, with all documents, instruments, opinions,
reports, and other items required under this Agreement to be in form and
substance satisfactory to Lender:
(a) Lender shall have received evidence that the Agreement and all Related
Documents have been duly authorized, exected, and delivered by Borrower to
Lender.
(b) Lender shall have received such opinions ot counsel, supplemental
opinions, and documents as Lender may request.
(c) The security interest In the collateral shall have been duly authorized,
created, and perfected with first lien priority and shall be in full force
and effect.
(d) All guaranties required by Lender for the Line of Credit shall have been
executed by each Guarantor, delivered to Lender, and be in full force and
effect.
(e) Lender, at its option and for Its sole benefit, shall have conducted an
audit of Borrower's Accounts, books, records, and operations, and Lender
shall be satisfied as to their condition.
(f) Borrower shall have paid to Lender all fees, costs, and expenses
specified in the Agreement and the Related Documents as are then due and
payable.
(g) There shall not exist at the time of any Advance a condition which would
constitute an Event of Default under this Agreement, and Borrower shall have
delivered to Lender the compliance certificate called for In the paragraph
below titled "Compliance Certificate."
Making Loan Advances. Advances under the Line of Credit may be requested
either orally or In writing subject to the limitations set forth below.
Lender may, but need not, require that all oral requests be confirmed In
writing. Each Advance shall be conclusively deemed to have been made at the
request of and for the benefit of Borrower (a) when credited to any deposit
account of Borrower maintained with Lender or (b) when advanced in accordance
with the instructions of an authorized person. Lender, at its option, may set
a cutoff time, after which all requests for Advances will be treated as
having been requested on the next succeeding Business Day.
Mandatory Loan Repayments. If at any time the aggregate principal amount of
the outstanding Advances shall exceed the applicable Borrowing Base,
Borrower, immediately upon written or oral notice from Lender, shall pay to
Lender an amount equal to the difference between the outstanding principal
balance of the Advances and the Borrowing Base. On the Expiration Date,
Exim
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Exhibit 10.5
<PAGE>
Borrower shall pay to Lender in full the aggregate unpaid principal amount of
all Advances then outstanding and all accrued unpaid interest, together with
all other applicable tees, costs and charges, it any, not yet paid.
Loan Account. Lender shall maintain on its books a record of account In which
Lender shall make entries for each Advance and such other debits and credits
as shall be appropriate in connec0On with the credit facility. Lender shall
provide Borrower with periodic statements of Borrower's account, which
statements shall be considered to be correct and conclusively binding on
Borrower unless Borrower notifies Lender to the contrary within thirty (30)
days after Borrower's receipt of any such statement which Borrower deems to
be incorrect.
COLLATERAL. To secure payment of the Line of Credit and performance of all
other Loans, obligations and duties owed by Borrower to Lender, Borrower (and
others, it required) shall grant to Lender Security Interest in such property
and assets as Lender may require (the "Collateral"), including without
limitation Borrower's present and future Accounts and general Intangibles.
Lender's Secure Interests in the Collateral shall be continuing liens and
shall include the proceeds and products of the Collateral, including without
limitation the proceeds of any insurance. With respect to the Collateral,
Borrower agrees and represents and warrants to Lender:
Perfection of Security Interests. Borrower agrees to execute such financing
statements and to take whatever other actions are requested by Lender to
perfect and continue Lender's Security Interests in the Collateral. Upon
request of Lender, Borrower will deliver to Lender any and all of the
documents evidencing or constituting the Collateral, and Borrower will note
Lender's Interest upon any and all chattel paper if not delivered to Lender
for possession by Lender. Contemporaneous with the execution of this
Agreement, Borrower will execute one or more UCC financing statements and any
similar statements as may be required by applicable law, and will file such
financing statements and all such similar statements in the appropriate
location or locations. Borrower hereby appoints Lender as its irrevocable
attorney-in-fact for the purpose of executing any documents necessary to
perfect or to continue any Security Interest. Lender may at any time, and
without further authorization from Borrower, file a carbon, photograph,
facsimile, or other reproduction of any financing statement for use as a
financing statement. Borrower will reimburse Lender for all expenses for the
perfection, termination, and the continuation of the perfection of Lender's
security interest in the Collateral. Borrower promptly will notify Lender of
any change in Borrower's name including any change to the assumed business
names of Borrower. Borrower also promptly will notify Lender of any change in
Borrower's Social Security Number or Employer Identification Number. Borrower
further agrees to notify Lender in writing prior to any change in address or
location of Borrower's principal governance office or should Borrower merge
or consolidate with any other entity.
Collateral Records. Borrower does now, and at all times hereafter shall, keep
correct and accurate records of the Collateral, all of which records shall be
available to Lender or Lender's representative upon demand for inspection and
copying at any reasonable time. With respect to the Accounts, Borrower agrees
to keep and maintain such records as Lender may require, including without
limitation information concerning Eligible Accounts and Account balances and
agings.
Collateral Schedules. Concurrently with the execution and delivery of this
Agreement, Borrower shall execute and deliver to Lender a schedule of
Accounts and Eligible Accounts, in form
Exim
6
Exhibit 10.5
<PAGE>
and substance satisfactory to the Lender. Thereafter and at such frequency as
Lender shall require, Borrower shall execute and deliver to Lender such
supplemental schedules of Eligible Accounts and such other matters and
Information relating to Borrower's Accounts as Lender may request.
Representations and Warrantees Concerning Accounts. With respect to the
Accounts, Borrower represents and warrants to Lender: (e) Each Account
represented by Borrower to be an Eligible Account for purposes of tints
Agreement conforms to the requirements of the definition of an Eligible
Account; (b) All Account information listed on schedules delivered to Lender
will be true and correct, subject to immaterial variance; and (c) Lender, its
assigns, or agents shall have the right at any time end at Borrower's expense
to Inspect, examine, and audit Borrower's records and to confirm with Account
Debtors the accuracy of such Accounts.
REPRESENTATIONS AND WARRANTIES. Borrower represents end warrants to Lender,
as of the date of this Agreement, as of the date of each disbursement of Loan
proceeds, as of the date of any renewal, extension or modification of any
Loan, and at all limes any Indebtedness exists:
Organization. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the Stab of Utah and is
validly existing and in good standing in all states in which Borrower is
doing business. Borrower has the full power and authority to own its
properties and to transact the businesses in which it is presently engaged or
presently proposes to engage. Borrower also is duly qualified as a foreign
corporation and is in good standing in all states in which the failure to so
qualify would have a material adverse effect on its businesses or financial
condition.
Authorization. The execution, delivery, and performance of this Agreement and
all Related Documents by Borrower, to the extent to be executed, delivered or
performed by Borrower, have been duly authorized by all necessary action by
Borrower; do not require the consent or approval of any other person,
regulatory authority or governmental body; and do not conflict with, result
in a violation of, or constitute a default under (a) any provision of its
articles of incorporation or organization, or bylaws, or any agreement or
other Instrument binding upon Borrower or (b) any law, governmental
regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change In
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement
required hereunder to be given by Borrower when delivered will constitute,
legal, valid and binding obligations of Borrower enforceable against Borrower
in accordance with their respective terms.
Properties. Except for Permitted Liens, Borrower owns and has good title to
all of Borrower's properties free and clear of all Security Interests, and
has not executed any security documents or financing statements relating to
such properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used, or filed a financing statement under, any
other name for at least the last five (5) years.
Hazardous Substances. The terms "hazardous waste, "hazardous substance,"
"disposal",.
Exim
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Exhibit 10.5
<PAGE>
"release", and threatened release," as used In this Agreement, shall have the
same meanings as set forth in the ~CERCLA,'~SARA,' the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1LtO1, et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., or other
applicable state or Federal laws, rules, or regulations adopted pursuant to
any of the foregoing. Except as disclosed to and acknowledged by Lender in
writing, Borrower represents and warrants that: (a) During the period of
Borrower's ownership of the properties, there has been no use, generation,
manufacture, storage, treatment, disposal, release or threatened release of
any hazardous waste or substance by any person on, under, about or from any
of the properties. (b) Borrower has no knowledge of, or reason to believe
that there has been (i) any use, generation, manufacture, storage, treatment,
disposal, release, or threatened release of any hazardous waste or substance
on, under, about or from the properties by any prior owners or occupants of
any of the properties", or (ii) any actual or threatened litigation or claims
of any kind by any person relating to such matters. (c) Neither Borrower nor
any tenant, contractor, agent or other authorized user of any of the
properties shall use, generate, manufacture, store, treat, dispose of, or
release any hazardous waste or substance on, under, about or from any of the
properties; and any such activity shall be conducted in compliance with all
applicable federal, state, and local laws, regulations, and ordinances,
including without limitation those laws, regulations and ordinances described
above. Borrower authorizes" Lender and its agent to enter upon the
properties" to make such inspections and tests as Lender may deem appropriate
to determine compliance of the properties with this section of the Agreement.
Any inspections or tests made by Lender shall be at Borrower's expense and
for Lender's purpose" only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to any other
person. The representations and warranties combined herein are based on
Borrower's due diligence in investigating the properties for hazardous waste
and hazardous substances. Borrower hereby (a) releases and warrants any
future claims against Lender for indemnity or contribution in the event
Borrower becomes" liable for cleanup or other costs under any such laws, and
(b) agrees to indemnify and hold harmless Lender against any and all claims,
loss - , liabilities, damages, penalties, and expenses which Lender may
directly or indirectly sustain or suffer resulting from a breach of this
section of the Agreement or as a consequence of any use, generation,
manufacture, storage, disposal, release or threatened release occurring prior
to Borrower's ownership or interest in the properties, whether or not the
same was or should have been known to Borrower. The provisions of this
section of the Agreement, including the obligation to indemnify, shall
survive the payment of the Indebtedness and the termination or expiration of
this Agreement and shall not be affected by Lender's acquisition of any
interest in any of the properties, whether by foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrating
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which may
materially adversely affect Borrower's financial condition or properties,
other than litigation, claims, or other events, if any, that have been
disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and repute of
Borrower that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges" have been paid In full,
except those presently being or to be contested by Borrower in good faith in
the ordinary course of business and for which adequate reserves have been
provided.
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not
Exim
8
Exhibit 10.5
<PAGE>
entered into or granted any Security Agreement, or permitted the filing or
attachment of any security interests on or affecting any of the Collateral
directly or indirectly securing repayment of Borrower's Loa n and Note, that
would be prior or that may in any way be superior to Lender's Security
Interests and rights in and to such Collateral.
Binding Effect. This Agreement, the note, all Security Agreements directly or
indirectly securing repayment of Borrower's Loan and Note and all of the
Related Documents are binding upon Borrower as well as upon Borrower's
successor, representatives and assigns, and are legally enforceable in
accordance with their respective terms.
Commercial Purposes. Borrower intends to use the Loan proceeds solely for
business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which Borrower may
have any liability complies In all material respects with all applicable
requirements of law and regulations, and (i) no Reportable Event nor
Prohibited Transaction (as defined in ERISA) has occurred with respect to any
such plan, (ii) Borrower has not withdrawn from any such plan or initiated
steps to do so, (lit) no steps have been taken to terminate any such plan,
and (iv) there are no unfunded liabilities other than those previously
disclosed to Lender in writing.
Location of Borrower's Offices and Records. Borrower's place of business, or
Borrower's Chief executing office, If Borrower has more than one place of
business, is located at 2700 SOUTH 900 WEST, SALT LAKE CITY, UT 84119. Unless
Borrower has designated otherwise in writing this location is also the office
or offices where Borrower keeps its records concerning the collateral.
Information. All information heretofore or contemporaneously herewith
furnished by Borrower to Lender for the purposes of or in connect/on with
this Agreement or any transaction contemplated hereby is, and alt information
hereafter furnished by or on behalf of Borrower to Lender will be, true and
accurate in every material respect on the date as of which such information
is dated or certified; and none of such information is or will be incomplete
by omitting to state any material fact necessary to make such information not
misleading.
Survival of Representations and Warrantees. Borrower understands and agrees
that Lender, without Independent investigation, Is relying upon the above
representations and warrantees in extending Loan Advances to Borrower.
Borrower further agrees that the foregoing representations and warranties
shall be continuing In nature and shall remain in full force and effect until
such time as Borrower's indebtedness shall be paid in full, or until this
Agreement shall be terminated in the manner provided above, whichever be the
last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
the Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material adverse
change" in Borrower's financial condition, and (b) all existing and all
threatened litigation, claims, investigations administrative proceedings or
similar actions affecting Borrower or any Guarantor which could materially
affect the financial condition of Borrower or the financial condition of any
Guarantor.
Exim
9
Exhibit 10.5
<PAGE>
Financial Records. Maintain its books and records in accordance with
generally accepted accounting principles, applied on a consistent basis,
and permit Lender to examine and audit Borrower's books and records at all
reasonable times.
Financial Statements. Furnish Lender with, as soon available, but in no event
later than ninety (90) days after the end of each fiscal year, Borrower's
balance sheet and income statement for year ended, audited by a certified
public accountant satisfactory to Lender and, as soon as available, but in no
event later than forty-five days after the end of each fiscal quarter,
Borrower's balance sheet and profit and loss statement for the period ended,
prepared and certified correct to the best knowledge and belief by Borrower's
chief financial officer or other officer or person acceptable to Lender. All
financial reports required to be provided under this Agreement shall be
prepared in accordance with generally accepted accounting principals,
applied on a consistent basis, and certified by Borrower as being true and
correct.
Additional Information. Furnish such additional information and statements,
lists of assets and liabilities, aging of receivables and payables, inventory
schedules, budgets, forecasts, tax returns, and other reports with respect to
Borrower's financial condition and business operations as
Lender may request from time to time.
Financial Covenants and Ratios. Comply with the following covenant and ratios:
Net Worth Ratio. Maintain a ratio of Total Liabilities to Tangible Net Worth
of less than 1.25 to 1.00.
Current Ratio. Maintain a ratio of Current Assets of Current Liabilities" in
excess of 1.30 to 1.00.
