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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, 1997 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
DAW TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
UTAH 0-21818 87-0464280
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
2700 SOUTH 900 WEST
SALT LAKE CITY, UTAH 84119
(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
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 25, 1998, was approximately $17,449,000.
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 26, 1998, the Registrant had 12,407,977 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 27, 1998 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 ........................................................ 7
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 ....................... 15
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure .......................................... 15
PART III .................................................................. 16
Item 10, 11, 12 and 13 .................................................... 16
PART IV. .................................................................. 17
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K .. 17
SIGNATURES ................................................................ 19
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 1996,
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.
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
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.
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
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.
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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 total construction.
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 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.
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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, Livingston,
Scotland and Aix-en-Provence, Southern France. 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.
Component Systems.
The Company manufactures all principal component systems which comprise
an integrated cleanroom, including make-up and recirculating air handlers,
fan-filter units, filtered ceiling systems, wall systems, and floor 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,
uninterrupted 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
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4,000lbs. Individual modules can be configured as tunnels or as large ballrooms
to form cleanrooms of virtually unlimited size and shape. The Company offers
seven 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 + or - .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 + or - .032", panel length and width accurate to + or - .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 and non-progressive,
meaning individual panels 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.
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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 microelectronics manufacturers.
The Company has sold its component systems and cleanrooms to many of the world's
leading semiconductor, disk drive, and flat panel display 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 Company typically has had one
to three 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 design
and engineering offices in Livingston, Scotland and Aix-en-Provence, Southern
France which serve the European market. In addition the Company has an office in
Hsin-Chu, Taiwan, which serves the Asia/Pacific Rim region. Sales are generally
accomplished by building working relationships with microelectronics
manufacturers as well as architectural 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.
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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 $246,000, $282,000 and $255,000 in non-project related
research and development costs in 1997, 1996 and 1995, 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.
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.
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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 CleanPak
International and HuntAir for air handlers and ceilings, Clestra for ceilings,
Plascore and Unistrut for walls, and Hitachi, Hae Kwang and Tate for aluminum
raised flooring. The Company competes with specialized cleanroom integrators,
such as Meissner & Wurst, Takasago, and PCI 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 order of importance of
these factors vary from year to year. 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, 1997,
the Company's backlog was $15.7 million compared to $28.3 million at December
31, 1996. 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.
EMPLOYEES
The Company employed approximately 366 full-time employees and 4
part-time employees on December 31, 1997, compared to 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 multi-employer 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 12,500 square feet in Mesa, Arizona; Austin, Texas; Santa Clara,
California; Hsin-Chu, Taiwan; Livingston, Scotland; and Aix-en-Provence,
Southern France with various lease expiration dates ranging from 1998 through
2006. The Company believes that its facilities are adequate for its current
needs and it could obtain additional space on commercially reasonable terms, if
needed.
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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.
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<PAGE> 11
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, 1997 and 1996, respectively.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
First Quarter $ 3.625 $ 2.500
Second Quarter 3.125 2.094
Third Quarter 2.500 1.750
Fourth Quarter 2.500 1.594
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
</TABLE>
The Company did not pay or declare dividends on its Common Stock during
the years ended December 31, 1997, 1996 and 1995. 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 26, 1998, the Company had 12,407,977 shares of its Common
Stock outstanding, held by 139 shareholders of record, which does not include
shareholders whose shares are held in securities position listings.
9
<PAGE> 12
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>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Contract revenue $ 52,541 $112,826 $ 70,635 $ 47,732 $ 30,444
Cost of contracts 47,272 97,364 63,484 39,579 24,703
-------- -------- -------- -------- --------
Gross profit 5,269 15,462 7,151 8,153 5,741
-------- -------- -------- -------- --------
Selling, general and administrative
expenses 8,373 10,274 6,333 3,584 4,035
Research and Development 246 282 255 157 126
Depreciation and amortization 431 400 219 156 162
-------- -------- -------- -------- --------
9,050 10,956 6,807 3,897 4,323
-------- -------- -------- -------- --------
Earnings (loss) from operations (3,781) 4,506 344 4,256 1,418
Other income (expense), net (344) 352 119 359 (154)
-------- -------- -------- -------- --------
Earnings (loss) before income taxes (4,125) 4,858 463 4,615 1,264
Income taxes (benefit) . (1,866) 1,548 176 1,753 475
-------- -------- -------- -------- --------
NET EARNINGS (LOSS) $ (2,259) $ 3,310 $ 287 $ 2,862 $ 789
======== ======== ======== ======== ========
Earnings (loss) per common share
Basic $ (0.18) $ 0.27 $ 0.02 $ 0.26 $ 0.09
Diluted $ (0.18) $ 0.27 $ 0.02 $ 0.25 $ 0.08
Weighted-average common and
dilutive common equivalent shares
outstanding
Basic 12,416 12,350 12,148 11,182 8,860
Diluted 12,416 12,393 12,365 11,370 10,171
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents $ 5,802 $ 3,258 $ 5,885 $ 2,711 $ 886
Working capital 15,248 17,112 15,431 14,155 4,057
Total assets 32,364 49,495 40,072 23,608 16,409
Total liabilities 11,664 26,557 20,663 7,355 10,410
Total shareholders' equity 20,700 22,938 19,409 16,253 5,998
</TABLE>
10
<PAGE> 13
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 three 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 and continues to be adversely
affected by a cyclical downturn that began in 1996.
The current industry downturn has resulted in lower capital spending by
semiconductor manufacturers during the third and fourth quarters of 1996 and
throughout 1997. Management believes the downturn is nearing its end but may
continue through the first and second quarters of 1998. How quickly any recovery
will take place is still subject to significant uncertainty. The downturn has
resulted in fewer contracts available to bid, a significant increase in price
competition on contracts that were awarded, and reduced margins on such
contracts. During 1997, the Company experienced fewer new contract awards
resulting in a decrease in the Company's backlog from $28.3 million at December
31, 1996 to $15.7 million at December 31, 1997. Although the Company has
experienced an increase in the contract bidding activity during the third and
fourth quarters of 1997 compared to each of the previous four quarters,
management believes that the above-described events adversely affected its
revenues and results of operations for 1997 and anticipates the industry
downturn will continue to adversely affect its revenues and profitability
through the first and second quarters of 1998.
Although there is uncertainty surrounding the timing of a recovery in
the semiconductor industry, management continues to believe that changes taking
place in the industry should result in expanded semiconductor industry capital
expenditures in the long-term. Delays in the ramp-up of 300mm technology have
delayed the expected construction of the whole series of 300mm fabs worldwide.
Due, in part, to the lack of 300mm process tools, weaker than expected demand,
and the current focus on lowering process geometries from .25m to .18m, the
300mm effort has slowed by at least twelve months. 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 more than thirty percent
during 1997. During 1998, 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. 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. Devaluation of world
currencies against the U.S. dollar has created extreme price competitiveness
from Korean, Japanese, and German manufacturers and integrators of systems. The
collapse of the Korean marketplace in particular, has forced Korean suppliers to
look outside their historical business relationships for new markets. 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.
11
<PAGE> 14
RESULTS OF OPERATIONS
Contract revenue
<TABLE>
<CAPTION>
1997 Change 1996 Change 1995
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Contract revenue (thousands) $52,541 (53.4)% $112,826 59.7% $70,635
</TABLE>
Contract revenue for 1997 decreased by 53.4% to $52.5 million from
$112.8 million in 1996. This decrease is directly related to the downturn in the
semiconductor industry as more fully discussed above. The downturn has resulted
in fewer contracts being constructed during the year ended December 31, 1997
compared with the year ended December 31, 1996. The decrease in the Company's
backlog at December 31, 1997 compared to the backlog at December 31, 1996 is
attributed to fewer contracts available to bid. During 1996, contract revenue
increased by 59.7% to $112.8 million from $70.6 million in 1995. The increase in
revenues 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.
North America - Contract revenue for the year ended December 31, 1997
decreased by 54.4% to $34.0 million from $74.4 million for the year ended
December 31, 1996. As a percentage of total revenue North America decreased to
64.7% in 1997 compared to 66.0% in 1996. The decrease in contract revenue is
attributed to the semiconductor industry downturn resulting in fewer and smaller
contracts available during 1997 than in 1996.
Contract revenue for the year ended December 31, 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 had
received historically and were completed on schedules that were much faster than
the Company had historically been required to perform.
Asia/Pacific Rim - Contract revenue for the year ended December 31,
1997 decreased by 42.1% to $9.6 million from $16.6 million for the year ended
December 31, 1996. As a percentage of total revenue Asia/Pacific revenue
increased to 18.3% in 1997 compared to 14.7% in 1996. The fluctuation is
attributed to the worldwide semiconductor industry downturn compounded by the
uncertainty of the Asian financial environment. Several large cleanroom projects
that were in the bidding process have been delayed indefinitely. The delays in
these projects had a major impact on Asia/Pacific revenue during the fourth
quarter of 1997.
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.
Europe - Contract revenue for the year ended December 31, 1997
decreased by 58.8% to $9.0 million from $21.8 million for the year ended
December 31, 1996. As a percentage of total revenue European revenue decreased
to 17.1% in 1997 compared to 19.3% in 1996. The decrease is attributed to two
factors. First, the worldwide semiconductor industry downturn has delayed the
investment into the European community by most major semiconductor manufacturers
resulting in fewer contracts available during 1997 compared to 1996. Second,
during 1996 the Company was involved in an unusually large project in France
that generated a significant amount of revenue during 1996 that was not
available to the Company during 1997.
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.
12
<PAGE> 15
Gross Profit
<TABLE>
<CAPTION>
1997 Change 1996 Change 1995
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Gross profit (thousands) $5,269 (65.9)% $15,462 116.2% $7,151
Percentage of contract revenue 10.0% 13.7% 10.1%
</TABLE>
Gross profit for the year ended December 31, 1997 decreased by 65.9% to
$5.3 million from $15.5 million for the year ended December 31, 1996. Gross
profit decreased as a percentage of revenue to 10.0% for 1997 compared to 13.7%
for 1996. The decrease in gross margin is the direct result of the semiconductor
industry downturn (see discussion above.) The downturn has resulted in a
competitive bidding process, and contracts awarded during 1997 are at margins
less than the Company experienced in 1996. In addition, contract sizes through
1997 were significantly smaller.
Gross profit for 1996 increased by 116.2% to $15.5 million from $7.2
million in 1995 and increased as a percentage of contract revenue to 13.7% in
1996 from 10.1% in 1995. This increase is 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.
Selling, General and Administrative Expenses
<TABLE>
<CAPTION>
1997 Change 1996 Change 1995
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Selling, general and
administrative expenses (thousands) $8,373 (18.5)% 10,274 62.2% $6,333
Percentage of contract revenue 15.9% 9.1% 9.0%
</TABLE>
Selling, general and administrative expenses for 1997 decreased 18.5%
to $8.4 million, from $10.3 million, but increased as a percentage of revenue to
15.9% for the year ended December 31, 1997 compared to 9.1% for the year ended
December 31, 1996. The decrease in actual dollars spent on selling, general and
administrative expenses in 1997 compared with 1996 is the result a reduction in
general and administrative headcount completed during the first and second
quarters of 1997.
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 during 1996 compared with
1995 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. Selling, general and administrative expenses as a percentage of
contract revenue has remained relatively constant from 1995 to 1996.
Research and Development
<TABLE>
<CAPTION>
1997 Change 1996 Change 1995
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Research and
Development expense (thousands) $246 (12.8)% $282 10.6% $255
Percentage of contract revenue 0.5% 0.2% 0.4%
</TABLE>
Research and development expense decreased slightly in actual dollars
spent from 1996 to 1997. This decrease was not material. Management believes
that the Company will increase its research and development expenses during
1998, 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 1995 to 1996.
This increase was the result of research and development projects that were
based on specific customers and contracts.
