U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number: 1-10938
SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
(Name of Small Business Issuer in Its Charter)
Delaware 13-3584740
- - ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
431 Fayette Avenue 10543
Mamaroneck, New York ----------
--------------------------------------- (Zip Code)
(Address of principal executive offices)
Issuer's telephone number, including area code: (914) 698-5353
--------------
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
- - ------------------- -------------------
Common Stock, $.10 par value NASDAQ National Market
Securities registered pursuant to Section 12(g) of the Exchange Act: None.
Check whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO
Check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
For the fiscal year ended December 31, 1996, the Issuer had
revenues of $46,027,203.
Page 1 of 155 Pages
The Exhibit Index is located on page 14.
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At March 18, 1997 the aggregate market value of the voting stock
of the Registrant held by non-affiliates was approximately $37,248,000.
At March 18, 1997 the Registrant had 6,068,516 shares of Common
Stock outstanding, $.10 par value ("Common Stock"). In addition, at such date,
the Registrant held 300,000 shares of Common Stock in treasury.
DOCUMENTS INCORPORATED BY REFERENCE:
DOCUMENT Parts Into Which Incorporated
-------- -----------------------------
Annual Report to Stockholders Part I, Item 1
(Exhibit 13, attached hereto) Part II, Items 5, 6
and 7
Definitive Proxy Statement
prepared in connection with the Company's Part III, Item 9, 10,
1997 Annual Meeting of Stockholders which 11 and 12
will be held on April 29, 1997.
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PART I
Item 1. Business.
(a) General. Semiconductor Packaging Materials Co., Inc. consists of
a Delaware corporation and its wholly owned and majority owned subsidiaries
(collectively the "Company"). The Company provides specialty materials and
services to the microelectronic and semiconductor industries on a worldwide
basis. The Company's Microelectronics Group consists of the parent company
("SPM") and its subsidiaries, Polese Company, Inc. ("Polese") and Retconn
Incorporated ("Retconn"). The Microelectronics Group primarily designs,
develops, manufactures and markets customized fine wire and metal ribbon,
precision metal stampings, powdered metal copper/tungsten heat dissipation
products, sealing frames and RF coaxial contacts and connectors which are used
in the assembly of microelectronic packages. Their products are incorporated
into electronic components used for industrial and commercial applications,
primarily to conduct electrical currents or signals, to solder electronic
circuitry, to provide electrical interconnects, to house electronic components,
to mount components or to dissipate heat. The Company's products are sold
through internal sales personnel and a network of independent sales
representatives, principally to manufacturers and assemblers of electronic
devices who service the aerospace, automotive, communications, computer,
medical, military and semiconductor industries. The Company's American Silicon
Products, Inc. ("ASP") subsidiary, provides silicon wafer polishing and
reclaiming services to the semiconductor industry. Reclaimed wafers are used in
the evaluation and testing of equipment and processes in semiconductor
fabrication. On August 28, 1996, the Company established a jointly owned
Singapore corporation, International Semiconductor Products Pte Ltd ("ISP") to
polish and reclaim silicon wafers in Singapore, with operations commencing in
the second quarter of 1997. ISP is 50.1% owned by the Company and 49.9% owned by
a holding company, Semiconductor Alliance Pte Ltd. Additionally, on January 23,
1997, the Company acquired a competitor of ASP's, Silicon Materials Service of
Garland, Texas and Silicon Materials Service, B.V., of Helmond, Netherlands
collectively ("SMS"). ISP and SMS will provide silicon wafer polishing and
reclaiming services to the semiconductor industry..
Additional descriptive information on each of the Company's
businesses is included in the Company's Annual Report to security holders for
the year ended December 31, 1996, and is incorporated herein as Exhibit 13.
History. The registrant, Semiconductor Packaging Materials Co.,
Inc., is a Delaware corporation incorporated in 1988 as a successor to a company
started in 1981. In December 1991 and January 1992, the Company sold 1,305,250
shares of Common Stock in a public offering.
On February 18, 1994 the Company distributed redeemable warrants,
without cost, to shareholders of record on February 8, 1994 (the "record date").
Each shareholder received one redeemable warrant to purchase one-half (1/2)
share of the Company's Common Stock as of the record date. The redeemable
warrants were listed on the American Stock Exchange under the ticker symbol
SEM.WS. As of the redemption date, February 23, 1995, 98,918 purchase warrants
were not exercised and were therefore canceled. A total of 649,166 shares of the
Company's Common Stock were issued pursuant to the exercise of the redeemable
warrants.
On July 27, 1995, the Company sold an aggregate of 1,654,500
shares of Common Stock in a public offering. The Company received net proceeds
of approximately $16,932,000 from the offering which facilitated 1) the
repayment of a large part of the Company's outstanding indebtedness, 2) the
purchase of additional machinery and equipment and 3) the purchase of one of the
Company's facilities and land. The Company has used the balance of the proceeds
of the offering for general corporate and working capital purposes.
Acquisition of Polese. On May 27, 1993, the Company acquired all
of the issued and outstanding common stock of Polese Company, Inc. for a
purchase price of 450,000 common shares of the Company. Polese
manufactures and markets seal frames and copper/tungsten heat dissipation
products for use in the manufacture of electronic components, and produces
sophisticated parts through the use of electrical discharge machines ("EDM") and
computer numerical control ("CNC") turning centers for several customers in the
medical and aerospace industries. In addition, the Company acquired from Frank
J. Polese all of the rights, including, but not limited to, a pending patent
application, which patent was
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subsequently issued, which Mr. Polese owned for the development and application
of copper/tungsten powdered metal technology to the electronics industry for a
purchase price of $250,000 in cash and $750,000 in a note, as modified,
inclusive of interest at 7% per annum. In 1995, the note was paid in full. From
the date of acquisition and for a ten year period, Mr. Polese has the right to
receive 10% of (i) the pre-tax profit from the copper/tungsten product line
after allocating operating costs and (ii) the proceeds of the sale, if any, by
the Company of the powdered metal technology. As of December 31, 1996, no
payments have been accrued or made to Mr. Polese under this agreement.
Acquisition of American Silicon Products, Inc.. On December 15,
1994, A/S Acquisition Company, Inc., a Rhode Island corporation ("ASAC") merged
with and into the Company's wholly-owned subsidiary, American Silicon Products,
Inc., a Delaware corporation pursuant to an agreement dated as of November 18,
1994 (the "Merger Agreement"). ASAC had no operations of its own, but
simultaneously with the Merger, acquired the assets of American Silicon
Products, Inc., a Rhode Island corporation pursuant to an Asset Purchase
Agreement among ASAC, ASP and the sole shareholder of ASP. The ASP assets
acquired embodied a silicon wafer reclaiming and reconditioning business located
in Providence, Rhode Island. ASAC purchased substantially all of the assets of
ASP for $7,725,000 in cash. As part of the ASP acquisition, the Company also
issued 400,000 common shares of the Company, to the former
stockholders of ASAC which was appraised $1,600,000. The Company entered into
Option Agreements with certain of the former stockholders of ASAC to purchase
25,000 shares of the Company's Common Stock at a price of $6.00 per share. All
25,000 options were exercised in 1995. The Company also paid $175,000 of ASAC's
expenses in connection with the Merger and related transactions. Additionally,
certain of the former stockholders of ASAC were to receive one-third of ASP's
adjusted earnings before interest and taxes in excess of $650,000 per fiscal
quarter, (the "Consulting Agreements"), through December 31, 1999. Payments and
accruals for amounts due under the Consulting Agreements have been recorded on
the Company's books as additional goodwill. In the fourth quarter of 1995, the
Company bought out the remaining four years of payments due under the Consulting
Agreements for $725,000 in cash and notes, $625,000 of which was paid in 1996,
and 52,500 shares of the Company's common stock.
Acquisition of Retconn Incorporated. Effective January 2, 1996,
the Company acquired all of the common stock of Retconn Incorporated for
$5,933,000 in cash. Retconn develops, designs and manufacturers subminiature
coaxial contacts and connectors which are sold principally to manufacturers in
the communications and computer industries. In connection with the acquisition,
the Company entered into a term loan agreement with First Union Bank in the
principal amount of $6,000,000. The loan was subsequently refinanced in
conjunction with the SMS acquisition described below.
Establishment of Singapore Joint Venture. Effective August 28,
1996, the Company entered into a joint venture agreement to develop a silicon
wafer polishing and reclaiming facility in Singapore. The jointly owned
Singapore corporation, International Semiconductor Products Pte Ltd, is 50.1%
owned by the Company and 49.9% owned by a holding company, Semiconductor
Alliance Pte Ltd. In 1996, the Company and its joint venture partner made a
total of $4,000,000 in equity contributions into ISP, which was contributed
pro-ratably based on ownership. In addition, the Company has paid approximately
$250,000 in costs associated with the establishment of the joint venture. The
Company's Bank, on behalf of the Company, has also issued a standby letter of
credit in the amount of $3,600,000 in order to assist ISP in obtaining Singapore
bank financing.
Acquisition of Silicon Materials Service and Silicon Materials
Service, B.V. On January 23, 1997, the Company acquired the assets of Silicon
Materials Service of Garland, Texas and 100% of the outstanding stock of Silicon
Materials Service, B.V. ("SMSBV") of Helmond, Netherlands for approximately
$13,000,000 in cash. Simultaneously with the acquisition, SMS Texas was merged
into ASP. Concurrent with the acquisition, the Company entered into a
$21,000,000 five year term loan with First Union Bank (the "Bank"). Fleet
National Bank is also participating in the term loan facility. The $21,000,000
term loan was principally used to finance the SMS acquisition and to refinance
the Retconn term loan. The principal amount is payable in 60 consecutive
installments of $350,000 which commenced on March 1, 1997. The loan bears
interest at a Eurodollar rate plus 2.25%.
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(b) Financial Information about Industry Segments - The Company
has operated in one industry segment during each of its last two years.
(c) Narrative Description of Business
Products
Wire and Metal Ribbon. The Company manufactures fine wire and
metal ribbon used to conduct electricity or signals between two points of a
circuit. Metal ribbon is wire which is flattened to specific height and width
specifications and is used, primarily in microwave and selected industrial
applications, to regulate electrical conductivity. Wire and metal ribbon is
manufactured using gold, aluminum, copper, nickel and various metal alloys, each
of which has a distinct characteristic for conducting electrical currents or
signals. These products are sometimes coated or plated.
The Company manufactures various sizes of wire in dimensions as
thin as .0005 inches (less than the size of a human hair) for specific
applications. Ribbon is produced in sizes as small as .00025 X .002. The
Company's products must adhere to rigid OEM standards used in electronic
applications, including military specifications.
Precision Metal Stampings. Precision metal stampings are parts
stamped out of metals that are used to solder or connect electronic circuitry,
to package electronic circuitry, to dissipate heat or provide an interface for
an electronic connection. Stampings manufactured by the Company, in dimensions
as small as .005 inches, include preforms, heat sinks, jumper chips, bonding
islands, connectors, frames, seals, bases, and cans. The Company also produces
rolled strip.
Preforms are custom shaped stampings used to solder metal parts
to a substrate (a base on which the electronic circuitry rests). Preforms must
quickly change from a solid state to a molten state and back again to effectuate
an efficient bond. Heat sinks are specialized metal stampings used to dissipate
heat generated by electrical currents. Jumper chips, bonding islands and
connectors are metal stampings generally used to provide an interface for an
electrical connection. Rolled strip is metal, either in pure or alloy form, that
is flattened from an ingot to a specified thickness and slit to a width to meet
a customer's specification or matched to fit with a die in the Company's
manufacturing process.
Stampings are produced from a variety of metals, including
copper, aluminum, gold and gold alloys, and special metals such as molybdenum,
and clad and plated materials. Molybdenum is a metal used for its unique heat
dissipating properties. Clad materials, which are also used to manufacture
precision stampings, are pieces of two or more different metals laminated
together, and are generally used as an interface between aluminum and gold
circuitry. The Company also has stampings plated for enhanced soldering and
brazability.
Tape on Reel Products. The Company offers a number of packaging
options for its stamping products, including bulk packaging, parts supplied on
carrier strips and, for high volume parts, tape on reel packaging. Tape on reel
packaging is used to support surface mount assembly operations. The Company
offers its customers stampings packaged on contact or pocket tape. Since many of
the Company's stamped products are very small, the Company employs the use of
automated and manual tape on reel equipment to perform this packaging function.
The Company is also in the process of completing a class 10,000 clean room to
facilitate the packaging of die ("semiconductor chips") in tape on reel.
Seal Frames. In electronic applications of high reliability
(military, medical and aerospace) where a circuit is exposed to severe
environmental conditions (oceanographic and automotive applications) an
electronic package is used to hermetically seal the circuit to insure its
reliability. To obtain hermeticity, a sealing frame is brazed (a process similar
to soldering) to either a ceramic or metal base and at a later point in the
production a lid is added to complete the protective environment.
Powdered Metal Heat Dissipation Products. Heat dissipation
products are used to conduct heat away from critical areas of electronic
circuits where it can be dissipated. Heat dissipation products are primarily
used to conduct heat in high power wireless communication devices and high speed
microprocessor packages. In 1991 with the financial and technical support of one
of its customers, Polese began the development of a powdered copper/tungsten
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material with a more homogeneous copper and tungsten particle distribution than
similar copper/tungsten materials available in the marketplace. In early 1995,
the Company obtained a patent for a Method for Making Heat-Dissipating Elements
for Micro-Electronic Devices. Polese utilizes this proprietary method to
manufacture copper/tungsten heat dissipation products. The Company has also
developed a non-electronic use of its powdered metal technology with the recent
introduction of a copper/tungsten metal matrix composite for a sole weight for
Taylor Made Golf's Titanium Bubble 2 (TM) irons.
Other EDM Products. As a result of Polese's successful EDM
operation in the manufacture of seal frames, a number of special products have
been brought to Polese for manufacture. At this time, Polese is manufacturing
small and complicated parts for the medical supply and other industries.
Silicon Wafer Polishing and Reclaiming Services. ASP and SMSBV
offer a variety of high tech, state-of-the-art wafer polishing and reclaiming
services to the semiconductor industry. ISP will offer the same services once it
begins operations, in the second quarter of 1997. Reclaimed wafers are used in
the evaluation and testing of equipment and processes in semiconductor
fabrication. In 1995, ASP relocated from a 6,000 square foot facility to a new
18,000 square foot facility and acquired additional equipment. In 1996, ASP
acquired an adjacent parcel of land adjoining its facility and is in the process
of adding approximately 10,000 square feet onto its existing facility,
significantly increasing its capacity. The expansion of the building is expected
to be completed in the second quarter of 1997.
Coaxial Contacts and Connectors. Retconn manufactures RF coaxial
contacts and connectors which are sold principally to manufacturers in the
wireless communication and computer industries. Retconn's products include a
full line of DM subminiature RF contacts and connectors, including solder,
solder/crimp, and crimp/crimp standard coaxial contacts. It has a line of SMA,
SMB, SMC and MCX connectors that meet military specifications. In addition, it
offers cable terminations and specials. Retconn also offers cable assemblies to
its customers and is initiating a program to expand its cable assembly
operations in the United States.
Raw Materials and Principal Suppliers
The Company in most cases utilizes two or more alternative
sources of supply for each of its raw materials. In certain instances, however,
the Company will use a single source of supply when directed by a customer or by
need. In order to ensure the quality of the Company's products, the Company has
instituted strict supplier evaluation and qualification procedures. Once a
supplier has been qualified to supply materials to the Company, the supplier
will be included on the Company's preferred supplier list and will be evaluated
and rated on an ongoing basis. The Company considers several of its vendors as
principal suppliers. For precious metals the Company's vendors include Fleet
Precious Metals, Sigmund Cohen, Handy and Harmon, Degussa Metz Metallurgical
Corp. and Engelhard Corporation.
The parent company makes extensive use of precious metals,
including gold and, to a lesser extent, silver and platinum, as raw materials in
the manufacture of certain of its products. Precious metals, particularly gold,
are utilized based up on their reliability and conductivity. The prices at which
the Company purchases precious metals are based upon market prices of precious
metals at the time of purchase. Such metals have historically been subject to
significant price fluctuations and the markets for such metals subject to
volatility as a result of numerous factors beyond the control of the Company.
Substantially all of the parent company's gold requirements are
currently purchased from Fleet Precious Metals ("Fleet") pursuant to a
consignment agreement. Under the agreement, Fleet has agreed to advance up to
the lesser of 6,000 troy ounces of gold or gold having a market value of
$2,700,000. The agreement provides that title to the gold remains with Fleet
until the finished material is shipped, at which time the parent company is
required to replace the gold. The prices paid by the parent company for its
purchases are generally based upon the Comex or the Second London gold price and
are fixed automatically on a first-order, first-priced basis. The parent company
pays for gold in cash as of the date of purchase and pays a fee computed daily,
currently at the rate of 3.25% per annum, based upon the value of gold consigned
to the parent company. The agreement with Fleet expires on December 23, 1998.
The Company believes that there are alternative sources of supply for the
parent company's gold requirements in the event that the agreement with Fleet
was terminated.
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Silver and platinum are currently purchased from various metals
trading companies. The Company has no agreements with such suppliers, but
believes that there are numerous alternative sources of supply for such metals.
The Company purchases base metals, including aluminum, copper,
copper/tungsten, kovar, molybdenum ,solder and clad metals and specially shaped
materials from local metal distributors, cladding companies, roll formers, or
other specialized suppliers. Principal suppliers for non-precious metals and
outside processing services include Ed Fagin, Osram Sylvania, Platronics, AEP,
Donham Craft, Technical Materials and Clad Metal Specialties.
The Company also purchases certain components used in the
assembly of coaxial contacts and connectors from such companies as Dartech
Corporation and Whiting Screw Machine Products.
The Company's decision to purchase certain raw materials is
generally based upon whether such material is available consistent with required
specifications at a cost lower than the Company's manufacturing costs. If the
Company does not have, or could not, at a reasonable cost, develop the
manufacturing capability for a specific material, it attempts to maintain at
least two suppliers for such materials. While the Company attempts to maintain
alternative sources for the Company's raw materials and believes that
alternative sources are currently available for most of such metals and
materials, the Company is subject to price fluctuations and periodic shortages
of raw materials. The Company has no supply agreements with its suppliers and,
accordingly, purchases raw materials pursuant to purchase orders placed from
time to time in the ordinary course of business. Failure or delay by such
suppliers in supplying necessary raw materials to the Company could adversely
affect the Company's ability to manufacture and deliver products on a timely and
competitive basis.
Production Process
Products manufactured to customer specifications account for
almost all of the Company's total revenues.
Wire and metal ribbon are manufactured by casting pure metals
with selected additives into cylindrical shapes which are then drawn through a
series of diamond dies to progressively reduce the metal to a finished size.
Wire is then either annealed in batches or strands. Metal ribbon is made by
rolling wire into a flat shape or by slitting strip into narrow widths.
Annealing, spooling and packaging are similar to those for wire.
The manufacturing process for stamping consists of casting
specific metals or alloy combinations into ingots which are passed through a
series of rolling mills to meet specified thickness requirements, and then slit
to specified widths. The material is stamped in a press which contains the die
for the customer's part. Parts are then cleaned and packaged to suit customer
requirements. The Company ships stampings in bulk form or employs packaging
methods to integrate its stampings with automated manufacturing equipment
utilized by its customers.
Seal Frames are manufactured by sawing tubing, primarily copper
or kovar (a nickel alloy of steel), or "burning" the frames out of stacked
sheets of kovar on EDM machines. The seal frames are lapped (ground flat),
machined when necessary, lapped again, cleaned, plated when necessary and
inspected.
Other EDM products are "burned" on EDM machines and finished on
CNC milling machines or in selected secondary operations.
The manufacturing process for copper/tungsten heat dissipation
products consists of manufacturing a tool and die for the specific part,
pressing the powdered materials in a powdered metal press, sintering the parts
in a furnace, and machining them to the customer's specifications. The parts are
then cleaned, plated, tested and packaged for shipment.
Silicon wafer polishing and reclaiming services begin with
incoming inspection of customer wafers. The wafers are sorted for reclaim
suitability and conformance to customer specifications. A report is then sent to
the customer indicating which wafers are reclaimable. While the Company from
time to time procures its own wafers, the majority of the wafers it processes
are owned by its customers. The customer usually retains title to the
reclaimable wafers throughout the polishing and reclaiming process. The wafers
are then
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processed to remove all diffusions and deposited layers (i.e., polysilicon,
metals, nitrides, oxides, etc.). A two step polishing process, similar to that
which is utilized by silicon suppliers, is then performed. The wafers are then
cleaned with a front and back side scrubbing followed by rinsing, drying and
further removal of particles. All cleaning is done in certified clean rooms
utilizing deionized water. Product quality is assured though procedural
discipline and Statistical Process Controls. Recently, the Company has achieved
the ability to consistently process wafers with particles of less than .16
microns in size, with extremely low trace metals. The Company believes that its
processing capability equals or betters that of any reclaiming capability in the
world.
The manufacturing process for coaxial contact and connectors
begins with the machining of a variety of metals including brass, stainless
steel and beryllium copper through the use of screw machines. Secondary
operations are then performed on lathes, milling and threading machines, the
machined parts are then cleaned, heat treated and if required, are gold or
nickel plated. After plating and inspection, the machined parts along with other
component parts are assembled to produce a contact or connector. Retconn
currently sources approximately 85% of its parts machining, to a number of
outside vendors, and assembles all of its contacts and connectors in-house.
The Company usually operates on an eight-hour daily shift five
days a week at the parent company's facility, with its tape on reel production
and aluminum wire drawing operating on a two or three shift basis, consistent
with business requirements. Polese usually operates between six and seven days
per week, with its various departments running one to three shifts per day,
consistent with business requirements. ASP usually operates on a three shift
basis five days per week. Retconn usually operates on a two shift basis five
days per week. Management believes that the Company possesses sufficient
capacity to expand production of its existing products. The Company owns much of
the equipment at its manufacturing and processing facilities and when
appropriate, leases certain equipment from third parties. Capital lease
agreements currently provide for annual principal and interest payments of
approximately $1,772,000 for 1997. The Company employs persons who are
responsible for equipment maintenance and outside contracts are used to augment
the Company's maintenance capabilities.
The Company currently utilizes third party manufacturers in
connection with certain packaging and manufacturing processes. Such
manufacturing processes include the screw machine operations and other secondary
operations performed to produce connectors and the application of certain
surface finishes, such as plating and cladding. Additionally, the Company from
time to time arranges for third party vendors to package stamped parts for
compatibility with automated manufacturing equipment.
Quality Control
The Company utilizes extensive in-house statistical process
quality control procedures ("SPC") and employs 23 persons engaged full-time in
quality control functions.
A substantial portion of the Company's customers require the
Company to qualify as an approved supplier utilizing SPC. Generally, this
qualification includes providing samples to the customer, passing preliminary
evaluations and usage testing, completing customer evaluations and checklists
and undergoing extensive in-plant inspections of the Company's personnel,
manufacturing processes, equipment and associated quality control systems. The
Company has undergone numerous inspections by various customers and continues to
undergo such inspections on a regular basis. Accordingly, the Company's efforts
are devoted to ensure that its capabilities and quality control standards are
adequate to satisfy specific customer requirements. The Company receives quality
control certifications each year from various customers.
In May 1991, the Company was designated as a "Q-1" supplier by
The Ford Motor Company. The Company is also ISO 9000 (an international quality
standard for the European community) at five of its operations and holds various
quality awards throughout the industries it serves. The Company believes that
its ISO 9000 certifications are important in establishing the Company as a world
class supplier and will greatly aid the Company in penetrating markets
for the Company's products throughout the world.
Marketing and Sales
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The Company's domestic and foreign sales efforts are directed
towards customers in numerous industries where the Company's products have wide
application. The Company engages independent sales representatives in various
regions throughout the United States, Europe, South America, the Middle East and
the Far East for marketing to customers. These sales representatives are paid on
a commission basis. As of February 28, 1997, the Company had arrangements with
23 sales representatives in the United States and 17 sales representatives who
market the Company's products in Europe , the Middle East, Far East and South
America,including France, Germany, Italy, the United Kingdom, Sweden, Israel,
Singapore, Hong Kong, China, Taiwan, Korea, Malaysia, the Philippines, Mexico
and Brazil. The Company believes that the use of independent sales
organizations, which typically specialize in specific products and areas and,
accordingly, have specific knowledge of and contacts in particular markets,
enhances the scope of the Company's marketing and sales efforts . Pursuant to
agreements with independent sales representatives, such representatives are
prohibited from carrying a line of products competitive with the Company's
products. The Company has maintained relationships with certain of its sales
representatives since the commencement of the Company's operations in 1981 and
continues to engage new sales representatives as needed. The Company believes
that additional sales representatives are available, if required.
The Company currently employs twenty-eight inside sales and
marketing personnel, including two of its executive officers, who are
responsible for direct sales to the Company's customers, which are generated
primarily through repeat orders. The Company's sales personnel also work closely
with customers to solicit future orders and to render technical assistance and
advice.
Other marketing efforts include generation and distribution of
the Company's product catalogs and brochures and attendance at trade shows. The
Company also advertises in trade publications, primarily in the United States.
Product and Process Development
The Company places significant emphasis on product and process
development and believes that such efforts are important to take advantage of
market trends and to maintain its competitive position. The Company's product
and process development activities include refinement of its manufacturing and
processing capabilities and improvement in the metallurgical composition,
durability and reliability of its products. The Company's technical personnel
and outside consultants conduct specific projects to enhance performance of the
Company's products and to meet specific customer requirements. In the past year
these efforts have led to the development of a new gold wire for flip chips, a
copper/tungsten metal matrix composite for a sole weight for Taylor Made Golf's
Titanium Bubble 2 (TM) irons, a packaging process for die in tape on reel, a new
31 series coaxial connector and process improvements which enable the Company's
reclaiming facilities to produce wafers with particles of less than .16 microns
and extremely low levels of trace metals.
The Company has expanded its product lines and processing
capabilities through various acquisitions and a joint venture including the
Company's acquisition of Polese in 1993, ASP in 1994 and Retconn in 1996, the
ISP joint venture in 1996 and the SMS acquisition in 1997 and will continue to
seek to expand through acquisitions and other strategic alliances.
Customers
The Company's products are sold principally to customers
servicing the computer, automotive, aerospace, military, medical, semiconductor
and communications industries. The Company's customers include M/A Com, Kyocera
America, SGS-Thompson, Delco Electronics, Motorola, Ford Motor Company, IBM,
Cardiac Pacemakers, Interpoint, Norel, Texas Instruments, National
Semiconductor, Hewlett Packard, Medtronics/Micro-Rel, Berg Electronics, Northern
Telecom, TTI and Wafernet.
For the years ended December 31, 1996 and 1995, sales of the
Company's products, to the Company's five largest customers accounted for
approximately 36% and 46%, respectively, of the Company's revenues. For the year
ended December 31, 1996, one customer accounted for approximately 11% of the
Company's total revenues. For the year ended December 31, 1995, two customers
accounted for approximately 16% and 11%, respectively, of the
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Company's revenues.
The Company does not maintain contracts with many of its
customers and generally sells its products pursuant to customer purchase orders.
Certain of the Company's purchase orders with customers provide for annual
requirements of a particular product. A substantial portion of the Company's
orders for products, which include precious metals, provide that the initial
price quotation is adjusted to reflect any changes in the price of precious
metals at the time of shipment. Customer purchase orders are generally filled
within two to six weeks and shipped to customers by common carrier.
To date, the Company has relied upon foreign markets, including
Europe and the Far East, for a portion of its revenues. For the years ended
December 31, 1996 and 1995, direct sales of the Company's products into foreign
markets accounted for approximately 10% and 5.0%, respectively, of the Company's
consolidated revenues. Sales of the Company's products to foreign customers are
made through 17 foreign manufacturer's representatives. The Company believes
that a portion of its revenues will continue to be derived from the sale of its
products in foreign markets, which will result in the Company's being subject to
risks associated with foreign sales, including economic or political
instability, shipping delays, fluctuations in foreign currency exchange rates,
custom duties and export quotas and other trade restrictions. The Company is not
aware of any foreign tariffs with respect to products marketed by the Company.
Although export sales are subject to certain governmental restrictions, the
Company has not experienced any difficulties with foreign or domestic trade
restrictions.
Backlog
The Company manufactures standard and custom products pursuant to
customer purchase orders. Backlog is comprised of orders for products which have
a scheduled shipment date within the next 12 months. Certain orders in the
backlog may be canceled under certain conditions without significant penalty. At
January 2, 1997 and 1996, the Company's backlog of orders believed to be firm
was approximately $10,067,000 and $9,273,000, respectively. The January 2, 1997
backlog amount does not include any backlog associated with SMS, which was
acquired by the Company on January 23, 1997. The Company believes that the
majority of the Company's backlog of orders existing as of January 2, 1997 will
be shipped over the next twelve months.
Competition
The market for the Company's products is highly competitive. The
Company competes with numerous well-established foreign and domestic companies,
many of which possess substantially greater financial, marketing, personnel and
other resources than the Company and have established reputations for success in
the development, sale and service of products. Such companies include Kulicke &
Soffa Industries, Inc., Tanaka, Heraeus, Polymetallurgical Corporation, Coining
Corp., Williams Advanced Materials, Climax Specialty Metals, Inc., Johnson
Matthey, A.T. Wall, Exsil, Sumitomo Corporation, Phoenix Electronics Company of
Chicago, Inc., Radiall, Inc., Huber and Suhner, Inc. and Amphenol Corporation.
The Company believes that it is one of a limited number of manufacturers of all
of its primary products and services: fine wire and metal ribbon, precision
metal stampings, seal frames, other EDM products, powdered metal heat
dissipation products, coaxial contacts and connectors and polishing and
reclaiming of silicon wafers. The Company believes that this capability provides
an advantage in marketing products to customers which seek to limit the number
of their suppliers.
The ability of the Company to compete successfully will depend in
large measure on its ability to maintain development capabilities in connection
with upgrading its products and quality control procedures and to adapt to
technological changes and advances in the electronics industry, including
ensuring continuing compatibility with evolving generations of electronic
components and manufacturing equipment.
Patents and Proprietary Information
The Company's ability to compete effectively may be materially
dependent upon the
8
<PAGE>
proprietary nature of its technologies. The Company has been issued a patent for
a Method for Making Heat-Dissipating Elements for Micro-Electronic Devices.
Polese Company utilizes this proprietary method to manufacture copper/tungsten
heat dissipation. The Company believes that this patent significantly improves
its position in the marketplace. The powdered metal technology covered by this
patent was acquired by the Company in connection with the Polese Company
acquisition. Few of the Company's other manufacturing processes or products are
protected by patents.
The Company relies on proprietary know-how and employs various
methods to protect its processes, concepts, ideas and documentation associated
with its proprietary products. However, such methods may not afford complete
protection and there can be no assurance that others will not independently
develop such processes, concepts, ideas and documentation. Although the Company
has and expects to have confidentiality agreements with its employees, there can
be no assurance that such arrangements will adequately protect the Company's
trade secrets.
Government Regulation
The Company is subject to regulations administered by the United
States Environmental Protection Agency, various state agencies and county and
local authorities. Among other things, these regulatory bodies impose
restrictions to control air, soil and water pollution. The extensive regulatory
framework imposes significant compliance burdens and risks on the Company.
Governmental authorities have the power to enforce compliance with these
regulations and to obtain injunctions and/or impose civil and criminal fines or
sanctions in the case of violations.
The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), imposes strict, joint and several
liability on the present and former owners and operators of facilities which
release hazardous substances into the environment. The Resource Conservation and
Recovery Act of 1976, as amended ("RCRA"), regulates the generation,
transportation, treatment, storage and disposal of hazardous waste. In New York
State, the handling and disposal of hazardous substances is governed by the
Environmental Conservation Law, which contains the New York counterparts of
CERCLA and RCRA. In California, the handling and disposal of hazardous
substances is governed by the law which contains the California counterparts of
CERCLA and RCRA. The Rhode Island Department of Environmental Management
regulates the handling and disposal of hazardous waste in Rhode Island under the
Hazardous Waste Management Act of 1978 (counterpart to RCRA) and site
remediation regulations. The Connecticut Department of Environmental Protection
regulates the handling and disposal of hazardous waste in Connecticut under the
Bureau of Waste Management, Bureau of Water Management and Office of Natural
Resources (counterpart to RCRA) and site remediation regulations. The Texas Air
Control Board regulates permissible emissions under the Texas Clean Air Act. The
Texas Natural Resources Conservation Commission regulates industrial and
hazardous waste generation and management under Chapter 31 of the Texas
Administrative Code. Additionally, the City of Garland Texas, where ASP's Texas
facility is situated, regulates the discharge of waste water under the City of
Garland's Industrial Waste Ordinances. The Company believes that it is in
substantial compliance with all material federal and state laws and regulations
governing its operations. In 1995, Polese was cited for waste discharge of
copper and installed a new waste water treatment system to ensure compliance
with California and EPA clean water regulations. The Company continually
evaluates its environmental practices with respect to such requirements and
maintains all required licenses or permits.
Various laws and regulations relating to safe working conditions,
including the Occupational Safety and Health Act, are also applicable to the
Company. The Company believes it is in substantial compliance with all material
federal, state and local laws and regulations regarding safe working conditions.
The Company believes that the cost of compliance with such government and
environmental regulations is not material.
Executive Corporate Officers of the Company
Gilbert D. Raker, 53, President since December 31, 1995; Chairman
of the Board
9
<PAGE>
and Chief Executive Officer of the Company since May 1990; Vice President of the
Company from November 1988 until May 1990.
Frank J. Polese, 40, Vice Chairman of the Company since January
1996 and a Director of the Company since July 1993. Mr. Polese also served as
President of the Company from January 1994 through December 1995. From August
1991 until November 1996 and again since March 1997, Mr. Polese has served as
President of Polese Company, which was acquired by the Company on May 27, 1993,
prior to which Mr. Polese was its sole shareholder. Prior to August 1991, Mr.
Polese was a manufacturer's representative specializing in products incorporated
into microelectronic packages for the electronics industry.
Kenneth J. Huth, 58, Executive Vice President of the Company
since January 1994. President of the Company from January 1990 to December 1993.
From 1972 until December 1989, Mr. Huth served as President of Kenneth J. Huth,
Inc., a manufacturer's representative specializing in precision stampings and
related products for the electronics industry.
Andrew A. Lozyniak, 39, Executive Vice President since January
1995, Treasurer, Secretary and Chief Financial Officer of the Company since
February 1992. From October 1991 until January 1992, Mr. Lozyniak acted as an
independent financial consultant. From July 1986 until September 1991, Mr.
Lozyniak was employed as Controller and Treasurer of Ditri Associates, Inc.
("DAI"). In connection with his employment with DAI, Mr. Lozyniak also served in
various financial and operating positions with affiliated operating companies.
Mr. Lozyniak also served as an executive officer of six companies acquired by
the principals of DAI.
Employees
As of February 28, 1997, the Company employed approximately 595
persons. All manufacturing personnel are paid on an hourly basis. All employees
are employed full-time except for twenty-five part-time employees. None of the
Company's employees is covered by a collective bargaining agreement. The Company
considers its relationship with its employees to be good.
Item 2. Properties.
The Company's executive and manufacturing facility is currently
situated in a 25,000 square foot building in Mamaroneck, New York. Effective
April 15, 1997, the Company will relocate its executive offices and
manufacturing facility to a 43,700 square foot building located in Armonk, New
York. In November 1996, the Company purchased the Armonk building for
approximately $2,200,000 to house SPM's operations, $1,760,000 of which was
financed through term debt which is payable in 120 equal monthly installments of
$14,667, plus interest. In 1996, the Company leased a facility from R & R
Associates, a partnership whose general partners are Messrs. Hanau and Gordon
(founders of the Company), which lease expiries on May 31, 1997, The Company
will not renew this lease. The annual rent is $180,000, plus a portion of
property taxes, which in 1996 amounted to approximately $21,000. The Company's
Armonk facility is suitable for the Company's current needs and will initially
be operating at approximately 50% of its productive capacity. The property is
well maintained and in good condition.
Polese entered into an agreement to lease approximately 24,211
square feet of industrial space at 10103 Carroll Canyon Road, San Diego,
California. The lease term commenced on December 1, 1993 and expires on November
30, 1998 and calls for an annual rental of $92,976 for the first year, with 4%
annual rent increases in the second through fifth years. The performance of
Polese Company's obligations under the lease is guaranteed by the Company.
Polese Company also leases approximately 7,500 square feet at 8680 Mirilani
Drive, San Diego, California. The lease term commenced on July 1, 1994 and
expires on December 15, 1999 and calls for an annual rental of approximately
$52,000. The facilities are suitable for the Company's current needs and are
operating at approximately 50% of their productive capacity. The properties are
well maintained and are in good condition.
On November 20, 1995, ASP Realty, Inc., a Rhode Island
Corporation and wholly owned subsidiary of ASP, purchased a facility of
approximately 18,000 square feet along with land of approximately 37,000 square
feet, from ALAK Associates, for $475,000 in cash. In 1995, prior to the
acquisition of the facility and land, ASP paid ALAK Associates approximately
$56,000 in total monthly rentals for use of the facility. In the second quarter
10
<PAGE>
of 1996, ASP acquired a piece of property adjacent to its plant and initiated a
program to expand its facility by 10,000 square feet. Such plant expansion is
expected to be completed in the second quarter of 1997. The property is well
maintained and is in good condition.
ASP also leases two facilities and a warehouse in Garland, Texas.
ASP leases a 26,590 square foot facility at 2985 Market Street, Garland, Texas.
The lease on the facility commenced on January 23, 1997 and continues until
January 31, 1999 with a one year extension option. Rents during the period
beginning January 23, 1997 and ending on July 31, 1997 are at an amount equal to
the real estate taxes on the premises which amount to approximately $4,338 per
month. During the remaining term of the lease, ASP will pay real estate taxes on
the premises plus rent equal to $10,000 per month. ASP also has an option to
purchase the premises for $1,000,000 until the expiration of the lease. ASP
leases a 16,600 square foot facility at 2613 Industrial Lane, Garland, Texas.
The lease on the facility commenced on January 23, 1997 and continues until
January 31, 1999 with a one year extension option. Rents during the period
beginning January 23, 1997 and ending on July 31, 1997 are at an amount equal to
the real estate taxes on the premises which amount to approximately $908 per
month. During the remaining term of the lease, ASP will pay real estate taxes on
the premises plus rent equal to $5,000 per month. ASP also has an option to
purchase the premises for $500,000 until the expiration of the lease. The
warehouse is situated in approximately 7,500 square feet and is located at 2627
Market Street, Garland, Texas. The lease on the warehouse expires on May 21,1999
and calls for monthly rentals of $1,845 plus property taxes and utilities. ASP
has vacated the warehouse and is in the process of attempting to sublet it. The
facilities and warehouse are well maintained and are in good condition.