Other Ratio. Maintain a ratio of CASH FLOW COVERAGE (to be measured annually
based on Borrower's fiscal year end) of 1.50 to 1.00.
The following provisions shall apply for purposes of determining compliance
with the foregoing financial covenants and ratios: Ratios of Debt to Tangible
Net Worth, and current assets to current liabilities measured quarterly based
on Borrower's fiscal quarter. Except as provided above, all computations
made to determine compliance with the requirements contained in this
paragraph shall be made in accordance with generally accepted accounting
principles, applied on a consistent basis, and certified by Borrower as being
true and correct.
Insurance. Maintain fire and other risk insurance, public liability
Insurance, and such other Insurance as Lender may require with respect to
Borrower's properties and operations, in form, amount, coverages and with
Insurance companies reasonably acceptable to Lender. Borrower, upon request
of Lender, will deliver to Lender from time to time the policies or
certificates of insurance in form satisfactory to Lender, including
stipulations that coverages will not be canceled or diminished without at
least ten (10) days' prior written notice to Lender. Each insurance policy
also shall include an endorsement providing that coverage in favor of Lender
will not be impaired in any way by any act, omission or default of Borrower
or any other person. In connection with all policies covering assets in which
Lender holds or is offered a security interest for the Loans, Borrower will
provide Lender with such loss payable or other endorsements as Lender may
require.
Exim
10
Exhibit 10.5
<PAGE>
Insurance Reports. Furnish to Lender, upon request of Lender, reports on each
existing insurance policy showing such information as Lender may reasonably
request, including without limitation the following: (a) the name of the
insurer; (b) the risks insured; (c) the amount of the policy (d) the
properties insured; (e) the then current property values on the basis of
which insurance has been obtained, and the manner of determining those
values and (f) the expiration date of the policy. In addition, upon request
of Lender (however not more often than annually), Borrower will have an
independent appraiser satisfactory to Lender determine, as applicable, the
actual cash value or replacement cost of any Collateral. The cost of such
appraisal shall be paid by Borrower.
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any other
party and notify Lender immediately in writing of any default in connection
with any other such agreements.
Loan Fees and Charges. In addition to all other agreed upon fees and
charges, pay the following: S52,500.00.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its indebtedness
and obligations, including without limitation all assessments, taxes,
governmental charges, levies and liens, of every kind and nature, imposed
upon Borrower or its properties, income, or profits, prior to the date on
which penalties would affect, and all lawful claims that, if unpaid, might
become a lien or charge upon any of Borrower's properties, income, or
profits. Provided however, Borrower will not be required to pay and discharge
any such assessment, tax, charge, levy, lien or claim so long as (a) the
legality of the same shall be contested in good faith by appropriate
proceedings, and (b) Borrower shall have established on its books adequate
reserves with respect to such contested assessment, tax, charge, levy, lien,
or claim in accordance with generally accepted accounting practices.
Borrower, upon demand of Lender, will furnish to Lender evidence of payment
of the assessments, taxes, charges, levies, liens and claims and will
authorize the appropriate governmental official to deliver to Lender at any
time a written statement of any assessment, taxes, charges, levies, liens and
claims against Borrower's properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and provisions
set forth in the Agreement and in the Related Documents in a timely manner
and promptly notify Lender if Borrower learns of the or occurrence of any
event which constitutes an Event of Default under this Agreement or uncle;
any of the Related Documents.
Operations. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner and in compliance with all applicable federal,
state and municipal laws, ordinances, rules and regulations respecting its
properties, charters, businesses and operations, Including without
limitation, compliance with the Americans With Disabilities Act and with all
minimum funding standards and other requirements of ERISA and other laws
applicable to Borrower's employee benefit plans.
Inspection. Permit employees or agent of Lender at any reasonable time to
inspect any and all
Exim
11
Exhibit 10.5
<PAGE>
Collateral for the Loan or Loans and Borrower's other properties and to
examine or audit Borrower's books, account, and records and to make copies
and memoranda of Borrower's books, accounts, and records. If Borrower now or
at any time hereafter maintains any records (Including without limitation
computer generated records and computer software programs for the generation
of such records) in the possession of a third party, Borrower, upon request
of Lender, shall notify such party to permit Lender free access to such
records at all reasonable times and to provide Lender with copies of any
records it may request, all at Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender, provide Lender at
least annually and at the time of each disbursement of Loan proceeds with a
certificate executed by Borrower's chief financial officer, or other officer
or person acceptable to Lender, certifying that the representations and
warranties set forth in this Agreement are true and correct as of the date of
the certificate and further certifying that, as of the date of the
certificate, no Event or Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all respects
with all environmental protection federal, state and local laws, statutes,
regulations and ordinances; not cause or permit to exist, as a result of an
intentional or unintentional action or omission on its part or on the part of
any third party, on property owned and/or occupied by Borrower, any
environmental activity where damage may result to the environment unless such
environmental activity is pursuant to and in compliance with the conditions
of a permit issued by the appropriate federal, state or local governmental
authorities; shall furnish to Lender promptly and in any event within thirty
(30) days after receipt thereof a copy to any notice, summons, lien,
citation, directive, letter or other communication from any governmental
agency or instrumentality concerning any intentional or unintentional action
or omission on Borrower's part in connection with any environmental activity
whether or not there be damage to the environment and/or other natural
resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of Trust, security agreements, financing statements,
instruments, document and other agreements as Lender or its attorneys may
reasonably require to evidence and secure the Loans and to perfect all
Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior Borrower
consent of Lender.
