SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-10938
SEMX CORPORATION
(formerly known as SEMICONDUCTOR PACKAGING MATERIALS CO., INC.)
(Name of Business Issuer in its charter)
Delaware 13-3584740
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1 LABRIOLA COURT, ARMONK, NY 10504
(Address of principal executive offices, including zip code)
(914) 273-5500
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) Yes [X] No [ ]
(2) Yes [X] No [ ]
The number of shares outstanding of the Registrant's sole class of common
stock, as of October 30, 1998 was 6,041,016 shares.
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TABLE OF CONTENTS
Page No
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheet at
September 30, 1998 and December 31, 1997. 3
Consolidated Statement of Operations and
Comprehensive Income (Loss) for the three and nine
months ended September 30, 1998 and 1997. 4
Consolidated Statement of Cash Flows
for the nine-months ended
September 30, 1998 and 1997. 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 15
Signatures 15
FORWARD LOOKING INFORMATION
Portions of the narrative set forth in this document that are not historical in
nature are forward looking statements. These forward-looking statements speak
only as of the date of this document, and the Company expressly disclaims any
obligation or undertaking to publicly release any updates or revisions to any
forward-looking statements contained herein. The Company's actual performance
may differ materially from that contemplated by the forward looking statements
as a result of a variety of factors that include, but are not limited to, the
general economic or business climate, business conditions of the microelectronic
and semiconductor markets and the automotive and communications industry which
the Company serves, the economic volatility in geographic markets, such as Asia,
and the ability of the Company to continue to obtain financing.
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SEMX CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheet
(Dollars in thousands)
September 30, December 31,
ASSETS 1998 1997
(Unaudited) (Audited)
----------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,529 $ 2,260
Accounts receivable, less allowance for doubtful accounts of $291 and
$181, respectively 8,751 10,788
Inventories 13,692 12,370
Prepaid expenses and other current assets 2,950 2,079
------- -------
Total current assets 26,922 27,497
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Property, Plant and Equipment at cost, net of accumulated depreciation
and amortization of $13,880 and $10,163, respectively 43,953 42,031
------- -------
Other Assets-net of accumulated amortization
Technology rights and intellectual property 1,083 1,077
Goodwill 19,196 19,788
Other 1,694 1,472
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Total other assets 21,973 22,337
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Total Assets $92,848 $91,865
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Revolving credit facility $11,800 $ --
Current portion of long-term debt 5,723 5,944
Accounts payable 5,276 7,322
Current portion of obligations under capital leases 2,535 2,142
Accrued expenses 2,280 2,602
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Total current liabilities 27,614 18,010
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Deferred income taxes 2,012 2,143
Long-term debt 18,946 19,795
Revolving credit facility -- 6,875
Obligations under capital leases 6,812 6,047
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Total Liabilities 55,384 52,870
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Minority Interest in Subsidiary 1,152 1,537
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Shareholders' Equity:
Preferred stock-$.10 par value;authorized 1,000,000 shares, none issued -- --
Common stock-$.10 par value; authorized 20,000,000
shares, issued 6,375,616 and 6,375,616 shares, respectively 638 638
Additional paid-in-capital 28,199 28,199
Accumulated other comphrehensive income (97) (405)
Retained earnings 7,784 9,026
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36,524 37,458
Less: Treasury stock: 334,600 and 300,000 shares, respectively, at cost 212 --
------- -------
Shareholders' Equity 36,312 37,458
------- -------
Total Liabilities And Shareholders' Equity $92,848 $91,865
======= =======
</TABLE>
See Notes to Consolidated Financial Statements
3
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<TABLE>
<CAPTION>
SEMX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
(Dollar amounts in thousands, except per share amounts)
For The Three Months For The Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net Sales $ 11,504 $ 13,558 $ 36,988 $ 33,618
Service Revenue 4,510 6,094 13,917 16,870
---------- ---------- ---------- ----------
Total Revenue 16,014 19,652 50,905 50,488
---------- ---------- ---------- ----------
Cost of Goods Sold 8,749 9,364 26,144 23,491
Cost of Services Performed 3,566 4,603 11,380 12,619
---------- ---------- ---------- ----------
Total 12,315 13,967 37,524 36,110
---------- ---------- ---------- ----------
Gross Profit 3,699 5,685 13,381 14,378
Selling, General and Administrative Expense 3,676 3,184 10,983 8,861
Restructuring Charge -- -- 1,950 --
---------- ---------- ---------- ----------
Operating Income 23 2,501 448 5,517
Interest Expense (Net) 989 698 2,697 1,913
---------- ---------- ---------- ----------
Income (Loss) Before Provision for Income
Taxes and Minority Interest in Loss of
Consolidated Subsidiary (966) 1,803 (2,249) 3,604
Provision (Credit) for Income Taxes (317) 680 (751) 1,365
---------- ---------- ---------- ----------
Income (Loss) Before Minority Interest in Loss
of Consolidated Subsidiary (649) 1,123 (1,498) 2,239
Minority Interest in Loss of Consolidated Subsidiary 49 73 255 302
---------- ---------- ---------- ----------
Net Income (Loss) $ (600) $ 1,196 $(1,243) $2,541
========== ========== ========== ==========
Other Comprehensive Income:
Foreign currency translation net of tax benefit
(expense) of $(116) and $84; and ($105) and $205
respectively 224 (163) 203 (397)
---------- ---------- ---------- ----------
Comprehensive Income $ (376) $ 1,033 $(1,040) $2,144
========== ========== ========== ==========
Basic Income (Loss) per Common Share $ (.10) $ .20 $(.21) $.42
Diluted Income (Loss) per Common Share $ (.10) $ .19 $(.21) $.41
Weighted Average Number of Common
Shares Outstanding - Basic 6,041,016 6,070,114 6,057,710 6,068,073
Weighted Average Number of Common
Shares Outstanding - Diluted 6,041,016 6,267,006 6,057,710 6,220,264
</TABLE>
See Notes To Consolidated Financial Statements
4
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<TABLE>
<CAPTION>
SEMX CORPORATION AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(Unaudited)
(Dollars in thousands)
For The Nine Months
Ended September 30
1998 1997
-------- --------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income (Loss) $(1,243) $ 2,541
Adjustments To Reconcile Net Income To Net
Cash Used In Operating Activities:
(Gain) Loss on Sales of Property and Equipment 52 (46)
Depreciation And Amortization of Property And Equipment 3,671 3,183
Other Amortization 742 585
Increase (Decrease) in Deferred Income Taxes (131) 0
Minority Interest in Subsidiary Loss (255) (302)
Changes In Operating Assets And Liabilities:
(Increase) Decrease In Accounts Receivable 2,227 (2,243)
Increase In Inventory (1,294) (818)
(Increase) Decrease In Prepaid Expenses And
Other Current Assets (265) 636
Increase (Decrease) In Accounts Payable (2,043) 372
Increase (Decrease) In Accrued Expenses (302) (625)
Increase (Decrease) In Income Taxes Payable (985) (778)
------- -------
Net Cash Provided By (Used In) Operating Activities 174 2,505
------- -------
Cash Flows From Investing Activities:
Purchase Of Property And Equipment (2,289) (10,001)
Proceeds From Sale of Property and Equipment 12 275