13
<PAGE> 16
Depreciation and Amortization
<TABLE>
<CAPTION>
1997 Change 1996 Change 1995
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Depreciation and
amortization expense (thousands) $431 7.8% $400 82.6% $219
Percentage of contract revenue 0.8% 0.4% 0.3%
</TABLE>
Depreciation and amortization expense during 1997 increased by 7.8% to
$431,000, or 0.8% of contract revenue, from $400,000, or 0.4% of contract
revenue, in 1996. This increase is the result of a full years depreciation
expense on leasehold improvements, furniture, fixtures, computer equipment and
software purchased during 1996.
Depreciation and amortization expense in 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 the purchase of leasehold
improvements, furniture, fixtures, computer equipment and software required for
the increased sales, marketing and administrative activities during 1996.
Other Income (Expense), net
<TABLE>
<CAPTION>
1997 Change 1996 Change 1995
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Other income (expense) (thousands) $(344) (197.7)% $352 195.8% $119
Percentage of contract revenue (0.7)% 0.3% 0.2%
</TABLE>
Other income (expense) decreased in 1997 to $(344,000) from $352,000 in
1996. The decrease in other income (expense) is the result of foreign currency
losses recognized during 1997 resulting from the decline in Taiwan dollars
throughout 1997 and a litigation settlement included as part of other income
during 1996.
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.
Income Taxes (Benefit)
<TABLE>
<CAPTION>
1997 Change 1996 Change 1995
---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C>
Income taxes expense (benefit) (thousands) $(1,866) (220.5)% $1,548 779.5% $176
Percentage of contract revenue (3.6)% 1.4% 0.2%
</TABLE>
The effective tax rate (benefit) for 1997 was approximately (45)%
compared to 32% for 1996 and 38% for 1995. The decrease in the effective tax
rate from 1996 to 1997 is primarily the result of a tax benefit resulting from
the loss before taxes, calculated at the statutory federal rate (see Note I of
Notes To Financial Statements). The decrease from 1995 to 1996 was primarily the
result of tax benefits the Company was able to utilize during 1996 on foreign
sales which were taxed in the Company's foreign sales corporation.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at December 31, 1997 was $15.2 million compared to
$17.1 million at December 31, 1996. This includes cash and cash equivalents of
$5.8 million and $3.3 million at December 31, 1997 and 1996 respectively.
Receivables, including retentions, (see Note D of Notes to Financial Statements)
decreased to $12.5 million at December 31, 1997 compared to $27.4 million at
December 31, 1996. This decrease was the result of lower revenues from fewer
contracts during 1997 compared to 1996. Days sales outstanding (the ratio
between receivables, excluding retention, and average daily revenue taken over
the year) decreased to 67 days at December 31, 1997, from 72 days at December
31, 1996.
The Company's operations provided $7.9 million of cash during 1997,
compared to using $3.4 million of cash in 1996. During 1997, the Company
experienced a decrease in receivables of $14.7 million as a result of the
decline in revenues and a decrease in accounts payable and accrued expenses of
approximately $5.1 million.
At December 31, 1997, the Company had a line of credit totaling $8.0
million or the available borrowing base. The Company had $1.2 million in
borrowings against the line at December 31, 1997. Amounts drawn under the line
bears interest at the bank's prime rate (8.50% at December 31, 1997) and are due
no later than June 30,
14
<PAGE> 17
1998, with options to renew the agreement on an annual basis. The line is
secured by certain domestic accounts receivable and inventory. In addition, at
December 31, 1997, the Company maintained a guidance line of credit with a
domestic bank used to facilitate the issuance of letters of credit. The facility
allows for letters of credit to be issued up to the lesser of $3.0 million or
the available borrowing base. No letters of credit were open under this facility
at December 31, 1997. The facility expires July 31, 1998, with options to renew
the agreement on an annual basis.
During 1997, the Company used $349,000 for the purchase of property and
equipment. The Company anticipates that its capital expenditures in 1998 for
routine additions and replacements of property, plant, and equipment will be
approximately $1.3 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, 1998.
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. (See Notes To Financial Statements A-14)
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.
15
<PAGE> 18
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
27, 1998. The definitive Proxy Statement will be filed with the Commission not
later than 120 days after December 31, 1997, pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended.
16
<PAGE> 19
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, 1997 and 1996
-- Statements of Operations for the Years Ended December
31, 1997, 1996 and 1995
-- Statements of Shareholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995
-- Statements of Cash Flows for the Years Ended December
31, 1997, 1996 and 1995
-- Notes to Financial Statements
(2) Financial Statement Schedule. The following financial
statement schedules for the years ended December 31, 1997, 1996 and
1995 are included herein beginning on page S-1:
-- 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:
17
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
REGULATION S-K
EXHIBIT NO. DESCRIPTION SEQUENTIAL PAGE NO.
- --------------- ----------------------------------------------------- --------------------------
<S> <C> <C>
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 Option Plan* [Form 10-Q for quarter
ended June 30, 1996,
Exhibit 10.1]
10.4 Amendment No. 2 to 1993 Stock Option Plan* [Form 10-K for the year
ended December 31, 1996,
Exhibit 10.4]
10.5 Revolving Domestic and LC Line of Credit Agreements Filed herewith.
10.6 Lease Agreement for Salt Lake City facility* [Form 10-KSB for 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 10-KSB for the year
ended December 31, 1994,
Exhibit No. 10.9]
23.1 Consent of Independent Certified Public Accountants. Filed herewith.
27 Financial Data Schedule Filed herewith.
</TABLE>
- -------------------------
* These exhibits are incorporated herein by reference.
(d) Financial Statement Schedules:
See Item 14(a)(2) of this report.
18
<PAGE> 21
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 26, 1998.
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 26, 1998.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY IN WHICH SIGNED
- ----------------------------- --------------------------------------------
<S> <C>
/s/ Ronald W. Daw Chairman of the Board, President, Chief
- ----------------------------- Executive Officer and Director (Principal
Ronald W. Daw executive officer)
/s/ David R. Grow Executive Vice President, Chief Operating
- ----------------------------- Officer, Chief Financial Officer (Principal
David R. Grow financial and accounting officer)
/s/ Robert G. Chamberlain Director
- -----------------------------
Robert G. Chamberlain
/s/ Charles L. Bates, Jr. Director
- -----------------------------
Charles L. Bates, Jr.
/s/ James S. Jardine Director
- -----------------------------
James S. Jardine
/s/ Robert J. Frankenberg Director
- -----------------------------
Robert J. Frankenberg
</TABLE>
19
<PAGE> 22
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, 1997 and 1996, and the related statements of operations,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
Salt Lake City, Utah
February 25, 1998
F-1
<PAGE> 23
Daw Technologies, Inc.
BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
-----------------
1997 1996
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................... $ 5,802 $ 3,258
Contracts receivable, net............................... 12,472 27,394
Costs and estimated earnings in excess of billings
on contracts in progress.............................. 3,702 7,169
Inventories............................................. 1,363 1,583
Deferred income taxes................................... 352 318
Other current assets.................................... 2,144 1,996
------- -------
Total current assets................................ 25,835 41,718
PROPERTY AND EQUIPMENT -- NET, AT COST.................... 6,304 7,693
DEFERRED INCOME TAXES..................................... 135 --
OTHER ASSETS.............................................. 90 84
------- -------
$32,364 $49,495
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities................ $ 5,700 $10,782
Billings in excess of costs and estimated
earnings on contracts in progress..................... 3,005 7,505
Lines of credit......................................... 1,230 5,696
Current portion of long-term obligations................ 652 623
------- -------
Total current liabilities.......................... 10,587 24,606
LONG-TERM OBLIGATIONS, less current portion............... 1,077 1,730
DEFERRED INCOME TAXES..................................... -- 221
COMMITMENTS AND CONTINGENCIES............................. -- --
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 12,407,977
shares in 1997 and 12,400,543 shares in 1996.......... 124 124
Additional paid-in capital.............................. 15,209 15,188
Retained earnings....................................... 5,367 7,626
------- -------
Total shareholders' equity......................... 20,700 22,938
------- -------
$32,364 $49,495
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE> 24
Daw Technologies, Inc.
STATEMENTS OF OPERATIONS
(in thousands, except share data)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Contract revenue $ 52,541 $ 112,826 $ 70,635
Cost of contracts 47,272 97,364 63,484
----------- ----------- -----------
Gross profit 5,269 15,462 7,151
Operating expenses
Selling, general and administrative 8,373 10,274 6,333
Research and development 246 282 255
Depreciation and amortization 431 400 219
----------- ----------- -----------
9,050 10,956 6,807
----------- ----------- -----------
Earnings (loss) from operations (3,781) 4,506 344
Other income (expense)
Interest (295) (663) (129)
Other income (expense), net (49) 1,015 248
----------- ----------- -----------
(344) 352 119
----------- ----------- -----------
Earnings (loss) before income taxes (4,125) 4,858 463
Income taxes (benefit) (1,866) 1,548 176
----------- ----------- -----------
NET EARNINGS (LOSS) $ (2,259) $ 3,310 $ 287
=========== =========== ===========
Earnings (loss) per common share
Basic $ (0.18) $ 0.27 0.02
Diluted (0.18) 0.27 0.02
Weighted-average common and dilutive
common equivalent shares outstanding
Basic 12,415,957 12,350,172 12,147,837
Diluted 12,415,957 12,393,356 12,364,989
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 25
Daw Technologies, Inc.
STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share data)
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Addi-
tional
Common paid-in Retained
stock capital earnings Total
------ ------- -------- -------
<S> <C> <C> <C> <C>
Balances as of January 1, 1995 $ 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 warrants, 189,000 shares 2 646 -- 648
Tax benefit from exercise of stock options -- 248 -- 248
Net earnings for 1995 -- -- 287 287
------ ------- ------- -------
Balances as of 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
------ ------- ------- -------
Balances as of December 31, 1996 124 15,188 7,626 22,938
Common stock issued pursuant to the
purchase of 43,738 shares pursuant
to employee stock purchase plan -- 84 -- 84
Common stock purchased and retired
of 36,304 shares -- (63) -- (63)
Net loss for 1997 -- -- (2,259) (2,259)
------ ------- ------- -------
Balances as of December 31, 1997 $ 124 $15,209 $ 5,367 $20,700
====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 26
Daw Technologies, Inc.
STATEMENTS OF CASH FLOWS
(in thousands, except share data)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1997 1996 1995
------- -------- -------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents
Cash flows from operating activities
Net earnings (loss) $(2,259) $ 3,310 $ 287
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization 1,724 1,649 875
(Gain) loss on disposition of property and
equipment (7) 6 35
Provision for losses on contracts receivable 180 330 30
Deferred income taxes (benefit) (390) (145) 48
Changes in assets and liabilities
Contract receivables 14,742 (13,010) (3,137)
Costs and estimated earnings in excess
of billings on contracts in progress 3,467 3,761 (5,697)
Inventories 220 (105) (303)
Other current assets (148) (1,555) 48
Accounts payable
and accrued liabilities (5,082) (1,490) 6,092
Billings in excess of costs and estimated
earnings on contracts in progress (4,500) 3,806 3,013
Other assets (6) (2) (41)
------- -------- -------
Net cash provided by (used in)
operating activities 7,941 (3,445) 1,250
------- -------- -------
Cash flows from investing activities
Payments for purchase of property
and equipment (349) (2,929) (4,996)
Proceeds from disposition of property
and equipment 21 31 --
------- -------- -------
Net cash used in
investing activities (328) (2,898) (4,996)
------- -------- -------
</TABLE>
(continued)
F-5
<PAGE> 27
Daw Technologies, Inc.
STATEMENTS OF CASH FLOWS -- CONTINUED
(in thousands, except share data)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities
Proceeds from issuance of long-term obligations -- -- 2,791
Net change in lines of credit (4,466) 4,196 1,500
Payments of long-term debt -- -- (92)
Payments for purchase and retirement of
common stock (63) -- --
Proceeds from issuance of stock 84 219 2,869
Payments on obligations under capital leases (624) (699) (148)
------- ------- ------
Net cash provided by (used in)
financing activities (5,069) 3,716 6,920
------- ------- ------
Net increase (decrease) in cash
and cash equivalents 2,544 (2,627) 3,174
Cash and cash equivalents at beginning of year 3,258 5,885 2,711
------- ------- ------
Cash and cash equivalents at end of year $ 5,802 $ 3,258 $5,885
======= ======= ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for
Interest $ 295 $ 663 $ 129
Income taxes 438 1,055 320
NONCASH INVESTING AND FINANCING ACTIVITIES
Capital lease obligations of $173 and $2,908 for
property and equipment acquisitions were incurred
during 1996 and 1995, respectively.
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 28
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(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> 29
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(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 (over-billings).
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.
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> 30
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(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 (loss) per share
Basic earnings (loss) per common share (BEPS) is based on the weighted
average number of common shares outstanding during each period. Diluted
earnings (loss) per common share are based on shares outstanding
(computed as under BEPS) and dilutive potential common shares.
Potential common shares included in the dilutive earnings (loss) per
share calculation include stock options awarded (Note S).
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.
Research and development costs have been charged to expense as
incurred.
9. Concentrations
The Company's financial instruments that are exposed to concentration
of credit risk consist primarily of cash and 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 31% (40% in 1996) of receivables are with three different
customers. In addition, approximately 42% (41% in 1996) of receivables
are due from entities located outside of North America, primarily
Europe and Asia. Of the total receivables, approximately 6% are
denominated in foreign currencies (13% at December 31, 1996). The
Company routinely evaluates the financial strength of its customers and
monitors each account to minimize the risk of loss.
F-9
<PAGE> 31
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(in thousands, except share data)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
9. Concentrations - continued
The Company maintains cash and cash equivalents at several financial
institutions. Accounts at each domestic institution are insured by the
FDIC up to $100. Uninsured domestic balances aggregate to approximately
$229 at December 31, 1997 ($1,412 in 1996). The Company also maintains
cash and cash equivalents in foreign accounts. These uninsured balances
aggregate to $5,709 at December 31, 1997 ($2,413 in 1996).
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.
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, accrued liabilities and
lines of credit approximate their fair values.
13. Reclassifications
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform with the 1997 presentation.
F-10
<PAGE> 32
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(in thousands, except share data)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
14. Recently issued accounting pronouncements not yet adopted
Comprehensive income
In September 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 130 (SFAS 130),
"Reporting Comprehensive Income." SFAS 130 requires entities presenting
a complete set of financial statements to include details of
comprehensive income that arise in the reporting period. Comprehensive
income consists of net earnings or loss for the current period and
other comprehensive income, which consists of revenue, expenses, gains,
and losses that bypass the statement of earnings and are reported
directly in a separate component of equity. Other comprehensive income
includes, for example, foreign currency items, minimum pension
liability adjustments, and unrealized gains and losses on certain
investment securities. SFAS 130 requires that components of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. This
statement is effective for fiscal years beginning after December 15,
1997 and requires restatement of prior period financial statements
presented for comparative purposes.
Disclosure of segments
Also in September 1997, the FASB issued Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of
an Enterprise and Related Information." This statement requires an
entity to report financial and descriptive information about their
reportable operating segments. An operating segment is a component of
an entity for which financial information is developed and evaluated by
the entity's chief operating decision maker to assess performance and
to make decisions about resource allocation. Entities are required to
report segment profit or loss, certain specific revenue and expense
items and segment assets based on financial information used internally
for evaluating performance and allocating resources. This statement is
effective for fiscal years beginning after December 15, 1997 and
requires restatement of prior period financial statements presented for
comparative purposes.
Management does not believe that the adoption of SFAS 130 and SFAS 131
will have a material effect on the Company's financial statements.
F-11
<PAGE> 33
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(in thousands, except share data)
NOTE B - CAPITAL TRANSACTIONS
During 1997, the Company received $84 from the issuance of 43,738
shares of common stock. The Company purchased and retired 36,304 shares
of common stock.
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.
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
43,738 shares under the plan in 1997 (22,889 in 1996).
NOTE C - INTERNATIONAL OPERATIONS
Financial information summarized by geographic area for the years ended
December 31, 1997, 1996, and 1995, is as follows.
<TABLE>
<CAPTION>
North
1997 America Europe Asia/Pacific Consolidated
------------------------------------- ------- ------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues - unaffiliated customers $ 33,969 $ 8,983 $ 9,589 $ 52,541
Loss from operations (283) (2,668) (830) (3,781)
Identifiable assets 18,655 8,262 5,447 32,364
</TABLE>
<TABLE>
<CAPTION>
North
1996 America 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
</TABLE>
F-12
<PAGE> 34
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(in thousands, except share data)
NOTE C - INTERNATIONAL OPERATIONS - CONTINUED
<TABLE>
<CAPTION>
North
1995 America Europe Asia/Pacific Consolidated
- --------------------------------------- ------- ------ ------------ ------------
<S> <C> <C> <C> <C>
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
</TABLE>
Foreign currency transaction losses totaling approximately $225 for 1997 are
included in other income. Foreign currency transactions for 1996 and 1995 were
not significant.
NOTE D - CONTRACTS RECEIVABLE
Contracts receivable consist of the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current receivables ................... $ 9,666 $22,353
Retentions receivable ................. 3,209 5,417
------- -------
12,875 27,770
Less allowance for doubtful accounts .. (403) (376)
------- -------
Contracts receivable .................. $12,472 $27,394
======= =======
</TABLE>
NOTE E - OTHER CURRENT ASSETS
Other current assets consist of the following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Taxes receivable ....................... $1,358 $ --
Prepaid foreign taxes .................. 172 1,120
Miscellaneous receivables and deposits.. 278 552
Prepaid expenses ....................... 336 324
------ ------
$2,144 $1,996
====== ======
</TABLE>
F-13
<PAGE> 35
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(in thousands, except share data)
NOTE F - PROPERTY AND EQUIPMENT
Property and equipment and estimated useful lives consist of the following:
<TABLE>
<CAPTION>
Years 1997 1996
------------ ------- -------
<S> <C> <C> <C>
Equipment 5-10 $ 4,150 $ 4,088
Furniture and fixtures 3-5 2,588 2,432
Leasehold improvements life of lease 2,605 2,514
Equipment under capital leases 5-10 4,067 4,067
Vehicles 3-5 317 331
------- -------
13,727 13,432
Less accumulated depreciation
and amortization including $2,332
and $1,653 for equipment under
capital leases at 1997 and 1996,
respectively (7,423) (5,739)
------- -------
$ 6,304 $ 7,693
======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Total costs and estimated earnings $108,215 $112,396
Progress billings to date 107,518 112,732
-------- --------
$ 697 $ (336)
======== ========
</TABLE>
The above are included in the balance sheets under the following captions:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Costs and estimated earnings in excess
of billings on contracts in progress $ 3,702 $ 7,169
Billings in excess of costs and estimated
earnings on contracts in progress (3,005) (7,505)
-------- --------
$ 697 $ (336)
======== ========
</TABLE>
F-14
<PAGE> 36
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(in thousands, except share data)
NOTE H -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Trade accounts payable $2,729 $ 6,120
Other accrued liabilities 1,515 1,668
Employees salaries, incentive pay,
vacation and payroll taxes 1,090 1,808
Reserve for contract estimates and warranties 366 575
Accrued income taxes payable -- 611
------ -------
$5,700 $10,782
====== =======
</TABLE>
NOTE I -- INCOME TAXES
Components of income taxes (benefit) are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current
Federal $(1,171) $1,288 $111
State (305) 330 17
Foreign -- 75 --
------- ------ ----
(1,476) 1,693 128
Deferred
Federal (379) (119) 42
State (11) (26) 6
------- ------ ----
(390) (145) 48
------- ------ ----
Income taxes (benefit) $(1,866) $1,548 $176
======= ====== ====
</TABLE>
F-15
<PAGE> 37
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(in thousands, except share data)
NOTE I - INCOME TAXES - CONTINUED
The income tax expense (benefit) reconciled to the tax computed at the
statutory Federal rate of 34% is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Tax (benefit) at federal statutory rate $(1,403) $ 1,652 $ 157
Nondeductible expenses 11 41 23
State income taxes, net of federal
income tax benefit (234) 234 12
Foreign sales corporation exemption (167) (333) (54)
All other (73) (46) 38
------- ------- -------
$(1,866) $ 1,548 $ 176
======= ======= =======
</TABLE>
Deferred income taxes related to the following:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Current deferred tax assets
Allowance for doubtful accounts $ 150 $ 147
Accrued expenses and reserves 202 171
----- -----
$ 352 $ 318
===== =====
Long-term deferred tax assets (liabilities)
Excess book depreciation and amortization $(226) $(221)
Foreign tax credit carryforwards 162 --
Alternative minimum tax credit carryforwards 199 --
----- -----
$ 135 $(221)
===== =====
</TABLE>
The foreign tax credit carry forward of $162 expires during 2001. Management
believes it is more likely than not that the Company will have sufficient
foreign and domestic income to utilize the credits before expiration.
F-16
<PAGE> 38
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(in thousands, except share data)
NOTE J- LINES OF CREDIT
During 1997, the Company maintained a revolving line of credit with a
domestic bank for the lesser of $8,000 or the available borrowing base.
The interest rate is computed at the bank's prime rate (8.50% at
December 31, 1997) and requires monthly payments of interest. The
Company had $1,230 in borrowings against the line at December 31, 1997
($4,216 at December 31, 1996) . The line of credit expires June 30,
1998. The line of credit is collateralized by certain domestic
receivables and inventories. The line of credit agreement contains
restrictive covenants imposing limitations on payments of cash
dividends, purchases or redemptions of capital stock, indebtedness and
other matters. At December 31, 1997, the Company was out of compliance
on certain indebtedness covenants for which they obtained a waiver
subsequent to year end.
Also during 1997, the Company maintained a guidance line of credit with
a domestic bank used to facilitate the issuance of letters of credit.
The facility allows for letters of credit to be issued up to the lesser
of $3,000 or the available borrowing base. The facility expires July
31, 1998. In addition, the facility maintains the same restrictive
covenants and collateral requirements as the above mentioned revolving
line of credit. No letters of credit were open under this facility at
December 31, 1997.
In addition, during 1997 and 1996, the Company maintained another
revolving line of credit with a domestic bank for $3,500 with a
variable rate of interest of prime (8.50% at December 31, 1996). The
line matured during 1997, and has not been renewed. The outstanding
balance against the line at December 31, 1996 was $1,480. The line was
collateralized by certain international receivables and inventories.
This line also contained restrictive covenants imposing limitations on
purchases or redemptions of capital stock, indebtedness and other
matters.
NOTE K - LONG-TERM OBLIGATIONS
The Company has entered into capital 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 $65 monthly including interest.
F-17
<PAGE> 39
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(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, 1997.
<TABLE>
<S> <C>
Year ending December 31,
1998 $ 779
1999 632
2000 539
2001 10
------
Total minimum leases payments 1,960
Less amount representing interest 231
------
Present value of net minimum lease payments 1,729
Less current portion 652
------
Long-term portion $1,077
======
</TABLE>
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, 1997.
<TABLE>
<S> <C>
Year ending December 31,
1998 $1,961
1999 1,724
2000 972
2001 636
2002 583
Thereafter 1,234
------
$7,110
======
</TABLE>
The building leases provide for payment of property taxes, insurance,
and maintenance costs by the Company. Rental expense for operating
leases totaled $1,670, $737 and $564 for 1997, 1996 and 1995
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.
F-18
<PAGE> 40
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(in thousands, except share data)
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 $176, $184 and
$30 for the years ended December 31, 1997, 1996 and 1995, 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 $303, $484 and $263
or 3.9%, 2.3% and 2.0% of gross payroll of covered employees,
respectively, for the years ended December 31, 1997, 1996 and 1995.