Capital Expenditures. Make or contract to make capital expenditures,
including leasehold improvements, in any fiscal year in excess of
S3,000,000.00 or Incur liability for rentals of property (including both real
and personal property) in an amount which, together with capital
expenditures, shall in any fiscal year exceed such sum.
Indebtedness and Liens. (a) Except for trade debt incurred in the normal
course of business and Indebtedness to Lender contemplated by this Agreement,
create incur or assume indebtedness for borrowed money, including capital
leases, (b) except as allowed as a Permitted Lien, sell, transfer, mortgage
assign, pledge, lease, grant a security interest In, or encumber any of
Borrower's assets, or (c) sell with recourse any of Borrower's accounts,
except to Lender.
Continuity of Operations. (a) Engage in any business activity substantially
different than those In which Borrower is primarily engaged, (b) cease
operations, liquidate, merge, transfer, acquire or
Exim
12
Exhibit 10.5
<PAGE>
consolidate with any other entity, change ownership, change its name,
dissolve or transfer or sell Collateral out of the ordinary course of
business, (c) pay any dividends on Borrower's stock (other than dividends
payable in Its stock) provided, however that notwithstanding the foregoing,
but only so long as no Event of Default has occurred and is continuing or
would result from the payment of dividends, if Borrower is a Subchapter S
Corporation' (as defined in the Internal Revenue Code of 1986, as amended),
Borrower may pay cash dividends on its stock to its shareholders from time to
time in amounts necessary to enable the shareholders to pay income taxes and
make estimated income tax payments to satisfy their liabilities under federal
and state law which arise solely from their status as Shareholders of a
Subchapter S Corporation because of their ownership of share of stock of
Borrower, or (d) purchase or retire any of Borrower's outstanding shares or
alter or amend Borrower's capital structure.
Loans, Acquisitions and Guarantees. (a) Loan, invest in or advance money or
assets, (b) purchase, create or acquire any interest in any other enterprise
or entity, or (c) incur any obligation as surety or guarantee other than in
the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement u under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds
if: (a) Borrower or any Guarantor is in default under the terms of this
Agreement or any of the Related Documents or any other agreement that
Borrower or any Guarantor has with Lender; (b) Borrower or any Guarantor
becomes insolvent, files a petition in bankruptcy or similar proceedings, or
is adjudged a bankrupt; (c) there occurs a material adverse change in
Borrower's financial condition, in the financial condition of any Guarantor,
or in the value of any Collateral securing any Loan; (d) any Guarantor seeks,
claims or otherwise attempts to limit, modify or revoke such Guarantor's
guaranty of the Loan or any other loan with Lender; or (e) Lender in good
faith deems itself insecure, even though no Event of Default shall have
occurred.
CASH FLOW RATIO CALCULATION.
NIAT + Interest Exp. + Depr divided by PPCMLTD + Int. Exp.
ADDITIONAL COVENANTS.
1. Borrowing Base Required monthly current within the past five business days.
2. Monthly Accounts Receivable and Payable aging, and inventory listing
3. A credit qualify exam performed at least once every 6 months, which cost
is paid by Borrower.
EXCLUSIONS FROM THE BORROWING BASE.
1. Any Account Receivable with a term in excess of net one hundred eighty
(180) days.
2. Any Account Receivable which is more than sixty (60) calendar days past
the original due date, unless it is insured through Eximbank export credit
insurance for comprehensive commercial and political risk, or through
Eximbank approved private insurers for comparable coverage, in which case
ninety (90) calendar days shall apply.
Exim
13
Exhibit 10.5
<PAGE>
3. Any intra-company Account Receivable or any Account Receivable from a
subsidiary of the Borrower, from a person or entity with a common controlling
interest in the Borrower or from an entity which shares common controlling
ownership with the Borrower.
4. Any Account Receivable evidenced by a Letter of Credit, until the date of
shipment of the Items covered by the subject Letter of Credit.
5. Any Account Receivable which the Lender or Eximbank, in its reasonable
judgment, deems uncollectible for any reason.
