<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
---------------------------------------------
Commission file number 1-12230
[ ] Transition report under section 13 or 15(d) of the Exchange Act.
ADVANCED DEPOSITION TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 04-2865714
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
580 Myles Standish Industrial Park, Taunton, Massachusetts 02780
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(508) 823-0707
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
As of May 11, 1999, there were 4,278,919 shares of Common Stock, $0.01
par value, of the issuer outstanding.
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements
Condensed and Consolidated Balance Sheets (unaudited):
March 31, 1999 and December 31, 1998 1-2
Condensed and Consolidated Statements of Operations
(unaudited): for the Three Months ended March 31, 1999
and March 31, 1998 3
Condensed and Consolidated Statements of Cash Flows
(unaudited): for the Three Months ended March 31, 1999
and March 31, 1998 4
Notes to Condensed and Consolidated Financial
Statements 5-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports filed on Form 8-K 16
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------- -------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 285 $ 411
Investment in marketable securities 27 43
Accounts receivable, net of reserve for doubtful accounts of
$452,000 and $460,000 at March 31, 1999 and
December 31, 1998, respectively 7,543 5,868
Inventories 4,155 4,252
Prepaid expenses and other current assets 472 274
------- -------
Total current assets 12,482 10,848
------- -------
PROPERTY AND EQUIPMENT, net of accumulated depreciation 7,582 7,676
OTHER ASSETS, net of accumulated amortization 4,782 5,426
------- -------
Total assets $24,846 $23,950
======= =======
</TABLE>
The Condensed and Consolidated Balance Sheet at December 31, 1998, has been
derived from the audited financial statements of the Company at that date.
See Notes to Condensed and Consolidated Financial Statements
1
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------- --------
<S> <C> <C>
CURRENT LIABILITIES
Due to financing institutions $ 3,817 $ 3,589
Accounts payable 5,014 4,347
Accrued expenses 762 643
Current maturities of long-term obligations 1,764 1,764
-------- --------
Total current liabilities 11,357 10,343
-------- --------
LONG-TERM OBLIGATIONS
Revolving line of credit 1,336 1,136
Long-term obligations, net of current maturities 3,715 4,010
-------- --------
Total liabilities 16,408 15,489
-------- --------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY 1,047 1,078
-------- --------
STOCKHOLDERS' EQUITY;
Preferred stock, $0.01 par value
1,000,000 shares authorized, none issued -- --
Common stock, $0.01 par value,
10,000,000 shares authorized, 4,296,560 shares issued,
4,254,950 and 4,253,950 shares outstanding at
March 31, 1999 and December 31, 1998, respectively 43 43
Additional paid-in capital 11,275 11,177
Accumulated deficit (3,811) (3,848)
Accumulated other comprehensive income (loss) (17) 95
-------- --------
7,490 7,467
Less treasury stock, 41,610 and 32,610 shares at cost at
March 31, 1999 and December 31, 1998, respectively (99) (84)
-------- --------
Total stockholders' equity 7,391 7,383
-------- --------
Total liabilities and stockholders' equity $ 24,846 $ 23,950
======== ========
</TABLE>
The Condensed and Consolidated Balance Sheet at December 31, 1998, has been
derived from the audited financial statements of the Company at that date.
See Notes to Condensed and Consolidated Financial Statements
2
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three Months ended
March 31,
1999 1998
----------- -----------
<S> <C> <C>
REVENUES:
Product sales $ 6,138 $ 5,954
Royalties, license fees and other 106 --
----------- -----------
6,244 5,954
COST OF REVENUES 4,781 4,788
----------- -----------
Gross Profit 1,463 1,166
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 917 974
RESEARCH AND DEVELOPMENT EXPENSES 75 79
AMORTIZATION EXPENSE 54 72
----------- -----------
Operating income (loss) 417 41
INTEREST EXPENSE, NET OF
INTEREST INCOME (222) (179)
OTHER INCOME (EXPENSE) (146) (54)
----------- -----------
Income (loss) before income taxes and
minority Interest 49 (192)
INCOME TAXES 13 --
MINORITY INTEREST IN NET INCOME OF
CONSOLIDATED SUBSIDIARY (1) --
----------- -----------
Net income (loss) $ 37 $ (192)
=========== ===========
BASIC AND FULLY DILUTED NET INCOME (LOSS) PER
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING $ 0.01 $ (0.04)
=========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 4,249,483 4,268,852
=========== ===========
</TABLE>
See Notes to Condensed and Consolidated Financial Statements
3
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
----- -----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net gain (loss) $ 37 $(192)
Other cash provided by (used in) operating activities (882) (300)
----- -----
Net cash provided by (used in) operating activities $(845) $(492)
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (234) (474)
Decrease (increase) in investment in marketable securities 16 (2)
(Increase) decrease in other assets 627 334
----- -----
Net cash used in investing activities 409 (142)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayment) borrowings under revolving line of credit 402 694
Net repayments to financial institutions 195 (305)
Repayment of long term obligations (273) (139)
Purchase of treasury stock (16) --
Exercise of stock options 20 11
----- -----
Net cash provided by financing activities 328 261
----- -----
Net effect of exchange rates on cash and
cash equivalents (18) (12)
----- -----
NET DECREASE IN CASH (126) (385)
CASH AND CASH EQUIVALENTS, beginning of period 411 919
----- -----
CASH AND CASH EQUIVALENTS, end of period $ 285 $ 534
===== =====
</TABLE>
See Notes to Condensed and Consolidated Financial Statements
4
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
NOTES TO CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1999
1.) General
The accompanying unaudited condensed and consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial reporting and with the instructions to Form
10-QSB and Item 310 (b) of Regulation S-B. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. Reference should be made to the
financial statements and related notes included in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1998, which was filed with the
Securities and Exchange Commission on April 15, 1999.
In the opinion of the management of the Company, the accompanying
financial statements reflect all adjustments that were of a normal recurring
nature necessary for a fair presentation of the Company's results of operations
and changes in financial position for the three months ended March 31, 1999 and
March 31, 1998. Operating results for the three month period ended March 31,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999.
2.) Significant Accounting Policies
The accompanying condensed and consolidated financial statements
reflect the application of certain significant accounting policies, including
those described below.
a. Principals of consolidation
The accompanying condensed and consolidated financial statements
include the Company and its majority owned and wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
b. Revenue recognition
The Company recognizes revenues on its product sales upon shipment and
royalties and license fees as earned.
c. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------ ------
<S> <C> <C>
Raw materials $2,437 $2,760
Work in process 558 303
Finished goods 1,876 1,905
------ ------
4,871 4,968
Less: Reserves for obsolescence 716 716
------ ------
Total $4,155 $4,252
====== ======
</TABLE>
5
<PAGE>
d. Net Income (Loss) Per Common Share
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). The new
accounting standard established standards for computing and presenting earnings
per share.
e. Reclassifications
Certain balances in the 1998 financial statements have been
reclassified to conform to the 1999 presentation.
f. Comprehensive income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"),
which requires that all components of comprehensive and total comprehensive
income be reported on one of the following: a statement of income and
comprehensive income, a statement of comprehensive income or a statement of
stockholders equity. Comprehensive income is comprised of net income and all
changes to stockholders' equity except those due to investment by owners
(changes in paid in capital) and distributions to owners (dividends). For
interim reporting purposes, SFAS 130 requires disclosure of total comprehensive
income.