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.
NOTE N - LEGAL PROCEEDINGS AND CLAIMS
The Company is engaged in various lawsuits and claims, either as
plaintiff or defendant, in the normal course of business. In the
opinion of management, based upon advice of counsel, the ultimate
outcome of these lawsuits will not have a material impact on the
Company's financial statements.
F-19
<PAGE> 41
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(in thousands, except share data)
NOTE O - PRIMARY CUSTOMERS
The Company has typically had one to three 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 general contractors of fabrication facilities.
The Company's major customers and revenue received therefrom are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ------- -------
<S> <C> <C> <C>
Company A $ -- $21,371 $ --
Company B 7,241 17,916 --
Company C -- 16,247 --
Company D -- -- 8,654
Company E -- -- 7,883
Company F -- -- 7,624
</TABLE>
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 Incorporated totaling
$223, $1,118, and $525 in 1997, 1996, and 1995, respectively.
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 $138 and $137 in 1997 and
1996, respectively.
F-20
<PAGE> 42
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(in thousands, except share data)
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 through 2007. Options granted prior to or on
October 24, 1996 expire through 2001.
The Company granted options to purchase 55,000 shares, 272,000 shares
and 255,000 shares in 1997, 1996 and 1995, respectively, of the
Company's common stock of which 20,000 shares in 1997, 40,000 shares in
1996 and 30,000 shares in 1995 respectively, were granted to
non-employee directors. Additionally, 30,000 shares, 111,500 shares,
and 63,500 shares, were granted to executive officers (including
officers who are directors), during 1997, 1996, and 1995, respectively.
Also, 5,000 shares, 120,500 shares and 161,500 shares in 1997, 1996,
and 1995, respectively, were granted to other employees of the Company.
On October 24, 1996 all options with an exercise price greater than
$3.50 were re-priced to $3.50, which was the market price of the
Company stock on that date.
F-21
<PAGE> 43
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(in thousands, except share data)
NOTE Q - WARRANTS AND OPTIONS - CONTINUED
The Company has adopted only the disclosure provisions of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
(FAS123). Therefore, the Company continues to account 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 (loss) and earnings
(loss) per share would have been reduced (or increased) to the
following pro forma amounts:
<TABLE>
<CAPTION>
1997 1996 1995
--------- ------- ------
<S> <C> <C> <C> <C>
Net earnings (loss) As reported $ (2,259) $ 3,310 $ 287
Pro forma (2,458) 2,976 185
Earnings (loss) per
share-basic As reported (0.18) 0.27 0.02
Pro forma (0.20) 0.24 0.01
Earnings (loss) per As reported (0.18) 0.27 0.02
share-assuming dilution Pro forma (0.20) 0.24 0.01
</TABLE>
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 1997, 1996 and 1995: expected volatility of 53% (56%
for 1996 and 1995); risk-free interest rate of 6.05% (6.04% for 1996
and 1995); and expected life of 9.6 years (4.7 for 1996 and 1995). The
weighted-average fair value of options granted was $1.60 and $2.19 in
1997 and 1996, respectively.
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 that the resulting option values are reasonable.
F-22
<PAGE> 44
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(in thousands, except share data)
NOTE Q - WARRANTS AND OPTIONS - CONTINUED
Changes in the Company's stock options and warrants are as follows:
<TABLE>
<CAPTION>
Weighted-
average
Stock Exercise exercise
Warrants options price price
--------- -------- ------------- ----------
<S> <C> <C> <C> <C>
Outstanding at
January 1, 1995 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
Granted -- 55,000 1.94 - 3.00 2.24
Exercised -- -- -- --
Canceled or expired (6,600) (98,500) 2.50 - 3.50 3.30
-------- --------
Outstanding at
December 31, 1997 -- 693,000 1.94 - 3.50 3.32
======== ========
Exercisable at
December 31, 1997 -- 535,500 $ 3.00 - 3.50 $ 3.44
======== ========
</TABLE>
The weighted-average remaining contractual life of options outstanding
at December 31, 1997 is 4.3 years.
F-23
<PAGE> 45
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(in thousands, except share data)
NOTE R - QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Quarterly financial results for the years ended December 31, 1997,
1996, and 1995 are as follows:
<TABLE>
<CAPTION>
Net
earnings
Earnings Net (loss) per
Contract Gross (loss) from earnings common
1997 revenue profit (loss) operations (loss) share-basic
---------------- -------- ------------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
First quarter $ 16,795 $ 2,583 $ 327 $ 182 $ 0.02
Second quarter 16,463 2,398 97 15 --
Third quarter 11,453 2,036 46 48 --
Fourth quarter 7,830 (1,748) (4,251) (2,504) (0.20)
-------- -------- -------- -------- --------
$ 52,541 $ 5,269 $ (3,781) $ (2,259) $ (0.18)
======== ======== ======== ======== ========
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
======== ======== ======== ======== ========
</TABLE>
F-24
<PAGE> 46
Daw Technologies, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
(in thousands, except share data)
NOTE S - EARNINGS (LOSS) PER COMMON SHARE
During 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 128, "Earnings per Share". This
statement changed the method in which earnings (loss) per share are
determined. The new standard requires the computation of basic earnings
(loss) per share and earnings (loss) per share assuming dilution (Note
A7). Adoption of this statement has been applied retroactively and the
1996 and 1995 earnings per share (EPS) amounts have been recomputed
applying the new standard and has not had a material impact on earnings
(loss) per share. Options to purchase 693,000 shares of common stock at
$1.94 to $3.50 a share were outstanding at December 31, 1997. They were
not included in the computation of loss per share because they would
have had an anti-dilutive effect on the 1997 loss per share.
The following data show the shares used in computing earnings (loss)
per common share including dilutive potential common stock:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Common shares outstanding
entire period 12,400,543 12,330,254 11,741,254
Net weighted average common shares
issued during period 15,414 19,918 406,583
---------- ---------- ----------
Weighted average number of common
shares used in basic EPS 12,415,957 12,350,172 12,147,837
Dilutive effect of stock options -- 40,455 212,356
Dilutive effect of warrants -- 2,729 4,796
---------- ---------- ----------
Weighted average number of common
shares and dilutive potential common
shares used in diluted EPS 12,415,957 12,393,356 12,364,989
========== ========== ==========
</TABLE>
F-25
<PAGE> 47
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 25, 1998, which is included in the
annual report to shareholders and Form 10-K, we have also audited Schedule II -
valuation and qualifying accounts for each of the three years in the period
ended December 31, 1997. 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 25, 1998
S-1
<PAGE> 48
DAW TECHNOLOGIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------------------------------------------------------------------------
ADDITIONS
- --------------------------------------------------------------------------------------------------------------
(2)
(1) CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING OF COSTS AND ACCOUNTS DEDUCTIONS - END OF
DESCRIPTION PERIOD EXPENSES DESCRIBE WRITE-OFFS PERIOD
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
Year ended December 31, 1997 $ 376 $ 180 $ -- $(153) $ 403
Year ended December 31, 1996 140 330 -- (94) 376
Year ended December 31, 1995 138 30 -- (28) 140
Reserve for contract estimates
Year ended December 31, 1997 $ 575 $ 654 $ -- $(863) $ 366
Year ended December 31, 1996 438 940 -- (803) 575
Year ended December 31, 1995 313 513 -- (388) 438
</TABLE>
S-2
<PAGE> 49
EXHIBIT INDEX
<TABLE>
<CAPTION>
REGULATION S-K
EXHIBIT NO. DESCRIPTION SEQUENTIAL PAGE NO.
- --------------- ----------------------------------------------------- --------------------------
<S> <C> <C>
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 Option Plan* [Form 10-Q for quarter
ended June 30, 1996,
Exhibit 10.1]
10.4 Amendment No. 2 to 1993 Stock Option Plan* [Form 10-K for the year
ended December 31, 1996,
Exhibit 10.4]
10.5 Revolving Domestic and LC Line of Credit Agreements Filed herewith.
10.6 Lease Agreement for Salt Lake City facility* [Form 10-KSB for 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 10-KSB for the year
ended December 31, 1994,
Exhibit No. 10.9]
23.1 Consent of Independent Certified Public Accountants. Filed herewith.
27 Financial Data Schedule Filed herewith.
</TABLE>
- -------------------------
* These exhibits are incorporated herein by reference.
(d) Financial Statement Schedules:
See Item 14(a)(2) of this report.
<PAGE> 1
EXHIBIT 10.5
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
PRINCIPAL LOAN DATE MATURITY LOAN NO. CALL COLLATERAL ACCOUNT OFFICER INITIALS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$8,000,000.00 08-06-1997 2071228480 2071228480 69772
- ------------------------------------------------------------------------------------------------------------
</TABLE>
References in the shaded area are for Lender's use only and do not limit the
applicability of this document to any particular loan or item.
BORROWER: DAW TECHNOLOGIES, INC. LENDER: U.S. BANK
2700 SOUTH 900 WEST CORPORATE BANKING
SALT LAKE CITY UT 84119 107 SOUTH MAIN STREET
SALT LAKE CITY, UT 84111
THIS LOAN AGREEMENT BETWEEN DAW TECHNOLOGIES, INC. ("BORROWER") AND U.S. BANK
("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 RELYING UPON BORROWER'S REPRESENTATIONS, WARRANTIES, AND AGREEMENTS,
AS SET FORTH IN THIS AGREEMENT; (B) THE GRANTING, RENEWING, OR EXTENDING OF ANY
LOAN BY LENDER AT 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 AUGUST 6, 1997, 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 time.
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."
BORROWING BASE. The words "Borrowing Base" mean, as determined by Lender
from time to time, the lesser of (a) $8,000,000.00; or (b) 75.000% 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 "Collateral" means and includes without limitation all
property and assets granted as collateral security for a Loan, whether real
or personal property, 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, lease or
consignment intended as a security device, or any other security or lien
interest whatsoever, whether created by law, contract, or otherwise. The
work "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 is 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.
<PAGE> 2
(f) 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 sole discretion, deems
the creditworthiness or financial condition of the Account Debtor to be
unsatisfactory.
(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 of 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.
(j) Accounts which have not been paid in full within 90 DAYS from the
invoice date. The entire balance of any Account of any single Account
debtor will be ineligible whenever the portion of the Account which has
not been paid within 90 DAYS from the invoice date is in excess of
25.000% of the total amount outstanding on the Account.
ERISA. The word "ERISA" means the Employee Retirement Income 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 limitation
all Loans, together with all other obligations, debts 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 unliquidated; 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, its successors and assigns.
LINE OF CREDIT. The words "Line of Credit" mean the credit facility
described in the Section titled "LINE OF CREDIT" below.
LIQUID ASSETS. The words "Liquid Assets" mean Borrower's cash on hand plus
Borrower's readily marketable securities.
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, if 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 (f) those liens and
security interests which in the aggregate constitute an immaterial 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 instruments, 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, understanding
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.
<PAGE> 3
TANGIBLE NET WORTH. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (ie., goodwill, trademarks, patents,
copyrights, organizational expenses, and similar intangible items, but
including leaseholds and leasehold improvements) less total Debt.
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 outstanding 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 this Agreement and all
Related Documents have been duly authorized, executed, and delivered by
Borrower to Lender.
(b) Lender shall have received such opinions of counsel, supplemental
opinions, and documents as Lender may request.
(c) The security interests 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 it 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 this Agreement and the Related Documents as are then due
and payable, including without limitation the following loan fees:
OPERATING LINE: .25% NON-USAGE FEE BASED ON THE UNUSED PORTION OF THE
LINE COMMITMENT, ACCRUING MONTHLY AND PAID QUARTERLY IN ARREARS;
INDIVIDUAL STANDBY LETTER OF CREDIT FEE: 1.5% PER ANNUM.