(Increase) Decrease In Other Assets (682) 207
Acquisition of Subsidiary -- (15,134)
------- -------
Net Cash Used In Investing Activities (2,959) (24,653)
------- -------
Cash Flows From Financing Activities:
Purchase of Treasury Stock (212) --
Proceeds From Exercise Of Stock Options -- 127
Proceeds From Long-Term Debt 2,240 19,995
Borrowing Under Revolving Credit 4,925 5,225
Payment Under Capital Leases (1,631) (1,278)
Payment Under Term Loan Agreements (3,224) (2,762)
Borrowing under Term Loan Agreements -- --
------- -------
Net Cash Provided By Financing Activities 2,098 21,307
------- -------
Effect of Exchange Rate Change on Cash (44) (136)
Net Increase (Decrease) In Cash (731) (977)
Cash At Beginning Of Period 2,260 3,531
------- -------
Cash At End Of Period $ 1,529 $ 2,554
======= =======
Supplemental schedule of noncash investing and
financing activity:
Machinery and equipment acquired under capital leases $ 2,806 $ 2,894
</TABLE>
See Notes to Consolidated Financial Statements
5
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SEMX CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Amounts in Thousands)
(Unaudited)
Note 1. Basis of Presentation
The consolidated financial statements include the accounts of SEMX Corporation
("SEMX") and its wholly and majority owned subsidiaries. As used herein, the
term "Company" refers to SEMX, its predecessors and its subsidiaries unless the
context indicates otherwise. The Consolidated Balance Sheet at September 30,
1998, and the Consolidated Statement of Operations and Cash Flows for the three
and nine-months ended September 30, 1998 and 1997, have been prepared by the
Company and are unaudited. In the opinion of management, the financial
statements reflect all adjustments necessary to present fairly the results for
the interim periods. Such results are not necessarily indicative of results to
be expected for the year. The Consolidated Balance Sheet at December 31, 1997
has been derived from the audited financial statements at that date. These
financial statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended December 31, 1997. The comparative
financial statements for 1997 have been reclassified to conform to the current
period's presentation.
Note 2. Earnings Per Share
Basic earnings per share are computed based on the weighted average number of
common shares outstanding during the period. Diluted earnings per share gives
effect to all dilutive potential common shares outstanding during the period.
Potential dilutive common shares include shares issuable upon exercise of the
Company's stock options and warrants.
Note 3. Accounting Pronouncements
Effective January 1, 1998 the Company adopted the Financial Accounting Standards
Board ("FASB") Statement No. 130, "Reporting Comprehensive Income" which
establishes standards for reporting and displaying comprehensive income and its
components.
The FASB has issued Statement 131 "Disclosures about Segments of an Enterprise
and Related Information" which requires publicly held companies to report
financial and descriptive information about its operating segments in interim
and annual financial statements. Although the Company operates in only one
segment, the Statement also requires additional disclosures with respect to
products and services, geographic areas of operation, and major customers which
have not previously been presented in the Company's consolidated financial
statements and related notes. The Company will adopt FASB 131 with its annual
10-K filing.
6
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Note 4. Acquisitions
On January 23, 1997, American Silicon Products, Inc. ("ASP"), a wholly owned
subsidiary of the Company, acquired all of the assets of Silicon Materials
Service of Garland, Texas and acquired 100% of the outstanding stock of Silicon
Materials Service, B.V. (collectively "SMS"), a company which polish and
reclaimed silicon wafers, for a purchase price of approximately $12,972 in cash.
This business combination was accounted for as a purchase. In addition, the
Company incurred approximately $2,000 of costs associated with the acquisition
of SMS. The fair value of the assets acquired, including approximately $2,923
allocated to goodwill, which is being amortized over 25 years, amounted to
$15,609 and liabilities assumed amounted to $637. On April 17, 1998 the Company
announced the restructuring of its Semiconductor Services Group, including the
closing of ASP's Garland, Texas plant. A restructuring charge of $1,950 was
recorded in the month of March 1998 and is reflected in the presented year to
date financials. As of September 30, 1998, $1,950 has been incurred against the
restructuring charge.
Effective July 30, 1997, Retconn Incorporated ("Retconn"), a wholly owned
subsidiary of the Company, acquired 100% of the outstanding stock of S.T.
Electronics, Inc. ("S.T."), a company which manufactures and markets custom
cable and cable harness assemblies, for $1,054 in cash and $2,000 in 7% notes
payable quarterly over 5 years. In addition, Retconn acquired certain
proprietary rights from the S.T. shareholders for $200. This business
combination was accounted for as a purchase. The fair value of the assets
acquired, including $2,788 allocated to goodwill, which is being amortized over
25 years, amounted to $4,231 and liabilities assumed amounted to $877.
Note 5. Inventory
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Precious Metals $1,578 $1,676
Non Precious Metals 12,114 10,694
--------------- ---------------
$13,692 $12,370
</TABLE>
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.
Note 6. Debt
In August 1998, the Bank (defined in the Term Loan section herein) provided the
Company with a limited Forbearance Agreement (defined in the Term Loan section
herein) which waived Term Loan principal payments of $350 per month from August
1 through December 31, 1998, extended a previous waiver of financial ratio
covenants, and extended the maturity of the Interim Term Loan (defined in the
Term Loan section herein) to December 31, 1998. For further discussion, see
"Management's Discussion and Analysis of Results of Operations" herein.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Amounts in thousands)
RESULTS OF OPERATIONS (for the three and nine-month periods ended September 30,
1998 compared to the three and nine-month period ended September 30, 1997)
Revenue:
Total revenue for the three-month period ended September 30, 1998 decreased
$3,638 or 19% and increased $417 or 1% for the nine-month period as compared to
the comparable 1997 periods.
The Materials Group sales decreased $2,054 or 15% for the third quarter and
increased $3,370 or 10% for the nine-month period ended September 30, 1998 over
the comparable 1997 periods. The Materials Group includes the Company's SPM,
Polese and Retconn business units. Sales for the third quarter 1998 for the
Materials Group decreased by $401 or 11% for SPM, decreased by $1,115 or 22% for
Polese and decreased by $538 or 11% for Retconn over the comparable 1997
period. The decline in sales at Polese for the third quarter was primarily due
to lower than anticipated sales from an ultimate major customer who adjusted
their inventory levels based upon reduced sales for the cellular infrastructure
market. Sales for the third quarter for Retconn decreased primarily due to a
decline in sales to two cellular market customers, partially offset by the start
of several product programs with new and existing customers. The Company's
Materials Group's increased sales for the nine-month period ended September 30,
1998 of $3,370 was due to an increase of $2,868 or 26% at Retconn, $176 or 1% at
Polese Company, and an increase of $326 or 3% at SPM from the comparable 1997
period. The Materials Group's sales increase for the nine-month period ended
September 30, 1998 was primarily due to an overall increase in demand for its
products by the communication, computer and recreational industries.
