U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 1-10938
SEMX CORPORATION
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(Name of Business Issuer in Its Charter)
Delaware 13-3584740
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1 Labriola Court
Armonk, New York 10504
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (914) 273-5500
Securities registered pursuant to Section 12(b) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
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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-K 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-K or any amendment to this
Form 10-K. [X]
The Exhibit Index is located on page 20
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At March 31, 1999 the aggregate market value of the voting stock of
the Registrant held by non-affiliates was approximately $7,477,700.
At March 31, 1999 the Registrant had 6,041,016 shares of Common
Stock outstanding, $.10 par value ("Common Stock"). In addition, at such date,
the Registrant held 334,600 shares of Common Stock in treasury.
DOCUMENTS INCORPORATED BY REFERENCE:
DOCUMENT Parts Into Which Incorporated
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Portions of the Definitive [Part III. Item 10,11,12 13]
Proxy Statement prepared in
connection with the Company's
1999 Annual Meeting of Stockholders
which will be held on May 26, 1999.
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PART I
Item 1. Business.
(a) General. SEMX Corporation, formerly Semiconductor Packaging Materials
Co. Inc., consists of a Delaware corporation and its wholly owned and majority
owned subsidiaries (collectively the "Company"). In April, 1998, the Company
changed its name to SEMX Corporation (its existing ticker symbol). The Company
primarily provides specialty materials and services to the microelectronic and
semiconductor industries on a worldwide basis.
At the end of the fiscal year, the Company's Materials Group consisted of
the operating division of the parent company ("SPM") and its subsidiaries,
Polese Company, Inc.("Polese"), Retconn Incorporated ("Retconn") and its
subsidiary, S.T. Electronics, Inc.("S.T.").The Materials Group primarily
designs, develops, manufactures and markets customized fine wire and metal
ribbon, precision metal stampings, aluminum silicon carbide stampings, powdered
metal copper/tungsten heat dissipation products, seal frames, RF coaxial
contacts and connectors and cable and cable harness assemblies which are used in
the assembly of microelectronic packages. Such products are incorporated into
electronic components used for industrial and commercial applications, primarily
to conduct electrical currents or signals, solder electronic circuitry, provide
electrical interconnects, house electronic components, mount components or
dissipate heat. In 1997, the Company entered the recreational products market by
supplying a proprietary copper/tungsten sole weight to Taylor Made Golf for use
in its Titanium Bubble 2(TM) irons. In 1998, the Company further expanded its
product offering of sole weights to additional customers in the recreational
products marketplace. 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. As described herein, the Company completed the sale of its Retconn
and S.T. businesses in February 1999 and as of that date no longer designs
develops or manufacturers RF coaxial contacts, connectors and cable and cable
harness assemblies.
The Company's Services group consists of its American Silicon Products,
Inc. ("ASP") subsidiary and a jointly owned Singapore corporation, International
Semiconductor Products Pte Ltd ("ISP"). Each provide 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. ISP is 50.1% owned by the Company, 39.9% owned by Semiconductor
Alliance Pte Ltd. and 10% owned by EDB Ventures 2 Pte ltd. ISP began operations
in the third quarter of 1997.
History. The registrant, SEMX Corporation, formerly Semiconductor
Packaging Materials Co. Inc. is a Delaware corporation incorporated in 1988 as a
successor to a company started in 1981. In December 1991 the Company had a
public offering of its securities and became a public company. In April 1998,
the stockholders of the Company approved an amendment to the Company's
Certificate of Incorporation to change the name of the Company to SEMX
Corporation.
The Company has attained significant revenue growth over the last several
years. A substantial portion of that growth has been realized through the
acquisition of businesses and by applying monetary and management resources to
further the growth of the acquired companies.
Acquisitions:
In 1993, the Company acquired Polese Company, Inc.. 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 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 was
subsequently issued to Mr. Polese, for the development and application of
copper/tungsten powdered metal technology to the electronics industry.(See Part
II, Item 6, Management Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A"))
In 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. ASAC had no operations of its
own, but simultaneously with the merger, acquired the assets of American Silicon
Products, Inc.("ASP"), a Rhode Island corporation. The ASP assets acquired
embodied a silicon wafer reclaiming and reconditioning business located in
Providence, Rhode Island.
In 1996, the Company acquired Retconn Incorporated. Retconn developed,
designed and manufactured subminiature coaxial contacts and connectors which
were sold principally to manufacturers in the communications and computer
industries.
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In 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, 39.9% owned by a holding company, Semiconductor Alliance
Pte Ltd. and 10% owned by EDB Ventures 2 Pte Ltd.
On January 23, 1997, the Company acquired certain assets and assumed
certain liabilities of Silicon Materials Service ("SMS") 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. The SMS Texas
operation was merged into ASP and SMSBV was renamed American Silicon Products,
B.V. ("ASPBV"). During 1998, the Company closed the SMS Texas operation and
relocated certain customers and equipment to its Providence plant.
Effective July 30, 1997, Retconn, a wholly owned subsidiary of the
Company, acquired 100% of the outstanding stock of S.T. Electronics, Inc
("S.T."), a company that manufactures and markets custom cable and cable
harness assemblies for $1,000,000 in cash and $2,000,000 in notes, subject to
adjustment, based on the closing net worth and adjusted EBIT delivered by S.T.
as of the closing date. In addition, Retconn acquired certain proprietary rights
from S.T. shareholders for $200,010. The notes are payable in twenty equal
quarterly installments beginning on November 1, 1997 at an interest rate of 7%
per annum on the unpaid principal.
Dispositions
In February 1999, the Company completed the sale its Retconn and S.T
Electronics businesses (collectively "Retconn") to Litton Systems Inc. for a
purchase price of $23.9 million in cash plus the assumption of approximately
$3.5 million of Retconn's liabilities. Commensurate with the sale, the Company
no longer engages in the manufacture, development or design of subminiature
coaxial contacts, connectors, custom cables or cable harness assemblies.
Information pertaining to these products, contained herein, is related only for
calendar 1998 and through the February 1999 date of disposition.
(b) Financial Information about Industry Segments - The Company has
operated in two industry segments, materials and services, during each
of its last three 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 are 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 inches. 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, package
electronic circuitry, 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, 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. The
Company also manufactures assembly products by brazing low expansion materials
to ceramic.
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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 in 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 has constructed 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 and Recreational 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 materials 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 introduction of a copper/tungsten metal matrix
composite for sole weights which are used in the manufacture of golf clubs. In
addition, in late 1997, Polese introduced a new material, Nitral(TM). Nitral(TM)
is a high dissipation substrate that can be tailored for high thermal
conductivity. In 1998, Polese bought the rights to Alcoa's AlSiC technology,
which is used for certain electronics applications.
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, ASPBV and ISP offer
a variety of high tech, state-of-the-art wafer polishing and reclaiming services
to the semiconductor industry. ISP began offering these services in the third
quarter of 1997. Reclaimed wafers are used in the evaluation and testing of
equipment and processes in semiconductor fabrication.
Coaxial Contacts and Connectors, Cable and Cable Harnesses. During 1998
and through February 1999, Retconn manufactured RF coaxial contacts and
connectors which were sold principally to manufacturers in the wireless
communication and computer industries. Retconn's products included a full line
of DM subminiature RF contacts and connectors, including solder, solder/crimp,
and crimp/crimp standard coaxial contacts. It had a line of SMA, SMB, SMC and
MCX connectors that met military specifications. In addition, Retconn and its
wholly owned subsidiary, S.T., offered cable terminations, specials and cable
assemblies. As of the February 1999 sale of the Retconn and S.T business, the
Company no longer manufacturers these product lines.
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, they 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 and Degussa Metz Metallurgical
Corp.
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 products. Precious metals, particularly gold, are
utilized based upon their reliability and conductivity. The prices at which the
Company purchases precious metals are based upon market prices at the time of
purchase. Such metals have historically been subject to significant price
fluctuations and 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 5,000 troy ounces of gold or gold having a market value of
$1,870,000. 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
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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 5% per annum, based upon the value of gold consigned to
the parent company. The revised and amended agreement with Fleet expires on June
30, 1999. 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 is terminated.
Silver and platinum are currently purchased from various 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 Osram Sylvania, Platronics, AEP, Fusco,
Donham Craft, Technical Materials and Clad Metal Specialties.
The Company also purchased certain components used in the assembly of
coaxial contacts and connectors from such companies as MGB and Sorenson
Engineering until the February 1999 sale of the Retconn and S.T businesses.
The Company's Services Group purchases polishing materials, gases and
chemicals and specialized equipment from various suppliers. These vendors
include, but are not limited to, Empak, Rodel and Hubbard Hall.
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 required raw materials 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 metal matrix composite heat dissipation and
recreational 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
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its customers. The customer usually retains title to the reclaimable wafers
throughout the polishing and reclaiming process. The wafers are then 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 through procedural discipline and
Statistical Process Controls. The Company has achieved the ability to regularly
process wafers with particles of less than .12 microns in size, with extremely
low trace metals. The Company believes that its processing capability is
comparable to that of any reclaiming capability in the world.
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.
The parent company usually operates on an eight-hour daily shift five days
per week, 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 seven days per week, with its various departments running two
to three shifts per day, consistent with business requirements. ASP usually
operates on a three 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 its equipment and when appropriate, leases
certain equipment from third parties.
Quality Control
The Company utilizes extensive in-house statistical process quality
control procedures ("SPC"), excluding Retconn operations, and employs 24 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.
The Company is certified ISO 9000 (an international quality standard for
the European community) at five of its operations, excluding Retconn, 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. The Company is also designated as a
"Q-1" supplier by The Ford Motor Company. One of the Company's divisions
completed an initial QS 9000 Quality Control audit. Subject to resolution of
pending audit issues, the Company expects to receive its final approval during
early 1999. The Company believes that QS 9000 certification will be important to
the Company's status as a world class supplier, especially within the automotive
industry.
Marketing and Sales
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, 1999, the Company had arrangements with
24 sales representatives in the United States and 16 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,
enhance 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 continues to engage new sales representatives as needed.
The Company believes that additional sales representatives are available, if
required.
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The Company currently employs 25 inside sales and marketing personnel,
including two of its executive officers, who are responsible for direct sales to
the Company's customers. 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 years these
efforts have led to the development of a new gold wire for flip chips, a
copper/tungsten metal matrix composite for sole weights used in golf clubs, a
high dissipation substrate that can be tailored for high thermal conductivity, a
packaging process for die in tape on reel and process improvements which enable
the Company's reclaiming facilities to produce wafers with particles of less
than .12 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 and S.T. acquisitions in 1997 and will continue to
seek to expand through acquisitions and other strategic alliances. Not
withstanding the sale of Retconn in February 1999, the Company continues to seek
expansion of its product lines.
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 Kyocera America,
Motorola, IBM, Texas Instruments, National Semiconductor, Hewlett Packard,
Analog Devices, Lucent, Berg Electronics, Hi-Tech Assemblies, Ford Motor
Company, Delco Electronics, ST Electronics, Northern Telecom, Cardiac
Pacemakers, Medtronics/Micro-Rel and Wafernet.
For the years ended December 31, 1998 and 1997, sales of the Company's
products, to the Company's five largest customers accounted for approximately
29% and 32%, respectively, of the Company's revenues. For the years ended
December 31, 1998 and 1997, single, but different, customers accounted for
approximately 10 % and 11% of the Company's total 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 customers purchase orders 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,
1998 and 1997, direct sales of the Company's products into foreign markets
accounted for approximately 15% of the Company's consolidated revenues. Sales of
the Company's products to foreign customers are made through 16 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 to the
customer. At January 2, 1999 and 1998, the Company's backlog of orders,
excluding Retconn and ST, believed to be firm was approximately $15,161,000 and
$16,511,000, respectively. Backlog of the Company's Retconn and S.T. Businesses
which were sold in February 1999, were $3,538,000 at January 2, 1999 and
$4,132,000 at
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January 2, 1998. The Company believes that the majority of the Company's backlog
of orders existing as of January 2, 1999 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.,Kobe, Precision, 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 and recreational products, coaxial contacts and
connectors, cable assemblies and harnesses 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. As discussed herein, after the February, 1999 sale of the Retconn and
S.T the Company no longer competes in the coaxial contacts and connectors, cable
assemblies and harnesses markets.
The ability of the Company to compete successfully will depend in large
measure on its ability to fund and 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 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 products. The powdered metal technology covered
by this patent was acquired by the Company in connection with the Polese Company
acquisition. In addition, Polese Co. has received a patent covering its newly
developed material, Nitral(TM). 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, the Occupational Safety and Health
Administration, various state agencies and county and local authorities. Among
other things, these regulatory bodies impose restrictions to control air, soil
and water pollution and dictate safety in the workplace. 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. The Company
is also subject to various state and local laws which are the counterparts of
CERCLA and/or RCRA in the jurisdictions where the Company maintains facilities
(New York, California, Connecticut and Rhode Island). The Company believes that
it is in substantial compliance with all material federal and state laws and
regulations governing its operations. The Company continually evaluates its
environmental and safety 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 currently 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.
<PAGE>
Executive Corporate Officers of the Company
Gilbert D. Raker, 55, President since December 31, 1995; Chairman of the
Board and Chief Executive Officer of the Company since May 1990; Vice President
of the Company from November 1988 until May 1990.
Frank J. Polese, 42, 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, 60, Executive Vice President of the Company since January
1994, President of the Company from January 1990 to December 1993 and President
of the Semiconductor Packaging Materials division since July 1998. 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.
Douglas G. Sages, Vice President and Chief Financial Officer, resigned
February 22, 1999.
Employees
As of February 28, 1999, the Company employed approximately 524 persons.
All manufacturing personnel are paid on an hourly basis. The majority of
employees are employed full-time. None of the Company's employees are covered by
a collective bargaining agreement. The Company considers its relationship with
its employees to be good.
Item 2. Properties.
The Company's executive offices and the parent's manufacturing facility
are located in a 43,700 square foot building in Armonk, New York. The Company's
Armonk facility is suitable for the Company's current needs and is estimated to
be currently operating at approximately 50% of its productive capacity. The
property is well maintained and in good condition. SPM opened a 3000 square foot
facility in Casablanca, Morocco in January, 1999 to supply aluminum bonding wire
to North Africa and Europe.
Polese entered into an agreement to lease approximately 24,211 square feet
of industrial space at 10103 Carroll Canyon Road and 34,615 sq. ft. at 10111
Carroll Canyon Road, San Diego, California. The lease term commenced on March
31, 1998 and expires on March 31, 2004 and calls for an initial monthly rental
of $29,833 for the first eight months, increasing to $35,296 for the next 4
months, with a 3% annual rent increase in the second through sixth years. The
performance of Polese Company's obligations under the lease is guaranteed by the
Company. Polese Company also leases approximately 10,600 square feet at 8680
Mirilani Drive, San Diego, California. The lease term commenced on May 1, 1997
and expires on December 31, 1999 and calls for a monthly rental of $5,760 with
an increase of 4% effective January 1, 1998. The facilities are suitable for the
Company's current needs and are currently operating at approximately 80% of
their productive capacity. The properties are well maintained and are in good
condition.
ASP owns a 28,000 square foot facility in Providence, Rhode Island. The
facility is suitable for the Company's current needs and is currently operating
at approximately 70% of its productive capacity. The property is well maintained
and is in good condition. ASP formerly operated two leased facilities in
Garland, Texas; a 26,590 square foot facility at 2985 Market Street ("Market
Street"), and a 16,600 square foot facility at 2613 Industrial Lane ("Industrial
Lane"). In March, 1998 the Company closed the Garland Texas facilities and
shifted certain production and equipment to its Providence and Helmond
facilities. The Company completed its remaining lease obligations and vacated
these facilities as of February 28, 1999. American Silicon Products, B.V.'s
operations are located in a facility of approximately 25,800 square feet at
Achterdijk 8, 5705 CB, Helmond, Netherlands. This facility was purchased on
December 1, 1997 by ASP. The Helmond facility is suitable for the Company's
current needs and is currently operating at approximately 70% of its productive
capacity. The facility consists of production, office and warehouse space and is
well maintained and in good condition.
As described herein, the Company sold its Retconn and S.T. businesses in
February 1999. Retconn's primary operations were located in a 12,000 square foot
facility in Torrington, Connecticut occupied on a month to month basis with
annualized lease payments of $56,525. Retconn also leased a 6,360 square foot
facility near its main facility to house its cable assembly operation. This
lease expired on October 31, 1998 and called for monthly rentals of $3,000. The
facilities were suitable for the Company's needs and operated at approximately
90% of their productive capacity during the latest fiscal year
S.T. Electronics operations were housed in three separate manufacturing
"suites" totaling approximately 6030 square feet, located in Rancho Cordova, CA.
The lease was for a three year period, which commenced on July 30, 1997 with a
monthly lease
<PAGE>
payment of $4,500 per month. The facility was suitable for the Company's needs
and operated at approximately 70% of its productive capacity during the last
fiscal year.
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 Registrant received
notice, on January 5, 1998, that a shareholder class action was filed against
it, its Chief Executive Officer and its Chief Financial Officer, in the United
States District Court for the Eastern District of Pennsylvania on November 18,
1997, for an indeterminate amount of damages, (Blum et.al. v. Semiconductor
Packaging Materials Co., Inc., et. al. (97CV 7078)). On May 5, 1998, the United
States District Court for the Eastern District of Pennsylvania dismissed the
case. An appeal of the order dismissing this lawsuit was not filed within the
period permitted for such appeal.
Separately, the Northeast Regional Office of the Securities and Exchange
Commission is conducting a private investigation pursuant to a formal order,
captioned "In the Matter of Trading in the Securities of Semiconductor Packaging
Materials Co., Inc.", to determine whether any persons may have violated the
federal securities laws in connection with the purchase or sale of the
Registrant's securities prior to the December 30, 1996 announcement relating to
its anticipated financial results for the fourth quarter of fiscal 1996. As a
general matter, the Commission takes the position that its investigation should
not be construed as an indication that any violations of law have occurred or as
an adverse reflection upon any person or security. The Registrant cooperated
fully with the Commission in its investigation which commenced in early 1998.
Since June 1998, the Company has not received any additional requests for
information or communications from the SEC concerning this matter.
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, 1998.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
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 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
1st Quarter .............. 9-1/2 7-1/4 12-1/4 7-5/8
2nd Quarter .............. 8-1/2 5 10-1/8 7
3rd Quarter .............. 6-1/2 2-1/8 14-1/2 8-1/2
4th Quarter .............. 4-7/8 2-1/16 14-1/2 6-7/8
</TABLE>
As of April 9, 1999 (the "record date") there were approximately 101 holders of
record of the Company's Common Stock and approximately 3,700 beneficial holders.
On March 31, 1999, the high and low bid price of the common stock was $1.875 and
$1.625 per share, respectively. The Company paid no dividends on its Common
Stock in 1998 or 1997.
<PAGE>
Item 6 SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
(Dollar amounts in thousands; -----------------------------------------------
per share amounts in dollars) 1994 1995 1996 1997 1998
Operating Data:
<S> <C> <C> <C> <C> <C>
Revenue $16,485 $28,064 $46,027 $71,076 $ 65,903
Net income (loss) $ 736 $ 2,526 $ 3,805 $ 3,793 ($11,958)
Amounts Per Common Share:
Basic $ .25 $ .53 $ .64 $ .62 ($ 1.98)
Diluted $ .21 $ .50 $ .62 $ .61 ($ 1.98)
Weighted average number
of common and common
equivalent shares:
Basic 2,965 4,784 5,968 6,070 6,054
Diluted 3,498 5,064 6,170 6,232 6,054
Dividends declared $ 0 $ 0 $ 0 $ 0 $ 0
Balance Sheet Data:
Working capital (deficiency) $ 789 $ 9,175 $10,947 $ 9,486 ($14,064)
Total assets $24,929 $36,071 $56,489 $91,865 $ 82,324
Long-term obligations
excluding current portion $10,475 $ 2,863 $12,432 $32,717 $ 13,055
Shareholders' equity $ 7,706 $29,261 $33,940 $37,458 $ 25,371
</TABLE>
(1) Financial data presented includes the results of the following
acquisitions: American Silicon Products in December 1994, Retconn in
January 1996, Silicon Materials Service in January 1997 and S.T.
Electronics in July 1997. For details relating to these acquisitions
please reference the Management Discussion and Analysis, Liquidity and
Capital Resources sections.
(2) Financial data presented for 1998 includes special charges. For details
please reference the Management Discussion and Analysis section.
(3) Amounts per common share for the years ended prior to December 31, 1997
have been restated to conform to the provisions of Statement of Financial
Accounting Standards No. 128, Earnings per Share, which was adopted during
the fourth quarter of 1997.
<PAGE>
Item 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of net sales:
<TABLE>
<CAPTION>
Fiscal Year Ended
December 31 1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Net Sales 100.0 100.0 100.0
Cost of Sales 80.6 71.3 66.7
Gross Profit 19.4 28.7 33.3
Selling, General and
Administrative Expenses 24.0 16.9 17.8
Operating Income (21.6) 11.8 15.4
Interest Expense (Net) 5.3 3.7 2.0
Income (Loss)
before Income Taxes (26.9) 8.1 13.4
Provision (Credit)
for Income Taxes (8.3) 3.1 5.3
Net Income (Loss) (18.1) 5.3 8.3
</TABLE>
RESULTS OF OPERATIONS (1998 compared to 1997)
Total revenue for 1998 decreased $5,173,000, or 7.3%, from the comparable 1997
period.
Sales by the Company's Materials Group for the year ended December 31, 1998
decreased $505,000, or 1.1% from the 1997 period. The Materials Group includes
the Company's SPM, Polese and Retconn business units. The sales decline was
primarily due to a $2,003,000, or 10.8% decrease at Polese, offset by an
increase of $1,529,000, or 9.3% at Retconn. 1998 Retconn sales included a full
years revenue from S.T. Electronics, Inc., which was acquired in July 30, 1997.
Sales at SPM were slightly down from 1997 levels. In 1998, the sales decrease at
Polese was primarily due to a downturn in sales of heat dissipation products as
they relate to the communications and computer related marketplaces.
Service revenue from the Company's Service Group for the year ended December 31,
1998 decreased $4,668,000 or 20.3% from the 1997 period. The Service Group
includes the Company's American Silicon Products "(ASP)" and International
Silicon Products Pte. Ltd. ("ISP") business units. The 1998 decrease included a
$5,860,000, or 26.3% decrease in revenue at ASP's U.S. and European operations,
which was partially offset by increased revenue of $1,192,000 from ISP. The
Services Group revenue decrease was the result of a slowdown in the demand for
reclaimed wafers and pricing pressures caused by a downturn in the semiconductor
industry.
Direct sales of the Company's products into foreign markets accounted for 15% of
consolidated revenue for the years ended December 31, 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 year ended
December 31, 1998 and 1997, the Company derived revenue from ASP B.V. of
$3,230,000 and $3,168,000 respectively, revenue from S.A.R.L. of $192,000 and $0
respectively, and revenue from ISP of $1,936,000 and $744,000, respectively.
Foreign sales made through the Company's domestic operations are made through
foreign manufacturer's representatives and are priced and paid for both in local
currencies and 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 8 % and 6 % of the consolidated revenue for
the years ended December 31, 1998 and 1997, respectively.
The Company's consolidated backlog as of December 31, 1998 was $18,699,000. This
compares to consolidated backlog of $20,643,000 at December 31, 1997. The
$1,944,000 decrease, which includes a $594,000 decrease in the backlog of
Retconn which was sold in February 1999, was primarily the result of $200,000
and $2,334,000 decreases at Polese and ASP, respectively. These decreases were
partially offset by a $1,204,000 increase in the backlog of SPM. The decrease at
Polese was the result of a significant decrease in order levels by a customer
servicing the communication related industry. In 1999, Polese has seen a
significant increase in its backlog from December 1998 levels primarily from
increased order inflow from its communications, computer and recreational
products customers and has recently seen an increase in order levels from the
customer which had decreased order levels in 1998. While ASP's backlog has
recently improved, it still remains at depressed levels due to the continuing
slowdown in the semiconductor industry.
Gross profit for 1998 decreased $7,599,000, or 37.3% from the comparable 1997
period. In the Materials Group, the decrease was primarily due to a $3,756,000,
or 78.6% decrease at Polese, a $452,000, or 8.4% decrease at Retconn and a
$1,156,000, or 24.3% decrease at SPM. During the fourth quarter of 1998 the
Company's Materials Group adjusted the carrying value of its inventories in
response to changing semiconductor and microelectronic market conditions and
realized charges of $1,267,000 to cost of sales to record provisions for excess
and obsolete inventory. Materials Group gross profit in 1998 reflected the
decreased sales levels as well as provisions for excess and obsolete inventory.
In the Services Group, ASP's gross profit decreased $2,711,000, or 46.5%
<PAGE>
during 1998 as a result of decreased sales and pricing pressures. Gross profit
declines during 1998 at ASP were partially offset by an increase in gross profit
of $414,000 at ISP. Gross margin in the Materials Group decreased to 20.1% in
the 1998 period from 30.9% in the 1997 period. As a result of the foregoing,
consolidated gross margin for the Company decreased to 19.4% in 1998 from 28.7%
in the 1997 period
Selling, general and administrative ("SG&A") expenses in 1998, excluding
$11,217,000 of special charges, increased $3,796,000, or 31.7% over the 1997
period. The increase was primarily due to increased legal fees, corporate staff,
and infrastructure additions at the operational level in sales and research and
development. SG&A expenses as a percentage of revenue, excluding special
charges, increased to 24% in the 1998 period from 17% in the 1997 period.
In 1998, the Company recorded special charges of $11,217,000, the majority of
which relate to a review of the carrying values of the Company's Service Group
Assets and the closing of a Service Group plant. During the first quarter of
1998, the Company recorded a charge of $1,950,000 in conjunction with a
restructuring of the Service Group that included closing its Texas operation and
consolidating domestic business and equipment into the Group's Rhode Island
facility. As a result of the Services Group's inability to achieve the
improvements anticipated by the restructuring plan, primarily due to a more
severe than anticipated market decline, the division continued operating at a
loss in 1998. This triggered an impairment and utilization review of the
Services Group's long lived assets. The review identified approximately
$4,700,000 of excess Services Group equipment that was written down to estimated
fair value, less cost of disposal. In addition the Company wrote down
approximately $2,700,000 of Goodwill associated with certain Texas facility
customers and lines of business that have been eliminated. Due to continuing
financial problems of the Service Groups 51% owned Singapore operation, the
Company recorded an asset impairment of $1,000,000 in response to uncertainty
regarding the ultimate recoverability of its investment.
The Company's Material's Group recorded a Special charge of $620,000 in the
fourth quarter consisting of a write down of $473,000 in goodwill associated
with a line of business that has been eliminated and the write down of $147,000
of surplus equipment.
Net interest expense for the 1998 period increased $874,000 from the 1997 period
primarily due to increased interest costs associated with debt incurred with the
SMS and ST acquisitions, the ISP startup and increased capital lease
obligations.
A credit of $5,500,000 for income taxes was recorded for the 1998 period as
compared to a $2,214,000 provision in the 1997 period. In the 1998 period, the
Company received a tax credit at an effective rate of (31%) as compared to an
effective tax rate of 38% in the comparable 1997 period. The 1998 losses have
generated Net Operating Loss ("NOL") carryforwards for income tax purposes,
which are available to offset future taxable income.
Excluding $1,000,000 in special charges, the Company has included a $740,000
loss before income taxes and minority interest, as compared to $677,000 in the
1997 period, associated with ISP 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 $244,000, net of tax, as compared to
$223,000 in 1997, or 49.9% of such loss from its consolidated net income.
As a result of the foregoing, the net losses for 1998 amounted to $11,958,000 as
opposed to net income of $3,793,000 in 1997. In 1998, as a result of the above
and special charges taken during the year, all of the Company's operations
sustained a loss except for Retconn.
RESULTS OF OPERATIONS (1997 compared to 1996)
Total revenue for 1997 increased $25,049,000, or 54%, over the comparable 1996
period. Sales by the Company's Materials Group increased $14,889,000 or 45% over
the 1996 period. The sales growth was due to a $8,704,000, or 89% increase at
Polese Company, an increase of $5,276,000, or 48% at Retconn, which includes
revenue of $1,944,000 from S.T. Electronics, Inc., which was acquired on July
30, 1997 and in increase at the parent company of $909,000 or 7% from prior year
levels. In 1997, the sales increase in the Materials Group was primarily due to
increased sales to the growing communications and computer marketplace. Service
revenue generated by the Company's Service Group increased $10,160,000 or 79%
over the comparable period. This increase included a $9,416,000, or 73% increase
in revenue at ASP, which includes revenue of $10,451,000 from the January 23,
1997 acquisition of Silicon Materials Service and Silicon Materials Service,
B.V. and revenue of $744,000 from International Semiconductor Products Pte Ltd.
While revenues increased in the 1997 period, the Services Group revenue growth
has been impacted by the slowdown in the semiconductor industry. For 1997 and
1996, direct sales of the Company's products into foreign markets accounted for
slightly less than 15% and 10%, respectively, of consolidated revenue. The
Company currently maintains foreign manufacturing operations in Singapore and in
the Netherlands. In 1997, the Company derived $3,912,000 or 6% of its
consolidated revenue from its foreign manufacturing operations. Foreign sales
are made through sixteen foreign manufacturer's representatives and are priced
and paid for in both local currencies (Dutch Florins and Singapore Dollars)and
in US Dollars. The Company believes that its revenue has been, and
<PAGE>
will be, affected by the cyclical nature of the industries it serves. The SMS
acquisition, and the Company's joint venture in Singapore, further increases the
Company's reliance on the semiconductor industry. During the 1997 period, the
Company has not experienced any significant impact on revenue or earnings from
the economic instability being experienced in Asia.
Gross profit for 1997 increased $5,067,000, or 33%, from the comparable 1996
period. In the Materials Group, the increase was primarily due to a $2,738,000,
or 133% increase at Polese, gross profit of $2,051,000, or 63% increase at
Retconn and a $468,000, or 11% increase at SPM. In the Services Group, ASP's
gross profit increased $104,000, or 2% and ISP had a gross profit loss of
($293,000). While gross margin in the Materials Group increased to 31% in the
1997 period from 29% in the 1996 period, consolidated gross margin for the
Company decreased to 29% in 1997 from 33% in the comparable 1996 period. The
decrease in consolidated gross margin was caused by a decrease in the Services
Group gross margin which decreased from 44% in the 1996 period to 24% in the
1997 period, due to the acquisition of SMS, which has gross margins
significantly below those of ASP, a gross profit loss at ISP and increased
depreciation and manufacturing costs at ASP's Rhode Island operation.
Selling, general and administrative ("SG&A") expenses in 1997 increased
$3,789,000, or 46% over the comparable 1996 period. The increase was primarily
due to the inclusion of $1,344,000 of SMS's SG&A costs with the Company's and
the increase in the sales and marketing activities throughout the Company. The
Company's 1997 SG&A expenses also include $265,000 of expenses generated by its
Singapore joint venture. SG&A expenses as a percentage of revenue decreased to
17% in the 1997 period from 18% in the comparable 1996 period.
Net interest expense for the 1997 period increased $1,681,000 from the
comparable 1996 period primarily due to increased interest costs associated with
debt incurred with the SMS and ST acquisitions, the ISP startup and increased
capital lease obligations.
A provision of $2,214,000 for income taxes has been made for the 1997 period as
compared to a $2,445,000 provision in the comparable 1996 period. In the 1997
period, the Company's earnings were taxed at an effective tax rate of 38% as
compared to an effective tax rate of 40% in the comparable 1996 period.
In the 1997 period, the Company has included a $677,000 loss before income taxes
and minority interest, as compared to $128,000 in the 1996 period, 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 $223,000, net of tax, as compared to
$64,000 in 1996, or 49.9% of such loss from its consolidated net income.
As a result of the foregoing, net income decreased $13,000 in 1997 from the
comparable 1996 period. In 1997, all of the Company's operations were profitable
except for ISP.
Year 2000
The year 2000 problem arises since many computer programs and some pieces of
computer hardware manipulate and store 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 replacing non-compliant hardware,
installing new manufacturing enterprise computer software systems at SPM and
installing software upgrades that 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 has completed 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 $300,000 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 $250,000 based upon the
information assembled to date.
In the event that the company's internal software project is 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.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
General
To support the Company's growth the Company has historically made significant
capital expenditures to support its facilities and manufacturing processes as
well as working capital needs. The Company has financed its capital needs
through cash flow from operations, its line of credit facility, term loans from
the Bank, other bank financing including gold consignment supply agreements, and
capital leases. The Company has Bank short term debt maturities, standby letter
of credit maturities, gold consignment agreements and debt service requirements
which are presently deferred until June 30, 1999 under a limited forbearance
agreement with its banks. The Company completed the sale of its Retconn business
on February 19, 1999 and repaid $22,191,000 of existing Bank debt. The Company
is pursuing several additional courses of action to address its remaining Bank
debt service, gold consignment supply needs and refinancing needs.
Summary of 1998 Activity
At December 31, 1998, the Company had cash and cash equivalents of $1,141,000
and an available balance on its revolving credit facility of $200,000 as
compared to $2,260,000 and $4,525,000 respectively at December 31, 1997.
Net cash provided by operating activities in 1998 amounted to $872,000 as
compared to $3,063,000 in the comparable 1997 period. Cash provided by
operations decreased compared to 1997 principally as a result of 1998 losses
before non cash special charges and due to a dimunition in its working capital.
While the Company significantly decreased its trade receivables and inventory
levels in 1998, such decreases did not offset the more significant use of cash
for reductions in its trade payables. The increase in the deferred tax assets is
due to net operating loss carryforwards generated by the 1998 losses, which are
available for utilization in 1999, and future years to offset future taxable
income.
To support the Company's facilities and productive processes, in 1998 and 1997,
the Company invested $3,063,000 and $13,119,000, respectively, in property and
equipment. This investment excludes $3,078,000 and $4,271,000, respectively, in
the 1998 and 1997 periods for equipment acquired under capital leases. Capital
expenditures in 1997 included approximately $7,400,000 in machinery and
equipment purchased for a new wafer reclaim facility in Singapore and
approximately $996,000 for purchase of a formerly leased facility in the
Netherlands. 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, 1998, the Company had capital
commitments of approximately $1,121,000 for the ongoing upgrade of the Company's
manufacturing equipment. 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.
Net Cash provided by financing activities amounted to $916,000 in 1998 as
compared to $21,469,000 during 1997. During 1998, the Company's borrowings
included $1,000,000 under a interim term facility, $4,925,000 under its Bank
revolving line of credit and $690,000 from an overseas bank. Debt repayments
during 1998 of $3,371,000 include $2,450,000 in Bank term debt, $521,000 in
notes payable and $400,000 in mortgages and other debt. In addition, the Company
made payments of $2,222,000 under capital leases obligations. During 1998, the
Company also repurchased 34,600 of its shares to be held in treasury, at a cost
of $212,000.
Factors Affecting Future Liquidity
In January 1997, the Company entered into a $21,000,000 five-year term loan
("Term Loan") with First Union Bank and Fleet National Bank (collectively the
"Bank"). Pursuant to the Term Loan agreements and Interim Term Loan agreements,
as amended, 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 maintains 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. Under a
limited forbearance agreement, as amended, the Bank extended a previous waiver
of the Term Loan's financial ratio covenants, agreed to waive principal payments
of $350,000 per month from August 1, 1998 forward and set the maturity of the
Term Loan at June 30, 1999.
In January 1997, the Company entered into a $15,000,000 line of credit with the
Bank that originally expired in February 1999. As part of the limited
Forbearance Agreement, as amended, the Bank extended the maturity to June 30,
1999. This credit line includes a standby letter of credit for ISP in the amount
of approximately $3,000,000. Interest is payable monthly at the lower of the
Bank's loan pricing rate or a Eurodollar rate plus 2.25%. The line of credit is
collateralized by substantially all of the company's assets and provides for
limited availability based upon the eligible percentages of the Company's
receivables and inventory. The line of credit, as amended, is subject to the
same restrictions and financial covenants governing the Term Loan and Interim
Term Loan. As of December 31, 1998 and January 30, 1999 the Company was in
technical default of certain financial ratio covenants. The Company is
continuing to have discussions with the Bank concerning the waiver of the
technical default and was in compliance with its financial ratio covenants in
February 1999 and continues to make monthly interest payments.
<PAGE>
On June 19, 1998 the Company entered into a 90-day note for $1,000,000 ("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
monthly and for the repayment of principal on October 1, 1998. As part of the
limited Forbearance Agreement, as amended, the Bank extended the maturity to
June 30, 1999. As of December 31, 1998 and January 30, 1999 the Company was in
technical default of certain financial ratio covenants. The Company is
continuing to have discussions with the Bank concerning the waiver of the
technical default and was in compliance with its financial ratio covenants in
February 1999 and continues to make monthly interest payments.
In December 1996, the Company entered into a consignment agreement (the "Gold
Consignment Agreement") with Fleet Precious Metals ("FPM") which expired
December 23, 1998. As part of the limited Forbearance Agreement, as amended, the
Bank extended the maturity to June 30, 1999. 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 5,000 troy ounces of gold or gold having a market value of
$1,870,000. The Gold Consignment Agreement requires the Company to pay a
consignment fee of 5.0 % per annum based upon the value of all gold consigned to
the Company. The Company is currently in discussions with FPM and other lenders
to extend and/or negotiate a new agreement.
The limited Forbearance Agreement discussed, herein, was originally signed in
August 1998 and later amended in 1998 and early 1999. The Forbearance Agreement,
as amended, waived Term Loan principal payments of $350,000 per month from
August 1 forward, extended a previous waiver of financial ratio covenants, set
the Term Loan maturity date to June 30, 1999 and also extended the maturity of
the Interim Term Loan, the Revolving Credit Agreement, the standby letter of
credit and the Gold Consignment agreement to June 30, 1999. The Company is
pursuing a number of courses of action to restructure or refinance its existing
debt and Gold Consignment agreement. These include continuing negotiations with
the current lenders, discussions with other prospective lenders and
investigation of the sale of one or more of its subsidiaries as a means of
paying its debt obligations. On February 19, 1999, the Company sold its Retconn
business and used $22,191,000 of the cash proceeds to repay $15,050,000 of bank
term debt and $7,141,000 of line of credit borrowings. 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, 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 could have a material adverse effect on the
Company.
The Company's 50.1% owned Singapore operation ("ISP") is currently in
discussions with its bank and may not be able to meet its financing obligations
through cash flow from operations without a change in its existing arrangements.
In May 1998, the Company invested an additional $385,000 in ISP in the form of a
redeemable convertible bond. The Company and ISP are pursuing a number of
courses of action designed to provide future capital resources including
discussions with its ISP's 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$5,000,000 (approximately $3,000,000 at December 31, 1998) standby 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 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.
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 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. Through December 31, 1998, no amounts have been charged to
operations pursuant to this agreement
On December 18, 1997, the Board of Directors authorized the Company to
repurchase up to $2,000,000 of SEMX common stock on the open market. Repurchased
shares will be held as Treasury shares and may be reissued in the future or may
be reissued pursuant to the Company's stock option programs. As of December 31,
1998, the Company had repurchased 34,600 of its shares.
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 is uncertain that without a restructuring
or refinancing of Bank Debt, its working capital and internally generated funds
and 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.
<PAGE>
Forward Looking Statements
Except for historical information contained herein, this Form 10-K contains
forward looking statements which are based on the Company's current expectations
and assumptions. Various factors could cause actual results to differ materially
from those set forth in such statements. These factors include, but are not
limited to, the availability of continuing credit from the Company's banks,
general economic conditions, increased competition, changes in government
regulations, dependence on critical suppliers, increased operating costs, the
cyclical nature of the semiconductor and microelectronics industries and the
impact of the instability currently being experienced in Asia on the U.S.
economy.
Item 7(a) Quantitative and Qualitative Disclosure About Market Risk
Not applicable.
Item 8. Financial Statements.
The Company's consolidated financial statements are set for herein in Part IV
beginning at Page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10, 11, 12 and 13. Directors and Executive Officers of the Registrant,
Executive Compensation, Security Ownership of Certain Beneficial Owners and
Management, and Certain Relationships and Related Transactions.
The information required by these Items is omitted because the Company
will file a definitive proxy statement pursuant to Regulation 14A with the
Commission, not later than 120 days after the end of the fiscal year, which
information is herein incorporated by reference as if set out in full.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
The following is an index of the financial statements of the Company which
are incorporated herein.
(a) (1) Financial Statements:
Report of Independent Auditors F-2
Consolidated Balance Sheet as of December 31, 1997 and 1998 F-3
Consolidated Statement of Income for the Years
Ended December 31, 1996, 1997 and 1998 F-4
Consolidated Statement of Shareholders' Equity for the Years
Ended December 31, 1996, 1997 and 1998 F-5
Consolidated Statement of Cash Flows for the Years
Ended December 31, 1996, 1997 and 1998 F-6
Notes to Consolidated Financial Statements F-7 - F-22
<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) Reports on Form 8-K
No form 8-K reports have been filed by the Registrant during the
last quarter of the period covered by this Report.
(a) (3) 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)
<PAGE>
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)
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)
<PAGE>
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)
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
<PAGE>
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)
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 Employment Agreement dated January 4, 1996 between Retconn
Incorporated and Daniel A. LeDonne. (10)
10.57 Closing Date Agreement dated January 4, 1996 among 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. (12)
10.62 Stock Purchase Agreement dated as of July 30, 1997 by and among
Retconn Incorporated, Semiconductor Packaging Materials Co., Inc.,
Niwatana Chaimongkol, Somnuk Thongkumthamachart and S.T.
Electronics, Inc. (13)
10.63 Fifth Amendment and Forebearance Agreement among SEMX Corporation
and Subsidiairies and First Union Bank dated as of January 13, 1999
10.64 Asset Purchase Agreement by and among Litton Systems, Inc. and SEMX
Corporation, Retconn Incorporated, S.T. Electronics, Inc. and
Retconn SPM (Malaysia) SDN. BHD. Dated as of January 26, 1999 and
related documents.
<PAGE>
10.65 Sixth Amendment and Forebearance Agreement among SEMX Corporation
and Subsidiaries and First Union National Bank dated as of February
19, 1999.
22 List of Subsidiaries of the Company
23.1 The Consent of Goldstein Golub Kessler LLP, the Company's
independent certified pubic accountants, to incorporation by
reference to Registration Statement on Form S-8 of their report
dated February 5, 1999 except for Note 15 as to which the date
is February 19, 1999.
(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 and amended by Form 8-K/A.
(13) Incorporated by reference to the Company's Annual Report for
the year ended December 31, 1997, filed with the Securities
and Exchange Commission on March 20, 1998.
<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.
SEMX CORPORATION
(Registrant)
By: /s/ Gilbert D. Raker
---------------------------------
Gilbert D. Raker, Chief Executive
Officer, President, Chairman of the Board of
Directors and Director
Dated: April 14, 1999
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 April 14, 1999
- -----------------------------------
Gilbert D. Raker, Chief Executive
Officer, President, Chairman of
the Board of Directors and Director
/s/ Frank J. Polese April 14, 1999
- -----------------------------------
Frank J. Polese, Vice Chairman
and Director
/s/ Kenneth J. Huth April 14, 1999
- -----------------------------------
Kenneth J. Huth, Executive Vice
President
<PAGE>
/s/ Mark A. Koch April 14, 1999
- -----------------------------------
Mark A. Koch,
Controller and Secretary
Chief Accounting Officer
/s/ Mark A. Pinto April 14, 1999
- -----------------------------------
Mark A. Pinto, Director
/s/ John U. Moorhead, II April 14, 1999
- -----------------------------------
John U. Moorhead, II, Director
/s/ Andrew Lozyniak April 14, 1999
- -----------------------------------
Andrew Lozyniak, Director
/s/ Steven B. Sands April 14, 1999
- -----------------------------------
Steven B. Sands, Director
/s/ Richard D. Fain April 14, 1999
- -----------------------------------
Richard D. Fain, Director
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
================================================================================
<TABLE>
<S> <C>
Independent Auditor's Report F-2
Consolidated Balance Sheet as of December 31, 1997 and 1998 F-3
Consolidated Statement of Operations for the Years Ended
December 31, 1996, 1997 and 1998 F-4
Consolidated Statement of Shareholders' Equity for the Years Ended
December 31, 1996, 1997 and 1998 F-5
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998 F-6
Notes to Consolidated Financial Statements F-7 - F-22
</TABLE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
SEMX Corporation
We have audited the accompanying consolidated balance sheets of SEMX Corporation
and Subsidiaries as of December 31, 1997 and 1998 and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998. We have also audited the pro
forma consolidated balance sheet which gives effect to the sale of a subsidiary
and the repayment of debt as described in Note 15 to the consolidated financial
statements. 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 SEMX Corporation and
Subsidiaries as of December 31, 1997 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
Also, in our opinion, the pro forma balance sheet presents fairly the financial
position of SEMX Corporation and Subsidiaries as it would have appeared at
December 31, 1998 had the transaction described in Note 15 been consummated at
that date.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
February 5, 1999 except for Note 15 as to
which the date is February 19, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
SEMX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(dollars in thousands)
======================================================================================================================
1998
- ----------------------------------------------------------------------------------------------------------------------
December 31, 1997 1998 Pro forma
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
(Note 15)
ASSETS
Current Assets:
Cash and cash equivalents $ 2,260 $ 1,141 $ 984
Accounts receivable, less allowance for doubtful
accounts of $181, $245 and $191, respectively 10,789 8,007 5,480
Inventories 12,369 10,447 4,914
Prepaid expenses and other current assets 2,079 948 744
Deferred income tax assets - 5,643 1,855
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 27,497 26,186 13,977
- ----------------------------------------------------------------------------------------------------------------------
Property plant and Equipment - at cost, net of accumulated
depreciation and amortization of $10,163, $13,974
and $13,357, respectively 42,031 38,352 36,720
- ----------------------------------------------------------------------------------------------------------------------
Other Assets:
Goodwill 19,788 15,938 8,981
Technology rights and intellectual property 1,077 963 963
Other 1,472 885 815
- ----------------------------------------------------------------------------------------------------------------------
Total other assets 22,337 17,786 10,759
- ----------------------------------------------------------------------------------------------------------------------
Total Assets $91,865 $82,324 $61,456
======================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 7,322 $ 5,262 $ 4,164
Accrued expenses 2,602 2,947 2,544
Income taxes payable - - 1,028
Current portion of long-term debt and short-term
obligations 5,944 29,393 6,739
Current portion of obligations under capital leases 2,142 2,648 2,490
- ----------------------------------------------------------------------------------------------------------------------
Total current liabilities 18,010 40,250 16,965
Deferred Income Tax Liabilities 2,143 2,329 2,031
Long-term Debt 26,670 6,657 5,638
Obligations under Capital Leases 6,047 6,398 5,710
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities 52,870 55,634 30,344
- ----------------------------------------------------------------------------------------------------------------------
Commitments and Contingency
Minority Interest in Subsidiary 1,537 1,319 1,319
- ----------------------------------------------------------------------------------------------------------------------
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 shares 638 638 638
Additional paid-in capital 28,199 28,199 28,199
Accumulated other comprehensive loss (405) (322) (322)
Retained earnings (accumulated deficit) 9,026 (2,932) 1,490
- ----------------------------------------------------------------------------------------------------------------------
37,458 25,583 30,005
Less treasury stock: 300,000, 334,600 and 334,600
shares, respectively, at cost - (212) (212)
- ----------------------------------------------------------------------------------------------------------------------
Shareholders' equity 37,458 25,371 29,793
- ----------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $91,865 $82,324 $61,456
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements
F-3
<PAGE>
<TABLE>
<CAPTION>
SEMX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands except per share amounts)
======================================================================================================================
Year ended December 31, 1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Net sales $33,140 $48,029 $47,524
Service revenue 12,887 23,047 18,379
- ----------------------------------------------------------------------------------------------------------------------
46,027 71,076 65,903
- ----------------------------------------------------------------------------------------------------------------------
Cost of goods sold and services performed:
Cost of goods sold 23,552 33,185 37,982
Cost of services performed 7,165 17,514 15,143
- ----------------------------------------------------------------------------------------------------------------------
30,717 50,699 53,125
- ----------------------------------------------------------------------------------------------------------------------
Gross profit 15,310 20,377 12,778
Selling, general and administrative expenses 8,203 11,992 15,788
Special charges - - 11,217
- ----------------------------------------------------------------------------------------------------------------------
Operating income (loss) 7,107 8,385 (14,227)
Interest expense - net 920 2,601 3,475
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before provision (benefit) for income
taxes and minority interest in loss of consolidated
subsidiary 6,187 5,784 (17,702)
Provision (benefit) for income taxes 2,445 2,214 (5,500)
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before minority interest in loss of
consolidated subsidiary 3,742 3,570 (12,202)
Minority interest in loss of consolidated subsidiary 63 223 244
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 3,805 $ 3,793 $(11,958)
======================================================================================================================
Earnings per common share:
Basic $ .64 $ .62 $ (1.98)
Diluted $ .62 $ .61 $ (1.98)
======================================================================================================================
Shares used in computing earnings per common share:
Basic 5,968 6,070 6,054
Diluted 6,170 6,232 6,054
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements
F-4
<PAGE>
<TABLE>
<CAPTION>
SEMX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(dollars in thousands)
===================================================================================================================================
Accumulated
Other Retained
Additional Comprehensive Earnings
Common Stock Paid-in Income (Accumulated
Shares Amount Capital (Loss) Deficit)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 6,190,066 $619 $27,214 - $ 1,428
Net proceeds from exercise of stock warrants 1,200 - 2 - -
Proceeds from exercise of stock options 149,250 15 612 - -
Tax benefit related to incentive stock option plan - - 97 - -
Issuance of common stock 15,000 2 145 - -
Net income and comprehensive income - - - - 3,805
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 6,355,516 636 28,070 - 5,233
Proceeds from exercise of stock options 20,100 2 129 - -
Comprehensive income:
Net income - - - - 3,793
Foreign currency translation adjustment -
net of deferred taxes of $385 - - - $(405) -
Total comprehensive income
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 6,375,616 638 28,199 (405) 9,026
Proceeds from exercise of stock options - - - - -
Comprehensive income (loss):
Net loss - - - - (11,958)
Foreign currency translation adjustment -
net of deferred taxes of $85 - - - 83 -
Total comprehensive income
Purchase of treasury stock - - - - -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 6,375,616 $638 $28,199 $(322) $ (2,932)
===================================================================================================================================
<CAPTION>
=================================================================================================
Total
Treasury Stock Shareholders'
Shares Amount Equity
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1996 (300,000) - $ 29,261
Net proceeds from exercise of stock warrants - - 2
Proceeds from exercise of stock options - - 627
Tax benefit related to incentive stock option plan - - 97
Issuance of common stock - - 147
Net income and comprehensive income - - 3,805
- -------------------------------------------------------------------------------------------------
Balance at December 31, 1996 (300,000) - 33,939
Proceeds from exercise of stock options - - 131
Comprehensive income:
Net income - - -
Foreign currency translation adjustment -
net of deferred taxes of $385 - - -
Total comprehensive income 3,388
- -------------------------------------------------------------------------------------------------
Balance at December 31, 1997 (300,000) - 37,458
Proceeds from exercise of stock options - - -
Comprehensive income (loss):
Net loss - - -
Foreign currency translation adjustment -
net of deferred taxes of $85 - - -
Total comprehensive income (11,875)
Purchase of treasury stock (34,600) $(212) (212)
- -------------------------------------------------------------------------------------------------
Balance at December 31, 1998 (334,600) $(212) $ 25,371
=================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements
F-5
<PAGE>
<TABLE>
<CAPTION>
SEMX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
======================================================================================================================
Year ended December 31, 1996 1997 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 3,805 $ 3,793 $(11,958)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Write-offs and accrued special charges - - 9,267
Gain on sale of property and equipment - (56) --
Depreciation and amortization of property and equipment 2,240 4,072 5,182
Other amortization 689 855 1,022
Deferred income taxes 907 1,058 (5,542)
Minority interest in subsidiary loss (64) (223) (244)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (951) (3,195) 2,641
(Increase) decrease in inventories (2,784) (2,298) 1,994
(Increase) decrease in prepaid expenses and other current assets (321) (322) 539
Increase (decrease) in accounts payable 1,209 3,210 (2,136)
Increase in accrued expenses 298 1,000 107
Increase (decrease) in income taxes payable 1,186 (1,497) --
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,214 6,397 872
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (7,943) (13,119) (3,063)
Payments for acquisition of subsidiaries, net of cash acquired (8,111) (14,939) --
Payment for technology rights - (400) --
Proceeds from sale of property and equipment - 278 -
Increase in other assets (277) (873) 129
Investment in joint venture by minority interest (Note 2) 1,996 - -
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (14,335) (29,053) (2,934)
- ----------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from exercise of warrants 2 - -
Proceeds from exercise of stock options 627 131 -
Net proceeds under revolving credit - 6,875 4,925
Payments under capital leases (937) (1,617) (2,222)
Payments under long-term debt (721) (4,263) (3,371)
Proceeds from long-term debt 7,760 20,343 1,796
Purchase of treasury stock - - (212)
Cash received from equipment financing 677 - -
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 7,408 21,469 916
- ----------------------------------------------------------------------------------------------------------------------
Effect of foreign translation on cash - (84) 27
- ----------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (713) (1,271) (1,119)
Cash and cash equivalents at beginning of year 4,244 3,531 2,260
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 3,531 $ 2,260 $ 1,141
======================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 935 $ 2,654 $ 3,623
======================================================================================================================
Income taxes $ 307 $ 2,849 $ 285
======================================================================================================================
Supplemental schedule of noncash investing and financing activities:
Machinery and equipment, net of trade-in, acquired under capital lease $ 3,523 $ 4,271 $ 3,078
======================================================================================================================
Issuance of common stock in connection with the acquisition of a
subsidiary $ 146 -- --
======================================================================================================================
Accrued amounts relating to acquisition of subsidiary -- $ 621 --
======================================================================================================================
Notes payable in connection with the acquisition of a subsidiary -- $ 2,000 --
======================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements
F-6
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
================================================================================
1. PRINCIPAL The accompanying consolidated financial statements
BUSINESS include the accounts of SEMX Corporation ("SPM")
ACTIVITIES AND and its wholly owned and majority-owned
SUMMARY OF subsidiaries (collectively the "Company"). All
SIGNIFICANT significant intercompany transactions and balances
ACCOUNTING have been eliminated. As further described in Note
POLICIES: 2, on January 2, 1996, the Company acquired
Retconn Incorporated ("Retconn"). 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. 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") and on July 30, 1997, the Company acquired
S.T. Electronics Inc. ("ST"). The results of
operations of Retconn, SMS and ST are included in
the Company's consolidated financial statements
from the dates of acquisition and the results of
operations of ISP are included in the Company's
consolidated financial statements from the date of
its formation. On February 19, 1999, the Company
completed the sale of its Retconn and ST
businesses as described in Note 15.
The Company primarily provides specialty materials
and services to the microelectronic and
semiconductor industries and operates in two
business segments consisting of the Materials
Group and the Services Group. The Materials Group
includes the Company's SPM, Polese Company, Inc.
("Polese") and Retconn business units. The
Services Group includes the Company's American
Silicon Products, Inc. ("ASP") and ISP business
units.
Revenue from the sale of products is generally
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.
The financial position and results of operations
of the Company's foreign subsidiaries are measured
using local currency as the functional currency.
Assets and liabilities of these subsidiaries have
been translated at current exchange rates, and
related revenue and expenses have been translated
at average monthly exchange rates. The aggregate
effect of translation adjustments net of deferred
taxes is reflected as a separate component of
stockholder's equity until there is a sale or
liquidation of the underlying foreign investment.
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.
Deferred income taxes arise from differences in
bases between tax reporting and financial
reporting (see Note 8).
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
F-7
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
================================================================================
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
$21,615 and $18,281 at December 31, 1997 and 1998,
respectively, is being amortized over periods
ranging from 25 to 40 years using the
straight-line method (see Note 2). Accumulated
amortization at December 31, 1997 and 1998 was
approximately $1,827 and $2,343, respectively. The
Company reviews the carrying value of goodwill for
impairment, periodically or 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 (see Note 13).
Certain technology rights, proprietary rights and
intellectual property, amounting to approximately
$1,350 and $1,311 at December 31, 1997 and 1998,
respectively, are being amortized over periods
ranging from 11 to 17 years using the
straight-line method. Accumulated amortization at
December 31, 1997 and 1998 was approximately $273
and $348, respectively.
The Company elected to measure compensation cost
using APB Opinion No. 25 as is permitted by
Statement of Financial Accounting Standards
("SFAS") No. 123, Accounting for Stock-Based
Compensation, and has elected to comply with other
provisions and the disclosure-only requirements of
SFAS No. 123 (see Note 10).
Basic earnings per common share is computed using
the weighted-average number of shares outstanding.
Diluted earnings per common share is computed
using the weighted-average number of shares
outstanding adjusted for the incremental shares
attributed to outstanding options and warrants to
purchase common stock. Incremental shares of
$201,747 and $162,536 in 1996 and 1997,
respectively, were used in the calculation of
diluted earnings per common share. No incremental
shares were used in the 1998 calculation of
diluted earnings per common share since they would
have had an antidilutive effect.
In 1998, the Company adopted SFAS No. 130,
Reporting Comprehensive Income. This statement
establishes rules for the reporting of
comprehensive income and its components.
Comprehensive income consists of net income and
foreign currency translation adjustments and is
presented in the consolidated statement of
shareholders' equity. The adoption of SFAS 130 had
no impact on total shareholders' equity.
Prior-year financial statements have been
reclassified to conform with SFAS 130
requirements.
The Company does not believe that any recently
issued but not yet effective accounting standards
will have a material effect on the Company's
consolidated financial position, results of
operations or cash flows.
F-8
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
================================================================================
2. ACQUISITIONS In connection with the Company's acquisition of
AND INVESTMENTS: 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 (i) the
pretax profit from the Company's 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. Amounts
due pursuant to this agreement will be charged to
operations as incurred. Through December 31, 1998,
no amounts have been charged to operations
pursuant to this agreement.
Effective January 2, 1996, the Company acquired
all of the common stock of Retconn for $5,933 in
cash. This business combination was accounted for
as a purchase. In addition, the Company incurred
approximately $1,132 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 allocated to
goodwill, amounted to approximately $8,033 and
liabilities assumed amounted to approximately
$968. As described in Note 15, the Company sold
its Retconn and ST businesses on February 19,
1999.
On August 28, 1996, the Company invested $2,004 in
ISP, a joint venture located in Singapore, for a
50.1% ownership interest. On May 12, 1998 the
Company invested an additional $385 as a
redeemable convertible bond ("RCB"). The RCB bears
interest at the rate of 8% per annum and matures
in April 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 December 31, 1998 the Company's
ownership interest would have increased to 69%.
Effective January 23, 1997, the Company acquired
SMS for approximately $10,400 in cash plus the
working capital of SMS as of January 23, 1997,
approximating $2,572, in a business combination
accounted for as a purchase. In addition, the
Company incurred approximately $2,000 in costs in
connection with the acquisition of SMS. The fair
value of assets acquired, including approximately
$2,923 allocated to goodwill, which is being
amortized over 25 years, amounted to approximately
$15,609 and liabilities assumed amounted to
approximately $637. SMS provides silicon wafer
polishing and reclamation services to the
semiconductor industry.
On July 30, 1997, the Company acquired ST for
$1,000 in cash plus approximately $54 based on
ST's closing net worth and $2,000 in
interest-bearing notes payable to the former
shareholders of ST (see Note 6), in a business
combination accounted for as a purchase. In
addition, the Company incurred approximately $300
in costs associated with the acquisition of ST.
The fair value of assets acquired, including
approximately $2,788 allocated to goodwill,
amounted to approximately $4,231 and liabilities
assumed amounted to $877. As described in Note 15,
the Company sold its Retconn and ST businesses on
February 19, 1999.
F-9
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
================================================================================
3. INVENTORIES: The components of inventories are as follows:
<TABLE>
<CAPTION>
December 31, 1997 1998
----------------------------------------------------------------------------------------
<S> <C> <C>
Precious metals $ 1,675 $ 1,245
Nonprecious metals 10,694 9,202
----------------------------------------------------------------------------------------
$12,369 $10,447
========================================================================================
</TABLE>
The Company has a consignment arrangement with a
bank, as described in Note 9, which provides for
the leasing of precious metals by the Company. The
Company pays for these precious metals based on
actual usage.
4. PROPERTY PLANT AND Property plant and equipment, at cost, consist of
EQUIPMENT: the following:
<TABLE>
<CAPTION>
Estimated
December 31, 1997 1998 Useful Life
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 642 $ 642
Buildings and leasehold improvements 8,051 10,301 1.5 to 39 years
Machinery and equipment 39,131 40,387 3 to 15 years
Construction-in-progress 4,370 996
-----------------------------------------------------------------------------------------
52,194 52,326
Less accumulated depreciation 10,163 13,974
----------------------------------------------------------------------------------------
Property, plant and equipment, net $42,031 $38,352
========================================================================================
</TABLE>
Included in machinery and equipment and
construction-in-progress is approximately $44
and $200, respectively, of capitalized
interest for the year ended December 31, 1997.
Included in machinery and equipment are
approximately $11,587 at December 31, 1997 and
approximately $15,531 at December 31, 1998 of
property acquired under capital leases.
Amortization of these assets is included in
depreciation and amortization expense. Accumulated
amortization of these assets amounted to
approximately $2,340 and $3,929 at December 31,
1997 and 1998, respectively. The property held
under these leases is collateral for the related
capital lease obligations described in Note 7.
F-10
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
================================================================================
5. ACCRUED Accrued expenses consist of the following:
EXPENSES:
<TABLE>
<CAPTION>
December 31, 1997 1998
----------------------------------------------------------------------------------------
<S> <C> <C>
Accrued payroll bonuses and vacations $1,062 $ 801
Other (all amounts are less than 5% of
total current liabilities) 1,540 2,146
----------------------------------------------------------------------------------------
$2,602 $2,947
========================================================================================
</TABLE>
6. LONG-TERM DEBT AND Long-term debt and short-term obligations consist
SHORT-TERM OBLIGATIONS: of the following:
<TABLE>
<CAPTION>
December 31, 1997 1998
---------------------------------------------------------------------------------------
<S> <C> <C>
Term loan (a) (g) $17,500 $16,050
Line of credit (b) (g) 6,875 11,800
Term loan (c) (h) 4,041 4,578
Term loan (d) (h) 1,900 1,482
Term loan (e) (h) 1,569 1,393
Term loan (f) (h) - 684
Other 729 63
----------------------------------------------------------------------------------------
Total long-term debt and short-term obligations 32,614 36,050
Less current maturities 5,944 29,393
----------------------------------------------------------------------------------------
Long-term debt $26,670 $ 6,657
========================================================================================
</TABLE>
(a) In January 1996, in conjunction with the
acquisition of Retconn (see Note 2), the
Company entered into a $6,000 term loan with
a bank (the "Bank"). This loan was
refinanced in January 1997 when, in
conjunction with the acquisition of SMS (see
Note 2), the Company entered into a new
$21,000 term loan with the Bank. The loan
bears interest at the Eurodollar rate (5.6%
at December 31, 1998) plus 2.25% and is
payable in 60 consecutive monthly
installments of $350, plus interest, which
commenced on March 1, 1997. On June 19,
1998, the Company entered into a 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 monthly
at the Bank's prime rate and for the
repayment of principal on October 1, 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
"Forbearance Agreement"). In January 1999,
the Bank extended the Forbearance Agreement
through April 1, 1999. On February 19, 1999,
in conjunction with the sale of Retconn and
ST and the repayment of $15,050 of Bank Term
Debt, the Bank extended the Forbearance
Agreement through June 30, 1999.
F-11
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
================================================================================
(b) In January 1997, the Company entered into a
$15,000 line of credit ("Line of Credit")
with the Bank. The Line of Credit originally
was to expire 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 December 31, 1998).
Interest is payable monthly at the lower of
the Eurodollar rate plus 2.25% or the Bank's
loan pricing rate (7.75% at December 31,
1998). To support its working capital
requirements and for general corporate
purposes, the Company borrowed $11,800 under
its Line of Credit and did not have any
drawings under the standby letter of credit
at December 31, 1998. The remaining
availability at December 31, 1998 was $200.
In conjunction with the Forbearance
Agreement described above, the Bank extended
the maturity of the Line of Credit through
June 30, 1999. On February 19, 1999, the
Company repaid an amount of $7,141 of
principal outstanding under the Line of
Credit.
As of December 31, 1998 and January 31, 1999
the Company was in default of certain
financial ratio covenants with the Bank. The
Bank has agreed to grant a waiver for these
periods in exchange for a fee from the
Company, which fee has not been paid. With
respect to this default, the Company
believes that the Bank will not call the
Term Loan and the Line of Credit prior to
June 30, 1999. The Company continues to make
monthly interest payments and is currently
pursuing a number of courses of action to
restructure or refinance its debt with the
Bank and the Consignment Agreement described
in Note 9. These include continuing
negotiations with the Bank, discussions with
other prospective lenders and investigating
the sale of an additional subsidiary as a
means of paying its debt obligations.
(c) In 1997, ISP entered into a S$19,700
(approximately $11,600 at December 31, 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 are
subject to availability restrictions and
bear interest at an average rate of
approximately 6.75%. As described above, up
to S$5,000 (approximately $3,000) of this
credit facility is guaranteed by a standby
letter of credit with the Bank. At December
31, 1998, ISP has outstanding S$7,554
(approximately $4,578) under the facility.
ISP is currently in discussions with its
bank regarding a possible restructuring of
these facilities due to difficulties in
meeting the repayment terms through cash
flow from operations.
(d) As described in Note 2, the Company issued
notes payable to the former shareholders of
ST. The notes bear interest, payable
quarterly, at 7% per annum. The principal on
the notes is payable in 20 consecutive
quarterly installments of $100, which
commenced November 1, 1997. These notes were
assumed by the purchaser of the Company's
Retconn and ST businesses on February 19,
1999, as described in Note 15.
(e) 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. The loan
bears interest at the Bank's loan pricing
rate and is payable in 120 consecutive
monthly installments of $15, plus interest,
which commenced on December 1, 1996.
(f) In conjunction with the acquisition of a
building, the Company entered into a term
loan with a foreign bank in August 1998 in
the principal amount of 1,300 Dutch Guilders
(approximately $693 as of December 31,
1998). The loan bears interest at 5.25% for
three years which increases to 5.5% for the
remaining life of the loan and is payable in
quarterly installments of approximately $9,
plus interest, which commenced on December
15, 1998. In addition, the Company entered
into a 1,000 Dutch Guilder (approximately
$531 as of December 31, 1998) overdraft
facility with the foreign bank which is
collateralized by accounts receivable.
Interest is payable monthly at the rate of
1.75% plus the central banks' promissory
note discount rate. At December 31, 1998
there were no amounts outstanding under this
facility.
F-12
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
================================================================================
(g) Because the interest rates will change with
changes in the prime rate and the Eurodollar
rate, the fair value of the bank debt is
equal to the carrying amount.
(h) Based on market rates currently available to
the Company for loans with similar terms and
maturities, the fair value of the long-term
debt does not vary significantly from the
carrying amount.
Maturities of long-term debt and short-term
obligations are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1999 $29,393
2000 1,480
2001 1,480
2002 1,480
2003 567
Thereafter 1,650
------------------------------------------------
$36,050
================================================
</TABLE>
The above bank 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. In addition, the loan
agreements provide that the Company maintain
certain financial ratios.
7. OBLIGATIONS UNDER The Company is the lessee of property and
CAPITAL LEASES: equipment acquired under capital leases
expiring in various years through 2003.
Future lease payments under capital leases are as
follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1999 $ 3,254
2000 3,032
2001 2,341
2002 1,358
2003 476
-------------------------------------------------
10,461
Less amount representing interest 1,415
-------------------------------------------------
9,046
Less current portion 2,648
-------------------------------------------------
$ 6,398
=================================================
</TABLE>
F-13
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
================================================================================
Interest rates on these capital leases range from
7.4% to 11% per annum.
8. INCOME TAXES: The provision (benefit) for income taxes for the
years ended December 31, 1996, 1997 and 1998
consists of the following components:
<TABLE>
<CAPTION>
Year ended December 31, 1996 1997 1998
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $1,349 $ 907 -
State 190 249 $ 42
Deferred:
Federal 742 948 (4,876)
State 164 210 (113)
Foreign - (100) (553)
----------------------------------------------------------------------------------------
$2,445 $2,214 $(5,500)
========================================================================================
</TABLE>
The provision (benefit) for income taxes for the
years ended December 31, 1996, 1997 and 1998
differs from the amount computed using the federal
statutory rate of 34% as a result of the
following:
<TABLE>
<CAPTION>
Year ended December 31, 1996 1997 1998
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at federal statutory rate 34.0% 34.0 % (34.0)%
Change in valuation allowance - - 4.3
State tax credits - - (1.5)
State income tax provision (benefit), net
of federal tax effect 3.8 5.0 (3.3)
Effect of permanent differences 1.1 1.4 1.8
Other .6 (2.1) 1.6
----------------------------------------------------------------------------------------
39.5% 38.3% (31.1)%
========================================================================================
</TABLE>
The tax effects of available tax carryforwards and
temporary differences that give rise to the net
short-term deferred income tax asset are presented
below:
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------------------------------------------------------------
<S> <C>
Federal net operating loss carryforward $5,334
Other 309
----------------------------------------------------------------------------------------
$5,643
========================================================================================
</TABLE>
F-14
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
================================================================================
The tax effects of available tax carryforwards,
temporary differences and foreign currency
translation adjustments that give rise to the net
long-term deferred income tax liabilities are
presented below:
<TABLE>
<CAPTION>
December 31, 1997 1998
----------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax liabilities:
Accelerated depreciation $1,674 $3,151
Basis difference in amortization of intangibles 954 920
----------------------------------------------------------------------------------------
Total deferred income tax liabilities 2,628 4,071
----------------------------------------------------------------------------------------
Deferred income tax assets:
Net loss in foreign subsidiaries 100 686
State tax, net operating loss carryforward - 649
State investment tax credit carryforward - 790
Accumulated translation adjustment 385 300
Other - 74
----------------------------------------------------------------------------------------
Total deferred income tax asset 485 2,499
Less valuation allowance - (757)
----------------------------------------------------------------------------------------
Net deferred income tax asset 485 1,742
----------------------------------------------------------------------------------------
Net long-term deferred income tax liabilities $2,143 $2,329
========================================================================================
</TABLE>
At December 31, 1998, the Company has a $15,689
federal net operating loss carryforward available
to offset future taxable income through 2013. The
Company also has state net operating loss
carryforwards aggregating $14,106 which expire in
2003. State investment tax credit carryforwards
aggregating $790 at December 31, 1998 expire at
various dates from 2003 through 2013. A valuation
allowance has been established for the tax effect
of those state net operating loss carryforwards
and state investment tax credit carryforwards
which are not expected to be realized.
The Company files a consolidated federal income
tax return which includes the results of all its
domestic subsidiaries and separate state and local
income tax returns.
For the year ended December 31, 1996, the Company
recognized for income tax purposes a tax benefit
of $97 for compensation expense related to its
incentive stock option plan for which no
corresponding charge to operations has been
recorded. Such amount has been added to additional
paid-in capital for the year ended December 31,
1996. No tax benefit was recorded for the years
ended December 31, 1997 and 1998.
9. COMMITMENTS, The Company has noncancelable operating leases
CONTINGENCIES AND expiring through 2004 for the rental of office and
RELATED PARTY manufacturing facilities. The leases also require
TRANSACTIONS: payments for real estate taxes and other operating
costs. The Company also leases land at one of its
foreign subsidiaries. This lease expires in
January 2026 with an option to renew for an
additional 29 years.
F-15
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
================================================================================
Approximate minimum future rental payments,
exclusive of payments for real estate taxes and
other operating costs under these leases, are as
follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1999 $ 665
2000 497
2001 510
2002 524
2003 538
Thereafter 1,519
----------------------------------------------------------------------------------------
$4,253
========================================================================================
</TABLE>
The amounts reflected in the above table exclude
commitments which were eliminated upon the sale of
Retconn and ST, described in Note 15.
Rent expense charged to operations for the years
ended December 31, 1996, 1997 and 1998 amounted to
approximately $466, $669, and $853, respectively.
During 1997, a company owned by the former sole
shareholder of Polese acquired machinery and
equipment from the Company for $254. The Company
recognized a $46 gain on this sale.
The Company has employment agreements with 5
shareholders (the "Shareholders"), and 10 other
employees, expiring in various years through 2003.
The approximate aggregate commitment for future
salaries, excluding bonuses, under these
employment agreements is as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1999 $1,402
2000 416
2001 120
Thereafter 187
----------------------------------------------------------------------------------------
$2,125
========================================================================================
</TABLE>
The amounts reflected in the above table exclude
commitments which were eliminated upon the sale of
Retconn and ST, described in Note 15.
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.
In 1996, the Company entered into a consignment
agreement (the "Consignment Agreement") with a
bank. The Consignment Agreement, which was
subsequently amended, expires June 30, 1999. Under
the Consignment Agreement, the Company purchases
gold used in its manufacturing of materials.
F-16
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
================================================================================
The Consignment Agreement provides for gold on
consignment not to exceed the lesser of 5,000 troy
ounces of gold or gold having a market value of
$1,870. At December 31, 1998, the Company's
obligation under the Consignment Agreement was
approximately 3,927 troy ounces of gold valued at
approximately $1,130. The Consignment Agreement
requires the Company to pay a consignment fee of
5% per annum based upon the value of all gold
consigned to the Company.
The Company has capital commitments at December
31, 1998 of approximately $1,121 for the
acquisition of machinery and equipment.
The Company received notice on January 5, 1998
that a shareholder class action lawsuit was filed
during 1997 against the Company, its chief
executive officer and its then chief financial
officer. The complaint alleges, among other
things, that the Company, intentionally or
recklessly, failed to disclose adverse material
financial information regarding its business in
the fourth quarter of 1996. On May 5, 1998, the
United States District Court for the Eastern
District of Pennsylvania dismissed the case. An
appeal of the order dismissing this lawsuit was
not filed within the period permitted for such
appeal.
Separately, the Securities and Exchange Commission
(the "SEC") is conducting a private investigation
pursuant to a formal order to determine whether
any persons may have violated the federal
securities laws in connection with the purchase or
sale of the Company's securities prior to the
December 30, 1996 announcement relating to its
anticipated financial results for the fourth
quarter of fiscal 1996. As a general matter, the
SEC takes the position that its investigation
should not be construed as an indication that any
violations of law have occurred or as an adverse
reflection upon any person or security. The
Company is cooperating fully with the SEC in its
investigation which commenced in early 1998. Since
June 1998, the Company has not received any
additional requests for information or
communications from the SEC concerning this
matter.
10. CAPITAL TRANSACTIONS: The Company has an incentive stock option plan
(the "Incentive Plan"), as amended, under which
900,000 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"), as amended, under
which 300,000 shares have been reserved for future
issuance.
At December 31, 1998, options to purchase 495,025
and 85,000 shares of common stock (excluding
lapsed shares) have been granted under the
Incentive Plan and the Nonqualified Plan,
respectively, since the inception of both plans.
In addition, at December 31, 1998, options to
purchase 188,750 shares of
F-17
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
================================================================================
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, 1997 and 1998, and
changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1997 1998
----------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year 408,000 $4.86 510,000 $7.00 644,950 $7.69
Canceled (5,500) 7.84 (23,000) 8.06 (555,550) 7.73
Granted 256,750 8.81 178,050 9.55 403,525 4.48
Exercised (149,250) 4.22 (20,100) 6.37 - N/A
----------------------------------------------------------------------------------------
Outstanding at
end of year 510,000 $7.00 644,950 $7.69 492,925 $5.01
========================================================================================
Options exercisable
at year-end 332,250 499,900 386,050
========================================================================================
Weighted-average
fair value of
options granted
during the year $4.39 $4.88 $4.49
========================================================================================
</TABLE>
The Board of Directors approved a stock option
exchange and repricing program pursuant to which,
on December 1 and December 10, 1998, certain
holders of qualified and nonqualified options were
eligible to reduce by 1/2 the number of their
existing shares under option in exchange for
repriced options at a price of $3.00 per share.
The market price of the underlying shares was
$2.47 and $2.94 on December 1 and December 10,
respectively, and therefore, no compensation
expense has been recorded by the repricing. The
repriced options under the program continued the
terms and vesting periods as the underlying
exchanged options. Of the 695,700 options
outstanding as of December 1, 1998 approximately
491,800 shares were eligible for the exchange and
repricing program. Holders exchanged a total of
403,550 shares under option resulting in a total
of 201,775 repriced shares which are included for
purposes of the accompanying table as shares
canceled and granted, respectively, during 1998.
F-18
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
================================================================================
The following table summarizes information about
fixed stock options outstanding at December 31,
1998:
<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 1998 Life Price 1998 Price
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.85 - $ 3.88 242,025 6.8 $ 2.99 200,650 $ 2.99
$ 4.26 - $ 6.63 140,500 4.9 5.40 80,000 4.80
$ 7.69 - $ 8.25 57,400 4.2 8.06 52,400 8.10
$ 8.88 - $ 9.88 43,000 4.6 9.52 43,000 9.52
$11.63 10,000 8.6 11.63 10,000 11.63
----------------------------------------------------------------------------------------
$1.85 - $11.63 492,925 5.8 $ 5.01 386,050 $ 5.01
=========================================================================================
</TABLE>
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, 1997 and 1998 would approximate
the pro forma amounts indicated in the table
below.
<TABLE>
<CAPTION>
Year ended December 31, 1996 1997 1998
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) - as reported $3,805 $3,793 $(11,958)
=========================================================================================
Net income (loss) - pro forma $3,117 3,245 $(12,111)
=========================================================================================
Earnings (loss) per share - as reported:
Basic $ .64 $ .62 $ (1.98)
Diluted $ .62 $ .61 $ (1.98)
=========================================================================================
Earnings (loss) per share - pro forma:
Basic $ .52 $ .53 $ (2.00)
Diluted $ .51 $ .52 $ (2.00)
=========================================================================================
</TABLE>
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, 1997 and 1998,
F-19
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
================================================================================
respectively: expected volatility of 56.9%, 57%
and 66.6%, respectively; risk-free interest rates
5.8%, 6.3% and 5.6%, respectively; and expected
lives of 4.2 years, 3.5 years and 4.9 years,
respectively.
11. SEGMENT INFORMATION: In fiscal 1998, the Company adopted SFAS No. 131
"Disclosure about Segments of an Enterprise and
Related Information". The accounting policies of
the segments are described in Note 1, "Principal
Business Activities and Summary of Significant
Accounting Policies". The Company evaluates
performance of its segments and allocates
resources to them based on sales and operating
income. The Company operates primarily in two
industry segments, the Materials Group and the
Services Group. The tables below present
information about reported segments:
<TABLE>
<CAPTION>
Materials Services Corporate and Consolidated
Year Ended December 31, 1996 Group Group Reconciling Items Total
---------------------------- --------- -------- ----------------- ------------
<S> <C> <C> <C> <C>
Revenue 33,140 12,887 - 46,027
Cost of Goods Sold and Services 23,552 7,165 - 30,717
Performed
Gross Profit 9,588 5,722 - 15,310
Operating Expenses 6,448 1,755 - 8,203
Income from Operations 3,140 3,967 - 7,107
Segment Assets 52,841 25,571 (21,923) 56,489
Capital Expenditures 3,671 4,272 - 7,943
Depreciation Expense 1,540 700 - 2,240
<CAPTION>
Materials Services Corporate and Consolidated
Year Ended December 31, 1997 Group Group Reconciling Items Total
---------------------------- --------- -------- ----------------- ------------
<S> <C> <C> <C> <C>
Revenue 48,029 23,047 - 71,076
Cost of Goods Sold and Services 33,185 17,514 - 50,699
Performed
Gross Profit 14,844 5,533 - 20,377
Operating Expenses 8,311 3,681 - 11,992
Income from Operations 6,533 1,852 - 8,385
Segment Assets 71,844 47,390 (27,369) 91,865
Capital Expenditures 2,734 10,385 - 13,119
Depreciation Expense 1,935 2,137 - 4,072
<CAPTION>
Materials Services Corporate and Consolidated
Year Ended December 31, 1998 Group Group Reconciling Items Total
---------------------------- --------- -------- ----------------- ------------
<S> <C> <C> <C> <C>
Revenue 47,524 18,379 - 65,903
Cost of Goods Sold and Services 37,982 15,143 - 53,125
Performed
Gross Profit 9,542 3,236 - 12,778
Operating Expenses 12,319 14,686 - 27,005
Loss from Operations (2,777) (11,450) - (14,227)
Segment Assets 76,688 36,641 (31,005) 82,324
Capital Expenditures 2,036 1,027 - 3,063
Depreciation Expense 2,460 2,722 - 5,182
</TABLE>
The Company's areas of operation are principally
in the United States. Operations outside the
United States are worldwide but are primarily in
Europe, North Africa and Asia. No single foreign
country or geographic area is significant to the
consolidated operations. Revenue from a single
customer accounted for 11% of the Company's total
revenue for the years ended December 31, 1996 and
1997. Revenue from a different customer accounted
for approximately 10% of the Company's total
revenue for the year ended December 31, 1998.
F-20
<PAGE>
12. EXPORT REVENUE: For the years ended December 31, 1996, 1997 and
1998, export revenue to unaffiliated customers
amounted to approximately 10%, 15% and 15%,
respectively, of the Company's total revenue.
13. SPECIAL CHARGES: In 1998, the Company recorded special charges of
$11,217 ($7,740 after tax or $1.28 per share). The
Company recorded $1,950 of this charge during the
first quarter and the balance of $9,267 during the
fourth quarter of the year. The majority of this
charge relates to a review of the carrying values
of the Company's services group assets and the
closing of a services group plant in the first
quarter of 1998.
During the first quarter of 1998, the Company
recorded this charge of $1,950 in conjunction with
a restructuring of the Services Group that
included closing its Texas operation and
consolidating domestic business and equipment into
the Group's Rhode Island facility. During 1998,
the Company paid all of the $1,950 charges
recorded in the first quarter. The Company
recorded an additional $230 of charges in the
fourth quarter related to a leased facility for
costs which continued after the Texas facility was
vacated.
As a result of the Services Group's inability to
achieve the improvements anticipated by the
restructuring plan, primarily due to a more severe
than anticipated market decline, the division
continued operating at a loss in 1998. This
triggered an impairment and utilization review of
the Services Group's long-lived assets. The
Company prepared revised projections by customer
and product line which provided the basis for
determining the continued usability and carrying
value of its long-term assets. The Company
identified approximately $4,700 of excess services
group equipment that was written down to estimated
fair value, less cost of disposal. In addition,
the Company wrote down approximately $2,700 of
goodwill associated with the Texas facility
customers and lines of business that have been
eliminated. Due to continuing financial problems
of the Services Group's 51%-owned Singapore
operation, the Company recorded an asset
impairment of $1,000 in response to uncertainty
regarding the ultimate recoverability of its
investment.
The Company's Materials Group recorded a special
charge of $620 in the fourth quarter, consisting
of a write-down of $473 in goodwill associated
with a line of business that has been eliminated
and the write-down of $147 of unusable equipment.
F-21
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
================================================================================
14. ALLOWANCE FOR Information relating to the allowance for doubtful
DOUBTFUL accounts is as follows:
ACCOUNTS:
<TABLE>
<CAPTION>
Balance at Charged to Balance
Beginning Costs and at End
Description of Year Expenses Deductions of Year
---------------------------------------------------------------------------------------
Year ended December 31,
<S> <C> <C> <C> <C>
1996 $ 86 $ 66 $ 9 (a) $143
=========================================================================================
1997 $143 $103 $ 65 (a) $181
=========================================================================================
1998 $181 $188 $124 (a) $245
=========================================================================================
</TABLE>
(a) Write-off of uncollectible accounts
receivable.
15. SUBSEQUENT EVENTS: In February 1999, the Company sold its connector
businesses, Retconn and ST, to Litton Corporation
("Litton"). Litton acquired the specified assets
and assumed certain liabilities of Retconn, as
defined in the purchase agreement, in
consideration for a cash payment to the Company of
$23,871. The liabilities assumed by Litton
amounted to approximately $3,500. The purchase
price is subject to adjustment for changes in
Retconn's closing date balance sheet. In addition,
the Company is prevented from directly competing
in the connector business for a period of three
years.
On February 19, 1999, the Company entered into an
agreement with the Bank concerning the
distribution of $23,871 in proceeds from the sale
of Retconn. Pursuant to the agreement, the Company
repaid $15,050 of term indebtedeness and $7,141 of
revolving credit borrowings. In addition, the
Company paid approximately $1,680 of
transaction-related fees and severance payments.
The agreement also provided for the Bank's
forbearance of noncompliance with certain existing
covenants and an extension of its revolving credit
and interim term loan facilities through June 30,
1999.
The accompanying pro forma balance sheet presents
the financial position of the Company as it would
have appeared on December 31, 1998 had the sale of
Retconn and the repayment of debt occurred on that
date.
F-22
FIFTH AMENDMENT AND FORBEARANCE AGREEMENT
AGREEMENT, made as of January 13, 1999, among SEMX CORPORATION (formerly
known as Semiconductor Packaging Materials Co., Inc.) a Delaware corporation,
(the "Borrower") and AMERICAN SILICON PRODUCTS, INC. ("ASP"), a Delaware
corporation, POLESE COMPANY, INC., a California corporation, RETCONN
INCORPORATED, ("RETCONN") a Connecticut corporation, TYPE III, INC., a
California corporation, S.T. ELECTRONICS, INC. ("STE"), a California
corporation, SPM HOLDINGS CORPORATION ("SPM Holdings"), a Delaware corporation,
AMERICAN SILICON PRODUCTS, B.V. ("ASP B.V.") a Netherland corporation, THERMAL
PACKAGING SOLUTIONS, INC. ("TPS") a Nevada corporation, (collectively, the
"Subsidiary Guarantors") and FIRST UNION NATIONAL BANK, a national banking
association as Lender and agent for Fleet National Bank (the "Lender").
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, inter alia, it will be unable
to make the principal payment under the Term Loan due and payable on January 1,
1999, 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
January 1, 1999 through March 31, 1999; (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 March 31, 1999; (iii) extend the maturity of the
Interim Note to April 1, 1999; (iv) extend the maturity of the Revolving Loan
from January 31, 1999 to April 1, 1999. The parties agree that the maturity date
of the Term Loan will be accelerated to April 1, 1999.
C. The obligations of the Borrower under the Credit Agreement have been
guaranteed or will be guaranteed simultaneously hereunder unconditionally by the
Subsidiary Guarantors.
D. The Borrower has another subsidiary International Semiconductor Products
Pte., Ltd. ("ISP"). The Lender was delivered a document entitled Guaranty by ISP
<PAGE>
dated on or about July 31, 1998, by the Borrower. The Borrower has advised the
Lender that this documents was not authorized and was delivered to the Lender in
error. The Lender reserves all of its rights with respect to this document.
E. The Lender has agreed to the Borrower's and the Subsidiary Guarantors'
requests 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. 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 shall be duly executed by the parties hereto;
(b) the Borrower will cause the Lender to be provided with a $950,000.
first mortgage on premises located at 15 Clarkson Street, Providence,
Rhode Island and a $750,000. second mortgage on premises located at 1
Labriola Court, Armonk, New York in a form acceptable to Lender;
(c) STE, TPS and SPM Holding will execute and deliver to Lender an
acceptance and assumption of guaranty and security and agreement in
the form annexed.
(d) ASP B.V. will request and utilize their best efforts to obtain ABN
Amro's consent to the granting to Lender by ASPBV of a second security
interest in Accounts and a second mortgage on real property in Holland
(the "Dutch Property") in the amount of 500,000 Dutch Guilders;
(e) Borrower shall deliver a Secretary's Certificate of the Borrower and
each of the Subsidiary Guarantors authorizing this transaction except
as set forth in 23(d);
(f) Borrower shall deliver a true and complete copy of the September 30,
1998 Report on Form 10-Q filed by the Borrower with the Securities and
Exchange Commission;
(g) The counsel for the Borrower and Subsidiary Guarantors will deliver
their opinion that these documents are
2
<PAGE>
authorized, duly executed and enforceable against their clients; and
(h) The Borrower shall pay a restructuring fee payable $25,000 at the
Closing and $1,000. per day from and including February 1, 1999 until
the obligations under the Credit Agreement have been entirely repaid
which daily fee shall be due and payable weekly on the Friday of each
week for the immediately prior seven (7) day period and at the date of
repayment in full;
(i) the Borrower shall have granted to Lender a security interest in
certain vehicles set forth on Schedule 1.(i);
(j) the Subsidiary Guarantors shall have signed the ratification to
Guaranty in the form annexed except as set forth in Section 23(d);
(k) the Borrower shall have paid all of the current and past expenses and
fees as provided in Sections 3 and 22 due as of the closing in
accordance with the Schedule annexed.
(l) the Borrower will provide a copy of any appraisal, independent
valuation or marketing report that they may have regarding the Dutch
Property including, but not limited to, the appraisal or report
utilized by ABN Amro in extending its real estate loan to ASPBV in
Holland;
(m) Borrower and Subsidiary Guarantors will provide acknowledgements of
the pledge of all bank and/or securities accounts maintained in their
name at institutions other than Lender or Fleet National Bank and
shall provide such acknowledgements for any other accounts they may
open from time to time.
(n) Borrower shall provide such other agreements and instruments as the
Lender reasonably deems necessary to carry out the terms and
provisions of this Agreement.
2. 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:
a) Modification to Credit Agreement
(i) Section 4.2(b) is hereby deleted in its entirety and is replaced with a
new Section 4.2(b)(1) and 4.2(b)(ii) as follows:
3
<PAGE>
Section 4.2(b)(i) In the event that the value of the Borrowing Base of
the Borrower and Subsidiary Guarantors falls below $5,100,000. the
Borrower shall within fifteen days of the time of submission of the
report make a payment in reduction of the Revolving Loan, in the
amount equal to the difference between $5,100,000. and the valuation
shown on the periodic Borrowing Base certificate provided for in
Section 8.14.
Section 4.2(b)(ii) In the event that any ISP L/C Liability valuation
exceeds US $3,200,000, then the Borrower shall, on or before the fifth
day of the next month after the date of calculation, pay to the Lender
the amount that the ISP L/C Liability exceeds US $3,200,000, such sum
to be applied to reduce the Revolving Loan.
(ii) Section 6.2 is hereby modified to add the following:
c. No Default or Event of Default shall have occurred or shall result
from the making of the requested Loan or the issuance of the requested
Letter of Credit.
d. No adverse change deemed material by Lender, in its sole and
absolute discretion, in the financial condition, operations,
properties, business, management of ownership of Borrower and the
Subsidiary Guarantors, or the risks associated with the transaction
contemplated by this Agreement, shall have occurred from the date of
this Agreement or which shall have occurred prior to the date of this
Agreement but was not disclosed to the Lender, at or before the date
this Agreement is executed.
e. Lender shall hold valid, enforceable and perfected first priority
Liens in and to all of the Collateral, which Collateral shall be
subject to no Liens, except for the Permitted Encumbrances.
f. No law or regulation shall prohibit, and no order, judgment or
decree of any court, arbitrator or governmental authority shall enjoin
or restrain Lender from making the requested Loan or the issuance of
the requested Letter of Credit.
4
<PAGE>
g. After giving effect to the amount of the requested Loan and the
Maximum ISP L/C Liability, the amount outstanding under the Revolving
Loan Commitment shall not exceed the lesser of (i) $15,000,000. and
(ii) the amount of current Borrowing Base submitted in connection with
the request for a Loan plus $9,700,000. minus the amount of any
principal repayments made from December 1, 1998 to March 30, 1999.
The formula for availability under the Revolving Loan is as
follows:
Assume: RL is the amount outstanding under the Revolving
Loan including the Maximum ISP L/C;
B is the amount of the current Borrowing Base;
RLA is the amount available under the Revolving Loan
Commitment;
P is the amount repaid;
RLA = $9,700,000.+B-P-RL
This provision can be illustrated by the following examples:
Assume that the full $15,000,000 facility is drawn and the
Borrower repays $300,000. of the Revolving Loan during the period
from December 1, 1998 to March 30, 1999, the Borrower would have
no availability if the Borrowing Base equals $5,200,000 i.e.
($9,700,000) + ($5,200,000) - ($300,000) - ($14,700,000) =
-$100,000, and would have $100,000 available if the Borrowing
Base was $5,400,000 i.e. ($9,700,000) + ($5,400,000) - ($300,000)
-($14,700,000) = $100,000.
In the example RL=$14,700,000., if (i) B <= $5,300,000. RLA is
zero or negative so that there would be no availability and
(ii) B>$5,300,000., RLA is a positive number so that there is
availability.
h. The Borrower has submitted a Borrowing Base certificate which shows
the value of the
5
<PAGE>
current Borrowing Base to be at least $5,300,000.
i. Lender shall have received such other documents and evidence with
respect to the transactions contemplated by this Agreement, in form
and substance satisfactory to Lender, as Lender may reasonably
request.
(iii) A new Section 8.12 is hereby added as follows:
Section 8.12 Financial Projections. Attached as Exhibit 8.12 are
financial projections prepared by the Borrower for the Borrower and
Subsidiary Guarantors on a consolidated basis which represent a fair
and accurate estimate of the Borrower's and Subsidiary Guarantors'
financial performance for the period from December 1, 1998 to and
including March 31, 1999 based on management's assumptions at the time
the projections were submitted to the Lender.
(iv) A new Section 8.13 is hereby added as follows:
Section 8.13 Accounts, Inventory and Collateral Position Reporting. In
addition to any other reporting requirements, the Borrower shall
provide to the Lender monthly on or before the twentieth day of the
next ensuing month a report exhibiting in a form acceptable to the
Lender, aged accounts receivable, inventory valued at the lower of
cost or market value and aged accounts payable all calculated as of
the last day of the month for which the report is being rendered
together with current copies of account receivable agings and net
payable agings commencing on January 31, 1999 which will correspond to
the month of December. Attached as Schedule 8.13 is a true and
complete report as of November 30, 1998.
(v) A new Section 8.14 is hereby added as follows:
Section 8.14 Borrowing Base Reporting. Borrower and the Subsidiary
Guarantor shall provide a Borrowing Base certificate on January 31,
1999 for the month of December, 1998 and thereafter (A) the first day
of each month containing true information as of the
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2nd Friday of the prior month, (B) twentieth day of each month
providing true information as of the last day of the prior month, and
(C) in connection with each request for a Revolving Loan or a Letter
of Credit as of the Friday prior to such request. Attached as Schedule
8.14 is a true and complete Borrowing Base certificate compiled as of
November 30, 1998.
(vi) A new Section 8.15 is hereby added as follows:
Section 8.15 Material Adverse Change. In the event of the occurrence
of a material adverse change in the business, financial conditions or
in the value of collateral pledged to the Lender, the Borrower and/or
any Subsidiary Guarantor shall give immediate written notice thereof
to the Lender.
(vii) A new Section 8.16 is hereby added as follows:
Section 8.16 Sale of Borrower and/or RETCONN Incorporated. The
Borrower together with Compass Partners International, LLC, Borrower's
present investment bankers, or such replacement or additional
investment banker, shall report to the Lender, in writing, on the
first and twentieth day of each month, the status of each and every
proposed transaction for the sale of Borrower and/or RETCONN and
describing in pertinent detail any contracts, offers, or expressions
of interest.
(viii) A new Section 8.17 is hereby added as follows:
Section 8.17 Life Insurance. A true and complete schedule of the
Borrower owned insurance insuring the lives of all key employees
together with a schedule of agreements pertaining to the obligation of
Borrower to provide all or part of the proceeds of such insurance to
the employee is annexed as Schedule 8.17. The Borrower shall take all
reasonable steps to cause all such insurance not specifically required
to be paid to such employees or at their direction pursuant to the
employment agreements to be assigned to the Lender by January 31, 1999
on such forms as are promulgated by the
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insurance companies. The Borrower shall provide copies of any such
employment agreements containing insurance requirements to the Lender
at or prior to the date hereof.
(ix) A new Section 8.18 is hereby added as follows:
Section 8.18 Covenant Reporting. The Borrower including the Subsidiary
Guarantors shall provide to the Lender on January 31, 1999 for the
month of December, 1998 and monthly on the twentieth day of each month
for the prior month internally prepared financial statements and a
statement demonstrating the covenant values set forth in Sections
9.18, 9.19, 9.20, 9.21 and 9.22 and stating whether Borrower is in
compliance with such covenants. The financials and covenant compliance
report shall be certified to be true and accurate by an officer of the
Borrower to the best of such officer's knowledge after due and
diligent inquiry subject to final audit review by their outside
auditors.
(x) A new Section 8.19 is hereby added as follows:
Section 8.19 13 Week Cash Flow Forecasts. The Borrower shall provide a
13 week cash flow forecast in the form approved by the Lender for the
week just ended and the next 12 weeks on Friday of each and every week
on a rolling basis showing actual receipts and expenditures as
compared to the budgeted amounts in such form and content acceptable
to Lender.
(xi) A new Section 9.18 is hereby added as follows:
Section 9.18 Minimum Sales. Based upon the Borrower's projections, the
Borrower covenants that the consolidated sales of the Borrower
including the Subsidiary Guarantors on a consolidated basis shall not
be less than the following amounts for each of the months specified:
December 1998 $4,874,000.
January 1999 $5,184,000.
February 1999 $5,303,000.
March 1999 $5,750,000.
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(xii) A new Section 9.19 is hereby added as follows:
Section 9.19 Earnings Covenant. Based on the Borrower's projections,
the Borrower covenants that the Consolidated EBITDA of the Borrower
including the Subsidiary Guarantors shall not be less than the
following amounts for each of the months specified:
December 1998 $ 690,000.
January 1999 $1,050,000.
February 1999 $1,057,000.
March 1999 $1,172,000.
(xiii) A new Section 9.20 is hereby added as follows:
Section 9.20 Ratio of Current Assets to Current Liabilities. Borrower
including the Subsidiary Guarantors on a consolidated basis shall not
permit the ratio of Current Assets to Current Liabilities to be less
than .90 as of December 1998 and .95 at all times thereafter and from
time to time.
(xiv) A new Section 9.21 is hereby added as follows:
Section 9.21 Interest Coverage Ratio. The Borrower including the
Subsidiary Guarantors on a consolidated basis, shall not permit the
Interest Coverage Ratio for the periods set forth to be less than the
following amounts:
December 1998 0.6
January 1999 1.6
February 1999 1.7
March 1999 2.0
(xv) A new Section 9.22 is hereby added as follows:
Section 9.22 Tangible Net Worth. The Borrower including Subsidiary
Guarantors shall not permit its Tangible Net Worth on a consolidated
basis to be less than $14,000,000. at any time or from time to time.
(xvi) Section 10.3 is hereby deleted and is hereby replaced with the
following and a new Section 10.11 is hereby added as follows:
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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 Section 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 immediately constitute an Event of Default) and such
failure continues for more than twenty (20) business days after such
failure occurred, except that if the Borrower fails to comply with
Sections 8.13, 8.14, 8.16, 8.18 and 8.19 the Borrower shall be in
default if it fails to provide such information within three days
after it is due.
10.11 Decrease in the Value of the Borrowing Base. The value of the
Collateral comprising the Borrowing Base, as shown on a certificate
required under this Agreement or otherwise, decreases by more than
$300,000. from the November 30 Borrowing Base to less than $4,900,000.
(xvii) Section 11.1 is hereby modified to provide that the following terms
will have the following revised definitions:
"Interest Coverage Ratio" shall mean, at anytime, the ratio of consolidated
EBIT to Consolidated Interest Paid.
"Interim Loan Maturity Date: shall mean April 1, 1999.
"Revolving Loan Maturity Date" shall mean April 1, 1999.
"Term Loan Maturity Date" shall mean April 1, 1999.
and the following new definitions will be added:
"Accounts" shall mean, all present and future rights of Borrower to payment
for goods sold or leased or for services rendered, whether now existing or
hereafter arising and wherever arising, and whether or not they have been earned
by performance including, without limitation, all Eligible Accounts (herein
defined).
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"Borrowing Base" shall mean, as of any date of determination, an amount
equal to eighty percent (80%) of the Eligible Accounts and 50 percent (50%) of
the Eligible Inventory.
"Current Assets" shall mean current assets as determined in accordance with
GAAP consistently applied and shall include only the following items: (i) cash
in bank, on hand and in transit; (ii) prepaid items (excluding unamortized debt
discount and expense); (iii) Accounts, other receivables, bills and notes
receivable acquired in the ordinary course of business; (iv) Inventories at not
in excess of cost or current market value, whichever is lower; and (v) readily
marketable, direct obligations of the United States of America and certificates
of deposit issued by a bank, in each case at not in excess of cost or current
market value, whichever is lower; all after deduction of adequate reserves in
each case where a reserve is proper in accordance with GAAP; provided, however,
that any of such assets which are subject to a pledge, lien or security interest
to secure payment of any Indebtedness which is not included in Current
Liabilities shall be excluded from Current Assets to the extent of such
Indebtedness.
"Current Liabilities" shall mean current liabilities as determined in
accordance with GAAP consistently applied and shall include, as of the date of
determination thereof, (a) all Indebtedness payable on demand or maturing within
one year after such date without any option on the part of the obligor to extend
or renew beyond such year, (b) final maturities, installments and prepayments of
Indebtedness required to be made within one year after such date, and (c) all
other items (including taxes accrued as estimated and reserves for deferred
income taxes) which, in accordance with GAAP, would be included on a balance
sheet as current liabilities. Notwithstanding the above, the term debt due to
the Lender shall be accounted for as long term debt for purposes of calculating
the financial covenants of this Agreement.
"Eligible Accounts" shall mean Accounts which consist of ordinary trade
accounts receivable owned by Borrower and the Subsidiary Guarantors, payable in
cash in United States dollars and arising out of the final sale of Inventory or
delivery of services in the ordinary course of Borrower's business as presently
conducted by it other than: (i) any Account with respect to which the goods
covered thereby have not been delivered or services have not been rendered or
with respect to which Borrower failed to issue an original invoice within two
(2) days after delivery of such goods or performance of such services; (ii) any
Account with respect to which Lender does not have a valid and prior, fully
perfected Lien or which is not free of all Liens or other claims of all other
Persons (other than the Permitted
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Encumbrances) including, but not limited to, those accounts listed as contra
accounts in the BDO Seidman asset based review of the Borrower; (iii) any
Account which is not due and payable, absolutely and unconditionally, within
thirty (30) days from the date of the original invoice applicable thereto; (iv)
any Account with respect to which more than ninety (90) days have elapsed since
the date of issuance of the original invoice applicable thereto; (v) any Account
resulting from goods which are shipped or delivered to the Account Debtor on an
absolute sale basis or goods shipped on a bill and hold sale basis, a
consignment sale basis, a guaranteed sale basis, a sale or return basis, or on
the basis of any other similar understanding; (vi) any Account with respect to
which the Account Debtor is a director, officer, shareholder, employee or an
Affiliate of Borrower; (vii) any Account with respect to which the Account
Debtor is the United States of America or any department, agency or
instrumentality thereof; (viii) any Account with respect to which the Account
Debtor is not a resident of the United States; (ix) any Account with respect to
which the Account Debtor is the subject of bankruptcy or a similar insolvency
proceeding, or has made an assignment for the benefit of creditors, or whose
assets have been conveyed to a receiver or trustee, or who has failed or
suspended or gone out of business; (x) any Account of a particular Account
Debtor in excess of a credit limit established as to that Account Debtor by
Borrower; (xi) any Account which is evidenced by chattel paper, a promissory
note or other instrument; (xii) any Account with respect to which the terms or
conditions prohibit or restrict assignment or collection rights; (xiii) any
Account if more than 50% of the Accounts of such Account Debtor are past due
more than 90 days; and (xiv) any Account which does not conform at the time to
Borrower's representations and warranties.
"Eligible Inventory" means Inventory of the Borrower and Subsidiary
Guarantors in which Lender has a first priority, perfected security interest and
which is not, in Lender's opinion, obsolete and unmerchantable, and which Lender
in its sole judgement, shall deem Eligible Inventory based on such
considerations as you may from time to time deem appropriate and shall not
include any (1) work in progress, (2) inventory of ASP or (3) raw material of
Semiconductor Packaging Materials Co. a/k/a SPM, a division of Borrower.
"Equipment" shall mean, all machinery, all manufacturing, distribution,
selling, data processing, office and equipment, all furniture, fixtures and
trade fixtures, tools, tooling, molds, dies, vehicles, vessels, aircraft and all
other goods other than Inventory, and in each case whether now owned or
hereafter acquired by Borrower and wherever located, and accessions and
additions thereto, parts
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and appurtenances thereof, substitutions therefor and replacements thereof.
"GAAP" shall mean, generally accepted accounting principles set forth in
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession which are applicable to the circumstances as of the
date of determination.
"Inventory" shall mean, all goods, now owned or hereafter acquired by
Borrower and Subsidiary Guarantor (wherever located, whether in the possession
of Borrower or of a bailee or other Person) which are held for sale or lease or
other disposition, which are raw materials, work in process, supplies, whole
goods, spare parts or components, all materials which are or might be used or
consumed in Borrower's business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of any such goods, all
documents of title representing the same, and all records, files and writings
with respect thereto, and shall include such property the sale or other
disposition of which has given rise to Accounts and which has been returned to
or repossessed or stopped in transit by Borrower.
"ISP Letter of Credit" shall mean, the letter of credit opened by Lender at
the request of ISP in the amount of SD $5,000,000.
"ISP L/C Liability" shall mean the liability of the Lender to the
beneficiary of the ISP Letter of Credit in United States Dollars which amount
shall be valued on the last day of each month.
"Maximum ISP L/C Liability" shall mean $3,200,000.
"Net Worth" shall mean, the amount by which all the assets of Borrower, as
determined in accordance with GAAP, at any given time, exceed the sum of the
then Total Liabilities and the Minority Interests.
"November 30 Borrowing Base" shall mean the Borrowing Base certificate
shown on Schedule 8.14 annexed hereto and made a part hereof certified by an
officer of the Borrower to be true and accurate to the best of such officer's
knowledge after due and diligent inquiry and for purposes of this Agreement
shall have a Borrowing Base valuation of $5,200,000.
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"Tangible Net Worth" shall mean, the amount of the Net Worth minus
goodwill, patents, and other intangible assets as determined in accordance with
GAAP.
(xviii) The following is added after the notice information contained in
Section 12.3 of the Credit Agreement:
If to the Borrower:
and
Gratch Jacobs, & Brozman, P.C.
950 Third Avenue
New York, New York 10022
Attention: Andrew Brozman, Esq.
Tel: 212-925-2560
Fax: 212-319-0856
If to the Lender:
First Union National Bank
5 Research Drive
Shelton, Connecticut 06494
Attention: Nancy Haskins, Vice President
Tel: 203-944-4707
Fax: 203-944-4678
and
Zeichner Ellman & Krause
757 Third Avenue
New York, New York 10017
Attention: Stephen F. Ellman, Esq.
Tel: 212-223-0400
Fax: 212-753-0396
(xix) Section 12.7 is hereby amended to delete the word "Connecticut" and
to substitute therefore the word "New York" and any reference to the state or
federal courts located in the State of Connecticut shall refer instead to courts
located in the County of New York.
3. Consultant. The Borrower agrees to pay all expenses, with respect to the
Lender's consultant PricewaterhouseCoopers LLC, which amount is anticipated to
be approximately $100,000. within sixty days of the day such amounts are sent to
Zeichner Ellman & Krause (who shall promptly forward copies of the invoices to
the Borrower).
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4. Reaffirmation by the Borrower. The Borrower acknowledges that (a) it is
legally, validly and enforceably indebted to 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 $11,822,862.50
(consisting of $11,800,000. principal and $22,862.50 accrued interest) and the
undrawn amount under the Letter of Credit is $3,093,100.50. as of December 31,
1998, (y) the Interim Note is $1,002,798.61 (consisting of $1,000,000 principal
and $2,798.61 accrued interest), and (z) the Term Note is $15,079,601.47
(consisting of $15,050,000 principal and $29,601.47 accrued interest). In
addition, Fleet National Bank's affiliate, Fleet Precious Metals, Inc., has a
separate facility to the Borrower in the amount of $1,118,373. as of January 12,
1999 pursuant to a consignment agreement (the "Consignment Agreement") in
connection with the consignment of gold (the "Gold Liability") and Lender has a
separate equipment leasing facility to SPM Holding dated October 24, 1995 which
have amounts outstanding under Schedule 1 of $317,098., Schedule 2 of $311,524.
and Schedule 3 of $551,597.00 plus any applicable interest, fees and other costs
(the "Lease Liability"), all of the separate obligations of the Borrower and
Subsidiary Guarantors under the Gold Liability and the Lease Liability are due
and owing without offset, claim, defense or right of recoupment. 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 September 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.
5. 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 is or remains in full force and effect and includes,
without limitation, the indebtedness, liabilities and obligations arising under,
or
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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.
6. Other Representations and Agreements by Borrower and Subsidiary
Guarantors. The parties agree that to the best of their knowledge they are not
aware that any Default or Event of Default has occurred and is continuing, other
than as set forth herein on Schedule 6 annexed hereto and made a part hereof and
that the Lender has not given its consent to or waived any Default or Event of
Default other than set forth on Schedule 6. The Borrower and the Subsidiary
Guarantors represent, warrant and confirm that 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
except to the extent that the Borrower and Subsidiary Guarantors make no
representation or warranty as to the effectiveness of the ASPBV guaranty under
Dutch law. The Borrower and each Subsidiary Guarantor confirm 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 parties acknowledge and agree that the Credit Agreement, the
Credit Documents, the Consignment Agreement and this Agreement (all as
previously amended, modified or supplemented in writing 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 parties hereto
acknowledge and agree that the parties hereto have not made any representation
except as expressly set forth in this Agreement and even if any such
representations were made, the parties have not relied on any such
representation except as expressly set forth in this Agreement. The Borrower and
each of the Subsidiary Guarantors represent and confirm that as of the date
hereof, neither the Borrower nor any of the Subsidiary Guarantors has any claim
or defense (and to the extent any such defense exists 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.
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7. Forbearance and Waiver, Release. (a) In consideration of the execution,
delivery and performance of this Agreement by the Borrower and the Subsidiary
Guarantors, the 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) April 1, 1999, (ii) the
occurrence of an Event of Default under the Credit Agreement, (iii) the
occurrence of a breach of this Agreement by the Borrower or any of the
Subsidiary Guarantors, and (iv) the occurrence of a breach under the Consignment
Agreement and all such forborn payments shall be due and payable on the Term
Loan Maturity Date, Revolving Note Maturity Date and the Interim Note 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 RELEASE, REMISES AND DISCHARGES THE LENDER ITS
SUBSIDIARIES AND AFFILIATES AND ALL OF THEIR PAST AND PRESENT OFFICERS,
DIRECTORS, REPRESENTATIVES, EMPLOYEES, ATTORNEYS OF AND FROM ALL ACTIONS, CAUSES
OF ACTION, SUITS, REBORROWINGS, CONTROVERSIES, AGREEMENTS, PROMISES, DAMAGES,
JUDGMENTS, 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
ACTION OF THE LENDER OCCURRING PRIOR TO THE DATE OF THIS AGREEMENT.
8. 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.
9. Letters of Credit. The maturity of all letters of credit issued in
connection with revolving commitment including the ISP Letter of Credit shall
not be extended for a term beyond April 15, 1999 and the amount of letters of
credit outstanding on April 1, 1999 shall be secured by cash or marketable
securities other than the
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Borrower at the Lender's ordinary and customary margin requirements.
10. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York (without regard to such
State's conflicts of law principles).
11. Representation. The execution and delivery of this Agreement and all of
the other Loan Documents are within the Borrowers' and each Subsidiary
Guarantor's powers, corporate or otherwise, have been duly authorized or will be
ratified by all necessary corporate action, and do not contravene, or constitute
a default under any provision of applicable law or regulation of any of its
corporate documents or of any agreement, judgment, injunction, order, decree or
other instrument binding upon the Borrowers and the Subsidiary Guarantors. The
execution and delivery of this Agreement by the Lender are within Lender's power
and has been duly authorized.
12. Acceleration. In the event that the Borrower or any Subsidiary
Guarantor defaults in the prompt payment of the aforesaid obligations or in the
due performance of or compliance with any of the terms or conditions hereof or
of the Credit Documents or if the Borrower or any Subsidiary Guarantor defaults
under any obligations to Fleet National Bank or its affiliates under the Gold
Liability or otherwise or any other loan or facility with Lender under the Lease
Liability or otherwise and after the expiration of any applicable grace, notice
and right to cure provisions in this Agreement or any applicable agreement under
which such default occurred , the Lender may declare all of the obligations in
accordance with the original terms of the Loan Documents to be immediately due
and payable.
13. Remedies. In the event of a demand or default, the Lender shall have
such rights and remedies as are provided and permitted by the Loan Documents and
applicable law.
14. Loan Documents Remain Effective. Except for any modification
specifically set forth herein or in the exhibits, the Loan Documents remain in
full force and effect. Nothing herein shall be construed as a waiver of any
rights or remedies which the Lender may have at law, equity, under the Loan
Documents, as modified hereby, or otherwise, all of which are specifically
reserved.
15. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
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16. Amendments, Etc. No amendment, modification, termination, or waiver of
any provision of this Agreement, nor consent to any departure by the parties
from this Agreement, shall in any event be effective unless the same shall be in
writing and signed by the Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
17. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the Lender and the Borrower, the Subsidiary Guarantors and
their respective successors and assigns, except that the Borrower and Subsidiary
Guarantor may not assign or transfer any of its rights under this Agreement
without the prior written consent of the Lender.
18. Right to Inspect, UCC Filings. At any time during the term of this
Agreement, the Lender shall have the right to inspect the books and records of
the Borrower and the Subsidiary Guarantors during normal business hours and upon
24 hours notice. At any time and from time to time the Borrower and each
Subsidiary Guarantor authorize Lender or its designee to file any financing
statements without the Borrower or such Subsidiary Guarantor's signature to
perfect any security interest granted to Lender in any jurisdiction.
19. Power of Attorney. Borrower and Subsidiary Guarantors hereby
irrevocably appoint Lender, or any other person whom Lender may designate, as
Borrower and Subsidiary Guarantors' attorney-in-fact, coupled with an interest,
with full power of substitution and with full power from time to time in
Borrower and Subsidiary Guarantors' stead: (i) to file without the signature of
Borrower and Subsidiary Guarantors any and all financing statements,
modifications and continuations in respect of the Collateral and the
transactions contemplated by this Agreement and the other Loan Documents in any
jurisdiction which Lender deems appropriate with respect to any Collateral, and
Borrower and Subsidiary Guarantors agrees to reimburse Lender for the reasonable
expense of any such filing including reasonable attorneys fees; (ii) to sign any
such statement on behalf of Borrower and Subsidiary Guarantors if Lender deems
such filing necessary or desirable under applicable law; and (iii) to file a
carbon, photographic or other reproduction of this Agreement or of a financing
statement if Lender deems such filing necessary or desirable under applicable
law.
20. No Waiver. No delay or omission in the exercise of any power or remedy
herein provided or otherwise available to the Lender shall impair or affect the
Lender's right thereafter to exercise same, including the execution of the
Agreement.
19
<PAGE>
21. Submission to Jurisdiction. (i) Any legal action or proceeding with
respect to this agreement or any document related hereto may be brought in the
courts of the State of New York or of the United States of America for the
Southern District of New York, and, by execution and delivery of this Agreement,
the Borrower and Subsidiary Guarantors hereby accept for itself and in respect
of its property, generally and unconditionally, the jurisdiction of the
aforesaid courts. The parties hereto hereby irrevocably waive any objection,
including, without limitation, any objection to the laying of venue or based on
the grounds of forum non conveniens, which any of them may now or hereafter have
to the bringing of any such action or proceeding in such respective
jurisdiction.
(ii) The Borrower and Subsidiary Guarantors irrevocably consent to the
service of process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the Borrower at its address, and such service will become
complete three days after the date such process is so mailed.
(iii) Nothing contained in this Paragraph 21 shall affect the right of the
Lender to serve process in any other manner permitted by law or commence legal
proceedings or otherwise proceed against the Subsidiary Guarantor in any other
jurisdiction.
22. Expenses. The Borrower shall promptly pay all expenses of the Lender
with respect to: (i) the drafting, negotiation and enforcement of this Agreement
and the documents executed in connection therewith, including, but not limited
to, reasonable attorneys fees and disbursements and the fees incurred in
connection with the August 1, 1998 Fourth Modification Agreement and Forbearance
Agreement and foreign counsel fees; (ii) inspection and evaluation of any
collateral, from time to time, including collateral audits and appraisals; (iii)
any filing, recording, title insurance or other fees and taxes or search fees
incurred in protecting, perfecting and insuring the Lender's lien or security
interest in the Collateral; and (iv) all out of pocket expenses in connection
therewith incurred by the Lender, including, but not limited to, site visits to
view and observe the Collateral. Borrower authorizes Lender to debit any account
for the payment of any such fees and disbursements if such amounts are not paid
as and when due pursuant to the Schedule.
23. Additional Collateral. (a) As additional collateral for the Credit
Agreement, the Borrower and each Subsidiary Guarantor shall to the extent
reasonable and practical as determined by Lender in its sole and absolute
discretion maintain each and every bank and/or securities
20
<PAGE>
account relationship at Lender or Fleet National Bank. Borrower represents that
attached as Schedule 24 is a true and complete schedule of all bank accounts
maintained in its name and that of the Subsidiary Guarantors which are not
maintained at either Lender or Fleet National Bank or either of their affiliates
in locations where neither Lender or its affiliates and Fleet National Bank or
its affiliates have convenient branches for general operating accounts. Borrower
and the Subsidiary Guarantors hereby specifically assign and grant a security
interest in any accounts maintained in the name of Borrower and Subsidiary
Guarantor's.
(b) The Borrower shall use its best efforts to obtain the consent ABN-AMRO
or its successors and assigns to the granting to Lender by ASP B.V. of a second
priority security interest in accounts receivable and a second mortgage on the
real property in the Netherlands. Provided that ABN-AMRO consents, on or before
February 15, 1999, the Borrower shall cause and ASP B.V. shall grant as
additional security for the Obligations, a second priority security interest in
the ASP B.V. accounts receivable and a second mortgage on the ASP B.V.'s real
property located in the Netherlands in the amounts of 500,000 Dutch Guilders.
together with all customary verifications of title and all necessary corporate
approvals and an opinion of Dutch counsel acceptable to Lender and its counsel.
Notwithstanding the foregoing, the inability of the Borrower to obtain the
consent of ABN-AMRO after utilizing its best efforts shall not be a default
under this Agreement.
(c) On or before February 15, 1999, the Borrower shall cause and ASP B.V.
shall grant as additional security for the Obligations, a first priority
security interest in all other personal property of ASP B.V. to the extent that
such property is not the collateral of ABN-AMRO. In the event such property is
the collateral of ABN-AMRO, the Borrower shall use its best efforts to obtain
the consent of ABN-AMRO to grant a second priority security interest in
accordance with section (b) hereof.
(d) On or before January 22, 1999, ASP B.V. shall deliver a guaranty in the
form signed by the Subsidiary Guarantors, a board resolution approving such
guaranty, copies of all appropriate corporate documentation furnished by the
other Subsidiary Guarantors and an opinion of Dutch counsel acceptable to Lender
and its counsel.
21
<PAGE>
24. 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 REVOLVLING NOTE, THE INTERIM
NOTE, THE TERM NOTE, THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS IS A PARTY 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 DURESS, AND ONLY AFTER EXTENSIVE
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
The parties have executed this Agreement as of the date first written
above.
Borrower:
SEMX CORPORATION
By: /s/ Gilbert D. Raker
----------------------------
Name: Gilbert D. Raker
Title: Chairman
Subsidiary Guarantors:
AMERICAN SILICON PRODUCTS, INC.
By: /s/ Gilbert D. Raker
----------------------------
Name: Gilbert D. Raker
Title: Chairman
POLESE COMPANY, INC.
By: /s/ Gilbert D. Raker
----------------------------
Name: Gilbert D. Raker
Title: Chairman
RETCONN INCORPORATED
By: /s/ Gilbert D. Raker
----------------------------
Name: Gilbert D. Raker
Title: Chairman
22
<PAGE>
TYPE III, INC.
By: /s/ Gilbert D. Raker
----------------------------
Name: Gilbert D. Raker
Title: Chairman
S.T. ELECTRONICS, INC.
By: /s/ Gilbert D. Raker
----------------------------
Name: Gilbert D. Raker
Title: Chairman
SPM HOLDINGS CORPORATION
By: /s/ Gilbert D. Raker
----------------------------
Name: Gilbert D. Raker
Title: Chairman
THERMAL PACKAGING SOLUTIONS, INC.
By: /s/ Gilbert D. Raker
----------------------------
Name: Gilbert D. Raker
Title: Chairman
ASP, B.V.
By: /s/ Gilbert D. Raker
----------------------------
Name: Gilbert D. Raker
Title: Chairman
Lender:
FIRST UNION NATIONAL BANK
By: /s/ Thomas J. Donnelly
----------------------------
Name: Thomas J. Donnelly
Title: Sr. Vice President
23
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSET PURCHASE AGREEMENT
BY AND AMONG
LITTON SYSTEMS, INC.
AND
SEMX CORPORATION,
RETCONN, INCORPORATED,
S.T. ELECTRONICS, INC.
AND
RETCONN SPM (MALAYSIA) SDN. BHD.
Dated as of January 26, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I PURCHASE AND SALE OF ASSETS........................................................ 2
Section 1.1 Purchase and Sale of Assets........................................................ 2
Section 1.2 Determination of Purchase Price.................................................... 4
Section 1.3 Estimated Cash Payment at Closing.................................................. 10
Section 1.4 Assumption of Certain Liabilities.................................................. 11
ARTICLE II CLOSING............................................................................ 12
Section 2.1 Time and Place..................................................................... 12
Section 2.2 Deliveries by the Companies and the Shareholder.................................... 12
Section 2.3 Deliveries by the Purchaser........................................................ 14
ARTICLE III CERTAIN COVENANTS OF THE SHAREHOLDER AND THE PURCHASER............................. 16
Section 3.1 Confidentiality.................................................................... 16
Section 3.2 Restrictive Covenant............................................................... 19
Section 3.3 Allocation of Purchase Price....................................................... 22
Section 3.4 Transfer Taxes..................................................................... 24
Section 3.5 Execution of General Release....................................................... 25
Section 3.6 Preparation of Final Tax Returns................................................... 25
Section 3.7 Access to Books and Records........................................................ 25
Section 3.8 Certain Employee Matter............................................................ 25
Section 3.9 Relocation of West Pearl Road Facility............................................. 27
ARTICLE IV REPRESENTATIONS AND WARRANTIES BY THE SHAREHOLDER WITH RESPECT TO THE COMPANIES.... 28
Section 4.1 Organization, Authorization and Valid and Binding Agreement........................ 28
Section 4.2 Capitalization of the Foreign Subsidiary........................................... 29
Section 4.3 No Equity Investments or Subsidiaries.............................................. 30
Section 4.4 Consents; No Violation............................................................. 31
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Section 4.5 Financial Statements............................................................... 32
Section 4.6 Absence of Certain Changes......................................................... 34
Section 4.7 Certain Tax Matters................................................................ 36
Section 4.8 Title to Properties; Encumbrances.................................................. 38
Section 4.9 Leasehold Improvements, Machinery, Equipment and Furniture......................... 41
Section 4.10 Computer Programs, Databases and Software.......................................... 42
Section 4.11 Patents, Trademarks, Copyrights.................................................... 42
Section 4.12 Litigation......................................................................... 44
Section 4.13 Insurance.......................................................................... 44
Section 4.14 Employee Benefit Plans............................................................. 44
Section 4.15 Bank Accounts...................................................................... 52
Section 4.16 Contracts and Commitments.......................................................... 53
Section 4.17 Labor Relations.................................................................... 54
Section 4.18 Compliance with Applicable Law..................................................... 56
Section 4.19 Environmental Matters.............................................................. 57
Section 4.20 Inventory.......................................................................... 59
Section 4.21 Accounts Receivable................................................................ 60
Section 4.22 Certain Interests.................................................................. 60
Section 4.23 Intercompany Transactions.......................................................... 61
Section 4.24 Product Warranty; Product Liability................................................ 61
Section 4.25 Backlog............................................................................ 62
Section 4.26 Certain Payments................................................................... 62
Section 4.27 Books and Records.................................................................. 62
Section 4.28 Government Contracts and Foreign Government Contracts.............................. 63
Section 4.29 Customer Furnished Assets.......................................................... 63
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS (Cont'd.)
<TABLE>
<S> <C> <C>
Section 4.30 Disclosure......................................................................... 63
Section 4.31 Future Compliance.................................................................. 64
ARTICLE V FURTHER REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER.......................... 65
Section 5.1 Authorization and Valid and Binding Agreement...................................... 65
Section 5.2 Consents; No Violation............................................................. 66
Section 5.3 No Default......................................................................... 67
ARTICLE VI REPRESENTATIONS AND WARRANTIES BY THE PURCHASER.................................... 67
Section 6.1 Organization....................................................................... 67
Section 6.2 Authorization...................................................................... 67
Section 6.3 Valid and Binding Agreement........................................................ 68
Section 6.4 Consents; No Violation............................................................. 68
Section 6.5 Limited Representations............................................................ 69
ARTICLE VII CONDUCT OF BUSINESS OF THE COMPANY PENDING THE CLOSING DATE........................ 69
Section 7.1 Conduct and Preservation of Business............................................... 69
Section 7.2 Other Transactions................................................................. 74
Section 7.3 Insurance.......................................................................... 75
Section 7.4 Access............................................................................. 75
ARTICLE VIII CERTAIN COVENANTS OF THE PARTIES................................................... 76
Section 8.1 Consents; Third Parties............................................................ 76
Section 8.2 Guarantees......................................................................... 76
Section 8.3 Supplemental Disclosure............................................................ 77
Section 8.4 Further Assurances................................................................. 77
Section 8.5 Purchaser Confidentiality Obligations.............................................. 77
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS (Cont'd.)
<TABLE>
<S> <C> <C>
Section 8.6 Hart-Scott-Rodino Filing........................................................... 78
Section 8.7 No Negotiation With Lenders........................................................ 78
ARTICLE IX CLOSING CONDITIONS................................................................. 78
Section 9.1 Conditions to the Obligations of the Purchaser..................................... 78
Section 9.2 Conditions to the Obligations of the Shareholder................................... 82
ARTICLE X SURVIVAL OF REPRESENTATIONS AND INDEMNIFICATIONS................................... 84
Section 10.1 Survival of Representations........................................................ 84
Section 10.2 Statements as Representations...................................................... 85
Section 10.3 Indemnification of the Purchaser................................................... 85
Section 10.4 Indemnification of the Shareholder and the Companies............................... 86
Section 10.5 Procedure.......................................................................... 87
Section 10.6 Remedies Cumulative and Exclusive.................................................. 89
Section 10.7 Limitations........................................................................ 89
ARTICLE XI TERMINATION, AMENDMENT AND WAIVER.................................................. 90
Section 11.1 Termination........................................................................ 90
Section 11.2 Effect of Termination.............................................................. 91
Section 11.3 Amendment, Extension and Waiver.................................................... 91
ARTICLE XII MISCELLANEOUS...................................................................... 92
Section 12.1 Finder's Fees...................................................................... 92
Section 12.2 Expenses........................................................................... 92
Section 12.3 Parties in Interest................................................................ 92
Section 12.4 Entire Agreement................................................................... 93
Section 12.5 Modification....................................................................... 93
</TABLE>
iv
<PAGE>
TABLE OF CONTENTS (Cont'd.)
<TABLE>
<S> <C> <C>
Section 12.6 Notices............................................................................ 93
Section 12.7 Law Governing; Jurisdiction; Attorneys Fees........................................ 95
Section 12.8 Interpretation and Construction.................................................... 96
Section 12.9 Public Announcements............................................................... 97
</TABLE>
v
<PAGE>
LIST OF SCHEDULES
<TABLE>
<S> <C>
Schedule 1 Definitions
Schedule 1.1(a)(v) Material Fixed Assets
Schedule 1.1(a)(vi) Assumed Contracts
Schedule 1.1(a)(vi)-1 Senior Management Employment Agreements
Schedule 1.1(b) Additional Excluded Assets
Schedule 1.2(c)(i)(3) Vacation Policy
Schedule 1.2(c)(i)(4) Inventory Methodology
Schedule 1.3(a) Estimated Purchase Price Wire Transfer Instruction
Schedule 1.3(b) Wire Transfer Instructions for Other Payments
Schedule 3.3 Allocation Schedule
Schedule 3.8 Senior Management Employees
Schedule 3.8(a) Change in Control Payments
Schedule 3.8(b) Severance policy
Schedule 4.1(e) Qualifications
Schedule 4.4 Companies' and Shareholder's consents
Schedule 4.5(a) Selling Companies' Financial Statements
Schedule 4.5(b) Foreign Subsidiary's Reference Balance Sheet
Schedule 4.6 Absence of certain changes
Schedule 4.6-1 Due Inquiry Persons
Schedule 4.7 Tax exceptions
Schedule 4.8(a) Title to properties
Schedule 4.8(c) Sufficiency of Purchased Assets
Schedule 4.8(d) Leased Real Properties
Schedule 4.8(e) Underground Storage Tanks
Schedule 4.9 Tangible asset defects
Schedule 4.10 Computer programs and year 2000 compliance
Schedule 4.11 Registrable intellectual property rights
Schedule 4.11-1 Pending intellectual property rights applications
Schedule 4.12 Litigation
Schedule 4.13 Insurance
Schedule 4.14 Employee plans
Schedule 4.14(c) ERISA exceptions
Schedule 4.15 Bank accounts
Schedule 4.16(a) Material contracts and commitments
Schedule 4.16(b) Defaults under material contracts and commitments
Schedule 4.17 Labor relations
Schedule 4.17(c) List of Employees
Schedule 4.18(a) Violation of Laws
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C>
Schedule 4.18(b) Notification of violation of Laws
Schedule 4.20 Inventory Defects
Schedule 4.21 Accounts Receivable
Schedule 4.22 Certain Interests
Schedule 4.23 Intercompany transactions
Schedule 4.24 Warranty Obligations
Schedule 4.25 Backlog
Schedule 4.27 Books and Records offsite
Schedule 4.29 Customer Furnished Items
Schedule 5.2 Shareholder's consents
Schedule 6.4 Purchaser's consents
Schedule 7.1 Conduct of business
Schedule 8.2 Shareholder guarantees
Schedule 9.1(e) Required Employment Agreements
Schedule 9.1(j) Required Employee Releases
</TABLE>
vii
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT (the "Agreement") dated as of January 26, 1999, by
and among LITTON SYSTEMS, INC., a Delaware corporation (the "Purchaser"), SEMX
CORPORATION, a Delaware corporation (the "Shareholder"), RETCONN, INCORPORATED,
a Connecticut corporation (the "Company") S.T. ELECTRONICS, INC., a California
corporation (the "Domestic Subsidiary") and RETCONN SPM (MALAYSIA) SDN. BHD.,
incorporated under the laws of Malaysia (the "Foreign Subsidiary" and together
with the Domestic Subsidiary, the "Subsidiaries").
WHEREAS, the Shareholder owns all of the issued and outstanding capital
stock of the Company;
WHEREAS, the Company owns all of the issued and outstanding capital stock
of the Domestic Subsidiary and ninety-nine (99%) percent of the issued and
outstanding capital stock of the Foreign Subsidiary (the "Foreign Subsidiary's
Shares");
WHEREAS, the Company and the Domestic Subsidiary are sometimes hereinafter
referred to collectively as the "Selling Companies";
WHEREAS, the Selling Companies and the Foreign Subsidiary are sometimes
hereinafter referred to as the "Companies";
WHEREAS, upon the terms and subject to the conditions contained in this
Agreement, the Purchaser desires to purchase from the Selling Companies, and the
Selling Companies desire to sell to the Purchaser, all of their assets
(including the Foreign Subsidiary Shares) other than the Excluded Assets; and
<PAGE>
WHEREAS, an index of the meaning of capitalized terms is set forth in
Schedule 1 hereof.
NOW, THEREFORE, in consideration of the premises set forth above and the
mutual covenants and agreements set forth herein, the parties hereto, intending
to be legally bound, do hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
Section 1.1 Purchase and Sale of Assets.
(a) Upon the terms and subject to the conditions contained in this
Agreement, on the closing of sale (the "Closing" and the "Closing Date") each of
the Selling Companies shall sell, transfer, convey, assign and deliver to the
Purchaser, and the Purchaser shall purchase from the Selling Companies, free and
clear of all liens, security interest and encumbrances (other than the Assumed
Monetary Liabilities and Assumed Contractual Liabilities) all of the assets of
the Selling Companies except for the Excluded Assets including, without
limitation, the following assets (collectively, the "Purchased Assets"):
(i) All cash, cash equivalents, deposits and prepaid expenses;
(ii) All accounts receivable excluding amounts due from any Affiliate
of the Shareholder (collectively, the "Accounts Receivable");
2
<PAGE>
(iii) All inventory including, but not limited to, work-in-progress,
raw materials and supplies (collectively, the "Inventory");
(iv) All trademarks, copyrights and patents and applications therefor,
tradenames, engineering drawings and manuals, customer lists, telephone and
fax numbers, catalogs, fliers, brochures and other advertising and
promotional materials, books and records, software, databases, choses in
action (including the rights of the Company in the action entitled
"Retconn, Incorporated vs. Palco Connector, Inc., Harold Niver and John
Maturo" more particularly described in item 4 of Schedule 4.12 (the "Palco
Litigation")), trade secrets, all inventions whether or not patented or
patentable, know how and all other intellectual and intangible property
owned or used by the Selling Companies in the operation of their businesses
(collectively, the "Intangible Property");
(v) Machinery, equipment, tools, vehicles, computers and office
equipment, dies and molds, leasehold improvements (except those at the West
Pearl Facility), furniture and fixtures and all other tangible personal
property owned by the Selling Companies including, without limitation, the
assets listed on Schedule 1.1(a)(v) (collectively, the "Fixed Assets");
(vi) All open sale and purchase orders made in the ordinary course of
business and all material contracts
3
<PAGE>
necessary to operate the businesses of the Selling Companies as presently
conducted all of which are listed on Schedule 1.1(a)(vi) (the "Assumed
Contracts"), but excluding the lease to the 199 West Pearl Road,
Torrington, Connecticut facility of the Company and any Real Property in
connection therewith (the "West Pearl Facility" and the "West Pearl Lease")
and further excluding the employment agreements of those persons identified
on Schedule 1.1(a)(vi)-1 (collectively, the "Senior Management Employment
Agreements"); and
(vii) The Foreign Subsidiary's Shares.
(b) The Selling Companies shall retain all amounts due from any affiliated
corporation, insurance rebates and refunds, tax refunds, insurance policy
rebates or refunds, their corporate books, books of account, tax records and the
items identified in Schedule 1.1(b) (collectively, the "Excluded Assets").
Section 1.2 Determination of Purchase Price.
(a) The "Purchase Price" for the Purchased Assets shall be equal to the
Closing Date Net Worth plus Eighteen Million Two Hundred Seventy Eight Thousand
($18,278,000) Dollars (the "Cash Portion of the Purchase Price") plus the
Assumed Monetary Liabilities.
(b) The "Closing Date Net Worth" of the Companies shall be equal to the
value of the Purchased Assets as set forth on the Closing Date Balance Sheet of
the Companies less the aggregate amount of liabilities set forth on the Closing
Date Balance Sheet
4
<PAGE>
of the Companies (the "Assumed Monetary Liabilities") as the same are finally
determined in accordance with the procedures set forth below.
(c) (i) The "Closing Date Balance Sheet" shall be a pro forma balance sheet
of the Companies as of the close of business on the Closing Date, which balance
sheet shall be prepared on a basis consistent with the Companies' balance sheet
as at October 31, 1998 (the "Reference Balance Sheet") and in accordance with
generally accepted accounting principles applied in a manner consistent with
those used to prepare the Reference Balance Sheet as well as the year-end
accounting conventions used to prepare the Companies' December 31, 1997 balance
sheet except that (1) the amount, if any, included on the books of the Companies
as good will or with respect to the Excluded Assets shall be excluded, (2) the
parties have agreed upon a fixed reserve of Fifty Three Thousand ($53,000)
Dollars for bad debts and the same shall be reported on the Closing Date Balance
Sheet, (3) an accrual shall be made for vacation pay in accordance with the
Companies' policy as set forth on Schedule 1.2(c)(i)(3), (4) the parties will
jointly take physical inventory immediately after Closing using the methodology
set forth on Schedule 1.2(c)(i)(4) and that inventory less an agreed upon fixed
reserve for excess and obsolete inventory of One Million Two Hundred Eighty
Three Thousand ($1,283,000) Dollars shall be reported on the Closing Date
Balance Sheet (5) no severance or parachute payment amounts required to be paid
by the Purchaser or the Selling Companies
5
<PAGE>
pursuant to the provisions of Section 3.8 hereof or otherwise shall be accrued
on the Closing Date Balance Sheet, (6) all costs and expenses incurred by the
Company in connection with the preparation to move the West Pearl Facility in
accordance with Section 3.9 shall not be accrued on the Closing Date Balance
Sheet as such costs and expenses are to be paid by Purchaser pursuant to the
provisions of Section 3.9 hereof, (7) no employee bonuses with respect to the
period before Closing will be accrued as the same will be paid by the
Shareholder pursuant to the provisions of Section 3.8, (8) the income taxes
payable by the Companies to federal, state and local tax authorities and the
income tax liability shown to be owing by the Companies to the Shareholder as
well as income or transfer taxes payable by the Companies or the Shareholder by
reason of the consummation of the transactions contemplated by this Agreement
shall not be accrued on the Closing Date Balance Sheet, (9) no intercompany
liability due to the Shareholder or any Affiliate of the Shareholder (including
the Companies) will be accrued, (10) no change shall be made in the remaining
useful life of any Purchased Asset based upon Purchaser's intention to take the
same out of service, (11) the term loan debt allocated to the Companies by the
Shareholder shall not be accrued on the Closing Date Balance Sheet and (12) no
accrual shall be made for legal, accounting or finders fees incurred in
connection with this Agreement and the consummation of the transactions
contemplated hereby as the same will be paid by the Shareholder.
6
<PAGE>
(ii) Within forty-five (45) days after the Closing Date, the
Shareholder shall prepare and deliver to the Purchaser a proposed final
Closing Date Balance Sheet (the "Proposed Closing Date Balance Sheet"),
which shall be prepared in the manner set forth above.
(iii) If within forty-five (45) days after the Purchaser's receipt of
the Closing Date Balance Sheet (the "Review Period"), the Purchaser
provides the Shareholder with a written notice of its disagreement with one
or more items (individually a "Price Dispute" and collectively, the "Price
Disputes") on the Proposed Closing Date Balance Sheet (a "Price Dispute
Notice"), the Purchaser and the Shareholder shall exercise good faith
efforts to resolve all matters set forth in the Price Dispute Notice during
the thirty (30) day period (the "Resolution Period") following receipt by
the Shareholder of the applicable Price Dispute Notice. The Price Dispute
Notice shall include a detailed explanation with respect to each Price
Dispute by the Purchaser. If all Price Disputes are resolved during the
Resolution Period, the parties shall agree in writing to a final Closing
Date Balance Sheet. If the Purchaser fails to deliver a Price Dispute
Notice before expiration of the Review Period, the Closing Date Balance
Sheet shall be deemed to be identical in all respects to the Proposed
Closing Date Balance Sheet.
(iv) If the Purchaser and the Shareholder are unable to resolve in
writing all Price Disputes during the Resolution Period, either party may
refer the unresolved Price Disputes to
7
<PAGE>
KPMG Peat Marwick or such other accounting firm agreed upon by the parties
(the "Firm"). The Firm shall be instructed promptly to select the
individual believed by the Firm's management to be best suited to the
engagement.
(A) The Purchaser and the Shareholder shall have a period of
sixty (60) days following the engagement of the Firm (as evidenced by
the date of its written acceptance of the engagement) to prepare their
submissions to the Firm, and each party shall provide to the other
such access to its personnel, books and records with respect to the
Companies or otherwise relating to the Price Disputes as is reasonably
necessary to enable such other party to do so. Not later than sixty
(60) days after the engagement of the Firm (as evidenced by the date
of its written acceptance of the engagement), the Purchaser and the
Shareholder shall submit simultaneous briefs to the Firm (with a copy
simultaneously submitted to the other party) setting forth their
respective positions regarding the unresolved Price Disputes, and not
later than thirty (30) days after the submission of such briefs the
Purchaser and the Shareholder shall submit simultaneous reply briefs
(with a copy simultaneously submitted to the other). If a hearing is
requested by either party, or if additional briefing, a hearing or
other information is required by the Firm, the Firm shall give
simultaneous notice thereof to the Purchaser and the Shareholder as
soon as practicable, and the Purchaser and the Shareholder shall
promptly respond with a view to minimizing any delay in the process.
If
8
<PAGE>
either party fails to timely submit such briefs, the Firm shall make
its decision on the basis of such information, if any, as shall have
been so submitted.
(B) The Firm shall make a determination with respect to the Price
Disputes referred to it and shall state in writing, in reasonable
detail, the bases and reasons for its decision (which shall be based
solely on presentations by the Shareholder and the Purchaser and not
on any independent review). The Firm shall have the power to determine
all issues regarding the Price Disputes referred to it, including,
without limitation, procedure, arbitrability and waiver and shall be
guided in reaching any decision by the terms of this Agreement. In no
event shall the Firm determine, with respect to any Price Dispute, an
amount that is outside the range of the amounts submitted by the
Purchaser and the Shareholder. The Firm shall not have the authority
to modify any provision of this Agreement, and no decision rendered by
it shall have that effect. The determination by the Firm pursuant to
the process described herein shall be conclusive and binding upon the
parties. The fees and expenses of the Firm shall be shared equally by
the Purchaser and the Shareholder.
(v) If the Cash Portion of the Purchase Price as finally determined is
more than the Estimated Cash Portion of the Purchase Price, then the
Purchaser shall, within ten (10) business days after the Closing Date
Balance Sheet becomes final and binding on the parties ("Payment Adjustment
Date"), pay to
9
<PAGE>
the Shareholder (by wire transfer of immediately available funds to the
account specified by the Shareholder in Schedule 1.3) an amount in cash
equal to the amount by which the Cash Portion of the Purchase Price exceeds
the Estimated Cash Portion of the Purchase Price. If the Estimated Cash
Portion of the Purchase Price paid at Closing shall have been greater than
the Cash Portion of the Purchase Price as finally determined, then the
Shareholder shall, pay to the Purchaser on the Payment Adjustment Date (by
wire transfer of immediately available funds to an account specified in
writing by the Purchaser) an amount in cash equal to the amount by which
the Estimated Cash Portion of the Purchase Price exceeds the Cash Portion
of the Purchase Price. All adjustment payments to be made pursuant to this
Section 1.2(c) shall bear simple interest at the rate of six (6%) per cent
per annum based on a year of 365 days from the Closing Date through the
date of payment.
Section 1.3 Estimated Cash Payment at Closing.
(a) On the Closing Date the Purchaser shall pay to the Shareholder and to
the other persons and firms designated on Schedule 1.3(a) by wire transfer of
immediately available funds to the accounts specified in Schedule 1.3(a) an
aggregate amount equal to Twenty Three Million Nine Hundred Thousand
($23,900,000) Dollars (the "Estimated Cash Portion of the Purchase Price").
(b) In addition, Purchaser will wire the amounts listed on Schedule 1.3(b)
in accordance with the wire instructions set forth on Schedule 1.3(b).
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Section 1.4 Assumption of Certain Liabilities.
(a) In addition to paying the Cash Portion of the Purchase Price and the
other payments required to be made by it pursuant to the provisions of this
Agreement, the Purchaser shall assume at Closing and shall thereafter pay when
due all of the other liabilities of the Companies of the nature and type to be
accrued on the Closing Date Balance Sheet as provided in Section 1.2(c) above,
all of which liabilities so assumed shall be accrued on the Closing Date Balance
Sheet.
(b) At Closing, the Purchaser shall also assume (i) all of the obligations
of the Selling Companies under the Assumed Contracts accruing on or after the
Closing Date (excluding, however, liabilities accruing on or after the Closing
Date with respect to defaults or events occurring prior to the Closing Date,
which with the giving of notice or the passage of time, or both, would
constitute a default under any such Assumed Contract) and (ii) warranty
obligations and obligations for customer returns customer returns, adjustments
and repairs relating to products sold by the Companies in the ordinary course of
business in conformity with the Selling Companies' warranty and return policies,
such items referred to in (ii) of this Section not to exceed Two Hundred
Thousand ($200,000) Dollars in the aggregate. The obligations referred to in
(b)(i) and (b)(ii) of this Section are collectively referred to as the "Assumed
Contractual Liabilities".
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(c) Except as expressly provided in Section 3.8(a) or (b) with respect to
certain Change in Control payments and severance obligations, Section 3.9 with
respect to the West Pearl Facility relocation expenses and in Section 1.4(a) and
(b) above, the Purchaser shall not be obligated to assume or become liable for,
and shall not assume or become liable for, any of the liabilities, obligations,
debts, contracts or other commitment of the Selling Companies of any kind
whatsoever, known or unknown, fixed or contingent, including, without
limitation, any environmental liability or obligation arising out of the
condition of the Real Property at the Closing and any obligations of the
Companies disclosed on Schedule 4.12 other than with respect to the Palco
Litigation.
ARTICLE II
CLOSING
Section 2.1 Time and Place. Upon the terms and subject to the conditions
contained in this Agreement, the Closing of the transactions contemplated by
this Agreement shall take place at the offices of Salon, Marrow & Dyckman, LLP,
685 Third Avenue, New York, New York 10017, at 10:00 a.m. local time, on
February 5, 1999, or on the first Friday which follows, by at least one (1)
week, the satisfaction of the conditions set forth in Sections 9.2(d), 9.2(g)
and 9.2(h) hereof whichever is later, or at such other place, time and date as
may be agreed upon by the parties.
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Section 2.2 Deliveries by the Companies and the Shareholder. At the
Closing, the Companies and the Shareholder shall deliver or cause to be
delivered to the Purchaser the following:
(a) Executed bills of sale and assignments of the Purchased Assets
including patent assignments, in form and substance reasonably satisfactory to
Purchaser and its counsel.
(b) Copies of the Certificates of Incorporation of the Companies and the
Shareholder as amended, certified as of the most recent practicable date by the
Secretary of State of the State of its incorporation or, in the case of the
Foreign Subsidiary by its Secretary or Assistant Secretary or other officer.
(c) Certificates from the Department of Revenue of the State of Connecticut
and the State of California as to the payment of taxes by the Company and the
Domestic Subsidiary, respectively, such certificate to be dated as of the most
recent practicable date.
(d) A certificate of the Secretary or Assistant Secretary of the
Shareholder and the Companies stating that (i) the resolutions referred to in
Sections 4.1(b) and 5.1(b) were duly and validly adopted, have not been
modified, revoked or rescinded in any respect and are in full force and effect
on the Closing Date, (ii) the Certificates of Incorporation of the Companies and
the Shareholder have not been amended or modified since the date of the
certification referred to in Section 2.2(b). Attached to
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such certificate shall be a true and correct copy of the By-Laws of the
Companies and the Shareholder as in effect on the date hereof and at all times
thereafter to and including the Closing Date.
(e) The Shareholder's certificate referred to in Section 9.1(c).
(f) The opinion of Companies' and the Shareholder's counsel referred to in
Section 9.1(f).
(g) Any material consents from third parties required in connection with
the execution, delivery and performance of this Agreement, and the consummation
of the transactions contemplated hereby and thereby.
(h) A Certificate of Amendment to the Certificates of Incorporation of each
of the Selling Companies duly executed and in form to be filed changing its name
to a name which does not contain any of the words or initials Retconn or S.T.
Electronics and a certificate of amendment to the organization documents of the
Foreign Subsidiary to a name designated by Purchaser which does not contain the
letters SPM.
(i) All other documents, instruments and writings required to be delivered
by the Companies or the Shareholder to the Purchaser at the Closing pursuant to
this Agreement or otherwise required or reasonably requested in connection
herewith.
Section 2.3 Deliveries by the Purchaser. At the Closing, the Purchaser
shall deliver or cause to be delivered to the Shareholder, the Companies or
their designees the following:
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(a) Payment by wire transfers of immediately available funds of (i) the
Estimated Cash Portion of the Purchase Price to the Shareholder or its designees
in accordance with Schedule 1.3(a) and (ii) the Change in Control Payments
required to be paid at Closing pursuant to the provisions of Section 3.8(a)
hereof in accordance with Schedule 1.3(b).
(b) A certificate of the Secretary or Assistant Secretary of the Purchaser
stating that to the resolutions referred to in Section 6.2 were duly and validly
adopted, have not been modified, revoked or rescinded in any respect and are in
full force and effect on the Closing Date.
(c) The officers' certificate referred to in Section 9.2(c).
(d) The opinion of the Purchaser's counsel referred to in Section 9.2(e).
(e) An Assumption Agreement whereby the Purchaser assumes and agrees to pay
the Assumed Monetary Liabilities and assumes and agrees to perform the Assumed
Contractual Liabilities including the obligations of the Companies under the
Assumed Contracts, in form and substance reasonably satisfactory to the
Shareholder and its counsel.
(f) All other documents, instruments and writings required to be delivered
by the Purchaser to the Shareholder at the Closing pursuant to this Agreement or
otherwise required or reasonably requested in connection herewith.
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ARTICLE III
CERTAIN COVENANTS OF THE SHAREHOLDER AND THE PURCHASER
Section 3.1 Confidentiality.
(a) The Shareholder does hereby acknowledge that the Purchaser would be
irreparably damaged if Confidential Information of the business and affairs of
the Companies were disclosed or utilized on behalf of any person, firm,
corporation or other business organization after the date hereof, and, if the
transactions contemplated by this Agreement close, for a period of five (5)
years after the Closing Date (the "Restricted Period"). The Shareholder
covenants and agrees not to, and to use diligent efforts to cause its agents,
employees, affiliates or associates (collectively, "Affiliates" (as the terms
"affiliate" and "associate" are defined by the Rules and Regulations promulgated
under the Securities Act of 1933, as amended) not to, except as required in the
ordinary course of the business of the Companies prior to Closing, disclose or
use any such Confidential Information. "Confidential Information" as used herein
shall mean information disclosed by the Companies to the Shareholder, or
developed or obtained by the Shareholder before the Closing Date relating to or
concerning any of the products or processes of the Companies and the research,
development, sale, distribution, marketing, maintenance, support and licensing
of the same and the development and exploitation of proprietary rights relating
thereto, whether or not any of the foregoing are patentable or copyrightable,
including, without
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limitation, all know-how, technical information, inventions, ideas, concepts,
processes, procedures, operations, computer programs and software, research and
development plans and results, data bases, specifications, documentation,
algorithms, source codes, object codes, program listings, product platforms and
architectures, concepts, screens, formats, "look and feel" of proprietary
software, trade secrets, technology, product information, customer and supplier
lists, financial information, business and marketing plans, the practices and
methods of the Companies and marketing and other relationships between the
Companies, their customers, employees, agents, consultants and independent
contractors. Confidential Information shall not include information which (i) is
disclosed in a printed publication available to the public, is otherwise in the
public domain at the time of disclosure, or becomes publicly known through no
wrongful act on the part of the Shareholder (ii) is obtained by the Shareholder
lawfully from a third party who is believed by the Shareholder not to be under
an obligation of secrecy to the Companies or the Purchaser and is believed to
not be under any similar restrictions as to use or (iii) is generally disclosed
to third parties by the Companies or Purchaser without similar restrictions on
such third parties.
(b) The Shareholder and the Selling Companies acknowledge that the
violation by them of the foregoing covenant could not reasonably or adequately
be compensated by damages in an action at law. Therefore, in addition to any
other remedies or
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sanctions provided by law, and without limiting the right of the Purchaser or
its successors or assigns to pursue all other or legal and equitable rights
available to them, the Purchaser shall have the right during the Restricted
Period to compel specific performance hereof by the Shareholder and the Selling
Companies or to obtain temporary and permanent injunctive relief against
violations hereof by the Shareholder and the Selling Companies, and, in
furtherance thereof, to apply to any court with jurisdiction over the parties
hereto to enforce the provisions hereof.
(c) In the event the Shareholder or the Selling Companies is served with
legal process which in the opinion of its counsel requires it to disclose
Confidential Information, then it will give notice thereof to the Purchaser to
enable Purchaser to take whatever steps it deems appropriate at Purchaser's sole
cost and expense to protect the confidentiality of such Confidential
Information.
(d) In the event the transactions contemplated by this Agreement close,
then the Shareholder shall promptly request that all Confidential Information
delivered to proposed purchasers of the Companies be returned to the Shareholder
or that such proposed purchasers certify that they have destroyed the same. The
Shareholder shall deliver such information and certifications to the Purchaser
promptly after receipt of the same. In addition, the Shareholder shall assign to
Purchaser all of the
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Shareholder's rights under any confidentiality agreements which were executed by
any such proposed purchaser.
(e) At Purchaser's request, the Shareholder shall at Purchaser's expense,
but only after authorization by Purchaser, undertake all commercially reasonable
steps to obtain confidential treatment (to the extent the same may be available)
for this Agreement and all agreements, instruments and documents executed in
connection herewith, if any such agreements are required to be filed with any
securities exchange, securities regulating agency or any similar body or
organization governing the Shareholder.
Section 3.2 Restrictive Covenant.
(a) For and in consideration of the benefits to be derived, directly and
indirectly, from this Agreement and the transactions contemplated hereby, the
Shareholder covenants and agrees that for a period of three (3) years from and
after the Closing Date (the "Non-Competition Period") it shall not directly or
indirectly own, manage, operate, join, control or participate in the ownership,
management, operation or control of any business or Person engaged in the
Defined Business or any business substantially similar thereto or competitive
therewith anywhere in the world.
(b) Notwithstanding the provisions of Subsection 3.2(a), the Shareholder
shall not be prohibited from (A) the acquisition by asset purchase, stock
purchase, merger, consolidation or otherwise of the business, properties, rights
and assets of any
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corporation, partnership or other business entity (a "Person") partially engaged
in the Defined Business provided that (x) such activity does not exceed
twenty-five (25%) percent of the total revenues of such Person for the fiscal
year of such person immediately preceding the closing of such acquisition and
(y) the annual revenues of such Person from the Defined Business do not exceed
Five Million ($5,000,000) Dollars for the fiscal year of such person immediately
preceding the closing of such acquisition (if the foregoing provisions are not
satisfied, then the Shareholder shall sell or otherwise dispose of the portion
of such Person engaged in the Defined Business within one (1) year following
such acquisition); or (B) the direct or indirect ownership of not more than five
percent (5%) of any class of debt or equity security of any Person engaged in
the Defined Business provided that such security is traded on a national
securities exchange or automated quotation system. For purposes hereof "Defined
Business" shall mean the design, manufacture, sale and distribution of radio
frequency connectors and cable assemblies.
(c) The Shareholder and the Selling Companies covenant and agree that
during the Non-Competition Period, they shall not solicit, encourage or induce
any customer, supplier, agent, sales representative or Continuing Employee to
discontinue his or its business relationships with the Purchaser; provided,
however, that the foregoing shall not restrict the Shareholder or the Selling
Companies from soliciting any Continuing Employee terminated by Purchaser after
the date Purchaser gives notice of
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termination to such Continuing Employee; and provided further, however, that the
foregoing shall not apply to any employment related discussions between the
Shareholder or the Selling Companies and any Continuing Employee that are
initiated by such Continuing Employee at any time. A "Continuing Employee" shall
mean any person employed by the Companies immediately prior to the Closing Date
who accepts employment with the Purchaser; provided, however, any employee whose
employment with the Purchaser is subsequently terminated by such employee shall
not be considered a Continuing Employee three (3) months after his employment
with the Purchaser has terminated.
(d) The Shareholder and the Selling Companies covenant and agree that
Purchaser's remedy at law for any breach of this Section 3.2 is inadequate and
that, in the event of any such breach by the Shareholder or the Selling
Companies, Purchaser shall be entitled to injunctive relief, without posting
bond or other security, in addition to any other remedy at law, in equity or
under this Agreement to which it may be entitled. Without limiting the
generality of the preceding sentence, the parties acknowledge and agree that it
is impossible to measure in money all of the damages that would accrue to
Purchaser by reason of any breach of this Section 3.2. The Shareholder and the
Selling Companies waive in advance any claim or defense, in any legal proceeding
that may in the future be commenced by the Purchaser to enforce such provisions,
that Purchaser has an adequate remedy at law, and the Shareholder and the
Selling Companies agree not
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to urge in any legal proceeding that an adequate remedy at law exists.
(e) Notwithstanding anything in Section 12.3 to the contrary, this Section
3.2 is for the benefit of the Purchaser and each of its subsidiaries and
Affiliates as currently existing or as are established at any time during the
Non-Competition Period, and may be enforced by any such entity as if it had been
a named party to this Agreement.
(f) In the event that the provisions of this Section 3.2 shall be
determined by a court of competent jurisdiction to be unenforceable under
applicable laws as to that jurisdiction (the parties agreeing that such decision
shall not be binding, res judicata or collateral estoppel in any other
jurisdiction) for any reason whatsoever, then any such provision or provisions
shall not be deemed void, but the parties hereto agree that said limits may be
modified by the court and that said covenant contained in this Section 3.2 shall
be amended in accordance with said modifications, it being specifically agreed
by the Shareholder and the Purchaser that it is their continuing desire that
this covenant be enforced to the full extent of its terms and conditions or if a
court finds the scope of the covenant unenforceable, the court should redefine
the covenant so as to comply with applicable laws.
Section 3.3 Allocation of Purchase Price.
(a) Annexed hereto as Schedule 3.3 is an allocation of the Estimated
Purchase Price among the Purchased Assets and the
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restrictive covenant of the Shareholder as agreed to by the parties based upon
the Estimated Purchase Price set forth in Schedule 3.3 ("Agreed Allocation of
Estimated Purchase Price"). The Purchase Price as finally determined in
accordance with Section 1.2 shall be allocated by agreement of the parties
within thirty (30) days thereof, in accordance with the character of each such
adjustment, on a basis consistent with the Agreed Allocation of Estimated
Purchase Price (the "Final Allocation") provided, however, if they cannot so
agree, then such dispute shall be submitted to the Firm for determination as if
it were a Price Dispute.
(b) The Shareholder and the Purchaser agree to follow the Agreed Allocation
of Estimated Purchase Price and the Final Allocation, when completed, for all
purposes, including any federal, foreign, state, county or local income and
franchise tax return filed by them subsequent to the Closing Date, and including
the determination by the Shareholder and the Selling Companies of taxable gain
or loss on the sale of the Purchased Assets and the determination by the
Purchaser of its tax basis in the Purchased Assets.
(c) The Shareholder, the Selling Companies and the Purchaser each covenants
and warrants:
(i) that in no tax return hereafter filed by it, or any of its
successors or assigns, will it or any of its successors or assigns, treat
the allocation of the aggregate consideration paid hereunder for the
Purchased Assets and the
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restrictive covenant of the Shareholder inconsistently with that set forth
in this Section; and
(ii) that in no tax audit, tax examination, tax review or tax
litigation will it, or any of its successors or assigns, claim or assert
that the allocation of the aggregate consideration paid hereunder for the
Purchased Assets and the restrictive covenant of the Shareholder should be
inconsistent with that set forth in this Section; provided, however, that
the foregoing shall not be construed to prevent any of the parties from
settling with the Internal Revenue Service if it challenges the allocation
on such terms as a party may negotiate in its complete discretion.
Section 3.4 Transfer Taxes. All transfer, documentary, sales, use, stamp,
registration, value added and other such taxes and fees (including any penalties
and interest) incurred in connection with this Agreement (including any real
property transfer tax and any similar tax) shall be paid by the Purchaser when
due, and the Purchaser will, at its own expense, file all necessary tax returns
and other documentation with respect to all such taxes and fees, and, if
required by applicable law, the Companies will join in the execution of any such
tax returns and other documentation. The Purchaser shall furnish the Companies
with all required resale certificates or other exemption certificates with
respect to the Purchased Assets at or before Closing.
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Section 3.5 Execution of General Release. Intentionally omitted.
Section 3.6 Preparation of Final Tax Returns. The Shareholder shall at its
expense prepare and file all the Federal, state and local tax returns required
to be prepared for the Selling Companies' fiscal year ending December 31, 1998
and for following periods as required by law.
Section 3.7 Access to Books and Records. Purchaser and Shareholder shall
each grant the other and its representatives access to all books and records
transferred to the Purchaser, retained by the Foreign Subsidiary or retained by
the Shareholder, as the case may be, upon reasonable notice during regular
business hours and will permit the other party and its representatives to copy
the same to enable it to prepare the tax returns of the Companies, to respond to
any governmental inquiries or for other good reason. Neither party shall destroy
any of such books and records other than in accordance with its standard record
retention policy without first providing the other sixty (60) days prior written
notice of its intent to do so to enable the other party to take and preserve any
such books and records.
Section 3.8 Certain Employee Matters.
(a) On or immediately after the Closing Date, the Purchaser agrees to offer
employment to all of the Selling Companies' senior employees identified on
Schedule 3.8 (collectively, "Senior Management Employees"). The Purchaser agrees
on behalf
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of the Selling Companies to pay on the Closing Date to the persons listed on
Schedule 3.8(a) the amount due such person pursuant to the "Change in Control"
provisions of his employment agreement as set forth on Schedule 3.8(a) ("Change
in Control Payment") less applicable withholding and payroll taxes as determined
by the Shareholder, which latter amount shall be paid to the Company for deposit
by it with the applicable taxing authorities. All such payments to be made
directly to such persons shall be conditioned at the Shareholder's or
Purchaser's request upon the delivery of a release by such persons to the
Shareholder, the Selling Companies and the Purchaser in form and substance
reasonably satisfactory to them, failing which such Change in Control Payment
shall be paid instead to the Shareholder.
(b) The Purchaser shall offer continued employment to at least ninety (90%)
per cent of all of the employees of the Selling Companies including the Senior
Management Employees employed on the Closing Date. The Purchaser shall pay to
the Shareholder on the Payment Adjustment Date the aggregate amount of severance
due employees who are not offered employment by the Purchaser calculated in
accordance with the Selling Companies' severance policy as set forth in Schedule
3.8(b).
(c) If and to the extent permitted by the terms of its employee benefit
plans, the Purchaser shall offer to all of the Selling Companies' employees that
are hired by it, credit for their years of service with the Selling Companies
for eligibility
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and vesting purposes under the Purchaser's employee benefit plans.
(d) The Shareholder shall cause the Selling Companies to give all
appropriate notices to its employees by reason of the termination of their
employment by the Companies which are required under Federal, state or local law
including notices under COBRA.
(e) The Selling Companies shall pay at Closing all bonuses due their
employees through the Closing Date.
Section 3.9 Relocation of West Pearl Road Facility. At the request of the
Purchaser, the Company shall cooperate with the Purchaser at the Purchaser's
expense to prepare to remove the operations of the Company conducted and the
Purchased Assets located at the West Pearl Facility to the Purchaser's
Watertown, Connecticut facility immediately following the Closing; provided,
however, the Company shall not be obligated to take any action which would
adversely affect the operation of its business if the transactions contemplated
by this Agreement do not close. All costs and expenses incurred by the Company
in connection with such preparations which were authorized or approved by
Purchaser, including, but not limited to, employee overtime charges, shall be
borne and paid for by the Purchaser regardless of whether the transactions
contemplated by this Agreement close; provided, however, that the Shareholder
shall be responsible for all costs and expenses associated with the surrender of
the West Pearl Facility in accordance with the West Pearl Lease.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES BY THE
SHAREHOLDER WITH RESPECT TO THE COMPANIES
The Shareholder hereby represents and warrants to the Purchaser as follows:
Section 4.1 Organization, Authorization and Valid and Binding Agreement.
(a) Each of the Company and the Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the State or
Country of its incorporation and has the corporate power and authority to enter
into this Agreement, to carry out the transactions contemplated hereby, to own
and lease the properties and other assets it presently owns or leases and to
carry on its business as presently conducted.
(b) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by the
shareholders of the Selling Companies and by each of the Boards of Directors of
the Companies and the resolutions adopted by the shareholders of the Selling
Companies and by each of the Boards of Directors of the Companies evidencing
such authorization, a copy of which as certified by the Secretary or Assistant
Secretary of each of the Companies was previously delivered to the Purchaser,
were duly and validly adopted, and have not been modified, revoked or rescinded
in any respect and are in full force and effect. No other corporate proceedings
on the part of the Companies are necessary to
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authorize this Agreement, or the transactions contemplated hereby.
(c) This Agreement constitutes a valid and binding agreement of each of the
Companies enforceable against each of the Companies in accordance with its
terms.
(d) The copies of the Certificate of Incorporation, and all amendments
thereto, of each of the Companies, as certified by the Secretary of State of its
incorporation or its Secretary or Assistant Secretary, and the By-Laws, as
amended to date, of each of the Companies, a copy of which as certified by its
Secretary or Assistant Secretary was previously delivered to the Purchaser, are
true, complete and correct copies of the Certificate of Incorporation and
By-Laws of each of the Companies, as amended and presently in effect.
(e) Each of the Companies is duly licensed or qualified to do business as a
foreign corporation and is in good standing in every domestic and foreign
jurisdiction in which it is required to be so licensed or qualified except where
failure to so qualify would not have a material adverse effect on its condition
(financial or otherwise), assets, liabilities, earnings, prospects or business
("Material Adverse Effect"). A correct and complete list of such jurisdictions
is set forth in Schedule 4.1(e).
Section 4.2 Capitalization of the Foreign Subsidiary. The authorized
capital stock of the Foreign Subsidiary consists solely of 1,000,000 shares of
common stock, having a par value of
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RM 1.00 each, of which a total of 200,000 shares are outstanding. All of the
Foreign Subsidiary's shares are duly authorized, validly issued and outstanding,
fully paid and non assessable. There are no outstanding (i) options, warrants,
convertible debentures or other securities or rights to purchase or acquire any
capital stock of the Foreign Subsidiary or (ii) contracts, commitments,
agreements, understandings, arrangements or restrictions to which the Foreign
Subsidiary, the Company or the Shareholder is a party or by which any one or
more of them is bound relating to any shares of capital stock or other
securities of the Foreign Subsidiary (including the Foreign Subsidiary's
Shares). The Company owns 198,000 shares of the common stock of the Foreign
Subsidiary free and clear of all liabilities, obligations, claims, liens,
charges, pledges, encumbrances and restrictions of any kind whatsoever. The
remaining 2,000 shares of the issued and outstanding common stock of the Foreign
Subsidiary is owned by Ong ai Leng and Rizal Hafiz bin Ruslan subject to a trust
agreement in favor of the Company, a true and correct copy of which has been
delivered to the Purchaser.
Section 4.3 No Equity Investments or Subsidiaries.
(a) Except for the Domestic Subsidiary and the Foreign Subsidiary, the
Company does not own nor does it have the right to acquire any interest in any
other corporation, limited liability company, joint venture, partnership,
limited partnership or any other business organization.
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30
(b) Neither the Domestic Subsidiary nor the Foreign Subsidiary owns nor
does it have the right to acquire any interest in any other corporation, limited
liability company, joint venture, partnership, limited partnership or any other
business organization.
Section 4.4 Consents; No Violation. Except as set forth in Schedule 4.4,
neither the execution or delivery of this Agreement, the consummation of the
transactions contemplated hereby, nor the compliance with any of the provisions
hereof, (i) violates any statute or law or any rule, regulation, order, award,
judgment or decree of any court or governmental authority, affecting any of the
Companies in any way, (ii) violates or conflicts with or constitutes a default
under any contract, commitment, agreement, understanding, arrangement, trust or
restriction of any kind to which any of the Companies is a party, by which any
of them is bound or which otherwise in any way affects any of them, (iii) will
cause, or give any persons valid grounds to cause (with or without notice, the
passage of time or both), the maturity of any debt, any liability or obligation
of any of the Companies to be accelerated, or will increase any such liability
or obligation, (iv) requires any filing with, the notification of, or the
obtaining of any permit, authorization, consent or approval of any third party
or governmental or regulatory authority, foreign or domestic, or (v) violates or
conflicts with the Certificate of Incorporation or By-Laws, as amended, of any
of the Companies.
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Section 4.5 Financial Statements. (a) Annexed hereto as Schedule 4.5(a) are
the internally prepared and unaudited consolidated balance sheet of the
Companies as of December 31, 1996, December 31, 1997 and October 31, 1998
accompanied by an officer's certificate and the related internally prepared and
unaudited consolidated statements of income, stockholders' equity and cash flow
of the Companies for the years or period then ended (collectively, the
"Companies' Financial Statements"). The balance sheets included in the
Companies' Financial Statements are correct and complete and fairly present the
financial position and assets and liabilities (whether absolute or accrued) of
the Companies as of the respective dates thereof, in accordance with generally
accepted accounting principles applied on a consistent basis except (i) no
accrual for vacation pay was made, (ii) the reserve for obsolete and excess
inventory items was calculated using a method different than the method agreed
to by the parties for the purpose of determining the Closing Date Net Worth,
(iii) the accruals for Federal income tax liabilities and term loan indebtedness
do not reflect legal obligations of the Companies and (iv) there are no
footnotes to the Companies' Financial Statements except as to commitments and
contingencies with respect to the October 31, 1998 Companies' Financial
Statement, and the statements of income, stockholders' equity and cash flow
included in the Companies' Financial Statements are correct and complete and
fairly present the results of operations and changes in cash flow of the
Companies for the periods
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indicated, in accordance with generally accepted accounting principles applied
on a consistent basis except that (i) no accrual for vacation pay was made, (ii)
the reserve for obsolete and excess inventory items was calculated using a
method different than the method agreed to by the parties for the purpose of
determining the Closing Date Net Worth, (iii) corporate overhead charges and
allocations (including Federal taxes and interest) imposed by the Shareholder or
the Companies may not accurately reflect the value of the goods and services
provided by the Shareholder or the Companies or the legal obligations of the
Companies and (iv) there are no footnotes to such Financial Statements except as
to commitments and contingencies with respect to the October 31, 1998 Financial
Statement.
(b) Annexed hereto as Schedule 4.5(b) is the internally prepared and
unaudited balance sheet of the Foreign Subsidiary as of October 31, 1998
accompanied by an officer's certificate (the "Foreign Subsidiary's Reference
Balance Sheet"). The Foreign Subsidiary's Reference Balance Sheet is correct and
complete and fairly presents the financial position and assets and liabilities
(whether absolute or accrued) of the Foreign Subsidiary as of the date thereof
in accordance with generally accepted accounting principles applied on a basis
consistent with those used to prepare the Companies' Financial Statements except
that (i) no accrual for vacation pay was made, (ii) no accruals were made for
certain expenses incurred by the Company and the Domestic
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Subsidiary on behalf of the Foreign Subsidiary, (iii) there are no footnotes to
the Foreign Subsidiary's Reference Balance Sheet except as to commitments and
contingencies and (iv) all intercompany assets and liabilities are separately
identified. The Companies' Financial Statements and the Foreign Subsidiary's
Reference Balance Sheet are herein sometimes collectively referred to as the
"Financial Statements."
Section 4.6 Absence of Certain Changes. Except as and to the extent set
forth in Schedule 4.6 or as disclosed or reflected in the October 31, 1998
Financial Statements referred to in Section 4.5, since October 31, 1998, none of
the Companies has: (i) suffered any material adverse change in its working
capital, financial condition, assets, liabilities, or to the Best Knowledge of
the Shareholder, its business or prospects; (ii) experienced any material labor
relations difficulty, or suffered any material casualty loss (whether or not
insured); (iii) made any material change in its business or operations or in the
manner of conducting its business other than changes in the ordinary course of
business; (iv) incurred any obligations or liabilities (whether absolute,
accrued, contingent or otherwise and whether due or to become due), except items
incurred in the ordinary course of business and consistent with past practice,
or experienced any change in any assumptions underlying or methods of
calculating any bad debt, contingency or other reserves; (v) permitted or
allowed any of its properties or assets (whether real, personal or mixed,
tangible or intangible), to be
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mortgaged, pledged or subjected to any lien or encumbrance, except liens or
encumbrances for taxes not yet delinquent; (vi) sold, transferred or conveyed
any of its properties or assets (whether real, personal or mixed, tangible or
intangible), except in the ordinary course of business and consistent with past
practice; (vii) granted any increase in the compensation of any officer or
employee (including, without limitation, any increase pursuant to any bonus,
pension, profit sharing or other plan or commitment) or instituted or adopted
any new benefit programs, plans or other arrangements for officers or employees,
and no such increases (other than annual salary and bonus reviews) or new
programs, plans or arrangements are customary on a periodic basis or required by
agreement or understanding; (viii) made any pension, retirement, profit-sharing,
bonus or other employee welfare or benefit payment except in the ordinary course
of business consistent with past practices; (ix) declared, paid or made or set
aside for payment or making, any dividends or other distribution in respect of
its capital stock or other securities, or directly or indirectly redeemed,
purchased or otherwise acquired any of its capital stock or other securities;
(x) made any material change in any method of accounting or accounting practice;
(xi) paid, loaned or advanced any amount to or in respect of, or sold,
transferred or leased any properties or assets (whether real, personal or mixed,
tangible or intangible) to, or entered into any agreement, arrangement or
transaction with, the Shareholder, any of the officers or
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directors of the Companies, or any Affiliate thereof; (xii) subdivided or in any
way reclassified any shares of its capital stock; (xiii) released or waived any
material right; or (xv) agreed, whether in writing or otherwise, to take any
action described in this Section 4.6. For purposes of this Agreement "Best
Knowledge of the Shareholder" or "Knowledge of the Shareholder" or words of
similar import shall mean actual knowledge of the Shareholder after due inquiry
is made by the Shareholder of the persons and firms listed on Schedule 4.6-1 and
the books and records of the Companies.
Section 4.7 Certain Tax Matters.
(a) Each of the Companies has duly filed all Tax Returns required to be
filed by it. All such Tax Returns are true, correct and complete, and each of
the Companies has duly paid or made provision for the payment of all Taxes which
are shown to be due and payable on such Tax Returns. True and correct copies of
all Tax Returns for all periods with respect to which the assessment or
collection of tax by the applicable taxing authority is not barred by the
applicable statute of limitations have previously been delivered or made
available to the Purchaser. Since October 31, 1998, none of the Companies has
incurred any liabilities for Taxes other than in the ordinary course of
business. There are no liens with respect to Taxes (other than liens with
respect to personal property taxes and real property taxes not yet delinquent)
upon any of the properties or assets, real, personal or mixed, tangible or
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intangible, of the Companies. To the Best Knowledge of the Shareholder, except
as accurately and completely described in Schedule 4.7, there are no pending
questions relating to, nor claims asserted for, Taxes against any of the
Companies, and, to the Best of the Shareholder's Knowledge, there is no valid
basis for any such question or claim. Except as set forth in Schedule 4.7, none
of the Companies has granted any extension of the limitation period applicable
to any claim for Taxes for any period.
(b) Each of the Companies has withheld from its employees and any other
applicable payees (and timely paid to the appropriate governmental entity)
proper and accurate amounts for all periods through the date hereof in
compliance with all tax withholding provisions of applicable federal, state,
local and foreign laws (including, without limitation, income, social security
and employment tax withholding for all types of compensation, and withholding on
payments to non-United States persons).
(c) For purposes of this Agreement, (i) "Taxes" means all taxes, however
denominated, including any interest, penalties or additions to tax that may
become payable in respect thereof, imposed by any federal, state, local or
foreign government or any agency or political sub division of any such
government, which taxes shall include, without limiting the generality of the
foregoing, all income taxes (including, but not limited to, United States
federal income taxes and state income taxes),
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payroll, employee and other withholding taxes, unemployment insurance, social
security, sales and use taxes, excise taxes, franchise taxes, net worth taxes,
gross receipts taxes, occupation taxes, real and personal property taxes, stamp
taxes, transfer taxes, workers' compensation and other obligations of the same
or of a similar nature whether arising before, on or after the Closing Date, and
(ii) "Tax Returns" means all reports, elections, estimates, information
statements and returns relating to, or required to be filed in connection with,
any Taxes pursuant to the statutes, rules and regulations of any Federal, state,
local or foreign government taxing authority.
Section 4.8 Title to Properties; Encumbrances; Sufficiency of Property.
(a) Other than with respect to the Companies' intellectual property rights
as to which representations are made in Section 4.11 hereof and except as set
forth in Schedule 4.8(a), each of the Companies has good title to all of its
respective properties and assets, real, personal and mixed, tangible and
intangible, including, without limitation, all the properties and assets
reflected in the October 31, 1998 Financial Statements (except assets collected,
consumed or disposed of since October 31, 1998 in the ordinary course of
business and consistent with past practice). None of such properties or assets
(or any other properties or assets used in the business of the Companies) are
subject to any mortgage, pledge, lien, security interest, conditional sale
agreement, encumbrance or charge of any kind,
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except (i) liens set forth on Schedule 4.8(a), (ii) liens shown on the October
31, 1998 Financial Statements (iii) liens in favor of First Union National Bank,
N.A. (successor to First Union Bank of Connecticut) for itself and as agent for
Fleet National Bank (the "Bank") and (iv) liens for current taxes not yet
delinquent and taxes for which adequate provision is made in the Reference
Balance Sheet.
(b) None of the Companies owns any real property.
(c) Except as set forth on Schedule 4.8(c), the Purchased Assets constitute
all of the assets necessary to enable Purchaser to operate the Defined Business
as a going concern in substantially the same manner as such Defined Business has
heretofore been conducted by the Companies.
(d) The Companies conduct the Defined Business on parcels of real property
including, without limitation, their soils, surface and ground waters and
buildings (collectively, the "Real Property") that are leased by the Companies,
which are described in Schedule 4.8(a); the Companies have no other branches or
representative offices. Except as described in Schedule 4.8(a), no party other
than the Companies holds any lease, license or other right to own or occupy any
of the Real Property.
(e) To the Best Knowledge of the Shareholder, no defect or condition of the
Real Property or the soil or geology of such property exists which will impair
its current or planned use. To the Best Knowledge of the Shareholder, the
buildings on the Real Property do not contain any friable asbestos and, except
as set
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forth on Schedule 4.8(e), there are no underground storage tanks located on the
Real Property.
(f) No notice of violation of the applicable laws or of any covenant,
condition, restriction or easement affecting the Real Property or its use or
occupancy has been received by the Companies from any governmental entity or
other person entitled to enforce the same.
(g) No written notice has been received by the Companies as to any plan,
study, or effort by any governmental entity which may adversely affect the
current or planned use of the Real Property.
(h) No notice has been received by the Companies as to any:
(i) public improvement that may involve an assessment being levied, or
which may result in the creation of a lien on the Real Property;
(ii) intended or proposed law (including, but not limited to, zoning
changes or variances) that may adversely affect the current or planned use
or occupancy of the Real Property, or
(iii) suit, action, claim, or legal, administrative, or other
proceeding or investigation or remediation pending, threatened or
contemplated, affecting or arising in connection with the Real Property.
(i) No written notice has been received by the Companies that there is any
existing or contemplated plan to construct, modify or realign any street,
highway, power lines, or pipelines
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or any proposed or eminent domain proceeding, which would result in the taking
of any part of the Real Property, or would adversely affect its current or
planned use.
(j) No written notice has been received by the Companies that there are
encroachments from the Real Property of any improvements on to any adjoining
property or on to the Real Property from any adjoining property.
(k) No written notice has been received by the Companies that the present
conduct of the Defined Business and the ownership, occupancy, use and operation
of the Real Property violates any deed, lease or applicable zoning, city
planning and building statutes, laws, ordinances, rules and regulations.
Section 4.9 Leasehold Improvements, Machinery, Equipment and Furniture.
Except as set forth in Schedule 4.9, all leasehold improvements, machinery,
equipment and furniture owned or leased by the Companies and which are currently
used are structurally sound with no material defects, in good operating
condition and repair (ordinary wear and tear excepted) and usable in the
ordinary course of business. None of the Companies has received notification
that it is in material violation of any applicable building, zoning,
environmental, health, safety or other law, ordinance or regulation in respect
of any of its assets or their operation, which violation remains uncured, and,
to the Best Knowledge of the Shareholder, no such material violation exists.
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Section 4.10 Computer Programs, Databases and Software. Schedule 4.10
accurately identifies all significant computer programs (other than standard
packaged software for personal computers) owned or licensed by any of the
Companies and currently used in connection with the operation of the Defined
Business of the Companies. Except as noted on Schedule 4.10, to the Best
Knowledge of the Shareholder, such programs are Year 2000 Compliant. For
purposes of this Agreement, "Year 2000 Compliant" shall mean that data using
dates later than December 31, 1999 will be correctly processed in any level of
computer hardware or software including, but not limited to, embedded hardware,
microcode, firmware, application programs, files and databases. Except as
described in Schedule 4.10, all of the Purchased Assets, and all of the products
and services currently being manufactured or provided by the Companies, are Year
2000 Compliant.
Section 4.11 Patents, Trademarks, Copyrights. Schedule 4.11 identifies each
patent, trademark and copyright owned by any of the Companies (collectively, the
"Registerable Intellectual Property Rights"). Except for the lien of the Bank,
each of the Companies has good title to, and is the sole owner of, its
respective Registerable Intellectual Property Rights free and clear of all
liens, claims and encumbrances. Except as set forth in Schedule 4.11-1, none of
the Companies has any pending application for any Registerable Intellectual
Property Rights (collectively, the "Pending Intellectual Property Rights
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Applications"). None of the Companies licenses any of its intellectual property
rights to others, and, except for software licenses, none of the Companies
licenses intellectual property rights owned by others. Except as set forth in
Schedule 4.11, no party has claimed or asserted or, to the Best Knowledge of the
Shareholder, threatened that any of the Products, nor any processes, methods,
designs, formulae, know-how, trade secrets, proprietary information, trademarks,
service marks, trade dress, trade styles, logos, trade names, assumed names,
copyrights, or designations used by any of the Companies, infringe any patents,
trademarks, copyrights, confidential or proprietary rights or any other rights,
of another. None of the Companies have covenanted not to assert against any
third party any rights relating to the intellectual property used or held for
use in the Defined Business. None of the intellectual property rights owned by
the Companies has been declared invalid or is the subject of a pending or, to
the Knowledge of the Shareholder, threatened action for cancellation or a
declaration of invalidity, or opposition proceeding, nor to the Best of the
Shareholder's Knowledge is there any basis upon which such a claim or challenge
could be made, and there is no pending judicial proceeding involving any claim,
and, except as set forth on Schedule 4.11, to the Best of the Shareholder's
Knowledge, neither the Companies nor any of their Affiliates has received
written notice or claim of any infringement, misuse or misappropriation of any
patent, trademark, trade name, copyright, license or similar intellectual
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property right owned by any third party. All maintenance, renewal or other
similar fees currently due and required by the applicable governmental entity to
maintain in effect all the Companies' registered intellectual property rights
have been paid, and no such fee or any fine is due with respect thereto.
Section 4.12 Litigation.
Except as set forth in Schedule 4.12, there is no claim, action, suit,
proceeding or investigation pending or, to Best Knowledge of the Shareholder,
threatened against or affecting any of the Companies or the transactions
contemplated hereby.
Section 4.13 Insurance. Schedule 4.13 sets forth a complete and accurate
list of all policies (including their respective expiration dates) of fire,
liability, product liability, workmen's compensation, health, title and other
forms of insurance presently in effect with respect to the Companies. All such
policies (i) are valid, outstanding and enforceable policies and (ii) will
remain in full force and effect at least through the respective dates set forth
in Schedule 4.13 or the Closing Date, whichever is earlier, without the payment
of additional premiums other than additional premiums in the ordinary course
prior to Closing.
Section 4.14 Employee Benefit Plans.
(a) Definitions.
(1) Benefit Arrangement. "Benefit Arrangement" shall mean any
employment, consulting, severance or other similar contract, arrangement,
policy or plan and each plan, arrangement
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(written or oral), program, agreement or commitment providing for insurance
coverage (including any self-insured arrangements), workers' compensation,
disability benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits, life, health or accident benefits (including, without
limitation, any "voluntary employees' beneficiary association" as defined
in Section 501(c)(9) of the Internal Revenue Code of 1986, as amended (the
"Code") providing for the same or other benefits) or for deferred
compensation, profit-sharing bonuses, stock options, stock appreciation
rights, stock purchases or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which (A) is not a
Welfare Plan, Pension Plan or Multiemployer Plan, (B) is, or within the
prior five years was, entered into, maintained, contributed to or required
to be contributed to by any of the Companies, an ERISA Affiliate, or any
predecessor thereof, or under which any of the Companies, or any ERISA
Affiliate, may incur any liability, and (C) covers or covered any employee
or former employee, independent contractor or former independent
contractor, officer, director or agent of any of the Companies, or any
ERISA Affiliate.
(2) Employee Plans. "Employee Plans" shall mean collectively all
Benefit Arrangements, Multiemployer Plans, Pension Plans and Welfare Plans.
(3) ERISA. "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
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(4) ERISA Affiliate. "ERISA Affiliate" shall mean (A) any entity which
is (or at any relevant time was) a member of a "controlled group of
corporations" with or under "common control" with the Company as defined in
Section 414(b) or (c) of the Code, or (B) any entity which is (or at any
relevant time was) a member of an "affiliated service group" (as such term
is defined in Section 414(m) of the Code) which includes the Companies.
(5) Multiemployer Plan. "Multiemployer Plan" shall mean any
"multiemployer plan," as defined in Section 4001(a)(3) of ERISA (A) which
any of the Companies or any ERISA Affiliate maintains, administers,
contributes to or is required to contribute to, or, after September 25,
1980, maintained, administered, contributed to or was required to
contribute to, or under which any of the Companies, or any ERISA Affiliate,
may incur any liability and (B) which covers any employee or former
employee, officer, director or agent of the Company or any ERISA Affiliate.
(6) PBGC. "PBGC" shall mean the Pension Benefit Guaranty Corporation.
(7) Pension Plan. "Pension Plan" shall mean any "employee pension
benefit plan" as defined in Section 3(2) of ERISA (other than a
Multiemployer Plan) (A) which is or was maintained, administered,
contributed to or required to be contributed to, by any of the Companies,
any ERISA Affiliate or any predecessor thereof or under which any of the
Companies, or any ERISA Affiliate, may incur any liability and (B) which
covers
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or covered any employee or former employee, officer, director or agent of
any of the Companies, any ERISA Affiliate or any predecessor thereof.
(8) Welfare Plan. "Welfare Plan" shall mean any "employee welfare
benefit plan" as defined in Section 3(1) of ERISA (A) which any of the
Companies, or any ERISA Affiliate, maintains, administers, contributes to
or is required to contribute to, or under which the Company, or any ERISA
Affiliate, may incur any liability and (B) which covers any employee or
former employee, independent contractor or former independent contractor,
officer, director, or agent of any of the Companies or any ERISA Affiliate.
(b) Disclosure; Delivery of Copies of Relevant Documents and Other
Information. Schedule 4.14(b) contains a complete list of Employee Plans. True
and complete copies of each of the following documents have heretofore been
delivered or made available by the Companies to Purchaser: (i) each Welfare
Plan, Pension Plan and Multiemployer Plan (and, if applicable, related trust,
funding and investment agreements) and all amendments thereto, all written
interpretations thereof and written descriptions thereof which have been
distributed to the Companies', or any ERISA Affiliate's, employees and all
annuity contracts or other funding instruments, (ii) each Benefit Arrangement
(and, if applicable, related trust, funding or investment agreement), including
written interpretations thereof and written descriptions thereof which have been
distributed to
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the Companies', or any ERISA Affiliate's, employees (including descriptions of
the number and level of employees covered thereby) and a complete description of
any such Benefit Arrangement which is not in writing, (iii) the most recent
determination letter issued by the Internal Revenue Service with respect to each
Pension Plan, (iv) for the three most recent plan years, Annual Reports on Form
5500 Series required to be filed with any governmental agency for each Pension
Plan, (v) all actuarial reports prepared for the last three plan years for each
Pension Plan, (vi) a description of complete age, salary, service and related
data as of the last day of the last fiscal year for employees and former
employees of the Companies and each ERISA Affiliate, and (vii) a description
setting forth the amount of any liability of any of the Companies as of the
Closing Date for payments more than thirty days past due with respect to each
Welfare Plan.
(c) Representations and Warranties. Except as set forth in Schedule
4.14(c):
(1) Pension Plans.
(A) No Pension Plan is or has ever been subject to (A) the
minimum funding requirements of ERISA or the Code or (B) Title IV of
ERISA. None of the Companies nor any ERISA Affiliate has, or will as
of the Closing Date have, any liability for unpaid contributions with
respect to any Pension Plan.
(B) Each Pension Plan which is intended to be a tax-qualified
plan as described in Section 401(a) of the Code,
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and each related trust agreement, annuity contract or other funding
instrument, has been established and operated so as to be qualified
and tax-exempt under the provisions of Code Sections 401(a) (or
403(a), as appropriate) and 501(a) from its adoption to date. To the
Best Knowledge of the Shareholder, nothing has occurred or, in
connection with the transaction contemplated by this Agreement, will
occur, that could adversely affect the qualified status of any such
Pension Plan.
(C) Each Pension Plan and each related trust, funding or
investment agreement, annuity contract or other funding instrument
presently complies and has been maintained in compliance with its
terms and, both as to form and in operation, in all material respects
with the requirements prescribed by any and all statutes, orders,
rules and regulations which are applicable to such plans, including
but not limited to ERISA and the Code.
(D) None of the Companies, nor any ERISA Affiliate, has engaged
in, or is a successor or parent corporation to, an entity that has
engaged in a transaction described in Section 406 of ERISA.
(2) Multiemployer Plans.
None of the Companies, any ERISA Affiliate nor any predecessor thereof
has, at any time, been a party to or withdrawn from a Multiemployer Plan in
a "complete withdrawal" or a "partial withdrawal" as defined in Sections
4203 and 4205 of ERISA, respectively.
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(3) Welfare Plans.
(A) Each Welfare Plan has been maintained in material compliance
with its terms and, both as to form and operation, with the
requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such Welfare Plan, including but
not limited to ERISA and the Code.
(B) None of the Companies, any ERISA Affiliate or any Welfare
Plan has any present or future obligation to make any payment pursuant
to any retiree medical benefit plan or other retiree Welfare Plan.
(C) Each Welfare Plan which is a "group health plan," as defined
in Section 607(1) of ERISA, has been operated in material compliance
with the provisions of Part 6 of Title I of ERISA and Sections 162(l)
and 4980B of the Code at all times.
(4) Benefit Arrangements. Each Benefit Arrangement has been
maintained, in all material respects, in compliance with its terms and with
the requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such Benefit Arrangement, including but
not limited to ERISA and the Code.
(5) Effect of Transaction. The execution of and performance of the
transactions contemplated by this Agreement will not constitute an event
under any Employee Plan or agreement that will result in any payment
(whether severance pay or otherwise), acceleration, vesting or increase of
benefits with
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respect to any employee, former employee, independent contractor or former
independent contractor, officer, director or agent of any of the Companies
or any ERISA Affiliate.
(6) Unrelated Business Taxable Income. No Employee Plan (or trust or
other funding vehicle pursuant thereto) is subject to any tax under Code
Section 511.
(7) Deductibility of Payments. There is no contract, agreement, plan
or arrangement covering any employee or former employee of any of the
Companies, or any ERISA Affiliate, that, individually or collectively,
provides for the payment by any of the Companies, or any ERISA Affiliate,
of any amount (i) that is not deductible under Section 162(a)(1) or 404 of
the Code or (ii) on account of a change in ownership or effective control
as described in Section 280G of the Code.
(8) Fiduciary Duties and Prohibited Transactions. None of the
Companies, any ERISA Affiliate, nor any plan fiduciary of any Welfare Plan
or Pension Plan has engaged in or, in connection with the transaction
contemplated by this Agreement, to the Best Knowledge of the Shareholder,
will engage in, any transaction in violation of Sections 404 or 406 of
ERISA or any "prohibited transaction," as defined in Section 4975(c)(1) of
the Code, for which no exemption exists under Section 408 of ERISA or
Section 4975(c)(2) or (d) of the Code.
(9) Validity and Enforceability. Each Welfare Plan, Pension Plan,
related trust agreement, annuity contract or other
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funding instrument and Benefit Arrangement is legally valid and binding and
in full force and effect.
(10) Litigation. None of the Companies, any ERISA Affiliate nor any
Employee Plan of the Company or of any ERISA Affiliate is a party to any
litigation relating to or seeking benefits under any Employee Plan, nor, to
the Best Knowledge of the Shareholder, do there exist any facts or events
which could form the basis for any such litigation.
(11) No Amendments. None of the Companies, nor any ERISA Affiliate,
has any announced plan or legally binding commitment to create any
additional Employee Plans or to amend or modify any existing Employee Plan.
(12) No Other Material Liability. To the Best Knowledge of the
Shareholder, no event has occurred in connection with which any of the
Companies or any ERISA Affiliate or any Employee Plan, directly or
indirectly, could be subject to any material liability (i) under any
statute, regulation or governmental order relating to any Employee Plans or
(ii) pursuant to any obligation of any of the Companies or any ERISA
Affiliate to indemnify any person against liability incurred under any
statute, regulation or order as they relate to the Employee Plans.
Section 4.15 Bank Accounts. Schedule 4.15 sets forth the names and
locations of all banks in which each of the Companies has an account or safe
deposit box and the names of all persons authorized to draw thereon or to have
access thereto. All cash
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and cash equivalents to be listed on the Closing Date Balance Sheet will be
deposited in said accounts and safe deposit boxes.
Section 4.16 Contracts and Commitments.
(a) Schedule 4.16(a) sets forth a true and complete list of all Material
Contracts, judgment, orders or decrees by which any of the Companies or its
assets or its employees are bound. A "Material Contract" shall mean (whether
written or oral) (i) any contract involving the payment of more than Fifty
Thousand ($50,000) Dollars in the aggregate, (ii) any contract which restricts
or limits in any way the manner in which any of the Companies conducts its
business or uses its assets (other than restrictions regarding the use of assets
leased by the Companies which are contained in those leases) or restricts or
limits the activities of any of its employees, (iii) any license to or by any of
the Companies of intellectual property rights (other than standard software
licenses associated with commercial off the shelf software used by the
Companies), (iv) any lease of real property, (v) any lease of personal property
whose remaining term exceeds one (1) year or which may require the payment of
more than twenty-five thousand ($25,000) dollars during the remaining term
thereof, (vi) any sales, representative, sales agency, dealership, distribution,
marketing, advertising or similar contract, (vii) any contract whose remaining
term exceeds one (1) year or which may require the payment of money or the
delivery of products or services the aggregate value of which will or may
reasonably be expected to exceed Fifty Thousand ($50,000) Dollars
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during the remaining term thereof, (viii) any employment or consulting contract,
(ix) any contract with a labor union, (x) any note, guaranty or other instrument
issued to a creditor of any of the Companies and any agreement executed in
connection therewith, and (xi) any contracts with or other arrangements with
Affiliates. Except as set forth in Schedule 4.16(a), the legal enforceability
after the Closing Date by the Companies or any of them of any Material Contract
will not be affected in any manner by the execution and delivery of this
Agreement, nor by the consummation of the transactions contemplated hereby and
thereby.
(b) