FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 26, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-12767
Chemfab Corporation
(Exact name of registrant as specified in its charter)
Delaware 03-0221503
(State of Incorporation) (I.R.S. Employer Identification No.)
701 Daniel Webster Highway 03054
Merrimack, New Hampshire (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (603) 424-9000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _______
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
As of May 1, 2000, the Company had 7,463,357 shares of Common Stock, par value
$0.10 per share, outstanding.
<PAGE>
CHEMFAB CORPORATION
INDEX
Part I. Financial Information Page No.
--------
Item 1. Financial Statements
Consolidated Balance Sheets at
March 26, 2000 and June 30, 1999 3
Consolidated Statements of Income for the
Three Months and Nine Months Ended
March 26, 2000 and March 28, 1999 5
Consolidated Statements of Cash Flows for the
Nine Months Ended March 26, 2000 and
March 28, 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
-----------------------------------
Part II. Other Information
Item 1. Legal Proceedings 20
-----------------
Item 5. Other Matters 20
-------------
Item 6. Exhibits and Reports on Form 8-K 21
--------------------------------
Signatures 22
<PAGE>
Part I - Financial Information
CHEMFAB CORPORATION
CONSOLIDATED BALANCE SHEETS (Page 1 of 2)
---------------------------
(in thousands, except par value amounts)
March 26, June 30,
2000 1999
(Unaudited)
Current assets:
Cash and cash equivalents $ 7,092 $ 4,783
Receivables:
Trade 31,052 25,020
Other 294 92
Inventories 25,899 19,649
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,509 958
Prepaid expenses, and other current assets 1,872 3,266
Deferred tax assets 1,668 1,248
-------- ---------
Total current assets 69,386 55,016
Property, plant and equipment, at cost 64,889 59,418
Less: accumulated depreciation (31,568) (29,466)
--------- ---------
Property, plant and equipment, net 33,321 29,952
Goodwill, net 34,682 19,297
Other assets, principally intangibles 8,367 2,103
Deferred tax assets 1,716 -
--------- ---------
Total assets $147,472 $106,368
======= =======
See accompanying Notes to Consolidated Financial Statements.
3
<PAGE>
CHEMFAB CORPORATION
CONSOLIDATED BALANCE SHEETS (Page 2 of 2)
---------------------------
(in thousands, except par value amounts)
March 26, June 30,
2000 1999
---- ----
(Unaudited)
Current liabilities:
Accounts payable and accrued expenses $ 19,322 $ 14,974
Short-term borrowings 19,441 11,028
Accrued income taxes 2,578 1,209
Billings in excess of costs and estimated
earnings on uncompleted contracts 73 250
---------- ---------
Total current liabilities 41,414 27,461
---------- --------
Long term debt 24,000 -
Other liabilities 856 -
Deferred tax liabilities 2,394 2,051
Shareholders' equity:
Preferred stock, par value $0.50:
authorized - 1,000 shares, none issued - -
Common stock, par value $0.10:
authorized - 15,000 shares; issued 8,885 at
March 26, 2000 and 8,828 shares at
June 30, 1999 888 883
Additional paid-in capital 27,621 26,829
Retained earnings 76,915 69,972
Treasury stock, at cost (1,397 shares at
March 26, 2000 and 1,091 at
June 30, 1999) (23,932) (19,012)
Accumulated other comprehensive income (2,684) (1,816)
--------- ---------
Total shareholders' equity 78,808 76,856
-------- --------
Total liabilities and shareholders' equity $147,472 $106,368
======= =======
See accompanying Notes to Consolidated Financial Statements.
4
<PAGE>
CHEMFAB CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- ----------------------
March 26, March 28, March 26, March 28,
2000 1999 2000 1999
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales $ 33,942 $ 44,457 $ 91,089 $ 97,581
Cost of sales 22,152 30,734 59,255 65,958
------ ------ ------ ----------
Gross profit 11,790 13,723 31,834 31,623
Selling, general and
administrative expenses 7,150 7,328 17,947 16,653
Research and development 1,353 1,273 2,934 2,930
Other expense (income) 86 78 198 (82)
Interest expense, net 717 360 836 231
--- -------- ---- --------
Income before income taxes 2,484 4,684 9,919 11,891
Provision for income taxes 745 1,449 2,976 3,755
--- ----- ------ --------
Net income $ 1,739 $ 3,235 $ 6,943 $ 8,136
===== ===== ====== ========
Earnings per share:
- Basic $0.23 $0.41 $0.91 $1.04
- Diluted $0.23 $0.40 $0.90 $1.01
Weighted average common
shares outstanding:
- Basic 7,506 7,819 7,604 7,822
- Diluted 7,607 8,034 7,736 8,069
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
5
<PAGE>
CHEMFAB CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
-----------------
Mar. 26, Mar. 28,
2000 1999
Cash flows from operating activities:
Net income $ 6,943 $ 8,136
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation and amortization 5,308 4,306
Special charges, cash payments (1,533) -
Compensation from stock option grants 142 -
Change in working capital:
Receivables (2,763) 775
Inventories (2,026) (2,397)
Costs and estimated earnings in excess
of billings on uncompleted contracts, net (790) (682)
Prepaid expenses and other current assets (96) (2,577)
Accounts payable, accrued expenses and 2,139 (1,658)
other current liabilities
Income taxes 1,361 703
Deferred tax assets and liabilities 343 59
Other assets (584) (219)
Other liabilities 856 -
-------- -------
Total adjustments 2,357 (1,690)
-------- -------
Net cash provided by operating activities 9,300 6,446
-------- -------
Cash flows from investing activities:
Acquisitions, net of cash acquired (31,287) (9,420)
Capital expenditures (net) (4,191) (9,052)
-------- -------
Net cash used in investing activities (35,478) (18,472)
-------- -------
Cash flows from financing activities:
Net advances (payments) on lines-of-credit 2,756 5,524
Proceeds from term loan 30,000 -
Proceeds from exercise of stock options 656 1,236
Purchase of treasury shares (4,920) (2,408)
-------- -------
Net cash provided by financing activities 28,492 4,352
-------- -------
Effect of exchange rate changes on cash (5) (49)
-------- -------
Net increase(decrease) in cash and cash equivalents 2,309 (7,723)
Cash and cash equivalents at beginning of year 4,783 11,099
-------- -------
Cash and cash equivalents at end of period $ 7,092 $ 3,376
======== =======
Interest paid $ 303 $ 434
Income taxes paid $ 1,585 $ 2,366
See accompanying Notes to Consolidated Financial Statements.