Total accumulated comprehensive income (unaudited) is as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Foreign currency translation adjustments $ (1) $(12)
Unrealized losses on investments in
marketable securities (16) --
---- ----
Accumulated Comprehensive Income $(17) $(12)
==== ====
</TABLE>
g. Industry and geographic segments
The Company's operations are classified into two business segments:
food packaging applications and electronic capacitor operations.
The following table shows sales, operating income (loss) and other
unaudited financial information by industry segment as of and for the three
months ended March 31, 1999 (in thousands):
6
<PAGE>
<TABLE>
<CAPTION>
INDUSTRY SEGMENTS Food Capacitor
- ----------------- Packaging Applications Consolidated
--------------------------------------------------------------------------
<S> <C> <C> <C>
March 31, 1999
Sales $ 1,433 $ 4,811 $ 6,244
--------------------------------------------------------------------------
Operating income (loss) before corporate
expenses, interest and taxes $ 229 $ 188 417
------------------------------------------------- -----------------
Corporate expenses (146)
Interest (222)
-----------------
$ 49
Income before taxes
================================================== =================
Identifiable assets at March 31, 1999 $ 3,468 $ 20,208 $ 23,676
Corporate assets 1,170
-----------------
Total assets at March 31, 1999 $ 24,846
================================================== =================
</TABLE>
Geographic information for the following table shows sales, operating
income (loss) and other financial information by industry segment as of and for
the three months ended March 31, 1999 (in thousands):
<TABLE>
<CAPTION>
GEOGRAPHIC SEGMENTS
- ------------------- United States Spain Malaysia Consolidated
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
March 31, 1999
Sales $ 2,331 $ 3,706 $ 207 $ 6,244
--------------------------------------------------------------------------
Operating income (loss) before corporate
expenses, interest and taxes $ (26) $ 466 $ (23) 417
--------------------------------------------------------------------------
Corporate expenses (146)
Interest (222)
-----------------
$ 49
Income before taxes
------------------------------------------------- -----------------
Identifiable assets at March 31, 1999 $ 12,666 $ 11,534 $ 646 $ 24,846
================================================= =================
</TABLE>
3.) Cash and Cash Equivalents
The Company considers all investments purchased with original
maturities of less than three months to be cash equivalents. Cash and cash
equivalents consist of the following (in thousands):
7
<PAGE>
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Cash $ 285 $ 411
</TABLE>
4.) Investment in Marketable Securities
The Company adopted Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity Investments" ("SFAS
115"), effective January 1, 1994. As of March 31, 1999 and December 31, 1998,
investments in marketable securities that are classified as available-for-sale
and are recorded at fair value, consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Marketable Securities $ 27 $ 43
</TABLE>
5.) Common Stock Purchase Warrants
The Company's Class B Redeemable Common Stock Purchase Warrants (the
"IPO Warrants") expired on July 31, 1998.
6.) Acquisitions
In December 1997, the Company purchased 65% of the capital stock of
DNA-ADTECH S.A. (formerly Alexander Boxall, S.A.) ("DNA"). The Company purchased
50% of the capital stock of DNA from Pedro Nunez-Barranco Guembe and the
remaining 15% from Alexander Peter Boxall. The remaining 35% of DNA stock is
owned by Mr. Boxall. As part of the purchase price for his shares, Mr.
Nunez-Barrance Guembe received a $990,000 note from the Company that is payable
in December 1999. If the Company fails to pay Mr. Nunez-Barranco Guembe in 1999,
Mr. Nunez-Barranco Guembe has the option to receive (i) the return of his 50%
interest in DNA, provided he returns $2,800,000 in cash to the Company, less
(ii) liquidated damages of $340,000. Upon the closing of the DNA Acquisition,
Mr. Boxall became a director of the Company and Managing Director of DNA. For
further pertinent information see section "Recent Developments".
Effective October 1, 1998, the Company, through DNA, acquired 80% of
the outstanding common stock of Kidamai SDN, a capacitor assembler and
distributor located in Kuala Lumpur, Malaysia, for approximately $370,000 in the
form of the cancellation of amounts due DNA for product sales. During 1998 the
name of Kidamai SDN was changed to DNA-AD TECH (Asia) Sdn Bhd ("DNA (Asia)").
During the first quarter, the Company established a joint venture with
Trykko Pack of Denmark and currently owns 82% equity position in a newly formed
company called MICROTECH A/S of Denmark. MICROTECH A/S will be managed by Steen
Pedersen, managing director of Trykko Pack. MICROTECH A/S has one employee and a
salesman located in England. The purpose of the company will be to: (1) manage a
technology licensing program for Europe of the Company's patented Safety
Susceptor product, (2) educate the European market on the Company's microwave
film products, (3) work with our licensees in Europe and (4) establish Safety
Susceptor as a European standard.
8
<PAGE>
ITEM 2: Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
General
Advanced Deposition Technologies, Inc. (the "Company" or "A. D. TECH"),
is a technology leader in developing and manufacturing high-resolution,
patterned, vacuum-metalized coatings for a variety of energy management
applications for use in industrial, commercial and consumer products. Included
among these are product offerings for electronic capacitors, microwave and
standard food packaging, security holograms, retroreflective films, barrier
packaging, electronic article surveillance (EAS) and electric static discharge
(ESD). In December, 1997, the Company acquired 65% of the common stock of
Alexander Boxall, S.A. of Madrid, Spain ("ABSA"), a manufacturer of electronic
capacitors used for lighting and motor run applications. ABSA was renamed DNA-AD
TECH S.A. ("DNA"). On October 1, 1998, the Company, through DNA, acquired 80% of
the outstanding common stock of Kidamai, SDN of Kuala Lumpur, Malaysia ("DNA
(Asia)"). DNA (Asia) is a capacitor assembler and distributor. During first
quarter, the Company established a joint venture with Trykko Pack of Denmark and
currently owns 82% equity position in newly formed company called MICROTECH A/S
of Denmark.
The Company's revenue to date has been primarily from sales to the
capacitor and microwave packaging markets.
Recent Developments
On March 23, 1999, the Company entered into an agreement to purchase an
additional 16% of the equity of DNA of Madrid, Spain (the "Purchase Agreement"),
bringing the Company's total equity ownership to 81%. The purchase price was
based upon a similar valuation used in December 1997 when the Company purchased
65% of ABSA. The Company will pay for this additional 16% equity position by
issuing 598,198 shares of Common Stock. This transaction is subject to the
approval of the Company's stockholders and will be submitted for approval at the
Company's annual meeting.
On March 23, 1999, the Company entered into an agreement with Mr. Boxall to
guarantee the debt of the Company to Mr. Guembe, in exchange for the right to
convert whatever amount Mr. Boxall pays to Mr. Guembe, into shares of the Common
Stock. If the Company determines that it will be unable to repay the $990,000
due on or before December 19, 1999, the Company shall give written notice of
such determination to Mr. Boxall and Mr. Boxall agreed to pay to Mr. Guembe any
remaining amount outstanding with any accumulated outstanding interest. If Mr.
Boxall is required to make any payment to Mr. Guembe, the debt shall bear
interest at the thirty day London Interbank Offered Rate, plus 2%, compounded
monthly, based on such rate as of the last day of such month and shall be due
and payable on March 1, 2001. If on January 1, 2001, there exists any
outstanding balance of the debt due Mr. Boxall, Mr. Boxall shall have the right
at any time after January 1, 2001 through March 1, 2001, to convert all or part
of the outstanding balance of such debt into shares of common stock at a
purchase price per share equal to the fair market value of the Common Stock on
the conversion date, but in no event less than $3.50 per share. The guarantee
agreement with Mr. Boxall is subject to the closing of the Purchase Agreement.
The Company has received a notice of patent allowance from the United
States Patent office for its "High Energy Density Films and Capacitors Thereof"
and has received a favorable response to its European patent application for the
same. We continue to anticipate UL approvals for these new films and capacitor
before the end of 1999. We expect installation of new production capacity in the
third quarter. This will support demand for the Company's standard capacitor
films, microwave films and new HED films. The Company has also established a
filter division in Madrid, Spain. A new patent application for a microwave
vented package was applied for and these products are now being sold in Europe.
9
<PAGE>
Results of Operations
- ---------------------
Three months ended March 31, 1999 compared to Three months ended March 31, 1998
Revenues. Revenues increased to $6,244,000 for the three months ended
March 31, 1999, as compared to $5,954,000 for the three months ended March 31,
1998, an increase of 4.87%. The increase was primarily due to stronger film
sales in the United States, consolidation of revenues from the Malaysia
subsidiary that took place in the fourth quarter of 1998 and initial sales from
MICROTECH A/S in Denmark. Sales of microwave browning and crisping bags were
$11,000 in the first quarter of 1998 and were not major in this comparison.
Cost of Revenues. Cost of revenues decreased slightly to $4,781,000
(77.9% of product sales) for the three months ended March 31, 1999, compared to
$4,788,000 (80.4% of product sales) for the three months ended March 31, 1998.
Higher costs associated with the increase in revenue were more than offset by
reduced manufacturing expenses and reductions in raw material costs.
Gross Profit. Gross profit increased to $1,463,000 (23.8% of product
sales) for the three months ended March 31, 1999, compared to $1,166,000 (19.6%
of product sales) for the three months ended March 31, 1998. The increase in
gross profit was due to reduced production costs, initial technology licensing
fees from our MICROTECH A/S acquisition, and contribution from our Malaysia
operation.
Selling, General and Administrative. Selling, general and
administrative expenses decreased to $917,000 (14.9% of product sales) for the
three months ended March 31, 1999, compared to $974,000 (16.4% of product sales)
for the three months ended March 31, 1998. Staffing and related expense
reductions made in the last half of 1998 in U.S. operations were factors to the
lower expenses noted.
Research and Development. Research and development expenses decreased
modestly to $75,000 for the three months ended March 31, 1999, compared to
$79,000 for the three months ended March 31, 1998.
Amortization. Amortization expenses decreased to $54,000 during the
three months ended March 31, 1999, compared to $72,000 for the three months
ended March 31, 1998. The change was primarily due to the impairment of the
license with Fort James in the fourth quarter of 1998; this resulted in the
elimination of amortization in the first quarter of 1999 for that long-lived
asset.
Operating Income (Loss). The Company generated operating income of
$49,000 for the three months ended March 31, 1999, compared to operating loss of
$192,000 for the three months ended March 31, 1998. The increase in operating
income was the result of stronger sales, elimination of amortization expense
associated with the Fort James license and general reductions in spending.
Net Interest Expense. Net interest expense increased to $222,000 for
the three months ended March 31, 1999, compared to $179,000 for the three months
ended March 31, 1998. The increase was due to increases in debt balances due to
financial institutions.
Other Income (Expense). Other expense totaled $146,000 during the three
months ended March 31, 1999, compared to other expense of $54,000 for the three
months ended March 31, 1998.
10
<PAGE>
Income Taxes. Income taxes increased to $13,000 for the three months
ended March 31, 1999, compared to an insignificant amount for the three months
ended March 31, 1998. Income tax expense was attributable to the profits
generated by DNA.
Minority Interest. Minority interest was $1,000 unfavorable for the
quarter ending March 31, 1999. There was no reported minority interest for the
first quarter of 1998.
Net Income (Loss). The Company generated net income of $37,000 during
the three months ended March 31, 1999, as compared to net loss of $192,000 for
the three months ended March 31, 1998 as a result of the factors discussed
above.
Liquidity and Capital Resources
- -------------------------------
The Company had working capital of approximately $1,125,000 at March
31, 1999, compared to working capital of $505,000 at December 31, 1998. The
increase in working capital primarily reflects stronger sales.
Cash used in operating activities of $845,000 for the three months
ended March 31, 1999, compared to cash used of $492,000 during the three months
ended March 31, 1998. Cash used in operations activities for the three months
ended March 31, 1999 resulted primarily from increases in accounts receivable,
partially offset by non-cash charges to income and increases in accounts
payable.
The Company used $234,000 in cash for investing activities during the
three month period ended March 31, 1999, primarily to purchase property and
equipment to add manufacturing capacity and to increase the efficiency of
existing equipment at DNA. At present, the Company has purchase commitments
approximating $975,000 for a new metallizer scheduled to be delivered in the
second quarter of 1999 for the United States operation. The Company expects to
finance this equipment purchase primarily through the M&E Loan described below.
On July 24, 1998, the Company and its principal lender entered into an
amended Credit Agreement (the "Amended Credit Agreement") that restructured the
terms of the Company's existing line-of-credit facility and two term loan
facilities and waived certain defaults thereunder. The Amended Credit Agreement
provides for a line-of-credit facility of up to $2,000,000, based on percentages
of its eligible accounts receivable, raw materials and finished goods
inventories (the "Line of Credit"), as well as term loans in the aggregate
principal amount of $3,750,000 (the "Term Loans"). Each of these facilities
matures on July 24, 2001.
The Company uses the Line of Credit for working capital. Borrowings
under the Line of Credit bear interest at a rate per annum equal to the bank's
prime lending rate plus 1%. The Line of Credit was unchanged from the period
ending December 31, 1998 at $1,335,704. The Term Loans are being repaid in
monthly payments of $62,500, commencing January 1999 with a balloon payment of
$1,875,000 in July 2001. Through March 31, 1999, the Company has paid down
$187,500 of the Term Loans. Interest is payable monthly at the bank's prime rate
plus 1.25%.
On September 24, 1998, the Company closed on a line of credit with its
principal lender for the purchase of machinery and equipment (the "M&E Loan").
The M&E Loan allows the Company to borrow up to $2,000,000 for the purchase of
machinery and equipment. Interest is payable monthly at the bank's prime rate
plus 1.25%. The M&E Loan is to be repaid over 60 equal monthly installments
commencing on October 1999. The Company had drawn down $480,000 of the M&E Loan
as of March 31, 1999. This
11
<PAGE>
equipment has met initial testing requirements and is anticipated to ship
at the end of June, 1999 to begin production in August, 1999.
Following the reporting of the first quarter, the Company will be
meeting with the primary lending institution to redefine the financial covenants
pertaining to fixed loan agreements and the revolving line of credit agreement.
At year-end 1998, the primary lending institution agreed to waive the events of
default relating to financial covenants until January 1, 2000.
Management believes that the Company's cash, cash equivalents together
with its credit facilities and expected cash flows from operations, will provide
sufficient funds to meet the Company's current and future cash requirements and
allow the Company to continue its marketing and development efforts. There can
be no assurance that cash flows will improve in an amount sufficient to allow
the Company to fund its current obligations and operating expense.
Seasonal Revenues
Historically, the Company has experienced lower sales to the electronic
capacitor market during the third quarter, particularly in July. Based on market
research conducted by the Company, it believes that demand for the Company's
other products, including microwave food packaging, does not experience
similarly timed seasonal variations and could, in the future, offset lower third
quarter sales in the electronic capacitor market.
Inflation
During 1998 and the first quarter of 1999, the Company did not
experience any inflation for raw materials and unit selling prices.
Impact of the Year 2000 Issue
- -----------------------------
The Year 2000 Issue refers to potential problems with computer systems
or any equipment with computer chips or software that use dates where the date
has been stored as just two digits (e.g. 98 for 1998). On January 1, 2000, any
clock or date recording mechanism incorporating date sensitive software that
uses only two digits to represent the year may recognize a date using 00 as the
year 1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar business activities.
The Company has addressed the Year 2000 Issue by conducting a review of
its information technology and non-information technology systems to determine
the extent of any Year 2000 problems. As a result of that review, the Company
has determined that its information technology systems as installed, including
its primary operating, manufacturing, procurement and accounting systems,
correctly define the Year 2000. The Company has also determined that several
non-information technology systems do not correctly define the Year 2000. Both
determinations have been independently verified by outside consultants who have
employed standard testing devices.
The Company is currently investigating insurance coverage in connection
with potential problems as a result of the Year 2000 Issue.
The Company has projected the cost to rectify the existing
non-compliant systems to be approximately $25,000, representing approximately
10% of the Company's Information Technology budget for 1999. The Company
anticipates that these systems will be Year 2000 compliant by July 1999.
12
<PAGE>
No other Information Technology projects have been deferred as a result of the
Year 2000 project. At this time, the Company cannot accurately assess the risks
associated with the non-compliance of its non-information technology systems.
While it is understood by the Company that such non- compliance could have a
material effect on the Company's business, results of operations or financial
condition, at this time management has not determined the entire potential level
of risk.
In addition, the Company has developed a strategic plan to estimate the
potential risks related to third parties with whom it has relationships. The
third parties include suppliers and customers. The Company has distributed
inquiry letters to its major suppliers and customers, which will be followed by
subsequent internal evaluations of the responses received. Upon learning that
certain third parties are not Year 2000 compliant, the Company may be required
to replace any suppliers who are not able to correct their systems before the
Year 2000. Management does not currently have a plan for dealing with its
customers whose systems are not Year 2000 compliant.
While the Company cannot predict what impact the Year 2000 problem may
have on third parties, it does not currently believe that it will incur material
costs in resolving potential Year 2000 problems with its customers and
suppliers.
Until the Company's plan has been completed, the Company cannot
accurately assess the potential risks associated with non-compliance of its
external third parties. While it is understood by the Company that the potential
effect could have a material adverse effect on the Company's business, results
of operations or financial condition, at this time management has not determined
the entire potential level of risk.
At the present time, the Company has not developed a contingency plan.
The Company will continue to monitor the need for a contingency plan based on
the results of its Year 2000 compliance strategic plan.
Business Factors
- ----------------
This report may contain certain forward-looking statements that are
subject to certain risks and uncertainties. These statements include statements
regarding (i) the Company's liquidity; (ii) the Company's Year 2000 readiness;
(iii) the supply and prices of raw materials; (iv) the Company's future cash
requirements; (v) the ability of the Company to redefine its financial covenants
with its existing lender (vi) financing future purchases of equipment. Such
statements are based on management's current expectations and are subject to a
number of factors and uncertainties that could cause actual results to differ
materially from those described in the forward-looking statements. The Company
cautions investors that there can be no assurance that actual results or
business conditions will not differ materially from those projected or suggested
in such forward-looking statements as a result of various factors, including,
but not limited to, the following: uncertainties regarding the performance
advantages of the Company's PMP products and products in development, market
responses to pricing actions, continued competitive factors and pricing
pressures, the timely acceptance of new products, inventory risk due to shifts
in market demand, the development of competing or superior technologies or
products from other manufacturers, many of which have substantially greater
financial, technical and other resources than the Company, dependence on key
personnel, the variation in the Company's operating results, technological
change, the Company's ability to develop and protect proprietary products and
technologies, the availability of additional capital on acceptable terms, if at
all, to fund expansion, and general economic conditions. For further
information, refer to the more specific risks and uncertainties discussed
throughout this report.
13
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports filed on Form 8-K
(a) See Exhibit Index
(b) On March 23, 1999 the registrant filed a Form 8-K with the
Securities and Exchange Commission in connection with its
announcement that it had entered into an agreement to purchase
an additional 16% of the equity in DNA-AD TECH S.A. of Madrid,
Spain, a majority owned subsidiary of the registrant.
14
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
Advanced Deposition Technologies, Inc.
--------------------------------------
Registrant
May 15, 1999 /s/ Glenn J. Walters
- ------------------ -------------------------------------
Glenn J. Walters
Chief Executive Officer
And Treasurer
May 15, 1999 /s/ Joseph P. Keller
- ------------------ -------------------------------------
Joseph P. Keller
Controller (principal financial and
accounting officer)
15
<PAGE>
Exhibit Index
Exhibit Description
------- -----------
10.1 Exchange Agreement, dated March 23, 1999 among the registrant,
DNA Export S.A. and Alexander Boxall.
10.2 Repayment Agreement, dated March 23, 1999 by and between the
registrant and Alexander Boxall.
27.1 Financial Data Schedule
16
<PAGE>
Exhibit 10.1
------------
EXCHANGE AGREEMENT
- ------------------
AGREEMENT made as of the 23rd day of March 1999, among Advanced
Deposition Technologies, Inc., a Delaware corporation ("ADTECH"), DNA Export,
S.A., a corporation organized under the laws of the Kingdom of Spain ("DNA") and
Alexander Boxall, an individual residing in Madrid, Spain. For convenience, each
of the parties may be referred to separately as a "Party" and collectively as
the "Parties".