(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,
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 fees, costs and charges, if 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 connection 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,
if required) shall grant to Lender Security Interests 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
Security 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
<PAGE> 4
keep and maintain such records as Lender may require, including without
limitation information concerning Eligible Accounts and Account balances and
agings. The following is an accurate and complete list of all locations at
which Borrower keeps or maintains business records concerning Borrower's
Accounts: 2700 SOUTH 900 WEST, SALT LAKE CITY, UT 84119.
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 and substance satisfactory to the
Lender. Thereafter 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.
Supplemental schedules shall be delivered according to the following
schedule: MONTHLY.
REPRESENTATIONS AND WARRANTIES CONCERNING ACCOUNTS. With respect to the
Accounts, Borrower represents and warrants to Lender: (a) Each Account
represented by Borrower to be an Eligible Account for purposes of this
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 and 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 and 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 times any Indebtedness exists:
ORGANIZATION. Borrower is a corporation which is duly organized, validly
existing, and in good standing under the laws of the state of Borrower's
incorporation 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," "release," and "threatened release," as used in this Agreement,
shall have the same meanings as set in the "CERCLA," "SARA," the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1801, 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 matter. (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 agents 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 purposes 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 contained herein
are based on Borrower's due diligence in investigating the properties for
hazardous waste and hazardous substances. Borrower hereby (a) releases and
waives 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, losses, 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, administrative
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 reports 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.
<PAGE> 5
LIEN PRIORITY. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements, 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 Loan 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
successors, 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, (iii) 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 executive 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 connection with
this Agreement or any transaction contemplated hereby is, and all
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 WARRANTIES. Borrower understands and agrees
that Lender, without independent investigation, is relying upon the above
representations and warranties 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
is the last to occur.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, while
this Agreement is in effect, Borrower will:
LITIGATION. Promptly inform Lender in writing of (a) all material adverse
changes 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.
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.
ADDITIONAL INFORMATION. Furnish such additional information and statements,
lists of assets and liabilities, agings of receivable 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 covenants and
ratios:
TANGIBLE NET WORTH. Maintain a minimum Tangible Net Worth of not less
than $20,000,000.00
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 to Current Liabilities
in excess of 1.30 TO 1.00.
CASH FLOW REQUIREMENTS. Maintain Cash Flow at not less than the
following level: BORROWER TO MAINTAIN A DEBT SERVICE COVERAGE OF 1.25X.
DEBT SERVICE COVERAGE IS DEFINED AS: NET PROFIT AFTER TAX PLUS
DEPRECIATION EXPENSE PLUS INTEREST EXPENSE MINUS STOCK REPURCHASES
DIVIDED BY PRIOR PERIOD CURRENT PORTION LONG TERM DEBT PLUS INTEREST
EXPENSE.
The following provisions shall apply for purposes of determining compliance
with the foregoing financial covenants and ratios: CAPITAL EXPENDITURE,
CURRENT RATIO, NET WORTH RATIO AND TANGIBLE NET WORTH TO BE MEASURED
QUARTERLY BASED ON BORROWER'S QUARTER END; DEBT SERVICE COVERAGE TO BE
MEASURED ANNUALLY BASED ON BORROWER'S FISCAL YEAR END. 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, amounts, 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 an 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.
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
<PAGE> 6
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: OPERATING LINE: .25% NON-USAGE FEE BASED ON THE
UNUSED PORTION OF THE LINE COMMITMENT, ACCRUING MONTHLY AND PAID QUARTERLY
IN ARREARS; INDIVIDUAL STANDBY LETTER OF CREDIT FEE: 1.5% PER ANNUM.
LOAN PROCEEDS. Use all Loan proceeds solely for the following specific
purposes: LINE OF CREDIT FOR OPERATING PURPOSES AND TO SUPPORT THE ISSUANCE
OF STANDBY LETTER OF CREDIT.
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 attach, 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 assessments, 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 this Agreement and in the Related documents in a timely manner,
and promptly notify Lender if Borrower learns of the occurrence of any event
which constitutes an Event of Default under this Agreement or under 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 agents of Lender at any reasonable time to
inspect any and all Collateral for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, 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 of 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 of 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 is 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, documents and other agreements as Lender or its attorneys may
reasonably request 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 written consent of
Lender:
CAPITAL EXPENDITURES. Make or contract to make capital expenditures,
including leasehold improvements, in any fiscal year in excess of
$2,500,000.00 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 activities
substantially different than those in which Borrower is presently engaged,
(b) cease operations, liquidate, merge, transfer, acquire or 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
<PAGE> 7
federal and state law which arise solely from their status as Shareholders
of a Subchapter S Corporation because of their ownership of shares 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 GUARANTIES. (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 guarantor 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 or 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.
ACCESS LAWS. Without limiting the generality of any provision of this agreement
requiring Borrower to comply with applicable laws, rules and regulations,
Borrower agrees that it will at all times comply with applicable laws relating
to disabled access including, but not limited to, all applicable titles of the
Americans with Disabilities Act of 1990.
CONTROLS AND MONITORING.
1. BORROWER TO PROVIDE LENDER WITH ANNUAL CPA AUDITED FINANCIAL STATEMENT ON
DAW TECHNOLOGIES, INC.
2. BORROWER TO PROVIDE LENDER WITH QUARTERLY FORM 10-Q STATEMENTS.
3. NO DIVIDENDS WITHOUT PRIOR WRITTEN CONSENT OF THE BANK.
4. BORROWER TO PROVIDE LENDER WITH QUARTERLY COMPLIANCE CERTIFICATE.
5. DOMESTIC LETTERS OF CREDIT UNDER THE LETTER OF CREDIT FACILITY ARE DEDUCTED
FROM THE BORROWING BASE. ADVANCES TO BE 50% AGAINST RETENTION AND UNDERBILLINGS
LESS OVERBILLINGS WITH A $2,000,000.00 CAP. INVENTORY IS TAKEN AS COLLATERAL BUT
IS NOT ADVANCED AGAINST.
6. BORROWER TO PROVIDE LENDER WITH MONTHLY BORROWING BASE CERTIFICATE.
RIGHT OF SETOFF. Borrower grants to Lender a contractual possessory security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's 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 Guarantor to comply with 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 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 credit 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.
<PAGE> 8
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 rights 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 alteration of or amendment to this Agreement
shall be effective unless given in writing an signed by the party or parties
sought to be charged or bound by the alteration or amendment.
APPLICABLE LAW. THIS AGREEMENT HAS BEEN DELIVERED TO 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 TORT 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 to 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 persons
signing below is responsible for all obligations in this Agreement.
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, of potential purchasers, any information or knowledge Lender may
have about borrower or about any other matter 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 notices of any repurchase of such
participation interests. Borrower also agrees that the purchasers of any
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 attorney's 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'
fees 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. All 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, if 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.
<PAGE> 9
SUBSIDIARIES AND AFFILIATES OF BORROWER. To the extent the context of any
provision 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 agreements 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.
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 rights 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 AUGUST 6, 1997.
BORROWER:
DAW TECHNOLOGIES, INC.
BY:__________________________________________
DAVID R. GROW, CFO/EVP/SECRETARY
BY:__________________________________________
RONALD W. DAW, PRESIDENT
BY:__________________________________________
WILLIAM SAWAYA, SR. VICE PRESIDENT OF MANUFACTURING
LENDER:
U.S. BANK
BY:__________________________________________
AUTHORIZED OFFICER
<PAGE> 10
[U.S. BANK LOGO]
CONTINUING AGREEMENT FOR
COMMERCIAL LETTERS OF CREDIT
DATED AS OF:
APPLICANT: Daw Technologies, Inc.
CORRESPONDENT BANK:
(if applicable)
From time to time, any person signing this Agreement as Applicant or
Correspondent Bank (either or both, "Applicant") may request U.S. Bank to issue
or to request one of its affiliates to issue one or more irrevocable commercial
letters of credit (each, a "Credit") substantially in accordance with the terms
of any application (each, an "Application") submitted to U.S. Bank by Applicant.
In consideration of the issuance by U.S. Bank or an affiliate of U.S.
Bank (each such affiliated issuer, an "Other Issuer") of one or more Credits,
each Applicant agrees that the following terms shall apply to each Application
and each Credit issued by U.S. Bank or any Other Issuer (either or both,
"Bank").
1. OBLIGATIONS
a. Applicant promises to pay Bank on demand at U.S. Bank's International
Banking Office,Salt Lake City, Utah:
i. The amount of each draft or other demand for payment ("draft") drawn
under the Credit, provided, however, (a) if the draft is drawn in
currency other than United States currency, Applicant shall pay an
equivalent amount in United States currency, at Bank's then current
selling rate for telecommunications transfer of such other currency
to the place the draft is payable, or at Bank's option, in any other
currency, place, form and manner acceptable to Bank, and (b) if the
draft is a time draft, Applicant shall make such payment without
demand sufficiently in advance of its maturity date to enable Bank
to arrange for cover to reach the place of payment no later than one
business day prior to its maturity.
ii. In advance, all commissions at the rate fixed by Bank, and all
expenses Bank may pay or incur in connection with the Credit.
iii. All taxes, levies, imposts, duties, charges, fees, deductions or
withholdings of any nature whatsoever paid or incurred by Bank in
connection with this Agreement, the Credit or any related
transactions and any liability with respect thereto (including but
not limited to interest, penalties and expenses).
iv. Interest on all amounts due under this Agreement from the applicable
due date until paid at a per annum rate equal to the sum of U.S.
Bank's prime rate, as that rate may vary from time to time, plus 5%.
Interest shall be calculated on the basis of a 360-day year and the
actual number of days elapsed. U.S. Bank's prime rate is the rate
which U.S. Bank from time to time establishes as its prime rate and
is not, for example, the lowest rate of interest which U.S. Bank
collects from any borrower or class of borrowers.
b. Without limiting Applicant's obligations to any Other Issuer, but
without duplication, Applicant promises to pay to U.S. Bank on demand,
at U.S. Bank's International Banking Office in Salt Lake City, Utah, an
amount equal to all amounts which U.S. Bank pays or becomes obligated to
pay to any Other Issuer with respect to the Credit, whether as a
participant in the Credit or otherwise.
c. Notwithstanding any other provision of this Agreement, Applicant's
obligation to make any payment hereunder to any Other Issuer shall, to
the extent of such payment, be satisfied by payment to U.S. Bank as set
forth in this Agreement.
d. Applicant hereby authorizes U.S. Bank to automatically deduct from its
account with U.S. Bank specified on attached Schedule 1, all amounts
which become due to Bank under this Agreement. If there are insufficient
funds in the account to pay the automatic deduction in full, Bank may
allow the account to become overdrawn, or Bank may reverse the automatic
deduction. Applicant will pay all fees on the account which result from
the automatic deductions, including any overdraft/NSF charges. If for
any reason U.S. Bank does not charge the
Page 1 of 6
<PAGE> 11
account for any amount due, or if an automatic deduction is reversed,
the amount due is still owing to Bank as set forth herein. If the
account is a Money Market Account, the number of withdrawals from that
account is limited as set out in the agreement. U.S. Bank may cancel the
automatic deduction at any time in its discretion.
2. CERTAIN WARRANTIES Applicant warrants that the execution, delivery and
performance of this Agreement are within its authority and are not in
contravention of law, of any terms of any agreement, instrument, order or
judgment to which Applicant is a party or by which it or its property may be
bound or of any provision of its charter documents or bylaws, and that it
has obtained all necessary approvals and consents therefor.
