<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant To Section 14(a) of the Securities Exchange Act of
1934
FILED BY THE REGISTRANT [X]
FILED BY A PARTY OTHER THAN THE REGISTRANT [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ADVANCED DEPOSITION TECHNOLOGIES, INC.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the (appropriate box):
[_] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock
__________________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
598,198
__________________________________________________________________________
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
$1.22--Average of the high and low prices as reported by the Nasdaq Stock
Market on June 17, 1999.
__________________________________________________________________________
(4) Proposed maximum aggregate value of transaction:
$729,801.56
__________________________________________________________________________
(5) Total fee paid:
$146.00
__________________________________________________________________________
[_] Fee previously paid with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
__________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
__________________________________________________________________________
(3) Filing Party:
__________________________________________________________________________
(4) Date Filed:
__________________________________________________________________________
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
580 Myles Standish Boulevard
Myles Standish Industrial Park
Taunton, Massachusetts 02780
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Advanced Deposition Technologies, Inc. (the "Company") to be held at 10:00
a.m. on Wednesday, August 11, 1999 at the Holiday Inn, 700 Myles Standish
Boulevard, Taunton, Massachusetts 02780.
At the Annual Meeting, you will be asked to elect two Class III Directors of
the Company and to ratify the selection of the Company's independent
accountants for the year ending December 31, 1999. In addition, you will also
be asked to approve an exchange agreement, dated March 23, 1999, among the
Company, DNA Export, S.A. and Alexander Boxall (the "Exchange Agreement")
pursuant to which DNA Export, S.A. will transfer 3,360 shares of the capital
stock of DNA-ADTECH, the Company's majority-owned subsidiary located in
Madrid, Spain, to the Company in exchange for 598,198 shares of the Company's
common stock. The Company currently owns 65% of the capital stock of DNA-
ADTECH, and if the Exchange Agreement is approved, the Company will own 81% of
the capital stock of DNA-ADTECH. Alexander Boxall, the President and a
director of the Company, is the sole stockholder of DNA Export, S.A. The Board
of Directors recommends the approval of each of these proposals.
Further details of these matters to be considered at the Annual Meeting are
contained in the attached Proxy Statement that we urge you to consider
carefully. The Company's 1998 Annual Report and Quarterly Report on Form 10-
QSB are also enclosed and provide additional information regarding the
financial results of the Company in 1998 and for the period ended March 31,
1999.
We hope that you will be able to attend the Annual Meeting. Whether or not
you plan to attend the Annual Meeting, it is important that your shares are
represented. Therefore, please complete, date, sign and return the enclosed
proxy card promptly in the enclosed envelope, which requires no postage if
mailed in the United States. This will ensure your proper representation at
the Annual Meeting. If you attend the Annual Meeting, you may vote in person
if you wish, even if you have previously returned your Proxy.
Sincerely,
_____________________________________
Glenn J. Walters
Chief Executive Officer, Treasurer
and Chairman of the Board
Taunton, Massachusetts
July 14, 1999
YOUR VOTE IS IMPORTANT.
PLEASE RETURN YOUR PROXY PROMPTLY.
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 11, 1999
----------------
To The Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Advanced
Deposition Technologies, Inc. (the "Company"), a Delaware corporation, will be
held on Wednesday, August 11, 1999 at 10:00 a.m. at the Holiday Inn, 700 Myles
Standish Boulevard, Taunton, Massachusetts 02780, for the following purposes:
1. To elect two (2) Class III Directors;
2. To approve an exchange agreement, dated March 23, 1999, among the
Company, DNA Export, S.A. and Alexander Boxall (the "Exchange
Agreement") pursuant to which DNA Export, S.A. will transfer 3,360
shares of the capital stock of DNA-ADTECH, the Company's majority-owned
subsidiary located in Madrid, Spain, to the Company in exchange for
598,198 shares of the Company's common stock.
3. To ratify the appointment of BDO Seidman, LLP as independent accountants
for the Company for the fiscal year ending December 31, 1999; and
4. To consider and act upon any matters incidental to the foregoing and any
other matters that may properly come before the meeting or any
adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on Tuesday, June 22,
1999 as the record date for the determination of Stockholders entitled to
notice of and to vote at the Annual Meeting and at any adjournment or
adjournments thereof.
All Stockholders are cordially invited to attend the Annual Meeting. Whether
you plan to attend the Annual Meeting or not, you are requested to complete,
sign, date and return the enclosed proxy card as soon as possible in
accordance with the instructions on the proxy card. A pre-addressed, postage
prepaid return envelope is enclosed for your convenience.
By Order of the Board of Directors
_____________________________________
Joseph Keller
Secretary
Taunton, Massachusetts
July 14, 1999
<PAGE>
ADVANCED DEPOSITION TECHNOLOGIES, INC.
580 Myles Standish Boulevard
Myles Standish Industrial Park
Taunton, Massachusetts 02780
(508) 823-0707
----------------
PROXY STATEMENT
----------------
GENERAL INFORMATION
The enclosed Proxy is solicited by the Board of Directors of Advanced
Deposition Technologies, Inc. (the "Company"), a Delaware corporation, for use
at the Annual Meeting of Stockholders to be held on Wednesday, August 11, 1999
at 10:00 a.m. at the Holiday Inn, 700 Myles Standish Boulevard, Taunton,
Massachusetts, and at any adjournment or adjournments thereof (the "Annual
Meeting").
Where the Stockholder specifies a choice on the enclosed Proxy as to how his
or her shares are to be voted on a particular matter, the shares will be voted
accordingly. If no choice is specified, the shares will be voted FOR the
election of the two (2) nominees for Class III Directors named herein, FOR the
approval of the Exchange Agreement and FOR the ratification of the appointment
of BDO Seidman, LLP as the Company's independent public accountants for the
fiscal year ending December 31, 1999. Any Proxy given pursuant to this
solicitation may be revoked by the person giving it at any time before its use
by delivery to the Company of a written notice of revocation or a duly
executed Proxy bearing a later date. Any Stockholder who has executed a Proxy
but is present at the Annual Meeting, and who wishes to vote in person, may do
so by revoking his or her Proxy as described in the preceding sentence. Shares
represented by valid Proxies received in time for use at the Annual Meeting
and not revoked at or prior to the Annual Meeting, will be voted at the Annual
Meeting.
The close of business on June 22, 1999 has been fixed as the record date for
determining the Stockholders entitled to notice of and to vote at the Annual
Meeting. On that date, 4,278,919 shares of common stock of the Company, $.01
par value per share (the "Common Stock"), were outstanding and entitled to
vote. Each share of Common Stock entitles the holder to one vote with respect
to all matters submitted to Stockholders at the Annual Meeting.
The presence of the holders of a majority of the issued and outstanding
shares of Common Stock entitled to vote at the Annual Meeting, either in
person or represented by a properly executed Proxy, is necessary to constitute
a quorum for the transaction of business at the Annual Meeting. The election
of Directors will be determined by a plurality of the votes cast. The other
two proposals to be voted upon by the Stockholders of the Company requires the
affirmative vote of a majority of the shares of Common Stock present in person
or represented by proxy and voting on the proposal for passage. Abstentions
and broker non-votes (which result when a broker holding shares for a
beneficial holder in "street name" has not received timely voting instructions
on certain matters from such beneficial holder and the broker does not have
discretionary voting power on such matters) are counted for purposes of
determining the presence or absence of a quorum at the Annual Meeting.
Abstentions and broker non-votes are not, however, counted for purposes of
tabulating the votes cast.
Members of the Board of Directors of the Company and officers of the
Company, as a group, own or may be deemed to control approximately 28.1% of
the outstanding shares of Common Stock. As there is no cumulative voting
provided for in the Company's Certificate of Incorporation, the Board of
Directors and officers are able to exert substantial influence over the
election of the Board of Directors and the outcome of any issues that may be
subject to a vote by the Company's Stockholders at the Annual Meeting. The
Board of Directors and officers have indicated their intent to vote all shares
of Common Stock owned or controlled by them in favor of each item set forth
herein.
1
<PAGE>
The cost of soliciting Proxies, including expenses in connection with
preparing and mailing this Proxy Statement, will be borne by the Company,
except for a portion of the Company's legal and accounting expenses in
connection with the preparation of this Proxy Statement which will be paid by
Alexander Boxall, all as more fully described herein. In addition, the Company
will reimburse brokerage firms and other persons representing beneficial
owners of Common Stock for their expenses in forwarding proxy materials to
such beneficial owners. Solicitation of proxies by mail may be supplemented by
telephone, telex and personal solicitation by directors, officers or employees
of the Company. No additional compensation will be paid for such solicitation.
The Annual Report to Stockholders for the fiscal year ended December 31,
1998 and the Company's Quarterly Report on Form 10-QSB for the period ended
March 31, 1999 are being mailed to the Stockholders with this Proxy Statement.
This Proxy Statement and the accompanying Proxy are first being mailed on or
about July 14, 1999 to all Stockholders entitled to notice of and to vote at
the Annual Meeting.
2
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the number of directors shall be
fixed by the Board of Directors. The Bylaws also provide that the Board of
Directors shall be divided into three classes, as equal in number as possible,
with terms expiring in successive years. Directors are elected for terms of
three years and until their successors are elected and qualified. The Board of
Directors has nominated Mr. Glenn J. Walters and Mr. Alexander P. Boxall, the
current Class III Directors, for re-election at the Annual Meeting (together,
the "Director Nominees"). The Class I Director, with a term expiring in 2000,
is Mr. John J. Moroney. The Class II Directors, with terms expiring in 2001,
are Dr. Charles R. Buffler and Mr. Robert M. Pozzo.
As of the date of the last annual meeting, there were six directorships. On
January 15, 1999, Mr. Mark R. Thomas resigned from the Board of Directors. As
a result of Mr. Thomas' resignation, on May 28, 1999, the Board of Directors
decreased the number of directorships from six to five.
A plurality of the votes of the shares present in person or represented by
proxy at the Annual Meeting and entitled to vote is required to elect each
Director Nominee. Unless authority to vote for any of the Director Nominees is
withheld, the shares represented by all Proxies received by the Board of
Directors will be voted for the Director Nominees. In the event that any
Director Nominee shall become unable or unwilling to serve, the shares
represented by Proxies will be voted for the election of such other person as
the Board of Directors may recommend in his place. The Board has no reason to
believe that any nominee will be unable or unwilling to serve.
THE BOARD OF DIRECTORS RECOMMENDS THE ELECTION OF MESSRS. WALTERS AND BOXALL
AS DIRECTORS, AND PROXIES SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR
THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON THE PROXY.
The following table sets forth as to the present directors of the Company,
the Director Nominees and each executive officer of the Company: (i) name,
(ii) age and (iii) present position with the Company.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Glenn J. Walters*....... 44 Chief Executive Officer, Treasurer and Chairman of the Board
Alexander P. Boxall*.... 46 President and Director
Joseph Keller........... 58 Controller
Richard Rollins......... 62 Vice President, Corporate Manufacturing
Richard W. Cowen........ 47 Vice President, Microwave Sales and Marketing
John J. Moroney......... 45 Director
Charles R.Buffler....... 65 Director
Robert M. Pozzo......... 72 Director
</TABLE>
- --------
* Nominee for Director
Glenn J. Walters, Chief Executive Officer, Treasurer and Chairman of the
Board. Mr. Walters co-founded the Company in 1983 and has served as its
Treasurer and a Director since the Company's incorporation in 1985, and as its
Chief Executive Officer since March 1996. Mr. Walters served as the Company's
President from 1985 to April 1999. From July 1991 to the present, Mr. Walters
has served on the Board of Governors of the International Microwave Power
Institute, a non-profit trade association, and as President of the Microwave
Food Technology and Applications section of this association. In addition, Mr.
Walters is a member of the Board of the Society of Vacuum Coaters, Svc. Mr.
Walters has been the primary inventor of all of the Company's technology.
3
<PAGE>
Alexander P. Boxall, President and Director. Mr. Boxall has served as a
Director of the Company since December 1997 and as President of the Company
since April 1, 1999. Mr. Boxall also currently serves as Managing Director of
DNA-ADTECH, the Company's majority-owned subsidiary, a position he has held
since December 1997. Prior to that, Mr. Boxall was a co-principal and co-
managing director of DNA-ADTECH (formerly known as Alexander Boxall, S.A.)
from 1979 to December 1997. Mr. Boxall is also co-principal and director of
several capacitor distribution companies in Europe.
Joseph Keller, Controller. Mr. Keller has served as Controller of the
Company since January 1999. Prior to that he was the Controller and Chief
Financial Officer of the MicroSpring Company, a medical products manufacturer
of coronary devices and springs from January 1996 to January 1999. From
November 1994 to August 1995, Mr. Keller served as Controller of Radionics,
Inc., a neurological device and software company. Prior to that, Mr. Keller
held similar positions with Mentor O & O, Inc., a manufacturer of diagnostic
and surgical equipment and instruments from March 1985 to August 1994.
Richard Rollins, Vice President, Corporate Manufacturing. Mr. Rollins has
served as Vice President, Corporate Manufacturing of the Company since October
1998. Prior to that he served as Vice President of Operations of DNA-ADTECH
from February 1998 to October 1998. Mr. Rollins also served as Vice President,
Engineering at Aerovox-Mexico, a manufacturer of capacitors, from November
1995 to January 1998 and as President of High Energy Corporation, a
manufacturer of capacitors from 1991 to October 1995.
Richard W. Cowen, Vice President, Microwave Sales and Marketing. Mr. Cowen
has served as Vice President, Microwave Sales and Marketing of the Company
since March 1997. Prior to that he served as a Marketing Manager for the
Company's microwave products from February 1995 through February 1997 and as a
Product Manager for the Company from February 1994 through January 1995.
John J. Moroney, Director. Mr. Moroney has served as a Director of the
Company since May 1995. He also served as Chief Operating Officer of the
Company from April 1997 to October 1998. Since October 1998, Mr. Moroney has
served as Vice President of Sales (East) at Digital Market, Inc., an interface
software manufacturer. From 1992 to February 1997, Mr. Moroney served as
Director of New England Operations of Fourth Shift, Inc., a publicly traded
supplier of manufacturing and accounting software.
Charles R. Buffler, Director. Dr. Buffler has served as a Director of the
Company since October 1993. From 1993 to the present, Dr. Buffler has served
as the Vice President of the Microwave Research Center, a privately held
company which specializes in microwave consulting, design and engineering.
Robert M. Pozzo, Director. Mr. Pozzo has served as a Director of the Company
since 1986. He is currently retired. From 1985 to 1991, Mr. Pozzo served as a
venture advisor to Zero Stage Capital Corp., a venture capital company.
Committees
The Board of Directors established an Audit Committee and a Compensation
Committee in October 1993. Members of the Audit Committee are Glenn J.
Walters, Charles R. Buffler and Robert M. Pozzo. The Audit Committee is
concerned primarily with (i) reviewing the Company's financial results and
recommending the selection of the Company's independent auditors; (ii)
reviewing the effectiveness of the Company's accounting policies and
practices, financial reporting and internal controls; (iii) reviewing the
scope of independent audit coverages, the fees charged by the independent
auditors, any transactions which may involve a potential conflict of interest,
and internal control systems. The Audit Committee did not meet in 1998. The
functions of the Audit Committee were handled by the Board of Directors as a
whole.
The Compensation Committee also consists of Messrs. Walters, Buffler and
Pozzo. The Compensation Committee is responsible for negotiating and approving
compensation arrangements for officers, employees, consultants and Directors
of the Company, excluding the granting of options to purchase Common Stock,
which
4
<PAGE>
function has been delegated to the Option Committee consisting of Messrs.
Buffler and Pozzo. The Compensation Committee met once in 1998. The Option
Committee met twice in 1998.
The Company does not have a standing nominating committee or a committee
performing similar functions.
The Board of Directors met three times and acted by unanimous written
consent on four occasion during 1998. All of the Directors attended at least
75% of the meetings of the Board of Directors in 1998.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and Directors, and persons who beneficially
own more than ten percent (10%) of the Common Stock, to file initial reports
of beneficial ownership on Form 3 and reports of changes in beneficial
ownership on Forms 4 and 5 with the Securities and Exchange Commission (the
"SEC") and any national securities exchange on which the Company's securities
are registered. Executive officers, Directors and greater than ten percent
(10%) beneficial owners are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers and Directors,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers, Directors and greater than ten percent (10%)
beneficial owners were complied with for the year ended December 31, 1998,
with the exception of the following: Glenn J. Walters failed to file a timely
Form 4 to report the purchase of the following: (i) 3,000 shares of Common
Stock of the Company on July 1, 1998, (ii) 3,000 shares of Common Stock of the
Company on July 2, 1998, (iii) 1,000 shares of Common Stock of the Company on
July 6, 1998, and (iv) 2,000 shares of Common Stock of the Company on July 31,
1998; however Mr. Walters has subsequently reported these transactions on a
Form 4 filed in September 1998.
5
<PAGE>
Compensation of Executive Officers
The following table sets forth the compensation paid to Mr. Glenn Walters,
the Company's Chief Executive Officer, Treasurer and Chairman of the Board and
the other executive officers of the Company who earned more than $100,000 in
salary and bonus in 1998 (together with Mr. Walters, the "Named Executive
Officers"), with respect to services rendered to the Company during the years
ended December 31, 1998, December 31, 1997 and December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation(1)
------------------- ---------------------
Securities Underlying All Other
Name and Principal Position Year Salary Options(#) Compensation
- --------------------------- ------------------- --------------------- ------------
<S> <C> <C> <C> <C>
Glenn J. Walters ........ 1998 $ 131,538 0 $29,271(2)
Chief Executive Officer, 1997 141,286 100,000 30,545(3)
Treasurer and 1996 138,289(4) 25,527(5)
Chairman of the Board
Richard Rollins.......... 1998 120,577 0 0
Vice President,
Corporate
Manufacturing(6)
John J. Moroney.......... 1998 101,154 0 9,205(8)
Chief Operating
Officer(7)
</TABLE>
- --------
(1) The Company did not grant any restricted stock awards or stock appreciation
rights or make any long-term incentive plan payouts during fiscal years
1996, 1997 or 1998.
(2) Consists of premiums paid by the Company for life insurance for 1998 to Mr.
Walters in the amount of $5,966. This amount also consists of a benefit
allowance in the amount of $23,305. Mr. Walters had the right to purchase
benefits with the foregoing allowance in his discretion.
(3) Consists of premiums paid by the Company for life insurance for 1997 to Mr.
Walters in the amount of $3,964. This amount also consists of a benefit
allowance in the amount of $26,581. Mr. Walters had the right to purchase
benefits with the foregoing allowance in his discretion.
(4) Approximately $20,000 of Mr. Walters salary was deferred for the fiscal
year 1996. Although earned in 1996, Mr. Walters received such payment in
1997.
(5) Consists of premiums paid by the Company for life insurance for 1996 to Mr.
Walters in the amount of $4,971. This amount also consists of a benefit
allowance in the amount of $20,556. Mr. Walters had the right to purchase
benefits with the foregoing allowance in his discretion.
(6) Mr. Rollins was appointed as Vice President, Corporate Manufacturing, in
October 1998.
(7) Mr. Moroney resigned as the Company's Chief Operating Officer in October
1998. He did not earn more than $100,000 in any prior year.
(8) Consists of a benefit allowance in the amount of $9,205. Mr. Moroney had
the right to purchase benefits with the foregoing allowance in his
discretion.
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted to the Named Executive Officers during fiscal
year 1998.
6
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL-YEAR-END OPTION VALUES
The following table summarizes for the Named Executive Officers unexercised
stock options held at December 31, 1998. The value of unexercised in-the-money
options at the fiscal year end is the difference between the exercise price
and the fair market value of the underlying stock on December 31, 1998 the
last business day of the fiscal year. The closing price of the Company's
Common Stock as reported by the Nasdaq Stock Market on such date was $1.34 The
Named Executive Officers did not exercise any stock options during the year
ended December 31, 1998.
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised
Unexercised In-The-Money
Options at Options at
Fiscal Year End Fiscal Year End(1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Glenn J. Walters............ 100,000 0 $ 0 $ 0
Richard Rollins............. 0 0 N/A N/A
John J. Moroney............. 26,500 50,000 0 0
</TABLE>
- --------
(1) Actual gains, if any, on exercise will depend on the value of the Common
Stock on the date of sale of any shares acquired upon exercise of the
option. The Named Executive Officers do not hold any stock options,
exercisable or unexercisable, at exercise prices below the fair market
value of the Common Stock on December 31, 1998 as reported by the Nasdaq
Stock Market. Such options are not "in the money" and their value is,
therefore, zero.
Compensation of Directors
The Company pays each non-employee Director $500 per year and $200 for each
meeting of the Board of Directors that he attends. Non-employee directors are
also awarded formula options under the Company's 1994 Formula Stock Option
Plan (the "1994 Plan"). Under the 1994 Plan, each non-employee Director, upon
first being elected or appointed to the Board of Directors, receives an option
to purchase 1,500 shares of the Company's Common Stock. The 1994 Plan also
provides for an annual grant of an option to purchase 1,000 shares of the
Company's Common Stock to each continuing non-employee Director following each
annual meeting of Stockholders, provided that the Director has attended,
during the Company's fiscal year immediately preceding the grant, at least 75%
of the meetings of the Board of Directors and the Committees on which the
Director has served. All automatic option grants to non-employee Directors
have a term of ten years, an exercise price equal to the fair market value of
the Company's Common Stock on the date of grant, and fully vest one year from
the date of grant, subject to the Director's continued service as a Director
on such date.
Employment Contracts, Termination of Employment and Change in Control
Arrangements
Effective as of July 1, 1993, the Company entered into an employment and
non-competition agreement (the "Employment Agreement") with Mr. Glenn Walters,
the initial term of which expired on December 31, 1996. Mr. Glenn Walters
serves as the principal executive officer of the Company. The Employment
Agreement was renewed in accordance with its terms for an additional one-year
term that expires on December 31, 1999. The Employment Agreement provides for
an initial base salary of no less than $125,000 per annum plus annual base
salary increases and such other bonuses as may be determined by the Company's
Board of Directors as well as benefits offered to the Company's employees
generally. Mr. Glenn Walters is also entitled to the use of a Company-leased
car and severance benefits equal to 200% of his base salary, payable in a lump
sum if (i) the Company or a substantial portion of the Company is acquired
without the Board of Directors' approval, (ii) his employment is terminated
without cause, (iii) his base salary is reduced without his consent, (iv)
there is a substantial change in his position or authority within the Company
without his consent, (v) there is a change in his principal place of
employment from the greater Boston, Massachusetts area without his consent, or
(vi) the Employment Agreement is not renewed without his consent.
7
<PAGE>
The Employment Agreement provides for a renewal for successive one-year
periods after the expiration of the initial term and contains a provision
prohibiting Mr. Walters from competing with the Company, absent the Company's
prior written approval, for a two-year period following the termination of his
employment.
In February 1999, the Company's Board of Directors approved an incentive
plan for a term of one year for Mr. Walters providing for the payment to Mr.
Walters of (i) a five percent commission on all new sales of microwave bags
and laminated products and (ii) a fifteen percent commission on all new cash
license fees, including any royalties paid during the term of the incentive
plan. The incentive plan provides that the total commissions paid to Mr.
Walters shall not exceed $150,000.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of June 1, 1999
concerning the ownership of Common Stock by (i) each Stockholder who is known
by the Company to be the beneficial owner of more than 5% of the outstanding
Common Stock, (ii) each Named Executive Officer, Director and Director
Nominee, and (iii) all Directors and executive officers as a group. Except as
otherwise indicated, the Stockholders listed in the table have sole voting and
investment powers with respect to the shares indicated.
<TABLE>
<CAPTION>
Number of Shares Percentage of
Name and Address(1) Beneficially Owned Class(2)
- ------------------- ------------------ -------------
<S> <C> <C>
Glenn J. Walters(3).......................... 751,893 17.1%
Alexander Boxall(4).......................... 325,150 7.6
John J. Moroney(5)........................... 51,500 1.2
Charles R. Buffler(6)........................ 4,500 *
Robert M. Pozzo(7)........................... 107,558 2.5
Gordon E. Walters(8)......................... 223,647 5.1
37 Fort Hill Lane
Duxbury, MA 02322
All Directors and executive officers as a
group (8 persons)(9)........................ 1,261,601 28.1
</TABLE>
- --------
* Represents beneficial ownership of less than 1% of the Company's
outstanding shares of Common Stock.
(1) The address for these individuals, other than Mr. Gordon E. Walters, is
c/o Advanced Deposition Technologies, Inc., 580 Myles Standish Boulevard,
Myles Standish Industrial Park, Taunton, Massachusetts 02780.
(2) The number of shares of Common Stock issued and outstanding on June 1,
1999 was 4,296,529 shares. The calculation of percentage ownership for
each listed beneficial owner is based upon the number of shares of Common
Stock issued and outstanding on June 1, 1999, plus shares of Common Stock
subject to options held by such persons on June 1, 1999 and exercisable
within 60 days thereafter. Shares of Common Stock that a person has the
right to acquire within 60 days of June 1, 1999, pursuant to the exercise
of options are deemed to be outstanding for the purpose of computing the
percentage ownership of such person, but are not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person
shown in the table.
(3) Consists of 497,393 shares owned directly by Mr. Walters, 100,000 shares
subject to currently exercisable options, 94,500 shares owned directly by
Mr. Walter's wife and 60,000 shares owned by the Walter's Family
Children's Trust for the benefit of Mr. Walter's minor children, of which
Mr. Walters is a co-trustee with his wife. Mr. Walters disclaims
beneficial ownership of the 60,000 shares held by the Walter's Family
Children's Trust and the 94,500 shares owned directly by his wife.
(4) Consists of 280,000 shares of Common Stock held by Mr. Boxall and 45,150
shares of Common Stock held by DNA Export, S.A., an entity owned and
controlled by Mr. Boxall. Excludes the 598,198 shares of Common Stock to
be acquired by DNA Export, S.A in connection with the Exchange Agreement.
See
8
<PAGE>
"Certain Relationships and Related Transactions" and "Proposal No. 2
Approval of Exchange Agreement."
(5) Consists of 51,500 shares of Common Stock subject to currently exercisable
options.
(6) Consists of 4,500 shares of Common Stock subject to currently exercisable
options.
(7) Includes 19,000 shares of Common Stock subject to currently exercisable
options.
(8) Consists of 60,000 shares of Common Stock subject to currently exercisable
options owned directly by Mr. Walters, and 163,647 shares of Common Stock
owned jointly by Mr. Walters and his wife. This information is based
solely upon a Schedule 13G filed with the Securities and Exchange
Commission on February 11, 1999.
(9) Includes 1,000 shares of Common Stock held by Richard W. Cowen, Vice
President of Microwave Sales and Marketing and 20,000 shares of Common
Stock subject to a currently exercisable option held by Mr. Cowen. See
also footnotes 3 through 7 above.
Certain Relationships and Related Transactions
In December 1997, the Company purchased (the "ABSA Acquisition") 65% of the
capital stock of Alexander Boxall, S.A. ("ABSA"), a corporation organized
under the laws of Spain. ABSA manufactures and distributes AC capacitor
components for lighting and motors. The Company purchased 50% of the capital
stock of ABSA from Pedro Nunez-Barranco Guembe and the remaining 15% from
Alexander Boxall. In connection with this transaction, the Company issued
280,000 shares of its Common Stock to Mr. Boxall in exchange for his 15%
interest in ABSA. Upon the closing of the ABSA Acquisition in December 1997,
Mr. Boxall became a director of the Company and was subsequently appointed
President of the Company in April 1999. ABSA was subsequently renamed DNA-
ADTECH.
In March 1999, the Company entered into an agreement with DNA Export, S.A.
to purchase certain shares of the capital stock of DNA-ADTECH held by DNA
Export, S.A. (the "Exchange Agreement"). This transaction, if approved by the
Company's Stockholders, will bring the Company's total equity ownership in
DNA-ADTECH to 81%. As consideration for the additional equity position in DNA-
ADTECH, the Company has agreed to issue 598,198 shares of Common Stock to DNA
Export, S.A. Upon consummation of this transaction, Mr. Boxall, the owner of
DNA Export, S.A. will beneficially own a total of 923,348 shares of Common
Stock, or approximately 19% of the Company's Common Stock and will continue to
own 19% of DNA-ADTECH. The Exchange Agreement is subject to Stockholder
approval as described in Proposal No. 2 in this Proxy Statement.
In addition, in March 1999, Alexander Boxall and the Company entered into a
Repayment Agreement (the "Repayment Agreement") pursuant to which the parties
agreed that in the event that the Company is unable to pay the amounts
outstanding under the promissory note issued to Pedro Nunez Barranco Guembe in
connection with the ABSA Acquisition, on or before maturity without
compromising the Company's plan for growth, Alexander Boxall will repay the
entire balance and will give the Company an additional period of one year to
repay the balance. Mr. Boxall will have the right at any time after January 1,
2001 through March 1, 2001, to convert all or part of the outstanding balance
into shares of Common Stock at a purchase price per share equal to the average
sales price of the Common Stock for the month of December 2000, subject to a
$3.50 per share minimum. If Mr. Boxall does not elect to convert the
outstanding balance, the Company may elect after January 31, 2001 to redeem
such amount for shares of Common Stock at a redemption price equal to the
average sales price of the Common Stock for the twenty business days preceding
the date of redemption. Mr. Boxall's obligations under the Repayment Agreement
are expressly conditioned on the Exchange Agreement being approved by the
Company's Stockholders. See "Proposal No. 2 Approval of Exchange Agreement."
9
<PAGE>
PROPOSAL NO. 2
APPROVAL OF EXCHANGE AGREEMENT
The Parties
The Company. The Company develops, manufactures, markets and sells standard
and proprietary metallized capacitors and a variety of other metallized films
for energy management applications. The Company's primary markets are the
electronic capacitor market and the microwave food packaging market. The
Company produces metallized films by applying an ultra-thin layer or layers of
vaporized metal onto different types of polymer films. The Company has the
capability to print these metals at high resolutions through its proprietary
Pattern Metallized Printing ("PMP") process for its patented and patent
pending products. These thin films are then incorporated into a wide variety
of end-use applications such as capacitors for florescent lighting, motors,
power factor correction systems and microwave food packaging for pizza,
popcorn, pastries, and other foods. The Company has also developed and
manufactured, on a limited basis for evaluation purposes, other patented or
patent pending products that use the Company's PMP technology, such as
authentication holograms, electronic article surveillance tags, electrostatic
discharge materials, retroreflective films, and solar protective films.
The Company began operations in 1985 as a Massachusetts corporation
supplying metallized film to the electronic capacitor industry. In July 1993,
the Company was reincorporated as a Delaware corporation. The Company's
executive offices are located at 580 Myles Standish Industrial Park, Taunton,
Massachusetts, 02780. Its telephone number is (508) 823-0707.
DNA-ADTECH. In December 1997, the Company acquired 65% of the capital stock
of Alexander Boxall, S.A, ("ABSA") a corporation organized under the laws of
Spain. After the acquisition, ABSA was renamed DNA-ADTECH, S.A. ("DNA-
ADTECH"). DNA-ADTECH is a manufacturer of a wide range of electronic
capacitors and capacitor products used primarily for lighting and motor
applications. DNA-ADTECH exports its products to over 50 countries. DNA-ADTECH
has been a significant customer of the Company since 1995. The Company sells
its film to DNA-ADTECH for use in DNA-ADTECH's capacitor components. DNA-
ADTECH's executive offices are located at c/Bruselas, 3 y Ciudad Industrial de
Paria, 28980 Parla, Madrid, Spain. Its telephone number is 34 91 698 61 11.
At its 70,000 square foot capacitor manufacturing facility in Madrid, DNA-
ADTECH operates many types of winding and assembly equipment, the primary
pieces of equipment in the manufacture of electronic capacitors. Much of the
equipment in the Madrid facility has been engineered to maximize production
efficiency, and the Company is currently nearly half way through its two year-
long program to double the capacity of the Madrid facility. The manufacture of
capacitors incorporates two primary operations: the winding of metallized film
into the required capacitor size and the subsequent encapsulation of the
windings into various containers. More specifically, the production of
capacitors involves taking metallized rolls and winding them into small,
individual cylinders frequently called "sections". These sections are then
end-sprayed, leads are attached and placed in a protective case. The final
capacitors are sold by DNA-ADTECH to customers in over fifty countries who use
the capacitors for a variety of applications such as lighting, motors, power
regulation and energy distribution. DNA-ADTECH has implemented automated
computer processes and quality control checks throughout its production
processes.
As of June 1, 1999, DNA-ADTECH had 171 full-time employees.
Initial Acquisition of Majority Interest in DNA-ADTECH in December 1997
In December 1997, the Company purchased (the "Initial Acquisition") 65% of
the capital stock of DNA-ADTECH. The Initial Acquisition was accounted under
the purchase method of accounting whereby the Company was deemed to have
acquired DNA-ADTECH for financial reporting purposes.
Specifically, the Company purchased 50% of the capital stock of DNA-ADTECH
from Pedro Nunez-Barranco Guembe and 15% of the capital stock from Alexander
Boxall. The remaining 35% of DNA-ADTECH is held by DNA Export, S.A. which is
owned and controlled by Mr. Boxall.
10
<PAGE>
In conjunction with the Initial Acquisition, the Company paid Mr. Nunez-
Barranco Guembe $2,800,000 and agreed to pay Mr. Nunez-Barranco Guembe
$990,000, plus interest accruing at 5.39% per annum, on December 19, 1999, in
exchange for his shares in DNA-ADTECH. In addition, the Company issued 280,000
shares of Common Stock to Mr. Boxall in exchange for 15% of the shares in DNA-
ADTECH. The 280,000 shares were issued from treasury stock and at the time of
the Initial Acquisition, represented 6.6% of the Company's outstanding stock.
To consummate the Initial Acquisition, the Company used $1,800,000 of its
working capital, plus a $1,000,000 term loan (the "Term Loan") from its
primary lender, National Bank of Canada. The Term Loan, plus accrued interest,
were originally due and payable in June 1998 and was secured by all of the
Company's assets, including a pledge of the shares of DNA-ADTECH acquired in
the Initial Acquisition.
On July 24, 1998, the Company restructured its existing financing agreements
with National Bank of Canada that, among other things, extended the term of
its existing line of credit, bridge loan and term loan facilities, including
the Term Loan, (the "New Credit Facilities"). The New Credit Facilities
provided the Company with a term debt facility of $3,750,000 to be repaid in
29 monthly payments of $62,500 commencing in January 1999, with a balloon
payment of $1,875,000 in July 2001. Interest at the bank's prime rate plus
1.25% is due monthly.
Effective upon the closing of the Initial Acquisition, the Company expanded
its Board of Directors and appointed Mr. Boxall to fill the vacancy created by
such expansion. Mr. Boxall was appointed as the President of the Company in
April 1999. Prior to that, he served as the Managing Director of DNA-ADTECH.
Subsequent Acquisition of Additional Equity Interest in DNA-ADTECH to which
this Proposal No. 2 Relates
Summary. In March 1999, the Company entered into the Exchange Agreement with
DNA Export, S.A., to purchase certain shares of capital stock of DNA-ADTECH
held by DNA Export, S.A. DNA Export, S.A. is owned and controlled by Alexander
Boxall. If consummated, this transaction would bring the Company's total
equity ownership in DNA-ADTECH to 81%. As consideration for the additional
equity position in DNA-ADTECH, the Company has agreed to issue 598,198 shares
of Common Stock to DNA Export, S.A. Upon consummation of this transaction, Mr.
Boxall, as the owner of DNA Export, S.A., will beneficially own a total of
923,348 shares, or approximately 19% of the Company's Common Stock and will
continue to own 19% of DNA-ADTECH.
This transaction is conditioned upon the Company obtaining the approval of
the Company's Stockholders. In order to approve this transaction, the
affirmative vote of a majority of the shares of Common Stock present in person
or represented by proxy and voting on this matter is required. The Company's
Board of Directors recommends that you vote FOR the approval of the Exchange
Agreement.
Material Features of Exchange Agreement
Exchange: Upon the terms and conditions set forth in the Exchange Agreement,
DNA Export, S.A. has agreed to transfer 3,360 shares of the capital stock of
DNA-ADTECH, which represents 16% of the outstanding capital stock of DNA-
ADTECH, to the Company in exchange for 598,198 shares of the Company's Common
Stock, which represents approximately 14% of the outstanding Common Stock of
the Company prior to giving effect to the transaction and 12.2 % of the
outstanding Common Stock after giving effect to the transaction.
Closing: If the Exchange Agreement is approved by Company's Stockholders,
the transactions contemplated therein shall occur as soon as possible
thereafter, but in no event later than September 30, 1999.
Representations and Warranties: The Company and DNA Export, S.A. have made
certain customary representations and warranties in the Exchange Agreement,
including, representations and warranties regarding
11
<PAGE>
their respective due organization, qualification, good standing and authority
to enter into the Exchange Agreement and that the Exchange Agreement will not
violate any law, regulation, judgment, order, injunction decree or award or
constitute a default under any material agreement or instrument. In addition,
DNA Export, S.A. made representations and warranties that it is an "accredited
investor" as defined in the Securities Act of 1933, as amended, and that it is
acquiring the shares for investment purposes only.
Conditions to Closing: The obligation of the Company and DNA Export, S.A. to
deliver their respective shares of stock and to consummate the transactions
contemplated by the Exchange Agreement is subject to the satisfaction of the
following conditions: (i) all of the representations and warranties of each
party contained in the Exchange Agreement are true, correct and complete in
all material respects 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)
and (ii) the Company shall have obtained the necessary approval of the
Exchange Agreement by its Stockholders.
Termination: In the event that the conditions for Closing set forth in the
Exchange Agreement have not been satisfied on or before September 30, 1999,
either DNA Export, S.A. or the Company may terminate the Exchange Agreement;
provided, however, that a party shall not be entitled to terminate the
Exchange Agreement if the Closing has not occurred due to a failure to meet
any of its respective obligations under the Exchange Agreement.
Indemnification: Each of the parties agreed to indemnify, defend and hold
the other parties and their 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 arising out of or in any manner relating or
attributable to any inaccuracy in any representation or any breach of any
warranty of such party contained in the Exchange Agreement.
Expenses: Pursuant to the Exchange Agreement, Mr. Boxall has agreed to pay
up to $100,000 of the legal and accounting fees and expenses of the Company
incurred in connection with the preparation and execution of the Exchange
Agreement and incurred in obtaining Stockholder approval of the transactions
contemplated therein.
Reasons for Entering into the Exchange Agreement
The Board of Directors of the Company has determined that the terms of the
Exchange Agreement are fair to the Stockholders and in the best interests of
the Company. In so determining, the Board of Directors acted on its belief
that the acquisition of the additional equity position in DNA-ADTECH would be
a step toward increasing shareholder value. For the past several years, DNA-
ADTECH has been a profitable operating company and is expected by its
management to operate profitably in the future. Consequently, a transaction
involving an exchange of shares between the Company and DNA-ADTECH would be
accretive to the earnings of the Company.
At meetings of the Board of Directors in February 1999, the Directors
carefully considered the terms and conditions of the Exchange Agreement. In
determining the number of shares of the Common Stock of the Company to be
issued in exchange for the additional equity interest in DNA-ADTECH, the
Directors reviewed the valuation of DNA-ADTECH used for the Initial
Acquisition and assessed the changes in the financial condition and
performance of DNA-ADTECH since that time. The Board then determined a value
for DNA-ADTECH based solely on its financial performance. Following this
analysis, the Board determined a value for the Company's stock by combining
the value of the Company excluding its ownership of DNA-ADTECH stock with the
indicated values for its 65% interest in DNA-ADTECH. Finally, in order to
ensure that the Exchange Agreement was in the best interests of the Company
and its Stockholders, the Board elected to utilize (i) the lower of the two
values for DNA-ADTECH and (ii) a value for the Company's Common Stock which
exceeded both the average price of the Common Stock during a recent trading
period and the value indicated by this analysis.
12
<PAGE>
Based on this information and after considering the strategic alternatives
available to the Company, the Board of Directors unanimously approved the
Exchange Agreement.
Accounting Treatment
The transaction contemplated by the Exchange Agreement is expected to be
accounted for under the "purchase" method of accounting in accordance with
generally accepted accounting principles. The Company expects that
representatives of BDO Seidman, LLP, the Company's independent public
accountants, will be present at the Annual Meeting, with the opportunity to
make a statement if they so desire, and will be available to respond to
appropriate questions.
Certain Federal Income Tax Consequences
The proposed transaction contemplated by the Exchange Agreement will have no
federal tax consequences for the Stockholders of the Company. The Company will
not recognize any gain or loss in connection with the issuance of the 598,198
shares of Common Stock to DNA Export, S.A. in exchange for the 3,360 shares of
capital stock of DNA-ADTECH under Section 1032(a) of the Internal Revenue Code
of 1986, as amended.