WHEREAS, DNA owns Three Thousand Three Hundred and Sixty (3,360) shares
of the capital stock (the "ABSA Capital Stock") of DNA-ADTECH, S.A., a
corporation organized under the laws of the Kingdom of Spain (formerly known as
Alexander Boxall, S.A.); and
WHEREAS, DNA wishes to transfer Three Thousand Three Hundred and Sixty
(3,360) shares of ABSA Capital Stock (the "ABSA Shares") to ADTECH, such amount
representing sixteen percent (16%) of the outstanding capital stock of
DNA-ADTECH, S.A. on a fully-diluted basis, in exchange for Five Hundred Ninety
Eight Thousand One Hundred Ninety Eight (598,198) shares (the "ADTECH Shares")
of the common stock, par value $01 per share of ADTECH (the "Common Stock").
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. Exchange of ABSA Shares for ADTECH Shares. Upon the terms and
-----------------------------------------
conditions set forth herein and in reliance upon the representations and
warranties set forth below, DNA agrees to transfer to ADTECH the ABSA Shares and
ADTECH agrees to issue to DNA the ADTECH Shares in exchange therefor (the
"Exchange").
2. Closing. The Exchange shall take place at a closing (the "Closing")
-------
to be held at 11:00 a.m at the offices of Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C., as soon as possible, but in no event later than September 30,
1999 (the "Closing Date"), or at such other place and time as the Parties shall
designate. At the Closing, DNA shall deliver to ADTECH a certificate(s)
representing the ABSA Shares, duly endorsed for transfer to ADTECH and ADTECH
will instruct American Securities Transfer & Trust Company to issue and to
deliver to DNA a certificate representing the ADTECH Shares.
3. Representations and Warranties of DNA. As an inducement to ADTECH to
-------------------------------------
enter into this Agreement and to consummate the transactions contemplated
hereby. DNA hereby represents and warrants to ADTECH as follows:
(a) DNA is a corporation duly incorporated, validly existing
and in good standing under the laws of the Kingdom of Spain.
(b) All corporate action necessary for the execution, delivery
and performance by DNA of this Agreement and the consummation by DNA of the
transactions contemplated hereby has been duly taken. This Agreement constitutes
the legal, valid and binding obligation of DNA enforceable against DNA in
accordance with its terms.
(c) Neither the execution and delivery of this Agreement by
DNA nor the consummation of the transactions contemplated hereby will (i)
violate, conflict with or result in the breach
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or termination of, or constitute a default under DNA's organizational documents
or the terms of any material agreement or instrument to which DNA is a party or
by which DNA is bound or subject, (ii) violate any judgment, order, injunction,
decree or award against or binding upon DNA, or (iii) constitute a violation of
any applicable law or regulation of any applicable jurisdiction.
(d) DNA is the record and beneficial owner of the ABSA Shares
and has good and marketable title thereto, free and clear of all liens, claims,
pledges, security interests, charges, options, restrictions or other
encumbrances. DNA has the right, power and authority to enter into this
Agreement and to perform its obligations hereunder.
(e) (i) DNA is acquiring the ADTECH Shares for its own account
for investment only and not with a view to the distribution or public offering
thereof within the meaning of the Securities Act of 1933, as amended (the
"Securities Act").
(ii) DNA is an "accredited investor" as that term is
defined in Rule 501(a) of Regulation D of the Securities Act.
(iii) DNA understands that the ADTECH Shares are being
offered and transferred to it in reliance on specific exemptions from
the registration requirements of United States federal and state
securities laws and that ADTECH is relying in part upon the truth and
accuracy of, and DNA's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of DNA set
forth herein in order to determine the availability of such
exemptions and the eligibility of DNA to acquire the ADTECH Shares.
(iv) DNA understands that no governmental authority has
passed on or made any recommendation or endorsement of the ADTECH
Shares or the fairness or suitability of the investment in the ADTECH
Shares nor has any governmental authority passed upon or endorsed the
merits of the sale of the ADTECH Shares.
(v) DNA understands that (a) the ADTECH Shares have not
been and are not being registered under the Securities Act or any
state securities laws, and may not be offered for sale, sold,
assigned or transferred unless (1) subsequently registered
thereunder, (2) DNA shall have delivered to ADTECH an opinion of
counsel, in a generally acceptable form, to the effect that the
ADTECH Shares to be sold, assigned or transferred may be sold,
assigned or transferred pursuant to an exemption from such
registration, or (3) the ADTECH Shares can be sold, assigned or
transferred pursuant to Rule 144 promulgated under the Securities Act
(or a successor rule thereto) ("Rule 144"); (b) any sale of the
ADTECH Shares made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and further, if Rule 144 is not
applicable, any resale of the ADTECH Shares under circumstances in
which the seller (or the person through whom the sale is made) may be
deemed to be an underwriter (as that term is defined in the
Securities Act) may require compliance with some other exemption
under the Securities Act or the rules and regulations of the
Securities Exchange Commission thereunder; and (c) neither ADTECH nor
any other person is under any obligation to register the ADTECH
Shares under the Securities Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder.
(vi) DNA understands that the certificate(s) or other
instrument(s) representing the ADTECH Shares shall bear a restrictive
legend in substantially the following form (and a stop-transfer order
may be placed against transfer of such stock certificates):
2 OF 8
<PAGE>
LEGEND
- ------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS OR AN OPINION OF COUNSEL. IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
(c) The representations and warranties of DNA shall survive
the Closing.
4. Representations and Warranties of ADTECH. As an inducement to DNA to
----------------------------------------
enter into this Agreement and to consummate the transactions contemplated
hereby, ADTECH hereby represents and warrants to DNA as follows:
(a) ADTECH is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware and is
duly licensed or qualified to transact business as a foreign corporation and is
in good standing in each jurisdiction in which the ownership or leasing of its
assets or properties requires it to be so licensed or qualified, except where
the failure to be so licensed or qualified would not individually, or in the
aggregate, have a material adverse effect on the business or operations of
ADTECH.
(b) Except for the requisite approval by its stockholders, all
corporate action necessary for the execution, delivery and performance by ADTECH
of this Agreement and the consummation by ADTECH of the transactions
contemplated hereby has been duly taken. This Agreement constitutes the legal,
valid and binding obligation of ADTECH enforceable against ADTECH in accordance
with its terms.
(c) Neither the execution and delivery of this Agreement by
ADTECH nor the consummation of the transactions contemplated hereby will (i)
violate, conflict with or result in the breach or termination of, or constitute
a default under ADTECH's organizational documents or the terms of any material
agreement or instrument to which ADTECH is a party or by which ADTECH is bound
or subject, (ii) violate any judgment, order, injunction, decree or award
against or binding upon ADTECH, or (iii) constitute a violation of any
applicable law or regulation of any applicable jurisdiction.
(d) The representations and warranties of ADTECH shall survive
the Closing.