Retconn's primary operations are located in a 12,000 square foot
facility in Torrington, Connecticut. The lease on the facility expires on
January 1, 1998 and calls for annual lease payments of $56,525, payable in equal
monthly installments. The lease term may be extended through 1999. Retconn also
leases a 2,500 square foot facility, on a month to month basis, near its main
facility to house its cable assembly operation. The lease expires in on June 30,
1997 and calls for monthly rentals of $1,300. The properties are well maintained
and are in good condition.
Silicon Materials Service, B.V.'s operations are located
approximately 10,000 square foot facility at Achterdijk 8, 5705 CB, Helmond,
Netherlands. This lease was assumed by the Company pursuant to the SMS
acquisition. The lease commenced on January 1, 1994 and continues for a period
of five years and calls for annual lease payments of 43,894 Dutch Florins. The
facility is well maintained and is in good condition.
Item 3. Legal Proceedings.
The Company is subject to claims and suits in the ordinary course
of business. Management believes that the ultimate resolution of such
proceedings will not have a material adverse effect on the Company. The Company
is not currently subject to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security-Holders.
No matter was submitted to a vote of security holders during the
quarter ended December 31, 1996.
PART II
11
<PAGE>
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Information related to the Market for Registrant's Common Equity
and Related Stockholder Matters is included on page 24 of the Company's Annual
Report to security holders for the year ended December 31, 1996, and is
incorporated herein as Exhibit 13.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The Company's Management's Discussion and Analysis of
Operations and Financial Condition is included on page 24 of the Company's
Annual Report to security holders for the year ended December 31, 1996, and is
incorporated herein as Exhibit 13.
Item 7. Financial Statements.
The financial statements contained in Company's Annual Report to
Stockholders for the fiscal year ended December 31, 1996 are incorporated by
reference and is filed herein as Exhibit 13.
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
12
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Information relating to the directors of the Company included
under the heading "Election of Directors" in the Company's definitive proxy
statement prepared in connection with the April 30, 1996 Annual Meeting of
Stockholders, is incorporated herein by reference. For information relating to
executive officers of the Company, reference is made to "Executive Officers of
the Company" in Part 1, Item 1 of this report. Information relating to
compliance with Section 16( a) of the Exchange Act included under the heading
"Compliance with Section 16(a) of the Exchange Act" in the Proxy Statement is
incorporated herein by reference.
Item 10. Executive Compensation.
Information relating to executive compensation included under
the heading "Executive Compensation" in the Proxy Statement is incorporated
herein by reference.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
Information relating to security ownership of certain beneficial
owners and management included under the heading "Voting Securities" in the
Proxy Statement is incorporated herein by reference.
Item 12. Certain Relationships and Related Transactions.
Information relating to certain relationships and related
transactions included under the heading "Certain Transactions" in the Proxy
Statement is incorporated herein by reference.
Item 13. Exhibits, List and Reports on Form 8-K.
The following is an index of the financial statements of the
Company which are herewith incorporated by reference from the Company's Annual
Report to Stockholders for the fiscal year ended December 31, 1996.
<TABLE>
<CAPTION>
Page(s) in
the Annual Report
<S> <C>
(a) (1) Financial Statements:
Consolidated Balance Sheet as of December 31, 1996................6
Consolidated Statement of Income for the Years
Ended December 31, 1996 and 1995.................................7
Consolidated Statement of Shareholders' Equity for the Years
Ended December 31, 1996 and 1995.................................8
Consolidated Statement of Cash Flows for the Years
Ended December 31, 1996 and 1995.................................9
Notes to Consolidated Financial Statements....................10-17
Report of Independent Auditors...................................18
</TABLE>
13
<PAGE>
(a) (2) Financial Statement Schedules:
All schedules have been omitted because of the absence of
conditions under which they are required or because the
required information is given in the above financial
statements or the notes thereto included in this report.
(b) Exhibits:
3.1 Certificate of Incorporation of the Company (1)
3.2 Amendment to Certificate of Incorporation (1)
3.3 Bylaws of the Company (1)
4.1(a) Underwriter's Warrant Agreement, dated as of December 20 , 1991,
between the Company and the Underwriter (2)
4.1(b) Amendment No. 1 to the Underwriter's Warrant Agreement, dated as of
April 27, 1993 (6)
10.1 Gold Lease Agreement between the Company and Republic National Bank
of New York dated May 17, 1989 (1)
10.3(a) Amended and Restated Non-Competition Agreement by and between the
Company and Rudolf Hanau and dated as of May 23, 1990 (1)
10.3(b) Amended and Restated Non-Competition Agreement by and between the
Company and Richard Gordon and dated as of May 23, 1990 (1)
10.5(a) Termination Agreement between the Company and Rudolf Hanau dated
October 30, 1991 (1)
10.5(b) Termination Agreement between the Company and Richard Gordon dated
October 30, 1991 (1)
10.6 Employment Agreement between the Company and Richard Gordon dated
October 30, 1991 (1)
10.7 Employment Agreement between the Company and Rudolf Hanau dated
October 30, 1991 (1)
10.8 Non-Competition Agreement between the Company and Richard Gordon
dated as of November 30, 1988 (3)
10.9 Non-Competition Agreement between the Company and Rudolf Hanau
dated as of November 30, 1988 (3)
10.10(a) Company's Employee Stock Option Plan (4)
10.10(b) Company's Amended Employee Stock Option Plan (6)
10.12(a) Stock Purchase Agreement dated April 30, 1993 by and between
Registrant and Frank J. Polese (5)
10.12(b) Asset Purchase Agreement dated April 30, 1993 by and between the
Registrant and Frank J. Polese (5)
10.13(a) Term Loan and Security Agreement dated May 27, 1993, between the
Registrant and Union Trust Company (5)
10.13(c) Promissory Note dated May 27, 1993 from the Registrant to Union
Trust Company (5)
10.13(d) Guaranty and Security Agreement between Polese Company, Inc. and
Union Trust Company (5)
14
<PAGE>
10.15 Lease Agreement dated as of October 22, 1993 between Transamerica
Occidental Life Insurance Company and Polese Company, Inc. (6)
10.16 Form of Warrant Agreement between the Company, Continental Stock
Transfer & Trust Company and Sands Brother & Co., Ltd. (6)
10.17 Form of Agreement to Contribute Redeemable Warrants to Company. (6)
10.18 Promissory Note dated May 27,1993 payable to Frank J. Polese. (6)
10.19 Documents related to Secured Loan from Union Trust Company dated
December 16, 1993
(a) Loan and Security Agreement (6)
(b) Promissory Note (6)
(c) Subordination and Intercreditor Agreement (6)
(d) Guaranty and Security Agreement (6)
(e) Loan Modification Agreement to Loan and Security Agreement
dated May 27, 1993 (6)
(f) Assignment of Patents (6)
10.20 Documents related to Revolving Loan Agreement from Union Trust
Company dated June 16, 1994
(a) Revolving Credit Agreement (8)
(b) Revolving Credit Note (8)
(c) Subordination and Pledge Agreement (8)
(d) Guaranty and Security Agreement of Parent (8)
(e) Guaranty and Suretyship Agreement of Polese Company,
Inc. (8)
(f) Assignment of Patents (8)
10.21 Loan Modification Agreement dated November 23, 1994 to Revolving
Credit Agreement between the Registrant and Union Trust Company (8)
10.22 Form of Modification of Gold Lease Agreement between the Registrant
and Republic National Bank of New York dated December 6, 1994 (8)
10.23(a) Employment Agreement dated as of December 15, 1994 between the
Company and Gilbert D. Raker (8)
10.23(b) Modification of Employment Agreement dated as of December 15, 1994
between Polese Company, Inc and Frank J. Polese (8)
10.23(c) Employment Agreement dated as of December 15, 1994 between the
Company and Kenneth J. Huth (8)
10.23(d) Employment Agreement dated as of December 15, 1994 between the
Company and Andrew A. Lozyniak (8)
10.24 Lease Extension Agreement dated December 1, 1994 between the
Company and R&R Associates (8)
10.25 Lease Agreement dated as of June 1, 1994 between Nobbs Family Trust
and Polese Company, Inc. (8)
15
<PAGE>
10.26 Lease Agreement dated as of January 1, 1995 between W. Ralph Byrne
and American Silicon Products, Inc. (8)
10.27 Lease Agreement dated as of January 19, 1995 between Thomas A.
Langton and David T. Kearns, Jr. d/b/a Alak Associates, and
American Silicon Products, Inc. (8)
10.28 Documents related to the ASAC merger and the acquisition of the
assets of American Silicon Products, Inc., a Rhode Island
corporation
(a) Asset Purchase Agreement dated as of
September 28, 1994, as amended, among Peter
Vessella, ASPI and ASAC. (7)
(b) Merger Agreement dated as of November 18,
1994 by and among the Registrant, Newco,
ASAC and the stockholders of ASAC. (7)
(c) Consulting Agreement dated as of December
15, 1994 by and between the Registrant and
Peter J. Hurley. (7)
(d) Term Loan Agreement (Bridge Loan) dated
December 15, 1994 by and between the
Registrant and UTC. (7)
(e) Term Loan Agreement dated December 15, 1994
by and between the Registrant and UTC. (7)
(f) Promissory Note in the principal amount of
$8,250,000, dated December 15, 1994 from the
Registrant to UTC. (7)
10.29 Documents related to Revolving Loan Agreement from First Fidelity
Bank dated December 20, 1995.
(a) Revolving Loan and Security Agreement
(b) Revolving Promissory Note
10.30 Documents related to Term Loan Agreement from First Union Bank of
Connecticut dated January 4, 1996.
(a) Term Loan Agreement
(b) Term Promissory Note
10.31(a) Termination Agreement dated as of October 27, 1995 between the
Company and John P. Holmes, III.
10.31(b) Termination Agreement dated as of October 27, 1995 between the
Company and J. Francis Lavelle.
10.31(c) Termination Agreement dated as of October 27, 1995 between the
Company and Rolf E. Soderstrom.
10.31(d) Termination Agreement dated as of October 27, 1995 among the
Company Peter J. Hurley, Harrison Hurley & Co., Inc and Harrison
Hurley & Co. II, Inc..
10.49 1994 Amendment to Employees' Incentive Stock Option Plan. (9)
10.50 1995 Amendment to Employees' Incentive Stock Option Plan. (9)
10.51 Commercial Grid Note dated May 31, 1995 in the amount of
$1,250,000 from the Company to Union Trust Company. (9)
16
<PAGE>
10.55 Stock Purchase Agreement dated as of December 20, 1995 by and
among Retconn Acquisition, Inc. and Daniel A. LeDonne, The Richard
C. Ashworth 1993 Trust, Richard C. Ashworth individually, William
S. White and Retconn Incorporated.(10)
10.56 Employement Agreement dated January 4, 1996 between Retconn
Incorporated and Daniel A. LeDonne.(10)
10.57 Closing Date Agreement dated January 4, 1996 amoang Retconn
Acquisition, Inc., Daniel A. LeDonne, The Richard C. Ashworth 1993
Trust, Richard C. Ashworth individually, William G. White and
Retconn Incorporated.(10)
10.58 Joint Venture Agreement dated August 28, 1996 between
Semiconductor Alliance Pte Ltd., the Company and International
Semiconductor Products Pte Ltd.(11)
10.59 Intellectual Property License Agreement dated August 28, 1996
between American Silicon Products, Inc. and International
Semiconductor Products Pte Ltd.(11)
10.60 Purchase Agreement dated as of January 16, 1997 between American
Silicon Products, Inc. and Air Products & Chemicals, Inc. (12)
10.61 Credit Agreement dated as of January 23, 1997 between the Company
and First Union Bank of Connecticut.
13 1996 Annual Report
22 List of Subsidiaries of the Company
23.1 The Consent of Goldstein Golub Kessler & Company, P.C., the
Company's independent certified pubic accountants, to
incorporation by reference in the Annual Report on Form 10-KSB of
their report dated January 30, 1997.
23.2 The Consent of Goldstein Golub Kessler & Company, P.C., the
Company's independent certified pubic accountants, to
incorporation by reference to Registration Statement on Form S-8
of their report dated January 30, 1997.
(1) Incorporated herein by reference to the Company's Registration
Statement No. 33-43640-NY on Form S-18, filed with the Securities
and Exchange Commission on November 1, 1991.
(2) Incorporated herein by reference to the Company's Annual Report
for the year ended December 31, 1991, filed with the Securities
and Exchange Commission on March 31, 1992.
(3) Incorporated herein by reference to Amendment No. 1 to the
Company's Registration Statement No. 33-43640-NY on Form S-18,
filed with the Securities and Exchange Commission on December 6,
1991.
(4) Incorporated herein by reference to Amendment No. 2 to the
Company's Registration Statement No. 33-43640-NY on Form S-18,
filed with the Securities and Exchange Commission on December 20,
1991.
(5) Incorporated herein by reference to Current Report on Form 8-K
filed with the SEC on June 11, 1993, as amended by Form 8-K/A.
(6) Incorporated herein by reference to the Company's Registration
Statement No. 33-70876 on Form S-3 filed, with the Securities and
Exchange on October 28, 1993 and as amended on December 30, 1993,
January 20, 1994 and February 7, 1994.
(7) Incorporated herein by reference to Current Report on Form 8-K
filed with the SEC on December 29, 1994.
(8) Incorporated herein by reference to the Company's Annual Report
for the year ended December 31, 1995, filed with the SEC for March
31, 1995.
(9) Incorporated herein by reference to the Company's Registration
Statement No. 33-93502 on Form SB-2 filed, with the Securities and
Exchange on June 16, 1995 and as amended on July 19, 1995 and July
26, 1995.
(10) Incorporated by reference to the Company's Form 8-K filed January
4, 1996.
(11) Incorporated by reference to the Company's 10-QSB filed for the
quarter ended September 30, 1996.
(12) Incorporated by reference to the Company's Form 8-K filed February
4, 1997.
17
<PAGE>
Reports on Form 8-K
(b) No current reports on Form 8-K were filed by the
registrant during the quarter ended December 31,
1996.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report to be
signed on its behalf by the undersigned, hereunto duly authorized.
SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
(Registrant)
By: /s/ Gilbert D. Raker
---------------------------------
Gilbert D. Raker, Chief Executive
Officer, President, Chairman of the Board of
Directors and Director
Dated: March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities and on the date indicated.
/s/ Gilbert D. Raker March 31, 1997
- - -----------------------------------
Gilbert D. Raker, Chief Executive
Officer, President, Chairman of
the Board of Directors and Director
/s/ Frank Polese March 31, 1997
- - -----------------------------------
Frank J. Polese, Vice Chairman
and Director
/s/ Kenneth J. Huth March 31, 1997
- - -----------------------------------
Kenneth J. Huth, Executive Vice
President
/s/ Andrew A. Lozyniak March 31, 1997
- - -----------------------------------
Andrew A. Lozyniak, Executive Vice
President, Treasurer and Secretary
/s/ Mark Pinto March 31, 1997
- - -----------------------------------
Mark Pinto, Director
/s/ John U. Moorhead, II March 31, 1997
- - -----------------------------------
John U. Moorhead, II, Director
/s/ Steven B. Sands, Director March 31, 1997
- - -----------------------------------
Steven B. Sands, Director
/s/ Richard D. Fain, Director March 31, 1997
- - -----------------------------------
Richard D. Fain, Director
19
CREDIT AGREEMENT
between
SEMICONDUCTOR PACKAGING
MATERIALS CO., INC.,
as Borrower
and
FIRST UNION BANK OF CONNECTICUT,
as Lender
Dated as of January 23, 1997
<PAGE>
TABLE OF CONTENTS
Page
1. Amount and Terms of Credit.......................................... 1
1.1 The Commitments............................................ 1
1.2 Minimum Amount of Each Borrowing........................... 2
1.3 Notice of Borrowing........................................ 2
1.4 Disbursement of Funds...................................... 2
1.5 Notes...................................................... 2
1.6 Conversions; Continuations................................. 3
1.7 Application and Allocation of Payments..................... 4
1.8 Interest................................................... 4
1.9 Interest Periods........................................... 5
1.10 Increased Costs, Illegality, etc........................... 6
1.11 Compensation............................................... 8
1.12 Change of Lending Office................................... 9
2. Letter of Credit.................................................... 9
2.1 Letter of Credit........................................... 9
2.2 Maximum Letter of Credit Outstandings; Final Maturities.... 10
2.3 Letter of Credit Requests; Minimum Stated Amount........... 10
2.4 [Intentionally Left Blank]................................. 10
2.5 Agreement to Repay Letter of Credit Drawings............... 10
2.6 Increased Costs............................................ 11
3. Commitment Commission; Fees; Reductions of Commitment............... 12
3.1 Fees....................................................... 12
3.2 Voluntary Termination of Revolving Loan Commitment......... 13
3.3 Mandatory Reduction of Commitments......................... 13
4. Prepayments; Payments; Taxes........................................ 13
4.1 Voluntary Prepayments...................................... 13
4.2 Mandatory Repayments and Commitment Reductions............. 14
4.3 Method and Place of Payment................................ 16
4.4 Net Payments............................................... 17
5. Conditions Precedent to Initial Credit Events....................... 17
5.1 Execution of Agreement; Notes.............................. 17
5.2 Officer's Certificate...................................... 18
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5.3 Opinion of Counsel......................................... 18
5.4 Corporate Documents; Proceedings; etc...................... 18
5.5 Employee Benefit Plans; Shareholders' Agreements;
Management Agreements; Collective Bargaining
Agreements; Existing Indebtedness Agreements;
Tax Sharing Agreements..................................... 18
5.6 Consummation of Acquisition................................ 19
5.7 Adverse Change, etc........................................ 19
5.8 Litigation................................................. 20
5.9 Security Agreement......................................... 20
5.10 Subsidiary Guaranty........................................ 21
5.11 Pro Forma Balance Sheet.................................... 21
5.12 Solvency Opinion; Environmental Analyses; Insurance
Analyses................................................... 21
5.13 Fees, etc. ................................................ 21
5.14 Satisfaction of Indebtedness............................... 21
6. Conditions Precedent to All Credit Events........................... 21
6.1 No Default; Representations and Warranties................. 22
6.2 Notice of Borrowing; Letter of Credit Request.............. 22
7. Representations, Warranties and Agreements.......................... 22
7.1 Corporate and Other Status................................. 22
7.2 Corporate and Other Power and Authority.................... 23
7.3 No Violation............................................... 23
7.4 Governmental Approvals..................................... 23
7.5 Financial Statements; Financial Condition; Undisclosed
Liabilities; Pro Forma Balance Sheet; etc. ................ 24
7.6 Litigation................................................. 25
7.7 True and Complete Disclosure............................... 25
7.8 Use of Proceeds; Margin Regulations........................ 25
7.9 Tax Returns and Payments................................... 26
7.10 Compliance with ERISA...................................... 26
7.11 The Security Documents..................................... 27
7.12 Representations and Warranties in Other Documents.......... 28
7.13 Properties................................................. 28
7.14 Capitalization............................................. 28
7.15 Subsidiaries............................................... 28
7.16 Compliance with Statutes, etc. ............................ 28
7.17 Investment Company Act..................................... 29
7.18 Public Utility Holding Company Act......................... 29
7.19 Environmental Matters...................................... 29
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7.20 Labor Relations............................................ 30
7.21 Patents, Licenses, Franchises and Formulas................. 30
7.22 Indebtedness............................................... 30
7.23 Acquisition................................................ 30
8. Affirmative Covenants............................................... 31
8.1 Information Covenants...................................... 31
8.2 Books, Records and Inspections............................. 34
8.3 Maintenance of Property; Insurance......................... 34
8.4 Corporate Franchises....................................... 35
8.5 Compliance with Statutes, etc.............................. 36
8.6 Compliance with Environmental Laws......................... 36
8.7 ERISA...................................................... 37
8.8 End of Fiscal Years; Fiscal Quarters....................... 38
8.9 Performance of Obligations................................. 38
8.10 Payment of Taxes........................................... 38
8.11 Additional Parties to Subsidiaries Guaranty................ 38
9. Negative Covenants.................................................. 38
9.1 Liens...................................................... 38
9.2 Consolidation, Merger, Purchase or Sale of Assets, etc. ... 41
9.3 Dividends.................................................. 42
9.4 Leases..................................................... 42
9.5 Indebtedness............................................... 42
9.6 Advances, Investments and Loans............................ 43
9.7 Transactions with Affiliates............................... 44
9.8 Capital Expenditures....................................... 44
9.9 Consolidated Fixed Charge Coverage Ratio................... 45
9.10 Maximum Leverage Ratio..................................... 45
9.11 Interest Coverage Ratio.................................... 45
9.12 Singapore Operations....................................... 45
9.13 Limitation on Modifications of Certificate of
Incorporation, By-Laws and Certain Other Agreements; etc. . 45
9.14 Limitation on Certain Restrictions on Subsidiaries......... 46
9.15 Limitation on Issuance of Capital Stock.................... 46
9.16 Business................................................... 46
9.17 Limitation on Creation of Subsidiaries..................... 46
10. Events of Default................................................... 47
10.1 Payments................................................... 47
10.2 Representations, etc....................................... 47
10.3 Covenants.................................................. 47
10.4 Default Under Other Agreements............................. 47
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10.5 Bankruptcy, etc............................................ 48
10.6 ERISA...................................................... 48
10.7 Security Documents......................................... 49
10.8 Subsidiary Guaranty........................................ 49
10.9 Judgments.................................................. 49
10.10 Change of Control.......................................... 49
11. Definitions and Accounting Terms.................................... 50
11.1 Defined Terms.............................................. 50
12. Miscellaneous....................................................... 64
12.1 Payment of Expenses, etc................................... 64
12.2 Right of Setoff............................................ 65
12.3 Notices.................................................... 65
12.4 Benefit of Agreement; Participations....................... 66
12.5 No Waiver; Remedies Cumulative............................. 67
12.6 Calculations; Computations; Accounting Terms............... 68
12.7 GOVERNING LAW; SUBMISSION TO JURISDICTION;
ARBITRATION; VENUE; COMMERCIAL WAIVER;
WAIVER OF JURY TRIAL....................................... 68
12.8 Counterparts............................................... 70
12.9 Effectiveness.............................................. 71
12.10 Headings Descriptive....................................... 71
12.11 Amendment or Waiver; etc................................... 71
12.12 Survival................................................... 71
12.13 Domicile of Loans.......................................... 71
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Exhibits and Schedules
----------------------
Exhibit Description
------- -----------
A Form of Notice of Borrowing
B-1 Form of Term Note
B-2 Form of Revolving Note
C Form of Letter of Credit Request
D Form of Opinion
E Form of Secretary's Certificate
F Form of Security Agreement
G Form of Subsidiaries Guaranty
H Form of Intercompany Note
Schedule Description
-------- -----------
I Capitalization
II Subsidiaries
III Existing Indebtedness
IV Insurance
V Existing Liens
VI Existing Investments
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<PAGE>
CREDIT AGREEMENT dated as of January 23, 1997, between SEMICONDUCTOR
PACKAGING MATERIALS CO., INC., a Delaware corporation and FIRST UNION BANK OF
CONNECTICUT, a Connecticut banking corporation.
BACKGROUND
The Borrower has requested that the Lender make the Loans to the
Borrower (i) to enable the Borrower (a) to effect, through one of its
Subsidiaries, the Acquisition and (b) to refinance certain existing indebtedness
owed to the Lender and for (ii) the Borrower's general working capital purposes.
The Lender has agreed to the Borrower's request subject to the terms and
conditions of this Agreement.
AGREEMENT
SECTION 1. Amount and Terms of Credit.
1.1. The Commitments.
(a) Subject to and upon the terms and conditions set forth
herein, the Lender agrees to make, on the Initial Borrowing Date, a term loan
(the "Term Loan") to the Borrower, which Term Loan (i) shall, at the option of
the Borrower, be incurred and maintained as, and/or converted into, a Prime Rate
Loan or a Eurodollar Loan, and (ii) shall not exceed, in initial aggregate
principal amount, that amount which equals the Term Loan Commitment on the
Initial Borrowing Date. Once repaid, the Term Loan incurred hereunder may not be
reborrowed.
B. Subject to and upon the terms and conditions set forth herein, the
Lender agrees, at any time and from time to time on and after the Initial
Borrowing Date and prior to the Revolving Loan Maturity Date, to make a
revolving loan or revolving loans (each a "Revolving Loan" and, collectively,
the "Revolving Loans") to the Borrower, which Revolving Loans (i) shall, at the
option of the Borrower, be incurred and maintained as, and/or converted into,
Prime Rate Loans or Eurodollar Loans, provided that (A) except as otherwise
specifically provided in Section 1.10(b), all Revolving Loans comprising the
same Borrowing shall at all times be of the same Type, (ii) may be repaid and
reborrowed in accordance with the provisions hereof, and (iii) shall not exceed
at any time outstanding that aggregate principal amount which, when added to the
aggregate amount of all Letter of Credit Outstandings (exclusive of Unpaid
Drawings which are repaid with the proceeds of, and simultaneously with the
incurrence of, the respective incurrence of Revolving Loans) at such time equals
the Revolving Loan Commitment at such time.
<PAGE>
1.2. Minimum Amount of Each Borrowing. The aggregate principal amount
of each Borrowing of Loans shall not be less than the Minimum Borrowing Amount.
More than one Borrowing may occur on the same date, but at no time shall there
be outstanding more than 15 Borrowings of Eurodollar Loans.
1.3. Notice of Borrowing.
(a) Whenever the Borrower desires to incur Loans hereunder, it
shall give the Lender at its Notice Office at least one Business Day's prior
notice of each Prime Rate Loan and at least three Business Days' prior notice of
each Eurodollar Loan to be incurred hereunder, provided that any such notice
shall be deemed to have been given on a certain day only if given before 11:00
A.M. (Stamford, Connecticut time) on such day. Each such notice (each a "Notice
of Borrowing"), except as otherwise expressly provided in Section 1.10, shall be
irrevocable and shall be given by the Borrower in writing, or by telephone
promptly confirmed in writing, in the form of Exhibit A, appropriately completed
to specify the aggregate principal amount of the Loans to be incurred pursuant
to such Borrowing, the date of such Borrowing (which shall be a Business Day),
whether the Loans being incurred pursuant to such Borrowing shall constitute the
Term Loan or Revolving Loans and whether the Loans being incurred pursuant to
such Borrowing are to be initially maintained as Prime Rate Loans or Eurodollar
Loans and, if Eurodollar Loans, the initial Interest Period to be applicable
thereto.
(b) Without in any way limiting the obligation of the Borrower to
confirm in writing any telephonic notice of any Borrowing or prepayment of
Loans, the Lender may act without liability upon the basis of telephonic notice
of such Borrowing or prepayment, believed by the Lender in good faith to be from
the President, Chief Financial Officer, Treasurer or Controller of the Borrower,
or from any other authorized officer of the Borrower designated in writing by
the Borrower to the Lender as being authorized to give such notices, prior to
receipt of written confirmation. In each such case, the Borrower hereby waives
the right to dispute the Lender's record of the terms of such telephonic notice
of such Borrowing or prepayment of Loans.
1.4. Disbursement of Funds. No later than 12:00 Noon (Stamford,
Connecticut time) on the date specified in each Notice of Borrowing, the Lender
will make available each such Borrowing requested to be made on such date. All
such amounts will be made available in Dollars and in immediately available
funds, and the Lender will credit to the Borrower's account with the Lender or
otherwise make available to the Borrower at the Payment Office the aggregate of
the amounts so made available by the Lender.
1.5. Notes.
(a) The Borrower's obligation to pay the principal of, and
interest on, the Loans made by the Lender shall be evidenced (i) if the Term
Loan, by a
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promissory note duly executed and delivered by the Borrower substantially in the
form of Exhibit B-1, with blanks appropriately completed in conformity herewith
(the "Term Note"), and (ii) if Revolving Loans, by a promissory note duly
executed and delivered by the Borrower substantially in the form of Exhibit B-2,
with blanks appropriately completed in conformity herewith (the "Revolving
Note").
(b) The Term Note shall (i) be executed by the Borrower, (ii) be
payable to the Lender or its registered assigns and be dated the Initial
Borrowing Date, (iii) be in a stated principal amount equal to the Term Loan and
be payable in the outstanding principal amount of the Term Loan evidenced
thereby, (iv) mature on the Term Loan Maturity Date, (v) bear interest and be
payable as to interest as provided in the appropriate clause of Section 1.8 in
respect of Prime Rate Loans and Eurodollar Loans, evidenced thereby, (vi) be
subject to voluntary prepayment as provided in Section 4.1, and mandatory
repayment as provided in Section 4.2 and (vii) be entitled to the benefits of
this Agreement and the other Credit Documents.
(c) The Revolving Note shall (i) be executed by the Borrower,
(ii) be payable to the Lender or its registered assigns and be dated the Initial
Borrowing Date, (iii) be in a stated principal amount equal to the Revolving
Loan Commitment and be payable in the outstanding principal amount of the
Revolving Loans evidenced thereby, (iv) mature on the Revolving Loan Maturity
Date, (v) bear interest and be payable as to interest as provided in the
appropriate clause of Section 1.8 in respect of Prime Rate Loans and Eurodollar
Loans, as the case may be, evidenced thereby, (vi) be subject to voluntary
prepayment as provided in Section 4.1, and mandatory repayment as provided in
Section 4.2 and (vii) be entitled to the benefits of this Agreement and the
other Credit Documents.
(d) The Lender will note on its internal records the date and
amount of the Loans made by it and each payment of principal in respect thereof
and will, prior to any transfer of any of the Notes, endorse on the reverse side
thereof the outstanding principal amount of Loans evidenced thereby. Failure to
make any such notation or any error in such notation shall not affect the
Borrower's obligations in respect of such Loans.
1.6. Conversions; Continuations. The Borrower shall have the option to
convert, on any Business Day occurring on or after the expiration of the Initial
Interest Period, all or a portion equal to at least the Minimum Borrowing Amount
in the case of Revolving Loans and the outstanding principal balance thereof in
the case of the Term Loan of one or more Types of Loans into a Borrowing of
another Type of Loan, and to continue Eurodollar Loans beyond the end of an
Interest Period therefor, provided that, (i) except as otherwise provided in
Section 1.10(b), Eurodollar Loans may be converted into Prime Rate Loans or may
be continued as Eurodollar Loans only on the last day of an Interest Period
applicable to the Loans being converted or continued and no such partial
conversion of or continuation of Eurodollar Loans shall reduce the outstanding
principal
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amount of such Eurodollar Loans made pursuant to a single Borrowing to less than
the Minimum Borrowing Amount applicable thereto, (ii) Prime Rate Loans may only
be converted into and Eurodollar Loans may only be continued as Eurodollar Loans
if no Default or Event of Default is in existence on the date of the conversion
or continuation and (iii) no conversion or continuation pursuant to this Section
1.6 shall result in a greater number of Borrowings of Eurodollar Loans than is
permitted under Section 1.2. Each such conversion or continuation shall be
effected by the Borrower by giving the Lender at its Notice Office prior to
12:00 Noon (Stamford, Connecticut time) at least three Business Days' prior
notice (each a "Notice of Conversion/Continuation") specifying the Loans to be
so converted or continued, the Borrowing or Borrowings pursuant to which such
Loans were made and, if to be converted into or continued as Eurodollar Loans,
the Interest Period to be initially applicable thereto. Upon any such conversion
or continuation the proceeds thereof will be deemed to be applied directly on
the day of such conversion to prepay the outstanding principal amount of the
Loans being converted or continued.
1.7. Application and Allocation of Payments. Subject to the provisions
of Section 4.2(g) and (h), upon the occurrence and continuance of an Event of
Default, the Borrower irrevocably waives the right to direct the application of
any and all payments at any time or times hereafter received from or on behalf
of the Borrower, and the Borrower irrevocably agrees that the Lender shall have
the continuing exclusive right to apply any and all such payments against the
then due and payable Obligations of the Borrower and in repayment of the Loans
as the Lender may deem advisable. In the absence of a specific determination by
the Lender with respect thereto, and prior to the occurrence and continuance of
an Event of Default, the same shall be applied in the following order: (i) then
due and payable Fees, expenses and other Obligations; (ii) then due and payable
interest payments on the Term Loan; (iii) then due and payable interest payments
on the Revolving Loans; (iv) then due and payable principal payments on the Term
Loan; (v) amounts then outstanding under the Revolving Loan; and (vi)
Obligations to Lender other than Fees, expenses and interest and principal
payments. and The Lender is authorized to, and at its option may, make or cause
to be made expenditures by the Lender on behalf of the Borrower for payment of
all Fees, expenses, charges, costs, principal, interest or other Obligations
then due and payable by the Borrower under this Agreement or any of the Credit
Documents, and the Borrower agrees to immediately reimburse the Lender for such
amounts.
1.8. Interest.
(a) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each Prime Rate Loan from the date the proceeds thereof are
made available to the Borrower until the maturity thereof (whether by
acceleration or otherwise) at a rate per annum which shall be equal to the sum
of the Applicable Margin (which, as of the date of this Agreement, is 0%) plus
the Prime Rate in effect from time to time.
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<PAGE>
(b) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each Eurodollar Loan from the date the proceeds thereof are
made available to the Borrower until the maturity thereof (whether by
acceleration or otherwise) at a rate per annum which shall, during each Interest
Period applicable thereto, be equal to the sum of the Applicable Margin plus the
Eurodollar Rate for such Interest Period.
(c) Overdue principal and, to the extent permitted by law,
overdue interest in respect of each Loan and any other overdue amount payable
hereunder shall, in each case, bear interest at a rate per annum equal to the
greater of (x) 4% per annum in excess of the rate otherwise applicable to Prime
Rate Loans and (y) the rate which is 4% in excess of the rate then borne by such
Loans, in each case with such interest to be payable on demand.
(d) Accrued (and theretofore unpaid) interest shall be payable
(i) in respect of each Prime Rate Loan, monthly in arrears on each Monthly
Payment Date, (ii) in respect of each Eurodollar Loan, monthly on each Monthly
Payment Date and on the last day of each Interest Period applicable thereto and
(iii) in respect of each Loan, on any repayment or prepayment (on the amount
repaid or prepaid), at maturity (whether by acceleration or otherwise) and,
after such maturity, on demand.
(e) Upon each Interest Determination Date, the Lender shall
determine the Eurodollar Rate for each Interest Period applicable to Eurodollar
Loans and shall promptly notify the Borrower and the Lender thereof. Each such
determination shall, absent manifest error, be final and conclusive and binding
on all parties hereto.
1.9. Interest Periods. At the time it gives any Notice of Borrowing or
Notice of Conversion in respect of the making of, or conversion into, or the
continuation of, any Eurodollar Loan (in the case of the initial Interest Period
applicable thereto) or on the third Business Day prior to the expiration of an
Interest Period applicable to such Eurodollar Loan (in the case of any
subsequent Interest Period), the Borrower shall have the right to elect, by
giving the Lender notice thereof, the interest period (each an "Interest
Period") applicable to such Eurodollar Loan, which Interest Period shall, at the
option of the Borrower, be a one, two or three-month period, provided that:
(i) all Eurodollar Loans comprising a Borrowing shall at all
times have the same Interest Period;
(ii) the initial Interest Period for any Eurodollar Loan shall
commence on the date of Borrowing of such Eurodollar Loan (including the date of
any conversion thereto from a Loan of a different Type) and each Interest Period
occurring thereafter in respect of such Eurodollar Loan shall commence on the
day on which the next preceding Interest Period applicable thereto expires;
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<PAGE>
(iii) if any Interest Period for a Eurodollar Loan begins on a
day for which there is no numerically corresponding day in the calendar month at
the end of such Interest Period, such Interest Period shall end on the last
Business Day of such calendar month;
(iv) if any Interest Period for a Eurodollar Loan would otherwise
expire on a day which is not a Business Day, such Interest Period shall expire
on the next succeeding Business Day; provided, however, that if any Interest
Period for a Eurodollar Loan would otherwise expire on a day which is not a
Business Day but is a day of the month after which no further Business Day
occurs in such month, such Interest Period shall expire on the next preceding
Business Day;
(v) no Interest Period may be selected at any time when a Default
or an Event of Default is then in existence;
(vi) no Interest Period in respect of any Borrowing shall be
selected which extends beyond the respective Maturity Date for such Loans; and
(vii) no Interest Period in respect of any Borrowing of the Term
Loan shall be selected which extends beyond any date upon which a mandatory
repayment of the Term Loan will be required to be made under Section 4.2(b) or
(c), as the case may be, if the aggregate principal amount of the Term Loan
which have Interest Periods which will expire after such date will be in excess
of the aggregate principal amount of the Term Loan then outstanding less the
aggregate amount of such required repayment.
If, upon the expiration of any Interest Period applicable to a
Borrowing of Eurodollar Loans, the Borrower has failed to elect, or is not
permitted to elect, a new Interest Period to be applicable to such Eurodollar
Loans as provided above, the Borrower shall be deemed to have elected to convert
such Eurodollar Loans into Prime Rate Loans effective as of the expiration date
of such current Interest Period.
1.10. Increased Costs, Illegality, etc.
(a) In the event that the Lender shall have determined (which
determination shall, absent manifest error, be final and conclusive and binding
upon the Borrower):
(i) on any Interest Determination Date that, by reason of
any changes arising after the date of this Agreement affecting the interbank
Eurodollar market, adequate and fair means do not exist for ascertaining the
applicable interest rate on the basis provided for in the definition of
Eurodollar Rate; or
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<PAGE>
(ii) at any time, that the Lender shall incur increased
costs or reductions in the amounts received or receivable hereunder with respect
to any Eurodollar Loan because of (x) any change since the date of this
Agreement in any applicable law or governmental rule, regulation, order,
guideline or request (whether or not having the force of law) or in the
interpretation or administration thereof and including the introduction of any
new law or governmental rule, regulation, order, guideline or request, such as,
for example, but not limited to: (A) a change in the basis of taxation of
payment to the Lender of the principal of or interest on the Notes or any other
amounts payable hereunder (except for changes in the rate of tax on, or
determined by reference to, the net income or profits of the Lender pursuant to
the laws of the jurisdiction in which it is organized or in which its principal
office or applicable lending office is located or any subdivision thereof or
therein) or (B) a change in official reserve requirements, but, in all events,
excluding reserves required under Regulation D to the extent included in the
computation of the Eurodollar Rate and/or (y) other circumstances since the date
of this Agreement affecting the Lender or the interbank Eurodollar market or the
position of the Lender in such market; or
(iii) at any time, that the making or continuance of any
Eurodollar Loan has been made (x) unlawful by any law or governmental rule,
regulation or order, (y) impossible by compliance by the Lender in good faith
with any governmental request (whether or not having force of law) or (z)
impracticable as a result of a contingency occurring after the date of this
Agreement which materially and adversely affects the interbank Eurodollar
market;
then, and in any such event, the Lender shall promptly give notice (by telephone
promptly confirmed in writing) to the Borrower. Thereafter (x) in the case of
clause (i) above, Eurodollar Loans shall no longer be available until such time
as the Lender notifies the Borrower that the circumstances giving rise to such
notice by the Lender no longer exist, and any Notice of Borrowing or Notice of
Conversion/Continuation given by the Borrower with respect to Eurodollar Loans
which have not yet been incurred (including by way of conversion) shall be
deemed rescinded by the Borrower, (y) in the case of clause (ii) above, the
Borrower shall pay to the Lender, within 15 days of the Lender's written request
therefor, such additional amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as the Lender in its sole
discretion shall determine) as shall be required to compensate the Lender for
such increased costs or reductions in amounts received or receivable hereunder
(a written notice as to the additional amounts owed to the Lender, showing in
reasonable detail the basis for the calculation thereof, submitted to the
Borrower by the Lender shall, absent manifest error, be final and conclusive and
binding on all the parties hereto) and (z) in the case of clause (iii) above,
the Borrower shall take one of the actions specified in Section 1.10(b) as
promptly as possible and, in any event, within the time period required by law.