6. Any Account Receivable payable in a currency other than Dollars, except as
may be approved in writing by Eximbank.
7. Any Account Receivable from a Military Buyer, except as may be approved in
writing by Eximbank.
8. Any Account Receivable due and collectible outside the United States,
except as may be approved in writing by Eximbank.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrowers right, title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and all
accounts Borrower may open in the future, excluding however all IRA and Keogh
accounts and all Trust accounts for which the grant of a security Interest
would be prohibited by law. Borrower authorizes Lender, to the extent
permitted by applicable law, to charge or setoff all sums owing on the
Indebtedness against any and all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default
under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment when due on
the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with or to
perform when due any other term, obligation, covenant or condition contained
in this Agreement or in any of the Related Documents, or failure of Borrower
to comply with or to perform any other term, obligation, covenant or condition
contained in any other agreement between Lender and Borrower.
Default In Favor of Third Parties. Should Borrower or any Grantor default
under any loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor or person
that may materially affect any of Borrower's property or Borrower's or any
Grantor's ability to repay the Loans or perform their respective obligations
under this Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made or furnished
to Lender by or on behalf of Borrower or any Grantor under this Agreement or
the Related Documents Is false or misleading in any material respect at the
time made or furnished, or becomes false or misleading
Exim
14
Exhibit 10.5
<PAGE>
at any time thereafter.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any Security
Agreement to create a valid and perfected Security Interest) at any time and
for any reason.
Insolvency. The dissolution or termination of Borrower's existence as a going
business, the Insolvency of Borrower, the appointment of a receiver for any
part of Borrower's property, any assignment for the benefit of creditors, any
type of creditor workout, or the commencement of any proceeding under any
bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or forfeiture
proceedings, whether by judicial proceeding, self-help, repossession or any
other method, by any creditor of Borrower, any creditor of any Grantor
against any collateral securing the Indebtedness, or by any governmental
agency. This includes a garnishment, attachment, or levy on or of any of
Borrower's deposit accounts with Lender.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or becomes
incompetent, or revokes or disputes the validity of, or liability under, any
Guaranty of the Indebtedness.
Change In Ownership. Any change in ownership of twenty-five percent (25%) or
more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
Insecurity. Lender, in good faith, deems itself insecure.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except
where otherwise provided in this Agreement or the Related Documents, all
commitments and obligations of Lender under this Agreement or the Related
Documents or any other agreement Immediately will terminate (including any
obligation to make loan Advances or disbursements), and, at Lender's option,
all Indebtedness immediately will become due and payable, all without notice
of any kind to Borrower, except that In the case of an Event of Default of
the type described In the "Insolvency" subsection above, such acceleration
shall be automatic and not optional. In addition, Lender shall have all the
rights and remedies provided in the Related Documents or available at law, in
equity, or otherwise. Except as may be prohibited by applicable law, all of
Lender's right and remedies shall be cumulative and may be exercised
singularly or concurrently. Election by Lender to pursue any remedy shall not
exclude pursuit of any other remedy, and an election to make expenditures or
to take action to perform an obligation of Borrower or of any Grantor shall
not affect Lender's right to declare a default and to exercise its rights and
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are a part
of this Agreement:
Amendments. This Agreement, together with any Related Documents, constitutes
the entire understanding and agreement of the parties as to the matters set
forth in this Agreement. No
Exim
15
Exhibit 10.5
<PAGE>
alteration of or amendment to the Agreement shall be effective unless given
in writing and signed by the party or parties sought to be charged or bound
by the alteration or amendment.
Applicable Law. This Agreement has been delivered h Lender and accepted by
Lender In the State of Utah. If there Is a lawsuit Borrower agrees upon
Lender's request to submit to the jurisdiction of the courts of Salt Lake
County, the State of Utah Subject to the provisions on arbitration, this
Agreement shall be governed by and construed in accordance with the laws of
the State of Utah.
Arbitration. Lender and Borrower agree that all disputes, claims and
controversies between them, whether Individual, joint, or class in nature,
arising from this Agreement or otherwise, Including without limitation
contract and ton disputes, shall be arbitrated pursuant to the Rules of the
American Arbitration Association, upon request of either party. No act to
take or dispose of any Collateral shall constitute a waiver of this
arbitration agreement or be prohibited by this arbitration agreement. This
includes, without limitation, obtaining injunctive relief or a temporary
restraining order; invoking a power of sale under any deed of trust or
mortgage; obtaining a writ of attachment or imposition of a receiver; or
exercising any rights relating to personal property, including taking or
disposing of such property with or without judicial process pursuant to
Article 9 of the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of any act, or
exercise of any right, concerning any Collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the Collateral,
shall also be arbitrated, provided however that no arbitrator shall have the
right or the power to enjoin or restrain any act of any party. Judgment upon
any award rendered by any arbitrator may be entered in any court having
jurisdiction. Nothing in this Agreement shall preclude any party from seeking
equitable relief from a court of competent jurisdiction. The statute of
limitations, estoppel, waiver, laches, and similar doctrines which would
otherwise be applicable in an action brought by a party shall be applicable
in any arbitration proceeding, and the commencement of an arbitration
proceeding shall be deemed the commencement of an action for these purposes.