The Company's Service Group revenues decreased $1,584 and $2,953 or 26% and 18%,
respectively, in the three and nine-month period ended September 30, 1998 as
compared to the comparable 1997 periods. The decline in the Service Group's
revenues is primarily due to the aggregate softness in demand for reclaimed
wafers in addition to price deterioration. The Service Group's revenue from
ASP's U.S. and European operations, decreased a total of $1,826 and $3,907, or
32% and 24%, for the three and nine-month period ended September 30, 1998,
respectively, as compared to the comparable 1997 periods. The Service Group's
1998 revenues exclude revenue of $1,074 achieved subsequent to the
discontinuance of its Texas operations and establishment of a balance sheet
restructuring reserve in the first quarter 1998. ASP's Netherlands and Texas
operations were acquired on January 23, 1997 and, therefore, revenues in the
comparable periods of 1997 were only included from the time of acquisition. On
April 17, 1998, the Company announced that it was closing its Texas operation
and would consolidate all of ASP's domestic business into its Rhode Island
facility. The Company decided to close its Texas operation to, among other
things, improve the profitability of its Services Group. The closing was
completed on June 30, 1998.
The Company's consolidated backlog as of September 30, 1998 was $15,906. This
compares to consolidated backlog of $18,720 at March 31,1998, $18,565 at June
30, 1998 and $20,643 at December 31, 1997. The Polese backlog at the end of the
first quarter was $2,165 which has improved to $3,266 as of September 30, 1998.
The declining trend which Retconn and ASP were experiencing since the beginning
of 1998 has continued through September 1998. The backlog for ASP has declined
steadily during 1998 due to the softness in demand for reclaimed wafers due to
overall
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computer industry conditions and the softness in the Asian markets. The backlog
for Retconn has declined during 1998 due to the end of programs with two major
customers and shortening in the customer's lead-time for placing orders. The
Company expects the backlog to trend upward due to the existence of several new
product programs at Polese and Retconn, as well as a large, $1,500 order
received by Polese in October 1998 and a $2,000 contract as global supplier for
one of Retconn's major customers which is deliverable in 1999.
Direct sales of the Company's products into foreign markets accounted for
17% and 15%, respectively, of consolidated revenue for the nine-months
ended September 30, 1998 and 1997. The Company currently maintains foreign
manufacturing operations in the Netherlands ("ASP B.V."), in Morocco,
Semiconductor Materials S.A. R. L. ("S.A.R.L."), and in Singapore,
International Silicon Products Pte. Ltd. ("ISP"). In the three and
nine-month period ended September 30, 1998, the Company derived revenue
from ASP B.V. of $766 and $2,346 respectively, revenue from S.A.R.L. of $36
and $66 respectively, and revenue from ISP of $545 and $1,277,
respectively. Foreign sales made through the Company's domestic operations
are made through foreign manufacturer's representatives and are priced and
paid for in U.S. dollars. Sales for ASP B.V., S.A.R.L. and ISP are
conducted in the local currencies of Dutch Guilders, Dirhams, and Singapore
Dollars respectively and account for 5% and 7% of the consolidated revenue
for the nine-months ended September 30, 1997 and 1998, respectively.
Gross Profit:
Gross profit for the three and nine-month period ended September 30, 1998
decreased $1,986 or 35% and decreased $997 or 7%, respectively, from the
comparable 1997 periods. The Materials Group's gross profit for the three and
nine-month period ended September 30, 1998 decreased by $1,439 and increased by
$717 or 34% and 7%, respectively from the comparable 1997 periods. The Materials
Group's gross profit changes primarily reflect the decrease in sales for the
three months ended September 30, 1998 and sales increase for the nine-months
ended September 30, 1998 as compared to the prior year's periods. The Service
Group's gross profit for the three and nine-month period ended September 30,
1998 decreased $547 or 37 % and $1,714, or 40%, respectively, from the
comparable 1997 periods due to the lower volume of reclaimed wafers processed
during the period and price deterioration. In addition, the cost of integrating
the machinery and equipment from the Garland Texas plant closure into the
remaining ASP operations has negatively impacted margins during the three and
nine-months ended September 30, 1998. The gross profit declines at the Service
Group were slightly offset by gross profit increases of $75 and $129 in the
three and nine-month periods ended September 30, 1998, respectively over the
comparable 1997 periods due to increased volume in the Singapore operation.
Gross Margins:
As a result of the above, the Company's gross margins decreased from 29% to 23%
for the three month period and decreased from 28% to 26% for the nine-month
period ended September 30, 1998 compared to the prior years periods. The
Materials Group gross margin decreased from 30% to 29% for the nine-month period
and decreased from 31% to 24% for the three month period ended September 30,
1998 from the comparable 1997 periods. The Service Group's gross margins
decreased from 24% to 21% for the quarter and decreased from 25% to 18% for the
nine-month period ended September 30, 1998 from the comparable 1997 periods.
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Selling, General and Administrative:
Selling, general and administrative ("SG&A") expenses in the three and
nine-month period ended September 30, 1998 increased $492 and $2,122 or 15% and
24%, respectively, over the comparable 1997 periods. The SG&A increase over the
comparable 1997 nine-month period is primarily due to increased legal fees,
corporate staff, and organizational infrastructure improvement at the
operational level in sales and research and development. SG&A expenses as a
percentage of revenue increased from 16% to 23% for the quarter and 18% to 22%,
for the nine-month period ended September 30, 1998 from the comparable 1997
periods.
Restructuring Charge:
The balance shown for the nine-month period ended September 30, 1998 includes a
one-time restructuring charge of $1,950 associated with the closing of ASP's
Texas operation and the relocation of the equipment and other assets. To date
the company has paid all of the costs associated with this charge.
Interest Expense (Net):
Net interest expense for the three and nine-month period ended September 30,
1998 increased $291 and $784, respectively, from the comparable 1997 periods.
The increase in net interest expense is due to increased borrowings under the
Company's revolving credit facility to support the working capital needs of the
Company and due to increased interest costs associated with capital lease
obligations.
Provision (Credit) for Income Taxes:
A credit of $317 and credit of $751, respectively, for income taxes has been
made for the three and nine-month periods ended September 30, 1998 as compared
to a provision of $680 and $1,365, respectively, for the comparable 1997
periods. The credit for the current nine-month period includes a $759 income tax
credit associated with the restructuring charge.
Minority Interest:
In the three and nine-month periods ended September 30, 1998 and 1997, the
Company has included a loss associated with ISP in its income (loss) before
minority interest in loss of consolidated subsidiary, net of tax. The Company
has a 50.1% interest in the joint venture and has accordingly, excluded 49.9% of
such loss from its consolidated net income. See the section ISP Joint Venture
for further details herein.
Net Income:
As a result of the above, Net income decreased $1,796 for the quarter and
$3,784, for the nine-month period ended September 30, 1998 from the comparable
1997 period and resulted in a loss of $600 for the quarter and a loss of $1,243
for the nine-month period ended September 30, 1998.
Year 2000
The year 2000 problem arises since many computer programs and some pieces of
computer hardware manipulate and stores dates as a two-digit field and are
unable to recognize dates past December 31, 1999.
The Company has completed its initial assessment of the systems and software at
all of its operations, including external interfaces with critical suppliers and
customers. The Company is in the process of
10
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replacing non-compliant hardware, installing new manufacturing enterprise
computer software systems at SPM, and Retconn and installing software upgrades
which are year 2000 compliant at its other locations. The Company expects to
complete the installation and testing of these new systems and upgrades by the
end of 1999. Outside suppliers, and customers have been contacted and requested
to complete the Company's assessment questionnaire. The Company is in the
preliminary stage of completing its review of all of the assessment
questionnaires received and is re-contacting third parties who have not
responded to date.
The Company has expended approximately $300 to date and estimates that the
remaining incremental cost of addressing the potential Year 2000 problem beyond
those expenditures already incurred will be less than $250 based upon the
information assembled to date.
In the event that the company's internal software project are not completed, the
Company anticipates that the existing systems could continue functioning without
undue business interruption while the new software installation and testing is
completed. Failure of the Company to achieve year 2000 compliance is not
anticipated to have a material adverse impact on the operations of the Company.
The Company can not predict the potential effect of third parties "Year 2000"
issues on its business for those third parties that either do not complete their
own Year 2000 compliance or do not respond to the Company's assessment
questionnaire in a timely manner.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its capital needs through cash flow from operations,
its line of credit facility, term loans from the Bank (see Term Loan herein),
other bank financing, and capital leases. In August 1998, the Bank provided the
Company with a limited Forbearance Agreement which waived Term Loan principal
payments of $350 per month from August 1 through December 31, 1998, extended a
previous waiver of financial ratio covenants, and extended the maturity of the
Interim Term Loan to December 31, 1998. The Company is continuing to pursue a
number of courses of action designed to provide the future capital resources
required by the Company. These include, but are not limited to, continuing
negotiations with the current lenders, discussions with other prospective
lenders and investigating the sale of one or more of its subsidiaries as a means
of paying its debt obligations. In addition, the Company has engaged an
investment banker to assist and guide it in this endeavor. Although the Company
believes that it is presently meeting all of the Bank's covenants, as amended,
and is paying interest as due on its obligations, the Company may be unable to
pay the upcoming bank maturities as currently scheduled under the existing
limited Forbearance Agreement. The bank maturities include principal payments on
the Term Loan, the Interim Term Loan, the Line of Credit, the Gold Consignment
Agreement (see Fleet Gold Consignment herein) and ISP's obligations discussed
below. There is no assurance that the Company will be able to successfully
renegotiate the terms of its existing credit/consignment agreements and/or
negotiate new financing arrangements and/or realize cash through the sale of one
or more of its subsidiaries. Failure to achieve the necessary financing would
have a material adverse effect on the Company.
The Company's Singapore operations ("ISP" see ISP Joint Venture herein) has
financed its capital needs through cash flow from operations, borrowings from
its banks (see ISP Equipment Credit Facility herein) and equity owners, and
capital contributions from the Company and other equity owners. ISP is currently
in discussions with its bank and may not be able to meet its financing
obligations to its bank through cash flow from operations without a change in
its existing arrangements. ISP is pursuing a number of courses of action
designed to provide the future capital
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resources required by ISP. These include discussions with its lenders to obtain
principal repayment forbearance as well as discussions with other investors who
would provide a new source of equity capital. There is no assurance that ISP
will be able to successfully renegotiate the terms of its existing credit
agreements and/or realize cash through an equity investor. Failure to achieve
the necessary financing would have a material adverse effect on ISP. In
addition, ISP's bank could draw down the S$5,000 (approximately $3,000 at
September 30, 1998) letter of credit provided by the Company's Bank. There is no
assurance that the Company would have the resources available to repay the Bank
immediately as required by the Company's Bank agreement (see Line of Credit
herein), in which case an event of default would exist. Failure to repay the
drawn Letter of Credit would have a material adverse effect on the Company.
Based on the current financial position of the Company at September 30, 1998,
the Company had cash and cash equivalents of $1,529 and had an available balance
on its Line of Credit facility of $200 (See Line of Credit herein). Net Cash
decreased by $731 for the nine-months ended September 30, 1998 as compared to
net cash decreasing by $977 for the comparable nine-months ended September 30,
1997. The Company has met its obligations to the Bank, as amended, from cash
generated from operations and through borrowings. As at September 30, 1998, the
Company was in compliance with the covenants contained in its existing loan
agreements, as amended by the limited Forbearance Agreement.
Term Loan:
On January 23, 1997 the Company entered into a $21,000, five-year term loan
("Term Loan") with First Union Bank and Fleet National Bank (collectively the
"Bank") which is further described in the Company's 1997 Annual Report and 10K.
Pursuant to the Term Loan and Line of Credit (see Line of Credit herein)
agreements, the Bank has a first priority security interest in substantially all
of the Company's assets. The principal amount which is payable in 60 consecutive
installments of $350 commenced on March 1, 1997. The loan bears interest at a
Eurodollar rate plus 2.25% (7.8% at September 30, 1998). In August 1998, the
Bank extended a previous waiver of the Term Loan's financial ratio covenants,
agreed to waive principal payments of $350 per month from August 1 through
December 31, 1998 and extended the maturity of the Interim Term Loan (the
"limited Forbearance Agreement"). The Company continues to make monthly interest
payments and is currently in discussions with the Bank.
On June 23, 1998 the Company entered into a 90-day note for $1,000 ("Interim
Term Loan") with the Bank to supplement the Company's working capital
requirements. The Interim Term Loan note provided for the payment of interest
payable monthly at a fixed rate of 8.5% and for the repayment of principal on
September 23, 1998. In August 1998, as part of the limited Forbearance Agreement
the Bank extended the maturity to December 31, 1998. The Company continues to
make monthly interest payments and is currently in discussions with the Bank.
Line of Credit:
In conjunction with the purchase of SMS, on January 23, 1997 the Company entered
into a $15,000 line of credit ("Line of Credit") with the Bank which is further
described in the Company's 1997 Annual Report and 10K. The Line of Credit
expires in February 1999 and includes a standby letter of credit guaranteeing
certain ISP debt in the amount of S$5,000 (approximately $3,000 at September 30,
1998). Interest is payable monthly at the lower of the Eurodollar rate plus
2.25% or the Bank's loan pricing rate (8.25% at September 30, 1998). The Line of
Credit loan agreement provides, 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. Pursuant to the Term Loan and
Line of Credit agreements,
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the Bank has a first priority security interest in substantially all of the
Company's assets. To support its working capital requirements and for general
corporate purposes, the Company has borrowed $11,800 under its Line of Credit
and did not have any drawings under the standby letter of credit at September
30, 1998. The remaining availability at September 30, 1998 was $200. The Company
continues to make monthly interest payments and is currently in discussions with
the Bank.
Fleet Gold Consignment:
On December 23, 1996, the Company entered into a consignment agreement (the
"Gold Consignment Agreement") with Fleet Precious Metals ("FPM") which expires
December 23, 1998. Under the Gold Consignment Agreement, the Company purchases
gold used in its manufacturing of materials. The Gold Consignment Agreement
provides for gold on consignment not to exceed the lesser of 6,000 troy ounces
of gold or gold having a market value of $2,700. At September 30, 1998, the
Company's obligation under the Gold Consignment Agreement was approximately
4,502 troy ounces of gold valued at approximately $1,388. The Gold 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 is currently in
discussions with FPM to extend and/or negotiate a new agreement. Failure to
achieve an extension or new agreement would have a material adverse effect on
the Company.
ASP B.V. Term Loan:
On August 13, 1998 ASP B.V. entered into a NLG 1,300 (approximately $690 as of
September 30, 1998), twenty year term loan ("ABN Term Loan") with ABN AMRO Bank
B.V. ("ABN"). Pursuant to this loan, ABN has a first priority security interest
in the facility. The principal amount is payable in 80 consecutive quarterly
installments of NLG 16.3 (approximately $8.7 as of September 30, 1998),
commencing on December 15, 1998. The loan bears a fixed interest rate of 5.25%
through December 15, 2001 at which time the rate will be adjusted to the ABN
prevailing interest rate.
ASP B.V. Overdraft Facility:
On August 13, 1998 ASP B.V. entered into a NLG 1,000 (approximately $531 as of
September 30, 1998), overdraft facility ("ABN Overdraft") with ABN AMRO Bank
B.V. which is not to exceed 70% of accounts receivable. Pursuant to the ABN
Overdraft, ABN has a first priority security interest in the accounts
receivable. Interest is payable monthly at the rate of 1.75% plus the central
banks' promissory note discount rate (5.75% at September 30, 1998). At September
30, 1998 there were no amounts outstanding under this agreement.
Capital Expenditures:
In the nine-month period ended September 30, 1998, the Company invested $2,289
in property and equipment as compared to $10,001 for the nine-month period ended
September 30, 1997, to support its growth and expand its facilities and
production capabilities. During the nine-month periods ended September 30, 1998
and 1997, the Company acquired an additional $2,806 and $2,894, respectively, of
equipment financed under capital leases. At September 30, 1998, the Company had
capital commitments of approximately $1,081 for the Company's manufacturing
equipment and facilities. On June 26, 1998 the Company entered into a master
lease agreement with Fleetwood Financial Corporation to provide a $4,000 line of
credit to fund its capital expenditures for the remainder of 1998. The agreement
provides for a 5-year amortization on all drawings at an interest rate of 190
basis points over the 5-year Treasury, which becomes a fixed rate for the
duration of the lease schedule at the time of execution. The Company believes
that the lease financing available to it for certain equipment together with
cash flow from operations should be sufficient to fund its capital equipment
needs.
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Stock Repurchase:
On December 18, 1997, the Board of Directors authorized the Company to
repurchase up to $2,000 of its common stock on the open market. Repurchased
shares are held as Treasury shares and may be reissued in the future or may be
reissued pursuant to the Company's stock option programs. During the nine-month
period ended September 30, 1998, the Company repurchased 34,600 of its shares at
a cost of $212. The Company has suspended the repurchase of any further stock at
this time.
ISP Joint Venture:
During, 1996, the Company contributed $2,000 into a joint venture to develop a
silicon wafer polishing and reclaiming facility in Singapore and retained a
50.1% ownership interest. On May 12, 1998 the Company invested an additional
$385 as a redeemable convertible bond ("RCB"). The RCB interest rate is 8% per
annum with the note payable April 15, 2001. The Company may convert the RCB at
any time into ordinary shares of par value S$1.00 (Singapore Dollar) at the rate
of one ordinary share for every S$3.00 worth of RCB plus accrued interest. The
RCB instrument ranks senior to all other existing shareholder loans. If the RCB
was converted on September 30, 1998 the Company's equity level would have been
69%.
ISP Equipment Credit Facility:
In 1997, ISP entered into a S$19,700 (approximately $11,600 at September 30,
1998) credit facility with a Singapore financial institution in order to acquire
certain equipment, acquire a building, provide for an overdraft facility and to
provide a multi currency letter of credit facility. Amounts borrowed under the
facility bear interest at an average rate of approximately 6.75%. In the
nine-month period ended September 30, 1998 and 1997, ISP borrowed $800 and
$4,600, respectively, under its credit facility. At September 30, 1998, ISP has
borrowed S$8,200 (approximately $4,800 at September 30, 1998) under the
facility. ISP is currently in discussions with its bank regarding these
facilities.
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PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10) Fourth Amendment Agreement and Forebearance Agreement
between the Company, its subsidiaries and First Union
National Bank
(27) Financial Data Schedule (Edgar filing copy only)
(b) Current Reports on Form 8-K
During the quarter ended September 30, 1998 the Company filed no
reports on Form 8-K
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEMX CORPORATION
Date: November 16, 1998 By: /s/ Gilbert D. Raker
-----------------------
Name: Gilbert D. Raker
Title: Chairman of the Board
and Chief Executive Officer
Date: November 16, 1998 By: /s/ Douglas G. Sages
-----------------------
Name: Douglas G. Sages
Title: Treasurer and Secretary
(Principal Financial and
Accounting Officer)
15
FOURTH AMENDMENT AGREEMENT AND FORBEARANCE AGREEMENT
AGREEMENT, made as of August 1, 1998, among SEMX CORPORATION
(formerly known as Semiconductor Packaging Materials Co., Inc.), a Delaware
corporation, AMERICAN SILICON PRODUCTS, INC., a Delaware corporation, POLESE
COMPANY, INC., a California corporation, RETCONN INCORPORATED, a Connecticut
corporation, TYPE III, INC., a California corporation, S.T. ELECTRONICS, INC., a
California corporation, SPM HOLDINGS CORPORATION, a Delaware corporation, and
FIRST UNION NATIONAL BANK, a national banking association.
Background
A. Capitalized terms not otherwise defined shall have the meanings
ascribed to them in the Credit Agreement dated January 23, 1997, between
Semiconductor Packaging Materials Co., Inc. (now known as SEMX Corporation), and
First Union Bank of Connecticut (predecessor in interest to First Union National
Bank) (as modified, amended, restated or supplemented from time to time, the
"Credit Agreement").
B. The Borrower has informed the Lender that it will be unable to make the
principal payment under the Term Loan due and payable on August 1, 1998, and
will be unable to comply with the financial covenants contained in Sections 9.8,
9.9, 9.10, and 9.11 of the Credit Agreement. The Borrower and the Subsidiary
Guarantors have requested that the Lender (i) forbear from requiring the
Borrower to make scheduled payments of principal under the Term Loan from August
1, 1998, through December 31, 1998, (ii) waive the Borrower's compliance with
the financial covenants contained in Sections 9.8, 9.9, 9.10 and 9.11 of the
Credit Agreement through December 31, 1998, and (iii) consent to the change of
the Borrower's name from Semiconductor Packaging Materials Co., Inc. to SEMX
Corporation.
C. The Lender has agreed to the Borrower's and the Subsidiary Guarantors'
requests subject to the terms and conditions of this Agreement.
Agreement
In consideration of the foregoing Background, which is incorporated
by reference, the parties, intending to be legally bound, agree as follows:
1. Modifications to Credit Documents. All of the terms and conditions
contained in the Credit Documents shall remain in full force and effect except
as follows:
<PAGE>
(a) Modifications to Credit Agreement.