3. THE CREDIT
a. U.S. Bank may either issue the Credit or request one of its affiliates
to issue the Credit. Bank may sell, assign or participate all or any
part of its rights and obligations under this Agreement, the Application
and the Credit. Without limiting the foregoing, any Other Issuer may
sell a participation in all or any part of its rights and obligations
under this Agreement and the Credit to U.S. Bank.
b. Bank hereby is authorized to set forth in the Credit the terms appearing
on the Application, with such modifications as Bank in its discretion
may determine are appropriate or necessary and are not materially
inconsistent with such terms. Any such determination shall be binding on
Applicant.
c. All communications relating to the Credit will be sent at Applicant's
risk. Bank shall have no responsibility for any inaccuracy of
translation, or any interruption, error or delay in transmission or
delivery by mail, telecommunication or any other method. Bank shall not
be liable for any error, neglect or default of any of Bank's
correspondents.
d. Neither Bank nor its correspondents shall be in any way responsible for
the performance of any beneficiary's obligations to Applicant or for the
form, sufficiency, accuracy, genuineness, authority of person signing,
falsification or legal effect, of any document required by the Credit if
such document appears in order on its face. Whether the documents
conform to the terms of the Credit and whether any demand is timely and
in proper form shall be determined by Bank in its sole discretion, which
determination shall be final and binding on Applicant. Without limiting
the foregoing, if a unit price is not required on documents accompanying
the draft(s), Bank may honor draft(s) in any amount(s) not to exceed the
amount then available under the Credit.
e. Notwithstanding any other term of this Agreement, if Bank at any
Applicant's request agrees to indemnify any shipper, including but not
limited to any vessel, its owner, operators and agents from any
liability, loss or expense incurred in connection with release of any
goods covered by the Credit without surrender of the applicable bill of
lading or other shipping documents, Applicant hereby (i) authorizes Bank
without limitation or condition to either or both pay or accept, as the
case may be, any and all drafts presented in connection with such goods;
and (ii) agrees to make payment to Bank as specified in Section 1, even
though any required documents may be omitted, incorrect, defective or
otherwise not in conformity with the terms of the Credit.
f. Subject to Section 7b, Bank may at Applicant's request increase the
amount of the Credit, extend the time for making and honoring of demands
under the Credit and otherwise modify the terms and conditions governing
the Credit. As so modified, all provisions of the Credit, and all action
taken by Bank or Bank's correspondents in connection therewith, shall be
binding upon Applicant.
g. Applicant will promptly examine the Credit, any amendments thereto and
all information, documents and instruments delivered to Applicant from
time to time by Bank and shall notify U.S. Bank within five U.S. Bank
banking days after receipt if Applicant claims that Bank has failed to
comply with Applicant's instructions or Bank's obligations with respect
to the Credit, has wrongfully honored or dishonored any presentation
under the Credit or claims any other irregularity. If Applicant does not
so notify U.S. Bank within such time period, Applicant shall be
conclusively deemed to have waived and shall be precluded from asserting
such claim(s).
h. Bank may receive, accept or pay as complying with the terms of the
Credit, any drafts or other documents, otherwise in order, which appear
on their face to be signed by or issued to the administrator, executor,
successor or trustee in bankruptcy of or the receiver for any of the
property of, or any other person or entity acting as the representative
or in the place of, the party in whose name the Credit provides that any
drafts or other documents should be drawn or issued.
4. SECURITY AND INSURANCE
a. As security for payment of any and all of Applicant's obligations to
U.S. Bank and any Other Issuer now or hereafter existing under or in
connection with this Agreement, the Credit, or any other indebtedness of
Applicant to U.S. Bank and any Other Issuer, Applicant hereby grants to
U.S. Bank and any Other Issuer a
Page 2 of 6
<PAGE> 12
security interest in any and all bills of lading, other documents of
title, policies or certificates of insurance, chattel paper and general
intangibles accompanying or relative to the Credit or any drafts drawn
thereunder, and any and all inventory, goods and other property shipped
under, in connection with, or relative to the Credit or any drafts drawn
thereunder, together with any and all proceeds and products thereof (the
"Collateral"). At any time and from time to time, on demand of Bank,
Applicant will assign and deliver to Bank as security for such
obligations additional collateral of a type and value satisfactory to
Bank or make such cash payments as Bank may require. At Bank's request,
Applicant will execute any financing statements and other documents or
instruments as Bank may require to perfect the security interests
granted or contemplated hereunder and will pay the cost of any filings
in connection therewith.
b. Applicant shall keep any property described in the Credit covered by
insurance satisfactory to Bank, and authorizes Bank to collect and apply
the proceeds of any such insurance to any of Applicant's obligations.
5. DEFAULT AND REMEDIES
a. Time is of the essence of this Agreement. The occurrence of any of the
following shall be an Event of Default hereunder:
i. Default in payment or performance of any of Applicant's obligations
hereunder or under any promissory note or other agreement between
Bank and Applicant;
ii. Default under any security documents securing Applicant's
obligations hereunder, whether executed by Applicant or any other
person;
iii. Levy or proceeding against any property of Applicant or any
guarantor of Applicant's obligations hereunder ("Guarantor");
iv. Death, dissolution, termination of existence, insolvency or
business failure of, appointment of a receiver for any part of the
property of, assignment for the benefit of creditors by,
commencement of any proceeding under any bankruptcy or insolvency
laws by or against, or entry of any judgment against, Applicant or
any Guarantor;
v. Any warranty, representation or statement made or furnished to Bank
by Applicant or any Guarantor proves to have been false in any
material respect when made or furnished;
vi. Any event which gives the holder of any debt obligation of
Applicant or any Guarantor the right to accelerate its maturity,
whether or not such right is exercised;
vii. Any guaranty of Applicant's obligations hereunder ceases to be, or
is asserted by any person not to be, in full force and effect; or
viii. Bank, for any reason in good faith, deems itself insecure.
b. Upon the occurrence of any Event of Default and at any time thereafter,
Bank at its option and in addition to all other rights of Bank under
this Agreement, any related agreement and applicable law, may (i)
without notice or demand, declare the amount for which the Credit was
issued and any other amounts owing hereunder immediately due and
payable; and (ii) exercise any and all rights and remedies of a secured
party under the Uniform Commercial Code and other applicable law. Any
required notice of sale of Collateral shall be deemed reasonable if sent
at least 10 days prior to the date of any public sale or the date after
which any private sale may be made.
6. CHANGES TO LAWS AND REGULATIONS If any adoption of or change in law or
regulation, or in the interpretation or administration thereof by any
official authority shall impose on Bank any tax, charge, fee, deduction or
withholding of any kind whatsoever, or shall impose or modify any reserve
requirements, standards regarding capital adequacy or any other conditions
affecting this Agreement or the Credit, and the result of any of the
foregoing shall be to increase the cost to Bank of issuing and maintaining
the Credit, reduce the amount of any sum receivable by Bank hereunder or
reduce the rate of return on Bank's capital, then Applicant shall pay to
Bank upon demand such additional amount or amount(s) as Bank may specify to
be necessary to compensate Bank for such additional costs incurred or
reduction suffered.
7. GENERAL
a. Each Application shall be subject to all terms and conditions of this
Agreement.
b. Notwithstanding any other term hereof, (i) the Credit can be revoked or
amended only with the consent of the beneficiary of the Credit, all
Applicants (including any Correspondent Bank signing this Agreement),
Bank and any confirming bank and (ii) instructions concerning
discrepancies must be given by all such Applicants.
Page 3 of 6
<PAGE> 13
c. If the Account Party on the Application is not an Applicant hereunder,
the Account Party shall have no rights against Bank; and Applicant shall
deliver to U.S. Bank an agreement satisfactory to Bank executed by the
Account Party, providing that Bank without notice to or consent of the
Account Party, may deal with Applicant as if Applicant were the named
Account Party, and waiving any and all present and future claims and
defenses against Bank.
d. Applicant shall give U.S. Bank prior written notice of any change of
name, address or place of business. Any notice of any nature by
Applicant to Bank must be given at U.S. Bank's office where the
Application was submitted.
e. The singular includes the plural. If Applicant consists of more than one
person, the obligations of Applicant hereunder are joint and several and
are binding upon any marital community of which any Applicant is a
member. This Agreement shall be binding on Applicant's heirs, successors
and assigns.
f. Notwithstanding the title of any Credit instrument, the rights and
obligations of Bank and Applicant with respect to the Credit shall be as
set forth herein.
g. Except as otherwise provided herein or on the Application, the Uniform
Customs and Practice for Documentary Credits of the International
Chamber of Commerce ("UCP") as in effect on the date of issuance of the
Credit are fully incorporated herein and shall apply to the Credit. This
Agreement and the Credit shall be governed by the internal laws of the
State of Utah, United States of America (the "Governing Laws"), except
to the extent such laws are inconsistent with the UCP. If the Credit
provides that it is governed by laws, regulations or rules other than
the Governing Laws (the "Specified Laws"), Applicant agrees not to
assert any provisions of the Specified Laws as a defense to any of its
obligations hereunder.
h. Applicant hereby indemnifies and agrees to hold harmless the Bank, its
officers, directors, agents, successors and assigns, from and against
any and all liability, claims, demands, losses and expenses (including
without limitation legal costs and attorney fees incurred in any
appellate proceeding, proceeding under the bankruptcy code or
receivership), arising from or in connection with this Agreement, the
Credit or any related transaction, unless arising from Bank's gross
negligence or willful misconduct.
i. Applicant hereby authorizes Bank to issue Credits and amendments thereto
based upon, and to otherwise rely on and act in accordance with, any
oral or written communication, including but not limited to any
electronic communication and any facsimile transmission, reasonably
believed by Bank to have been or which purportedly has been, given by
one of the authorized persons specified on Schedule 1, even if such
communication proves not to have been given by an authorized person.
j. Bank's waiver of any right on any occasion or occasions shall not be
construed as a bar or waiver of any other right or of such right on any
other occasion. Applicant hereby waives and agrees not to assert any
defense under any applicable statute of limitations, to the fullest
extent permitted by law. In addition to all other rights which Bank may
have, Applicant hereby authorizes Bank to set off any and all deposits
or other moneys due from Bank at any of its offices against any and all
of Applicant's obligations hereunder, whether or not Bank shall have
made any demand under this Agreement.
k. Without notice to any Applicant and without affecting Bank's rights or
Applicant's obligations, Bank may deal in any manner with any person who
at any time is liable for, or provides any collateral for, any
obligations of Applicant to Bank. Without limiting the foregoing, Bank
may impair, release (with or without substitution of new collateral) and
fail to perfect a security interest in, any collateral provided by any
person; and sue, fail to sue, agree not to sue, release, and settle or
compromise with, any person.
l. Whether or not litigation or arbitration is commenced, Applicant
promises to pay all attorney fees and other costs and expenses incurred
by Bank in collecting overdue amounts or construing or enforcing any
provision of this Agreement or the Credit, including but not limited to
reasonable attorney fees at trial, in any arbitration, appellate
proceeding, proceeding under the Bankruptcy code, or receivership, and
post-judgment attorney fees incurred in enforcing any judgment.
m. Bank's issuance of the Credit shall constitute its Agreement to the
terms of this Agreement.
n. This Agreement is a continuing agreement and shall remain in effect
until terminated, amended or replaced. This Agreement may be terminated
by Applicant or U.S. Bank by giving notice of termination to the other
and may be amended or replaced by a written agreement signed by
Applicant and accepted by U.S. Bank; provided, however that no such
termination, amendment or replacement shall alter or affect the
undertaking of Applicant or Bank with respect to any Credit issued prior
to such termination, amendment or replacement.