5. Conditions to Closing.
---------------------
(a) The obligation of ADTECH to deliver the ADTECH Shares to
DNA and to consummate the transactions contemplated hereby is subject to the
satisfaction of the following conditions:
(i) All of the representations and warranties of DNA
contained in this Agreement shall be true, correct and complete in all
material respects on and as of the date hereof and on and as of the
date of the Closing, as if made on and as of the date of the Closing
(except to the extent any such representation or warranty speaks as of
a different date, in which case such
3 OF 8
<PAGE>
representation or warranty shall still be true, correct and complete as
of such different date). On the date of the Closing, DNA shall have
executed and delivered to ADTECH a certificate, in form and substance
satisfactory to ADTECH and its counsel, to such effect.
(ii) ADTECH shall have obtained the necessary
approval of the Exchange by its stockholders.
(b) The obligation of DNA to deliver the ABSA Shares to ADTECH
and to consummate the transactions contemplated hereby is subject to the
condition that all of the representations and warranties of ADTECH contained in
this Agreement shall be true, correct and complete in all material respects on
and as of the date hereof and on and as of the date of the Closing, as if made
on and as of the date of the Closing (except to the extent any such
representation or warranty speaks as of a different date, in which case such
representation or warranty shall still be true, correct and complete as of such
different date). On the date of the Closing, ADTECH shall have executed and
delivered to DNA a certificate, in form and substance satisfactory to DNA and
its counsel, to such effect.
6. Termination.
-----------
In the event that the conditions for Closing set forth in
Section 5 of this Agreement have not been satisfied on or before the Closing
Date, either DNA or ADTECH may terminate this Agreement, effective immediately,
by written notice to the other; provided, however, that (i) ADTECH shall not be
entitled to elect to terminate this Agreement if the Closing has not occurred
due to a failure to meet any of the conditions set forth in Section 5(a)(i) and
(ii) DNA shall not be entitled to elect to terminate this Agreement if the
Closing has not occurred due to a failure to meet any of the conditions set
forth in Section 5(b).
7. Adjustments.
-----------
In the event of any change in the common stock of either of
DNA or ADTECH, prior to the Closing by reason of stock dividends, split-ups,
recapitulations, combinations, exchanges of shares or the like, the number of
Shares which DNA or ADTECH, as the case may be, is obliged to transfer under
this Agreement shall be adjusted appropriately.
8. Indemnification.
---------------
(a) ADTECH hereby agrees to indemnify, defend and hold DNA and
his successors and assigns harmless from any claim, liability, obligation, loss,
damage. assessment, judgment. cost and expense (including, without limitation,
reasonable attorneys' fees) of any kind or character resulting from claims,
charges, liens, contracts, rights, options, security interests, encumbrances and
restrictions of every kind and nature against DNA arising out of or in any
manner relating or attributable to any inaccuracy in any representation or any
breach of any warranty of ADTECH contained herein.
(b) DNA hereby agrees to indemnify, defend and hold ADTECH and
its officers, directors and shareholders harmless from any claim, liability,
obligation, loss, damage, assessment, judgment, cost and expense (including,
without limitation, reasonable attorneys' fees) of any kind or character
resulting from claims, charges, liens, contracts, rights, options, security
interests, encumbrances and restrictions of every kind and nature against ADTECH
arising out of or in any manner relating or attributable to any inaccuracy in
any representation or any breach of any warranty of DNA contained herein.
4 OF 8
<PAGE>
9. Expenses. Boxall hereby agrees to pay the legal and accounting fees
--------
and expenses of ADTECH incurred in connection with the preparation and execution
of this Agreement and in obtaining stockholder approval of the transactions
contemplated hereby; provided, however, that such amount shall not exceed
$100,000.
10. Miscellaneous.
-------------
(a) Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral.
(b) Assignment. This Agreement shall not be assigned by
----------
operation of law or otherwise without the prior written consent of the other
parties hereto. Notwithstanding the foregoing, DNA may assign its rights and/or
obligations under this Agreement to Boxall or any entity controlled by Boxall.
This Agreement shall be binding upon the heirs, legatees and devisees,
executors, administrators and legal representatives of the parties, and upon the
permitted assigns of the parties.
(c) Amendment; Waiver. This Agreement may not be amended or
-----------------
modified except by an instrument in writing signed by the parties.
(d) Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with the law of The Commonwealth of Massachusetts,
without giving effect to the conflict of law principles thereof.
(e) Counterparts. This Agreement may be executed in one or
------------
more counterparts, and by the parties hereto in separate counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(f) Notices. All notices, consents, requests, instructions,
-------
approvals and other communications provided for herein shall be deemed validly
given, made or served if in writing and delivered personally or sent by
certified mail, postage prepaid, or by recognized overnight courier delivery
service (delivery charges prepaid), or by telecopier:
(i) if to DNA, addressed to:
Mr. Alexander Boxall
Calle Atalanta 31
Las Rozas
28230 Madrid
Spain
Telephone: 011-3491-6644060
Fax: 011-3491-6986293
with copies to:
Gibson, Dunn & Crutcher, LLP
200 Park Avenue
New York, New York 10166-0193
Attn: Ignacio Foncillas, Esq
Telephone: 212-351-3971
Fax: 212-351-4035
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<PAGE>
(ii) if to ADTECH, addressed to:
Advanced Deposition Technologies, Inc.
Myles Standish Industrial Park
Taunton, MA 0278
Attn.: Mr. Glenn Walters
Telephone: 508-823-0707
Fax: 508-823-4434
with copies to:
Mintz, Levin, Cohn, Ferris, Glovsky and Pope, P.C.
One Financial Center
Boston, MA 02111
Attn: Doug Zingale, Esq.
Telephone: 617-348-1763
Fax: 617-542-2241
or such other address as shall be furnished in writing by any party to the
other. Any notice (i) sent by telecopier shall be deemed delivered when received
as verified by electronic confirmation, (ii) sent by overnight courier shall be
deemed delivered when received, (iii) sent by certified mail shall be deemed
delivered on the tenth day after it is sent and (iv) given personally shall be
deemed given when received; provided, however, that any notice received after
-----------------
5:00 p.m. or on a day that it not a business day in the place of receipt shall
be deemed delivered at the opening of business on the next business day in the
place of receipt.