(i) The heading contained on the first page of the Credit
Agreement is deleted and the following is substituted therefor:
CREDIT AGREEMENT dated as of January 23, 1997, between SEMX
CORPORATION, a Delaware corporation, and FIRST UNION NATIONAL BANK,
a national banking association.
(ii) The following is added as Section 1.1(c) to the Credit
Agreement:
(c) Subject to and upon the terms and conditions set forth
herein, the Lender agrees to make, on June 19, 1998, a term loan
(the "Interim Loan" to the Borrower, which Interim Loan (i) shall be
incurred and maintained as a Prime Rate Loan and (ii) shall not
exceed, in initial aggregate principal amount, that amount which
equals the Interim Loan Commitment on the Initial Borrowing Date.
Once repaid, the Interim Loan incurred hereunder may not be
reborrowed.
(iii) The phrase "or Interim Loan" is added after the phrase
"Revolving Loans" contained in the twelfth line of Section 1.3(a) of the Credit
Agreement.
(iv) The first "and" contained in the fifth line of Section
1.5(a) of the Credit Agreement is deleted and the following is added after the
parenthetical "(the `Revolving Note')" contained in the seventh line of the
Credit Agreement:
, and (iii) if the Interim Loan, by a promissory note duly executed
and delivered by the Borrower substantially in the form of Exhibit
B-3, with blanks approximately completed in conformity herewith (the
"Interim Note").
(v) The following is added as Section 1.5(d) of the Credit
Agreement and the current Section 1.5(d) is renumbered as Section 1.5(e):
(d) the Interim Note shall (i) be executed by the Borrower,
(ii) be payable to the Lender or its registered assigns and be dated
as of the Initial Borrowing Date, (iii) be in a stated principal
amount equal to the Interim Loan evidenced thereby, (iv) mature on
the Interim Loan Maturity Date, (v) bear interest and be payable as
to interest as provided in the appropriate clause of Section 1.8,
(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.
(vi) Clauses (iii), (iv), (v) and (vi) of Section 1.7 of the
Credit Agreement are deleted and the following are substituted therefor:
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<PAGE>
(iii) then due and payable interest payments on the Interim Loan;
(iv) then due and payable interest payments on the Revolving Loans;
(v) then due and payable principal payments on the Term Loan; (v)
amounts then outstanding under the Interim Loan; (vi) amounts then
outstanding under the Revolving Loans; and (vii) Obligations to
Lender other than Fees, expenses and interest and principal amounts.
(vii) The following is added as Section 3.3(c) of the Credit
Agreement:
(c) In addition to any other mandatory commitment reductions
pursuant to Section 4.2, the Interim Loan Commitment shall terminate
in its entirety on the Interim Loan Maturity Date.
(viii) The phrase "or the Interim Loan" is added after the
phrase "or the Revolving Loans" contained in the eighth line of Section 4.1 of
the Credit Agreement.
(ix) The phrase "except that with respect to the Interim Loan
such amount shall be $25,000)" is added after the amount "$250,000" contained in
the eleventh line of Section 4.1 of the Credit Agreement.
(x) Section 4.2(a) of the Credit Agreement is renumbered as
Section 4.2(a)(i) and the following is added as Section 4.2(a)(ii) of the Credit
Agreement:
(ii) On any day on which the sum of the aggregate outstanding
principal amount of the Interim Loan exceeds the Interim Loan
Commitment as then in effect, the Borrower shall prepay on such day,
principal of the Interim Loan in an amount equal to such excess.
(xi) The following is added after the phrase "Section 4.2"
contained in the second line of Section 4.2(g) of the Credit Agreement:
(other than repayments required pursuant to subsections (a) and (b)
hereof)
(xii) Section 10.10 of the Credit Agreement is deleted and the
following is substituted therefor:
10.10. Change in Management. Gilbert Raker or Douglas Sages
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. Sages, as the case may be, with an
individual reasonably acceptable to the Lender;
(xiii) The following definition is added after the definition
of "Acquisition Agreement" contained in Section 11.1 of the Credit Agreement:
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<PAGE>
"Additional Security Document" shall mean any agreement
executed and delivered by Borrower or any Subsidiary Guarantor to Lender
subsequent to the Closing Date pursuant to which such Person shall grant to
Lender one or more liens, security interests or mortgages to secure the
obligations of such Person to Lender.
(xiv) The definition of "Applicable Margin" contained in
Section 11.1 of the Credit Agreement is deleted and the following is substituted
therefor:
"Applicable Margin: shall mean (a) in the case of Revolving
Loans which are maintained as Prime Rate Loans, 0%, (b) in the case
of the Interim Loan, 0%, and (c) in the case of the Term Loan and
Revolving Loans which are maintained as Eurodollar Loans, 2.25%
(xv) The definition of "Borrower" contained in Section 11.1 of
the Credit Agreement is deleted and the following is substituted therefore:
"Borrower" shall mean SEMX Corporation, a Delaware
corporation, and its successors and assigns.
(xvi) The definition of "Commitment" contained in Section 11.1
of the Credit Agreement is deleted and the following is substituted therefor:
"Commitment" shall mean any of the commitments of the Lender,
i.e., whether the Term Loan Commitment, the Revolving Loan
Commitment, the Interim Loan Commitment or the Letter of Credit
Commitment
(xvii) The definition of "Initial Borrowing Date" contained in
Section 11.1 of the Credit Agreement is deleted and the following is substituted
therefor:
"Initial Borrowing Date" shall mean, (i) with respect to the
Term Loan and the Revolving Loans, the date occurring on or after
the Effective Date on which the initial Borrowing of Loans hereunder
occurs and (ii) with respect to the Interim Loan, June 19, 1998.
(xviii) The definition of "Lender" contained in Section 11.1
of the Credit Agreement is deleted and the following is substituted therefor:
"Lender" shall mean First Union National Bank, a national
banking association, and its successors and assigns.
(xix) The definition of "Loan" contained in Section 11.1 of
the Credit Agreement is deleted and the following is substituted therefor:
"Loan" shall mean the Term Loan, the Revolving Loans and the
Interim Loan.
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<PAGE>
(xx) The definition of "Maturity Date" contained in Section
11.1 of the Credit Agreement is deleted and the following is substituted
therefor:
"Maturity Date" shall mean the Term Loan Maturity Date, the
Revolving Loan Maturity Date or the Interim Loan Maturity Date, as
the case may be.
(xxi) The definition of "Minimum Borrowing Amount" contained
in Section 11.1 of the Credit Agreement is deleted and the following is
substituted therefor:
"Minimum Borrowing Amount" shall mean (a) for the Term Loan,
$21,000,000, (b) for Revolving Loans, $250,000, and (c) for the
Interim Loan, $1,000,000.
(xxii) The definition of "Note" contained in Section 11.1 of
the Credit Agreement is deleted and the following is substituted therefor:
"Note" or "Notes" shall mean the Term Note, the Revolving Note
and the Interim Note.
(xxiii) The definition of Security Document contained in
Section 11.1 of the Credit Agreement is deleted and the following is substituted
therefor:
"Security Document" shall mean and include the Borrower
Security Agreement, the Subsidiaries Security Agreement, the Stock
Pledge Agreement, and, after the execution and delivery thereof,
each Additional Security Document.
(xxiv) The following definition is added after the definition
of "Stated Amount" contained in Section 11.1 of the Credit Agreement:
"Stock Pledge Agreement" shall mean the Stock Pledge Agreement
dated as of August 1, 1998, between the Borrower and the Lender, as
amended, modified or supplemented from time to time.
(xxv) The following definitions are added after the definition
of "Taxes" contained in Section 11.1 of the Credit Agreement:
"Interim Loan" shall have the meaning provided in Section
1.1(c).
"Interim Loan Commitment" shall mean the agreement of the
Lender to make Temporary Revolving Loans in the aggregate amount
outstanding from time to time not in excess of $1,000.000.
"Interim Loan Maturity Date" shall mean December 31, 1998.
5
<PAGE>
"Interim Note" shall have the meaning provided in Section
1.5(b).
(xxvi) The notice information for the Borrower contained in
Section 12.3 of the Credit Agreement and opposite the signature line on page 72
of the Credit Agreement is deleted and the following is substituted therefor:
SEMX Corporation
One Labriola Court
Armonk, NY 10504-1336
Attention: Mr. Gilbert Raker and Mr. Douglas Sages
Tel: 914.273.5500 (x 111)
Fax: 914.273.5860
(xxvii) The following is added after the notice information
for the Borrower contained in Section 12.3 of the Credit Agreement:
-and-
Salon, Marrow & Dyckman, LLP
685 Third Avenue
New York, NY 10017
Attention: Joel Salon
Tel.: 212.661.7100
Fax: 212.661.3339
(xxviii) The phrase "First Union Bank of Connecticut"
contained in Section 12.3 of the Credit Agreement is deleted and the phrase
"First Union National Bank" is substituted therefor.
6
<PAGE>
(xxix) The following is added after the notice information
contained in Section 12.3 of the Credit Agreement:
- and -
First Union National Bank
One First Union Center
301 South College Street - NC 0630
Charlotte, NC 28288
Attention: Richard Niemiec
Tel: 704.374.2821
Fax: 704.383.0649
- and -
Robinson & Cole LLP
695 East Main Street
Stamford, CT 06904
Attention: Gregory E. Harmer
Tel: 203.462.7500
Fax: 203.462.7599
(xxx) The Loan Agreement dated June 19, 1998, between the
Borrower and the Lender is rescinded and of no force and effect.
(xxxi) The Replacement Promissory Note in the form of the
attached Exhibit B-3 is deemed attached to the Credit Agreement as Exhibit B-3.
(b) Modification to Other Credit Documents. Simultaneously herewith,
the Borrower is delivering to the Lender the Allonges as set forth in Section
2(c) and (d) below.
2. Conditions Precedent. The obligation of the Lender under this
Agreement is subject to the receipt and review, to the satisfaction of the
Lender, of the following:
(a) this Agreement duly executed by the parties hereto;
(b) the $1,000,000 Replacement Promissory Note duly drawn to
the order of the Lender;
(c) the First Allonge to $21,000,000 Term Promissory Note
duly drawn to the order of the Lender;
7
<PAGE>
(d) the First Allonge to $15,000,000 Revolving Promissory
Note duly drawn to the order of the Lender;
(e) the First Amendment to Participation Agreement;
(f) the Stock Pledge Agreement;
(g) the Debtor's Questionnaire for the Borrower and each
Subsidiary Guarantor in the form of the attached Exhibit
"1";
(h) Secretary's Certificate of the Borrower and each of the
Subsidiary Guarantors;
(i) Copy of the Current Report on Form 10-Q filed by the
Borrower with the Securities and Exchange Commission;
(j) Amendment Statements on Form UCC-3; and
(k) such other agreements and instruments as the Lender
deems necessary.
3. Consent to Change of Name. The Lender hereby consents to the
change of name by the Borrower from "Semiconductor Packaging Materials Co.,
Inc." to SEMX Corp.
4. Appraisal; Audits. (a) The Borrower agrees to retain at its
expense, within 30 days after the date of this Agreement, subject to the
reasonable approval of the Lender, a reputable appraiser, to conduct appraisals
of the Borrower's fixed assets (on a fair market value basis and an orderly
liquidation basis) and to supply to Lender a complete copy of such appraisals no
later than 90 days after the date of this Agreement.
(b) Within 30 days after the date of this Agreement, the
Borrower agrees to allow the Lender, or its designee, to conduct an audit of the
Borrower's current assets (i.e., accounts receivable and inventory), and to
cooperate fully with respect thereto, the cost of which audit shall be deemed
one of the "Obligations" and which shall be borne by the Borrower.
5. Reaffirmation by the Borrower. The Borrower acknowledges that (a)
it is legally, validly and enforceably indebted to the Lender under the
Revolving Note, the Interim Note and the Term Note, without defense,
counterclaim or offset, (b) it is legally, validly and enforceably liable to the
Lender for all costs and expenses of collection and attorneys' fees related to
or in any way arising out of this Agreement, the Credit Agreement, the Revolving
Note, the Interim Note, the Term Note, and the other Credit Documents, and (c)
as of the date hereof, the amount outstanding under (x) the Revolving Note is
$11,554,932.98 (consisting of $11,525,000.00 principal and $29,932.98 accrued
interest), (y) the Interim Note is $1,000,000.00 (consisting of $1,000,000
principal and $0 accrued interest), and (z) the Term
8
<PAGE>
Note is $15,086,357.77 (consisting of $15,050,000.00 principal and $36,357.77
accrued interest), and the undrawn amount under the Letter of Credit is
$2,958,500.00 . Except as modified by this Agreement, the Borrower hereby
remakes all representations, warranties and covenants contained in the Credit
Documents, and acknowledges that the liens and security interests granted
pursuant to the Security Documents encompass the indebtedness of the Revolving
Note, the Interim Note and the Term Note. The Borrower represents that except as
described on Current Report on Form 10-Q for the period ended June 30,1998 of
the Borrower which was filed with the Securities and Exchange Commission, there
are no pending, or to the Borrower's knowledge threatened, legal proceedings to
which the Borrower is a party, which materially or adversely affect the
transactions contemplated by this Agreement or the ability of the Borrower or
any Subsidiary Guarantor to conduct its business.
6. Reaffirmation by the Subsidiary Guarantors. Each Subsidiary
Guarantor acknowledges that it is legally and validly indebted to the Lender
under the Subsidiary Guaranty without defense, counterclaim or offset, and
affirms that the Subsidiary Guaranty remains in full force and effect and
includes, without limitation, the indebtedness, liabilities and obligations
arising under, or in any way connected with, the Credit Agreement, the Revolving
Note, the Interim Note, the Term Note, this Agreement and the other Credit
Documents, whether now existing or hereafter arising and acknowledges that the
liens and security interests granted pursuant to the Security Documents to which
such Subsidiary Guarantor is a party encompasses the foregoing indebtedness and
obligations.