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(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected by the circumstances described in
Section 1.10(a)(iii) shall) either (x) if the affected Eurodollar Loan is then
being made initially or pursuant to a conversion or continuation, by giving the
Lender telephonic notice (confirmed in writing) on the same date that the
Borrower was notified by the Lender pursuant to Section 1.10(a)(ii) or (iii) or
(y) if the affected Eurodollar Loan is then outstanding, upon at least three
Business Days' written notice to the Lender, require the Lender to convert such
Eurodollar Loan into a Prime Rate Loan.
(c) If at any time after the date of this Agreement the Lender
determines that the introduction of or any change (which introduction or change
shall have occurred after the date of this Agreement) in any applicable law or
governmental rule, regulation, order, guideline, directive or request (whether
or not having the force of law) concerning capital adequacy, or any change in
interpretation or administration thereof by any governmental authority, central
bank or comparable agency, will have the effect of increasing the amount of
capital required or expected to be maintained by the Lender or any corporation
controlling the Lender based on the existence of the Lender's Commitments
hereunder or its obligations hereunder, then the Borrower shall pay to the
Lender, upon its written demand therefor, such additional amounts as shall be
required to compensate the Lender or such other corporation for the increased
cost to the Lender or such other corporation or the reduction in the rate of
return to the Lender or such other corporation as a result of such increase of
capital. In determining such additional amounts, the Lender will act reasonably
and in good faith and will use averaging and attribution methods which are
reasonable, provided that the Lender's determination of compensation owing under
this Section 1.10(c) shall, absent manifest error, be final and conclusive and
binding on all the parties hereto. The Lender, upon determining that any
additional amounts will be payable pursuant to this Section 1.10(c), will give
prompt written notice thereof to the Borrower, which notice shall show in
reasonable detail the basis for calculation of such additional amounts.
1.11. Compensation. The Borrower shall compensate the Lender, within
15 days of its written request (which request shall set forth in reasonable
detail the basis for requesting such compensation), for all reasonable losses,
expenses and liabilities (including, without limitation, any loss, expense or
liability incurred by reason of the liquidation or reemployment of deposits or
other funds required by the Lender to fund its Eurodollar Loans but excluding
loss of anticipated profits) which the Lender may sustain: (i) if for any reason
(other than a default by the Lender) a Borrowing of, or conversion or
continuation from or into, Eurodollar Loans does not occur on a date specified
therefor in a Notice of Borrowing or Notice of Conversion/Continuation (whether
or not withdrawn by the Borrower or deemed withdrawn pursuant to Section
1.10(a)); (ii) if any repayment (including any repayment made pursuant to
Section 4.2 or as a result of an acceleration of the Loans pursuant to Section
10) or conversion or continuation of any of its Eurodollar
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Loans occurs on a date which is not the last day of an Interest Period with
respect thereto; (iii) if any prepayment of any of its Eurodollar Loans is not
made on any date specified in a notice of prepayment given by the Borrower; or
(iv) as a consequence of (x) any other default by the Borrower to repay its
Loans when required by the terms of this Agreement or any Note held by the
Lender or (y) any election made pursuant to Section 1.10(b).
1.12. Change of Lending Office. The Lender agrees that on the
occurrence of any event giving rise to the operation of Section 1.10(a)(ii) or
(iii), Section 1.10(c), Section 2.6 or Section 4.4 with respect to the Lender,
it will, if requested by the Borrower, use reasonable efforts (subject to
overall policy considerations of the Lender) to designate another lending office
for any Loans or the Letter of Credit affected by such event, provided that such
designation is made on such terms that the Lender and its lending office suffer
no economic, legal or regulatory disadvantage, with the object of avoiding the
consequence of the event giving rise to the operation of such Section. Nothing
in this Section 1.12 shall affect or postpone any of the obligations of the
Borrower or the right of the Lender provided in Sections 1.10, 2.6 and 4.4.
SECTION 2.1. Letter of Credit.
2.1. Letters of Credit.
(a) Subject to and upon the terms and conditions set forth
herein, the Borrower may request that the Lender issue, at any time and from
time to time on and after the Initial Borrowing Date and prior to the third
Business Day prior to the Revolving Loan Maturity Date for the account of the
Borrower, the Letter of Credit. The Letter of Credit shall be denominated in
Dollars.
(b) The Lender hereby agrees that it will, at any time and from
time to time on and after the Initial Borrowing Date and prior to the third
Business Day prior to the Revolving Loan Maturity Date, following its receipt of
the respective Letter of Credit Request, issue for the account of the Borrower,
subject to the terms and conditions of this Agreement, the Letter of Credit,
provided that the Lender shall be under no obligation to issue the Letter of
Credit if at the time of such issuance, any order, judgment or decree of any
governmental authority or arbitrator shall purport by its terms to enjoin or
restrain the Lender from issuing such Letter of Credit or any requirement of law
applicable to the Lender or any request or directive (whether or not having the
force of law) from any governmental authority with jurisdiction over the Lender
shall prohibit, or request that the Lender refrain from, the issuance of letters
of credit generally or such Letter of Credit in particular or shall impose upon
the Lender with respect to such Letter of Credit any restriction or reserve or
capital requirement (for which the Lender is not otherwise compensated) not in
effect on the date hereof, or any unreimbursed loss, cost or expense
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which was not applicable, in effect or known to the Lender as of the date hereof
and which the Lender reasonably and in good faith deems material to it.
2.2. Maximum Letter of Credit Outstandings; Final Maturities.
Notwithstanding anything to the contrary contained in this Agreement, the
initial Stated Amount of the Letter of Credit shall be 5,000,000 Singapore
Dollars.
2.3. Letter of Credit Requests; Minimum Stated Amount
(a) Whenever the Borrower desires that the Letter of Credit be
issued for its account, the Borrower shall give the Lender at least three
Business Days' written notice thereof. The notice shall be in the form of
Exhibit C (the "Letter of Credit Request").
(b) The making of each Letter of Credit Request shall be deemed
to be a representation and warranty by the Borrower that such Letter of Credit
may be issued in accordance with, and will not violate the requirements of,
Section 2.2, and the Lender may issue the requested Letter of Credit for the
account of the Borrower in accordance with the Lender's usual and customary
practices.
2.4. [INTENTIONALLY LEFT BLANK]
2.5. Agreement to Repay Letter of Credit Drawings.
(a) The Borrower hereby agrees to reimburse the Lender, by making
payment to the Lender in immediately available funds at the Payment Office, for
any payment or disbursement made by the Lender under the Letter of Credit (each
such amount, so paid until reimbursed, an "Unpaid Drawing"), immediately after,
and in any event on the date of, such payment or disbursement, with interest on
the amount so paid or disbursed by the Lender, to the extent not reimbursed
prior to 12:00 Noon (Stamford, Connecticut time) on the date of such payment or
disbursement, from and including the date paid or disbursed to but excluding the
date the Lender was reimbursed by the Borrower therefor at a rate per annum
which shall be the Prime Rate in effect from time to time plus the Applicable
Margin for Revolving Loans maintained as Prime Rate Loans, provided, however, to
the extent such amounts are not reimbursed prior to 12:00 Noon (Stamford,
Connecticut time) on the third Business Day following the receipt by the
Borrower of notice of such payment or disbursement or the occurrence of a
Default or an Event of Default under Section 10.5, interest shall thereafter
accrue on the amounts so paid or disbursed by the Lender (and until reimbursed
by the Borrower) at a rate per annum which shall be the Prime Rate in effect
from time to time plus the Applicable Margin for Revolving Loans maintained as
Prime Rate Loans plus 2%, in each such case, with interest to be payable on
demand. The Lender shall give the Borrower prompt written notice of each Drawing
under the Letter of Credit, provided that the failure to give any such notice
shall in no way affect, impair or diminish the Borrower's obligations hereunder.
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(b) The obligations of the Borrower under this Section 2.5 to
reimburse the Lender with respect to Unpaid Drawings (including, in each case,
interest thereon) shall be absolute and unconditional under any and all
circumstances and irrespective of any setoff, counterclaim or defense to payment
which the Borrower may have or have had against the Lender, including, without
limitation, any defense based upon the failure of any drawing under the Letter
of Credit (each a "Drawing") to conform to the terms of the Letter of Credit or
any nonapplication or misapplication by the beneficiary of the proceeds of such
Drawing; provided, however, that the Borrower shall not be obligated to
reimburse the Lender for any wrongful payment made by the Lender under the
Letter of Credit as a result of acts or omissions constituting willful
misconduct or gross negligence on the part of the Lender.
2.6. Increased Costs. If at any time after the date of this Agreement,
the introduction of or any change in any applicable law, rule, regulation,
order, guideline or request or in the interpretation or administration thereof
by any governmental authority charged with the interpretation or administration
thereof, or compliance by the Lender with any request or directive by any such
authority (whether or not having the force of law), shall either (i) impose,
modify or make applicable any reserve, deposit, capital adequacy or similar
requirement against letters of credit issued by the Lender, or (ii) impose on
the Lender any other conditions relating, directly or indirectly, to this
Agreement; and the result of any of the foregoing is to increase the cost to the
Lender of issuing, maintaining or participating in the Letter of Credit, or
reduce the amount of any sum received or receivable by the Lender or reduce the
rate of return on its capital with respect to the Letter of Credit (except for
changes in the rate of tax on, or determined by reference to, the net income or
profits of the Lender pursuant to the laws of the jurisdiction in which it is
organized or in which its principal office or applicable lending office is
located or any subdivision thereof or therein), then, within 15 days of the
delivery of the certificate referred to below to the Borrower by the Lender, the
Borrower shall pay to the Lender such additional amount or amounts as will
compensate the Lender for such increased cost or reduction in the amount
receivable or reduction on the rate of return on its capital. The Lender, upon
determining that any additional amounts will be payable pursuant to this Section
2.6, will give prompt written notice thereof to the Borrower, which notice shall
include a certificate submitted to the Borrower by the Lender, setting forth in
reasonable detail the basis for the calculation of such additional amount or
amounts necessary to compensate the Lender. The certificate required to be
delivered pursuant to this Section 2.6 shall, absent manifest error, be final
and conclusive and binding on the Borrower.
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SECTION 3. Commitment Commission; Fees; Reductions of Commitment.
3.1. Fees.
(a) The Borrower agrees to pay to the Lender an amount equal to
$37,500 in consideration of the Lender's extension of the Term Loan.
(b) The Borrower agrees to pay to the Lender a commitment
commission (the "Commitment Commission") for the period from and including the
Initial Borrowing Date to but excluding the Revolving Loan Maturity Date (or
such earlier date as the Revolving Loan Commitment shall have been terminated),
computed at a rate equal to one-quarter of one percent (0.25%) per annum on the
Revolving Loan Commitment less Letter of Credit Outstandings. Accrued Commitment
Commission shall be due and payable annually in advance on the date hereof and
on each anniversary of the date hereof.
(c) The Borrower agrees to pay to the Lender a facing fee in
respect of the Letter of Credit (the "Facing Fee"), for the period from and
including the date of issuance of such Letter of Credit to and including the
date of the termination of such Letter of Credit, computed at a rate equal to
one percent (1%) per annum of the daily Stated Amount of such Letter of Credit,
provided, that in any event the minimum amount of the Facing Fee payable in any
12 month period for each Letter of Credit shall be $500 (it being agreed that,
on each anniversary of the issuance of any Letter of Credit or upon any earlier
termination or expiration of a Letter of Credit, if $500 exceeds the amount of
Facing Fees theretofore paid or then accrued with respect to such Letter of
Credit, in either case after the date of the issuance thereof or, if later,
after the date of the last anniversary of the issuance thereof (but excluding
any amounts paid after such anniversary with respect to periods ending on or
prior to such anniversary, including without limitation as a result of the
operation of this parenthetical), the amount of such excess shall be payable on
the next date upon which accrued Facing Fees are otherwise payable with respect
to the Letter of Credit as provided in the following sentence). Except as
otherwise provided in the proviso to the immediately preceding sentence, accrued
Facing Fees payable with respect to the Letter of Credit shall be due and
payable quarterly in arrears on each Quarterly Payment Date and upon the first
day after the termination of the Total Revolving Loan Commitment upon which the
Letter of Credit is no longer outstanding.
(d) The Borrower shall pay, upon each drawing under, issuance of,
or amendment to, any Letter of Credit, such amount as shall at the time of such
event be the administrative charge and the reasonable expenses which the Lender
is generally imposing in connection with such occurrence with respect to letters
of credit.
(e) The Borrower shall pay to the Lender such other fees as have
been agreed to in writing by the Borrower and the Lender.
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3.2. Voluntary Termination of Revolving Loan Commitment.
Upon at least one Business Day's prior notice to the Lender at
its Notice Office, the Borrower shall have the right, at any time or from time
to time, without premium or penalty, to terminate the Revolving Loan Commitment,
in whole or in part, in integral multiples of $1,000,000 in the case of partial
reductions to the Revolving Loan Commitment.
3.3. Mandatory Reduction of Commitments.
(a) The Term Loan Commitment shall terminate in its entirety on
the Initial Borrowing Date (after giving effect to the making of the Term Loan
on such date).
(b) In addition to any other mandatory commitment reductions
pursuant to in Section 4.2, the Revolving Loan Commitment shall terminate in its
entirety on the Revolving Loan Maturity Date.
SECTION 4. Prepayments; Payments; Taxes.
4.1. Voluntary Prepayments.
The Borrower shall have the right to prepay the Loans, without
premium or penalty, in whole or in part at any time and from time to time on the
following terms and conditions: (i) the Borrower shall give the Lender prior to
12:00 Noon (Stamford, Connecticut time) at its Notice Office (x) at least one
Business Day's prior written notice (or telephonic notice promptly confirmed in
writing) of its intent to prepay Prime Rate Loans and (y) at least three
Business Days' prior written notice (or telephonic notice promptly confirmed in
writing) of its intent to prepay Eurodollar Loans, whether the Term Loan or the
Revolving Loans shall be prepaid, the amount of such prepayment and the Types of
Loans to be prepaid and, in the case of Eurodollar Loans, the specific Borrowing
or Borrowings pursuant to which made; (ii) each prepayment shall be in an
aggregate principal amount of at least $250,000, provided that if any partial
prepayment of Eurodollar Loans made pursuant to any Borrowing shall reduce the
outstanding Eurodollar Loans made pursuant to such Borrowing to an amount less
than the Minimum Borrowing Amount applicable thereto, then such Borrowing may
not be continued as a Borrowing of Eurodollar Loans and any election of an
Interest Period with respect thereto given by the Borrower shall have no force
or effect; (iii) prepayments of Eurodollar Loans made pursuant to this Section
4.1(a) may only be made on the last day of an Interest Period applicable
thereto; (iv) each prepayment in respect of any Loans made pursuant to a
Borrowing shall be applied pro rata among such Loans; and (v) each voluntary
prepayment
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of the Term Loan pursuant to this Section 4.1(a) shall be applied to reduce the
then remaining Term Loan Scheduled Repayments, in the inverse order of maturity.
4.2. Mandatory Repayments and Commitment Reductions.
(a) On any day on which the sum of the aggregate outstanding
principal amount of the Revolving Loans and the Letter of Credit Outstandings
exceeds the Revolving Loan Commitment as then in effect, the Borrower shall
prepay on such day, principal of Revolving Loans in an amount equal to such
excess. If, after giving effect to the prepayment of all outstanding Revolving
Loans, the aggregate amount of the Letter of Credit Outstandings exceeds the
Revolving Loan Commitment as then in effect, the Borrower shall pay to the
Lender at the Payment Office on such day an amount of cash or Cash Equivalents
equal to the amount of such excess (up to a maximum amount equal to the Letter
of Credit Outstandings at such time), such cash or Cash Equivalents to be held
as security for all obligations of the Borrower hereunder in a cash collateral
account to be established by the Lender.
(b) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.2, on each date set forth below, the
Borrower shall be required to repay the principal amount of the Term Loan, to
the extent then outstanding, as is set forth opposite such date (each such
repayment a "Term Loan Scheduled Repayment," and each such date, a "Term Loan
Scheduled Repayment Date"):
Term Loan
Scheduled Repayment Date Amount
---------------------------- --------
March 1, 1997, and the $350,000
first day of each succeeding
calendar month
(c) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.2, on each date after the Effective Date
upon which the Borrower or any of its Subsidiaries receives any cash proceeds
from any capital contribution or any sale or issuance of its equity (other than
proceeds received from employees exercising their rights under the various stock
option plans maintained by the Borrower, an amount equal to 50% of the cash
proceeds of such capital contribution or sale or issuance (net of underwriting
or placement discounts and commissions and other reasonable costs and expenses
associated therewith) shall be applied as a mandatory repayment of principal of
the Term Loan in accordance with the requirements of Sections 4.2(g) and (h).
(d) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.2, on each date after the Effective Date
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upon which the Borrower or any of its Subsidiaries receives any cash proceeds
from any incurrence by the Borrower or any of its Subsidiaries of Indebtedness
for borrowed money (other than Indebtedness for borrowed money permitted to be
incurred pursuant to Section 9.5 as such Section is in effect on the Effective
Date), an amount equal to 100% of the cash proceeds of the respective incurrence
of Indebtedness (net of underwriting or placement discounts and commissions and
other reasonable costs associated therewith) shall be applied as a mandatory
repayment of principal of the Term Loan in accordance with the requirements of
Section 4.2(g) and (h).
(e) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.2, on each date after the Effective Date
upon which the Borrower or any of its Subsidiaries receives cash proceeds from
any sale of assets (including capital stock and securities held thereby but
excluding sales of assets permitted by Section 9.2(b), (e) and (f)), an amount
equal to 100% of the Net Sale Proceeds therefrom shall be applied as a mandatory
repayment of principal of the Term Loan in accordance with the requirements of
Sections 4.2(g) and (h) but only to the extent that such sales proceeds exceed
the aggregate of $750,000 in any fiscal year of the Borrower, provided that with
respect to such sales, the Borrower delivers a certificate to the Lender on or
prior to such date stating that such Net Sale Proceeds shall be used to purchase
replacement assets within 180 days following the date of such asset sale (which
certificate shall set forth the estimates of the proceeds to be so expended).
(f) In addition to any other mandatory repayments or commitment
reductions pursuant to this Section 4.2, within 10 days following each date
after the Effective Date upon which the Borrower or any of its Subsidiaries
receives any cash proceeds from any Recovery Event, an amount equal to 100% of
the cash proceeds of such Recovery Event (net of reasonable costs and taxes
incurred in connection with such Recovery Event) shall be applied as a mandatory
repayment of principal of the Term Loan in accordance with the requirements of
Sections 4.2(g) and (h), provided that so long as no Default or Event of Default
then exists (x) and such proceeds do not exceed $250,000 in any fiscal year of
the Borrower, such proceeds shall not be required to be so applied on such date
and the Borrower shall be entitled to retain such proceeds, (y) and such
proceeds exceed $250,000 but are less than $2,500,000 in any fiscal year of the
Borrower, such proceeds shall not be required to be so applied on such date to
the extent that the Borrower has delivered a certificate to the Lender on or
prior to such date stating that such proceeds shall be used to replace or
restore any properties or assets in respect of which such proceeds were paid
within 360 days following the date of the receipt of such proceeds (which
certificate shall set forth the estimates of the proceeds to be so expended),
and (z) and such proceeds equal or exceed $2,500,000 in any fiscal year of the
Borrower, then the entire amount shall be applied as a mandatory repayment of
the Term Loan as provided above in this Section 4.2(f) and if all or any portion
of such proceeds not required to be applied to the repayment of the Term Loan
pursuant to the preceding clause (y) are not so used within 360 days after the
date of the receipt of such proceeds, such remaining portion
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shall be applied on the last day of such period as a mandatory repayment of
principal of the Term Loan as provided above in this Section 4.2(f) without
regard to the preceding clause (y).
(g) With respect to each repayment of Loans required by this
Section 4.2, the Borrower may designate the Types of Loans which are to be
repaid and, in the case of Eurodollar Loans, the specific Borrowing or
Borrowings pursuant to which made, provided that: (i) repayments of Eurodollar
Loans pursuant to this Section 4.2 may only be made on the last day of an
Interest Period applicable thereto unless all Eurodollar Loans with Interest
Periods ending on such date of required repayment and all Prime Rate Loans have
been paid in full; (ii) if any repayment of Eurodollar Loans made pursuant to a
single Borrowing shall reduce the outstanding Eurodollar Loans made pursuant to
such Borrowing to an amount less than the Minimum Borrowing Amount applicable
thereto, such Borrowing shall be converted at the end of the then current
Interest Period into a Borrowing of Prime Rate Loans; and (iii) each repayment
of any Loans made pursuant to a Borrowing shall be applied pro rata among such
Loans. In the absence of a designation by the Borrower as described in the
preceding sentence, the Lender shall, subject to the above, make such
designation in its sole discretion.
(h) Any amount required to be applied to the Term Loan pursuant
to Sections 4.2(c), (d), (e) and (f) shall be applied to repay the outstanding
principal amount of the Term Loan then outstanding. The amount of each principal
repayment of the Term Loan made as required by said Sections 4.2(c), (d), (e)
and (f) shall be applied to reduce the then remaining Term Loan Scheduled
Repayments in the inverse order of maturity.
(i) Notwithstanding anything to the contrary contained in this
Agreement or in any other Credit Document, all then outstanding Loans shall be
repaid in full on the respective Maturity Date for such Loans.
(j) The Borrower authorizes the Lender to debit any account with
the Lender for any payments due under the Notes. The Borrower certifies that the
Borrower holds legitimate ownership of such accounts and preauthorizes this
periodic debit as part of its right under said ownership.
4.3. Method and Place of Payment. Except as otherwise specifically
provided herein, all payments under this Agreement or any Note shall be made to
the Lender not later than 12:00 Noon (Stamford, Connecticut time) on the date
when due and shall be made in Dollars in immediately available funds at the
Payment Office of the Lender. Whenever any payment to be made hereunder or under
any Note shall be stated to be due on a day which is not a Business Day, the due
date thereof shall be extended to the next succeeding Business Day and, with
respect to payments of principal, interest shall be payable at the applicable
rate during such extension.
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4.4. Net Payments.
All payments made by the Borrower hereunder or under any Note
will be made without setoff, counterclaim or other defense. All such payments
will be made free and clear of, and without deduction or withholding for, any
present or future taxes, levies, imposts, duties, fees, assessments or other
charges of whatever nature now or hereafter imposed by any jurisdiction or by
any political subdivision or taxing authority thereof or therein with respect to
such payments (but excluding, except as provided in the second succeeding
sentence, any tax imposed on or measured by the net income or profits of the
Lender pursuant to the laws of the jurisdiction in which it is organized or the
jurisdiction in which the principal office or applicable lending office of the
Lender is located or any subdivision thereof or therein) and all interest,
penalties or similar liabilities with respect thereto (all such non-excluded
taxes, levies, imposts, duties, fees, assessments or other charges being
referred to collectively as "Taxes"). If any Taxes are so levied or imposed, the
Borrower agrees to pay the full amount of such Taxes, and such additional
amounts as may be necessary so that every payment of all amounts due under this
Agreement or under any Note, after withholding or deduction for or on account of
any Taxes, will not be less than the amount provided for herein or in such Note.
If any amounts are payable in respect of Taxes pursuant to the preceding
sentence, the Borrower agrees to reimburse the Lender, upon the written request
of the Lender, for taxes imposed on or measured by the net income or profits of
the Lender pursuant to the laws of the jurisdiction in which the principal
office or applicable lending office of the Lender is located or under the laws
of any political subdivision or taxing authority of any such jurisdiction in
which the principal office or applicable lending office of the Lender is located
and for any withholding of taxes as the Lender shall determine are payable by,
or withheld from, the Lender in respect of such amounts so paid to or on behalf
of the Lender pursuant to the preceding sentence and in respect of any amounts
paid to or on behalf of the Lender pursuant to this sentence. The Borrower will
furnish to the Lender within 45 days after the date the payment of any Taxes is
due pursuant to applicable law certified copies of tax receipts evidencing such
payment by the Borrower. The Borrower agrees to indemnify and hold harmless the
Lender, and reimburse the Lender upon its written request, for the amount of any
Taxes so levied or imposed and paid by the Lender.
SECTION 5. Conditions Precedent to Initial Credit Events. The
obligation of the Lender to make Loans, and the obligation of the Lender to
issue the Letter of Credit, on the Initial Borrowing Date, is subject at the
time of the making of such Loans or the issuance of the Letter of Credit to the
satisfaction of the following conditions:
5.1. Execution of Agreement; Notes. On or prior to the Initial
Borrowing Date (i) the Effective Date shall have occurred and (ii) the Borrower
shall have delivered to the Lender the Notes executed by the Borrower.
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5.2. Officer's Certificate. On the Initial Borrowing Date, the Lender
shall have received a certificate, dated the Initial Borrowing Date and signed
on behalf of the Borrower by the President or any Vice President of the
Borrower, stating that all of the conditions in Sections 5.6, 5.7, 5.8, 5.14 and
6.1 have been satisfied on such date.
5.3. Opinions of Counsel. On the Initial Borrowing Date, the Lender
shall have received from Salon, Marrow & Dyckman, LLP, counsel to the Credit
Parties, an opinion addressed to the Lender and dated the Initial Borrowing Date
in the form of the attached Exhibit D.
5.4. Corporate Documents; Proceedings; etc.
(a) On the Initial Borrowing Date, the Lender shall have received
a certificate, dated the Initial Borrowing Date, signed by the President or any
Vice President of each Credit Party, and attested to by the Secretary or any
Assistant Secretary of such Credit Party, in the form of Exhibit E with
appropriate insertions, together with copies of the certificate of incorporation
(or equivalent organizational document) and by-laws of such Credit Party and the
resolutions of such Credit Party referred to in such certificate, and the
foregoing shall be reasonably acceptable to the Lender.
(b) All corporate and legal proceedings and all instruments and
agreements in connection with the transactions contemplated by this Agreement
and the other Documents shall be reasonably satisfactory in form and substance
to the Lender, and the Lender shall have received all information and copies of
all documents and papers, including records of corporate proceedings,
governmental approvals, good standing certificates and bring-down telegrams or
facsimiles, if any, which the Lender reasonably may have requested in connection
therewith, such documents and papers where appropriate to be certified by proper
corporate or governmental authorities.
5.5. Employee Benefit Plans; Shareholders' Agreements; Management
Agreements; Collective Bargaining Agreements; Existing Indebtedness Agreements;
Tax Sharing Agreements. On the Initial Borrowing Date, there shall have been
delivered to the Lender true and correct copies, certified as true and complete
by an appropriate officer of the Borrower of:
(i) all "employee benefit plans" as defined in Section 3(3)
of ERISA (other than multiemployer plans as defined in Section 4001(a)(3) of
ERISA), and any other plans or arrangements for the benefit of employees or
senior management of the Borrower or any of its Subsidiaries and any profit
sharing plans and deferred compensation plans of the Borrower or any of its
Subsidiaries (collectively, the "Employee Benefit Plans");
(ii) all agreements entered into by the Borrower or any of
its Subsidiaries governing the terms and relative rights of its capital stock
and any
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agreements entered into by shareholders relating to any such entity with respect
to its capital stock (collectively, the "Shareholders' Agreements");
(iii) all agreements with members of, or with respect to,
the senior management and management of the Borrower or any of its Subsidiaries
(collectively, the "Management Agreements");
(iv) all collective bargaining agreements applying or
relating to any employee of the Borrower or any of its Subsidiaries
(collectively, the "Collective Bargaining Agreements");
(v) all agreements evidencing or relating to Indebtedness
of the Borrower or any of its Subsidiaries which is to remain outstanding after
giving effect to the incurrence of Loans on the Initial Borrowing Date
(collectively, the "Existing Indebtedness Agreements"); and
(vi) all tax sharing, tax allocation and other similar
agreements entered into by the Borrower or any of its Subsidiaries
(collectively, the "Tax Sharing Agreements");
all of which Employee Benefit Plans, Shareholders' Agreements, Management
Agreements, Collective Bargaining Agreements, Existing Indebtedness Agreements
and Tax Sharing Agreements shall be in form and substance reasonably
satisfactory to the Lender.
5.6. Consummation of Acquisition. On the Initial Borrowing Date, (i)
the Acquisition shall have been consummated in accordance with the Acquisition
Documents, (ii) each of the conditions precedent set forth in the Acquisition
Documents shall have been satisfied and not waived (unless waived with the
consent of the Lender, which consent shall not be unreasonably withheld) and
(iii) the Lender shall have received true and correct copies of the Acquisition
Documents, all of which shall be in full force and effect and required to be in
form and substance (including as to all of the terms and conditions thereof)
reasonably satisfactory to the Lender.
5.7. Adverse Change, etc.
(a) On or prior to the Initial Borrowing Date, nothing shall have
occurred (and the Lender shall not have become aware of any facts, conditions or
other information not previously known) which the Lender shall determine could
reasonably be expected to have a material adverse effect on the rights or
remedies of the Lender, or the Lender, or on the ability of any Credit Party to
perform its obligations to the Lender or which could reasonably be expected to
have a material adverse effect on the business, operation, property, assets,
liabilities, condition (financial or otherwise) or prospects of the Acquired
Business, the Borrower or the Borrower and its Subsidiaries taken as a whole.
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(b) All necessary governmental (domestic and foreign) and third
party approvals and/or consents in connection with any Credit Event and the
Acquisition, the other transactions contemplated by the Documents and otherwise
referred to herein or therein (excluding governmental approvals and/or consents
not required to be obtained on or prior to the Initial Borrowing Date) shall
have been obtained and remain in effect, and all applicable waiting periods
shall have expired without any action being taken by any competent authority
which restrains, prevents, or imposes materially adverse conditions upon, the
consummation of any Credit Event and the Acquisition or the other transactions
contemplated by the Documents or otherwise referred to herein or therein.
Additionally, there shall not exist any judgment, order, injunction or other
restraint issued or filed or a hearing seeking injunctive relief or other
restraint pending or notified prohibiting or imposing materially adverse
conditions upon any Credit Event or the Acquisition or the other transactions
contemplated by the Documents.
5.8. Litigation. On the Initial Borrowing Date, no litigation by any
entity (private or governmental) shall be pending or threatened with respect to
this Agreement, any other Document or any documentation executed in connection
herewith or therewith or the transactions contemplated hereby or thereby, or
which the Lender shall determine could reasonably be expected to have a material
adverse effect on the Acquisition or on the business, operations, property,
assets, liabilities, condition (financial or otherwise) or prospects of the
Acquired Business, the Borrower or the Borrowers and its Subsidiaries taken as a
whole.
5.9. Security Agreement. On the Initial Borrowing Date, each Credit
Party shall have duly authorized, executed and delivered a Security Agreement in
the form of Exhibit F-1 or Exhibit F-2, as the case may be (as modified,
supplemented or amended from time to time, collectively the "Security
Agreement") covering all of such Credit Party's present and future Security
Agreement Collateral, together with:
(i) proper Financing Statements (Form UCC-1 or the
equivalent) fully executed for filing under the UCC or other appropriate filing
offices of each jurisdiction as may be necessary or, in the reasonable opinion
of the Lender, desirable to perfect the security interests purported to be
created by the Security Agreement;
(ii) certified copies of Requests for Information or Copies
(Form UCC-11), or equivalent reports, listing all effective financing statements
that name any Credit Party as debtor and that are filed in the jurisdictions
referred to in clause (a) above, together with copies of such other financing
statements that name any Credit Party as debtor (none of which shall cover the
Collateral except to the extent evidencing Permitted Liens or in respect of
which the Lender shall have received termination statements (Form UCC-3) or such
other termination statements as shall be required by local law fully executed
for filing);
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(iii) evidence of the completion of all other recordings and
filings of, or with respect to, the Security Agreement as may be necessary or,
in the reasonable opinion of the Lender, desirable to perfect the security
interests intended to be created by the Security Agreement; and
(iv) evidence that all other actions necessary or, in the
reasonable opinion of the Lender, desirable to perfect and protect the security
interests purported to be created by the Security Agreement have been taken.
5.10. Subsidiary Guaranty. On the Initial Borrowing Date, each
Subsidiary Guarantor shall have duly authorized, executed and delivered a
Subsidiary Guaranty in the form of Exhibit G (as amended, modified or
supplemented from time to time, the "Subsidiary Guaranty").
5.11. Pro Forma Balance Sheet. On or prior to the Initial et Borrowing
Date, the Borrower shall have delivered to the Lender an unaudited pro forma
consolidated balance sheet of the Borrower and its Subsidiaries after giving
effect to the Acquisition and the incurrence of all Indebtedness contemplated
herein and prepared in accordance with generally accepted accounting principles,
which pro forma consolidated balance sheet shall be required to be in form and
substance reasonably satisfactory to the Lender.
5.12. Insurance. On the Initial Borrowing Date, the Borrower shall
cause to be delivered to the Lender evidence of insurance complying with the
requirements of Section 8.3 for the business and properties of the Borrower and
its Subsidiaries, in scope, form and substance reasonably satisfactory to the
Lender and naming the Lender as an additional insured and as loss payee, and
stating that such insurance shall not be cancelled or revised without at least
30 days prior written notice by the insurer to the Lender.
5.13. Fees, etc. On the Initial Borrowing Date, the Borrower shall
have paid to the Lender all costs, fees and expenses (including, without
limitation, legal fees and expenses) payable to the Lender to the extent then
due.
5.14. Satisfaction of Indebtedness. On the Initial Borrowing Date, the
Borrower shall have satisfied in full the indebtedness of the Borrower to the
Lender under the $6,000,000 Term Promissory Note dated as of January 4, 1996.
SECTION 6. Conditions Precedent to All Credit Events. The obligation
of the Lender to make Loans (including Loans made on the Initial Borrowing
Date), and the obligation of the Lender to issue the Letter of Credit if
(including the Letter of Credit issued on the Initial Borrowing Date), is
subject, at the time of each such Credit Event (except as hereinafter
indicated), to the satisfaction of the following conditions:
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6.1. No Default; Representations and Warranties. At the time of each
such Credit Event and also after giving effect thereto (i) there shall exist no
Default or Event of Default and (ii) all representations and warranties of the
Credit Parties contained herein and in the other Credit Documents shall be true
and correct in all material respects with the same effect as though such
representations and warranties had been made on the date of the making of such
Credit Event (it being understood and agreed that any representation or warranty
which by its terms is made as of a specified date shall be required to be true
and correct in all material respects only as of such specified date).
6.2. Notice of Borrowing; Letter of Credit Request.
(a) Prior to the making of each Loan, the Lender shall have
received a Notice of Borrowing meeting the requirements of Section 1.3(a).
(b) Prior to the issuance of the Letter of Credit, the Lender
shall have received the Letter of Credit Request meeting the requirements of
Section 2.3.
The acceptance of the proceeds of each Loan or the making of the
Letter of Credit Request (occurring on the Initial Borrowing Date and
thereafter) shall constitute a representation and warranty by the Borrower to
the Lender that all the conditions specified in Section 5 (with respect to
Credit Events on the Initial Borrowing Date) and in this Section 6 (with respect
to Credit Events on and after the Initial Borrowing Date) and applicable to such
Credit Event exist as of that time. All of the Notes, certificates, legal
opinions and other documents and papers referred to in Section 5 and in this
Section 6, unless otherwise specified, shall be delivered to the Lender and
shall be in form and substance satisfactory to the Lender.
SECTION 7. Representations, Warranties and Agreements. To induce the
Lender to enter into this Agreement and to make the Loans, and issue the Letter
of Credit as provided herein, the Borrower makes the following representations,
warranties and agreements, in each case after giving effect to the Acquisition,
all of which shall survive the execution and delivery of this Agreement and the
Notes and the making of the Loans and issuance of the Letter of Credit, with the
occurrence of each Credit Event on or after the Initial Borrowing Date being
deemed to constitute a representation and warranty that the matters specified in
this Section 7 are true and correct on and as of the Initial Borrowing Date and
in all material respects on the date of each such Credit Event (it being
understood and agreed that any representation or warranty which by its terms is
made as of a specified date shall be required to be true and correct in all
material respects only as of such specified date).
7.1 Corporate and Other Status. Each Credit Party (i) is a duly
organized and validly existing corporation in good standing under the laws of
the jurisdiction of its incorporation, (ii) has the corporate power and
authority to own its property and assets and to transact the business in which
it is engaged and presently
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proposes to engage and (iii) is duly qualified and is authorized to do business
and is in good standing in each jurisdiction where the ownership, leasing or
operation of its property or the conduct of its business requires such
qualifications except for failures to be so qualified which, individually or in
the aggregate, could not reasonably be expected to have a material adverse
effect on the business, operations, property, assets, liabilities, condition
(financial or otherwise) or prospects of the Borrower or the Borrower and its
Subsidiaries taken as a whole.
7.2. Corporate and Other Power and Authority. Each Credit Party has
the corporate power and authority to execute, deliver and perform the terms and
provisions of each of the Documents to which it is party and has taken all
necessary corporate action to authorize the execution, delivery and performance
by it of each of such Documents. Each Credit Party has duly executed and
delivered each of the Documents to which it is party, and each of such Documents
constitutes its legal, valid and binding obligation enforceable in accordance
with its terms, except to the extent that the enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws generally affecting creditors' rights and by equitable
principles (regardless of whether enforcement is sought in equity or at law).
7.3. No Violation. Neither the execution, delivery or performance by
any Credit Party of the Documents to which it is a party, nor compliance by it
with the terms and provisions thereof, (i) will contravene any provision of any
law, statute, rule or regulation or any order, writ, injunction or decree of any
court or governmental instrumentality, (ii) will conflict with or result in any
breach of any of the terms, covenants, conditions or provisions of, or
constitute a default under, or result in the creation or imposition of (or the
obligation to create or impose) any Lien (except pursuant to the Security
Documents) upon any of the property or assets of the Borrower or any of its
Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust,
credit agreement or loan agreement, or any other material agreement, contract or
instrument, to which the Borrower or any of its Subsidiaries is a party or by
which it or any of its property or assets is bound or to which it may be subject
or (iii) will violate any provision of the certificate of incorporation or
by-laws (or equivalent organizational documents) of the Borrower or any of its
Subsidiaries.