Regulatory Approvals
The Company is not aware of any governmental or regulatory approvals
required in connection with the Exchange Agreement other than compliance with
applicable securities laws.
Relationship Between Parties
See "Certain Relationships and Related Transactions."
Recent Market Price of the Company's Common Stock
The following table sets forth the high and low sales price per share of the
Company's Common Stock on the Nasdaq SmallCap Market on March 24, 1999, the
last trading day preceding the public announcement of the Exchange Agreement
and on [July ], the latest practicable trading day before the printing of
this Proxy Statement.
<TABLE>
<CAPTION>
High Low
----- -----
<S> <C> <C>
March 24, 1999................................................. $2.81 $2.31
July , 1999...................................................
</TABLE>
Market for DNA-ADTECH Capital Stock
There has been and currently is no public trading market for the capital
stock of DNA-ADTECH. Without giving effect to the Exchange Agreement, the
Company owns 65% of the capital stock of DNA-ADTECH and DNA Export, S.A. owns
the remaining 35%. DNA-ADTECH has never declared any cash dividends on its
capital stock.
13
<PAGE>
DNA-AD TECH S.A.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS--YEARS ENDED DECEMBER 31, 1998
and 1997 (UNAUDITED)
Consolidated Balance Sheets (unaudited) as of December 31, 1998
and 1997....................................................... F-1
Consolidated Statements of Operations (unaudited) for the years
ended December 31, 1998 and 1997............................... F-2
Consolidated Statements of Stockholders' Equity (unaudited) for
the years ended December 31, 1998 and 1997..................... F-3
Consolidated Statements of Cash Flows (unaudited) for the years
ended December 31, 1998 and 1997............................... F-4
Notes to Consolidated Financial Statements--Year Ended December
31, 1998 and 1997.............................................. F-5 to F-9
CONDENSED AND CONSOLIDATED FINANCIAL STATEMENTS--THREE MONTHS
ENDED MARCH 31, 1999 and 1998 (UNAUDITED)
Condensed and Consolidated Balance Sheets (unaudited) as of
March 31, 1999 and December 31, 1998........................... F-10
Condensed and Consolidated Statements of Operations (unaudited)
for the three months ended March 31, 1999 and March 31, 1998... F-11
Condensed and Consolidated Statements of Cash Flows (unaudited)
for the three months ended March 31, 1999 and March 31, 1998
(unaudited).................................................... F-12
Notes to Consolidated Financial Statements--Three Months Ended
March 31, 1999................................................. F-13 to F-14
</TABLE>
14
<PAGE>
DNA-AD TECH S.A.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
December 31,
---------------
1998 1997
------- ------
(In Thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 345 $ 530
Accounts receivable, net of allowances for doubtful accounts
of $147,000 in 1998 and $221,000 in 1997................... 4,658 4,826
Inventories................................................. 3,035 1,847
Prepaid expenses and other.................................. 114 --
------- ------
Total current assets...................................... 8,152 7,203
------- ------
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment..................................... 4,352 3,038
Furniture and fixtures...................................... 652 472
Leasehold improvements...................................... 124 97
Vehicles.................................................... 135 124
------- ------
5,263 3,731
Less--accumulated depreciation and amortization............. 3,165 2,731
------- ------
Net property and equipment................................ 2,098 1,000
------- ------
OTHER ASSETS, net of accumulated amortization................. 1,645 995
------- ------
Total assets.............................................. $11,895 $9,198
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Due to financial institutions............................... 2,443 3,709
Accounts payable............................................ 4,343 2,805
Accrued expenses............................................ 270 404
Current maturities of long-term obligations................. 1,145 --
------- ------
Total current liabilities................................. 8,201 6,918
LONG-TERM OBLIGATIONS:
Revolving line of credit.................................... -- --
Long-term obligations, net of current maturities............ 554 9
------- ------
Total liabilities......................................... 8,755 6,927
------- ------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY.................. (33) --
------- ------
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, no par value, 21,000 shares authorized and is-
sued....................................................... 140 140
Foreign currency translation adjustment..................... 158 (29)
Accumulated earnings........................................ 2,875 2,160
------- ------
Total stockholders' equity................................ 3,173 2,271
------- ------
Total liabilities and stockholders' equity................ $11,895 $9,198
======= ======
</TABLE>
F-1
<PAGE>
DNA-AD TECH S.A.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Years ended
December 31,
----------------------
1998 1997
---------- ----------
(In Thousands Except
Share and Per
Share Data)
<S> <C> <C>
REVENUES:
Product sales......................................... $ 15,259 $ 15,712
Royalties, license and other.......................... -- --
---------- ----------
Total revenues...................................... 15,259 15,712
COST OF REVENUES........................................ 7,768 8,245
---------- ----------
Gross profit.......................................... 7,491 7,467
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............ 6,199 5,697
Operating Income.................................... 1,292 1,770
---------- ----------
OTHER INCOME (EXPENSE):
Interest income....................................... -- 9
Interest expense...................................... (322) (419)
Other income (expense), net........................... (138) (78)
---------- ----------
Total other expense, net............................ (460) (488)
---------- ----------
Income before income taxes and minority interest.... 832 1,282
INCOME TAXES............................................ 98 448
---------- ----------
Income before minority interest..................... 734 834
MINORITY INTEREST IN NET LOSS OF SUBSIDIARY............. 19 --
---------- ----------
NET INCOME.............................................. $ 715 $ 834
========== ==========
NET GAIN PER COMMON SHARE:
Basic and diluted..................................... $ 34.05 $ 39.71
========== ==========
</TABLE>
F-2
<PAGE>
DNA-AD TECH S.A.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
-------------------
Accumulated
Common Stock Other Total
Number of $.00 Purchase Accumulated Comprehensive Stockholders'
Shares Par Value Warrants Earnings Income (loss) Equity
--------- --------- ------------ ----------- ------------- -------------
(In Thousands Except Number of Shares)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1996................... 21,000 $140 $ 0 $1,568 $ -- $1,708
Net gain.............. -- -- -- 592 -- 592
Foreign currency
adjustment........... -- -- -- -- (29) (29)
BALANCE, December 31,
1997................... 21,000 140 0 2,160 (29) 2,271
Net gain.............. -- -- -- 715 -- 715
Foreign currency
adjustment........... -- -- -- -- 187 187
BALANCE, December 31,
1998................... 21,000 $140 $ 0 $2,875 $158 $3,173
====== ==== === ====== ==== ======
</TABLE>
F-3
<PAGE>
DNA-AD TECH S.A. (UNAUDITED)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended
December 31,
----------------
1998 1997
------- -------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 715 $ 834
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.............................. 358 322
Minority Interest.......................................... 19 322
Changes in assets and liabilities:
Accounts receivable....................................... 116 (1,061)
Inventories............................................... (1,018) 99
Prepaid expenses and other................................ (87) 220
Accounts payable.......................................... 735 (9)
Accrued expenses.......................................... 66 7
------- -------
Net cash provided by operating activities................ 903 412
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... (1,241) 41
(Increase) decrease in other assets......................... (28) (188)
------- -------
Net cash used for investing activities.................... (1,269) (147)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings / (repayments) from financial institutions... 151 276
Borrowings /(repayments) of long-term obligations........... -- (113)
------- -------
Net cash provided by financing activities................. 151 163
------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS................................................. 30 (62)
------- -------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS......... (185) 366
CASH AND CASH EQUIVALENTS, beginning of year................. 530 164
------- -------
CASH AND CASH EQUIVALENTS, end of year....................... $ 345 $ 530
======= =======
</TABLE>
F-4
<PAGE>
DNA-AD TECH S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Operations
DNA-AD TECH S.A. ("DNA-ADTECH") of Madrid, Spain, is a manufacturer of
metalized polypropylene film capacitors for use in electrical and electronic
applications.
In October 1998, DNA-ADTECH acquired 80% of the common stock of Kidamai-DNA
Sdn Bhd of Kuala Lumpur, Malaysia, an assembler and distributor of capacitors
for the same applications. Kidamai-DNA Sdn Bhd was renamed DNA-AD TECH (Asia)
(herinafter "Kidamai").
2. Significant Accounting Policies
The accompanying consolidated financial statements reflect the application
of certain significant accounting policies, including those described below.
(a) Estimates and Assumptions
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosures 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.
(b) Cash and Cash Equivalents
DNA-ADTECH considers all investments purchased with original maturities of
less than three months to be cash equivalents. There were no cash equivalents
at December 31, 1998 and 1997.
(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>
1998 1997
------ ------
<S> <C> <C>
Raw materials............................................... $2,004 $ 993
Work in process............................................. 160 167
Finished goods.............................................. 871 742
------ ------
3,035 1,902
Less: reserve for obsolescence.............................. -- 55
------ ------
Net......................................................... $3,035 $1,847
====== ======
</TABLE>
Work in process and finished goods include materials, labor and
manufacturing overhead.
(d) Property and Equipment
Property and equipment are stated at cost. DNA-ADTECH provides for
depreciation and amortization by charges to operations over the estimated
useful lives of property and equipment using the straight-line and units-of-
production methods as follows:
<TABLE>
<CAPTION>
Estimated
Classification Useful Lives
-------------- --------------
<S> <C>
Machinery and equipment..................................... 10-15 years
Furniture and fixtures...................................... 5 years
Leasehold improvements...................................... Terms of lease
Vehicles.................................................... 4-5 years
Software.................................................... 3-5 years
</TABLE>
F-5
<PAGE>
DNA-AD TECH S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(e) Other Assets
DNA-ADTECH capitalizes the costs of obtaining patents and trademarks and is
amortizing such costs over a five-year period.
Other assets consist of (in thousands):
<TABLE>
<CAPTION>
Other assets 1998 1997
------------ ------ -----
<S> <C> <C>
Goodwill..................................................... $ 370 $ --
Licenses and patents......................................... 957 708
Due from related party....................................... 242 245
Other........................................................ 393 216
------ -----
1,962 1,169
Less: accumulated amortization............................... 317 174
------ -----
Net.......................................................... $1,645 $ 995
====== =====
</TABLE>
(f) Income Taxes
DNA-ADTECH provides for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes". Under the liability method specified by SFAS No. 109, a deferred tax
asset or liability is determined based on the difference between the financial
statement and tax basis of assets and liabilities, as measured by the enacted
rates assumed to be in effect when these differences reverse.
(g) Postretirement Benefits
DNA-ADTECH does not have any obligations for postretirement benefits under
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions", as it does not currently offer such benefits.
(h) Revenue Recognition
DNA-ADTECH recognizes revenues on its product sales upon shipment and on
royalties and license fees as earned.
(i) Research and Development Expenses
DNA-ADTECH charges research and development expenses to operations as
incurred.
(j) Net Income (Loss) Per Common Share
DNA-ADTECH follows SFAS No. 128, Earnings per Share, issued by the Financial
Accounting Standards Board, which requires the DNA-ADTECH to present its basic
earnings per share and diluted earnings per share, and certain other earnings
per share disclosures for each year presented. Basic earnings per share is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding. The computation of diluted
earnings per share is similar to the computation of basic earnings per share
except that the denominator is increased to include the number of additional
common shares that would have been outstanding if the dilutive potential
common shares had been issued. In addition, the numerator is adjusted for any
changes in income or loss that would result from the assumed conversions of
those potential shares.
F-6
<PAGE>
DNA-ADTECH S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The weighted average number of common shares outstanding is summarized as
follows:
<TABLE>
<CAPTION>
December 31
-------------
1998 1997
------ ------
<S> <C> <C>
Denominator for basic and diluted loss per share:
Weighted average common shares outstanding................ 21,000 21,000
====== ======
</TABLE>
(k) Financial Instruments
The estimated fair value of the DNA-ADTECH's financial instruments, accounts
receivable, accounts payable and notes payable approximates their carrying
value.
(l) Foreign Currency Translation
Assets and liabilities of the DNA-ADTECH's foreign subsidiary are translated
at the rates of exchange at the balance sheet date, and related revenues and
expenses are translated at average exchange rates in effect during the period.
Resulting translation adjustments are excluded from net income and recorded as
a component of comprehensive income.
(m) Long-Lived Assets
DNA-ADTECH follows the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
SFAS 121 establishes accounting standards for the impairment of long-lived
assets and certain identifiable intangibles to be held and used and for long-
lived assets and certain identifiable intangibles to be disposed of.
DNA-ADTECH reviews the carrying values of its long-lived, identifiable
intangible assets and goodwill for possible impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may
not be recoverable. Any long-lived assets held for disposal are reported at
the lower of their carrying amounts or fair value less cost to sell.
(n) Comprehensive Income
DNA-ADTECH adopted SFAS No. 130, Reporting Comprehensive Income, ("SFAS No.
130") which establishes standards for reporting and display of comprehensive
income, its components, and accumulated balances. Comprehensive income is
defined to include all changes in equity except those resulting from
investments by owners and distributions to owners. Among other disclosures,
SFAS No. 130 stipulates that all items that are required to be recognized
under current accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence
as other financial statements.
(o) Industry Segments
DNA-ADTECH adopted SFAS No. 131, "Disclosure about Segments of an Enterprise
and Related Information" ("SFAS No. 131"), which supercedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise". SFAS No. 131
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial
statements issued to the public. It also establishes standards for disclosures
regarding products and services, geographic areas, and major customers. SFAS
No. 131 defines operating segments as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance.
F-7
<PAGE>
DNA-AD TECH S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(p) New Accounting Standard Not Yet Adopted
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No.
133"). SFAS No. 133 requires companies to recognize all derivative contracts
as either assets or liabilities in the balance sheet and to measure them at
fair value. If certain conditions are met, a derivative may be specifically
designated as a hedge, the objective of which is to match the timing of gain
or loss recognition on the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged assets or liability or (ii) the
earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income
in the period of change. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999.
Historically, DNA-ADTECH has not entered into derivative contracts either to
hedge existing risks or for speculative purposes. Accordingly, DNA-ADTECH does
not expect adoption of the new standard to affect its financial statements.
(q) Reclassifications
Certain balances in the 1997 financial statements have been reclassified to
conform to the 1998 presentation.
3. Acquisition
On October 1, 1998, DNA-ADTECH acquired 80% of the capital stock of Kidamai
SDN ("Kidamai"), a capacitor assembler and distributor located in Kuala
Lumpur, Malaysia, for the cancellation of accounts receivable from product
sales of approximately $370,000. The acquisition was recorded using the
purchase method of accounting where the cost of the acquisition over the fair
value of the net assets acquired of approximately $370,000 was allocated to
goodwill and is being amortized over 10 years.
The operations of Kidamai were not material and accordingly, pro forma
information was not provided.
4. Commitments
DNA-ADTECH's manufacturing facility in Spain is owned by a shareholder of
DNA-ADTECH with the lease expiring on December 31, 2006. Future minimum lease
payments as of December 31, 1998 are approximately as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal year Amount
----------- ----------
<S> <C>
1999............................................................ $ 516,000
2000............................................................ 492,000
2001............................................................ 408,000
2002............................................................ 408,000
2003............................................................ 408,000
Thereafter...................................................... 732,000
----------
Total......................................................... $2,964,000
==========
</TABLE>
Rent expense included in the accompanying statements of operations is
approximately $193,000 and $101,000 for 1998 and 1997, respectively.
5. Related Party Transactions
Included in 1998 sales is approximately $3,356,000 in sales to five
companies owned by a shareholder of DNA-ADTECH. At December 31, 1998 the
accounts receivable balances to these companies totaled approximately
$641,000.
F-8
<PAGE>
DNA-AD TECH S.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Included in rent expense is rent for a leased facility owned by a
shareholder of DNA-ADTECH of approximately $168,000 and $14,000 for fiscal
years 1998 and 1997, respectively.
Included in other assets are amounts due a shareholder of DNA-ADTECH of
approximately $242,000 and $245,000 for the years ended December 31, 1998 and
1997, respectively.
6. Technology License Agreement with a Related Party
DNA-ADTECH has licensed the design specifications and operational technology
of certain machinery to a stockholder for the purpose of manufacturing and
selling the machinery to authorized purchasers, as defined. The agreement has
automatic one-year renewal periods until terminated by either party. There
were no revenues recognized under this agreement in 1998 and 1997.
7. Supplemental Disclosure of Cash Flow Information
Cash paid during the year for (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Interest......................................................... $734 $255
Income taxes..................................................... $ 98 $ --
</TABLE>
The accompanying financial statements include the following noncash
financing activities (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cancellation of accounts receivable in connection with the
acquisition of Kidamai SDN................................... $370 $--
</TABLE>
F-9
<PAGE>
DNA-AD TECH S.A.
CONDENSED AND CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
(in thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............................. $ 105 $ 345
Accounts receivable, net of reserve for doubtful
accounts of $141,000 and $147,000 at March 31, 1999
and December 31, 1998, respectively.................. 5,374 4,658
Inventories........................................... 3,178 3,035
Prepaid expenses and other current assets............. 321 114
------- -------
Total current assets................................ 8,978 8,152
------- -------
PROPERTY AND EQUIPMENT, net of accumulated deprecia-
tion................................................... 2,154 2,098
OTHER ASSETS, net of accumulated amortization........... 1,024 1,645
------- -------
Total assets........................................ $12,156 $11,895
======= =======
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
(in thousands,
except share amounts)
<S> <C> <C>
CURRENT LIABILITIES
Due to financing institutions......................... $ 2,533 $ 2,443
Accounts payable...................................... 4,386 4,343
Accrued expenses...................................... 513 270
Current maturities of long-term obligations........... 1,284 1,145
------- -------
Total current liabilities........................... 8,716 8,201
------- -------
LONG-TERM OBLIGATIONS
Long-term obligations, net of current maturities...... 446 554
------- -------
Total liabilities................................... 9,162 8,755
------- -------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARY............ (29) (33)
------- -------
STOCKHOLDERS' EQUITY:
Common stock, no par value, 21,000 shares authorized
and issued........................................... 140 140
Foreign currency translation adjustment............... 6 158
Accumulated earnings.................................. 2,877 2,875
------- -------
Total stockholders' equity.......................... 3,023 3,173
------- -------
Total liabilities and stockholders' equity.......... $12,156 $11,895
======= =======
</TABLE>
See Notes to Condensed and Consolidated Financial Statements
F-10
<PAGE>
DNA-AD TECH S.A.
CONDENSED AND CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months ended
March 31,
----------------------
1999 1998
---------- ----------
(in thousands, except
share and per
share amounts)
<S> <C> <C>
REVENUES:
Product sales....................................... $ 3,919 $ 3,974
---------- ----------
COST OF REVENUES...................................... 2,926 2,921
---------- ----------
Gross Profit........................................ 993 1,053
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......... 526 407
AMORTIZATION EXPENSE.................................. 24 42
---------- ----------
Operating income (loss)............................. 443 603
INTEREST (EXPENSE), NET OF INTEREST INCOME............ (99) (69)
OTHER INCOME (EXPENSE)................................ (336) (539)
---------- ----------
Income (loss) before income taxes and minority In-
terest............................................. 8 (3)
INCOME TAXES.......................................... 13 (1)
MINORITY INTEREST IN NET INCOME OF CONSOLIDATED
SUBSIDIARY........................................... (6) --
---------- ----------
Net income (loss)..................................... $ 1 $ (2)
========== ==========
NET GAIN (LOSS) PER COMMON SHARE: Basic and diluted... $ .05 $ (.10)
</TABLE>
See Notes to Condensed and Consolidated Financial Statements
F-11
<PAGE>
DNA-AD TECH S.A.
CONDENSED AND CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three months
ended March 31,
----------------
1999 1998
------- -------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net gain (loss)............................................ $ 1 $ (2)
------- -------
Other cash provided by (used in) operating activities...... (889) 140
------- -------
Net cash provided by (used in) operating activities........ $ (888) $ 138
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment........................ (222) (30)
(Increase) decrease in other assets........................ 571 --
------- -------
Net cash used in investing activities.................... 349 (30)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (repayment) / borrowings under revolving line of cred-
it........................................................ 201 (304)
Net (repayments) / borrowings to financial institutions.... 193
Repayment of long term obligations......................... (85)
------- -------
Net cash provided by financing activities................ 309 (304)
------- -------
Net effect of exchange rates on cash and cash equiva-
lents................................................... (10) (6)
------- -------
NET DECREASE IN CASH......................................... (240) (202)
CASH AND CASH EQUIVALENTS, beginning of period............... 345 530
------- -------
CASH AND CASH EQUIVALENTS, end of period..................... $ 105 $ 328
======= =======
</TABLE>
See Notes to Condensed and Consolidated Financial Statements
F-12
<PAGE>
DNA-AD TECH S.A.