Page 4 of 6
<PAGE> 14
o. Nothing in this Agreement shall be construed as imposing any obligation
on Bank to issue any Credit. Each Credit shall be issued by Bank in its
sole discretion and at its sole option.
p. Any Correspondent Bank signing this Agreement agrees that each
Application and Credit and this Agreement are subject to all terms and
conditions of the most recent Correspondent Bank Letter of Credit
Agreement between U.S. Bank and Correspondent Bank.
q. Bank is authorized to record electronically or otherwise any telephone
and other oral communications between Bank and Applicant.
r. All terms and conditions on the attached Schedule 1, and any replacement
Schedule 1 are hereby incorporated herein. Applicant may change the
provisions of Schedule 1 by executing and delivering a new Schedule 1 to
Bank.
s. From time to time, Applicant may submit Applications, applications for
amendments to Credits or other communications (each, a "Faxed Document")
to Bank by facsimile transmission. With respect to each such facsimile
transmission Applicant agrees: (i) each Faxed Document shall be deemed
to be an original document and shall be effective for all purposes as if
it were an original; (ii) Applicant shall retain the original of any
Faxed Document and shall deliver it to Bank upon request; (iii) if
Applicant sends Bank a manually signed confirmation of a Faxed Document
Bank shall have no duty to compare it to the previously received Faxed
Document nor shall it have any liability nor duty to act should the
contents of the written confirmation differ therefrom. Any manually
signed confirmation of a Faxed Document must be conspicuously marked
"Previously transmitted by facsimile." Bank will not be liable for
issuance of duplicate letters of credit or amendments thereto that
result from Bank's receipt of confirmations not so marked; (iv) Bank
cannot effectively determine whether a particular facsimile request is
valid. Therefore Applicant shall have sole responsibility for the
security of using facsimile transmissions and for any authorized or
unauthorized Faxed Document received by Bank, purportedly on behalf of
Applicant.
8. ARBITRATION
a. Any Bank or Applicant may require that all disputes, claims,
counterclaims, and defenses, including those based on or arising from
any alleged tort ("Claims") relating in any way to this Agreement, the
Credit or any transaction of which this Agreement or the Credit is a
part (the "Loan"), be settled by binding arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association
and Title 9 of the U.S. Code. All Claims will be subject to the statutes
of limitation applicable if they were litigated. This provision is void
if the Loan, at the time of the proposed submission to arbitration, is
secured by real property located outside of Oregon or Washington, or if
the effect of the arbitration procedure (as opposed to any Claims of
Applicant) would be to materially impair the Bank's ability to realize
on any collateral securing the Loan.
b. If arbitration occurs and each party's Claim is less than $100,000, one
neutral arbitrator will decide all issues; if any party's Claim is
$100,000 or more, three neutral arbitrators will decide all issues. All
Arbitrators will be active Utah State Bar members in good standing. All
arbitration hearings will be held in Salt Lake City, Utah. In addition
to all other powers, the arbitrator(s) shall have the exclusive right to
determine all issues of arbitrability. Judgment on any arbitration award
may be entered in any court with jurisdiction.
c. If any party institutes any judicial proceeding relating to the Loan,
such action shall not be a waiver of the right to submit any Claim to
arbitration. In addition each has the right before, during, and after
any arbitration to exercise any number of the following remedies, in any
order or concurrently: (i) setoff; (ii) self-help repossession; (iii)
judicial or non-judicial foreclosure against real or personal property
collateral; and (iv) provisional remedies, including injunction,
appointment of receiver, attachment, claim and delivery and replevin.
9. BY UTAH STATUTE (UCA 25-5-4) THE FOLLOWING DISCLOSURE IS REQUIRED: THIS
AGREEMENT IS A FINAL EXPRESSION OF THE AGREEMENT BETWEEN BANK AND APPLICANT
AND MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY ALLEGED ORAL AGREEMENT.
APPLICANT ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS AGREEMENT
APPLICANT: CORRESPONDENT BANK: (IF APPLICABLE)
DAW TECHNOLOGIES, INC.
__________________________________ _____________________________________
By:_______________________________ By:__________________________________
Page 5 of 6
<PAGE> 15
Title:____________________________ Title:_______________________________
FOR BANK USE - SIGNATURE VERIFIED AND AUTHORITY TO SIGN CONFIRMED
- --------------------------------------------------------------------------------
U.S. BANK
- --------------------------------------------------------------------------------
AUTHORIZED SIGNATURE OFFICER NAME AND NUMBER COMPANY COST CENTER
- --------------------------------------------------------------------------------
Page 6 of 6
<PAGE> 16
[LOGO]
CONTINUING AGREEMENT FOR IRREVOCABLE
STANDBY LETTERS OF CREDIT
DATED AS OF:
APPLICANT: Daw Technologies, Inc.
CORRESPONDENT BANK:
(if applicable)
From time to time, any person signing this Agreement as Applicant or
Correspondent Bank (either or both, "Applicant") may request U.S. Bank to issue
or to request one of its affiliates to issue one or more irrevocable standby
letters of credit (each, a "Credit") substantially in accordance with the terms
of any application (each, an "Application") submitted to U. S. Bank by
Applicant.
In consideration of the issuance by U. S. Bank or an affiliate of U. S. Bank
(each such affiliated issuer, an "Other Issuer") of one or more Credits, each
Applicant agrees that the following terms shall apply to each Application and
each Credit issued by U. S. Bank or any Other Issuer (either or both, "Bank").
1. OBLIGATIONS
a. Applicant promises to pay Bank on demand at U. S. Bank's International
Banking Office,Salt Lake City, Utah:
i. The amount of each draft or other request for payment ("draft")
drawn under the Credit. For amounts payable in United States
currency, Applicant agrees to reimburse Bank in United States
currency. For amounts payable in other currency, Applicant agrees
to reimburse Bank an equivalent amount in United States currency at
Bank's then current selling rate for telecommunications transfer of
such other currency to the place the draft is payable, or at Bank's
option, in any other currency, place, form and manner acceptable to
Bank. If Bank so demands, Applicant promises to pay Bank in
advance, in United States currency, all sums necessary to put Bank
in funds to pay all such drafts whether payable in United States
currency or otherwise.
ii. Bank's fees, at the per annum rate fixed by Bank, for the period
from the date of issuance to the expiry date of the Credit. Such
fees shall be payable from time to time, in advance, at such
intervals as Bank may require and shall be nonrefundable, whether
or not the Credit is drawn upon, reduced in time or amount or
otherwise modified.
iii. The entire principal amount which has not been drawn under the
Credit, to be held by Bank as collateral for any draws. Any such
amount which is not applied to reimbursement of draws shall be
refunded to Applicant within thirty (30) days after the expiry date
of the Credit, with interest at U. S. Bank's lowest savings account
rate then in effect.
iv. All taxes, levies, imposts, duties, charges, fees, deductions or
withholdings of any nature whatsoever paid or incurred by Bank in
connection with this Agreement, the Credit or any related
transactions, and any liability with respect thereto (including but
not limited to interest, penalties and expenses).
v. Interest on all amounts due under this Agreement from the
applicable due date until paid at a per annum rate equal to the sum
of U. S. Bank's prime rate, as that rate may vary from time to
time, plus 5%. Interest shall be calculated on the basis of a
360-day year and the actual number of days elapsed. U. S. Bank's
prime rate is the rate which U. S. Bank from time to time
establishes as its prime rate and is not, for example, the lowest
rate of interest which U. S. Bank collects from any borrower or
class of borrowers.
b. Without limiting Applicant's obligations to any Other Issuer, but
without duplication, Applicant promises to pay to U.S. Bank on demand,
at U. S. Bank's International Banking Office in Salt Lake City, Utah, an
Page 1 of 6
<PAGE> 17
amount equal to all amounts which U. S. Bank pays or becomes obligated
to pay to any Other Issuer with respect to the Credit, whether as a
participant in the Credit or otherwise.
c. Notwithstanding any other provision of this Agreement, Applicant's
obligation to make any payment hereunder to any Other Issuer shall, to
the extent of such payment, be satisfied by payment to U. S. Bank as set
forth in this Agreement.
d. Applicant hereby authorizes U. S. Bank to automatically deduct from its
account with U. S. Bank specified on attached Schedule 1, all amounts
which become due to Bank under this Agreement. If there are insufficient
funds in the account to pay the automatic deduction in full, Bank may
allow the account to become overdrawn, or Bank may reverse the automatic
deduction. Applicant will pay all fees on the account which result from
the automatic deductions, including any overdraft/NSF charges. If for
any reason U. S. Bank does not charge the account for any amount due, or
if an automatic deduction is reversed, the amount due is still owing to
Bank as set forth herein. If the account is a Money Market Account, the
number of withdrawals from that account is limited as set out in the
agreement. U. S. Bank may cancel the automatic deduction at any time in
its discretion.
2. CERTAIN WARRANTIES Applicant warrants that the execution, delivery and
performance of this Agreement are within its authority and are not in
contravention of law, of any terms of any agreement, instrument, order or
judgment to which Applicant is a party or by which it or its property may be
bound or of any provision of its charter documents or bylaws, and that it
has obtained all necessary approvals and consents therefor.
3. THE CREDIT
a. U. S. Bank may either issue the Credit or request one of its affiliates
to issue the Credit. Bank may sell, assign or participate all or any
part of its rights and obligations under this Agreement, the Application
and the Credit. Without limiting the foregoing, any Other Issuer may
sell a participation in all or any part of its rights and obligations
under this Agreement and the Credit to U. S. Bank.
b. Bank hereby is authorized to set forth in the Credit the terms appearing
on the Application, with such modifications as Bank in its discretion
may determine are appropriate or necessary and are not materially
inconsistent with such terms. Any such determination shall be binding on
Applicant.
c. All communications relating to the Credit will be sent at Applicant's
risk. Bank shall have no responsibility for any inaccuracy of
translation, or any error or delay in transmission or delivery by mail,
telecommunication or any other method. Bank shall not be liable for any
error, neglect or default of any of Bank's correspondents.
d. Neither Bank nor its correspondents shall be in any way responsible for
the performance of any beneficiary's obligations to Applicant or for the
form, sufficiency, accuracy, genuineness, authority of person signing,
falsification or legal effect, of any documents required by the Credit
if such documents appear in order on their face. Whether the documents
conform to the terms of the Credit and whether any demand is timely and
in proper form shall be determined by Bank in its sole discretion, which
determination shall be final and binding on Applicant.
e. Subject to Section 6b, Bank may at Applicant's request increase the
amount of the Credit, extend the time for making and honoring of demands
under the Credit and otherwise modify the terms and conditions governing
the Credit. As so modified, all provisions of the Credit, and all action
taken by Bank or Bank's correspondents in connection therewith, shall be
binding upon Applicant.
f. Applicant will promptly examine the Credit, any amendments thereto and
all information, documents and instruments delivered to Applicant from
time to time by Bank and shall notify U. S. Bank within five U. S. Bank
banking days after receipt if Applicant claims that Bank has failed to
comply with Applicant's instructions or Bank's obligations with respect
to the Credit, has wrongfully honored or dishonored any presentation
under the Credit or claims any other irregularity. If Applicant does not
so notify U. S. Bank within such time period, Applicant shall be
conclusively deemed to have waived and shall be precluded from asserting
such claim(s).
g. Bank may receive, accept or pay as complying with the terms of the
Credit, any drafts or other documents, otherwise in order, which appear
on their face to be signed by or issued to the administrator, executor,
successor or trustee in bankruptcy of or the receiver for any of the
property of, or any other person or
Page 2 of 6
<PAGE> 18
entity acting as the representative or in the place of, the party in
whose name the Credit provides that any drafts or other documents should
be drawn or issued.
4. DEFAULT AND REMEDIES
a. Time is of the essence of this Agreement. The occurrence of any of the
following shall be an Event of Default hereunder:
i. Default in payment or performance of any of Applicant's obligations
hereunder or under any promissory note or other agreement between
Bank and Applicant;
ii. Default under any security documents securing Applicant's
obligations hereunder, whether executed by Applicant or any other
person;
iii. Levy or proceeding against any property of Applicant or any
guarantor of Applicant's obligations hereunder ("Guarantor");
iv. Death, dissolution, termination of existence, insolvency or
business failure of, appointment of a receiver for any part of the
property of, assignment for the benefit of creditors by,
commencement of any proceeding under any bankruptcy or insolvency
laws by or against, or entry of any judgment against, Applicant or
any Guarantor;
v. Any warranty, representation or statement made or furnished to Bank
by Applicant or any Guarantor proves to have been false in any
material respect when made or furnished;
vi. Any event which gives the holder of any debt obligation of
Applicant or any Guarantor the right to accelerate its maturity,
whether or not such right is exercised;
vii. Any guaranty of Applicant's obligations hereunder ceases to be, or
is asserted by any person not to be, in full force and effect; or
viii. Any material adverse change in the financial condition or
management of Applicant or any Guarantor, or Bank for any reason in
good faith, deems itself insecure.
b. Upon the occurrence of any Event of Default and at any time thereafter,
Bank at its option and in addition to all other rights of Bank under
this Agreement, any related agreement and applicable law, may without
notice or demand declare the amount for which the Credit was issued and
any other amounts owing hereunder immediately due and payable.