7.4. Governmental Approvals. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with ((x)
other than the filing of the Financing Statements relating to the Security
Agreement (each of which shall have been filed or recorded within five days
after the Initial Borrowing Date), (y) the filing, as applicable, with the
Patent and Trademark Office of the Grants attached to the Borrower Security
Agreement and the Subsidiaries Security Agreement as Annexes I and J, and (z)
except as have otherwise been obtained or made on or prior to the Initial
Borrowing Date), or exemption by, any governmental or public body or authority,
or any subdivision thereof, is required to authorize, or is required in
connection with, (i) the
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execution, delivery and performance of any Document or (ii) the legality,
validity, binding effect or enforceability of any such Document.
7.5. Financial Statements; Financial Condition; Undisclosed
Liabilities; Pro Forma Balance Sheet; etc.
(a) The Borrower has furnished to the Lender (i) audited balance
sheets for the Borrower and its Subsidiaries for the fiscal year ended December
31, 1995, and (ii) unaudited statements of operations and income of the Acquired
Business and the Borrower and its Subsidiaries for the fiscal year ended
September 30, 1996. The financial statements listed above fairly present the
results of the operations and financial position of the Acquired Business and
the Borrower and its Subsidiaries for the periods and as of the dates set forth
above, in accordance with generally accepted accounting principles consistently
applied, subject to normal year-end audit adjustments in the case of the
unaudited financial statements listed above. Since December 31, 1995, there has
been no material adverse change in the business, operations, property, assets,
liabilities, condition (financial or otherwise) or prospects of the Borrower or
the Borrower and its Subsidiaries taken as a whole.
(b) (i) On and as of the Initial Borrowing Date, after giving
effect to the Acquisition and to all Indebtedness (including the Loans) being
incurred or assumed and Liens created by the Credit Parties in connection
therewith, (a) the sum of the assets, at a fair valuation, of each of the
Borrower and its Subsidiaries taken as a whole and the Borrower on a stand-alone
basis will exceed its debts; (b) each of the Borrower and its Subsidiaries taken
as a whole and the Borrower on a stand-alone basis has not incurred and does not
intend to incur, and does not believe that they will incur, debts beyond its
ability to pay such debts as such debts mature; and (c) each of the Borrower and
its Subsidiaries taken as a whole and the Borrower on a stand-alone basis will
have sufficient capital with which to conduct its business. For purposes of this
Section 7.5(b), "debt" means any liability on a claim, and "claim" means (i)
right to payment, whether or not such a right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured or (ii) right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured. The amount of contingent liabilities at any time shall be computed
as the amount that, in the light of all the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability.
(c) Except as fully disclosed in the financial statements
delivered pursuant to Section 7.5(a), there were as of the Initial Borrowing
Date no liabilities or obligations with respect to the Borrower or any of its
Subsidiaries of any nature whatsoever (whether absolute, accrued, contingent or
otherwise and whether or not
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due) which, either individually or in aggregate, would be material to the
Borrower or any of its Subsidiaries. As of the Initial Borrowing Date, the
Borrower does not know of any basis for the assertion against it or any of its
Subsidiaries of any liability or obligation of any nature whatsoever that is not
fully disclosed in the financial statements delivered pursuant to Section 7.5(a)
which, either individually or in the aggregate, could reasonably be expected to
be material to the Borrower or any of its Subsidiaries.
(d) On and as of the Initial Borrowing Date, the pro forma
balance sheet referred to in Section 5.11 has been prepared in good faith and is
based on reasonable assumptions and the pro forma balance sheet is not based
upon and it does not include information known to the Borrower to be misleading
in any material respect or which fails to take into account material information
known to the Borrower regarding the matters contained therein. On the Initial
Borrowing Date, the Borrower believes that the pro forma balance sheet is
reasonable, it being understood that nothing contained herein shall constitute a
representation by the Borrower that the results contained therein will in fact
be achieved.
7.6. Litigation. There are no actions, suits or proceedings pending
or, to the best knowledge of the Borrower, threatened (i) with respect to any
Document, (ii) with respect to any material Indebtedness of the Borrower or any
of its Subsidiaries or (iii) that, if determined adversely to the Borrower, any
Subsidiary or the Acquired Businesses, would be likely to materially and
adversely affect the business, operations, property, assets, liabilities,
condition (financial or otherwise) or prospects of the Borrower or the Borrower
and its Subsidiaries (including the Acquired Business) taken as a whole.
7.7. True and Complete Disclosure. All factual information (taken as a
whole) furnished by any Credit Party in writing to the Lender (including,
without limitation, all information contained in the Documents but excluding the
Projections, the representations and warranties as to such Projections which are
set forth in Section 7.5(d)) for purposes of or in connection with this
Agreement, the other Credit Documents or any transaction contemplated herein or
therein is, and all other such factual information (taken as a whole) hereafter
furnished by or on behalf of any Credit Party in writing to the Lender will be,
true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state any
fact necessary to make such information (taken as a whole) not misleading in any
material respect at such time in light of the circumstances under which such
information was provided.
7.8. Use of Proceeds; Margin Regulations.
(a) All proceeds of the Term Loan will be used by the Borrower
(i) to effect the Acquisition by one of its Subsidiaries, (ii) to satisfy
certain indebtedness owed by the Borrower to the Lender under the $6,000,000
Term Promissory Note dated as of January 4, 1996, (iii) for general corporate
and working capital purposes, and (iv) to pay fees and expenses related to the
Acquisition.
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(b) The proceeds of all other Revolving Loans will be used for
the Borrower's and its Subsidiaries' general corporate and working capital
purposes.
(c) No part of the proceeds of any Loan or the Letter of Credit
will be used to purchase or carry any Margin Stock or to extend credit for the
purpose of purchasing or carrying any Margin Stock. Neither the making of any
Loan nor the use of the proceeds thereof nor the occurrence of any other Credit
Event will violate or be inconsistent with the provisions of Regulation G, T, U
or X of the Board of Governors of the Federal Reserve System.
7.9. Tax Returns and Payments. The Borrower and each of its
Subsidiaries have timely filed or caused to be timely filed with the appropriate
taxing authority, all Federal, state and other returns, statements, forms and
reports for taxes (the "Returns") required to be filed by or with respect to the
income, properties or operations of the Borrower and/or any of its Subsidiaries.
The Returns accurately reflect all liability for taxes of the Borrower and its
Subsidiaries for the periods covered thereby. The Borrower and each of its
Subsidiaries have paid all taxes payable by them other than taxes contested in
good faith and for which adequate reserves have been established in accordance
with generally accepted accounting principles. As of the Initial Borrowing Date,
there is no action, suit, proceeding, investigation, audit, or claim now pending
or, to the knowledge of any Credit Party, threatened by any authority regarding
any taxes relating to the Borrower or any of its Subsidiaries. As of the Initial
Borrowing Date, neither the Borrower nor any of its Subsidiaries has entered
into an agreement or waiver or been requested to enter into an agreement or
waiver extending any statute of limitations relating to the payment or
collection of U.S. Federal income taxes of the Borrower or any of its
Subsidiaries, is aware of any agreement or waiver extending any statute of
limitations relating to the payment or collection of other taxes of the Borrower
or any of its Subsidiaries, or is aware of any circumstances that would cause
the taxable years or other taxable periods of the Borrower or any of its
Subsidiaries not to be subject to the normally applicable statute of
limitations. None of the Borrower or any of its Subsidiaries has provided, with
respect to itself or property held by it, any consent under Section 341 of the
Code.
7.10. Compliance with ERISA.
(a) Each Plan is in substantial compliance with ERISA and the
Code; no Reportable Event has occurred with respect to a Plan; no Plan is
insolvent or in reorganization; no Plan has an Unfunded Current Liability; no
Plan has an accumulated or waived funding deficiency or has applied for an
extension of any amortization period within the meaning of Section 412 of the
Code; all contributions required to be made with respect to a Plan and a Foreign
Pension Plan have been timely made; neither the Borrower nor any Subsidiary of
the Borrower nor any ERISA Affiliate has incurred any material liability to or
on account of a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063,
4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971, 4975 or
4980 of
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the Code or expects to incur any liability (including any indirect, contingent
or secondary liability) under any of the foregoing Sections with respect to any
Plan; no proceedings have been instituted to terminate or appoint a trustee to
administer any Plan; no condition exists which presents a material risk to the
Borrower or any Subsidiary of the Borrower or any ERISA Affiliate of incurring a
liability to or on account of a Plan pursuant to the foregoing provisions of
ERISA and the Code; using actuarial assumptions and computation methods
consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate
liabilities of the Borrower and its Subsidiaries and its ERISA Affiliates to all
Plans which are multiemployer plans (as defined in Section 4001(a)(3) of ERISA)
in the event of a complete withdrawal therefrom, as of the close of the most
recent fiscal year of each such Plan ended prior to the date of the most recent
Credit Event; no lien imposed under the Code or ERISA on the assets of the
Borrower or any Subsidiary of the Borrower or any ERISA Affiliate exists or is
likely to arise on account of any Plan; and the Borrower and its Subsidiaries
may cease contributions to or terminate any employee benefit plan maintained by
any of them without incurring any material liability.
(b) Each Foreign Pension Plan has been maintained in substantial
compliance with its terms and with the requirements of any and all applicable
laws, statutes, rules, regulations and orders and has been maintained, where
required, in good standing with applicable regulatory authorities. Neither the
Borrower nor any of its Subsidiaries has incurred any obligation in connection
with the termination of or withdrawal from any Foreign Pension Plan. The present
value of the accrued benefit liabilities (whether or not vested) under each
Foreign Pension Plan, determined as of the end of the most recently ended fiscal
year of the Borrower on the basis of actuarial assumptions, each of which is
reasonable, did not exceed the current value of the assets of such Foreign
Pension Plan allocable to such benefit liabilities.
7.11. The Security Documents.
The provisions of the Security Agreement are effective to create
in favor of the Lender a legal, valid and enforceable security interest in all
right, title and interest of the Credit Parties party thereto in the Security
Agreement Collateral described therein, subject to the provisions of the
Security Agreement, and the Lender has a fully perfected first lien on, and
security interest in, all right, title and interest in all of the Security
Agreement Collateral described therein, subject to no other Liens other than
Permitted Liens. The recordation of the Assignment of Security Interest in U.S.
Patents and Trademarks in the form attached to the Security Agreement in the
United States Patent and Trademark Office together with filings on Form UCC-1
made pursuant to the Security Agreement will create, as may be perfected by such
filing and recordation, a perfected security interest granted to the Lender in
the trademarks and patents covered by the Security Agreement and the recordation
of the Assignment of Security Interest in U.S. Copyrights in the form attached
to the Security Agreement with the United States Copyright Office together with
filings on Form UCC-1 made pursuant to the Security
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Agreement will create, as may be perfected by such filing and recordation, a
perfected security interest granted to the Lender in the copyrights covered by
the Security Agreement.
7.12. Representations and Warranties in Other Documents. All
representations and warranties made by the Credit Parties, and set forth in the
Acquisition Documents were true and correct in all material respects at the time
as of which such representations and warranties were made (or deemed made).
7.13. Properties. The Borrower and each of its Subsidiaries have good
and marketable title to all material properties owned by them, including all
property reflected in the balance sheet referred to in Section 7.5(a) and
acquired pursuant to the Acquisition (except as sold or otherwise disposed of
since the date of such balance sheet in the ordinary course of business), free
and clear of all Liens, other than Permitted Liens.
7.14. Capitalization. On the Initial Borrowing Date and after giving
effect to the Acquisition and the other transactions contemplated hereby, the
authorized capital stock of the Borrower shall consist of 10,000,000 shares of
common stock, $0.10 par value per share of which 6,368,516 are outstanding,
which includes 300,000 of treasury shares. All such outstanding shares have been
duly and validly issued, are fully paid and nonassessable. Except as set forth
on Schedule I and except for options to purchase shares of common stock of the
Borrower issued or to be issued to employees, directors and consultants of the
Borrower and its Subsidiaries the Borrower does not have outstanding any
securities convertible into or exchangeable for its capital stock or outstanding
any rights to subscribe for or to purchase, or any options for the purchase of,
or any agreement providing for the issuance (contingent or otherwise) of, or any
calls, commitments or claims of any character relating to, its capital stock.
7.15. Subsidiaries. After the consummation of the Acquisition, the
Borrower has no Subsidiaries other than those Subsidiaries listed on Schedule
II. Schedule II correctly sets forth, as of the Initial Borrowing Date and after
giving effect to the Acquisition, the percentage ownership (direct or indirect)
of the Borrower in each class of capital stock of each of its Subsidiaries and
also identifies the direct owner thereof.
7.16. Compliance with Statutes, etc. Each of the Borrower and each of
its Subsidiaries is in compliance with all applicable statutes, regulations and
orders of, and all applicable restrictions imposed by, all governmental bodies,
domestic or foreign, in respect of the conduct of its business and the ownership
of its property (including applicable statutes, regulations, orders and
restrictions relating to environmental standards and controls), except such
noncompliances as could not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the business, operations,
property, assets, liabilities, condition (financial or otherwise) or prospects
of the Borrower or the Borrower and its Subsidiaries taken as a whole.
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7.17. Investment Company Act. Neither the Borrower nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
7.18. Public Utility Holding Company Act. Neither the Borrower nor any
of its Subsidiaries is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
7.19. Environmental Matters.
(a) The Borrower and each of its Subsidiaries have complied
with, and on the date of such Credit Event are in compliance with, all
applicable Environmental Laws and the requirements of any permits issued under
such Environmental Laws. There are no pending or, to the best knowledge of the
Borrower, threatened Environmental Claims against the Borrower or any of its
Subsidiaries (including any such claim arising out of the ownership or operation
by the Borrower or any of its Subsidiaries of any Real Property no longer owned
by the Borrower or any of its Subsidiaries) or, to the best knowledge of the
Borrower, any Real Property owned or operated by the Borrower or any of its
Subsidiaries. There are no facts, circumstances, conditions or occurrences with
respect to any Real Property owned or operated by the Borrower or any of its
Subsidiaries (including any Real Property formerly owned or operated by the
Borrower or any of its Subsidiaries but no longer owned by the Borrower or any
of its Subsidiaries) or, to the best knowledge of the Borrower, any property
adjoining or adjacent to any such Real Property that could reasonably be
expected (i) to form the basis of an Environmental Claim against the Borrower or
any of its Subsidiaries or any Real Property owned or operated by the Borrower
or any of its Subsidiaries, or (ii) to cause any Real Property owned or operated
by the Borrower or any of its Subsidiaries to be subject to any restrictions on
the ownership, occupancy or transferability of such Real Property by the
Borrower or any of its Subsidiaries under any applicable Environmental Law.
(b) Hazardous Materials have not at any time been generated,
used, treated or stored on, or transported to or from, any Real Property owned
or operated by the Borrower or any of its Subsidiaries where such generation,
use, treatment or storage has violated or could reasonably be expected to
violate any Environmental Law. Hazardous Materials have not at any time been
Released on or from any Real Property owned or operated by the Borrower or any
of its Subsidiaries where such Release has violated or could reasonably be
expected to violate any applicable Environmental Law.
(c) Notwithstanding anything to the contrary in this Section
7.19, the representations made in this Section 7.19 shall not be untrue unless
the aggregate effect of all violations, claims, restrictions, failures and
noncompliances of the types described above could reasonably be expected to have
a material adverse effect on the
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business, operations, property, assets, liabilities, condition (financial or
otherwise) or prospects of the Borrower or the Borrower and its Subsidiaries
taken as a whole.
7.20. Labor Relations. Neither the Borrower nor any of its
Subsidiaries is engaged in any unfair labor practice that could reasonably be
expected to have a material adverse effect on the Borrower or the Borrower and
its Subsidiaries taken as a whole. There is (i) no unfair labor practice
complaint pending against the Borrower or any of its Subsidiaries or, to the
best knowledge of the Borrower, threatened against any of them, before the
National Labor Relations Board, and no grievance or arbitration proceeding
arising out of or under any collective bargaining agreement is so pending
against the Borrower or any of its Subsidiaries or, to the best knowledge of the
Borrower, threatened against any of them, (ii) no strike, labor dispute,
slowdown or stoppage pending against the Borrower or any of its Subsidiaries or,
to the best knowledge of the Borrower, threatened against the Borrower or any of
its Subsidiaries and (iii) to the best knowledge of the Borrower, no union
representation question existing with respect to the employees of the Borrower
or any of its Subsidiaries, except (with respect to any matter specified in
clause (i), (ii) or (iii) above, either individually or in the aggregate) such
as could not reasonably be expected to have a material adverse effect on the
business, operations, property, assets, liabilities, condition (financial or
otherwise) or prospects of the Borrower or the Borrower and its Subsidiaries
taken as a whole.
7.21. Patents, Licenses, Franchises and Formulas. Each of the Borrower
and each of its Subsidiaries owns all the patents, trademarks, permits, service
marks, trade names, copyrights, licenses, franchises, proprietary information
(including but not limited to rights in computer programs and databases) and
formulas, or rights with respect to the foregoing, and has obtained assignments
of all leases and other rights of whatever nature, necessary for the present
conduct of its business, without any known conflict with the rights of others
which, or the failure to obtain which, as the case may be, could reasonably be
expected to result in a material adverse effect on the business, operations,
property, assets, liabilities, condition (financial or otherwise) or prospects
of the Borrower or the Borrower and its Subsidiaries taken as a whole.
7.22. Indebtedness. Schedule III sets forth a true and complete list
of all Indebtedness of the Borrower and its Subsidiaries as of the Initial
Borrowing Date and which is to remain outstanding after giving effect to the
Acquisition (excluding the Loans and the Letters of Credit, the "Existing
Indebtedness"), in each case showing the aggregate principal amount thereof and
the name of the respective borrower and any Credit Party or any of its
Subsidiaries which directly or indirectly guaranteed such debt.
7.23. Acquisition. At the time of consummation thereof, the
Acquisition shall have been consummated in accordance with the terms of the
respective Documents and all applicable laws. At the time of consummation
thereof, all material consents and approvals of, and filings and registrations
with, and all other actions in respect of, all
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governmental agencies, authorities or instrumentalities required in order to
make or consummate the Acquisition to the extent then required have been
obtained, given, filed or taken and are or will be in full force and effect (or
effective judicial relief with respect thereto has been obtained). All
applicable waiting periods with respect thereto have or, prior to the time when
required, will have, expired without, in all such cases, any action being taken
by any competent authority which restrains, prevents, or imposes material
adverse conditions upon the Acquisition. Additionally, there does not exist any
judgment, order or injunction prohibiting or imposing material adverse
conditions upon the Acquisition, or the occurrence of any Credit Event or the
performance by any Credit Party of its obligations under the Documents to which
it is party. All actions taken by each Credit Party pursuant to or in
furtherance of the Acquisition have been taken in compliance with the respective
Documents and all applicable laws.
SECTION 8. Affirmative Covenants. The Borrower hereby covenants and
agrees that on and after the Effective Date and until the Total Commitments and
the Letter of Credit have terminated and the Loans, the Notes and the Unpaid
Drawings, together with interest, Fees and all other Obligations incurred
thereunder, are paid in full:
8.1. Information Covenants. The Borrower will furnish to the Lender:
(a) Quarterly Financial Statements. Within 60 days after the
close of each of the first three quarterly accounting periods in each fiscal
year of the Borrower, (i) the consolidated and consolidating balance sheets of
the Borrower and its Subsidiaries as at the end of such quarterly accounting
period and the related consolidated and consolidating statements of income and
retained earnings and statement of cash flows for such quarterly accounting
period and for the elapsed portion of the fiscal year ended with the last day of
such quarterly accounting period, in each case setting forth comparative figures
for the related periods in the prior fiscal year, all of which shall be
certified by the Chief Financial Officer of the Borrower, subject to normal
year-end audit adjustments and (ii) management's discussion and analysis of the
important operational and financial developments during the quarterly and
year-to-date periods.
(b) Annual Financial Statements. Within 105 days after the close
of each fiscal year of the Borrower, the consolidated and consolidating balance
sheets of the Borrower and its Subsidiaries as at the end of such fiscal year
and the related consolidated and consolidating statements of income and retained
earnings and of cash flows for such fiscal year setting forth comparative
figures for the preceding fiscal year and certified (x) in the case of the
consolidating financial statements, by the Chief Financial Officer of the
Borrower and (y) in the case of the consolidated financial statements, by
Goldstein Golub Kessler & Co. or such other independent certified public
accountants of recognized national standing reasonably acceptable to the Lender,
together with a report of such accounting firm stating that in the course of its
regular audit of the financial
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statements of the Borrower and its Subsidiaries, which audit was conducted in
accordance with generally accepted auditing standards, such accounting firm
obtained no knowledge of any Default or Event of Default which has occurred and
is continuing or, if in the opinion of such accounting firm such a Default or
Event of Default has occurred and is continuing, a statement as to the nature
thereof.
(c) Management Letters. Promptly after the Borrower's or any of
its Subsidiaries' receipt thereof, a copy of any "management letter" addressed
to the board of directors of the Borrower or such Subsidiary from its certified
public accountants.
(d) Budgets and Projections. (A) No later than January 15 of
each calendar year (except that with respect to the 1997 fiscal year, the date
of delivery shall be February 15, 1997), a budget in form reasonably
satisfactory to the Lender (including budgeted statements of income and sources
and uses of cash and balance sheets) prepared by the Borrower for each of the
months of such fiscal year prepared in detail, accompanied by the statement of
the Chief Financial Officer of the Borrower to the effect that, to the best of
his knowledge, the budget is a reasonable estimate for the period covered
thereby and (B) within 30 days after the close of each fiscal year of the
Borrower, projections for the three consecutive fiscal years first beginning
after the date of the delivery of such projections prepared in summary form, in
each case, of the Borrower and its Subsidiaries, accompanied by the statement of
the Chief Financial Officer of the Borrower to the effect that the projections
have been prepared under his supervision and, to the best of such officer's
knowledge, in good faith and are based on reasonable assumptions (it being
understood that nothing therein shall constitute a representation that the
results forecasted in such projections will in fact be achieved).
(e) Officer's Certificates. At the time of the delivery of the
financial statements provided for in Sections 8.1(b) and (c), a certificate of
the Chief Financial Officer of the Borrower to the effect that, to the best of
such officer's knowledge, no Default or Event of Default has occurred and is
continuing or, if any Default or Event of Default has occurred and is
continuing, specifying the nature and extent thereof, which certificate shall
set forth in reasonable detail the calculations required to establish whether
the Borrower and its Subsidiaries were in compliance with the provisions of
Section 9.4, 9.8 through 9.13, inclusive, at the end of such fiscal quarter or
year, as the case may be.
(f) Notice of Default or Litigation. Promptly, and in any event
within three Business Days after an officer of any Credit Party obtains
knowledge thereof, notice of (i) the occurrence of any event which constitutes a
Default or an Event of Default and (ii) any litigation or governmental
investigation or proceeding pending (x) against the Borrower or any of its
Subsidiaries which if determined adversely to the Borrower or a Subsidiary would
materially and adversely affect the business, operations, property, assets,
liabilities, condition (financial or otherwise) or prospects of the Borrower or
the Borrower
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and its Subsidiaries taken as a whole, (y) with respect to any material
Indebtedness of the Borrower or any of its Subsidiaries or (z) with respect to
any Document.
(g) Other Reports and Filings. Promptly after the filing or
delivery thereof, copies of all financial information, proxy materials and
reports, if any, which the Borrower or any of its Subsidiaries shall publicly
file with the Securities and Exchange Commission or any successor thereto (the
"SEC") or deliver to holders of its Indebtedness pursuant to the terms of the
documentation governing such Indebtedness (or any trustee, agent or other
representative therefor).
(h) Environmental Matters. Promptly upon, and in any event
within 10 Business Days after, an officer of any Credit Party obtains knowledge
thereof, notice of one or more of the following environmental matters, unless
such environmental matters could not, individually or when aggregated with all
other such environmental matters, be reasonably expected to materially and
adversely affect the business, operations, property, assets, liabilities,
condition (financial or otherwise) or prospects of the Borrower or the Borrower
and its Subsidiaries taken as a whole: (i) any pending or threatened
Environmental Claim against the Borrower or any of its Subsidiaries or any Real
Property owned or operated by the Borrower or any of its Subsidiaries; (ii) any
condition or occurrence on or arising from any Real Property owned or operated
by the Borrower or any of its Subsidiaries that (a) results in noncompliance by
the Borrower or any of its Subsidiaries with any applicable Environmental Law or
(b) could reasonably be expected to form the basis of an Environmental Claim
against the Borrower or any of its Subsidiaries or any such Real Property; (iii)
any condition or occurrence on any Real Property owned or operated by the
Borrower or any of its Subsidiaries that could reasonably be expected to cause
such Real Property to be subject to any restrictions on the ownership,
occupancy, use or transferability by the Borrower or any of its Subsidiaries of
such Real Property under any Environmental Law; and (iv) the taking of any
removal or remedial action in response to the actual or alleged presence of any
Hazardous Material on any Real Property owned or operated by the Borrower or any
of its Subsidiaries as required by any Environmental Law or any governmental or
other administrative agency; provided, that in any event the Borrower shall
deliver to each Lender all notices received by the Borrower or any of its
Subsidiaries from any government or governmental agency under, or pursuant to,
CERCLA which identify the Borrower or any of its Subsidiaries as potentially
responsible parties for remediation costs or which otherwise notify the Borrower
or any of its Subsidiaries of potential liability under CERCLA. All such notices
shall describe in reasonable detail the nature of the claim, investigation,
condition, occurrence or removal or remedial action and the Borrower's or such
Subsidiary's response thereto. In addition, the Borrower will provide the Lender
with copies of all communications between the Borrower or any of its
Subsidiaries and any government or governmental agency relating to Environmental
Laws which could reasonably be expected to materially and adversely effect the
business, operations, property, assets, liabilities, condition of the Borrower
(financial or otherwise) or prospects of the Borrower and its
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Subsidiaries taken as a whole, all notice of any Environmental Claims, and such
detailed reports of any such Environmental Claim as may reasonably be requested
by the Lender.
(i) Other Information. From time to time, such other information
or documents (financial or otherwise) with respect to the Borrower or any of its
Subsidiaries as the Lender may reasonably request.
(j) Delivery of Information. The Borrower agrees to deliver to
Fleet National Bank, so long as it is a participant hereunder, with copies of
the information referred to in Section 8.1 at the same time that it delivers
such information to the Lender.
8.2. Books, Records and Inspections. The Borrower will, and will cause
each of its Subsidiaries to, keep proper books of record and accounts in which
full, true and correct entries in conformity with generally accepted accounting
principles and all requirements of law shall be made of all dealings and
transactions in relation to its business and activities. The Borrower will, and
will cause each of its Subsidiaries to, permit officers and designated
representatives of the Lender and any participant hereunder to visit and
inspect, under guidance of officers of the Borrower or such Subsidiary, any of
the properties of the Borrower or such Subsidiary, and to examine the books of
account of the Borrower or such Subsidiary and discuss the affairs, finances and
accounts of the Borrower or such Subsidiary with, and be advised as to the same
by, its and their officers and independent accountants, all at such reasonable
times and intervals and to such reasonable extent as the Lender and any
participant hereunder may reasonably request, all such inspections to be subject
to any binding confidentiality agreement for the benefit of a third party that
prohibits the foregoing. Upon the occurrence and continuance of an Event of
Default, the Borrower will, and will cause each of its Subsidiaries to, permit
officers and designated representatives of the Lender and any participant
hereunder to conduct, at the Borrower's expense, one or more audits of the
accounts receivable and inventories of the Borrower and its Subsidiaries.
8.3. Maintenance of Property; Insurance.
(a) Schedule IV sets forth a true and complete listing of all
insurance maintained by the Borrower and its Subsidiaries as of the Initial
Borrowing Date. The Borrower will, and will cause each of its Subsidiaries to,
(i) keep all property necessary to the business of the Borrower and its
Subsidiaries in reasonably good working order and condition, ordinary wear and
tear excepted, (ii) maintain insurance on all such property in at least such
amounts and against at least such risks as is consistent and in accordance with
industry practice for companies similarly situated owning similar properties in
the same general areas in which the Borrower or any of its Subsidiaries
operates, and (iii) furnish to the Lender, upon written request, full
information as to the insurance carried. At any time that insurance at levels
described on Schedule IV is not being maintained by the Borrower or any
Subsidiary of the Borrower with respect to insurance (other than property or
business interruption insurance), the Borrower will, or
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will cause one of its Subsidiaries to, promptly notify the Lender in writing and
the Borrower or any such Subsidiary, as the case may be, shall obtain such
insurance at such levels to the extent such insurance is reasonably available.
In addition to the requirements of the two immediately preceding sentences, the
Borrower will at all times cause property and business interruption insurance of
the types described in Schedule IV to be maintained (with the same scope of
coverage as that described in Schedule IV) at levels which are at least as great
as the respective amounts described on Schedule IV.
(b) The Borrower will, and will cause each of its Subsidiaries
to, at all times keep its property insured in favor of the Lender, and all
policies or certificates (or certified copies thereof) with respect to such
insurance (and any other insurance maintained by the Borrower and/or the
Guaranty Subsidiaries) (i) shall be endorsed to the Lender's satisfaction for
the benefit of the Lender (including, without limitation, by naming the Lender
as loss payee and/or additional insured), (ii) shall state that such insurance
policies shall not be cancelled or revised without at least 30 days' prior
written notice thereof by the respective insurer to the Lender, (iii) shall
provide that the respective insurers irrevocably waive any and all rights of
subrogation with respect to the Lender, (iv) shall contain the standard
non-contributing mortgage clause endorsement in favor of the Lender with respect
to hazard liability insurance, (v) shall, except in the case of public liability
insurance, provide that any losses shall be payable notwithstanding (A) any act
or neglect of the Borrower or any of the Guaranty Subsidiaries, (B) the
occupation or use of the properties for purposes more hazardous than those
permitted by the terms of the respective policy if such coverage is obtainable
at commercially reasonable rates and is of the kind from time to time
customarily insured against by Persons owning or using similar property and in
such amounts as are customary, (C) any foreclosure or other proceeding relating
to the insured properties or (D) any change in the title to or ownership or
possession of the insured properties and (vi) shall be deposited with the
Lender. If the Borrower or any of its Subsidiaries shall fail to insure its
property in accordance with this Section 8.3, or if the Borrower or any of the
Guaranty Subsidiaries shall fail to so endorse and deposit all policies or
certificates with respect thereto, the Lender shall have the right (but shall be
under no obligation), upon 10 Business Days' prior notice to the Borrower, to
procure such insurance and the Borrower agrees to reimburse the Lender for all
costs and expenses of procuring such insurance.
8.4. Corporate Franchises. The Borrower will, and will cause each of
its Subsidiaries to, do or cause to be done, all things necessary to preserve
and keep in full force and effect its existence and its material rights,
franchises, licenses and patents; provided, however, that nothing in this
Section 8.4 shall prevent (i) sales of assets by the Borrower or any of its
Subsidiaries in accordance with Section 9.2 or (ii) the withdrawal by the
Borrower or any of its Subsidiaries of its qualification as a foreign
corporation in any jurisdiction where such withdrawal could not reasonably be
expected to have a material
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adverse effect on the business, operations, property, assets, liabilities,
condition (financial or otherwise) or prospects of the Borrower or the Borrower
and its Subsidiaries taken as a whole.
8.5. Compliance with Statutes, etc. The Borrower will, and will cause
each of its Subsidiaries to, comply with all applicable statutes, regulations
and orders of, and all applicable restrictions imposed by, all governmental
bodies, domestic or foreign, in respect of the conduct of its business and the
ownership of its property (including applicable statutes, regulations, orders
and restrictions relating to environmental standards and controls), except such
noncompliances as could not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the business, operations,
property, assets, liabilities, condition (financial or otherwise) or prospects
of the Borrower or the Borrower and its Subsidiaries taken as a whole.
8.6. Compliance with Environmental Laws.
(a) The Borrower will comply, and will cause each of its
Subsidiaries to comply, in all material respects with all Environmental Laws
applicable to the ownership or use of its Real Property now or hereafter owned
or operated by the Borrower or any of its Subsidiaries, will promptly pay or
cause to be paid all costs and expenses incurred in connection with such
compliance, and will keep or cause to be kept all such Real Property free and
clear of any Liens imposed pursuant to such Environmental Laws. Neither the
Borrower nor any of its Subsidiaries will generate, use, treat, store, release
or dispose of, or permit the generation, use, treatment, storage, release or
disposal of Hazardous Materials on any Real Property now or hereafter owned or
operated by the Borrower or any of its Subsidiaries, or transport or permit the
transportation of Hazardous Materials to or from any such Real Property, except
for Hazardous Materials generated, used, treated, stored, released or disposed
of at any such Real Properties in compliance in all material respects with all
applicable Environmental Laws and reasonably required in connection with the
operation, use and maintenance of the business or operations of the Borrower or
any of its Subsidiaries.
(b) At the written request of the Lender, which request shall
specify in reasonable detail the basis therefor, at any time and from time to
time, the Borrower will provide, at the sole and reasonable expense of the
Borrower, an environmental site assessment report concerning any Real Property
owned or operated by the Borrower and its Subsidiaries, prepared by an
environmental consulting firm reasonably approved by the Lender, indicating the
presence or absence of Hazardous Materials and the potential cost of any removal
or remedial action in connection with such Hazardous Materials on such Real
Property, provided that in no event shall such request be made more often than
once every two years for any particular Real Property unless either (i) the
Obligations have been declared (or have become) due and payable pursuant to
Section 10 or (ii) the Lender receive notice under Section 8.1(i) of any event
for which
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notice is required to be delivered for any such Real Property. If the Borrower
fails to provide the same within 90 days after such request was made, the Lender
may order the same, the cost of which shall be borne by the Borrower, and the
Borrower shall grant and hereby grants to the Lender and their agents access to
such Real Property and specifically grant the Lender an irrevocable
non-exclusive license, subject to the rights of tenants, to undertake such an
assessment at any reasonable time upon reasonable notice to the Borrower, all at
the sole and reasonable expense of the Borrower.
8.7. ERISA. As soon as possible and, in any event, within 10 days
after the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate
knows or has reason to know of the occurrence of any of the following, the
Borrower will deliver to the Lender a certificate of the chief financial officer
of the Borrower setting forth details as to such occurrence and the action, if
any, that the Borrower, such Subsidiary or such ERISA Affiliate is required or
proposes to take, together with any notices required or proposed to be given to
or filed with or by the Borrower, the Subsidiary, the ERISA Affiliate, the PBGC,
a Plan participant or the Plan administrator with respect thereto: that a
Reportable Event has occurred; that an accumulated funding deficiency has been
incurred or an application could reasonably be expected to be or has been made
to the Secretary of the Treasury for a waiver or modification of the minimum
funding standard (including any required installment payments) or an extension
of any amortization period under Section 412 of the Code with respect to a Plan;
that a contribution required to be made to a Plan or Foreign Pension Plan has
not been timely made; that a Plan has been or could reasonably be expected to be
terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA; that a Plan has an Unfunded Current Liability giving rise to a lien under
ERISA or the Code; that proceedings could reasonably be expected to or have been
instituted to terminate or appoint a trustee to administer a Plan; that a
proceeding has been instituted pursuant to Section 515 of ERISA to collect a
delinquent contribution to a Plan; that the Borrower, any Subsidiary of the
Borrower or any ERISA Affiliate will or could reasonably be expected to incur
any liability (including any contingent or secondary liability) to or on account
of the termination of or withdrawal from a Plan under Section 4062, 4063, 4064,
4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under Section
401(a)(29), 4971, 4975 or 4980 of the Code or Section 409 or 502(i) or 502(l) of
ERISA; or that the Borrower or any Subsidiaries of the Borrower may incur any
material liability pursuant to any employee welfare benefit plan (as defined in
Section 3(1) of ERISA) that provides benefits to retired employees or other
former employees (other than as required by Section 601 of ERISA) or any
employee pension benefit plan (as defined in Section 3(2) of ERISA)). The
Borrower will deliver to the Lender a complete copy of the annual report (Form
5500) of each Plan (including, to the extent required, the related financial and
actuarial statements and opinions and other supporting statements,
certifications, schedules and information) required to be filed with the
Internal Revenue Service. In addition to any certificates or notices delivered
to the Lender pursuant to the first sentence hereof, copies of annual reports
and any material notices received by the Borrower, any Subsidiary of the
Borrower or any ERISA Affiliate with respect to any Plan or Foreign Pension Plan
shall be
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delivered to the Lender no later than 10 days after the date such report has
been filed with the Internal Revenue Service or such notice has been received by
the Borrower, the Subsidiary or the ERISA Affiliate, as applicable.
8.8. End of Fiscal Years; Fiscal Quarters. The Borrower will cause (i)
each of its, and each of its Subsidiaries', fiscal years and fourth fiscal
quarter to end on December 31, and (ii) each of its, and each of its
Subsidiaries', first three fiscal quarters to end on March 31, June 30 and
September 30.
8.9. Performance of Obligations. The Borrower will, and will cause
each of its Subsidiaries to, perform all of its obligations under the terms of
each mortgage, indenture, security agreement and other debt instrument by which
it is bound, except such non-performances as could not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on the
business, operations, property, assets, liabilities, condition (financial or
otherwise) or prospects of the Borrower or the Borrower and its Subsidiaries
taken as a whole.
8.10. Payment of Taxes. The Borrower will pay and discharge or cause
to be paid and discharged, and will cause each of its Subsidiaries to pay and
discharge, all taxes, assessments and governmental charges or levies imposed
upon it or upon its income or profits, or upon any properties belonging to it,
in each case on a timely basis, and all lawful claims which, if unpaid, might
become a lien or charge upon any properties of the Borrower or any of its
Subsidiaries; provided that neither the Borrower nor any of its Subsidiaries
will be required to pay any such tax, assessment, charge, levy or claim which is
being contested in good faith and by appropriate proceedings if it has
maintained adequate reserves with respect thereto in accordance with generally
accepted accounting principles.
8.11. Additional Parties To Subsidiaries Guaranty. Upon the request of
the Lender, the Borrower shall cause each Subsidiary formed after the date of
this Agreement to become a party to the Subsidiary Guaranty and the Subsidiaries
Security Agreement and to execute and deliver to the Lender such instruments and
agreements as the Lender requires in connection therewith.