6
<PAGE>
CHEMFAB CORPORATION
Notes to Consolidated Financial Statements
March 26, 2000
Note 1 - Significant Accounting Policies:
Principles of Consolidation:
The consolidated financial statements of Chemfab Corporation (the
Company) included in this report reflect all adjustments (consisting of
only normally recurring accruals) which, in the opinion of management,
are necessary for a fair presentation of the consolidated financial
position at March 26, 2000 and June 30, 1999, and the consolidated
statements of income and cash flows for the three months and nine
months ended March 26, 2000 and March 28, 1999. The unaudited results
of operations for the interim periods reported are not necessarily
indicative of results to be expected for the year.
Certain notes and other information have been condensed or omitted from
these interim financial statements. The statements, therefore, should
be read in conjunction with the consolidated financial statements and
related notes included in the Chemfab Corporation Annual Report on Form
10-K for the year ended June 30, 1999 (file no. 1-12767).
Note 2 - Acquisitions:
During fiscal 1999, the Company completed the purchase of the business
assets and assumed certain liabilities (principally inventory, accounts
receivable, equipment, certain liabilities and accounts payable,
accruals and intangibles) of Vdb/hi-tex Technische Gewebe GmbH (Vdb),
Breitenborn GmbH and Synthetica W. Muller GmbH & Co. (collectively the
"German Acquisitions") for approximately $12,368,000 in cash, including
associated transaction costs. These acquisitions were accounted for
using the purchase method of accounting. Prior to the acquisitions,
each of the entities' main business was in the fabrication and
distribution of PTFE composite products principally purchased from
Chemfab. These businesses are expected to continue. The acquired
operations' primary markets are in Germany and Eastern European
countries. These acquisitions resulted in the recognition of goodwill
of approximately $11,825,000 which is being amortized on a
straight-line basis over the estimated useful life of 15 years.
On July 16, 1999, the Company completed the purchase of the capital
stock of Holding Christian Cases S.A. (HCC) for $1,236,000 in net cash,
including associated transaction costs. The purchase agreement also
requires the payment of approximately $100,000 in each of the following
two years for a non-compete agreement. The acquisition was accounted
for using the purchase method of accounting. Prior to the acquisition,
the main business of HCC and its subsidiaries was in the fabrication
and distribution of PTFE composite products in France principally
purchased from Chemfab. This business is expected to continue. The
acquisition of HCC resulted in the recognition of goodwill of
approximately $858,000, which is being amortized on a straight-line
basis over the estimated useful life of 15 years.
7
<PAGE>
CHEMFAB CORPORATION
Notes to Consolidated Financial Statements
March 26, 2000
Note 2 - Acquisitions (continued):
On September 27, 1999, the Company completed the purchase of the
business of CTF LTDA, formerly operating as Taconic Glasslon (Taconic),
for $1,769,000 in cash, including associated transaction costs plus the
payment of $600,000 in aggregate over the next six years. The
acquisition was accounted for using the purchase method of accounting.
Prior to the acquisition, the main business of Taconic was the
manufacture, fabrication and distribution of PTFE composite products in
Brazil. This business is expected to continue. The acquisition of
Taconic resulted in the recognition of goodwill of approximately
$1,971,000, which is being amortized on a straight-line basis over the
estimated useful life of 15 years.
On November 10, 1999, the Company completed the purchase of certain
business assets and assumed certain liabilities of Orvim for
approximately $1,080,000 in cash. The acquisition was accounted for
using the purchase method of accounting. Prior to the acquisition, the
main business of Orvim was in the fabrication and distribution of PTFE
composites produced in Italy principally purchased from Chemfab. The
business is expected to continue. The acquisition of Orvim resulted in
the recognition of goodwill of approximately $1,164,000, which is being
amortized on a straight-line basis over the estimated useful life of 15
years.
On December 27, 1999, the Company completed the purchase of UroQuest
Medical Corporation (UroQuest). The Company acquired all of the
outstanding capital stock of UroQuest in a cash merger for
approximately $29,938,000 including associated transaction costs. The
acquisition was accounted for using the purchase method of accounting.
The Company used the proceeds of its new borrowing agreement to fund
the acquisition (see Note 3). UroQuest through its wholly-owned
subsidiary, Bivona Medical Technologies, designs, manufactures and
markets proprietary disposable silicone elastomer products and silicone
elastomer components used in products serving the healthcare and
personal care industries, and is a market leader in the design and
manufacture of silicone elastomer products for airway management
applications. The business is expected to continue. The purchase price
has been allocated on a preliminary basis based on estimated fair
values at date of acquisition, pending a final determination of values
and lives. Based on these estimates, the acquisition of Bivona resulted
in the recognition of goodwill of approximately $13,132,000 and other
intangible assets of approximately $6,478,000.
8
<PAGE>
CHEMFAB CORPORATION
Notes to Consolidated Financial Statements
March 26, 2000
Note 2 - Acquisitions (continued):
The following are the Company's unaudited pro forma results for fiscal
2000 and 1999, assuming the German and Bivona Acquisitions occurred at
the beginning of the fiscal year 1999. These pro forma results have
been prepared for comparative purposes only and do not purport to be
indicative of the results of operations which actually would have
resulted had the acquisitions occurred on the date indicated, or which
may result in the future.