7. Other Representations and Agreements by Borrower and Subsidiary
Guarantors. The Borrower and each of the Subsidiary Guarantors represents and
confirms that no Default or Event of Default has occurred and is continuing, and
that, other than as set forth herein, the Lender has not given its consent to or
waived any Default or Event of Default and the Credit Agreement and the other
Credit Documents are in full force and effect and enforceable against the
Borrower and the Subsidiary Guarantors in accordance with the terms thereof. The
Borrower and each Subsidiary Guarantor confirms all of the rights and remedies
of Lender under the Credit Documents, including, without limitation, any power
of attorney granted to Lender under any of the Credit Documents. The Borrower
and each of the Subsidiary Guarantors acknowledges that the Credit Agreement,
the Credit Documents and this Agreement (all as previously amended, modified or
supplemented from time to time) constitute the entire agreement and
understanding between Lender and Borrower and each Subsidiary Guarantor and
supersedes all prior agreements, conversations and understandings relating to
the subject matter hereof. The Borrower and each of the Subsidiary Guarantors
represents and confirms that as of the date hereof, neither the Borrower nor any
of the Subsidiary Guarantors has any claim or defense (and the Borrower and the
Subsidiary Guarantors each hereby waives every claim and defense) against the
Lender arising out of or relating to the Credit Agreement, this Agreement and
the other Credit Documents or the making, administration or enforcement of the
Revolving Note, the Interim Note, the Term Note and the Loans and the remedies
provided for under the Credit Agreements.
8. Forbearance and Waiver; Release. (a) In consideration of the
execution, delivery and performance of this Agreement by the Borrower and the
Subsidiary Guarantors, the
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<PAGE>
Lender agrees (x) to forbear from requiring the Borrower to make regularly
scheduled payments under the Term Loan from the date of this Agreement to the
earliest to occur (a "Termination Event") of (I) January 1, 1999, (II) the
occurrence of an Event of Default under Section 10.5, 10.7 or 10.9 of the Credit
Agreement, and (III) the occurrence of a breach of this Agreement by the
Borrower or any of the Subsidiary Guarantors, and all such forborn payments
shall be due and payable on the Term Loan Maturity Date, and (y) to waive until
the occurrence of a Termination Event the Borrower's compliance with the
financial covenants contained in Sections 9.8, 9.9, 9.10 and 9.11 of the Credit
Agreement.
(b) IN CONSIDERATION OF THE EXECUTION, DELIVERY AND
PERFORMANCE OF THIS AGREEMENT BY THE BORROWER AND THE SUBSIDIARY GUARANTORS, THE
BORROWER AND EACH OF THE SUBSIDIARY GUARANTORS RELEASES, REMISES AND DISCHARGES
THE LENDER FROM ALL ACTIONS, CAUSES OF ACTION, SUITS, REBORROWINGS,
CONTROVERSIES, AGREEMENTS, PROMISES, DAMAGES, JUDGEMENTS, CLAIMS AND DEMANDS IN
LAW OR IN EQUITY WHICH ANY OF THEM EVER HAD, NOW HAS OR WHICH ANY OF THEM SHALL
HAVE AGAINST THE LENDER ARISING OUT OF ANY ACTIONOF THE LENDER OCCURRING PRIOR
TO THE DATE OF THIS AGREEMENT.
9. Prejudgment Remedy Waiver; Waivers. THE BORROWER AND EACH OF THE
SUBSIDIARY GUARANTORS ACKNOWLEDGES THAT THE LOANS AND THE TRANSACTIONS EVIDENCED
BY THE REVOLVING NOTE, THE INTERIM NOTE, THE TERM NOTE, THE CREDIT AGREEMENT,
THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS ARE COMMERCIAL TRANSACTIONS AND
EACH WAIVES ITS RIGHTS TO NOTICE AND HEARING PRIOR TO THE ISSUANCE OF ANY
PREJUDGMENT REMEDY, OR AS OTHERWISE ALLOWED BY ANY STATE OR FEDERAL LAW WITH
RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE LENDER MAY DESIRE TO USE, AND
FURTHER WAIVES DILIGENCE, DEMAND, PRESENTMENT FOR PAYMENT, NOTICE OF NONPAYMENT,
PROTEST AND NOTICE OF ANY RENEWALS OR EXTENSIONS. THE BORROWER AND EACH OF THE
SUBSIDIARY GUARANTORS ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY,
WILLINGLY, VOLUNTARILY AND WITHOUT DURESS, AND ONLY AFTER EXTENSIVE
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
10. Jury Trial Waiver. THE BORROWER AND EACH OF THE SUBSIDIARY
GUARANTORS WAIVES TRIAL BY JURY IN ANY COURT IN ANY SUIT, ACTION OR PROCEEDING
ON ANY MATTER ARISING IN CONNECTION WITH, OR IN ANY WAY RELATED TO, THE
FINANCING TRANSACTIONS OF WHICH THE CREDIT AGREEMENT, THE REVOLVING NOTE, THE
INTERIM NOTE, THE TERM NOTE, THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS IS A
PART OR THE ENFORCEMENT OF ANY OF THE LENDER'S RIGHTS. THE BORROWER AND EACH OF
THE SUBSIDIARY GUARANTORS ACKNOWLEDGES THAT IT MAKES THIS WAIVER KNOWINGLY,
WILLINGLY, VOLUNTARILY AND WITHOUT
10
<PAGE>
DURESS, AND ONLY AFTER EXTENSIVE CONSIDERATION OF THE RAMIFICATIONS OF THIS
WAIVER WITH ITS ATTORNEYS.
11. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Connecticut (without
regard to such State's conflicts of law principles).
11
<PAGE>
The parties have executed this Agreement as of the date first written
above.
Borrower:
SEMX CORPORATION
By /s/ Douglas G. Sages
--------------------------
Name: Douglas G. Sages
Title: Secretary
Subsidiary Guarantors:
AMERICAN SILICON PRODUCTS, INC.
By /s/ Douglas G. Sages
--------------------------
Name: Douglas G. Sages
Title: Secretary
POLESE COMPANY, INC.
By /s/ Douglas G. Sages
--------------------------
Name: Douglas G. Sages
Title: Secretary
RETCONN INCORPORATED
By /s/ Douglas G. Sages
--------------------------
Name: Douglas G. Sages
Title: Secretary
TYPE III, INC.
By /s/ Douglas G. Sages
--------------------------
Name: Douglas G. Sages
Title: Secretary
S.T. ELECTRONICS, INC.
By /s/ Douglas G. Sages
--------------------------
Name: Douglas G. Sages
Title: Secretary
12
<PAGE>
SPM HOLDINGS CORPORATION
By /s/ Douglas G. Sages
--------------------------
Name: Douglas G. Sages
Title: Secretary
Lender:
FIRST UNION NATIONAL BANK
By /s/ Reyno Giallongo, Jr.
--------------------------
Name: Reyno Giallongo, Jr.
Title: Senior Vice President
<TABLE> <S> <C>
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
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<SECURITIES> 0
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<INVENTORY> 13,692
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0
0
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<SALES> 50,905
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<INTEREST-EXPENSE> 2,697
<INCOME-PRETAX> (2,249)
<INCOME-TAX> (751)
<INCOME-CONTINUING> (1,243)
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