SECTION 9. Negative Covenants. The Borrower hereby covenants and
agrees that on and after the Effective Date and until the Total Commitments and
the Letter of Credit have terminated and the Loans, Notes and Unpaid Drawings,
together with interest, Fees and all other Obligations incurred hereunder and
thereunder, are paid in full:
9.1. Liens. The Borrower will not, and will not permit any of the
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets (real or personal, tangible or intangible) of
the Borrower or any of the
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Subsidiaries other than ISP, whether now owned or hereafter acquired, or sell
any such property or assets subject to an understanding or agreement, contingent
or otherwise, to repurchase such property or assets (including sales of accounts
receivable with recourse to the Borrower or any of the Subsidiaries other than
ISP), or assign any right to receive income or permit the filing of any
financing statement under the UCC or any other similar notice of Lien under any
similar recording or notice statute, or allow Silicon Materials Service, BV to
grant a "negative pledge" to any other Person; provided that the provisions of
this Section 9.1 shall not prevent the creation, incurrence, assumption or
existence of the following (Liens described below are herein referred to as
"Permitted Liens"):
(a) inchoate Liens for taxes, assessments or governmental
charges or levies not yet due or Liens for taxes, assessments or governmental
charges or levies being contested in good faith and by appropriate proceedings
for which adequate reserves have been established in accordance with generally
accepted accounting principles;
(b) Liens in respect of property or assets of the Borrower or
any of its Subsidiaries imposed by law, which were incurred in the ordinary
course of business and do not secure Indebtedness for borrowed money, such as
carriers', warehousemen's, materialmen's and mechanics' liens and other similar
Liens arising in the ordinary course of business, and (i) which do not in the
aggregate materially detract from the value of the Borrower's or such
Subsidiary's property or assets taken as a whole or materially impair the use
thereof in the operation of the business of the Borrower or such Subsidiary or
(ii) which are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the property
or assets subject to any such Lien;
(c) Liens in existence on the Initial Borrowing Date which are
listed, and the property subject thereto described, in Schedule V, but only to
the respective date, if any, set forth in such Schedule V for the removal,
replacement and termination of any such Liens, plus renewals, replacements and
extensions of such Liens to the extent set forth on Schedule V, provided that
(i) the aggregate principal amount of the Indebtedness, if any, secured by such
Liens does not increase from that amount outstanding at the time of any such
renewal, replacement or extension and (ii) any such renewal, replacement or
extension does not encumber any additional assets or properties of the Borrower
or any of its Subsidiaries;
(d) Liens created pursuant to the Security Documents;
(e) leases or subleases granted to other Persons not materially
interfering with the conduct of the business of the Borrower and its
Subsidiaries taken as a whole;
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(f) Liens upon assets of the Borrower or its Subsidiaries
subject to Capitalized Lease Obligations to the extent such Capitalized Lease
Obligations are permitted by Section 9.5(d), provided that (i) such Liens only
serve to secure the payment of Indebtedness arising under such Capitalized Lease
Obligation and (ii) the Lien encumbering the asset giving rise to the
Capitalized Lease Obligation does not encumber any other asset of the Borrower
or any Subsidiary of the Borrower;
(g) Liens placed upon equipment or machinery used in the
ordinary course of business of the Borrower or any of its Subsidiaries at the
time of acquisition thereof by the Borrower or any such Subsidiary or within 90
days thereafter to secure Indebtedness incurred to pay all or a portion of the
purchase price thereof or to secure Indebtedness incurred solely for the purpose
of financing the acquisition of any such equipment or machinery or extensions,
renewals or replacements of any of the foregoing for the same or a lesser
amount, provided that in all events, the Lien encumbering the equipment or
machinery so acquired does not encumber any other asset of the Borrower or such
Subsidiary;
(h) easements, rights-of-way, restrictions, encroachments and
other similar charges or encumbrances, and minor title deficiencies, in each
case not securing Indebtedness and not materially interfering with the conduct
of the business of the Borrower or any of its Subsidiaries;
(i) Liens arising from precautionary UCC financing statement
filings regarding operating leases permitted under Section 9.4;
(j) Liens arising out of judgments or awards in respect of which
the Borrower or any of its Subsidiaries shall in good faith be prosecuting an
appeal or proceedings for review in respect of which there shall have been
secured a subsisting stay of execution pending such appeal or proceedings
provided that the aggregate amount of all such judgments or awards (and any cash
and the fair market value of any property subject to such Liens) does not exceed
$500,000 at any time outstanding;
(k) statutory and common law landlords' liens under leases to
which the Borrower or any of its Subsidiaries is a party; and
(l) Liens incurred in the ordinary course of business in
connection with workers compensation claims, unemployment insurance and social
security benefits and Liens securing the performance of bids, tenders, leases
and contracts in the ordinary course of business, statutory obligations, surety
bonds, performance bonds and other obligations of a like nature incurred in the
ordinary course of business (exclusive of obligations in respect of the payment
for borrowed money).
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9.2. Consolidation, Merger, Purchase or Sale of Assets, etc. The
Borrower will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease or otherwise dispose of (or agree to do
any of the foregoing at any future time) all or any part of its property or
assets, or enter into any sale-leaseback transactions, or purchase or otherwise
acquire (in one or a series of related transactions) any part of the property or
assets (other than purchases or other acquisitions of inventory, materials and
equipment in the ordinary course of business) of any Person, except that:
(a) Capital Expenditures by the Borrower and its Subsidiaries
shall be permitted to the extent not in violation of Sections 9.8 and 9.13;
(b) each of the Borrower and its Subsidiaries may in the
ordinary course of business sell, lease or otherwise dispose of any assets
which, in the reasonable judgment of such Person, are obsolete, worn out or
otherwise no longer useful in the conduct of such Person's business, provided
that the proceeds of all assets subject to sales or other dispositions pursuant
to this clause (b) shall not exceed $250,000 in any fiscal year of the Borrower;
(c) Investments may be made to the extent permitted by Section
9.6;
(d) each of the Borrower and its Subsidiaries may lease (as
lessee) real or personal property to the extent permitted by Section 9.4 (so
long as any such lease does not create a Capitalized Lease Obligation);
(e) each of the Borrower and its Subsidiaries may make sales of
inventory in the ordinary course of business;
(f) each of the Borrower and its Subsidiaries may sell, lease or
otherwise dispose of any equipment and other assets, to the extent not otherwise
permitted under any other clause of this Section 9.2, at the fair market value
thereof (as determined in good faith by the Borrower), provided that the
proceeds thereof (i) shall consist of at least 90% in cash and (ii) do not
exceed $500,000 in the aggregate in any fiscal year of the Borrower;
(g) the Borrower and one or more of the Subsidiary Guarantors
may merge or consolidate into one another provided that the Borrower is the
surviving entity of any such consolidation or merger, or one or more of the
Subsidiaries may merge or consolidate into one another provided that if a
Subsidiary Guarantor is involved in such merger or consolidation, the Subsidiary
Guarantor is the surviving entity of any such consolidation or merger, and after
giving effect thereto, no Default or Event of Default is caused thereby and the
Borrower and its Subsidiaries execute and deliver such agreements and
instruments deemed reasonably necessary by the Lender; and
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(h) the Acquisition shall be permitted.
To the extent the Lender waives the provisions of this Section 9.2
with respect to the sale of any Collateral, or any Collateral is sold as
permitted by this Section 9.2, such Collateral shall be sold free and clear of
the Liens created by the Security Documents, and the Lender shall be authorized
to take any actions deemed appropriate to effect the foregoing.
9.3. Dividends. The Borrower will not, and will not permit any of its
Subsidiaries to, authorize, declare or pay any Dividends with respect to the
Borrower or any of its Subsidiaries, except that any Subsidiary of the Borrower
(i) may pay cash Dividends to the Borrower or any Wholly-Owned Subsidiary of the
Borrower and (ii) if such Subsidiary is not a Wholly-Owned Subsidiary, may pay
cash Dividends to its shareholders generally so long as the Borrower or its
respective Subsidiary which owns the equity interest or interests in the
Subsidiary paying such Dividends receives at least its proportionate share
thereof (based upon its relative holdings of equity interests in the Subsidiary
paying such Dividends and taking into account the relative preferences, if any,
of the various classes of equity interests in such Subsidiary); and
9.4. Leases. The Borrower will not, and will not permit any of its
Subsidiaries to, permit the aggregate payments (including, without limitation,
any property taxes paid as additional rent or lease payments) made by the
Borrower and its Subsidiaries on a consolidated basis under agreements to rent
or lease any real or personal property (or any extension or renewal thereof)
(excluding Capitalized Lease Obligations) to exceed $1,000,000 in any fiscal
year of the Borrower.
9.5. Indebtedness. The Borrower will not, and will not permit any of
the Subsidiaries (other than ISP) to, contract, create, incur, assume or suffer
to exist any Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the
other Credit Documents;
(b) Indebtedness under Interest Rate Protection Agreements which
the Borrower may enter into with respect to the Loans or other obligations, on
terms acceptable to the Lender;
(c) Indebtedness evidenced by Capitalized Lease Obligations to
the extent permitted pursuant to Section 9.8;
(d) Indebtedness subject to Liens permitted under Section
9.1(g);
(e) Existing Indebtedness outstanding on the Initial Borrowing
Date and listed on Schedule III, without giving effect to any subsequent
extension, renewal
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or refinancing thereof except to the extent set forth on Schedule III, provided
that the aggregate principal amount of the Indebtedness to be extended, renewed
or refinanced does not increase from that amount outstanding at the time of any
such extension, renewal or refinancing;
(f) Indebtedness constituting Intercompany Loans; and
(g) Indebtedness under Other Hedging Agreements providing
protection against fluctuations in currency values in connection with the
Borrower's operations so long as management of the Borrower has determined that
the entering into of such Other Hedging Agreements are bona fide hedging
activities.
9.6. Advances, Investments and Loans. The Borrower will not, and will
not permit any of the Subsidiary Guarantors to, directly or indirectly, lend
money or credit or make advances to any Person, or purchase or acquire any
stock, obligations or securities of, or any other interest in, or make any
capital contribution to, any other Person, or purchase or own a futures contract
or otherwise become liable for the purchase or sale of currency or other
commodities at a future date in the nature of a futures contract, or hold any
cash or Cash Equivalents (each of the foregoing an "Investment" and,
collectively, "Investments"), except that the following shall be permitted:
(a) the Borrower and the Subsidiary Guarantors may acquire and
hold accounts receivables, trade receivables, notes receivables, prepaid
expenses and similar items owing to any of them, if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary terms, and the Borrower and the Subsidiary Guarantors may own
Investments received in connection with the bankruptcy or reorganization of
suppliers and customers and in settlement of delinquent obligations of, and
other disputes with, customers and suppliers arising in the ordinary course of
business;
(b) the Borrower and the Subsidiary Guarantors may acquire and
hold cash and Cash Equivalents;
(c) the Borrower and the Subsidiary Guarantors may receive
non-cash consideration in connection with any asset sale permitted by Section
9.2(f) but only to the extent set forth in such Section 9.2(f);
(d) the Borrower and the Subsidiary Guarantors may hold the
Investments held by them on the Initial Borrowing Date and described on Schedule
VI, provided that any additional Investments made with respect thereto shall be
permitted only if independently justified under the other provisions of this
Section 9.6;
(e) the Borrower and the Subsidiary Guarantors may make loans
and advances in the ordinary course of business to their respective employees so
long as
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the aggregate principal amount thereof at any time outstanding (determined
without regard to any write-downs or write-offs of such loans and advances)
shall not exceed $50,000;
(f) the Borrower may enter into Interest Protection Agreements
to the extent permitted by Section 9.5(b);
(g) the Borrower may enter into Other Hedging Agreements to the
extent permitted by Section 9.5(h); and
(h) the Borrower may make intercompany loans and advances to any
of the Subsidiary Guarantors, and any Subsidiary Guarantor of the Borrower may
make intercompany loans and advances to the Borrower or any other Subsidiary
Guarantor of the Borrower (collectively, "Intercompany Loans").
9.7. Transactions with Affiliates. The Borrower will not, and will not
permit any of its Subsidiaries to, enter into any transaction or series of
related transactions, whether or not in the ordinary course of business, with
any Affiliate of the Borrower or any of its Subsidiaries, other than in the
ordinary course of business and on terms and conditions substantially as
favorable to the Borrower or such Subsidiary as would reasonably be obtained by
the Borrower or such Subsidiary at that time in a comparable arm's-length
transaction with a Person other than an Affiliate, except that the following in
any event shall be permitted: (a) Dividends may be paid to the extent provided
in Section 9.3, (b) loans may be made and other transactions may be entered into
by the Borrower and its Subsidiaries to the extent permitted by Section 9.6, (c)
customary fees may be paid to non-officer directors of the Borrower, (d) options
to purchase common stock of the Borrower may be granted to officers and
directors of the Borrower and its Subsidiaries in the ordinary course of
business, and (e) the Borrower and its Subsidiaries may enter into employment
arrangements with their respective officers in the ordinary course of business.
9.8. Capital Expenditures.
(a) The Borrower and its Subsidiaries, on a consolidated basis,
will not make any Capital Expenditures in excess of $12,625,000 for the 1997
fiscal year (which amount shall exclude any Capital Expenditures related to the
Acquisition and incurred during the 1997 fiscal year), and in excess of
$8,000,000 for each fiscal year thereafter.
(b) In addition to the Capital Expenditures permitted to be made
pursuant to preceding clause (a) of this Section 9.8, the Borrower and its
Subsidiaries may make additional Capital Expenditures with the amount of
insurance proceeds received by the Borrower or any of its Subsidiaries from any
Recovery Event so long as such proceeds are used to replace or restore any
properties or assets in respect of which such proceeds were paid within 360 days
following the date of such Recovery Event (to the extent such proceeds are not
required to be applied pursuant to Section 4.2(h)) and, to the extent
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Capital Expenditures are made as permitted by this clause (b), same shall not
count as Capital Expenditures for purposes of determining compliance with clause
(a) of this Section 9.8.
9.9. Fixed Charge Coverage Ratio. The Borrower, on a consolidated
basis, shall maintain a Fixed Charges Ratio of not less than the ratio set forth
below as at the dates set forth below computed for the Borrower's fiscal years
ending on such dates:
Ratio Date
----- ----
1.2 to 1.0 December 31, 1997
1.3 to 1.0 December 31, 1998
1.3 to 1.0 December 31, 1999
1.4 to 1.0 Each successive fiscal
year end subsequent to
December 31, 1999
9.10. Maximum Leverage Ratio. The Borrower, on a consolidated basis,
shall maintain: (a) as at March 31, 1997, June 30, 1997 and September 30, 1997,
a Leverage Ratio of not more than 2.50 to 1.00; (b) as at December 31, 1997, a
Leverage Ratio of not more than 2.35 to 1.00; and (c) as at the end of each
subsequent fiscal quarter, a Leverage Ratio of not more than 2.00 to 1.00.
9.11. Interest Coverage Ratio. The Borrower, on a consolidated basis,
shall maintain: (a) as at March 31, 1997, computed for the period beginning on
the first day of the 1997 fiscal year and ending on March 31, 1997, an Interest
Coverage Ratio of not less than 2.50 to 1.00; and (b) as at June 30, 1997 and
September 30, 1997, computed for the period beginning on the first day of the
1997 fiscal year and ending on June 30, 1997 and September 30, 1997,
respectively, an Interest Coverage Ratio of not less than 3.75 to 1.00; and (c)
as at the end of each subsequent fiscal quarter, computed for the period
beginning on the first day of the fiscal year in which such quarter occurs and
ending on the last day of such fiscal quarter, an Interest Coverage Ratio of not
less than 4.00 to 1.00.
9.12. Singapore Operations Except for the Letter of Credit to be
issued with respect to ISP, neither the Borrower nor any of its Subsidiaries
will, for each fiscal year period, transfer, directly or indirectly, funds to
ISP in excess of the aggregate of $1,000,000.
9.13. Limitation on Modifications of Certificate of Incorporation,
By-Laws and Certain Other Agreements; etc. on Modifications of Certificate of
Incorporation, By- The Borrower will not, and will not permit any of its
Subsidiaries to, (a) amend, modify or change its certificate of incorporation
(including, without limitation, by the filing or modification of any certificate
of designation) or by-laws or any agreement entered into by it, with respect to
its capital stock (including any Shareholders' Agreement), or enter into any new
agreement with respect to its capital stock unless such amendment, modification,
change or other action contemplated by this clause (a) could not be adverse to
the interests of the Lender under the Credit
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Documents in any material respect or (b) amend, modify or change any provision
of any Tax Sharing Agreement or enter into any new tax sharing agreement, tax
allocation agreement or similar agreement.
9.14. Limitation on Certain Restrictions on Subsidiaries. The Borrower
will not, and will not permit any of the Subsidiary Guarantors to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
encumbrance or restriction on the ability of any such Subsidiary Guarantor to
(a) pay dividends or make any other distributions on its capital stock or any
other interest or participation in its profits owned by the Borrower or any
Subsidiary Guarantor of the Borrower, or pay any Indebtedness owed to the
Borrower or any Subsidiary of the Borrower, (b) make loans or advances to the
Borrower or any Subsidiary Guarantor of the Borrower or (c) transfer any of its
properties or assets to the Borrower or any Subsidiary Guarantor of the
Borrower, except for such encumbrances or restrictions existing under or by
reason of (i) applicable law, (ii) this Agreement and the other Credit
Documents, (iii) customary provisions restricting subletting or assignment of
any lease governing a leasehold interest of the Borrower or any Subsidiary
Guarantor of the Borrower, (iv) customary provisions restricting assignment of
any licensing agreement entered into by the Borrower or any Subsidiary Guarantor
of the Borrower in the ordinary course of business, and (v) restrictions on the
transfer of any asset subject to a Lien permitted by Sections 9.1(c), (g) and
(h).
9.15. Limitation on Issuance of Capital Stock.
(a) The Borrower will not, and will not permit any of the
Subsidiary Guarantors to, issue (i) any preferred stock or (ii) any redeemable
common stock.
(b) The Borrower will not permit any of the Subsidiary
Guarantors to issue any capital stock (including by way of sales of treasury
stock) or any options or warrants to purchase, or securities convertible into,
capital stock, except (i) for transfers and replacements of then outstanding
shares of capital stock, (ii) for stock splits, stock dividends and similar
issuances which do not decrease the percentage ownership of the Borrower or any
of its Subsidiaries in any class of the capital stock of such Subsidiary and
(iii) to qualify directors to the extent required by applicable law.
9.16. Business. The Borrower will not, and will not permit any of its
Subsidiaries to, engage (directly or indirectly) in any business other than the
businesses in which the Borrower and its Subsidiaries are engaged on the Initial
Borrowing Date and reasonable extensions thereof.
9.17. Limitation on Creation of Subsidiaries. Except as contemplated
under the Acquisition Agreement, notwithstanding anything to the contrary
contained in this Agreement, the Borrower will not, and will not permit any of
its Subsidiaries to,
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establish, create or acquire after the Initial Borrowing Date any Subsidiary;
provided that, the Borrower and its Wholly-Owned Subsidiaries shall be permitted
to establish or create Wholly-Owned Subsidiaries so long as, (a) at the request
of the Lender, such new Subsidiary executes a counterpart of the Subsidiary
Guaranty and the Subsidiaries Security Agreement, and (c) such new Subsidiary,
to the extent requested by the Lender, takes all actions required pursuant to
Section 8.11.
SECTION 10. Events of Default. Upon the occurrence of any of the
following specified events (each an "Event of Default"):
10.1. Payments. The Borrower shall default in the payment when due of
any (a) principal of any Loan or any Note, (b) any interest on any Loan or Note,
(c) any Unpaid Drawing, or (d) any Fees or any other amounts owing hereunder or
thereunder; or
10.2. Representations, etc. Any representation, warranty or statement
made by any Credit Party herein or in any other Credit Document or in any
certificate delivered to the Lender pursuant hereto or thereto shall prove to be
untrue in any material respect on the date as of which made or deemed made; or
10.3. Covenants. Any Credit Party shall (a) default in the due
performance or observance by it of any term, covenant or agreement contained in
Sections 8.1(a) or (b), 8.11 or Section 9 or (b) default in the due performance
or observance by it of any other term, covenant or agreement contained in this
Agreement or any other Credit Document (other than those set forth in Sections
10.1, 10.2 and 10.5 hereof which shall automatically constitute and Event of
Default) and such default shall continue unremedied for a period of 30 days
after written notice thereof to the defaulting party by the Lender; or
10.4. Default Under Other Agreements. (a) The Borrower or any of its
Subsidiaries shall (i) default in any payment of any Indebtedness (other than
the Notes) beyond the period of grace, if any, provided in the instrument or
agreement under which such Indebtedness was created or (ii) default in the
observance or performance of any agreement or condition relating to any
Indebtedness (other than the Notes) or contained in any instrument or agreement
evidencing, securing or relating thereto, or any other event shall occur or
condition exist, the effect of which default or other event or condition is to
cause, or to permit the holder or holders of such Indebtedness (or a trustee or
agent on behalf of such holder or holders) to cause (determined without regard
to whether any notice is required), any such Indebtedness to become due prior to
its stated maturity, or (b) any Indebtedness (other than the Notes) of the
Borrower or any of its Subsidiaries shall be declared to be (or shall become)
due and payable, or required to be prepaid other than by a regularly scheduled
required prepayment, prior to the stated maturity thereof; or
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10.5. Bankruptcy, etc. The Borrower or any of its Subsidiaries shall
commence a voluntary case concerning itself under Title 11 of the United States
Code entitled "Bankruptcy," as now or hereafter in effect, or any successor
thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the
Borrower or any of its Subsidiaries, and the petition is not controverted within
15 days, or is not dismissed within 60 days, after commencement of the case; or
a custodian (as defined in the Bankruptcy Code) is appointed for, or takes
charge of, all or substantially all of the property of the Borrower or any of
its Subsidiaries, or the Borrower or any of its Subsidiaries commences any other
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Borrower or any
of its Subsidiaries, or there is commenced against the Borrower or any of its
Subsidiaries any such proceeding which remains undismissed for a period of 60
days, or the Borrower or any of its Subsidiaries is adjudicated insolvent or
Bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or the Borrower or any of its Subsidiaries suffers any
appointment of any custodian or the like for it or any substantial part of its
property to continue undischarged or unstayed for a period of 60 days; or the
Borrower or any of its Subsidiaries makes a general assignment for the benefit
of creditors; or any corporate action is taken by the Borrower or any of its
Subsidiaries for the purpose of effecting any of the foregoing; or
10.6. ERISA. (a) Any Plan shall fail to satisfy the minimum funding
standard required for any plan year or part thereof or a waiver of such standard
or extension of any amortization period is sought or granted under Section 412
of the Code, any Plan, shall have had or is likely to have a trustee appointed
to administer such Plan, any Plan is, shall have been or is likely to be
terminated or to be the subject of termination proceedings under ERISA, any Plan
shall have an Unfunded Current Liability, a contribution required to be made to
a Plan or a Foreign Pension Plan has not been timely made, the Borrower or any
Subsidiary of the Borrower or any ERISA Affiliate has incurred or is likely to
incur a liability to or on account of a Plan under Section 409, 502(i), 502(l),
515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 401(a)(29),
4971, 4975 or 4980 of the Code, or the Borrower or any Subsidiary of the
Borrower has incurred or is likely to incur liabilities pursuant to one or more
employee welfare benefit plans (as defined in Section 3(1) of ERISA) that
provide benefits to retired employees or other former employees (other than as
required by Section 601 of ERISA) or employee pension benefit plans (as defined
in Section 3(2) of ERISA) or Foreign Pension Plans; (b) there shall result from
any such event or events the imposition of a lien, the granting of a security
interest, or a liability or a material risk of incurring a liability; and (c)
which lien, security interest or liability (individually and/or in the
aggregate), could reasonably be expected to have a material adverse effect upon
the business, operations, property, assets, liabilities, condition (financial or
otherwise) or prospects of the Borrower and its Subsidiaries taken as a whole;
or
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10.7. Security Documents. At any time after the execution and delivery
thereof, any of the Security Documents shall cease to be in full force and
effect, or shall cease to give the Lender, the Liens, rights, powers and
privileges purported to be created thereby (including, without limitation, a
perfected security interest in, and Lien on, all of the Collateral, in favor of
the Lender, superior to and prior to the rights of all third Persons (except as
permitted by Section 9.1), and subject to no other Liens (except as permitted by
Section 9.1); or
10.8. Subsidiary Guaranty. At any time after the execution and
delivery thereof, the Subsidiary Guaranty or any provision thereof shall cease
to be in full force or effect as to any Subsidiary Guarantor, or any Subsidiary
Guarantor or any Person acting by or on behalf of such Subsidiary Guarantor
shall deny or disaffirm such Subsidiary Guarantor's obligations under the
Subsidiary Guaranty or any Subsidiary Guarantor shall default in the due
performance or observance of any material term, covenant or agreement on its
part to be performed or observed pursuant to the Subsidiary Guaranty; or
10.9. Judgments. One or more judgments or decrees shall be entered
against the Borrower or any Subsidiary of the Borrower involving in the
aggregate for the Borrower and its Subsidiaries a liability (not paid or fully
covered by a reputable and solvent insurance company) and such judgments and
decrees either shall be final and non-appealable or shall not be vacated,
discharged or stayed or bonded pending appeal for any period of 30 consecutive
days, and the aggregate amount of all such judgments exceeds $250,000; or
10.10. Change in Management Gilbert Raker or Andrew Lozyniak shall
fail to be involved in the active daily senior management of the Borrower and
such failure shall continue for 120 days unless, prior to the end of such
120-day period, the Borrower shall have replaced either Mr. Raker or Mr.
Lozyniak, as the case may be, with an individual reasonably acceptable to the
Lender;
then, upon such occurrence, (a) if such event is an Event of Default specified
in Section 10.5, the Commitments shall immediately terminate and the Loans
hereunder (with accrued interest thereon) and all other amounts owing under this
Agreement shall immediately become due and payable, and (b) if such event is any
other Event of Default, either or both of the following actions may be taken:
(i) the Lender may, by notice to the Borrower declare the Commitments to be
terminated forthwith, whereupon the Commitments shall immediately terminate; and
(ii) the Lender may, by notice to the Borrower, declare the Loans hereunder
(with accrued interest thereon) and all other amounts owing under this Agreement
to be due and payable forthwith, whereupon the same shall immediately become due
and payable and, upon the occurrence of an event under clause (a) or clause (b)
above, the Borrower shall either (x) cause the Letter of Credit to be cancelled
and deliver to the Lender a statement from the beneficiary of the Letter of
Credit that such Letter of Credit is cancelled or (y) deliver to the Lender in
immediately available funds an
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amount equal to 110% of the Letter of Credit Outstandings to be held by the
Lender as cash collateral in connection therewith (and which the Lender shall
return to the Borrower upon the cancellation of the Letter of Credit) and to
execute and deliver to the Lender such agreements and instruments as the Lender
deems reasonably necessary in connection therewith. Except as expressly provided
above in this Section 10, presentment, demand, protest and all other notices of
any kind are hereby expressly waived.
SECTION 11. Definitions and Accounting Terms.
11.1. Defined Terms. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Acquired Business" shall mean the business of polishing and
reclaiming silicon wafers conducted by Air Products and Chemicals, Inc.
(including all assets and liabilities related thereto) as more specifically set
forth in the Acquisition Agreement.
"Acquisition" shall mean the acquisition by American Silicon Products,
Inc. of the Acquired Business.
"Acquisition Agreement" shall mean the Purchase Agreement, dated as of
January 16, 1997, between American Silicon Products, Inc. and Air Products and
Chemicals, Inc. and as in effect on the Initial Borrowing Date.
"Adjusted Current Portion of Long Term Debt" shall mean the
consolidated current portion of long term debt, as shown on the balance sheet of
the previous fiscal year end, less the part of such consolidated current portion
of long term debt attributable to ISP.
"Adjusted EBIT" shall mean, at any time, Consolidated EBIT less the
portion thereof attributable to ISP.
"Adjusted EBITDA" shall mean, at any time, Consolidated EBITDA less
the portion thereof attributable to the ISP.
"Adjusted Interest Paid" shall mean, at any time, Consolidated
Interest Expense (but only to the extent such Interest is paid) less the portion
thereof attributable to ISP.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person; provided, however, that for purposes of
Section 9.7, an Affiliate of the Borrower shall include (a) any Person that
directly or indirectly owns more than 5% of any class of the capital stock of
the Borrower and (b) any officer or director of the Borrower.
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A Person shall be deemed to control another Person if such Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of such other Person, whether through the ownership of
voting securities, by contract or otherwise.
"Agreement" shall mean this Credit Agreement, as modified,
supplemented, amended, restated (including any amendment and restatement
hereof), extended, renewed, refinanced or replaced from time to time.
"Applicable Margin" shall mean (a) in the case of Revolving Loans
which are maintained as Prime Rate Loans, 0%, and (b) in the case of the Term
Loan and Revolving Loans which are maintained as Eurodollar Loans, 2.25%.
"Bankruptcy Code" shall have the meaning provided in Section 10.5.
"Borrower" shall mean Semiconductor Packaging Materials Co., Inc., a
Delaware corporation.
"Borrower Security Agreement" shall mean the Security Agreement
delivered by the Borrower in the form of the attached Exhibit F-1.
"Borrowing" shall mean the borrowing of one Type of Loan from the
Lender on a given date (or resulting from a conversion or conversions on such
date) having in the case of Eurodollar Loans the same Interest Period, provided
that Prime Rate Loans incurred pursuant to Section 1.10(b) shall be considered
part of the related Borrowing of Eurodollar Loans.
"Business Day" shall mean (a) for all purposes other than as covered
by clause (b) below, any day except Saturday, Sunday and any day which shall be
in Stamford, Connecticut a legal holiday or a day on which banking institutions
are authorized or required by law or other government action to close and (c)
with respect to all notices and determinations in connection with, and payments
of principal and interest on, Eurodollar Loans, any day which is a Business Day
described in clause (a) above and which is also a day for trading by and between
banks in the London interbank Eurodollar market.
"Capital Expenditures" shall mean, with respect to any Person, all
expenditures by such Person which should be capitalized in accordance with
generally accepted accounting principles and, without duplication, the amount of
Capitalized Lease Obligations incurred by such Person.
"Capitalized Lease Obligations" of any Person shall mean all rental
obligations which, under generally accepted accounting principles, are or will
be required
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to be capitalized on the books of such Person, in each case taken at the amount
thereof accounted for as indebtedness in accordance with such principles.
"Cash Equivalents" shall mean, as to any Person, (i) securities issued
or directly and fully guaranteed or insured by the United States or any agency
or instrumentality thereof (provided that the full faith and credit of the
United States is pledged in support thereof) having maturities of not more than
six months from the date of acquisition, (ii) time deposits and certificates of
deposit of any commercial Lender having, or which is the principal banking
subsidiary of a Lender holding company having, a long-term unsecured debt rating
of at least "A" or the equivalent thereof from Standard & Poor's Ratings Group
or "A2" or the equivalent thereof from Moody's Investors Service, Inc. with
maturities of not more than six months from the date of acquisition by such
Person, (iii) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (i) above entered into
with any Lender meeting the qualifications specified in clause (ii) above, (iv)
commercial paper issued by any Person incorporated in the United States rated at
least A-1 or the equivalent thereof by Standard & Poor's Ratings Group or at
least P-1 or the equivalent thereof by Moody's Investors Service, Inc. and in
each case maturing not more than six months after the date of acquisition by
such Person, (v) Eurodollar certificates of deposit maturing within six months
after the date of acquisition thereof issued by any commercial lender organized
under the laws of the United States of America or any State thereof or the
District of Columbia or by any foreign Lender, which is a lender, or United
States branches of any foreign lender, and in any case having a combined capital
and surplus of not less than $100,000,000 and (vi) investments in money market
funds substantially all of whose assets are comprised of securities of the types
described in clauses (i) through (v) above.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time to
time, 42 U.S.C. ss. 9601 et seq.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time and the regulations promulgated and the rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the date of this
Agreement, and to any subsequent provision of the Code, amendatory thereof,
supplemental thereto or substituted therefor.
"Collateral" shall mean all property (whether real or personal) with
respect to which any security interests have been granted (or purport to be
granted) pursuant to any Security Document, including, without limitation, all
Security Agreement Collateral and all cash and Cash Equivalents delivered as
collateral pursuant to Section 4.2 or 10 hereof.
"Collective Bargaining Agreements" shall have the meaning provided in
Section 5.5.
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"Commitment" shall mean any of the commitments of the Lender, i.e.,
whether the Term Loan Commitment, the Revolving Loan Commitment or the Letter of
Credit Commitment.
"Commitment Commission" shall have the meaning provided in Section
3.1(b).
"Consolidated EBIT" shall mean, for any period, Consolidated Net
Income before Consolidated Interest Expense and provision for taxes for such
period and without giving effect, (x) to any extraordinary gains or losses and
(y) any gains or losses from sales of assets other than inventory sold in the
ordinary course of business.
"Consolidated EBITDA" shall mean, for any period, Consolidated EBIT,
adjusted by adding thereto the amount of all amortization of intangibles and
depreciation that were deducted in arriving at Consolidated EBIT for such
period.
"Consolidated Interest Expense" shall mean, for any period, the total
consolidated interest expense of the Borrower and its Subsidiaries for such
period (calculated without regard to any limitations on the payment thereof)
plus, without duplication, that portion of Capitalized Lease Obligations of the
Borrower and its Subsidiaries representing the interest factor for such period;
provided that the amortization of deferred financing costs with respect to this
Agreement or the Indebtedness incurred hereunder shall be excluded from
Consolidated Interest Expense to the extent same would otherwise have been
included therein.
"Consolidated Net Income" shall mean, for any period, the net after
tax income of the Borrower and its Subsidiaries for such period.
"Consolidated Tangible Net Worth" shall mean on any date of
determination thereof the tangible net worth of the Borrower and its
Subsidiaries determined as of such date of determination.
"Contingent Obligation" shall mean, as to any Person, any obligation
of such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(i) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (ii) to advance or supply funds (x) for the
purchase or payment of any such primary obligation or (y) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (iv) otherwise to assure or hold harmless the holder
of such primary obligation against loss in respect thereof;
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provided, however, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Contingent Obligation shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Contingent Obligation is made or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof
(assuming such Person is required to perform thereunder) as determined by such
Person in good faith.
"Credit Documents" shall mean this Agreement and, after the execution
and delivery thereof pursuant to the terms of this Agreement, each Note, the
Subsidiary Guaranty, each Security Document, each Letter of Credit Request and
the Interest Rate Protection Agreements.
"Credit Event" shall mean the making of any Loan or the issuance of
any Letter of Credit.
"Credit Party" shall mean the Borrower and each Subsidiary Guarantor.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Dividend" with respect to any Person shall mean that such Person has
declared or paid a dividend or returned any equity capital to its stockholders
or authorized or made any other distribution, payment or delivery of property
(but only to the extent that such payment is in the form of cash or equity
securities of such Person) or cash to its stockholders as such, or redeemed,
retired, purchased or otherwise acquired, directly or indirectly, for a
consideration any shares of any class of its capital stock outstanding on or
after the Effective Date, or set aside any funds for any of the foregoing
purposes, or shall have permitted any of its Subsidiaries to purchase or
otherwise acquire for a consideration any shares of any class of the capital
stock of such Person outstanding on or after the Effective Date.
"Documents" shall mean the Credit Documents and the Acquisition
Documents.
"Dollars" and the sign "$" shall each mean freely transferable lawful
money of the United States.
"Drawing" shall have the meaning provided in Section 2.5(b).
"Effective Date" shall have the meaning provided in Section 12.9.
"Employee Benefit Plans" shall have the meaning provided in Section
5.5.
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"Environmental Claims" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, directives, claims, liens,
notices of noncompliance or violation, investigations or proceedings relating in
any way to any Environmental Law or any permit issued, or any approval given,
under any such Environmental Law (hereafter, "Claims"), including, without
limitation, (a) any and all Claims by governmental or regulatory authorities for
enforcement, cleanup, removal, response, remedial or other actions or damages
pursuant to any applicable Environmental Law, and (b) any and all Claims by any
third party seeking damages, contribution, indemnification, cost recovery,
compensation or injunctive relief in connection with alleged injury or threat of
injury to health, safety or the environment due to the presence of Hazardous
Materials.
"Environmental Law" shall mean any Federal, state, foreign or local
statute, law, rule, regulation, ordinance, code, guideline, written policy and
rule of common law now or hereafter in effect and in each case as amended, and
any judicial or administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to the environment,
employee health and safety or Hazardous Materials, including, without
limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, 33 U.S.C. ss.
1251 et seq.; the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq.; the
Clean Air Act, 42 U.S.C. ss. 7401 et seq.; the Safe Drinking Water Act, 42
U.S.C. ss. 3803 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 et
seq.; the Emergency Planning and the Community Right-to-Know Act of 1986, 42
U.S.C. ss. 11001 et seq.; the Hazardous Material Transportation Act, 49 U.S.C.
ss. 1801 et seq. and the Occupational Safety and Health Act, 29 U.S.C. ss. 651
et seq.; and any state and local or foreign counterparts or equivalents, in each
case as amended from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect at the
date of this Agreement and any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with the Borrower or any Subsidiary of the Borrower
would be deemed to be a "single employer" within the meaning of Section 414(b),
(c), (m) or (o) of the Code or (ii) as a result of the Borrower or a Subsidiary
of the Borrower being or having been a general partner of such person.
"Eurodollar Loan" shall mean each Loan designated as such by the
Borrower at the time of the incurrence thereof or conversion thereto.
"Eurodollar Rate" shall mean the rate (rounded to the next higher
1/100 of 1%) for U.S. dollar deposits of that many months maturity as reported
on Telerate page 3750 as of 11:00 a.m., London time, on the second London
business day before the
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relevant Interest Period begins (or if not so reported, then as determined by
the Lender from another recognized source or interbank quotation), adjusted for
reserves by dividing that rate by 1.00 minus the LIBOR Reserve. "LIBOR Reserve"
is the maximum percentage reserve requirement (rounded to the next higher 1/100
of 1% and expressed as a decimal) in effect for any day during the Interest
Period under the Federal Reserve Board's Regulation D for Eurocurrency
Liabilities as defined therein.
"Event of Default" shall have the meaning provided in Section 10.
"Facing Fee" shall have the meaning provided in Section 3.1(c).
"Fees" shall mean all amounts payable pursuant to or referred to in
Section 3.1.
"Fixed Charge Coverage Ratio" for any period shall mean the ratio of
Adjusted EBITDA less the sum of (A) Maintenance Capital Expenditures, and (B)
the amount of all cash Dividends that were paid by the Borrower or any of its
Subsidiaries during such period (other than Dividends paid by a Subsidiary of
the Borrower to the Borrower or another Subsidiary of the Borrower) and (C)
income taxes paid by the Borrower or any of its Subsidiaries to (ii) the sum of
(x) Adjusted Current Portion of Long Term Debt and (y) Adjusted Interest Paid.
"Foreign Pension Plan" shall mean any plan, fund (including, without
limitation, any superannuation fund) or other similar program established or
maintained outside the United States by the Borrower or any one or more of its
Subsidiaries primarily for the benefit of employees of the Borrower or such
Subsidiaries residing outside the United States, which plan, fund or other
similar program provides, or results in, retirement income, a deferral of income
in contemplation of retirement or payments to be made upon termination of
employment, and which plan is not subject to ERISA or the Code.
"Hazardous Materials" means (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is friable, urea formaldehyde
foam insulation, transformers or other equipment that contain dielectric fluid
containing levels of polychlorinated biphenyls, and radon gas; (b) any
chemicals, materials or substances defined as or included in the definition of
"hazardous substances," "hazardous waste," "hazardous materials," "extremely
hazardous substances," "restricted hazardous waste," "toxic substances," "toxic
pollutants," "contaminants," or "pollutants," or words of similar import, under
any applicable Environmental Law; and (c) any other chemical, material or
substance, the Release of which is prohibited, limited or regulated by any
governmental authority.
"ISP" shall mean the Borrower's Subsidiary International Semiconductor
Products PTE Ltd., a Singapore corporation.
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"Indebtedness" shall mean, as to any Person, without duplication, (i)
all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property or
services, (ii) the maximum amount available to be drawn under all letters of
credit issued for the account of such Person and all unpaid drawings in respect
of such letters of credit, (iii) all Indebtedness of the types described in
clause (i), (ii), (iv), (v), (vi) or (vii) of this definition secured by any
Lien on any property owned by such Person, whether or not such Indebtedness has
been assumed by such Person (provided, that, if the Person has not assumed or
otherwise become liable in respect of such Indebtedness, such Indebtedness shall
be deemed to be in an amount equal to the fair market value of the property to
which such Lien relates as determined in good faith by such Person), (iv) the
aggregate amount required to be capitalized under leases under which such Person
is the lessee, (v) all obligations of such person to pay a specified purchase
price for goods or services, whether or not delivered or accepted, i.e.,
take-or-pay and similar obligations, (vi) all Contingent Obligations of such
Person and (vii) all obligations under any Interest Rate Protection Agreement,
any Other Hedging Agreement or under any similar type of agreement.
Notwithstanding the foregoing, Indebtedness shall not include trade payables and
accrued expenses incurred by any Person in accordance with customary practices
and in the ordinary course of business of such Person.
"Initial Borrowing Date" shall mean the date occurring on or after the
Effective Date on which the initial Borrowing of Loans hereunder occurs.
"Intercompany Loan" shall have the meaning provided in Section 9.6(h).
"Intercompany Note" shall mean promissory notes, in the form of
Exhibit H, evidencing Intercompany Loans to the extent required by Section
9.6(h).
"Interest Coverage Ratio" shall mean, at any time, the ratio of
Adjusted EBIT to Adjusted Interest Paid.
"Interest Determination Date" shall mean, with respect to any
Eurodollar Loan, the second Business Day prior to the commencement of any
Interest Period relating to such Eurodollar Loan.
"Interest Period" shall have the meaning provided in Section 1.9.
"Interest Rate Protection Agreement" shall mean any interest rate swap
agreement or other similar agreement or arrangement.
"Investments" shall have the meaning provided in Section 9.6.
"Leaseholds" of any Person means all the right, title and interest of
such Person as lessee or licensee in, to and under leases or licenses of land,
improvements and/or fixtures.
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"Lender" shall mean First Union Bank of Connecticut, a Connecticut
banking corporation.
"Letter of Credit" shall mean the irrevocable standby letter of credit
(and, if renewed, each such renewed Letter of Credit), in a form customarily
used by the Lender, issued by the Lender for the account of the Borrower and for
the benefit of DBS Bank supporting certain obligations of ISP to such
beneficiary in the face amount of 5,000,000 Singapore Dollars, which shall
expire one year from the date it is issued and shall be renewable at the
Lender's sole option for an additional one year period, provided there shall not
be more than six such renewals.
"Letter of Credit Commitment" shall mean the agreement to issue the
Letter of Credit pursuant to Section 2.
"Letter of Credit Outstandings" shall mean, at any time, the sum of
(i) the aggregate Stated Amount of all outstanding Letter of Credit and (ii) the
amount of all Unpaid Drawings.
"Letter of Credit Request" shall have the meaning provided in Section
2.3(a).
"Leverage Ratio" shall mean, at any time, the ratio of all liabilities
(which, under generally accepted accounting principles, would be required to be
recorded on a balance sheet of a Person) of the Borrower on a consolidated basis
at such time excluding the amount of "Minority Interest" as set forth on the
consolidated balance sheet of the Borrower at such time to Consolidated Tangible
Net Worth.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under the UCC or
any other similar recording or notice statute, and any lease having
substantially the same effect as any of the foregoing).
"Loan" shall mean the Term Loan and the Revolving Loans.
"Management Agreements" shall have the meaning provided in Section
5.5.
"Maintenance Capital Expenditures" shall mean Capital Expenditures in
any fiscal year utilized by the Borrower and its Subsidiaries in the amount of
$2,000,000.
"Margin Stock" shall have the meaning provided in Regulation U.
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"Maturity Date" shall mean the Term Loan Maturity Date or the
Revolving Loan Maturity Date, as the case may be.
"Minimum Borrowing Amount" shall mean (a) for the Term Loan,
$21,000,000, and, (b) for Revolving Loans, $250,000.
"Monthly Payment Date" shall mean the last Business Day of each
calendar month occurring after the Initial Borrowing Date.
"Net Income" shall mean, for any period, the consolidated net after
tax income of the Borrower and its Subsidiaries for such period.
"Net Sale Proceeds" shall mean for any sale of assets, the gross cash
proceeds (including any cash received by way of deferred payment pursuant to a
promissory note, receivable or otherwise, but only as and when received)
received from such sale of assets, net of the reasonable costs of such sale
(including fees and commissions, payments of unassumed liabilities relating to
the assets sold and required payments of any Indebtedness (other than
Indebtedness secured pursuant to the Security Documents) which is secured by the
respective assets which were sold), and the taxes paid or payable by the
Borrower's consolidated group as a result of such sale.
"Note" shall mean the Term Note and the Revolving Note.
"Notice of Borrowing" shall have the meaning provided in Section
1.3(a).
"Notice of Conversion/Continuation" shall have the meaning provided in
Section 1.6.
"Notice Office" shall mean the office of the Lender located at 300
Main Street, Stamford, Connecticut, or such other office as the Lender may
hereafter designate in writing as such to the other parties hereto
"Obligations" shall mean all amounts owing to the Lender pursuant to
the terms of this Agreement or any other Credit Document including, without
limitation, amounts owing under the Notes, the Interest Rate Protection
Agreements and the Other Hedging Agreements.
"Other Hedging Agreement" shall mean any currency swap agreements,
commodity agreements or other similar agreements or arrangements designed to
protect against the fluctuations in currency values solely with respect to the
Letter of Credit.
"Payment Office" shall mean the office of the Lender located at 300
Main Street, Stamford, Connecticut, or such other office as the Lender may
hereafter designate in writing as such to the other parties hereto.
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"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Permitted Liens" shall have the meaning provided in Section 9.1.
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, trust or other enterprise or any government or
political subdivision or any agency, department or instrumentality thereof.
"Plan" shall mean any multiemployer or single-employer plan, as
defined in Section 4001 of ERISA, which is maintained or contributed to by (or
to which there is an obligation to contribute of) the Borrower or a Subsidiary
of the Borrower or an ERISA Affiliate, and each such plan for the five year
period immediately following the latest date on which the Borrower or a
Subsidiary of the Borrower or an ERISA Affiliate maintained, contributed to or
had an obligation to contribute to such plan.
"Prime Rate Loan" shall mean each Loan designated or deemed designated
as such by the Borrower at the time of the incurrence thereof or conversion
thereto.
"Prime Rate" shall mean the rate which the Lender announces from time
to time as its prime lending rate, the Prime Lending Rate to change when and as
such prime lending rate changes. The Prime Lending Rate is a reference rate and
does not necessarily represent the lowest or best rate actually charged to any
customer. The Lender may make commercial loans or other loans at rates of
interest at, above or below the Prime Lending Rate.
"Quarterly Payment Date" shall mean the last Business Day of each
March, June, September and December occurring after the Initial Borrowing Date.
"RCRA" shall mean the Resource Conservation and Recovery Act, as the
same may be amended from time to time, 42 U.S.C. ss. 6901 et seq.
"Real Property" of any Person shall mean all the right, title and
interest of such Person in and to land, improvements and fixtures, including
Leaseholds.
"Recovery Event" shall mean the receipt by the Borrower or any of its
Subsidiaries of any cash insurance proceeds or condemnation awards payable (i)
by reason of theft, loss, physical destruction or damage or any other similar
event with respect to any property or assets of the Borrower or any of its
Subsidiaries and (ii) under any policy of insurance (excluding (x) any business
interruption insurance and (y) any workers' compensation) required to be
maintained under Section 8.3, provided that if the aggregate proceeds received
from, or with respect to, any individual, or series of related, casualty or
condemnation under all insurance policies and all awards is less than $100,000,
same shall not be considered a Recovery Event hereunder.
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"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof establishing reserve requirements.
"Regulation G" shall mean Regulation G of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation T" shall mean Regulation T of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation U" shall mean Regulation U of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Regulation X" shall mean Regulation X of the Board of Governors of
the Federal Reserve System as from time to time in effect and any successor to
all or a portion thereof.
"Release" means disposing, discharging, injecting, spilling, pumping,
leaking, leaching, dumping, emitting, escaping, emptying, pouring or migrating,
into or upon any land or water or air, or otherwise entering into the
environment.
"Reportable Event" shall mean an event described in Section 4043(c) of
ERISA with respect to a Plan other than those events as to which the 30-day
notice period is waived under subsection .13, .14, .16, .18, .19 or .20 of PBGC
Regulation Section 2615.
"Returns" shall have the meaning provided in Section 7.9.
"Revolving Loan" shall have the meaning provided in Section 1.1(b).
"Revolving Loan Commitment" shall mean the agreement of the Lender to
make Revolving Loans and to issue the Letter of Credit in the aggregate amount
outstanding from time to time to time not in excess of $15,000,000.
"Revolving Loan Maturity Date" shall mean January 31, 1999.
"Revolving Note" shall have the meaning provided in Section 1.5(a).
"Scheduled Repayments" shall have the meaning provided in Section
4.2(b).
"SEC" shall have the meaning provided in Section 8.1(g).
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"Secured Creditors" shall have the meaning assigned that term in the
respective Security Documents.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Securities Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
"Security Agreement" shall have the meaning provided in Section 5.9
and shall include the Borrower Security Agreement and the Subsidiaries Security
Agreement.
"Security Agreement Collateral" shall mean all "Collateral" as defined
in the Borrower Security Agreement and the Subsidiaries Security Agreement.
"Security Document" shall mean and include the Borrower Security
Agreement and the Subsidiaries Security Agreement and, after the execution and
delivery thereof, each Additional Security Document.
"Shareholders' Agreements" shall have the meaning provided in Section
5.5.
"Stated Amount" of each Letter of Credit shall, at any time, mean the
maximum amount available to be drawn thereunder (in each case determined without
regard to whether any conditions to drawing could then be met).
"Subsidiary" shall mean, as to any Person, (i) any corporation more
than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person and/or one or
more Subsidiaries of such Person and (ii) any partnership, association, joint
venture or other entity in which such Person and/or one or more Subsidiaries of
such Person has more than a 50% equity interest at the time.
"Subsidiary Guarantor" shall mean initially, American Silicon
Products, Inc., Polese Company, Retconn Incorporated, and Type III, Inc., and,
thereafter, each domestic Subsidiary of the Borrower which is subsequently
formed and is required to execute and deliver a Subsidiary Guaranty.
"Subsidiary Guaranty" shall have the meaning provided in Section 5.10.
"Subsidiaries Security Agreement" shall mean the Security Agreement to
be delivered by the Subsidiaries Guarantors in the form of the attached Exhibit
F-2.
"Tax Sharing Agreements" shall have the meaning provided in Section
5.5.
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"Taxes" shall have the meaning provided in Section 4.4(a).
"Term Loan" shall have the meaning provided in Section 1.1(a).
"Term Loan Commitment" shall mean the agreement of the Lender to make
the Term Loan to the Borrower in the principal amount of $21,000,000, as same
may be reduced from time to time pursuant to Sections 3.3, 4.2 and/or 10.
"Term Loan Maturity Date" shall mean January 31, 2002.
"Term Loan Scheduled Repayment" shall have the meaning provided in
Section 4.2(b).
"Term Loan Scheduled Repayment Date" shall have the meaning provided
in Section 4.2(b).
"Term Note" shall have the meaning provided in Section 1.5(a).
"Total Commitments" shall mean, at any time, the sum of the
Commitments of the Lender.
"Type" shall mean the type of Loan determined with regard to the
interest option applicable thereto, i.e., whether a Prime Rate Loan or a
Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan, means the amount, if any, by
which the actuarial present value of the accumulated plan benefits under the
Plan as of the close of its most recent plan year exceeds the fair market value
of the assets allocable thereto, each determined in accordance with Statement of
Financial Accounting Standards No. 87, based upon the actuarial assumptions used
by the Plan's actuary in the most recent annual valuation of the Plan.
"United States" and "U.S." shall each mean the United States of
America.
"Unpaid Drawing" shall have the meaning provided for in Section
2.5(a).
"Unutilized Revolving Loan Commitment" shall mean, at any time, an
amount equal to the remainder of (a) the Revolving Loan Commitment then in
effect, less (b) the sum of the aggregate principal amount of Revolving Loans
then outstanding plus the then aggregate amount of Letter of Credit
Outstandings.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock (other than director's qualifying
shares) is at the
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time owned by such Person and/or one or more Wholly-Owned Subsidiaries of such
Person and (ii) any partnership, association, joint venture or other entity in
which such Person and/or one or more Wholly-Owned Subsidiaries of such Person
has a 100% equity interest at such time.
SECTION 12. Miscellaneous
12.1. Payment of Expenses, etc. The Borrower shall: (a) whether or not
the transactions herein contemplated are consummated, pay all reasonable
out-of-pocket costs and expenses of the Lender (including, without limitation,
the reasonable fees and disbursements of Cummings & Lockwood) in connection with
the preparation, execution and delivery of this Agreement and the other Credit
Documents and the documents and instruments referred to herein and therein and
any amendment, waiver or consent relating hereto or thereto, and, after the
occurrence of an Event of Default, the Lender in connection with the enforcement
of this Agreement and the other Credit Documents and the documents and
instruments referred to herein and therein (including, without limitation, the
reasonable fees and disbursements of counsel for the Lender); (b) pay and hold
the Lender harmless from and against any and all present and future stamp,
excise and other similar documentary taxes with respect to the foregoing matters
and save the Lender harmless from and against any and all liabilities with
respect to or resulting from any delay or omission (other than to the extent
attributable to the Lender) to pay such taxes; and (c) indemnify the Lender, and
each of its respective officers, directors, employees, representatives and
agents from and hold each of them harmless against any and all liabilities,
obligations (including removal or remedial actions), losses, damages, penalties,
claims, actions, judgments, suits, costs, expenses and disbursements (including
reasonable attorneys' and consultants' fees and disbursements) incurred by,
imposed on or assessed against any of them as a result of, or arising out of, or
in any way related to, or by reason of, (i) any investigation, litigation or
other proceeding (whether or not the Lender is a party thereto) related to the
entering into and/or performance of this Agreement or any other Credit Document
or the use of any Letter of Credit or the proceeds of any Loans hereunder or the
consummation of any transactions contemplated herein or in any other Credit
Document or the exercise of any of their rights or remedies provided herein or
in the other Credit Documents, or (ii) the actual or alleged presence of
Hazardous Materials in the air, surface water or groundwater or on the surface
or subsurface of any Real Property owned or at any time operated by the Borrower
or any of its Subsidiaries, the generation, storage, transportation, handling or
disposal of Hazardous Materials at any location, whether or not owned or
operated by the Borrower or any of its Subsidiaries, the non-compliance of any
Real Property with foreign, federal, state and local laws, regulations, and
ordinances (including applicable permits thereunder) applicable to any Real
Property, or any Environmental Claim asserted against the Borrower, any of its
Subsidiaries or any Real Property owned or at any time operated by the Borrower
or any of its Subsidiaries,
-64-
<PAGE>
including, in each case, without limitation, the reasonable fees and
disbursements of counsel and other consultants incurred in connection with any
such investigation, litigation or other proceeding (but excluding any losses,
liabilities, claims, damages or expenses to the extent incurred by reason of the
gross negligence or willful misconduct of the Person to be indemnified). To the
extent that the undertaking to indemnify, pay or hold harmless the Lender set
forth in the preceding sentence may be unenforceable because it is violative of
any law or public policy, the Borrower shall make the maximum contribution to
the payment and satisfaction of each of the indemnified liabilities which is
permissible under applicable law.
12.2. Right of Setoff. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence of an Event of Default, the Lender and any
participant hereunder is hereby authorized (to the extent not prohibited by
applicable law) at any time or from time to time, without presentment, demand,
protest or other notice of any kind to the Borrower or to any other Person, any
such notice being hereby expressly waived, to set off and to appropriate and
apply any and all deposits (general or special) and any other Indebtedness at
any time held or owing by the Lender or any participant hereunder (including,
without limitation, by branches and agencies of such Lender wherever located) to
or for the credit or the account of the Borrower against and on account of the
Obligations and liabilities of the Borrower to the Lender under this Agreement
or under any of the other Credit Documents, and all other claims of any nature
or description arising out of or connected with this Agreement or any other
Credit Document, irrespective of whether or not the Lender or any participant
hereunder shall have made any demand hereunder and although said Obligations,
liabilities or claims, or any of them, shall be contingent or unmatured.
12.3. Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered:
If to the Borrower:
Semiconductor Packaging Materials Co, Inc.
431 Fayette Avenue
Mamaroneck, NY 10543
Attention: Mr. Andrew A. Lozyniak
Chief Financial Officer
Telephone: (914) 698.5353
Facsimile: (914) 698.5386
-65-
<PAGE>
If to the Lender:
First Union Bank of Connecticut
300 Main Street
Stamford, CT 06904
Attention: Ms. Kristin H. Murphy
Telephone No.: (203) 406.6039
Facsimile No.: (203) 964.8239
All such notices and communications shall, when mailed, telegraphed,
telexed, telecopied, or cabled or sent by overnight courier, be effective when
deposited in the mails, delivered to the telegraph company, cable company or
overnight courier, as the case may be, or sent by telex or telecopier, except
that notices and communications to the Lender shall not be effective until
received by the Lender.
12.4. Benefit of Agreement; Participations.
(a) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of the
parties hereto; provided, however, the Borrower may not assign or transfer any
of its rights, obligations or interest hereunder without the prior written
consent of the Lender and, provided further, that, although the Lender may
transfer or grant participations in its rights hereunder, the Lender shall
remain a "Lender" for all purposes hereunder and, provided further, that, if any
such participant is a Person other than Fleet National Bank (or its successor or
assign), the Lender shall not transfer or grant any participation under which
the participant shall have rights to approve any amendment to or waiver of this
Agreement or any other Credit Document except to the extent such amendment or
waiver would (i) extend the final scheduled maturity of any Loan, Note or Letter
of Credit (unless such Letter of Credit is not extended beyond the Revolving
Loan Maturity Date) in which such participant is participating, or reduce the
rate or extend the time of payment of interest or fees thereon (except in
connection with a waiver of applicability of any post default increase in
interest rates) or reduce the principal amount thereof, or increase the amount
of the participant's participation over the amount thereof then in effect (it
being understood that a waiver of any Default or Event of Default or of a
mandatory reduction in the Total Commitment shall not constitute a change in the
terms of such participation, and that an increase in any Commitment or Loan
shall be permitted without the consent of any participant if the participant's
participation is not increased as a result thereof), (ii) consent to the
assignment or transfer by the Borrower of any of its rights and obligations
under this Agreement or (iii) release all or substantially all of the Collateral
under all of the Security Documents (except as expressly provided in the Credit
Documents) supporting the Loans hereunder in which such participant is
participating.
-66-
<PAGE>
(b) In the case of any such participation, the participant
shall (i) not have any rights under this Agreement or any of the other Credit
Documents (the participant's rights against the Lender in respect of such
participation to be those set forth in the agreement executed by the Lender in
favor of the participant relating thereto) and all amounts payable by the
Borrower hereunder shall be determined as if the Lender had not sold such
participation and (ii) if such participant is not a commercial Lender, represent
that either (x) no part of its acquisition of its participation is made out of
assets of any employee benefit plan, or (y) after consultation, in good faith,
with the Borrower and provision by the Borrower of such information as may be
reasonably requested by the participant, the acquisition and holding of such
participation does not constitute a non-exempt prohibited transaction under
Section 406 of ERISA and Section 4975 of the Code, or (z) such participant is an
"insurance company" using the assets of its general account as defined in
Section V of Proposed Class Exemption for Certain Transactions Involving
Insurance Company General Accounts issued by the U.S. Department of Labor, 59
Federal Register 43134, August 22, 1994 (Application No. D-9662) ("PTCE D-9662")
and such participation is and shall at all times thereafter satisfy the
applicable requirements to be and shall be exempt under said PTCE D-9662 to the
fullest extent provided therein (assuming for this purpose that PTCE D-9662 was
granted as a final prohibited transaction exemption by the U.S. Department of
Labor on the date and in the form it was proposed). As used in this Section
13.4(a), the term "employee benefit plan" shall have the meaning assigned to it
in Title I of ERISA and shall also include a "plan" as defined in Section
4975(e)(1) of the Code.
(c) Nothing in this Agreement shall prevent or prohibit the
Lender from pledging its Loans and Notes hereunder to a Federal Reserve Bank in
support of borrowings made by the Lender from such Federal Reserve Bank.
12.5. No Waiver; Remedies Cumulative. No failure or delay on the part
of the Lender in exercising any right, power or privilege hereunder or under any
other Credit Document and no course of dealing between the Borrower and the
Lender shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or under any other Credit
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights, powers and
remedies herein or in any other Credit Document expressly provided are
cumulative and not exclusive of any rights, powers or remedies which the Lender
would otherwise have. No notice to or demand on any Credit Party in any case
shall entitle any Credit Party to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of the
Lender to any other or further action in any circumstances without notice or
demand.
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<PAGE>
12.6. Calculations; Computations; Accounting Terms.
(a) The financial statements to be furnished to the Lender
pursuant hereto shall be made and prepared in accordance with generally accepted
accounting principles in the United States consistently applied throughout the
periods involved (except as set forth in the notes thereto or as otherwise
disclosed in writing by the Borrower to the Lender); provided that, except as
otherwise specifically provided herein, all computations and all definitions
used in determining compliance with Sections 9.8 through 9.13, inclusive, shall
utilize accounting principles and policies in conformity with those used to
prepare the historical financial statements delivered to the Lender pursuant to
Section 7.5.
(b) All computations of interest, Commitment Commission and Fees
hereunder shall be made on the basis of a year of 360 days for the actual number
of days (including the first day but excluding the last day; except that in the
case of Fees with respect to the Letter of Credit, the last day shall be
included) occurring in the period for which such interest, Commitment Commission
or Fees are payable.
12.7. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; ARBITRATION;
COMMERCIAL WAIVER; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF CONNECTICUT. ANY
LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT
DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CONNECTICUT OR OF THE
UNITED STATES FOR THE DISTRICT OF CONNECTICUT, AND, BY EXECUTION AND DELIVERY OF
THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT, EACH CREDIT PARTY HEREBY
IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND
UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID COURTS. EACH CREDIT PARTY
HEREBY FURTHER IRREVOCABLE WAIVES ANY CLAIM THAT ANY SUCH COURTS LACK PERSONAL
JURISDICTION OVER SUCH CREDIT PARTY, AND AGREES NOT TO PLEAD OR CLAIM, IN ANY
LEGAL ACTION PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT
DOCUMENTS BROUGHT IN ANY OF THE AFOREMENTIONED COURTS, THAT SUCH COURTS LACK
PERSONAL JURISDICTION OVER SUCH CREDIT PARTY. EACH CREDIT PARTY FURTHER
IRREVOCABLY CONSENTS TO THE BY THE MAILING OF COPIES THEREOF BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO ANY CREDIT PARTY AT ITS ADDRESS SET FORTH IN
SECTION 12.3 OR AS SET FORTH IN THE OTHER CREDIT DOCUMENTS, SUCH SERVICE TO
BECOME EFFECTIVE 3
-68-
<PAGE>
DAYS AFTER SUCH MAILING. EACH CREDIT PARTY HEREBY IRREVOCABLY WAIVES ANY
OBJECTION TO SUCH SERVICE OF PROCESS AND FURTHER IRREVOCABLY WAIVES AND AGREES
NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER OR UNDER
ANY OTHER CREDIT DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR
INEFFECTIVE. NOTHING HEREIN SHALL AFFECT THE RIGHTS OF THE LENDER OR THE HOLDER
OF ANY NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY CREDIT PARTY IN ANY OTHER
JURISDICTION.
(b) UPON DEMAND OF ANY PARTY HERETO, WHETHER MADE BEFORE OR
AFTER INSTITUTION OF ANY JUDICIAL PROCEEDING ANY DISPUTE, CLAIM OR CONTROVERSY
ARISING OUT OF, CONNECTED WITH OR RELATING TO THIS AGREEMENT, THE NOTES OR ANY
OTHER CREDIT DOCUMENT ("DISPUTES") BETWEEN OR AMONG PARTIES TO THIS AGREEMENT OR
ANY OTHER CREDIT DOCUMENT SHALL BE RESOLVED BY BINDING ARBITRATION AS PROVIDED
HEREIN. INSTITUTION OF A JUDICIAL PROCEEDING BY A PARTY DOES NOT WAIVE THE RIGHT
OF THAT PARTY TO DEMAND ARBITRATION HEREUNDER. DISPUTES MAY INCLUDE, WITHOUT
LIMITATION, TORT CLAIMS, COUNTERCLAIMS, DISPUTES AS TO WHETHER A MATTER IS
SUBJECT TO ARBITRATION, CLAIMS BROUGHT AS CLASS ACTIONS, CLAIMS ARISING FROM ANY
CREDIT DOCUMENT EXECUTED IN THE FUTURE, OR CLAIMS ARISING OUT OF OR CONNECTED
WITH THE TRANSACTIONS REFLECTED BY THIS AGREEMENT, THE NOTES OR ANY OTHER CREDIT
DOCUMENT. ARBITRATION SHALL BE CONDUCTED UNDER AND GOVERNED BY THE COMMERCIAL
FINANCIAL DISPUTES ARBITRATION RULES (THE "ARBITRATION RULES") OF THE AMERICAN
ARBITRATION ASSOCIATION (THE "AAA") AND TITLE 9 OF THE U.S. CODE. ALL
ARBITRATION HEARINGS SHALL BE CONDUCTED IN THE CITY IN WHICH THE OFFICE OF THE
LENDER FIRST STATED ABOVE IS LOCATED. THE EXPEDITED PROCEDURES SET FORTH IN RULE
51 ET SEQ. OF THE ARBITRATION RULES SHALL BE APPLICABLE TO CLAIMS OF LESS THAN
$1,000,000. ALL APPLICABLE STATUTES OF LIMITATION SHALL APPLY TO ANY DISPUTE. A
JUDGMENT UPON THE AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. THE
PANEL FROM WHICH ALL ARBITRATORS ARE SELECTED SHALL BE COMPRISED OF LICENSED
ATTORNEYS. THE SINGLE ARBITRATOR SELECTED FOR EXPEDITED PROCEDURE SHALL BE A
RETIRED JUDGE FROM THE HIGHEST COURT OF GENERAL JURISDICTION, STATE OR FEDERAL,
OF THE STATE WHERE THE HEARING WILL BE CONDUCTED OR IF SUCH PERSON IS NOT
AVAILABLE TO SERVE, THE SINGLE ARBITRATOR MAY BE A LICENSED ATTORNEY.
NOTWITHSTANDING THE FOREGOING, THE
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<PAGE>
ARBITRATION PROVISION DOES NOT APPLY TO DISPUTES UNDER OR RELATED TO SWAP
AGREEMENTS.
(c) EACH CREDIT PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE
AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN
CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT
ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM.
(d) THE BORROWER ACKNOWLEDGES THAT THE LOANS EVIDENCED BY THE
NOTES ARE FOR COMMERCIAL PURPOSES AND WAIVES ANY RIGHT TO NOTICE AND HEARING
UNDER SECTIONS 52-278a THROUGH 52-278n OF THE CONNECTICUT GENERAL STATUTES AS
NOW OR HEREAFTER AMENDED AND AUTHORIZES THE ATTORNEY OF THE LENDER, OR ANY
SUCCESSOR THERETO, TO ISSUE A WRIT OF PREJUDGMENT REMEDY WITHOUT COURT ORDER.
FURTHER, THE BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE
BENEFITS OF ALL VALUATION, APPRAISEMENTS, HOMESTEAD, EXEMPTION, STAY, REDEMPTION
AND MORATORIUM LAWS NOW IN FORCE OR WHICH MAY HEREAFTER BECOME LAWS. THE
BORROWER ACKNOWLEDGES THAT IT MAKES THESE WAIVERS AND THE WAIVERS CONTAINED IN
SECTION 12.7(a) KNOWINGLY, VOLUNTARILY AND ONLY AFTER EXTENSIVE CONSIDERATION OF
THE RAMIFICATIONS OF THESE WAIVERS WITH ITS ATTORNEYS.
(e) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
12.8. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Lender.
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<PAGE>
12.9. Effectiveness. This Agreement shall become effective on the date
(the "Effective Date") on which the Borrower and the Lender shall have signed a
counterpart hereof.
12.10. Headings Descriptive. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
12.11. Amendment or Waiver; etc. Neither this Agreement nor any other
Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the respective Credit Parties party thereto and the Lender
12.12. Survival. All indemnities set forth herein including, without
limitation, in Sections 1.10, 1.11, 2.6, 4.4 and 12.1 shall survive the
execution, delivery and termination of this Agreement and the Notes and the
making and repayment of the Obligations.
12.13. Domicile of Loans. The Lender may transfer and carry its Loans
at, to or for the account of any office, Subsidiary or Affiliate of the Lender.
Notwithstanding anything to the contrary contained herein, to the extent that a
transfer of Loans pursuant to this Section 12.13 would, at the time of such
transfer, result in increased costs under Section 1.10, 1.11, 2.6 or 4.4 from
those being charged by the Lender prior to such transfer, then the Borrower
shall not be obligated to pay such increased costs (although the Borrower shall
be obligated to pay any other increased costs of the type described above
resulting from changes after the date of the respective transfer).
-71-
<PAGE>
The parties hereto have caused their duly authorized officers to
execute and deliver this Agreement as of the date first above written.
Address:
Semiconductor Packaging Materials SEMICONDUCTOR PACKAGING
Co., Inc. MATERIALS CO., INC.
431 Fayette Avenue
Mamaroneck, NY 10543
Attention: Chief Financial Officer
Tel: 914.698.5353 By /s/ Andrew A. Lozyniak
Fax: 914.698.5386 ----------------------
Andrew A. Lozyniak
Title: Executive Vice President
FIRST UNION BANK OF CONNECTICUT
By /s/ Kristin H. Murphy
---------------------
Kristin H. Murphy
Title: Vice President
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<PAGE>
SCHEDULE I
CAPITALIZATION
Capital Structure at December 31, 1996 Preferred Stock
$.10 par value, authorized 1,000,000 share, none
issued; Common stock - $.10 par value; authorized
10,000,000 shares, issued and outstanding at
December 31, 1996 - 6,355,51 $ 635,552.00
Additional paid in capital 27,973,464.00
Retained Earnings (estimate) 5,018,106.00
--------------
33,627,122.00
Less: Treasury Stock: 300,000, at cost -0-
--------------
Total Shareholders Equity $33,627,122.00
==============
<PAGE>
SCHEDULE II
SUBSIDIARIES
Polese Company, Inc.
Type III, Inc.
American Silicon Products, Inc.
ASP Realty, Inc.
Retconn, Incorporated
SPM Holdings Corporation
Silicon Materials Service, B.V.
International Semiconductor Products PTE, Ltd.
<PAGE>
SCHEDULE III
EXISTING INDEBTEDNESS
Loans
-----
SPM $6,000,000 5 year Term Loan for Retconn - First Union*
SPM 390,000 5 year Term Loan for Polese - First Union
SPN 1,745,333 10 year Term Loan - Armonk building - First Union
----------
$8,135,333 Total Bank Loan Indebtedness
Other - Consignment Agreement with Fleet Gold Leasing dated 12/24/96 for
4,502.05 Troy ounces of Gold - Fleet has a first priority security interest.
Capitalized Lease Obligations
SPM
Amount Security
------ --------
First Valley Leasing $23,412 Equipment
Fleetwood Financial Corp. #1 17,394 Equipment
#2 71,156 Equipment
#3 34,943 Equipment
(sold to EAB) #4 46,058 Equipment
#5 124,654 Equipment
#6 -0- Equipment
#7 164,507 Equipment
#8 66,314 Equipment
(sold to EAB) #9 302,879 Equipment
#10 67,800 Equipment
LCA Housing 34,765 Equipment
Ford Credit 6,867 Car
--------
TOTAL SPM $960,749
========
Retconn Incorporated
Fleetwood Financial Corp. $168,400 Equipment
American Silicon Products, Inc.
First Union #1 $561,780 Equipment
#2 914,987 Equipment
Julest Associates #1 (a) 415,937 Equipment
#2 (a) 556,456 Equipment
#3 (a) 335,956 Equipment
----------
TOTAL ASP $2,785,116
==========
(a) Corporate Guarantee by SPM
* To be paid at closing from loan proceeds.
<PAGE>
Polese Company, Inc.
Amount Security
------ --------
MAC Funding #1 $142,479 Equipment
#2 62,196 Equipment
SL Capital #1 6,674 Equipment
#2 156,044 Equipment
#3 150,863 Equipment
Orix Credit (Ellison) 25,270 Equipment
AT&T (Eaton) 5,459 Computers
First Union 599,527 Equipment
NBD Bank #1 (a) 190,302 Equipment
#2 (a) 157,910 Equipment
Colonial Leasing (a) 123,093 Equipment
----------
TOTAL POLESE $1,627,817
(a) Corporate Guarantee by SPM
<PAGE>
SCHEDULE IV
INSURANCE
SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
<TABLE>
<CAPTION>
PACKAGE POLICY
--------------
<S> <C>
NAME INSURED: Semiconductor Packaging Materials Co., Inc.
Polese Company, Inc.
Type III, Inc.
American Silicon Products, Inc.
ASP Realty, Inc.
RETCONN, Inc.
CARRIER: Federal Insurance Company
(AM Best Rating: A++XIV)
POLICY PERIOD: 11/30/96 to 11/30/97
I. PROPERTY
DEFINITION: Property insurance covers accidental losses resulting in direct
damage to your real and personal property from a covered cause of
loss. This coverage may also be broadened to cover indirect losses
(business earnings) after a fire or other covered causes of loss
that damages your business property.
LOCATION: Location #1
431 Fayette Avenue
Mamaroneck, New York
LIMITS: $ 1,000,000 Building
$ 7,847,100 PersonalProperty
$ 2,000,000 Stock
$ 150,000 EDP (Electronic Data Processing)
$ 17,000,000 Business Income/Extra Expense
LOCATION: Location #2
10103 Carroll Canyon Road
San Diego, California (Polese)
$ 1,441,000 Building
$ 4,982,500 Personal Property
$ 2,200,000 Stock
$ 175,400 EDP
$Included Above Business Income/Extra Expense
</TABLE>
<PAGE>
SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
PACKAGE POLICY
(continued)
<TABLE>
<CAPTION>
<S> <C>
LOCATION: Location #3
8680 Miralani Drive, Suites 116, 117, 118, 126, 127
San Diego, California (Type III)
$ 63,600 Building
$ 1,024,500 Personal Property
$ 83,000 Stock
$Included Above Business Income/Extra Expense
LOCATION: Location #4
15 Clarkson Street
Providence, Rhode Island (ASPI)
LIMITS: $ 1,527,800 Building
$ 6,105,500 Personal Property
$ 350,000 Stock
$ 70,000 EDP
$Included Above Business Income/Extra Expense
LOCATION: Location #5
199 W. Pearl Road
Torrington, Connecticut (RETCONN)
$ 562,000 Building Property
$ 2,800,000 Stock
$ 55,000 EDP
$Included Above Business Income/Extra Expense
LOCATION: Location #6
71 Putter Lane
Torrington, Connecticut (RETCONN)
LIMITS: $ 100,000 PersonalProperty
$Included Above Business Income/Extra Expense
LOCATION: Location #7
1 Labriola Court
Armonk, New York (SPM)
LIMITS: $ 1,500,000 Building
$Included Above Business Income/Extra Expense
</TABLE>
<PAGE>
SEMICONDUCTOR PACKAGING MATERIALS, CO., INC.
PACKAGE POLICY
(continued)
<TABLE>
<CAPTION>
<S> <C>
OTHER COVERAGES: $ 75,000 Transit
$ 120,000 Personal Property -- Other Locations
$ 10,000 Custody of Salespersons
$ 100,000 Rents (100% Coinsurance)
$ 100,000 Extra Expense
(100% Coinsurance)
Policy Limits Boiler & Machinery
ANNUAL PROPERTY
PREMIUM: $140,842 (vs. $111,320 - 95/96)
</TABLE>
PROPERTY COMPARISON:
95/96 96/97
----- -----
Total Values $37,472,318 $51,187,400
Rate .30 .28
Premium $111,320 $140,842
<PAGE>
SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
PACKAGE POLICY
(Continued)
II. GENERAL LIABILITY
<TABLE>
<CAPTION>
<S> <C> <C>
LIMITS: General aggregate: $ 2,000,000
Products/Completed
Operations aggregate: $ 1,000,000
Personal &
Advertising injury: $ 1,000,000
Each occurrence: $ 1,000,000
Fire Damage
(any one fire) $ N/A
Premises Medical Payment
(any one person) $ 10,000
</TABLE>
ANNUAL G.L. PREMIUM $98,600 (vs. $68,172 - 95/96)
G.L. COMPARISON 95/95 96/97
----- -----
Sales $43,700,000 $68,000,000
Avg. Rate 1.56 1.45
Premium $68,172 $98,600
EXPOSURE INFORMATION
<TABLE>
<CAPTION>
Description Code Basis
<S> <C> <C>
Metal Goods Mfg. - Gold 56918 $14,000,000
Metal Goods Mfg. (Polese) 56911 $15,000,000
Electrical Components Mfg. (ASPI) 52469 $24,000,000
Electrical Parts, Components or Accessories Mfg. (RETCONN) 52438 $15,000,000
</TABLE>
<PAGE>
SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
PACKAGE POLICY
(Continued)
III. CRIME
DEFINITION: Comprehensive Crime Coverage allows you to insure exposures to
loss through criminal activity by selecting coverage and
limits related to (1) Employee Dishonesty and (2) Destruction
and disappearance of monies and/or securities.
COVERAGE: LIMITS: DEDUCTIBLE:
A. Employee Dishonesty $100,000 $ 1,000
B. Forgery or Alternation $ 10,000 $ 1,000
ANNUAL CRIME PREMIUM: $845 (vs. $594-95/96)
TOTAL PACKAGE PREMIUM: $240,287 (vs. $180,086-95/96)
<PAGE>
SEMICONDUCTOR PACKAGING MATERIAL CO., INC
AUTOMOBILE LIABILITY AND PHYSICAL DAMAGE COVERAGE
<TABLE>
<CAPTION>
<S> <C>
NAMED INSURED: Semiconductor Packaging Materials Co., Inc.