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.
In the opinion of the management of DNA-ADTECH, the accompanying financial
statements reflect all adjustments that were of a normal recurring nature
necessary for a fair presentation of the DNA-ADTECH'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.
The financial statements reflect the consolidated results of DNA-AD TECH
S.A. ("DNA-ADTECH") of Madrid, Spain and majority ownership in Kidamai-DNA Sdn
Bhd of Kuala Lumpur, Malaysia. Kidamai-DNA Sdn Bhd was renamed DNA-AD TECH
(Asia) (herinafter "Kidamai").
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
DNA-ADTECH and its wholly owned subsidiary. All significant intercompany
balances and transactions have been eliminated in consolidation.
b. Revenue recognition
DNA-ADTECH 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....................................... $1,882 $2,004
Work in process..................................... 282 160
Finished goods...................................... 1,014 871
------ ------
3,178 3,035
Less: Reserves for obsolescence..................... -- --
------ ------
Total............................................. $3,178 $3,035
====== ======
</TABLE>
F-13
<PAGE>
DNA-AD TECH S.A.
NOTES TO CONDENSED AND CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED)--(Continued)
March 31, 1999
d. Net Income (Loss) Per Common Share
Effective January 1, 1997, DNA-ADTECH 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, DNA-ADTECH 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............ $ 7 $ (23)
Unrealized losses on investments in marketable secu-
rities............................................. -- --
-------- ---------
Accumulated Comprehensive Income.................... $ 7 $ (23)
======== =========
</TABLE>
3.) Cash and Cash Equivalents
DNA-ADTECH 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):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Cash................................................ $105 $345
</TABLE>
4.) Acquisitions
Effective October 1, 1998, DNA-ADTECH, acquired 80% of the outstanding
common stock of Kidamai, for approximately $370,000 in the form of the
cancellation of amounts due DNA-ADTECH for product sales.
F-14
<PAGE>
DNA-AD TECH--Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
DNA-ADTECH of Madrid, Spain, is a manufacturer of metalized polypropylene
film capacitors for use in electrical and electronic applications. In October
1998, DNA-ADTECH acquired 80% of the common stock of Kidamai-DNA Sdn Bhd of
Kuala Lumpur, Malaysia, an assembler and distributor of capacitors for the
same applications. Kidamai-DNA Sdn Bhd was subsequently renamed DNA-AD TECH
(Asia).
DNA-ADTECH's revenue to date has been primarily from sales to the lighting,
household appliance, and distribution market , with 65% of its sales in 50
countries other than Spain.
In April 1998, DNA-ADTECH's management implemented a two-year restructuring
plan at its manufacturing plant in Madrid in order to prepare DNA-ADTECH's
manufacturing, quality and administrative systems for a doubling of capacity.
Management believes that this plan, together with new products under
development and approvals currently being sought, will permit entry into new
markets where higher growth and better margins may be achieved.
Results of Operations
Three months ended March 31, 1999 compared to Three months ended March 31,
1998
Revenue. Revenues decreased by 1.4% to $3,919,000 for the three months ended
March 31, 1999, as compared to $3,974,000 for the three months ended March 31,
1998. This decrease of $55,000 was primarily due to a decrease in production
and sales due to Christmas vacations taken by DNA-ADTECH's employees which
were continued into January, as well as a lack of demand of DNA-ADTECH's
products in February, partially offset by the consolidation of DNA (Asia)'s
revenues.
Cost of Revenues. Cost of revenues increased slightly to $2,926,000 (74.7%
of product sales) for the three months ended March 31, 1999, compared to
$2,921,000 (73.5% of product sales) for the three months ended March 31, 1998.
This increase was primarily due to the consolidation of DNA (Asia)'s costs,
plus higher raw material prices.
Gross Profit. Gross profit decreased to $993,000 (25.3% of product sales)
for the three months ended March 31, 1999, compared to $1,053,000 (26.5% of
product sales) for the three months ended March 31, 1998. This decrease was
due to the factors discussed above in Revenues and Cost of Revenues.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $526,000 (13.4% of product sales) for the three months
ended March 31, 1999, compared to $407,000 (10.2% of product sales) for the
three months ended March 31, 1998. This increase was due primarily to the
consolidation of DNA (Asia), salary increases, and further costs associated
with restructuring for DNA-ADTECH's planned increase in capacity.
Amortization. Amortization expenses decreased to $24,000 during the three
months ended March 31, 1999, compared to $42,000 for the three months ended
March 31, 1998, primarily due to the expiration of the amortization period of
certain licenses.
Operating Income. DNA-ADTECH generated operating income of $443,000 for the
three months ended March 31, 1999, compared to operating income of $603,000
for the three months ended March 31, 1998. The decrease in operating income
was the result of the factors discussed in the previous sections.
Net Interest Expense. Net interest expense increased to $99,000 for the
three months ended March 31, 1999, compared to $69,000 for the three months
ended March 31, 1998. The increase was mainly due to increased borrowing and
the consolidation of DNA (Asia).
15
<PAGE>
Other Income (Expense). Other expense was $136,000 for the three months
ended March 31, 1999 as compared to other expenses of $24,000 for the three
months ended March 31, 1998, primarily due to the accrual of expenses to even
out the negative effects of the vacation periods in August and December. In
1998, no such accrual was carried out.
Management Fees. Management fees paid to the Company decreased to $200,000
for the three months ended March 31, 1999 as compared to $515,000 for the
three months ended March 31, 1998.
Income Taxes. Income taxes increased to $13,000 for the three months ended
March 31, 1999 as compared to $0 for the three months ended March 31, 1998 as
a result of higher net income.
Minority Interest. Minority interest decreased to $6,000 for the three
months ended March 31, 1999 as compared to $0 for the three months ended March
31, 1998, due to the consolidation of a small loss at DNA (Asia).
Net Income. DNA-ADTECH generated net income of $1,000 during the three
months ended March 31, 1999, as compared to a loss of $2,000 for the three
months ended March 31, 1998 as a result of the factors discussed above.
Years ended December 31, 1998 and 1997
Revenue. Revenues decreased by 2.9%, to $15,259,000, for the year ended
December 31 1998, as compared to $15,712,000 for the year ending December 31,
1997. This decrease was primarily due to approximately $1,500,000 of revenue
lost in sales to two companies owned by a former shareholder of DNA-ADTECH,
Pedro Nunez-Barranco Guembe, once his holding was acquired by the Company, and
as a result of revenues lost in South East Asia due to the regional crisis.
However, this revenue reduction was offset by an increased market share in
Spain and export markets.
Cost of Revenues. Cost of revenues decreased to $7,768,000 (50.9% of product
sales) for the year ended December 31, 1998, compared to $8,245,000 (52.5% of
product sales) for the year ended December 31, 1997. This decrease was
primarily due to a reduction in sales volume.
Gross Profit. Gross profit increased to $7,491,000 (49.1% of product sales)
for the year ended December 31, 1998, compared to $7,467,000 (47.5% of product
sales) for the year ended December 31, 1997. This was a result of margins
improving due to product mix.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $6,199,000 (40.6% of product sales) for the year ended
December 31, 1998, compared to $5,697,000 (36.3% of product sales) for the
year ended December 31, 1997. This increase was primarily due to salary
increases, newly intensified marketing and sales efforts, and costs associated
with restructuring.
Operating Income. DNA-ADTECH generated operating income of $1,292,000 for
the year ended December 31, 1998, compared to operating income of $1,770,000
for the year ended December 31, 1997. The decrease in operating income was the
result of the factors discussed in the previous sections.
Net Interest Expense. Net interest expense decreased to $322,000 for the
year ended December 31, 1998, compared to $419,000 for the year ended December
31, 1997. The decrease was primarily due to lower interest rates in Spain.
Other Income (Expense). Other expense was $138,000 for the year ended
December 31, 1998 as compared to other expense of $78,000 for the year ended
December 31, 1997. This change was primarily due to increased management fees
payable to the Company.
Income Taxes. Income taxes decreased to $98,000 for the year ended December
31, 1998 from $448,000 for the year ended December 31, 1997. This decrease was
a result of lower net income and tax credits primarily related to the
acquisition of DNA (Asia).
16
<PAGE>
Minority Interest. Minority interest increased to $19,000 for the year ended
December 31, 1998. The acquisition of DNA (Asia) was consummated in October 1,
1998.
Net Income. DNA-ADTECH generated net income of $715,000 during the year
ended December 31, 1998, as compared to $834,000 for the year ended December
31, 1997, as a result of the factors discussed above.
Liquidity and Capital Resources
DNA-ADTECH had working capital of approximately $262,000 at March 31, 1999,
compared to a working capital deficit of approximately $49,000 at December 31,
1998. DNA-ADTECH had a working capital deficit of approximately $49,000 at
December 31, 1998, compared to working capital of approximately $285,000 at
December 31, 1997. The decrease in working capital is primarily a result of
management fees to the Company.
Cash used in operating activities was $888,000 for the three months ended
March 31, 1999. Cash used in operating activities for the three months ended
March 31, 1999 resulted primarily from increases in accounts receivable and
inventories, partially offset by an increase in accounts payable and accruals.
Cash provided by operating activities was $903,000 for the year ended December
31, 1998, compared to cash provided of $412,000 during the year ended December
31, 1997. Cash provided by operating activities for the year ended
December 31, 1998 resulted primarily from increases in accounts payable,
decrease in accounts receivable, non cash transactions for depreciation,
partially offset by increase in inventories.
DNA-ADTECH used $222,000 in cash for investing activities during the three
months ended March 31, 1999, primarily to purchase equipment as part of
management's ongoing plan to increase production capacity and productivity.
DNA-ADTECH used $1,241,000 in cash for investing activities during the year
ended December 31, 1998, primarily to purchase equipment and prepare the plant
for the increase in capacity previously discussed.
DNA-ADTECH has financing relationships with seven financial institutions
located in Spain, and is financed primarily through the discount of
receivables and lines of credit for inventory. Short-term borrowing was
$3,817,000 at March 31, 1999 as compared to $3,404,000 at March 31, 1998.
Amounts due on leasing agreements were $446,000 at March 31, 1999 as compared
to $7,000 at March 31, 1998. Short term borrowing was $3,588,000 at December
31, 1998 as compared to $3,709,000 at December 31, 1997. Part of the equipment
purchased during 1998 was financed via leasing agreements in the aggregate
amount of $553,000 at December 31, 1998, as compared to $7,000 at December 31,
1997.
Management believes that DNA-ADTECH's cash, cash equivalents together with
its credit facilities and expected cash flows from operations, will provide
sufficient funds to meet DNA-ADTECH's current and future cash requirements and
allow DNA-ADTECH to continue its marketing and development efforts.
Seasonal Revenues
Historically, DNA-ADTECH has experienced lower sales during the months of
August and December of each year, primarily due to vacation periods in Spain
and throughout Europe in general. By expanding its product markets to other
geographical areas, DNA-ADTECH believes that these variations will level out
in the future.
Inflation
During 1998 and the first quarter of 1999, there was no 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
17
<PAGE>
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.
DNA-ADTECH 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, DNA-ADTECH has
determined that its information and non-information technology systems as
installed, including its primary operating, manufacturing, procurement and
accounting systems, correctly define the Year 2000.
In addition, DNA-ADTECH 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. Within the next couple of
months, DNA-ADTECH intends to distribute 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, DNA-ADTECH 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 DNA-ADTECH 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 DNA-ADTECH's plan has been completed, DNA-ADTECH cannot accurately
assess the potential risks associated with non-compliance of its external
third parties. While it is understood by DNA-ADTECH that the potential effect
could have a material adverse effect on DNA-ADTECH'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, DNA-ADTECH has not developed a contingency plan. DNA-
ADTECH 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) DNA-ADTECH's ability to effectuate its restructuring plan and to
expand its production capacity; (ii) DNA-ADTECH's potential entry into new
markets; (iii) DNA-ADTECH's liquidity; (iv) DNA-ADTECH's Year 2000 readiness;
(v) expected revenues and (vi) the impact of seasonal revenues. 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. 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 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 DNA-ADTECH; dependence on key
personnel, the variation in DNA-ADTECH's operating results, technological
change, the availability of additional capital on acceptable terms, if at all,
to fund expansion, and general economic conditions.
18
<PAGE>
This proposal to be voted upon by the Stockholders of the Company requires
the affirmative vote of a majority of the shares of Common Stock present in
person or represented by proxy and voting on the proposal for passage.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE EXCHANGE AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY AND PROXIES SOLICITED BY THE BOARD
WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS INDICATED OTHERWISE ON
THE PROXY.
19
<PAGE>
PROPOSAL NO. 3
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has appointed BDO Seidman, LLP ("BDO Seidman"),
independent public accountants, to audit the financial statements of the
Company for the fiscal year ending December 31, 1999. The Board proposes that
the Stockholders ratify this appointment, although such ratification is not
required under Delaware law or the Company's Certificate of Incorporation or
Bylaws. BDO Seidman audited the Company's financial statements for the fiscal
year ended December 31, 1998. The Company expects that representatives of BDO
Seidman will be present at the Annual Meeting, with the opportunity to make a
statement if they so desire, and will be available to respond to appropriate
questions.
The affirmative vote of a majority of the shares present in person or
represented by proxy and voting on Proposal 3 is required to ratify the
appointment of the independent public accounts. In the event that ratification
of the appointment of BDO Seidman as the independent public accountants for
the Company is not obtained at the Annual Meeting, the Board of Directors will
reconsider its appointment.
On February 12, 1997, the Company engaged BDO Seidman, as its independent
accountants. In October 1996, the Company sought guidance from BDO Seidman
regarding the proposed accounting treatment for a significant transaction with
Fort James, Incorporated which involved recognition of revenues from the sale
of patents to Fort James, Incorporated. BDO Seidman concurred with the
Company's proposed treatment of this matter.
Except as stated above, during the two most recent fiscal years and through
February 12, 1997, the Company has not consulted with BDO Seidman on items
which either (i) involved the application of accounting principles to a
specified transaction, either completed or proposed; or (ii) concerned the
subject matter of a disagreement or reportable event with the former
independent accountants, as described in Regulation S-K, Item 304(a)(2) under
the Securities Act of 1993, as amended, and the Securities Exchange Act of
1934, as amended.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE TO APPROVE THE RATIFICATION OF THE
APPOINTMENT OF BDO SEIDMAN, LLP AS INDEPENDENT PUBLIC ACCOUNTANTS, AND PROXIES
SOLICITED BY THE BOARD WILL BE VOTED IN FAVOR THEREOF UNLESS A STOCKHOLDER HAS
INDICATED OTHERWISE ON THE PROXY.
STOCKHOLDER PROPOSALS
Under Rule 14a-8 promulgated under the Exchange Act, Stockholders of the
Company may present proper proposals for inclusion in the Company's Proxy
Statement and for consideration at the next Annual Meeting of Stockholders by
submitting their proposals to the Company in a timely manner. In order to be
considered for inclusion in the proxy statement distributed to Stockholders
prior to the Annual Meeting in the year 2000, a Stockholder proposal must be
received by the Company within a reasonable period of time before the Company
begins to print and mail its proxy materials and must otherwise comply with
the requirements of Rule 14a-8. In order to be considered for presentation at
the annual meeting of Shareholders in the year 2000, although not included in
the proxy statement, a Shareholder proposal must be received by the Company
within a reasonable period of time before the Company mails its proxy
materials. Stockholder proposals should be delivered in writing to Joseph P.
Keller, Secretary, Advanced Deposition Technologies, Inc., 580 Myles Standish
Boulevard, Taunton, Massachusetts 02780.
INCORPORATION BY REFERENCE
The information in the following documents filed by the Company with the
Securities and Exchange Commission pursuant to Securities Exchange Act of
1934, as amended, is incorporated by reference in this Proxy Statement:
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998.
Quarterly Report on Form 10-QSB for the period ended March 31, 1999.
Form 8-K dated March 25, 1999.
20
<PAGE>
ANNUAL REPORT ON FORM 10-KSB AND QUARTERLY REPORT ON FORM 10-QSB
The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998 (other than exhibits thereto) and the Company's Quarterly
Report on Form 10-QSB for the period ended March 31, 1999 (other than exhibits
thereto) filed with the Securities and Exchange Commission, which provide
additional information about the Company, are being furnished to all of the
Company's Stockholders along with this Proxy Statement.
OTHER MATTERS
The Board of Directors knows of no other matter to be presented at the
Annual Meeting. If any other matter should be presented at the Annual Meeting
upon which a vote may be taken, such shares represented by all Proxies
received by the Board of Directors will be voted with respect thereto in
accordance with the judgment of the persons named in the Proxies.
By Order of the Board of Directors,
Joseph Keller
Secretary
Taunton, Massachusetts
July 14, 1999
21
<PAGE>
Appendix A
ADVANCED DEPOSITION TECHNOLOGIES, INC.
Proxy for Annual Meeting of Stockholders
to be held August 11, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
THE UNDERSIGNED hereby appoints Glenn J. Walters and Joseph Keller as
proxies, with full power of substitution, to vote for and on behalf of the
undersigned at the Annual Meeting of Stockholders of ADVANCED DEPOSITION
TECHNOLOGIES, INC. (the "Company") to be held at 10:00 a.m. at the Holiday
Inn, 700 Myles Standish Boulevard, Taunton, Massachusetts 02780, on Wednesday,
August 11, 1999, and at any adjournment or adjournments thereof, upon and with
respect to all shares of the Common Stock of the Company to which the
undersigned would be entitled to vote and act if personally present. The
undersigned hereby directs Glenn J. Walters and Joseph Keller to vote in
accordance with their judgment on any matters which may properly come before
the meeting, all as indicated in the Notice of the meeting, receipt of which
is hereby acknowledged, and to act on the following matters set forth in such
Notice as specified by the undersigned:
If no direction is made, this proxy will be voted FOR election of Directors
identified below and FOR Proposals 2, 3 and 4.
(1) Proposal to elect the following persons as Class III Directors of the
Company:
Glenn J. Walters [_] FOR [_] WITHHOLD VOTE
Alexander P. Boxall [_] FOR [_] WITHHOLD VOTE
__________________________________________
[_] For both nominees except as noted above
(2) Proposal to approve the exchange agreement pursuant to which DNA
Export, S.A. will transfer 3,360 shares of the capital stock of DNA-ADTECH,
the Company's majority-owned subsidiary located in Madrid Spain, to the
Company, in exchange for 598,198 shares of the Company's common stock.
[_] FOR [_] AGAINST [_] ABSTAIN
(3) Proposal to ratify and confirm the appointment of BDO Seidman, LLP as
the independent accountants for the Company for the fiscal year ending
December 31, 1999.
[_] FOR [_] AGAINST [_] ABSTAIN
(4) IN THEIR DISCRETION TO TRANSACT SUCH OTHER BUSINESS AS MAY PROPERLY
COME BEFORE THE MEETING OR ANY ADJOURNMENT OR ADJOURNMENTS THEREOF.
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<PAGE>
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED FOR AND IN FAVOR OF THE
ITEMS SET FORTH ABOVE UNLESS A CONTRARY SPECIFICATION IS MADE.
PLEASE MARK, DATE, SIGN AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
Please sign exactly as name appears below.
Dated: __________________________
_________________________________
Signature
_________________________________
Signature if held jointly
_________________________________
Printed Name
_________________________________
Address
NOTE: When shares are held by joint tenants, both should sign. When signing
as attorney, executor, administrator, trustee or guardian, please give full
title as such. If the person named on the stock certificate has died, please
submit evidence of your authority. If a corporation, please sign in full
corporate name by the President or authorized officer and indicate the
signer's office. If a partnership, please sign in the partnership name by an
authorized person.
A-2
<PAGE>
APPENDIX B
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 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
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<PAGE>
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):
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.
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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 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).
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<PAGE>
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.
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:
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<PAGE>
(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
(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
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<PAGE>
(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.
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.
/s/ Alexander P. Boxall
By: _________________________________
Alexander P. Boxall, President
Advanced Deposition Technologies,
Inc.
/s/ Glenn J. Walters
By: _________________________________
Glenn J. Walters,
its Chief Executive Officer,
President and Treasurer
/s/ Alexander Boxall
_____________________________________
Alexander Boxall
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