The Federal Arbitration Act shall apply of the construction, interpretation,
and enforcement of this arbitration provision.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions of
this Agreement.
Multiple Parties; Corporate Authority. All obligations of Borrower under this
Agreement shall be Joint and several, and all references to Borrower shall
mean each and every Borrower. This means that each of the Borrowers signing
below is responsible for all obligations in this Agreement.
11-12-1996 LOAN AGREEMENT Page 6 (Continued)
Consent to Loan Participation. Borrower agrees and consents to Lender's sale
or transfer, whether now or later, of one or more participation interests in
the Loans to one or more purchasers, whether related or unrelated to Lender.
Lender may provide, without any limitation whatsoever to any one or more
purchasers, or potential purchasers, any information or knowledge Lender may
have about Borrower or about any other maker relating to the Loan, and
Borrower hereby waives any rights to privacy it may have with respect to such
matters. Borrower additionally waives any and all notices of sale of
participation interests, as well as all polices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of any
Exim
16
Exhibit 10.5
<PAGE>
such participation interests will be considered as the absolute owners of
such interests in the loans and will have all the rights granted under the
participation agreement or agreements governing the sale of such
participation interests. Borrower further waives all rights of offset or
counterclaim that It may have now or later against Lender or against any
purchaser of such a participation interest and unconditionally agrees that
either Lender or such purchaser may enforce Borrower's obligation under the
Loans irrespective of the failure or insolvency of any holder of any interest
in the Loans. Borrower further agrees that the purchaser of any such
participation interests may enforce its interests irrespective of any
personal claims or defenses that Borrower may have against Lender.
Costs and Expenses. Borrower agrees to pay upon demand all of Lender's
expenses, Including without limitation reasonable attorneys' fees, incurred
in connection with the preparation, execution, enforcement, modification and
collection of this Agreement or in connection with the Loans made pursuant to
this Agreement. Lender may pay someone else to help collect the Loans and to
enforce this Agreement, and Borrower will pay that amount. This includes,
subject to any limits under applicable law, Lender's reasonable attorneys and
Lender's legal expenses, whether or not there is a lawsuit, including
reasonable attorneys' fees for bankruptcy proceedings (including efforts to
modify or vacate any automatic stay or injunction), appeals, and any
anticipated post-judgment collection services. Borrower also will pay any
court costs, in addition to all other sums provided by law.
Notices. Ml notices required to be given under this Agreement shall be given
in writing, may be sent by telefacsimile and shall be effective when
actually delivered or when deposited with a nationally recognized overnight
courier or deposited in the United States mail, first class, postage prepaid,
addressed to the party to whom the notice is to be given at the address shown
above. Any party may change its address for notices under this Agreement by
giving formal written notice to the other parties, specifying that the
purpose of the notice is to change the party's address. To the extent
permitted by applicable law, it there is more than one Borrower, notice to
any Borrower will constitute notice to all Borrowers. For notice purposes,
Borrower will keep Lender informed at all times of Borrower's current
address(es).
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any such
offending provision shall be deemed to be modified to be within the limits of
enforceability or validity; however, if the offending provision cannot be so
modified, it shall be stricken and all other provisions of This Agreement in
all other respects shall remain valid and enforceable.
Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, Including without
limitation any representation, warranty or covenant, The word "Borrower" as
used herein shall include all subsidiaries and affiliates of Borrower.
Notwithstanding the foregoing however, under no circumstances shall this
Agreement be construed to require Lender to make any Loan or other financial
accommodation to any subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and agreement contained by or on behalf
of Borrower shall bind its successors and assigns and shall inure to the
benefit of Lender, its successors and assigns. Borrower shall not, however,
have the right to assign its rights under this Agreement or any interest
therein, without the prior written consent of Lender.
Exim
17
Exhibit 10.5
<PAGE>
Survival. All warranties, representations, and covenants made by Borrower in
this Agreement or in any certificate or other instrument delivered by
Borrower to Lender under this Agreement shall be considered to have been
relied upon by Lender and will survive the making of the Loan and delivery to
Lender of the Related Documents, regardless of any investigation made by
Lender or on Lender's behalf.
Time is of the Essence. Time is of the essence in the performance of this
Agreement.
Waiver. Lender shall not be deemed to have waived any right under this
Agreement unless such waiver is given in writing and signed by Lender. No
delay or omission on the part of Lender in exercising any right shall operate
as a waiver of such right or any other right. A waiver by Lender of a
provision of this Agreement shall not prejudice or constitute a waiver of
Lender's right otherwise to demand strict compliance with that provision or
any other provision of this Agreement. No prior waiver by Lender, nor any
course of dealing between Lender and Borrower, or between Lender and any
Grantor, shall constitute a waiver of any of Lender's rights or of any
obligations of Borrower or of any Grantor as to any future transactions.
Whenever the consent of Lender is required under this Agreement, the granting
of such consent by Lender in any instance shall not constitute continuing
consent in subsequent instances where such consent is required, and in all
cases such consent may be granted or withheld in the sole discretion of Lender.
FINAL AGREEMENT. Borrower understands that this Agreement and the related
loan documents are the final expression of the agreement between Lender and
Borrower and may not be contradicted by evidence of any alleged oral
agreement.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS LOAN AGREEMENT,
AND BORROWER AGREES TO ITS TERMS. THIS AGREEMENT IS DATED AS OF NOVEMBER
12, 1996.
BORROWER:
DAW TECHNOLOGIES INC.
By:
DAVID R. GROW, CFO/EVP/SECRETARY
By:
RONALD W. DAW, PRESIDENT
By:
WlLLIAM SAWAYA, SR. VICE PRESIDENT OF MANUFACTURING
LENDER:
U.S. Bank of Utah
By : Mark Garfield
Authorized Officer
Exim
18
Exhibit 10.5
<PAGE>
EXHIBIT 11.1
DAW TECHNOLOGIES, INC.
EARNINGS PER SHARE CALCULATION
Year ended December 31,
<TABLE>
1996 1995 1994
-------------------------- -------------------------- --------------------------
Primary Fully Diluted Primary Fully Diluted Primary Fully Diluted
---------- ------------- ---------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Average number of common shares
outstanding during the year
Common shares outstanding
during the entire year 12,330,254 12,330,254 11,741,254 11,741,254 10,999,170 10,099,170
Weighted average common shares
issued during the year 23,222 23,222 406,583 406,583 1,083,125 1,083,125
---------- ---------- ---------- ---------- ---------- ----------
Weighted average number of
common shares outstanding 12,353,476 12,353,476 12,147,837 1,147,837 11,182,295 11,182,295
Dilutive effect of common stock
equivalents under stock warrants
and options 90,372 90,372 190,361 215,324 - 187,606
---------- ---------- ---------- ---------- ---------- ----------
Weighted average common and
dilutive common equivalent
shares outstanding 12,443,848 12,443,848 12,338,198 12,363,161 11,182,295 11,369,901
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Net earnings applicable to
common stock $3,310,274 $3,310,274 $ 287,147 $ 287,147 $2,862,199 $2,862,199
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Net earnings per common and
dilutive common equivalent
shares outstanding $ 0.27 $ 0.27 $ 0.02 $ 0.02 $ 0.26 $ 0.25
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT
We have issued our reports dated February 14, 1997 accompanying the financial
statements and schedule of Daw Technologies, Inc., incorporated by reference
or included in the Annual Report of Daw Technologies, Inc., on Form 10-K for
the year ended December 31, 1996. We hereby consent to the incorporation by
reference of said reports in the Registration Statements of Daw Technologies,
Inc., on Forms S-3 (File No. 33-73292 effective January 3, 1994, File No.
33-84224 effective March 20, 1995, File No. 33-93656 effective June 30, 1995
and file No. 333-05541 effective July 15, 1996) and on Forms S-8 (File No.
33-93206 effective June 7, 1995 and File No. 333-03930 effective April 23,
1996).
GRANT THORNTON LLP
Salt Lake City, Utah
March 24, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AS OF DECEMBER 31, 1996 AND THE STATEMENT OF EARNINGS FOR THE
YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,258
<SECURITIES> 0
<RECEIVABLES> 27,770
<ALLOWANCES> (376)
<INVENTORY> 1,583
<CURRENT-ASSETS> 41,718
<PP&E> 13,433
<DEPRECIATION> (5,740)
<TOTAL-ASSETS> 49,495
<CURRENT-LIABILITIES> 24,606
<BONDS> 0
0
0
<COMMON> 124
<OTHER-SE> 22,814
<TOTAL-LIABILITY-AND-EQUITY> 49,495
<SALES> 112,826
<TOTAL-REVENUES> 112,826
<CGS> 97,364
<TOTAL-COSTS> 107,944
<OTHER-EXPENSES> (1,015)
<LOSS-PROVISION> 376
<INTEREST-EXPENSE> 663
<INCOME-PRETAX> 4,858
<INCOME-TAX> 1,548
<INCOME-CONTINUING> 3,310
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,310
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