Polese Company, Inc.
Type III, Inc.
American Silicon Products, Inc.
ASP Realty, Inc.
RETCONN,Inc.
CARRIER: Federal Insurance Company
(AM Best Rating: A++XIV)
POLICY PERIOD: 11/30/97 to 11/30/97
DEFINITION: Automobile Liability insurance covers your responsiblity for bodily
injury and/or property damage to third parties resulting
from the ownership, maintenance or use of a car or truck.
Physical Damage coverage insures against loss to the vehicle itself.
</TABLE>
COVERAGE: LIMITS:
COMPREHENSIVE AUTOMOBILE LIABILITY
$ 1,000,000 Each accident
(Combine single
Bodily Injury/Property Damage limit)
Medical Payments $ 5,000 Each Person
Personal Injury Protection $ Statutory
Added Personal Injury Protection $ 25,000 Combined Limit
$ 1,000,000 (Statutory
Uninsured Motorist or Limit)
Underinsured Motorist $ 1,000,000
Hired/Borrowed and $ 1,000,000
Non-Owned Liability
<PAGE>
SEMICONDUCTOR PACKAGING MATERIAL CO., INC
AUTOMOBILE LIABILITY AND PHYSICAL DAMAGE COVERAGE
(Continued)
COVERAGE: LIMITS:
<TABLE>
<CAPTION>
<S> <C>
AUTOMOBILE PHYSICAL DAMAGE
Comprehensive Coverage Actual Cash Value or Stated Amount less $500 Deductible
Collision Coverage Actual Cash Value or Stated Amount less $500 Deductible
Towing $50 Each Disablement (Except for Vehicles in CA)
Drive Other Car Endorsement
SPECIAL CONDITIONS Hired/Borrowed Physical Damage coverage:
OR EXCLUSIONS: Fellow Employee Exclusion Deleted
$35,000 Max. limit per vehicle
$ 1,000 Deductible - Comprehensive
$ 1,000 Deductible - Collision
Rental Reimbursement
$ 30 Per Day/30 Day Period
ANNUAL AUTO PREMIUM: $12,090 (vs. $7,143 - 95/96)
</TABLE>
AUTO COMPARISON:
95/96 96/97
--------------- ---------------
Avg Rate $1,786/Vehicle $1,511/Vehicle
Premium $7,143 $12,090
<PAGE>
SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
AUTOMOBILE LIABILITY AND PHYSICAL DAMAGE COVERAGE
(Continued)
<TABLE>
<CAPTION>
SCHEDULED VEHICLES
Year Make/Model Serial No. Garage Location Cost New
- - ---- -------------------------- ------------------------------ ---------------------- --------
<S> <C> <C> <C> <C>
95 Ford Contour 1FALP6637SK170513 Lagrangeville, NY $21,219
95 Mercedes SL 500 WDBFA67E6SF122775 Greenwich, CT $92,360
83 Olds Firenza 1G3AC69P4DK303016 Torrington, CT $ 5,000
94 Chevy Astro Van 1GCDM19Z1RB115026 Torrington, CT $13,000
95 Lincoln Continental 1LNLM95SY743471 San Diego, CA $40,795
96 Ford Ranger 1FTCR10A6TTA31807 San Diego, CA $12,434
96 Isuzu NPR Truck JALC4B1K6T7000723 Providence, RI $28,000
96 Volvo 850 Sta. Wagon YV1LW5547T2244669 East Greenwich, RI $34,410
</TABLE>
<PAGE>
SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
WORKERS' COMPENSATION COVERAGE
<TABLE>
<CAPTION>
<S> <C>
NAMED INSURED: Semiconductor Packaging Materials Co., Inc.
American Silicon Products, Inc.
ASP Realty, Inc.
RETCONN, Inc.
CARRIER: Federal Insurance Company
(AM Best Rating: A++XIV)
POLICY PERIOD: 11/30/96 to 11/30/97
DEFINITION: Workers' Compensation insurance pays specific benefits required by state law
to employees injured in the course of their employment.
COVERAGE AND LIMITS:
Covered States New York, Connecticut, Rhode Island
Coverage A - Workers' Compensation Statutory
Coverage B - Employer's Liability
Bodily Injury by Accident $ 500,000 Each Accident
Bodily Injury by Disease $ 500,000 Policy Limit
Bodily Injury by Disease $ 500,000 Each Employee
Coverage C - All Other States Insurance except New York, Connecticut, Rhode
Island, Nevada, North Dakota, Ohio, Wyoming, West Virginia, Washington, and
Maine
ANNUAL W.C. PREMIUM: $111,119 (vs. $52,252 - 95/96)
</TABLE>
<PAGE>
SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
WORKERS' COMPENSATION COVERAGE
(Continued)
<TABLE>
<CAPTION>
EXPOSURE INFORMATION
STATE DESCRIPTION CODE PAYROLL
- - ----- ------------------------------------------------------------------------------------- ---- ----------
<S> <C> <C>
NY Electrical Cord Set, Radio or Ignition Harness Assembly 3681 $740,000
Executive Officers 8809 $156,000
Clerical Employees -- NOC 8810 $1,280,000
CT Electrical Cord Set, Radio or Ignition Harness Assembly 3681 $1,250,000
Salespersons -- Outside 8742 If Any
Clerical Employees -- NOC 8810 $550,000
RI Optical Goods Mfg. 4150 $1,800,000
Clerical Employees -- NOC 8810 $350,000
</TABLE>
<PAGE>
SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
<TABLE>
<CAPTION>
UMBRELLA LIABILITY
------------------
<S> <C>
NAMED INSURED: Semiconductor Packaging Materials Co., Inc.
Polese Company, Inc.
Type III, Inc.
American Silicon Products, Inc.
ASP Realty, Inc.
RETCONN, Inc.
CARRIER: Federal Insurance Company
(AM Best Rating: A++XIV)
POLICY PERIOD: 11/30/96-11/30/97
DEFINITION: Umbrella policies provide "excess" coverage in the event of a liability
claim that is large enough to exhaust the limits of your scheduled
underlying policies or primary coverage in excess of the self-insured
retention.
COVERAGE: Occurrence Basis
A. EXCESS COVERAGE
Applicable to losses in excess of underlying umbrella limits of liability.
B. BROAD LEGAL LIABILITY COVERAGES
Subject to the self-insured retention and policy terms, and applicable to
losses not otherwise covered by underlying insurance.
LIMITS: $ 9,000,000 Each Occurrence
$ 9,000,000 Annual Aggregate
SELF-INSURED
RETENTION: $ NIL Each Occurrence
</TABLE>
<PAGE>
SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
UMBRELLA LIABILITY
(Continued)
UNDERLYING SCHEDULE:
TYPE OF COVERAGE LIMITS OF LIABILITY
Comprehensive General Liability $2,000,000 General Aggregate
including Products/Completed $1,000,000 Products/Completed
Operations Operations
Aggregate
$1,000,000 Personal injury and
I.S.O. 1986 Advertising Injury
$1,000,000 Per Occurrence
Comprehensive Automobile $1,000,000 CSL-Bodily Injury
& Property Damage
Employer's Liability $ 500,000 Each Accident
(Bodily Injury) $ 500,000 Disease -- Policy
Limit
$ 500,000 Disease -- Each
Employee
SPECIAL CONDITIONS/EXCLUSIONS:
[ ] Asbestos Exclusion
[ ] Pollution Exclusion
[ ] ERISA
[ ] Real & Personal Care, Custody, Control Exclusion
[ ] Employment Related Discrimination Exclusion
[ ] New York Amendatory Endorsement -- Occurrence
[ ] Notice of Cancellation Endorsement
[ ] Advertising Injury Endorsement
[ ] Aircraft Products Exclusion
[ ] Subject to policy terms, conditions and exclusions
ANNUAL PREMIUM: $25,846 (vs. $22,800 -- 95/96)
<PAGE>
[LOGO] Republic Indemnity Company of America
Company No. 19739 WC000001A
WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY POLICY
INFORMATION PAGE
Policy Number: 03521525
Renewal of Policy Number: 03509993
1. Name and mailing address of the Insured: Insured is: Corporation
SEMICONDUCTOR PACKAGING MATERIALS CO., INC.
(DBA) POLESE CO, INC.
10103 CARROLL CANYON RD.
SAN DIEGO CA 92131
Other workplaces not shown above:
10103 CARROLL CANYON ROAD, SAN DIEGO, CA 92131
2. The policy period is from May 24, 1996 To May 24, 1997 12:01 a.m. standard
time at the insured's mailing address.
3. A. Workers' Compensation Insurance: Part One of the policy applies to the
Workers' Compensation Law of the states listed here:
CA
B. Employers' Liability Insurance: Part Two of the policy applies to work in
each state listed in item 3A. The limits of our liability under Part Two are:
Bodily Injury by Accident $1,000,000 each accident
Bodily Injury by Disease $1,000,000 each employee
Bodily Injury by Disease $1,000,000 policy limit
C. Other States Insurance: Part Three applies to the states, if any,
listed here:
None
D. This policy includes these endorsements and schedules:
1. WC300A, 2. WC301, 3. WC320, 4. WC040601A
4. The premium for this policy will be determined by our Manual of Rules,
Classifications, Rates and Rating Plans. All information required below is
subject to verification and change by audit.
<TABLE>
<CAPTION>
Premium Basis
Code Total Estimated Rate Per $100 Estimated Annual
No. Classification Annual Remuneration of Remuneration Premium
<S> <C> <C> <C> <C>
3383(1) JEWELRY MFG.--INCLUDING FOUNDRY OPERATIONS. $4.38
8742(1) SALESPERSONS--OUTSIDE $0.87
8810(1) CLERICAL OFFICE EMPLOYEES--N.O.C. $0.77
Schedule credit 11.25% ($7,865)
Fraud Investigation & Prosecution Surchg 0.3625000% $225
Workers Comp Administrative Surcharge 0.2482000% $154
Deposit $6,205 + Assessment $379 = Total $6,584 Minimum $1,000 Total Estimated $62,045
Premium Premium Annual Premium
If indicated, interim adjustments of premium shall be
made: Monthly Non-participating
</TABLE>
Producer: ROBERT F DRIVER CO. INC
Code Number: 0004001407 5 Countersigned by: [Signature]
Producing Office: San Diego Date: June 05, 1996
Form No. WC011 10/93
Insured Copy
<PAGE>
[LOGO] Republic Indemnity Company of America
Company No. 19739 WC000001A
WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY POLICY
INFORMATION PAGE
Policy Number: 03521528
Renewal of Policy Number: 03509994
1. Name and mailing address of the Insured: Insured is: Corporation
TYPE III, INC.
10103 CARROLL CANYON ROAD
SAN DIEGO CA 92131
Other workplace not shown above:
2. The policy period is from May 24, 1996 To May 24, 1997 12:01 a.m. standard
time at the insured's mailing address.
3. A. Workers' Compensation Insurance: Part One of the policy applies to the
Workers' Compensation Law of the states listed here:
CA
B. Employers' Liability Insurance: Part Two of the policy applies to work in
each state listed in item 3A. The limits of our liability under Part Two are:
Bodily Injury by Accident $1,000,000 each accident
Bodily Injury by Disease $1,000,000 each employee
Bodily Injury by Disease $1,000,000 policy limit
C. Other State Insurance: Part Three applies to the states, if any, listed here:
None
D. This policy includes these endorsements and schedules:
1. WC300A, 2. WC301, 3. WC320, 4. WC040601A
4. The premium for this policy will be determined by our Manual of Rules,
Classifications, Rates and Rating Plans. All information required below is
subject to verification and change by audit.
<TABLE>
<CAPTION>
PREMIUM BASIS
CODE TOTAL ESTIMATED RATE PER $100 ESTIMATED ANNUAL
NO. CLASSIFICATION ANNUAL RENUMERATION OF RENUMERATION PREMIUM
- - -------- --------------------------------------------- ------------------- --------------- ----------------
<S> <C> <C> <C> <C>
3372(1) ELECTROPLATING-N.P.D. $11.00
Schedule credit 19.25% ($ 7,741)
Fraud Investigation & Prosecution Surchg 0.3625000% $118
Workers Comp Administrative Surcharge 0.2482000% $81
Deposit $3,250 + Assessment $199 =Total $3,449 Minimum $5,000 Total Estimated $32,470
Premium Premium Annual Premium
If indicated, interim adjustments of premium shall be
made: Monthly Non-participating
Producer: ROBERT F DRIVER CO. INC
Code Number: 0004001407 5 Countersigned by: [Signature]
Producing Office: San Diego
Form No. WC011 10/93 Date: June 05, 1996
Insured Copy
</TABLE>
<PAGE>
SCHEDULE V
EXISTING LIENS
See Schedule III
<PAGE>
SCHEDULE VI
EXISTING INVESTMENTS
None
Directors Executive Corporate Officers
RICHARD D. FAIN * GILBERT D. RAKER
Chairman and Chief Executive Officer, Chairman, President and
Royal Caribbean Cruises, Ltd. Chief Executive Officer
JOHN U. MOORHEAD, II * FRANK J. POLESE
President, The Moorhead Group, Inc. Vice Chairman
MARK PINTO + ANDREW A. LOZYNIAK
Vice President/Institutional Sales Executive Vice President,
Corporate Bond Department, Chief Financial Officer,
Sutro & Co. Secretary and Treasurer
FRANK J. POLESE KENNETH J. HUTH
Vice Chairman Executive Vice President
GILBERT D. RAKER
Chairman, President and
Chief Executive Officer
STEVEN B. SANDS +
Chairman, Sands Brothers & Co., Ltd.
+ Member of Audit Committee
* Member of Compensation Committee
Contents:
Selected Financial Data ............................ 1
Chairman's Message ................................ 2
Business Overview .................................. 4
Consolidated Balance Sheet ........................ 6
Consolidated Statement of Income .................. 7
Consolidated Statement of Shareholders' Equity ...... 8
Consolidated Statement of Cash Flows .............. 9
Notes to Consolidated Financial Statements ........ 10
Report of Independent Auditors .................... 18
Management's Discussion and Analysis .............. 19
Range of Stock Prices .............................. 24
Directors and Officers ............................ Inside Front Cover
Corporate Information .............................. Inside Back Cover
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
(Dollar amounts in thousands:
per share amounts in dollars) 1992 1993 1994 1995 1996
------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating Data:
Revenue ........................ $ 6,980 $ 10,068 $ 16,485 $ 28,064 $ 46,027
------ -------- -------- -------- --------
Net income (loss) .............. $ (399) $ 497 $ 736 $ 2,526 $ 3,805
------ -------- -------- -------- --------
Amounts Per Common Share:
Net income (loss) .............. $ (.17) $ .18 $ .21 $ .50 $ .62
------ -------- -------- -------- --------
Dividends declared ............ $ 0 $ 0 $ 0 $ 0 $ 0
------ -------- -------- -------- --------
Weighted average number
of common and common
equivalent shares .............. 2,406 2,691 3,581 5,057 6,176
------ -------- -------- -------- --------
Balance Sheet Data:
Working capital ................ $ 1,624 $ 1,370 $ 789 $ 9,175 $ 10,947
------ -------- -------- -------- --------
Total assets .................. $ 4,991 $ 10,185 $ 24,929 $ 36,071 $ 56,489
------ -------- -------- -------- --------
Long-term obligations
excluding current portion ...... $ 359 $ 2,566 $ 10,475 $ 2,863 $ 12,432
------ -------- -------- -------- --------
Shareholders' equity .......... $ 3,653 $ 5,106 $ 7,706 $ 29,261 $ 33,940
------ -------- -------- -------- --------
</TABLE>
[GRAPHIC OMITTED]
1
<PAGE>
CHAIRMAN'S MESSAGE TO SHAREHOLDERS
1996 marked Semiconductor Packaging Materials' fifth full year as a public
company. By any measure, it was the most successful. Much has changed in the
last few years:
1991 1996
---------- -----------
Revenue $ 6,800,000 $46,000,000
Net Income (700,000) 3,800,000
Earnings per Share (.47) .62
Total Assets 4,500,000 56,500,000
Shareholders' Equity 3,300,000 33,900,000
Market Capitalization 13,900,000 65,900,000
In 1991, the Corporation was a respected supplier to the domestic
microelectronic industry, with one facility, 46 employees and two limited
product lines. Today, the Corporation is a high quality provider of specialty
materials and services to the worldwide microelectronic and semiconductor
industries, with five domestic and two foreign facilities, 595 employees, a
broad array of products and services and the capability to serve premier
customers as a sole source supplier.
Much of this success is the result of focusing on a sound operational and
fiscal basis upon which a small domestically oriented company could prosper in
sizable, worldwide, growth industries and enhance shareholder value. The result
of these efforts for 1996 is reflected in record revenue and income; enhanced
manufacturing and servicing capabilities; and expanded management proficiency.
1996 RESULTS
From a financial perspective, 1996 was a record year. Revenue for the year
was up 64%, from $28.1 million to $46.0 million. Of this $17.9 million increase
in revenue, $9.1 million was achieved through internal growth, roughly a 25%
internal growth rate. Improvement was realized throughout the income statement:
Gross Profit increased 47%, Operating Income increased 68%, Earnings Before
Income Taxes increased 90% and Net Income increased 51% during 1996. Earnings
per Share increased 24% from $.50 per share in 1995 to $.62 per share in 1996,
even though 1995's figure benefited from utilizing the remainder of the
Corporation's tax loss carry forward. On a comparative fully taxed basis,
Earnings Per Share would have increased 59%, from $.39 per share in 1995 to $.62
per share in 1996.
The Corporation's commitment to prudent fiscal management is reflected in a
strong balance sheet at December 31, 1996 with working capital of $10.9 million
and Shareholders' Equity of $33.9 million.
THE STRATEGY
The Corporation's success has been the result of following a clear and
consistent program to:
Focus on core market competency:
At the core of our strategy is our customers and understanding their
unique, rapidly changing requirements. Producing/performing the highest quality
product/service and doing so in the time frame which the customers require is
our fundamental focus. Semiconductor Packaging Materials has invested heavily in
property, plant and equipment and added an experienced personnel infrastructure
to improve quality, develop available capacity and facilitate opportunities. As
a consequence, more aggressive marketing of this competency enabled American
Silicon Products', Polese Company's, and Retconn's revenue to grow 58%, 26% and
26%, respectively, from their 1995 levels.
2
<PAGE>
Develop new products/processes to expand our base:
By leveraging off of the Corporation's technological know-how in metallurgy
in its materials business, design in its connector business and cleaning
techniques in its silicon wafer reclaiming business, the Corporation
continuously seeks to develop new products/processes for its customers. In the
past year these efforts led to the development of a new gold wire for flip
chips, a copper tungsten metal matrix composite for a sole weight for Taylor
Made Golf's new Titanium Bubble 2TM irons and a packaging process for die
("semiconductor chips") in the materials business; a new 31 series of coaxial
connectors in the connector business; and process improvements which enable our
reclaiming facilities to consistently produce wafers with particles of less than
.16 microns and extremely low levels of trace metals in the silicon wafer
reclaiming business.
Complete synergistic acquisitions and alliances:
The Corporation's strategic growth plan is aimed at identifying synergistic
acquisition opportunities with strong top and bottom line growth potential and
high gross margins which are reasonably priced. In that respect, the Corporation
has completed four major acquisitions since 1992, the latest of which was the
acquisition of the assets of Silicon Materials Service and the stock of Silicon
Materials Service B.V. from Air Products and Chemicals in January 1997. This
purchase enabled American Silicon Products, which was acquired in December 1994,
to integrate a domestic competitor and establish a local processing capability
in Europe. The finalization of a strategic alliance through a 50.1% owned joint
venture in Singapore completes the objective of developing a worldwide silicon
wafer reclaim servicing capability.
FISCAL 1997
The initiatives begun in 1995 and 1996 are well under way and the
Corporation's management believes that it is addressing the challenges of
growing a company quickly and soundly. With the completion of the SMS
acquisition and the initiation of the ISP joint venture, the impact of the
silicon wafer reclaim business and the semiconductor industry cycle will become
more pronounced on the results of the corporation. Management will seek to
reduce this cyclicity by directing our reclaim services to new product
opportunities and pursuing expansion of our other business units. Semiconductor
Packaging Materials has been quite successful in acquiring businesses at
reasonable prices, nurturing them with capital and management, and growing them
subsequent to their acquisition. Management will continue to pursue this formula
in building the Corporation.
Management would like to thank all of the Corporation's employees whose
effort and dedication have led to our continuing progress. We would also like to
thank our shareholders for their continued support.
/s/Gilbert D. Raker
Gilbert D. Raker
Chairman, President and
Chief Executive Officer
3
<PAGE>
BUSINESS OVERVIEW
Corporate Profile
Semiconductor Packaging Materials Co., Inc. and its subsidiaries
provide specialty materials and services to the microelectronic and
semiconductor industries on a worldwide basis. The Company's products and
services are sold to a wide array of customers in the aerospace, automotive,
communications, computer, medical, military and semiconductor industries. Many
of the Company's customers are Fortune 500 companies. The Company is ISO 9000
certified at five of its operations and holds various quality awards throughout
the industries it serves.
Semiconductor Services
The Semiconductor Services Group is comprised of four
state-of-the-art facilities that polish and reclaim silicon wafers for the
semiconductor industry. Reclaimed wafers are used primarily in the evaluation
and testing of equipment and processes in semiconductor fabrication. Reclaimed
wafers are also utilized for primary production purposes for low end
semiconductor chip applications.
According to a Rose Associates study, the worldwide market for
reclaimed wafers is expected to grow from $200 million in 1996 to $375 million
by the year 2000. While the percentage of test wafers utilized in semiconductor
fabrication is expected to decrease over this period, the total number of
reclaimed wafers utilized is expected to increase due to the cost benefit of
using reclaimed wafers as compared to using more costly virgin wafers for test
purposes. Historically, reclaim wafers are a fraction of the cost of virgin test
wafers.
The Company provides its reclaim services on a worldwide basis
through its American Silicon Products, Inc. ("ASP"), Silicon Materials Service,
B.V. ("SMS"), and International Semiconductor Products, Pte Ltd. ("ISP")
subsidiaries with operations in Rhode Island, Texas, the Netherlands and
Singapore.
In 1994, the Company gained entry into the silicon wafer reclaim
business with the acquisition of ASP. At that time, ASP was the fourth largest
wafer reclaimer in the United States. Today, with the second of two expansions
almost complete at its Rhode Island facility and the purchase of the Texas
operations, ASP is becoming the largest silicon wafer reclaimer in the United
States. In the past year, the Company has also gained entry into the worldwide
silicon wafer reclaim market with the establishment of ISP and the purchase of
the SMS Netherlands business.
In 1996, the Semiconductor Services Group accounted for 28% of the
Company's revenue and provided 63% of its earnings before taxes. With the
purchase of SMS and the start-up of ISP's operations in the second quarter of
1997, the Company anticipates that a higher percentage of its revenue will be
derived from its Semiconductor Services Group in the future.
The Company's wafer reclaim strategy is to enhance its position in
the United States, to leverage its European and Asian presence through its
Netherlands and Singapore operations, to establish a worldwide leadership role
in the silicon wafer reclaim market and to exploit the technological transfer
between its four wafer reclaim facilities to provide uniform, state-of-the-art
quality service to the semiconductor industry. Most recently, ASP has achieved
the ability to consistently process silicon wafers with particles of less than
.16 microns in size and with extremely low trace metals. The Company believes
that its processing capability equals or betters that of any reclaiming
capability in the world.
Microelectronic Materials
The Microelectronic Materials Group consists of three operations
which provide a wide array of component products used in the assembly of
microelectronic packages. The Company's component products are used primarily to
conduct electrical currents or signals, to solder electronic circuitry, to
provide electrical interconnects, to house electronic components, to mount
components or to dissipate heat. The Company manufactures its microelectronic
materials at its parent company operation in New York, its Polese Company, Inc.
subsidiary in California and its Retconn Incorporated subsidiary in Connecticut.
4
<PAGE>
The parent company's products include customized wire and mental
ribbon for electronic bonding applications and precision metal stampings, many
of which are packaged in tape on reel. Wire and metal ribbon, which is primarily
made from aluminum or gold alloyed material, are used to conduct or regulate
electricity between two points on an electronic circuit. Precision metal
stampings are used to solder or connect electronic circuitry, to package the
electronic circuitry, to dissipate heat or to provide an interface for an
electronic connection. Stampings manufactured by the parent company include
preforms, heat sinks, jumper chips, bonding islands, connectors, lead frames and
bases produced from a variety of materials, including clad, plated, refractory
and precious metals. Stampings packaged in tape on reel are used to support
surface mount assembly operations. The parent company's products are sold
worldwide to customers in the aerospace, automotive, communications, medical and
military industries. In 1996, the parent company developed a new gold wire for
flip chip applications and is also in the process of completing a class 10,000
clean room to facilitate the packaging of die ("semiconductor chips") on tape on
reel.
Polese Company, Inc. manufactures and markets proprietary copper
tungsten heat dissipation products and sealing frames. Heat dissipation products
are used to conduct heat away from critical areas of electronic circuits to
locations where it can be dissipated. Polese Company's heat dissipation products
are primarily used to conduct heat in high power wireless communication devices,
for Personal Communication Services ("PCS") base station applications, and for
high speed microprocessor packages, for the work-station and high-end server
marketplace. Sealing frames enable the hermetic sealing of microprocessors.
Polese Company also manufactures high precision parts through the use of
Electrical Discharge Machines ("EDM"). Polese Company's heat dissipation
products are sold worldwide to microelectronic package manufacturers in the
communication and computer industries and its EDM products are sold principally
to manufacturers in the aerospace and medical industries. Polese Company
recently developed a copper tungsten metal matrix composite for a sole weight
for Taylor Made Golf's Titanium Bubble 2(TM) irons and is continuing its
development effort for next generation heat dissipation materials. Polese
Company is also seeking to identify additional uses for its powdered metal
technology.
Retconn Incorporated designs and manufactures RF coaxial contacts and
connectors which are sold principally to manufacturers in the wireless
communication and computer industries. Retconn participates in the rapidly
growing PCS marketplace. New digital PCS base stations are being built in the
United States to replace old analog cellular phone systems. These new base
stations will require a significant number of coaxial contacts and connectors.
Retconn's products include a full line of DM sub-miniature RF coaxial contacts
and connectors, including solder, solder/crimp, and crimp/crimp standard coaxial
contacts. Retconn has a line of SMA, SMB, SMC and MCX connectors that meet
military specifications. In addition, Retconn offers cable terminations and
specials. In 1996, Retconn introduced its new 31 series coaxial connector and is
currently initiating a program to expand its cable assembly operations in the
United States.
The Company's microelectronic materials strategy is to focus its new
product and service introductions on high gross margin non-commodity niche
products and services, to acquire add-on businesses or product lines which
strengthen the Company's position in the marketplace, to pro-actively meet the
changing needs of its customers and to distinguish the Company from its
competition by providing its customers with superior quality products with the
highest level of service.
5
<PAGE>
SEMICONDUCTOR PACKAGING MATERIALS CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
<S> <C>
December 31, 1996
- - -------------------------------------------------------------------------------------------------------------
ASSETS (Note 5)
Current Assets:
Cash and cash equivalents (Note 1) $ 3,531,099
Accounts receivable, less allowance for doubtful accounts of $143,000 5,637,158
Inventories (Notes 1 and 3) 9,078,471
Prepaid expenses and other current assets 885,644
- - -------------------------------------------------------------------------------------- ---------------
Total current assets 19,132,372
- - -------------------------------------------------------------------------------------- ---------------
Property and Equipment--at cost, net of accumulated depreciation and amortization of
$6,444,253
(Notes 1, 4 and 6) 20,700,573
- - -------------------------------------------------------------------------------------- ---------------
Other Assets:
Goodwill (Notes 1 and 2) 14,816,454
Technology rights and intellectual property (Note 1) 749,523
Other 1,090,403
- - -------------------------------------------------------------------------------------- ---------------
Total other assets 16,656,380
- - -------------------------------------------------------------------------------------- ---------------
Total Assets $56,489,325
====================================================================================== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,462,227
Accrued expenses 856,810
Income taxes payable (Note 7) 1,143,518
Current portion of long-term debt (Note 5) 1,416,000
Current portion of obligations under capital leases (Notes 4 and 6) 1,306,763
- - -------------------------------------------------------------------------------------- ---------------
Total current liabilities 8,185,318
Deferred Income Taxes (Note 7) 1,470,460
Long-term Debt (Note 5) 6,719,333
Obligations under Capital Leases (Notes 4 and 6) 4,242,415
- - -------------------------------------------------------------------------------------- ---------------
Total liabilities 20,617,526
- - -------------------------------------------------------------------------------------- ---------------
Commitments and Contingency (Notes 2 and 8)
Minority Interest in Subsidiary (Note 2) 1,932,171
- - -------------------------------------------------------------------------------------- ---------------
Shareholders' Equity (Notes 1 and 9):
Preferred stock--$.10 par value; authorized 1,000,000 shares, none issued
Common stock--$.10 par value; authorized 10,000,000 shares, issued 6,355,516 shares 635,552
Additional paid-in capital 28,070,464
Retained earnings 5,233,612
- - -------------------------------------------------------------------------------------- ---------------
33,939,628
Less treasury stock: 300,000 shares at cost -0 -
- - -------------------------------------------------------------------------------------- ---------------
Shareholders' equity 33,939,628
- - -------------------------------------------------------------------------------------- ---------------
Total Liabilities and Shareholders' Equity $56,489,325
====================================================================================== ===============
</TABLE>
6 The accompanying notes are an integral part of these statements
<PAGE>
SEMICONDUCTOR PACKAGING MATERIALS CO., INC. AND SUBSIDIARIES
xxx CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
<S> <C> <C>
Year ended December 31, 1996 1995
- - ------------------------------------------------------------------- ----------- -----------
Revenue (Notes 1, 10 and 11):
Net sales $33,140,074 $19,923,436
Service revenue 12,887,129 8,140,791
- - ------------------------------------------------------------------- ----------- -----------
46,027,203 28,064,227
----------- -----------
Cost of goods sold and services performed:
Cost of goods sold 23,551,851 13,941,243
Cost of services performed 7,165,232 3,739,544
- - ------------------------------------------------------------------- ----------- -----------
30,717,083 17,680,787
----------- -----------
Gross profit 15,310,120 10,383,440
Selling, general and administrative expenses (Note 8) 8,203,114 6,145,868
- - ------------------------------------------------------------------- ----------- -----------
Operating income 7,107,006 4,237,572
Interest expense--net of interest income of $129,970 and $103,450,
respectively (Notes 5 and 6) 920,379 989,264
- - ------------------------------------------------------------------- ----------- -----------
Income before provision for income taxes and minority interest
in loss of consolidated subsidiary 6,186,627 3,248,308
Provision for income taxes (Note 7) 2,445,000 722,488
- - ------------------------------------------------------------------- ----------- -----------
Income before minority interest in loss of consolidated subsidiary 3,741,627 2,525,820
Minority interest in loss of consolidated subsidiary (Note 2) 63,828 -
- - ------------------------------------------------------------------- ----------- -----------
Net income $ 3,805,455 $ 2,525,820
=================================================================== =========== ===========
Earnings per common share (Note 1) $ .62 $ .50
=================================================================== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements 7
<PAGE>
SEMICONDUCTOR PACKAGING MATERIALS CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings Total
----------------------- Paid-in Accumulated Shareholders'
Shares Amount Capital (Deficit) Equity
---------- --------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995 3,785,177 $378,518 $ 8,425,642 $(1,097,663) $ 7,706,497
Net proceeds from sale of stock (Note 9) 1,654,500 165,450 16,766,165 - 16,931,615
Net proceeds from exercise of stock warrants
(Note 9) 591,389 59,139 1,070,978 - 1,130,117
Proceeds from exercise of stock options (Note 9) 106,500 10,650 369,562 - 380,212
Tax benefit related to incentive stock option plan
(Note 7) - - 62,000 - 62,000
Issuance of common stock 52,500 5,250 519,750 - 525,000
Net income - - - 2,525,820 2,525,820
- - --------------------------------------------------- ---------- --------- ------------ ------------ ---------------
Balance at December 31, 1995 6,190,066 619,007 27,214,097 1,428,157 29,261,261
Net proceeds from exercise of stock warrants
(Note 9) 1,200 120 2,280 - 2,400
Proceeds from exercise of stock options (Note 9) 149,250 14,925 612,337 - 627,262
Tax benefit related to incentive stock option plan
(Note 7) - - 97,000 - 97,000
Issuance of common stock (Note 2) 15,000 1,500 144,750 - 146,250
Net income - - - 3,805,455 3,805,455
- - --------------------------------------------------- ---------- --------- ------------ ------------ ---------------
Balance at December 31, 1996 6,355,516 $635,552 $28,070,464 $ 5,233,612 $ 33,939,628
=================================================== ========== ========= ============ ============ ===============
</TABLE>
8 The accompanying notes are an integral part of these statements
<PAGE>
SEMICONDUCTOR PACKAGING MATERIALS CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995
- - ----------------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,805,455 $ 2,525,820
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property and equipment 2,239,755 1,636,311
Other amortization 689,364 449,917
Deferred income taxes 907,000 563,460
Minority interest in subsidiary loss (63,828) -
Changes in operating assets and liabilities:
Increase in accounts receivable (950,563) (487,959)
Increase in inventories (2,784,192) (1,542,898)
(Increase) decrease in prepaid expenses and other current assets (321,484) 121,963
Increase (decrease) in accounts payable 1,209,351 (346,297)
Increase in accrued expenses 297,783 124,026
Increase in income taxes payable 1,185,518 55,000
- - ----------------------------------------------------------------------------------- ------------ -----------
Net cash provided by operating activities 6,214,159 3,099,343
- - ----------------------------------------------------------------------------------- ------------ -----------
Cash flows from investing activities:
Purchase of property and equipment (7,943,314) (4,784,136)
Payments for acquisition of subsidiaries, net of cash acquired (8,111,149) (880,214)
Increase in other assets (276,735) (248,903)
Investment in joint venture by minority interest (Note 2) 1,996,000 -
- - ----------------------------------------------------------------------------------- ------------ -----------
Net cash used in investing activities (14,335,198) (5,913,253)
- - ----------------------------------------------------------------------------------- ------------ -----------
Cash flows from financing activities:
Proceeds from exercise of warrants 2,400 1,182,778
Proceeds from exercise of stock options 627,262 380,212
Proceeds from sale of stock - 19,233,563
Payment of stock offering costs - (2,301,948)
Decrease in amount due to shareholders - (500,887)
Net payments under revolving credit - (1,565,000)
Payments under capital leases (937,214) (393,082)
Payments under long-term debt (720,834) (9,492,704)
Proceeds from long-term debt 7,760,000 -
Payment of warrant offering costs - (52,661)
Cash received from equipment financing 676,449 -
- - ----------------------------------------------------------------------------------- ------------ -----------
Net cash provided by financing activities 7,408,063 6,490,271
- - ----------------------------------------------------------------------------------- ------------ -----------
Net increase (decrease) in cash and cash equivalents (712,976) 3,676,361
Cash and cash equivalents at beginning of year 4,244,075 567,714
- - ----------------------------------------------------------------------------------- ------------ -----------
Cash and cash equivalents at end of year $ 3,531,099 $ 4,244,075
=================================================================================== ============ ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 934,883 $ 1,089,536
=================================================================================== ============ ===========
Income taxes $ 307,377 $ 51,030
=================================================================================== ============ ===========
Supplemental schedule of noncash investing and financing activities:
Machinery and equipment, net of trade in, acquired under capital lease $ 3,523,264 $ 972,560
=================================================================================== ============ ===========
Issuance of common stock in connection with the acquisition of a subsidiary $ 146,250 $ 525,000
=================================================================================== ============ ===========
Accrued amounts relating to acquisition of subsidiary - $ 625,000
=================================================================================== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements 9
<PAGE>
SEMICONDUCTOR PACKAGING MATERIALS CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRINCIPAL BUSINESS ACTIVITIES
AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
The accompanying consolidated financial statements include the accounts of
Semiconductor Packaging Materials Co., Inc. ("SPM") and its wholly owned and
majority-owned subsidiaries (collectively the "Company"). All significant
intercompany transactions and balances have been eliminated. As further
described in Note 2, on January 2, 1996, the Company acquired Retconn,
Incorporated ("Retconn"). This combination has been accounted for as a purchase.
Additionally, as described in Note 2, on August 28, 1996 the Company established
International Semiconductor Products Pte Ltd. ("ISP"), a joint venture with an
unrelated third party. The results of operations of Retconn are included in the
Company's consolidated financial statements from the date of acquisition and the
results of operations of ISP are included in the Company's consolidated
financial statements from the date operations commenced. As further described in
Note 2, on January 23, 1997 the Company acquired certain assets and assumed
certain liabilities of Silicon Materials Service and the common stock of Silicon
Materials Service, B.V. (collectively "SMS").
The Company provides specialty materials and services to the
microelectronic and semiconductor industries. SPM designs, develops,
manufactures and markets customized fine wire and metal ribbon and precision
metal stampings for use in the manufacture of electronic components and produces
progressive die precision metal stampings. Polese Company, Inc. ("Polese")
manufactures and markets proprietary copper/tungsten heat dissipation products
and seal frames for use in the manufacture of electronic components and produces
specialty parts, through the use of electrical discharge machines. American
Silicon Products, Inc. ("ASP") and ISP provide silicon wafer polishing and
reclamation services to the semiconductor industry. Retconn develops, designs
and manufactures subminiature coaxial contacts and connectors which are sold
principally to manufacturers in the communications and computer industries.
Revenue from the sale of products is recognized at the date of shipment to
customers. Service revenue is recognized when the services are performed.
The Company considers all investments purchased with an original maturity
of three months or less to be cash equivalents.
The Company maintains cash in bank accounts which, at times, may exceed
federally insured limits. The Company has not experienced any loss on these
accounts.
Inventories, which consist principally of work-in-process inventory,
include raw materials, labor and manufacturing expenses and are stated at the
lower of cost, determined by the first-in, first-out method, or market.
Depreciation and amortization of property and equipment is provided for by
the straight-
line method over the estimated useful lives of the related assets.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates by management
affecting the reported amounts of assets and liabilities and revenue and
expenses and the disclosure of contingent assets and liabilities. Actual results
could differ from those estimates.
The excess of cost over fair value of net assets acquired (goodwill),
amounting to approximately $15,903,000, is being amortized over periods ranging
from 25 to 40 years using the straight-line method (see Note 2). Accumulated
amortization at December 31, 1996 was
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
approximately $1,087,000. The Company reviews the carrying value of goodwill for
impairment, periodically and whenever events or changes in circumstances
indicate that the amounts may not be recoverable. The review for recoverability
includes an estimate by the Company of the future undiscounted cash flows
expected to result from the use of the assets acquired and their eventual
disposition. An impairment will be recognized if the carrying value of the
assets exceeds the estimated future undiscounted cash flows of those assets.