Three Months Ended Nine Months Ended
--------------------- -------------------
March 26, March 28, March 26, March 28,
2000 1999 2000 1999
---- ---- ---- ----
Net sales ...................... $ 33,942 $ 49,926 $101,338 $116,788
Net income ..................... $ 1,739 $ 3,113 $ 7,329 $ 7,764
Diluted earnings per share ..... $ 0.23 $ 0.39 $ 0.95 $ 0.96
Note 3 - Debt:
During November 1999, the Company entered into a five-year credit
facility with a group of four United States commercial banks. Under the
terms of the agreement, the Company has a $30,000,000 unsecured term
loan and a $30,000,000 unsecured revolving credit facility, which
expire on December 31, 2004. Thereafter the revolving credit facility
may be extended for each of the next two years subject to the approval
of all lenders. Borrowing under these facilities can be, at the
election of the Company, in dollars or Euros. The interest rate is
based on the appropriate LIBOR or EURIBOR interest rate plus a spread
between 100 and 150 basis points, based on the Company's trailing four
quarter EBITDA to debt ratio. The term loan requires $1,500,000
quarterly principal payments over five years. On December 27, 1999, the
Company borrowed $30,000,000 under the term loan in connection with its
acquisition of UroQuest (see Note 2). At March 26, 2000, the total
amount outstanding under the credit facility was $43,441,000.
Long-term debt is summarized as follows:
March 26, 2000 March 28, 1999
-------------- --------------
(in thousands)
Total term loan $30,000 $0
Less current portion (6,000) 0
------ --
Long-term portion $24,000 $0
------ --
The credit agreement contains various financial and other covenants
including maintenance of minimum levels of tangible net worth, cash
9
<PAGE>
CHEMFAB CORPORATION
Notes to Consolidated Financial Statements
March 26, 2000
flow coverage, the ratio of debt to equity and the ratio of
indebtedness for borrowed money to capitalization with which the
Company must comply. The loan agreement also contains various other
restrictions including restrictions on additional debt and dividend
payments.
In September 1999, the Company amended its $20,000,000 revolving credit
agreement with two commercial banks, one based in the U.S. and the
other in Ireland. Under the terms of the amended agreement, the Company
had available a $20,000,000 unsecured credit facility until December
31, 1999. The loan agreement required that any balance outstanding
would, at December 31, 1999, convert into a four-year loan with a
five-year amortization schedule and a lump sum partial payment due
December 31, 2003. The loan was fully repaid as of December 1999 and
the loan agreement was cancelled.
Note 4 - Inventories:
Inventories consisted of the following:
March 26, 2000 June 30, 1999
-------------- -------------
(in thousands)
Finished goods $ 9,837 $ 7,541
Work in process 8,410 6,160
Raw materials 7,652 5,948
------ ------
$25,899 $19,649
====== ======
Note 5 - Earnings Per Share:
The following table sets forth the computation of basic and diluted
earnings per share:
Three Months Ended Nine Months Ended
------------------ -----------------
March 26, March 28, March 26, March 28,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
Numerator:
Net income for both basic and
diluted earnings per share ....... $1,739 $3,235 $6,943 $8,136
------ ----- -----
Denominator:
Denominator for basic earnings
per share - weighted average
outstanding shares ............... 7,506 7,819 7,604 7,822
Effect of dilutive securities:
Stock options to employees
and directors .................. 101 215 132 247
------ ------ ------ -----
Denominator for diluted earnings
per share ........................ 7,607 8,034 7,736 8,069
------ ------ ------ -----
Net income per share:
- - Basic $ 0.23 $ 0.41 $ 0.91 $ 1.04
- - Diluted $ 0.23 $ 0.40 $ 0.90 $ 1.01
10
<PAGE>
CHEMFAB CORPORATION
Notes to Consolidated Financial Statements (continued)
March 26, 2000
Note 6 - Comprehensive Income:
The components of comprehensive income were as follows:
Three Months Ended Nine Months Ended
------------------ -----------------
March 26, March 28, March 26, March 28,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands)
Net income ..................... $ 1,739 $ 3,235 $ 6,943 $ 8,136
Foreign currency
translation adjustments ..... (931) (1,970) (868) (1,574)
------- ------- ------- -------
Comprehensive income ........... $ 808 $ 1,265 $ 6,075 $ 6,562
====== ====== ===== ======
Note 7 - Segment Reporting:
The Company adopted Statement of Financial Accounting Standards No.
131 (SFAS No. 131), "Disclosures about Segments of an Enterprise
and Related Information", in fiscal year 1999. SFAS No. 131
establishes standards for the way the Company reports information
about its operational segments.
The Company operates predominantly in one industry segment, that being
the development, manufacture and marketing of high-performance flexible
composite materials. The Company's reportable segments are strategic
business units which are managed separately due largely to their
geographic location.
The composition of the Company's reportable segments have been changed
to reflect the Bivona acquisition. The corresponding items of segment
information for earlier periods have been restated to reflect these
changes.
The Company has three principal reportable business segments, its
Americas Business Group, European Business Group and High Performance
Elastomer Group. The Americas Business Group is principally responsible
for all manufacturing and sales of Engineered Products made in and to
North America and South America and for Architectural Product sales
worldwide. The European Business Group is principally responsible for
all manufacturing and sales of Engineered Products made in and to
Europe, the Middle East and Africa. The High Performance Elastomer Group
is principally responsible for the manufacturing and sale of silicone
elastomer products worldwide.
The Company has one non-reportable business segment, its Asia Pacific
Business Group. This segment is reported under Other below due to its
size.
The accounting policies of the reportable segments are the same as those
described in Note 1 of Notes to the Consolidated Financial Statements
included in the Chemfab Corporation
11
<PAGE>
CHEMFAB CORPORATION
Notes to Consolidated Financial Statements (continued)
March 26, 2000
Note 7 - Segment Reporting (continued):
Annul Report on Form 10-K for the year-ended June 30, 1999. The Company
evaluates the performance of its operating segments based on income
before income taxes and after applying a charge for capital employed by
the segment. The charge for capital employed is based on an established
rate on capital employed as defined by the Company and not a measure as
defined by generally accepted accounting principles. Accordingly, the
Company has reconciled below to its consolidated results. Corporate
related items have been allocated to the business segments based on
revenues of the segment.
The geographic distributions of the Company's identifiable assets,
operating income and revenues are summarized in the following table:
<TABLE>
<CAPTION>
Americas European High Per-
Business Business formance
Group Group Elastomers Other Consolidation
----- ----- ---------- ----- ------------
(in thousands)
Three months ended
March 26, 2000:
<S> <C> <C> <C> <C> <C>
Revenue from external customers $16,578 $ 8,680 $ 6,605 $2,079 $ 33,942
Intersegment sales ............ 1,800 212 -- -- 2,012
Operating income .............. (724) 182 (33) 399 (176)
Identifiable assets ........... 64,112 47,523 35,149 688 147,472
Three months ended
March 28, 1999:
Revenue from external customers $33,707 $ 8,010 $ 1,133 $1,607 $ 44,457
Intersegment sales ............ 1,089 243 -- -- 1,332
Operating income .............. 2,734 278 44 384 3,440
Identifiable assets ........... 58,410 38,061 3,452 1,132 101,055
Nine months ended
March 26, 2000:
Revenue from external customers $50,361 $25,705 $ 9,224 $5,799 $ 91,089
Intersegment sales ............ 3,886 685 -- -- 4,571
Operating income .............. 1,847 969 128 1,394 4,338
Identifiable assets ........... 64,112 47,523 35,149 688 147,472
Nine months ended
March 28, 1999:
Revenue from external customers $66,783 $22,878 $ 3,512 $4,408 $ 97,581
Intersegment sales ............ 3,484 772 -- -- 4,256
Operating income .............. 4,920 1,408 172 890 7,390
Identifiable assets ........... 58,410 38,061 3,452 1,132 101,055
</TABLE>
12
<PAGE>
CHEMFAB CORPORATION
Notes to Consolidated Financial Statements (continued)
March 26, 2000
Note 7 - Segment Reporting (continued):
The following is the reconciliation from Segment Reporting to Consolidated
Results:
Three Months Ended Nine Months Ended
------------------ -----------------
March 26, March 28, March 26, March 28,
2000 1999 2000 1999
-------- -------- -------- ------
(in thousands)
Revenue
Total external revenues
for reportable segments ......... $ 31,863 $ 42,850 $ 85,292 $ 93,173
Intersegment revenues for reportable
segments ........................ 2,012 1,332 4,571 4,256
Other .............................. 2,079 1,607 5,797 4,408
Elimination of Intersegment
Revenue ......................... (2012) (1,332) (4,571) (4,256)
------- ------- ------- ------
Total consolidated revenues ........ $ 33,942 $ 44,457 $ 91,089 $ 97,581
======= ======= ======= =======
Operating profit
Total operating income
for reportable segment ........... $ (176) $ 3,440 $ 4,338 $ 7,390
Interest charged on capital employed 3,377 1,604 6,417 4,732
Net interest (expense) ............. (717) (360) (836) (231)
------- ------- -------- -------
Income before income taxes ......... $ 2,484 $ 4,684 $ 9,919 $ 11,891
======= ====== ======= =======
Note 8 - Related Parties
The Company's Board of Directors (with Mr. McGill abstaining) negotiated and,
upon recommendation of its Compensation Committee, approved entering into a
consulting relationship with Mr. Robert McGill, who currently serves on the
Company's Board of Directors and is the Chairman of the Company's Audit
Committee. On February 29, 2000, the Company accordingly entered into a
Consulting Agreement with Mr. McGill to reflect the terms negotiated and
approved by the Board. The Consulting Agreement requires that Mr. McGill provide
various ongoing financial advisory and planning services to the Company from and
after February 29, 2000. In consideration for these consulting services, Mr.
McGill was awarded a one-time, non-qualified stock option to purchase 15,000
shares of the Company's Common stock at a price of $14.375 per share (the
closing price on the date the Board of Directors approved the Consulting
Agreement). This option vests at a rate of 25% per year, commencing with the
first 25% on March 1, 2000 and continuing on each anniversary of that date for
the ensuing three years. The Consulting Agreement also requires the Company to
pay Mr. McGill $12,000.00 up front and to reimburse reasonable out of pocket
expenses incurred in the performance of consulting services. The Consulting
Agreement continues in effect, but may be cancelled by either party with
thirty days' notice.
13
<PAGE>
CHEMFAB CORPORATION
Notes to Consolidated Financial Statements (continued)
March 26, 2000
Note 9 - Special Charge
The Company booked a special pre-tax charge in fiscal year 1999 amounting to
$3,986,000 for streamlining its European manufacturing operations, consolidating
its acquired fabricating distributors in Germany and changes to a marketing
agreement. The remaining accrual balance as of March 26, 2000 was as follows:
Accrued
Amounts Restructuring Charge
Charge Utilized to Date As of March 26, 2000
------ ---------------- --------------------
(in thousands)
Employee termination and
severance costs ..... $1,213 $ 777 $ 436
Exit costs ............. 1,128 735 393
Write downs - noncash .. 853 853 --
Market agreement costs . 792 792 --
----- ----- -----
$3,986 $3,157 $ 829
===== ===== =====
Note 10 - Commitments and Contingencies:
The Company acquired UroQuest on December 27, 1999 (see Note 2). On
October 7, 1999, UroQuest received notice that it was being sued in the
District Court of Hidalgo County, Texas, 92 District, for alleged
product liability and failure to warn, in connection with the alleged
failure of a pediatric tracheotomy tube and an asserted wrongful death,
by, among others, the parents of Jasmine Marie Casas (deceased)
individually and on behalf of Ms. Casas' estate. The case is
encaptioned Victoriano Casas IV, et. al v. Smiths Industries PLC, et.
al., C-4754-99-A. The Company is currently investigating the facts
underlying the complaint and intends to defend itself vigorously. The
Company does not believe that the disposition of this matter, to the
extent not covered by insurance, will have a material adverse effect on
the Company's financial condition or results of operations. There can
be no assurance that the Company will not experience other material
litigation with respect to the operation of its business.
Various other lawsuits and claims are pending or have been asserted by
and against the Company, including matters previously disclosed by the
Company in its Form 10-K for the year ended June 30, 1999. Although
the outcome of such matters cannot be predicted with certainty and some
lawsuits or claims may be disposed of unfavorably to the Company,
management believes that the disposition of its current legal
proceedings to the extent not covered by insurance, will not have a
material adverse effect on the Company's financial condition and
results of operations.
14
<PAGE>
CHEMFAB CORPORATION
Notes to Consolidated Financial Statements (continued)
March 26, 2000
Note 11 - Euro Currency:
On January 1, 1999, eleven of the fifteen member countries of the
European Union adopted the Euro as their common legal currency.
Following the introduction of the Euro, the local currencies are
scheduled to remain legal tender in the participating countries until
January 1, 2002. During the transition period, goods and services may
be paid for by using either the Euro or the participating country's
local currency.
Transitioning to the Euro creates a number of issues for the Company
including pricing policies, financial contracts, conversion of
accounting systems, conversion of bank accounts and other treasury and
cash management activities.
The Company had previously used the Pound Sterling as its functional
currency for its U.K. and Irish operations. Its German and Spanish
operations have historically used the local currency as their
functional currencies.
The Company's Irish operation used the Pound Sterling as its functional
currency, mainly because of the traditional link between the Pound
Sterling and the Irish Punt and because a significant amount of the
Company's purchases and sales were in Pounds Sterling.
In January 1999, Ireland adopted the Euro as its common legal currency,
and its traditional link with the Pound Sterling was severed. The Irish
currency has therefore moved independently of the Pound Sterling since
then. In addition, the Company is now requiring its major vendors to
invoice goods and services in the Euro currency or a participating
local currency. The Company generally prices its Irish products either
in the Euro currency or a participating country currency.
As a result of these changes, effective July 1, 1999, the Company
adopted the Euro as its functional currency for its Irish operation.
The Company elected not to re-measure and restate the previously
reported financial statement, because the Euro did not exist prior to
January 1, 1999. The Company's U.K. operation continues to use the
Pound Sterling as its functional currency. The Company cautions readers
that prior trends, relationships and comparisons may therefore may not
be appropriate.
15
<PAGE>
Item II Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three Months Ended March 26, 2000
Net Sales
The Company's consolidated sales for the three months ended March 26, 2000, the
third quarter of fiscal 2000, decreased 23.7% to $33,942,000 from $44,457,000 in
the same quarter last year. Shipments of the Company's Engineered Products
worldwide increased 33.8% over the year earlier period while shipments of
architectural products decreased 77.9%. Measured in constant foreign currency
rates, consolidated revenue would have decreased by 22.0%. Included in the prior
year third quarter revenues were $16,631,000 from the Tent City project.
Excluding revenues from the Tent City, and excluding revenue from the Bivona
acquisition (see Note 2) in the current quarter, consolidated revenues would
have increased by 3.4% over the prior year.
The Americas Business segment sales (which include all Engineered Product sales
from the Company's U.S. manufacturing plants, into principal geographic markets
in the Americas and Architectural Product sales worldwide) decreased 50.8% to
$16,578,000 from $33,707,000 for the same quarter last year. This sales decrease
resulted from lower Architectural Product sales in the quarter than in the same
period last year which included $16,631,000 of Tent City revenues.
The European Business segment sales (which include all Engineered Product sales
from the Company's European manufacturing plants; principal geographic markets
are Europe and Africa) increased 8.4% to $8,680,000 from $8,010,000 in the same
quarter last year. Acquisitions completed last year contributed $927,000 of the
increased revenue in the European Business segment. Measured in constant foreign
currency rates, European Business segment sales would have increased by 17.9%.
Sales in the Company's High Performance Elastomers Business segment increased
483.0% to $6,605,000 from $1,133,000 in the same quarter last year. This
increase included $5,172,000 of revenues from the Bivona acquisition. Without
the Bivona acquisition, revenues would have increased 26.5% over the prior year
period.
Sales in the Company's Other Business segment, which includes all Engineered
Product sales to the Far East, increased 29.4% to $2,079,000 from $1,607,000 in
the same quarter last year. This increase was due to a strengthening of the
economies in certain Asian countries, as well as increased market penetration in
China and Japan.
Gross Profit Margins
Gross profit margins as a percentage of consolidated sales were 34.7% for the
quarter, up from 30.9% for the third quarter of last year. Excluding the lower
margin from the Tent City project in the prior year and higher margin Bivona
sales in the current year, margins would have decreased by 2.4%. This decrease
was due to the large level of unusual manufacturing variances in the current
quarter.
16
<PAGE>
Selling, Administrative, Research and Development Expenses
Selling, general and administrative expenses decreased 2.4% to $7,150,000 from
$7,328,000 in the same quarter last year. This decrease resulted from the
combined effects of the higher cost structure in place (including goodwill
amortization of $681,000 and $428,000 for the quarter ended March 26, 2000 and
March 28, 1999 respectively) to support the Company's newly acquired businesses
in Germany, France, Brazil and United States, and the decrease of selling
expenses from the level associated with the Tent City project in the prior year.
Selling, general and administrative expenses as a percentage of sales was 21.1%,
up from 16.5% the third quarter of last year. This increase on a percentage
basis is principally due to the lower revenues in the current year quarter.
Research and development expenses were $1,353,000 compared to last year's level
of $1,273,000. This level of spending, at approximately 4% of total revenues, is
consistent with recent, as well as planned, levels of research and development
spending. The higher costs are primarily attributable to new product development
activities.
Interest Expense, Net
The Company had net interest expense of $717,000 for the quarter compared to net
interest expense of $360,000 for the same quarter last year, largely as a result
of borrowings made to fund acquisitions.
Nine Months Ended March 26, 2000
Net Sales
The Company's consolidated sales for the nine months ended March 26, 2000
decreased 6.7% to $91,089,000 from $97,581,000 over the same period last year.
Shipments of the Company's Engineered Products worldwide increased 19.6% over
the year earlier while shipments of architectural products decreased 77.6%.
Measured in constant foreign currency rates, consolidated revenue would have
decreased by 4.5%. Measured in constant currency, excluding revenues from the
Tent City project in the prior year, revenues on a year-to-date basis increased
by 19.8%. Approximately 12.4% or $9,680,000 of this increase relates to
acquisitions completed since the third quarter last year.
The Americas Business segment sales (which include all Engineered Product sales
from the Company's U.S. manufacturing plants into principal geographic markets
in the Americas and Architectural Product sales worldwide) decreased 24.6% to
$50,361,000 from $66,783,000 for the same period last year. This sales decrease
resulted from the inclusion in the prior year period of $19,797,000 of revenues
from the Tent City project.
The European Business segment sales (which include all Engineered Product sales
from the Company's European manufacturing plants; principal geographic markets
are Europe and Africa) increased 12.4% to $25,705,000 from $22,878,000 in the
same period last year. Acquisitions completed last year contributed $3,813,000
of the increased revenue in the European Business segment. Measured in constant
foreign currency rates, sales for the European Business segment would have
increased 22.3%. Measured in constant currency and excluding the effect of
acquisitions, revenues would have increased by 4.8%.
17
<PAGE>
Sales in the Company's High Performance Elastomers Business Segment increased
162.6% to $9,224,000 from $3,512,000 in the same period last year. This increase
includes $5,172,000 of revenues from the Bivona acquisition. Without the Bivona
acquisition revenues would have increased 15.4% over the prior year period.
Sales in the Company's Other Business segment, which includes all Engineered
Product sales to the Far East, increased 31.6% to $5,799,000 from $4,408,000 in
the same period last year. This increase is due to a strengthening of the
economy in certain Asian countries, more favorable currency exchange rates, and
increased market share.
Gross Profit Margins
Gross profit margins as a percentage of consolidated sales were 34.9% for the
nine months ended March 26, 2000, up from 32.4% last year. Excluding the lower
margins from the Tent City project in the prior year and higher Bivona sales in
the current year, margins would have decreased 1%. This decrease was due to the
large level of unusual manufacturing variances in the third quarter of fiscal
2000.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 7.8% to $17,947,000 from
$16,653,000 in the same period last year. Increased selling, general and
administration expenditures resulted from the effects of the higher cost
structure in place (including goodwill amortization of $1,632,000 and $1,086,000
for the period ended March 26, 2000 and March 28, 1999 respectively) to support
the Company's newly acquired businesses in Germany, France, Brazil and the
United States. Selling, general and administrative expenses as a percentage of
sales were 19.7%, up from last year's level of 17.1% due to the increased levels
of spending and to the lower level of revenues in the current year.
Research and Development Expenses
Research and development expenses were $2,934,000 compared to last year's level
of $2,930,000. This level of spending, at approximately 3% of total revenues, is
consistent with recent, as well as planned, levels of research and development
spending.
Other Expense (Income)
The Company had net other expense of $198,000 for the nine months ended March
26, 2000. This consisted principally of period costs related to the streamlining
of the European manufacturing operations. Other income in the year earlier
period was mainly comprised of currency gains.
Interest Expense, net
The Company had net interest expense of $836,000 for the nine months ended March
26, 2000 compared to net interest expense of $231,000 for the same period last
year. The increase is the result of a lower average cash balance and interest
expense associated with bank debt incurred to fund the acquisitions.
18
<PAGE>
Liquidity and Capital Resources
During the nine months ended March 26, 2000, the Company generated $9,300,000 of
cash from operations, up from $6,446,000 in the same period of the prior year.
Also, during the nine months ended March 26, 2000, the Company invested
$4,191,000 in property, plant and equipment additions, and expended $4,920,000
to repurchase stock under its share repurchase program. The Company also
received $656,000 in cash proceeds and related tax benefits from the exercise of
stock options during this period. On December 27, 1999,the Company borrowed
$30,000,000 under the term loan for the UroQuest acquisition (see Notes 2 and 3
of the accompanying financial statements).
Working capital increased to $27,972,000 from $27,555,000 at the end of fiscal
1999. As of March 26, 2000, the Company had a line of credit of $30,000,000
under its borrowing facility. As of March 26, 2000, the Company had
approximately $16,559,000 available under this facility.
Management believes that the combination of cash on hand, cash expected to be
generated from operations, and the available credit facility will be adequate to
finance operations during fiscal 2000 and to deal with any contingencies
described in Note 10 to the Consolidated Financial Statements.
Forward-Looking Statements
Except for the historical information contained herein, the matters discussed in
this Form 10-Q are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, as amended. Investors are cautioned
that forward-looking statements are inherently uncertain. Actual performance and
results may differ materially from those projected or suggested due to certain
risks and uncertainties, including the integration, and where appropriate,
consolidation of the UroQuest transaction and other acquisitions already
completed. Additional information concerning certain risks and uncertainties
that could cause results to differ materially from those projected or suggested
is contained in the Company's Annual Report on Form 10-K for the fiscal year
ended June 30, 1999 which has been filed with the Securities and Exchange
Commission. The forward-looking statements contained herein represent the
Company's judgment as of the date of this filing, and the Company cautions
readers not to place undue reliance on such statements.
19
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
The Company acquired UroQuest on December 27, 1999 (see Note 2). On
October 7, 1999, UroQuest received notice that it was being sued in the
District Court of Hidalgo County, Texas, 92 District, for alleged
product liability and failure to warn, in connection with the alleged
failure of a pediatric tracheotomy tube and an asserted wrongful death,
by, among others, the parents of Jasmine Marie Casas (deceased)
individually and on behalf of Ms. Casas' estate. The case is
encaptioned Victoriano Casas IV, et. al v. Smiths Industries PLC, et.
al., C-4754-99-A. The Company is currently investigating the facts
underlying the complaint and intends to defend itself vigorously. The
Company does not believe that the disposition of this matter, to the
extent not covered by insurance, will have a material adverse effect on
the Company's financial condition or results of operations. There can
be no assurance that the Company will not experience other material
litigation with respect to the operation of its business.
Various other lawsuits and claims are pending or have been asserted by
and against the Company, including matters previously disclosed by the
Company in its Form 10-K for the year ended June 30, 1999. Although
the outcome of such matters cannot be predicted with certainty and some
lawsuits or claims may be disposed of unfavorably to the Company,
management believes that the disposition of its current legal
proceedings to the extent not covered by insurance, will not have a
material adverse effect on the Company's financial condition and
results of operations.
Item 5. Other Matters
Certain Relationships and Related Transactions
The Company's Board of Directors (with Mr.McGill abstaining) negotiated
and, upon recommendation of its Compensation Committee, approved
entering into a consulting relationship with Mr. Robert McGill, who
currently serves on the Company's Board of Directors and is the
Chairman of the Company's Audit Committee. On February 29, 2000, the
Company accordingly entered into a Consulting Agreement with Mr.
McGill to reflect the terms negotiated and approved by the Board. The
Consulting Agreement requires that Mr. McGill provide various ongoing
financial advisory and planning services to the Company from and after
February 29, 2000. In consideration for these consulting services, Mr.