(g) Arbitration. Any claim, dispute disagreement or
-----------
controversy that arises between the Parties that relates to the performance of
either Party's duties under this Agreement for the breach of any of the terms or
conditions set forth herein, that is not solved by amicable agreement shall be
resolved exclusively by arbitration initiated in accordance with the procedures
hereinafter set forth in this Section 10(g). All arbitrations pursuant to this
Section 10(g) shall be conducted in accordance with the rules then obtaining of
the American Arbitration Association by a single arbitrator appointed by the
Parties if they shall agree upon an arbitrator within thirty (30) days of the
commencement of such arbitration or by the American Arbitration Association if
they shall fail so to agree. Unless otherwise agreed by the Parties within
thirty (30) days of the initiation of such arbitration, all arbitration
proceedings shall be held in English in the city of Boston, Massachusetts. Each
Party agrees to comply with any award made or order issued in such proceeding
that has become final and to the entry of a judgment in any jurisdiction upon
any award rendered or order issued in such proceeding that has become final. The
decision of the arbitrator shall be tendered within forth-five (45) days of the
final submission of the Parties in writing or in a hearing before the
arbitrator. Each such arbitration award that has become final shall be
conclusive and binding upon the Parties and shall not be appealable. Attorney's
fees, costs and other out-of-pocket expenses may be awarded by the arbitrator in
his discretion to the Party that prevails in any such arbitration, provided,
that if there is no prevailing Party, the arbitrator may award such fees, costs
and expenses in any manner the arbitrator sees fit. Each Party shall pay its own
expenses pending the awarding thereof to the Party that prevails in any such
arbitration.
6 OF 8
<PAGE>
(h) Severability. In the event any provision, or portion
------------
thereof, of this Agreement is held by a court having proper jurisdiction to be
unenforceable in any jurisdiction, then such portion or provision shall be
deemed to be severable as to such jurisdiction (but, to the extent permitted by
law, not elsewhere) and shall not affect the remainder of this Agreement, which
shall continue in full force and effect to the extent that the material purposes
of this Agreement can still be implemented. If any provision of this Agreement
is held to be so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is necessary for it to be enforceable.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered under seal as of the date first written above.
DNA EXPORT, S.A.
By: /s/ Alexander P. Boxall
----------------------------------
Alexander P. Boxall, President
ADVANCED DEPOSITION TECHNOLOGIES, INC.
By: /s/ Glenn J. Walters
----------------------------------
Glenn J. Walters, its Chief
Executive Officer, President and
Treasurer
/s/ Alexander P. Boxall
----------------------------------
Alexander Boxall
8 OF 8
<PAGE>
EXHIBIT 10.2
REPAYMENT AGREEMENT
AGREEMENT made as of the 23rd day of March, 1999, by and between
Advanced Deposition Technologies, Inc., a Delaware corporation (ADTECH) and
Alexander Boxall ("Boxall"), an individual residing in Madrid Spain.
WHEREAS, ADTECH owes a certain amount of money to Pedro Nunez Barranco
Guembe ("Guembe") under the terms of a certain promissory note; and
WHEREAS, Boxall has agreed to guarantee the debt of ADTECH to Guembe,
in exchange for the right to convert whatever amount Boxall pays to Guembe, into
shares of the common stock, $.01 par value per share (the "Common Stock") of
ADTECH.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Agreement Relating to Outstanding Debt to Guembe.
------------------------------------------------
(a) ADTECH hereby agrees to use its best efforts, consistent with
prudent cash management practices and ADTECH's plan for growth, to pay all
amounts due and owing to Guembe under that certain promissory note, dated
December 20, 1997 (the "Guembe Note"), issued by ADTECH to Guembe in the
original principal amount of Nine Hundred Ninety Thousand Dollars ($990,000) on
or before December 19, 1999 (the "Maturity Date").
(b) If ADTECH determines that it will be unable to repay the total
amount due under the Guembe Note on or prior to the Maturity Date, ADTECH shall
give written notice of such determination to Boxall at least thirty (30) days
prior to the Maturity Date and Boxall hereby agrees to pay to Guembe any
remaining amount outstanding under the Guembe Note (together with any
accumulated outstanding interest as provided in Section 1(c) below, the "Boxall
Debt"), on behalf of ADTECH, on or before the Maturity Date.
(c) If Boxall is required to make any payment to Guembe pursuant to
Section 1(b), ADTECH hereby agrees to use its best efforts, consistent with
prudent cash management practices and ADTECH's plan for growth, to repay the
Boxall Debt on or before December 31, 2000. The Boxall Debt shall bear interest
at the thirty day London Interbank Offered Rate, plus 2%, compounded monthly,
based on such rate as of the last day of such month and shall be due and payable
on March 1, 2001 ("Boxall Debt Maturity Date"). For purposes of this Section
1(c), interest on the Boxall Debt shall begin to accrue on the date on which
Boxall makes a payment to Guembe pursuant to Section 1(b) and shall continue
until the earlier of (x) the Conversion Date (as defined below), if Boxall
elects to convert such Debt into shares of Common Stock, as provided in Section
1(d), (y) the Redemption Date (as defined below), if ADTECH elects to redeem all
of the outstanding balance of the Boxall Debt or (z) the Boxall Debt Maturity
Date.
(d) If on January 1, 2001 (the "Conversion Date"), there exists any
outstanding balance of the Boxall Debt, Boxall shall have the right at any time
after the Conversion Date through March 1, 2001, to convert all or part of the
outstanding balance of such Debt into shares of the Common Stock at a
1 OF 6
<PAGE>
purchase price per share equal to the Fair Market Value of the Common Stock on
the Conversion Date, but in no event less than Three Dollars and Fifty cents
($3.50) per share. For purposes of this Section 1(d). "Fair Market Value" shall
mean a value equal to the average of the last reported sale price per share of
the Common Stock on the NASDAQ electronic bulletin board (or other principal
United States market on which the Common Stock is then trading) for the twenty
(20) consecutive business days ending with the last business day prior to the
Conversion Date. The certificate evidencing shares of Common Stock shall bear a
legend substantially similar to that described below in Section 1(g).
(e) If Boxall does not exercise his conversion right as set forth in
Section 1(d), ADTECH shall have the right at any time after January 31, 2001
through March 1, 2001, to redeem all of the outstanding balance of the Boxall
Debt for shares of Common Stock based on a price per share equal to the Fair
Market Value of the Common Stock. For purposes of this Section 1(e), "Redemption
Date" shall mean the date when ADTECH redeems all of the outstanding balance of
the Boxall Debt and "Fair Market Value" shall mean a value equal to the average
of the last reported sale price per share of the Common Stock on the NASDAQ
electronic bulletin board (or other principal United States market on which the
Common Stock is then trading) for the twenty (20) consecutive business days
ending with the last business day prior to the Redemption Date. The certificate
evidencing shares of Common Stock shall bear a legend substantially similar to
that described below in Section 1(g).
(f) If ADTECH has not paid all amounts owing to Boxall pursuant to
Section 1(c) on or prior to November 30, 2000, ADTECH and their respective
affiliates (as defined in the Securities Act of 1933, as amended) agree that
they will not buy, sell or in any way, directly or indirectly, trade shares of
Common Stock at any time during the period from December 1, 2000 to and
including March 1, 2001.
(g) If ADTECH issues shares of Common Stock to Boxall pursuant to
Section 1(d) or 1(e) above, Boxall understands that the certificate(s) or other
instrument(s) representing such shares of Common Stock shall bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of such stock certificates):
LEGEND
- ------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS,
OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM. THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE
STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT.
2. Representations and Warranties of ADTECH.
----------------------------------------
As an inducement to Boxall to enter into this Agreement and to
consummate the transactions contemplated hereby, ADTECH hereby represents and
warrants to Boxall as follows:
(a) ADTECH is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware and is duly licensed or
qualified to transact business as a foreign corporation and is in good standing
in each jurisdiction in which the ownership or leasing of its assets or
2 OF 6
<PAGE>
properties requires it to be so licensed or qualified, except where the failure
to be so licensed or qualified would not individually, or in the aggregate, have
a material adverse effect on the business or operations of ADTECH.
(b) All corporate action necessary for the execution, delivery and
performance by ADTECH of this Agreement and the consummation by ADTECH of the
transactions contemplated hereby has been duly taken. This Agreement constitutes
the legal, valid and binding obligation of ADTECH enforceable against ADTECH in
accordance with its terms.
(c) Neither the execution and delivery of this Agreement by ADTECH nor
the consummation of the transactions contemplated hereby will (i) violate,
conflict with or result in the breach or termination of, or constitute a default
under ADTECH's organizational documents or the terms of any material agreement
or instrument to which ADTECH is a party or by which ADTECH is bound or subject,
(ii) violate any judgment, order, injunction, decree or award against or binding
upon ADTECH, or (iii) constitute a violation of any applicable law or regulation
of any applicable jurisdiction.
(d) The representations and warranties of ADTECH shall survive the
Closing.
3. Representations and Warranties of Boxall.
----------------------------------------
(a) This Agreement constitutes the legal, valid and binding obligation
of Boxall enforceable against Boxall in accordance with its terms.
(b) The representations and warranties of Boxall shall survive the
Closing.
4. Condition Precedent.
-------------------
The performance of the obligations undertaken by the parties herein are
subject to the closing and consummation of the transactions set forth in that
certain Exchange Agreement by and among ADTECH, Boxall and DNA Export S.A. dated
as of the date hereof.
5. Miscellaneous.
-------------
(a) Entire Agreement. This Agreement constitutes the entire agreement
----------------
of the parties hereto with respect to the subject matter hereof and supersedes
all prior agreements and undertakings, both written and oral.
(b) Assignment. This Agreement shall not be assigned by operation of
----------
law or otherwise without the prior written consent of the other parties hereto.
This Agreement shall be binding upon the heirs, legatees and devisees,
executors, administrators and legal representatives of the parties, and upon the
permitted assigns of the parties.
(c) Amendment; Waiver. This Agreement may not be amended or modified
-----------------
except by an instrument in writing signed by the parties.
(d) Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the law of The Commonwealth of Massachusetts, without giving
effect to the conflict of law principles thereof.
3 OF 6
<PAGE>
(e) Counterparts. This Agreement may be executed in one or more
------------
counterparts, and by the parties hereto in separate counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
(f) Notices. All notices, consents, requests, instructions, approvals
-------
and other communications provided for herein shall be deemed validly given, made
or served if in writing and delivered personally or sent by certified mail,
postage prepaid, or by recognized overnight courier delivery service (delivery
charges prepaid), or by telecopier:
(i) if to Boxall, addressed to:
Mr. Alexander Boxall
Calle Atalanta 31
Las Rozas
28230 Madrid
Spain
Telephone: 011-3491-6644060
Fax: 011-3491-6986293
with copies to:
Gibson, Dunn & Crutcher, LLP
200 Park Avenue
New York, New York 10166-0193
Attn: Ignacio Foncillas, Esq
Telephone: 212-351-3971
Fax: 212-351-4035
(ii) if to ADTECH, addressed to:
Advanced Deposition Technologies, Inc.
Miles Standish Industrial Park
Taunton, MA 02780
Attn.: Mr. Glenn Walters
Telephone: 508-823-0707
Fax: 508-823-4434
with copies to:
Mintz, Levin, Cohn, Ferris, Glovsky and Pope, P.C.
One Financial Center
Boston, MA 02111
Attn: Doug Zingale, Esq.
Telephone: 617-348-1763
Fax: 617-542-2241
or such other address as shall be furnished in writing by any party to
the other. Any notice (i) sent by telecopier shall be deemed delivered when
received as verified by electronic confirmation, (ii) sent by overnight courier
shall be deemed delivered when received, (iii) sent by certified mail shall be
deemed
4 OF 6
<PAGE>
delivered on the tenth day after it is sent and (iv) given personally shall be
deemed given when received; provided, however, that any notice received after
-----------------
5:00 p.m. or on a day that it not a business day in the place of receipt shall
be deemed delivered at the opening of business on the next business day in the
place of receipt.
(g) Arbitration. Any claim, dispute disagreement or controversy that
arises between the Parties that relates to the performance of either Party's
duties under this Agreement for the breach of any of the terms or conditions set
forth herein, that is not solved by amicable agreement shall be resolved
exclusively by arbitration initiated in accordance with the procedures
hereinafter set forth in this Section 5(g). All arbitrations pursuant to this
Section 5(g) shall be conducted in accordance with the rules then obtaining of
the American Arbitration Association by a single arbitrator appointed by the
Parties if they shall agree upon an arbitrator within thirty (30) days of the
commencement of such arbitration or by the American Arbitration Association if
they shall fail so to agree. Unless otherwise agreed by the Parties within
thirty (30) days of the initiation of such arbitration, all arbitration
proceedings shall be held in English in the city of Boston, Massachusetts. Each
Party agrees to comply with any award made or order issued in such proceeding
that has become final and to the entry of a judgment in any jurisdiction upon
any award rendered or order issued in such proceeding that has become final. The
decision of the arbitrator shall be tendered within forth-five (45) days of the
final submission of the Parties in writing or in a hearing before the
arbitrator. Each such arbitration award that has become final shall be
conclusive and binding upon the Parties and shall not be appealable. Attorney's
fees, costs and other out-of-pocket expenses may be awarded by the arbitrator in
his discretion to the Party that prevails in any such arbitration, provided,
--------
that if there is no prevailing Party, the arbitrator may award such fees, costs
and expenses in any manner the arbitrator sees fit. Each Party shall pay its own
expenses pending the awarding thereof to the Party that prevails in any such
arbitration.
(h) Severability. In the event any provision, or portion thereof, of
this Agreement is held by a court having proper jurisdiction to be unenforceable
in any jurisdiction, then such portion or provision shall be deemed to be
severable as to such jurisdiction (but, to the extent permitted by law, not
elsewhere) and shall not affect the remainder of this Agreement, which shall
continue in full force and effect to the extent that the material purposes of
this Agreement can still be implemented. If any provision of this Agreement is
held to be so broad as to be unenforceable, such provision shall be interpreted
to be only so broad as is necessary for it to be enforceable.
[Signature Page to Follow]
5 OF 6
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered under seal as of the date first written above.
/s/ Alexander P. Boxall
----------------------------------
Alexander Boxall
ADVANCED DEPOSITION TECHNOLOGIES, INC.
By: /s/ Glenn J. Walters
----------------------------------------
Glenn J. Walters, its Chief Executive
Officer, President and Treasurer
6 OF 6
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<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE QUARTER
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