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, on January 1, 1996. This change has not had a
significant effect on the consolidated financial statements.
Certain technology rights and intellectual property, related to the
development and application of copper/tungsten powdered metal technology, which
were acquired from the sole shareholder of Polese, amounting to approximately
$950,000, are being amortized over 17 years using the straight-line method.
Accumulated amortization at December 31, 1996 was approximately $200,000.
The Company elected to continue to measure compensation cost using APB
Opinion No. 25 as is permitted by SFAS No. 123, Accounting for Stock-Based
Compensation, and has elected to comply with other provisions and the disclosure
requirements of SFAS No. 123 (see Note 9).
Earnings per common share is computed based on the weighted average number
of common shares actually outstanding plus the shares that would be outstanding
assuming the exercise of employee stock options and redeemable warrants
described in Note 9, all of which are considered to be common stock equivalents.
The number of shares that would be issued from the exercise of options and
warrants have been reduced by the number of shares that could have been
repurchased from the proceeds at the average market price of the Company's
common stock for primary earnings per share. For the years ended December 31,
1996 and 1995, the weighted average number of common and common equivalent
shares outstanding amounted to 6,175,556 and 5,057,267, respectively, for both
primary and fully diluted purposes.
The Company plans to adopt SFAS No. 128, Earnings per Share, by the
required effective date. Management has not determined the effect of this change
on the Company's consolidated financial statements.
2. ACQUISITIONS AND INVESTMENTS:
In connection with the Company's acquisition of Polese in 1993, for a
period of 10 years from the date of acquisition, the former sole shareholder of
Polese is entitled to receive 10% of (1) the pretax profit from the Company's
copper/
tungsten product line after allocating operating costs, and (2) the proceeds of
the sale, if any, by the Company of the powdered metal technology. Amounts due
pursuant to this agreement will be charged to operations as incurred. To date,
no amounts are due pursuant to this agreement.
Effective January 2, 1996, the Company acquired all of the common stock of
Retconn for $5,933,000 in cash. This business combination was accounted for as a
purchase. In addition, the Company incurred approximately $1,132,000 in costs
associated with the acquisition of Retconn, which included the issuance of
15,000 shares of the Company's common stock. The fair value of assets acquired,
including approximately $4,696,000 allocated to goodwill, which is being
amortized over 25 years, amounted to approximately $8,033,000 and liabilities
assumed amounted to approximately $968,000.
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On August 28, 1996, the Company invested $2,004,000 in ISP, a joint venture
located in Singapore, for a 50.1% ownership interest.
Effective January 23, 1997, the Company acquired SMS for approximately
$13,000,000 in cash (of which $400,000 was paid prior to December 31, 1996)
which included the working capital of SMS as of January 23, 1997, which was
estimated to be approximately $2,600,000, in a business combination accounted
for as a purchase. SMS provides silicon wafer polishing and reclamation services
to the semiconductor industry. In connection with the acquisition, on January
23, 1997 the Company entered into a term loan with a bank (the "Bank"), as
further described in Note 5.
3. INVENTORIES:
The components of inventories are as follows:
Precious metals $1,635,275
Non-precious metals 7,443,196
- - -------------------- -----------
$9,078,471
===========
The Company has a consignment arrangement with a bank, as described in Note
8, which provides for the leasing of precious metals by the Company. The Company
pays for these precious metals based on actual usage.
4. PROPERTY AND EQUIPMENT:
Property and equipment, at cost, consists of the following:
Estimated
Useful Life
-----------------
Land $ 642,280
Building and
improvements 4,568,518 39 years
Machinery and
equipment 20,152,904 4 to 15 years
Leasehold
improvements 861,553 1.5 to 7 years
Furniture, fixtures and
office equipment 875,509 4 to 7 years
Automobiles 44,062 3 years
- - ------------------------ ----------- -----------------
$27,144,826
=========== =================
Included in machinery and equipment and furniture, fixtures and office
equipment is approximately $7,275,000 and $50,000, respectively, of property
acquired under capital leases. Amortization on these assets is included in
depreciation and amortization expense. Accumulated amortization on these assets
amounted to approximately $1,294,000 at December 31, 1996. The property held
under these leases is collateral for the related capital lease obligations
described in Note 6.
5. LONG-TERM DEBT:
Long-term debt consists of the following:
Term loan (a) $ 390,000
Term loan (b) 1,745,333
Term loan (c) 6,000,000
- - ------------------------ ----------
8,135,333
Less current maturities 1,516,000
- - ------------------------ ----------
$6,619,333
==========
(a) In conjunction with the acquisition of Polese (see Note 2) the Company
entered into a term loan with the Bank on May 27, 1993 in the principal amount
of $1,200,000. The loan bears interest at the Bank's loan pricing rate (8.25% at
December 31, 1996) plus 1.5% and is payable in 20 consecutive quarterly
installments of $60,000, plus interest, which commenced on October 1, 1993.
(b) In conjunction with the acquisition of a building, the Company entered
into a term loan with the Bank on November 4, 1996 in the principal amount of
$1,760,000. The loan bears interest at the Bank's loan pricing rate and is
payable in 120 consecutive monthly installments of $14,667, plus interest, which
commenced on December 1, 1996.
(c) In conjunction with the acquisition of Retconn (see Note 2), the
Company entered into a term loan with the Bank on January 4, 1996 in the
principal amount of $6,000,000. Through December 31, 1996, no principal payments
were due and interest was payable monthly at the Bank's loan
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
pricing rate. As described below, this loan was refinanced subsequent to
December 31, 1996.
Maturities of long-term debt are as follows:
Year ending December 31,
1997 $1,416,000
1998 1,526,000
1999 1,376,000
2000 1,376,000
2001 1,376,000
Thereafter 1,065,333
- - ------------------------- -----------
$8,135,333
===========
On January 23, 1997, the Company entered into a term loan with the Bank in
the principal amount of $21,000,000. The loan was used to refinance the term
loan described in Note 5(c) above and for the acquisition of SMS as described in
Note 2. The loan bears interest at the London Interbank Offer Rate ("LIBOR")
plus 2.25% and is payable in 60 consecutive monthly installments of $350,000,
plus interest, which commenced on March 1, 1997.
On January 23, 1997, the Company also entered into a $15,000,000 line of
credit with the Bank which expires in February 1999 which includes a standby
letter of credit for ISP in the amount of $3,600,000. Interest is payable
monthly at the lower of LIBOR plus 2.25% or the Bank's loan pricing rate.
Because the interest rates will change with changes in the prime rate and
LIBOR, the fair value of the bank debt is equal to the carrying amount.
The above loan agreements provide, among other things, that the Company is
subject to restrictions related to the issuance of additional indebtedness,
additional liens and security interests, capital expenditures and the payment of
dividends. In addition, the above loans are collateralized by a blanket lien on
substantially all the Company's assets.
6. OBLIGATIONS UNDER CAPITAL LEASES:
The Company is the lessee of property and equipment acquired under capital
leases expiring in various years through 2001.
Future lease payments under capital leases are as follows:
Year ending December 31,
1997 $1,772,367
1998 1,672,286
1999 1,407,478
2000 1,225,696
2001 539,869
- - ---------------------------------- ----------
6,617,696
Less amount representing interest 1,068,518
- - ---------------------------------- ----------
5,549,178
Less current portion 1,306,763
- - ---------------------------------- ----------
$4,242,415
================================== ==========
Interest rates on these capital leases average approximately 8.5% per
annum.
7. INCOME TAXES:
The provision for income taxes for the years ended December 31, 1996 and
1995 consists of the following components:
Year ended December 31, 1996 1995
- - ------------------------- ------------- ----------
Current:
Federal $1,348,000 $ 82,681
State 190,000 76,347
Deferred:
Federal 742,500 548,807
State 164,500 14,653
- - ---------- ---------- --------
$2,445,000 $722,488
========== ========
The provision for income taxes for the years ended December 31, 1996 and
1995 differs from the amount computed using the federal statutory rate of 34% as
a result of the following:
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Year ended December 31, 1996 1995
- - ------------------------------ ------ ------
Tax at federal statutory rate 34.0% 34.0%
State income taxes, net of
federal tax benefit 3.8 1.8
Effect of permanent
differences 1.1 -
Effect of net operating loss
carryforward - (13.6)
Other .6 -
- - ------------------------------ ------ ------
39.5% 22.2%
====== ========
The tax effects of temporary differences that give rise to the net deferred
tax liability at December 31, 1996 are presented below:
Accelerated depreciation $ 613,000
Basis differences in
amortization of intangibles 857,460
- - ----------------------------- ----------
$1,470,460
==========
The Company files a consolidated federal income tax return which includes
the results for all its domestic subsidiaries and separate state and local
income tax returns.
For the years ended December 31, 1996 and 1995, the Company recognized for
income tax purposes a tax benefit of $97,000 and $62,000, respectively, for
compensation expense related to its incentive stock option plan for which no
corresponding charge to operations has been recorded. Such amounts have been
added to additional paid-in capital for the years ended December 31, 1996 and
1995.
8. COMMITMENTS AND CONTINGENCY
AND RELATED PARTY
TRANSACTIONS:
The Company leases office and manufacturing facilities from an entity owned
by two former shareholders of a predecessor company at $180,000 per annum
expiring in 1997. The Company has other noncancelable operating leases expiring
through 1999 for the rental of office and manufacturing facilities. The leases
also require payments for real estate taxes and other operating costs.
Approximate minimum future rental payments, exclusive of payments for real
estate taxes and other operating costs, under these leases are as follows:
Year ending December 31,
1997 $ 489,000
1998 516,000
1999 291,000
- - ------------------------- ----------
$1,296,000
========================= ==========
Rent expense charged to operations for the years ended December 31, 1996
and 1995 amounted to approximately $466,000 and $440,000, respectively.
The Company has employment agreements with five shareholders (the
"Shareholders"), who are also employees of the Company, and two other employees,
expiring in various years through 2001. The approximate aggregate commitment for
future salaries, excluding bonuses, under these employment agreements is as
follows:
Year ending December 31,
1997 $ 971,000
1998 733,000
1999 760,000
2000 85,000
2001 92,000
- - ------------------------- ----------
$2,641,000
========================= ==========
The Shareholders have agreed not to engage in a business that is
competitive with the Company during the term of their agreement and for a period
of one year thereafter.
On December 23, 1996, the Company entered into a consignment agreement (the
"Consignment Agreement") with a bank which expires December 23, 1998. Under the
Consignment Agreement, the Company purchases gold used in its manufacturing of
materials. The Consignment Agreement provides for gold on consignment not to
exceed the lesser of 6,000 troy ounces of gold or
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
gold having a market value of $2,700,000. At December 31, 1996, the Company's
obligation under the Consignment Agreement was approximately 4,502 troy ounces
of gold valued at approximately $1,650,000. The Consignment Agreement requires
the Company to pay a consignment fee of 3.25% per annum based upon the value of
all gold consigned to the Company.
The Company has capital commitments at December 31, 1996 of approximately
$3,800,000 for the acquisition of machinery and equipment.
9. CAPITAL TRANSACTIONS:
The Company has an incentive stock option plan (the "Incentive Plan"), as
amended, in which 600,000 common shares have been reserved for future issuance.
The Incentive Plan provides for the sale of shares to employees of the Company
at a price not less than the fair market value of the shares on the date of the
option grant, provided that the exercise price of any option granted to an
employee owning more than 10% of the outstanding common shares of the Company
may not be less than 110% of the fair market value of the shares on the date of
the option grant. The term of each option and the manner of exercise is
determined by the board of directors, but in no case can the options be
exercisable in excess of 10 years beyond the date of grant. In May 1995, the
Company adopted a nonqualified stock option plan (the "Nonqualified Plan") under
which 100,000 shares have been reserved for future issuance.
At December 31, 1996, options to purchase 473,250 and 52,500 shares,
respectively, of common stock (excluding lapsed shares) have been granted under
the Incentive Plan and the Nonqualified Plan since the inception of both plans.
In addition, at December 31, 1996, options to purchase 240,000 shares of common
stock have been granted outside the Incentive Plan and the Nonqualified Plan at
a price equal to the fair market value of the shares at the date of grant.
A summary of the status of the Company's options as of December 31, 1996
and 1995, and changes during the years then ended is presented below:
1996 1995
--------- ---------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
- - ---------------------- --------- ----------- --------- -----------
Outstanding at
beginning of year 408,000 $4.86 415,500 $3.65
Canceled (5,500) 7.84 (14,000) 4.70
Granted 256,750 8.81 113,000 8.04
Exercised (149,250) 4.22 (106,500) 3.53
- - ---------------------- --------- ----------- --------- -----------
Outstanding at
end of year 510,000 $7.00 408,000 $4.86
====================== ========= =========== ========= ===========
Options exercisable
at year-end 332,250 323,000
====================== ========= ========= ===========
Weighted-average fair
value of
options granted
during the year $ 4.39 $ 4.08
====================== ========= ========= ===========
The Company has elected, in accordance with the provisions of SFAS No. 123,
to apply the current accounting rules under APB Opinion No. 25 and related
interpretations in accounting for its stock options and, accordingly, has
presented the disclosure-only information as required by SFAS No. 123. If the
Company had elected to recognize compensation cost based on the fair value of
the options granted at the grant date as prescribed by SFAS No. 123, the
Company's net income and earnings per common share for the years ended December
31, 1996 and 1995 would approximate the pro forma amounts indicated in the table
below:
Year ended December 31, 1996 1995
- - ------------------------- ---------- ----------
Net income--as reported $3,805,455 $2,525,820
========================= ========== ==========
Net income--pro forma $3,117,371 $2,250,564
========================= ========== ==========
Earnings per common
share--as reported $ .62 $ .50
========================= ========== ==========
Earnings per common
share--pro forma $ .50 $ .45
========================= ========== ==========
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-
average assumptions used for the years ended December 31, 1996 and 1995,
respectively: expected volatility of 56.9% and 61.1%, respectively; risk-free
interest rate of 5.8% and 6.4%, respectively; and expected lives of 4.2 years.
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------- -------------------------------
Number Weighted- Number
Outstanding Average Weighted- Exercisable Weighted-
at Remaining Average at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 1996 Life Price 1996 Price
- - ---------------- -------------- ------------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C>
$1.85-$3.88 48,750 4.1 $3.15 48,750 $3.15
$4.26-$6.25 150,000 2.8 4.74 150,000 4.74
$7.69-$8.46 171,750 6.9 8.21 91,500 8.17
$8.88-$9.88 139,500 7.5 9.30 42,000 9.57
- - ---------------- -------------- ------------- ------ -------------- ------
$1.85-$9.88 510,000 5.6 $7.00 332,250 $6.06
================ ============== ============= =========== ============== ===========
</TABLE>
On February 7, 1994, the Company completed a registration statement on Form
S-3 for the registration of 698,625 shares of common stock issuable upon the
exercise of redeemable warrants at $2.00 per share. The redeemable warrants were
issued without cost as a distribution to the Company's shareholders of record as
of February 8, 1994. Certain shareholders of the Company, including its chairman
and three of its directors, agreed to contribute the redeemable warrants back to
the Company. Consequently, an additional 831,000 shares of common stock that
would have been issuable upon the exercise of redeemable warrants were not
issued or sold. The registration statement also registered 170,250 shares of
common stock issuable upon the exercise of certain warrants held by the
underwriter at $2.00 per share. In January 1995, the Company notified all
registered holders of the redeemable warrants that the expiration date of the
warrants would be accelerated from February 7, 1997 to February 23, 1995. The
proceeds received were used for general corporate and working capital purposes.
On July 27, 1995, the Company completed a registration statement on Form
SB-2, offering 1,600,000 shares of common stock by the Company at an offering
price of $11.625 per share. In addition, the underwriter exercised the "over-
allotment" provision of the Underwriting Agreement to purchase an additional
54,500 shares of common stock. The Company received net proceeds of
approximately $16,932,000 after deducting underwriting discounts and expenses of
the offering of approximately $2,302,000. The proceeds of the offering were used
to retire an $8,250,000 term loan with the Bank incurred in conjunction with the
acquisition of ASP, to repay the balance of the Company's line of credit, to
purchase and improve the Company's new ASP facility, to purchase additional
machinery and equipment, to repay the balance of outstanding promissory notes
issued in connection with the Polese acquisition, and for general corporate and
working capital purposes.
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. MAJOR CUSTOMERS:
For the year ended December 31, 1996, one customer accounted for
approximately 11% of the Company's total revenue. For the year ended December
31, 1995, two customers accounted for approximately 16% and 11%, respectively,
of the Company's total revenue.
11. EXPORT REVENUE:
For the year ended December 31, 1996, export revenue to unaffiliated
customers amounted to approximately 10% of the Company's total revenue.
12. PRO FORMA FINANCIAL INFORMATION (unaudited):
The following summarized pro forma consolidated statement of income
(unaudited) assumes the acquisition of the business of Retconn as if it had
occurred on January 1, 1995.
Revenue $36,850,036
============================== ============
Net income $ 3,236,272
============================== ============
Earnings per common and common
equivalent share:
Earnings per common share $ .64
Weighted average number of
common and common equivalent
shares outstanding 5,072,267
============================== ============
This pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the operating results that
would have occurred had the acquisition been consummated as of the assumed date,
nor is it necessarily indicative of future operating results.
17
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors
Semiconductor Packaging Materials Co., Inc.
We have audited the accompanying consolidated balance sheet of Semiconductor
Packaging Materials Co., Inc. and Subsidiaries as of December 31, 1996 and the
related consolidated statements of income, shareholders' equity, and cash
flows for each of the two years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Semiconductor Packaging Materials Co., Inc. and Subsidiaries as of December
31, 1996 and the results of their operations and their cash flows for each of
the two years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/Goldstein Golub Kessler & Company, P.C.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
January 30, 1997
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (1996 compared to 1995)
Total revenue for 1996 increased $17,963,000, or 64%, over the comparable
1995 period. The increase was primarily due to the inclusion of $11,059,000 of
revenue from Retconn Incorporated ("Retconn"), which was acquired by the Company
as of January 2, 1996, a $4,746,000, or 58% increase in revenue at American
Silicon Products ("ASP"), primarily as a result of ASP's increased capacity
enabling it to meet demand for its services; and a $2,015,000, or 26% increase
in revenue at Polese Company, due to increased sales of its copper/tungsten heat
dissipation products. Revenues at the parent company ("SPM") increased $143,000,
or 1% from prior year levels. For 1996 and 1995, direct sales of the Company's
products into foreign markets accounted for slightly less than 10% and 5.0%,
respectively, of consolidated revenue. The Company currently maintains foreign
manufacturing operations in Singapore and in the Netherlands. In 1996, the
Company did not derive any revenue from its foreign manufacturing operations.
Foreign sales are made through seventeen foreign manufacturer's representatives
and are priced and paid for in U.S. dollars. The Company believes that its
revenue has been, and will be, affected by the cyclical nature of the industries
it serves. Effective August 28, 1996, the Company entered into a joint venture
agreement to develop a silicon wafer polishing and reclaiming facility in
Singapore. On January 23, 1997, ASP acquired a competitor in the silicon wafer
reclaiming business, Silicon Materials Service and Silicon Materials Service,
B.V. (collectively "SMS"). The SMS acquisition, and the Company's joint venture
in Singapore, will further increase the Company's reliance on the semiconductor
industry and its future revenues could be impacted by the cyclical nature of the
semiconductor industry.
Gross profit for 1996 increased $4,927,000, or 47%, from the comparable
1995 period. The increase was primarily due to the inclusion of $3,248,000 of
Retconn gross profit and a $1,321,000 increase in ASP's gross profit from prior
year levels. ASP's gross profit increased 30%, Polese Company's gross profit
increased 21% and SPM's gross profit did not change from the comparable 1995
period. As a result of a lower gross margin at ASP and the inclusion of
Retconn's operations in the 1996 period, (gross margin at Retconn is lower than
the historical margins of the Company) gross margin decreased to 33% in 1996
from 37% in the comparable 1995 period. ASP's gross margin decreased primarily
due to increased depreciation and manufacturing costs associated with its
capacity expansion.
Selling, general and administrative ("SG&A") expenses in 1996 increased
$2,057,000, or 33% over the comparable 1995 period. The increase was primarily
due to the inclusion of $1,819,000 of Retconn's SG&A costs with the Company's in
the 1996 period. The Company's 1996 SG&A expenses also include $120,000 of
expenses generated by its Singapore joint venture. SG&A expenses as a percentage
of revenue decreased to 18% in the 1996 period from 22% in the comparable 1995
period.
Net interest expense for the 1996 period decreased $69,000 from the
comparable 1995 period. Increased interest costs in the 1996 period associated
with term debt incurred in conjunction with the Retconn acquisition was more
than offset by a reduction in interest costs at ASP in 1996. Debt incurred in
the ASP acquisition was retired using a portion of the proceeds from the
Company's July 1995 public offering.
A provision of $2,445,000 for income taxes has been made for the 1996
period as compared to a $722,000 provision in the comparable 1995 period. In the
1996 period, the Company's earnings were taxed at an effective tax rate of 39.5%
as compared to an effective tax rate of 22.2% in the comparable 1995 period. The
effective tax rate in the 1995 period was lower than the effective tax rate in
the 1996 period due to the utilization of consolidated net operating loss carry
forwards in the 1995 period. In the 1996 period, the Company has included a
$128,000 loss associated with its Singapore joint venture in its income before
minority interest in loss of consolidated subsidiary. The Company has a 50.1%
interest in the joint venture and has accordingly, excluded $64,000, or 49.9% of
such loss from its consolidated net income.
19
<PAGE>
As a result of the foregoing, net income increased $1,280,000, or 51% in
1996 over the comparable 1995 period. In 1996, all of the Company's operations
were profitable except for Polese Company which recorded a $109,000 after tax
loss. It is anticipated that Polese Company's profitability will continue to
improve as it increases sales of its copper/tungsten heat dissipation products
and improves its productivity.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its capital needs through the proceeds of its
public offerings, its revolving credit facility and term loans from First Union
Bank (the "Bank") and cash flow from operations.
At December 31, 1996, the Company had cash and cash equivalents of
$3,531,000, of which $2,987,000 related to cash at its Singapore joint venture,
International Semiconductor Products Pte Ltd ("ISP") and had an available
balance on its revolving credit facility of $5,000,000.
Net cash provided by operating activities in 1996 amounted to $6,214,000 as
compared to $3,099,000 in the comparable 1995 period. Cash provided by operating
activities in the 1996 period increased over the 1995 period primarily as the
result of a $1,280,000 increase in net income which included a $603,000 increase
in depreciation and amortization of property and equipment and a $239,000
increase in other amortization, and a $344,000 increase in deferred taxes. The
increases in depreciation and amortization of property and equipment and other
amortization were due to increased depreciation and amortization associated with
investments made by the Company in property and equipment in 1995 and 1996 and
from amortization of goodwill associated with the Retconn acquisition. In the
1996 and 1995 periods, the Company recorded net deferred tax expense of $907,000
and $563,000, respectively, representing the tax effects of temporary
differences between the Company's book and tax bases. In 1996, the Company used
$951,000 and $2,784,000, respectively, of cash derived from operations to fund
increases in accounts receivable and inventories as compared to using $488,000
and $1,543,000, respectively, to fund such increases in the comparable 1995
period. The increases in the Company's accounts receivable and inventories were
made to support increased revenues. Accounts payable increased $1,209,000 in the
1996 period as compared to decreasing $346,000 in the comparable 1995 period. In
the 1996 period, accounts payable increased primarily due to increases in
inventory purchases and in the 1995 period, the Company reduced its accounts
payable days outstanding to be in line with industry standards. As a result of
the Company's increased profitability and higher effective tax rates, income
taxes payable increased $1,131,000 in 1996 over the comparable 1995 period.
To support the Company's growth and enhance its profitability, in 1996 and
1995, the Company invested $7,943,000 and $4,784,000, respectively, in property
and equipment. In November 1996, the Company purchased a $2,200,000 building to
house SPM's operations, $1,760,000 of which was financed through term debt which
is payable in 120 equal monthly installments. The aforementioned investment in
1996 and 1995 periods excludes $3,523,000 and $973,000, respectively, invested
in equipment acquired under capital leases. The majority of capital lease
arrangements which the Company has entered into have lease terms of five years
and provide for a bargain purchase when the lease term expires. At December 31,
1996, the Company had capital commitments of approximately $3,800,000 for the
ongoing upgrade of the Company's manufacturing equipment and the expansion of
ASP's manufacturing capabilities, approximately $3,250,000 was committed to
expand ASP's facility and to procure additional equipment for ASP. The Company
believes that the lease financing available to it for certain equipment together
with cash flow from operations will be sufficient to fund its capital needs.
In conjunction with the ASP acquisition, certain of the former stockholders
of ASP were to receive one-third of ASP's adjusted earnings before interest and
taxes in excess of $650,000 per fiscal quarter, (the "Consulting Agree-
20
<PAGE>
ments"), through December 31, 1999. Payments and amounts due under the
Consulting Agreements were recorded on the Company's books as additional
purchase price. In the fourth quarter of 1995, the Company bought out the
remaining four years of payments due under the Consulting Agreements for
$725,000 in cash and notes, $625,000 of which was paid in 1996.
Effective January 2, 1996, the Company acquired all of the common stock of
Retconn, a manufacturer of coaxial contacts and connectors, for $5,933,000 in
cash. In addition, the Company has paid approximately $986,000 in costs
associated with the Retconn acquisition. This business combination was accounted
for as a purchase. The Company also issued 15,000 of its common shares, valued
at $146,250, in conjunction with the acquisition. The fair value of the assets
acquired, including approximately $4,696,000 allocated to goodwill, which is
being amortized over 25 years, amounted to $8,033,000 and liabilities assumed
amounted to approximately $968,000.
In connection with the Retconn acquisition, on January 4, 1996, the Company
entered into a term loan with the Bank in the principal amount of $6,000,000.
The loan bore interest at the Bank's loan pricing rate (8.25% at December 31,
1996) and the principal was to be payable commencing on February 1, 1997.
Interest on the loan was payable monthly and commenced on February 1, 1996. The
loan was subsequently refinanced in conjunction with the SMS acquisition
described below.
Effective August 28, 1996, the Company entered into a joint venture
agreement to develop a silicon wafer polishing and reclaiming facility in
Singapore. The jointly owned Singapore corporation, International Semiconductor
Products Pte Ltd ("ISP"), is 50.1% owned by the Company and 49.9% owned by a
holding company, Semiconductor Alliance Pte Ltd. In 1996, the Company and its
joint venture partner made a total of $4,000,000 in equity contributions into
ISP, which was contributed pro-ratably based on ownership. In addition, the
Company has paid approximately $250,000 in costs associated with the
establishment of the joint venture.
On November 25, 1996, ASP entered into an agreement to acquire SMS and paid
a $400,000 deposit. As of December 31, 1996, ASP had paid approximately $53,000
in costs related to the acquisition. On January 23, 1997, ASP completed the
acquisition of the assets of Silicon Materials Service of Garland, Texas, and
acquired 100% of the outstanding stock of Silicon Materials Service, B.V. of
Helmond Netherlands. The purchase price of approximately $13,000,000 was paid in
cash. Concurrent with the acquisition, the Company entered into a $21,000,000
five year term loan with First Union Bank (the "Bank"). Fleet National Bank is
also participating in the term loan facility and the line of credit described
below. The $21,000,000 term loan was principally used to finance the SMS
acquisition and to refinance the Retconn term loan. The principal amount is
payable in 60 consecutive installments of $350,000 which commenced on March 1,
1997. The loan bears interest at a Eurodollar rate plus 2.25%. In conjunction
with the term loan agreement, the Company also entered into a $15,000,000 line
of credit with the Bank which is described below. Pursuant to the term loan and
line of credit agreements, the Bank has a first priority security interest in
substantially all of the Company's assets. The loan agreements provide, among
other things, that the Company maintain certain financial ratios. The Company is
also subject to restrictions relating to incurring additional indebtedness,
additional liens and security interests, capital expenditures and the payment of
dividends.
As a result of the foregoing, the Company used $14,335,000 and $5,913,000,
respectively, in its investing activities in the 1996 and 1995 periods.
On February 8, 1994, the Company registered 698,625 shares of common stock
purchasable pursuant to the exercise of redeemable warrants. The redeemable
warrants were distributed without cost as a distribution to the Company's
stockholders of record as of February 8, 1994. Stockholders received one
redeemable warrant for each share of
21
<PAGE>
common stock held by the stockholder. Each redeemable warrant was exercisable to
purchase one-half (1/2) share of common stock at an exercise price of $2.00 per
share. Certain stockholders of the Company, including, but not limited to, the
Company's Chairman and three of its directors, agreed to contribute the
redeemable warrants issued to them back to the Company. Consequently, the
additional 831,000 shares which would have been issuable upon the exercise of
such redeemable warrants were not issued or sold. The registration statement
also related to shares of the Company's common stock issuable upon the exercise
of warrants to purchase 170,250 shares held by the warrant solicitation agent
and certain of its affiliates.
On January 24, 1995, the Company called its Common Stock Purchase Warrants
for redemption. As of the redemption date, February 23, 1995, all but 98,918
purchase warrants were exercised. In 1995, the Company received net proceeds of
$1,130,000 from the redemption of common stock purchase warrants and
solicitation agent warrants. In 1996, the Company received proceeds of $2,400
from the exercise of solicitation agent warrants. On December 20, 1996, all
remaining solicitation agent warrants were canceled by the Company. In 1996 and
1995, the Company received $627,000 and $380,000, respectively, from the
exercise of stock options.
On July 27, 1995, the Company sold an aggregate of 1,654,500 shares of
Common Stock in a public offering. The Company received net proceeds of
$16,932,000, after deducting underwriting discounts, commissions and expenses of
the offering of $2,302,000. The Company used the proceeds of the offering, among
other things, to repay outstanding bank indebtedness in the amount of $8,250,000
incurred in connection with the ASP acquisition, to repay approximately $208,000
of the outstanding balance due on a $500,000 twelve month term loan and to repay
the Company's borrowing under its revolving credit line. The Company used the
balance of the proceeds of the offering to purchase and improve its new ASP
facility, to purchase machinery and equipment for all of its operations and for
general corporate and working capital purposes.
On December 20, 1995, the Company entered into a $7,500,000 revolving
credit facility line of credit with the Bank. $5,000,000 of the revolving credit
facility was available to the Company for working capital purposes and
$2,500,000 was used for a standby letter of credit to support the Company's gold
consignment arrangement with a financial institution. The revolving credit
facility bore interest at .25% under the Bank's loan pricing rate and was
unsecured with the exception of a first priority security interest in the
Company's gold inventory in the event of a drawing under the letter of credit.
The maturity date of the facility was September 30, 1997. At December 31, 1996
and 1995, the Company had not borrowed under its revolving credit facility. In
1995, the Company repaid $1,565,000 under this facility. Concurrent with the
Company's new line of credit described below, this facility was terminated.
On January 23, 1997, the Company entered into a new $15,000,000 line of
credit with the Bank which expires in February 1999 which includes a standby
letter of credit for ISP in the amount of $3,600,000. Interest is payable
monthly at the lower of the Bank's loan pricing rate or a Eurodollar rate plus
2.25%.
In conjunction with the Company's acquisition of Polese Company on May 27,
1993, the Company acquired from Frank J. Polese, the former sole shareholder of
Polese Company, all of the rights, including a subsequently issued patent, for
certain powdered metal technology and its application to the electronics
industry for $250,000 in cash and $750,000 in notes, as modified, including
interest at 7% per annum. The note was paid in full and as a result, in 1995,
Mr. Polese received the balance of principal payments due under the note
totaling $424,000. For a period of ten years, Mr. Polese has the right to
receive 10% of (I) the pre-tax profit from the copper tungsten product line,
after allocating operating costs and (ii) the proceeds of the sale, if any, by
the Company of the powdered metal technology. To date, no payments have been
made pursuant to this agreement.
22
<PAGE>
To facilitate the acquisition by the Company of Polese Company on May 27,
1993, the Company entered into a $1,200,000 five year term loan agreement with
the Bank. The term loan agreement calls for the repayment of the loan in twenty
equal installments which commenced on October 1, 1993. Further, on December 16,
1993, the Company entered into a $465,000 five year term loan agreement with the
Bank. The term loan agreement called for the repayment of such loan in eighteen
equal installments which commenced on April 1, 1994. The term loans bore
interest at the Bank's loan pricing rate plus 1.5%. The term loans are
collateralized with a blanket lien on substantially all of the parent company's
assets, excluding the common stock and assets of its subsidiaries. As of
December 31, 1996, the Company had repaid all amounts due under the $465,000
term loan and had an outstanding balance of $390,000 due on the $1,200,000 term
loan.
The Company has, and expects to be able to continue to, meet its
obligations to the Bank from cash generated from operations. As at December 31,
1996, the Company was in compliance with all of the covenants contained in its
loan agreements.
As a result of the above, in 1996 and 1995, $7,408,000 and $6,490,000,
respectively, of cash was provided by the Company's financing activities. As a
result of the Company's operations and equity financing activities,
shareholders' equity increased $4,678,000 in 1996 over the comparable 1995
period.
The Company continually seeks to broaden its product lines by various
means, including through acquisitions. The Company intends to pursue only those
acquisitions for which it will be able to arrange the necessary financing by
means of the issuance of additional equity, the use of its cash or, through bank
or other debt financing.
The Company believes that it has the capacity for growth and that its
working capital and internally generated funds, combined with its bank line of
credit, the proceeds it has received from its public offerings, and from other
sources of financing, will be sufficient to satisfy the Company's currently
anticipated cash requirements on both a short-term and long-term basis.
23
<PAGE>
Range of Stock Prices:
Since April 8, 1996, the Company's Common Stock has traded on the NASDAQ
National Market (Ticker Symbol: SEMX). Prior thereto, the Company's Common Stock
was traded on the American Stock Exchange (Ticker Symbol: SEM).
The prices of the Company's Common Stock for each quarter during 1996 and
1995 were as follows:
1996 1995
------------------ ---------------------
High Low High Low
------- ------- ------- ----------
1st Quarter 10-5/8 7-1/4 10-1/4 5-3/4
2nd Quarter 13-1/4 8-1/2 12-1/8 7
3rd Quarter 11-1/2 8-3/4 14-1/4 10-1/4
4th Quarter 17-7/8 9-1/4 11-5/8 9-15/16
As of March 18, 1997 (the "record date") there were approximately 87
holders of record of the Company's Common Stock and approximately 4,464
beneficial holders. On March 18, 1997, the high and low bid price of the Common
Stock was $8 3/8 and $8 per share, respectively. The Company paid no dividends
on its Common Stock in 1996 or 1995.
On February 18, 1994 the Company distributed redeemable warrants, without
cost, to shareholders of record on February 8, 1994 (the "record date"). Each
shareholder received one redeemable warrant to purchase one-half (1/2) share of
the Company's Common Stock as of the record date. The redeemable warrants were
listed on the American Stock Exchange under the ticker symbol: SEM.WS.. On
January 24, 1995, the Company called its Common Stock purchase warrants for
redemption. As of the redemption date, February 23, 1995, all but 98,918
purchase warrant were exercised and a total of 649,166 shares of the Company's
Common Stock were issued pursuant to the exercise of the redeemable warrants.
The prices of the Company's Redeemable Warrants for each quarter during 1995 was
as follows:
1995
-------
High Low
------- ------
1st Quarter 2-7/16 1-3/4
2nd Quarter -- --
3rd Quarter -- --
4th Quarter -- --
24
<PAGE>
CORPORATE INFORMATION
Shareholders' Meeting:
The annual meeting of shareholders will be held on April 29, 1997 at 11:00 A.M.
at the 101 Club, 101 Park Avenue, New York, New York.
Stock Listing:
The common stock of the Company is traded on the NASDAQ National Market Ticker
Symbol: SEMX
Additional Information:
A copy of the Company's Form 10-KSB filed with the Securities and Exchange
Commission will be furnished on the written request of a shareholder. Requests
should be forwarded to the Company, attention of the Secretary, 1 Labriola
Court, Armonk, New York 10504.
Transfer Agent and Registrar:
CONTINENTAL STOCK TRANSFER AND TRUST CO.
2 Broadway, New York, New York 10004
Tel. (212) 509-4000
Independent Auditors:
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
1185 Avenue of the Americas
New York, New York 10036
Tel. (212) 372-1000
Executive Offices:
1 Labriola Court
Armonk, New York 10504
Tel. (914) 273-5500
Major Subsidiaries:
AMERICAN SILICON PRODUCTS, INC.
15 Clarkson Street
Providence, Rhode Island 02908
Leonard F. Johnson, President
Tel. (401) 273-5858
INTERNATIONAL SEMICONDUCTOR PRODUCTS PTE LTD
12 Joo Koon Crescent
Singapore 629013
Dr. Freddy Goh, President
Tel. (65) 863-1500
POLESE COMPANY, INC.
10103 Carroll Canyon Road
San Diego, California 92131
Frank J. Polese, President
Tel. (619) 271-1993
RETCONN INCORPORATED
199 West Pearl Road
Torrington, Connecticut 06790
Daniel Schreck, President
Tel. (860) 489-1220
SILICON MATERIALS SERVICE, B.V.
Achterdijk 8, 5705 CB Helmond, Netherlands
Hans C. van Heiningen, President
Tel. (31) 492-551555
Exhibit 22 - List of Subsidiaries of the Company
Polese Company, Inc
Type III, Inc.
American Silicon Products, Inc.
ASP Realty, Inc.
Retconn Incorporated
SPM Holdings Corporation
Silicon Materials Service, B. V.
International Semiconductor Products Pte Ltd.
Exhibit 23.1
INDEPENDENT AUDITOR'S CONSENT
To the Board of Directors
Semiconductor Packaging Materials Co., Inc.
We hereby consent to incorporation by reference in the Annual Report on Form
10-KSB of our report dated January 30, 1997 related to the consolidated balance
sheet of Semiconductor Packaging Materials Co., Inc. and Subsidiaries as of
December 31, 1996 and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the two years in the period
ended December 31, 1996, which report appears in the December 31, 1996 annual
report of Semiconductor Packaging Materials Co., Inc.
/s/ Goldstein Golub Kessler & Company, P.C.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
March 28, 1997
Exhibit 23.2
INDEPENDENT AUDITOR'S CONSENT
To the Board of Directors
Semiconductor Packaging Materials Co., Inc.
We hereby consent to incorporation by reference in the Registration Statements
(No. 33-84752, No. 33-95762 and No. 333-7797) on Form S-8 of our report dated
January 30, 1997 related to the consolidated balance sheet of Semiconductor
Packaging Materials Co., Inc. and Subsidiaries as of December 31, 1996, and
the related consolidated statements of income, shareholders' equity, and cash
flow for each of the two years in the period ended Decmeber 31, 1996, which
report appears in the December 31, 1996 annual report on Form 10-KSB of
Semiconductor Packaging Materials Co., Inc.
/s/ Goldstein Golub Kessler & Company, P.C.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
March 28, 1997
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