McGill was awarded a one-time, non-qualified stock option to purchase
15,000 shares of the Company's Common stock at a price of $14.375 per
share (the closing price on the date the Board of Directors approved
the Consulting Agreement). This option vests at a rate of 25% per
year, commencing with the first 25% on March 1, 2000 and continuing on
each anniversary of that date for the ensuing three years. The
Consulting Agreement also requires the Company to pay Mr. McGill
$12,000.00 up front and to reimburse reasonable out of pocket expenses
incurred in the performance of consulting services. The Consulting
Agreement continues in effect, but may be cancelled by either party
with thirty days' notice.
20
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(a)(11) Registration Statement on Form S-8 dated March 31, 2000;
is incorporated herein by reference.
10b(10) Amendment No. 1 to $20,000,000 Credit Agreement by and
between Chemfab Corporation as borrower and The First National
Bank of Boston and The Bank of Ireland as lenders, as filed
with the Company's Quarterly Report on Form 10-Q for the
period ending September 26, 1999, is incorporated herein by
reference.
10b(11) $60,000,000 Credit Agreement by and between Chemfab
Corporation as borrower and Brown Brothers Harriman, Fleet
Bank NH, Citizens Bank New Hampshire and Bank of New
Hampshire, as filed with the Company's Current Report on Form
8-K on January 11, 2000, is incorporated herein by reference.
10b(12) Consulting Agreement dated February 29, 2000 between
Chemfab Corporation and Chemfab Director, Mr. Robert McGill.
(27) Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report Form 8-K on January 11, 2000.
The Company filed a Current Report Form 8-K/A on March 13, 2000.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHEMFAB CORPORATION
Date: May 10, 2000 /s/ John W. Verbicky
--------------------
John W. Verbicky, President,
Chief Executive Officer and Director
(Principal Executive Officer)
Date: May 10, 2000 /s/ Laurence E. Richard
-----------------------
Laurence E. Richard
Chief Financial Officer and Treasurer
(Principal Financial Officer)
Date: May 10, 2000 /s/ Hilary A. Arwine
--------------------
Hilary A. Arwine
Corporate Controller
(Principal Accounting Officer)
22
<PAGE>
CONSULTING AGREEMENT
This Consulting Agreement (this "Agreement"), dated as of the 29th day
of February, 2000, is by and between Chemfab Corporation, a Delaware corporation
with its principal place of business at 701 Daniel Webster Highway, Merrimack,
New Hampshire, on behalf of itself and each of its subsidiaries (hereinafter,
individually and collectively, the "Company"), and Robert E. McGill III, an
individual residing at 295 Hancock Road, Williamstown, MA 01267 (hereinafter,
"Consultant").
WHEREAS, the Company desires to procure the benefit of additional
financial advisory and planning services to be rendered in working with the
Company's independent auditors and with management from time to time (the
"Financial Services").
WHEREAS, the Company recognizes that such Financial Services will
likely best be procured over time from various sources that are both internal
and external to the Company.
WHEREAS, the Company further recognizes that the Financial Services
will involve substantial attention to financial review and planning in many
aspects of the Company's business;
WHEREAS, Consultant is highly qualified to assist the Company in
rendering Financial Services due to his experience, knowledge and contacts in
the fields of accounting and corporate finance;
WHEREAS, Consultant has been providing Financial Services advice to the
Company since approximately March 1999, and the Company desires formally to
engage the services of Consultant to assist it in Financial Services; and
WHEREAS, Consultant desires to provide said services to the Company as
an independent contractor to the Company;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
undertakings hereinafter set forth, the parties hereto agree as follows:
ss.1. Consulting Relationship.
-----------------------
ss.1.1 Freedom to Contract. Consultant represents that he is free to
enter into this Agreement, that he has not made and will not make any agreements
in conflict with this Agreement, and will not disclose to the Company, or use
for the Company's benefit, any trade secrets or confidential information now or
hereafter in Consultant's possession which is the property of any other party.
<PAGE>
ss.1.2 Independent Contractor. This Agreement shall be construed as an
independent contractor's agreement for all purposes. Consultant shall be
independent and not an employee of the Company or of any affiliate of the
Company, and subject to the provisions of Section 2, Consultant shall control
the location and timing of the performance of his services hereunder. Consultant
and the Company are not partners or joint ventures with each other with respect
to the matters subject to this Agreement and nothing herein shall be construed
so as to make them such partners or joint ventures or to impose any obligation
or liability as such on them.
ss.2. Services Provided.
-----------------
ss.2.1 Consulting Services. In accordance with the provisions of this
Agreement, Consultant shall provide consulting services upon request of the
Company at mutually convenient time or times (at an expected average monthly
time commitment of approximately 24 hours), specifically by providing
suggestions, direction, evaluation and assistance to the Company in Financial
Services. These consulting services shall be separate from and in addition to
Consultant's duties as a Director of the Company, whether as a Board member, as
a Board committee member or chairperson, or otherwise. Consultant shall provide
these consulting services to the Company primarily through telephonic and other
communications (and, when convenient for both parties, meetings with the Chief
Executive Officer of the Company, and such other Officers as designated by him
and with the Company's independent auditors). Consultant hereby accepts such
engagement upon the terms and conditions set forth herein.
ss.2.2 Secretarial Support. The Company shall provide secretarial and
administrative support to Consultant on a limited, as-needed basis, particularly
during such times as Consultant is performing services at the Company's offices,
but only to the extent that such support is reasonably available from existing
resources within the Company.
ss.3. Compensation, Expenses and Taxes.
--------------------------------
ss.3.1 Consultant Fee and Expenses. The Company shall pay Consultant
$12,000 in respect of the Financial Services rendered during the past 12 months.
For the remaining term of this Agreement, the Company shall reimburse Consultant
for documented, reasonable out-of-pocket expenses incurred in the performance of
consulting services hereunder, provided that Consultant's requests for
reimbursement (together with reasonable supporting documentation) are submitted
to the Company within forty-five (45) days after the date on which such expenses
were incurred.
ss.3.2 Grant of Options.