5. CHANGES TO LAWS AND REGULATIONS If any adoption of or change in law or
regulation, or in the interpretation or administration thereof by any
official authority shall impose on Bank any tax, charge, fee, deduction or
withholding of any kind whatsoever, or shall impose or modify any reserve
requirements, standards regarding capital adequacy or any other conditions
affecting this Agreement or the Credit, and the result of any of the
foregoing shall be to increase the cost to Bank of issuing and maintaining
the Credit, reduce the amount of any sum receivable by Bank hereunder or
reduce the rate of return on Bank's capital, then Applicant shall pay to
Bank upon demand such additional amount or amounts as Bank may specify to be
necessary to compensate Bank for such additional costs incurred or reduction
suffered.
6. GENERAL
a. Each Application shall be subject to all terms and conditions of this
Agreement.
b. Notwithstanding any other term hereof, (i) the Credit can be revoked or
amended only with the consent of the beneficiary of the Credit, all
Applicants (including any Correspondent Bank signing this Agreement),
the Bank issuing the Credit and any confirming bank, and (ii)
instructions concerning discrepancies must be given by all such
Applicants.
c. If the Account Party on the Application is not an Applicant hereunder,
the Account Party shall have no rights against Bank; and Applicant shall
deliver to U. S. Bank an agreement satisfactory to Bank executed by the
Account Party, providing that Bank without notice to or consent of the
Account Party, may deal with Applicant as if Applicant were the named
Account Party, and waiving any and all present and future claims and
defenses against Bank.
d. Applicant shall give U. S. Bank prior written notice of any change of
name, address or place of business. Any notice of any nature by
Applicant to Bank must be given at U. S. Bank's office to which the
Application was submitted.
e. The singular includes the plural. If Applicant consists of more than one
person, the obligations of Applicant hereunder are joint and several and
are binding upon any marital community of which any Applicant is a
member. This Agreement shall be binding on Applicant's heirs, successors
and assigns.
Page 3 of 6
<PAGE> 19
f. Notwithstanding the title appearing on any Credit instrument, the rights
and obligations of Bank and Applicant with respect to the Credit shall
be as set forth herein.
g. Except as otherwise provided herein or on the Application, the Uniform
Customs and Practice for Documentary Credits of the International
Chamber of Commerce ("UCP") as in effect on the date of issuance of the
Credit are fully incorporated herein and shall apply to the Credit. This
Agreement and the Credit shall be governed by the internal laws of the
State of Utah, United States of America (the "Governing Laws"), except
to the extent such laws are inconsistent with the UCP. If the Credit
provides that it is governed by laws, regulations or rules other than
the Governing Laws (the "Specified Laws"), Applicant agrees not to
assert any provisions of the Specified Laws as a defense to any of its
obligations hereunder.
h. Applicant hereby indemnifies and agrees to hold harmless Bank, its
officers, directors, agents, successors and assigns, from and against
any and all liability, claims, demands, losses and expenses (including
without limitation legal costs and attorney fees incurred in any
appellate proceeding, proceeding under the bankruptcy code or
receivership and post-judgment attorney fees incurred in enforcing any
judgment), arising from or in connection with this Agreement, the Credit
or any related transaction, unless arising from Bank's gross negligence
or willful misconduct.
i. Applicant hereby authorizes Bank to issue Credits and amendments thereto
based upon, and to otherwise rely on and act in accordance with, any
oral or written communication, including but not limited to any
electronic communication and any facsimile transmission, reasonably
believed by Bank to have been or which purportedly has been, given by
one of the authorized persons specified on Schedule 1, even if such
communication proves not to have been given by an authorized person.
j. Bank's waiver of any right on any occasion or occasions shall not be
construed as a bar or waiver of any other right or of such right on any
other occasion. Applicant hereby waives and agrees not to assert any
defense under any applicable statute of limitations, to the fullest
extent permitted by law. In addition to all other rights which Bank may
have, Applicant hereby authorizes Bank to set off any and all deposits
or other monies due from Bank at any of its offices against any and all
of Applicant's obligations hereunder, whether or not Bank shall have
made any demand under this Agreement.
k. Without notice to any Applicant and without affecting Bank's rights or
Applicant's obligations, Bank may deal in any manner with any person who
at any time is liable for, or provides any collateral for, any
obligations of Applicant to Bank. Without limiting the foregoing, Bank
may impair, release (with or without substitution of new collateral) and
fail to perfect a security interest in, any collateral provided by any
person; and sue, fail to sue, agree not to sue, release, and settle or
compromise with, any person.
l. Whether or not litigation or arbitration is commenced, Applicant
promises to pay all attorney fees and other costs and expenses incurred
by Bank in collecting overdue amounts or construing or enforcing any
provision of this Agreement or the Credit, including but not limited to
reasonable attorney fees at trial, in any arbitration, appellate
proceeding, proceeding under the bankruptcy code or receivership and
post-judgment attorney fees incurred in enforcing any judgment.
m. Bank's issuance of the Credit shall constitute its agreement to the
terms of this Agreement.
n. This Agreement is a continuing agreement and shall remain in effect
until terminated, amended or replaced. This Agreement may be terminated
by Applicant or U. S. Bank by giving notice of termination to the other
and may be amended or replaced by a written agreement signed by
Applicant and accepted by U. S. Bank; provided, however that no such
termination, amendment or replacement shall alter or affect the
undertaking of Applicant or Bank with respect to any Credit issued prior
to such termination, amendment or replacement.
o. Nothing in this Agreement shall be construed as imposing any obligation
on Bank to issue any Credit. Each Credit shall be issued by Bank in its
sole discretion and at its sole option.
p. Any Correspondent Bank signing this Agreement agrees that each
Application and Credit and this Agreement are subject to all terms and
conditions of the most recent Correspondent Bank Letter of Credit
Agreement between U. S. Bank and Correspondent Bank.
q. Bank is authorized to record electronically or otherwise any telephone
and other oral communications between Bank and Applicant.
Page 4 of 6
<PAGE> 20
r. All terms and conditions on the attached Schedule 1, and any replacement
Schedule 1 are hereby incorporated herein. Applicant may change the
provisions of Schedule 1 by executing and delivering a new Schedule 1 to
U. S. Bank.
s. From time to time, Applicant may submit Applications, applications for
amendments to Credits or other communications (each, a "Faxed Document")
to Bank by facsimile transmission. With respect to each such facsimile
transmission Applicant agrees: (i) each Faxed Document shall be deemed
to be an original document and shall be effective for all purposes as if
it were an original; (ii) Applicant shall retain the original of any
Faxed Document and shall deliver it to Bank upon request; (iii) if
Applicant sends Bank a manually signed confirmation of a Faxed Document
Bank shall have no duty to compare it to the previously received Faxed
Document nor shall it have any liability nor duty to act should the
contents of the written confirmation differ therefrom. Any manually
signed confirmation of a Faxed Document must be conspicuously marked
"Previously transmitted by facsimile." Bank will not be liable for
issuance of duplicate letters of credit or amendments thereto that
result from Bank's receipt of confirmations not so marked; (iv) Bank
cannot effectively determine whether a particular facsimile request is
valid. Therefore Applicant shall have sole responsibility for the
security of using facsimile transmissions and for any authorized or
unauthorized Faxed Document received by Bank, purportedly on behalf of
Applicant
7. ARBITRATION
a. Any Bank or Applicant may require that all disputes, claims,
counterclaims, and defenses, including those based on or arising from
any alleged tort ("Claims") relating in any way to this Agreement, the
Credit or any transaction of which this Agreement or the Credit is a
part (the "Loan"), be settled by binding arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association
and Title 9 of the U. S. Code. All Claims will be subject to the statues
of limitation applicable if they were litigated. This provision is void
if the Loan, at the time of the proposed submission to arbitration, is
secured by real property located outside of Oregon or Washington, or if
the effect of the arbitration procedure (as opposed to any Claims of
Applicant) would be to materially impair Bank's ability to realize on
any collateral securing the Loan.
b. If arbitration occurs and each party's Claim is less than $100,000, one
neutral arbitrator will decide all issues; if any party's Claim is
$100,000 or more, three neutral arbitrators will decide all issues. All
arbitrators will be active Utah State Bar members in good standing. All
arbitration hearing will be held in Salt Lake City, Utah. In addition to
all other powers, the arbitrator(s) shall have the exclusive right to
determine all issues of arbitrability. Judgment on any arbitration award
may be entered in any court with jurisdiction.
c. If any party institutes any judicial proceeding relating to the Loan,
such action shall not be a waiver of the right to submit any Claim to
arbitration. In addition, each has the right before, during, and after
any arbitration to exercise any number of the following remedies, in any
order or concurrently: (i) setoff; (ii) self-help repossession; (iii)
judicial or non-judicial foreclosure against real or personal property
collateral; and (iv) provisional remedies, including injunction,
appointment of receiver, attachment, claim and delivery and replevin.
BY UTAH STATUTE (UCA 25-5-4) THE FOLLOWING DISCLOSURE IS REQUIRED: THIS
AGREEMENT IS A FINAL EXPRESSION OF THE AGREEMENT BETWEEN BANK AND APPLICANT AND
MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY ALLEGED ORAL AGREEMENT.
APPLICANT ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS AGREEMENT
APPLICANT: CORRESPONDENT BANK: (IF APPLICABLE)
DAW TECHNOLOGIES, INC.
__________________________________ _____________________________________
By:_______________________________ By:__________________________________
Title:____________________________ Title:_______________________________
Page 5 of 6
<PAGE> 21
-----------------------------------------------
FOR BANK USE - SIGNATURE VERIFIED AND AUTHORITY
TO SIGN CONFIRMED.
-----------------------------------------------
AUTHORIZED SIGNATURE
-----------------------------------------------
-----------------------------------------------
OFFICER'S NAME AND NUMBER (PLEASE PRINT)
-----------------------------------------------
U.S. BANK
-----------------------------------------------
COMPANY COST CENTER
-----------------------------------------------
Page 6 of 6
<PAGE> 1
Exhibit 23.1
CONSENT
We have issued our reports dated February 25, 1998 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, 1997. 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 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AS OF DECEMBER 31, 1997 AND 1996 AND THE STATEMENTS OF OPERATIONS FOR THE
YEAR ENDED DECEMBER 31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 5,802
<SECURITIES> 0
<RECEIVABLES> 12,875
<ALLOWANCES> (403)
<INVENTORY> 1,363
<CURRENT-ASSETS> 25,835
<PP&E> 13,727
<DEPRECIATION> (7,423)
<TOTAL-ASSETS> 32,364
<CURRENT-LIABILITIES> 10,587
<BONDS> 0
0
0
<COMMON> 124
<OTHER-SE> 20,576
<TOTAL-LIABILITY-AND-EQUITY> 32,364
<SALES> 52,541
<TOTAL-REVENUES> 52,541
<CGS> 47,272
<TOTAL-COSTS> 56,322
<OTHER-EXPENSES> 49
<LOSS-PROVISION> 403
<INTEREST-EXPENSE> 295
<INCOME-PRETAX> (4,125)
<INCOME-TAX> (1,866)
<INCOME-CONTINUING> (2,259)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,259)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