----------------
(a) As of February 29, 2000, the Company hereby grants
Consultant, subject to Sections 3.2(b) and 3.3 below, a non-qualified option
<PAGE>
(the "Option") to purchase fifteen thousand (15,000) shares of the Company's
Common Stock, to vest in accordance with the following schedule:
Date Number of Shares
---- ----------------
March 1, 2000 3,750 (25%)
March 1, 2001 3,750 (25%)
March 1, 2002 3,750 (25%)
March 1, 2003 3,750 (25%)
(b) The Option granted however is subject to the terms and
conditions of (I) the Company's Third Amended and Restated 1991 Stock Option
Plan, as amended (the "Plan"), (ii) the separate Nonstatutory Stock Option
Agreement (Director Consultant form) dated as of February 29, 2000 between the
Company and the Consultant; and (iii) the other terms and conditions herein. No
Option granted hereunder shall vest after the effective date hereof unless
Consultant (x) continues to serve as of the pertinent vesting date set forth in
Section 3.2(a) above (herein, a "Vesting Date"), both as a consultant to the
Company and as member of the Board, and (y) in his capacity as Consultant, a
director of the Company, or otherwise, is eligible on the date of vesting of
such Option to exercise non-qualified stock options under the Plan in effect on
such date. The number of shares for which Options are granted pursuant to this
Section 3.2, and the number of shares for which any Option is exercisable, shall
be automatically adjusted, as appropriate, to account for any stock dividends,
stock splits or contractions, reclassifications, or similar changes in the
Company's Common Stock.
ss.3.3 Terms of the Option. Any Option shall (I) be granted pursuant to
the Plan as a non-qualified option, (ii) have an exercise price equal to
$14.375, and (iii) vest pursuant to the schedule outlined in the Nonstatutory
Stock Option Agreement dated February 29, 2000.
ss.3.4 Responsibility for Taxes. All compensation (including the grant
of Options) to be paid to Consultant hereunder shall be paid without deduction
or withholding of any federal, state, local or foreign taxes, and Consultant
shall be solely responsible for and pay all federal, state, local and foreign
taxes due with respect thereto and all other deductions required by law.
Consultant agrees to indemnify the Company and hold it harmless from and against
any liability, cost or expense (including, without limitation, court costs and
attorney's fees) resulting from Consultant's breach of his obligations under
this Section 3.4. The Company shall have the right to set off against any
payments owing to Consultant any amounts owed to the Company by Consultant as a
result of any breach of Consultant's obligations under this Section 3.4.
ss.4. Term.
----
ss.4.1 General. This Agreement shall take effect as of the date first
above written, and shall remain in effect for so long as Consultant continue to
<PAGE>
serve both as a Consultant to the Company and as a director, or until earlier
terminated under the provisions of this Section 4. This Agreement may be renewed
or extended by mutual written agreement of the parties.
ss.4.2 Survival of Certain Provisions. The provisions of the
following sections shall survive the termination of this Agreement: 4 and
6. Furthermore, termination of this Agreement shall not affect any other
obligations of either party that have accrued prior to or as of the date of
termination.
ss.4.3 Termination. The Company shall have the right upon thirty (30)
days' notice to terminate this Agreement without cause (as defined below), and
immediately upon notice to terminate this Agreement with cause (as defined
below), with no compensation to accrue or to be owing in respect of any period
after the effective date of such termination and no liability of any kind to
accrue on account of such termination. For the purposes of this Section 4.3, the
term "cause" shall mean a breach of this Agreement by Consultant.
ss.5. Confidentiality and Assignment of Inventions. Simultaneously with
the execution of this Agreement, the parties hereto shall enter into an
Independent Contractor Confidentiality and Assignment of Inventions Agreement,
substantially in the form of Exhibit A hereto (the "Confidentiality Agreement").
Such Confidentiality Agreement shall survive any termination of this Agreement.
ss.6. Provisions of General Application.
---------------------------------
ss.6.1 Governing Law. This Agreement and the rights and obligations of
the parties hereunder shall be construed, interpreted and determined in
accordance with the laws of the State of New Hampshire.
ss.6.2 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original and all of which, taken
together, shall constitute one and the same instrument. In making proof of this
Agreement it shall not be necessary to produce or account for more than one such
counterpart.
ss.6.3 Entire Agreement. This Agreement, including the Confidentiality
Agreement, represents the entire understanding and agreement between the parties
as to the subject matter hereof. No prior, concurrent or subsequent agreement,
whether written or oral, shall be construed to change, amend, alter, repeal or
invalidate this Agreement, unless this Agreement is specifically identified in
and made subject to such other written agreement.
ss.6.4 Amendment. This Agreement may be amended only by a written
instrument executed in one or more counterparts by the parties hereto.
ss.6.5 Waiver. No consent to or waiver of any breach or default in the
performance of any obligation hereunder shall be deemed or construed to be a
<PAGE>
consent to or waiver of any other breach or default in the performance of any of
the same or any other obligation hereunder. Failure on the part of either party
to complain of any act or failure to act of the other party or to declare the
other party in default, irrespective of the duration of such failure, shall not
constitute a waiver of rights hereunder and no waiver hereunder shall be
effective unless it is in writing, executed by the party waiving the breach or
default hereunder.
ss.6.6 Headings. The headings of sections and subsections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be a part of this Agreement or to affect the meaning of any of its
provisions.
ss.6.7 Severability. If any provision of this Agreement shall, in whole
or in part, prove to be invalid for any reason, such invalidity shall affect
only the portion of such provision which shall be invalid, and in all other
respects this Agreement shall stand as if such invalid provision, or the invalid
portion thereof, had not been a part hereof.
ss.6.8 Notices and Other Communications. All notices and other
communications required hereunder shall be effective if in writing and if
delivered by hand or set via U.S. mail or telecopier (a) if to Consultant, at
his residence address first set forth above, and (b) if to the Company, at its
principal business address first set forth above, or to such other persons or
addresses as the parties hereto may specify by a written notice to the other
from time to time.
IN WITNESS WHEREOF, this Agreement has been executed by the Company, by
its duly authorized officer, and by Consultant, as of the date first above
written.
CHEMFAB CORPORATION
By: /S/ John W. Verbicky
John W. Verbicky
President and Chief Operating Officer
CONSULTANT
By: /S/ Robert E. McGill III
Robert E. McGill III, Individually
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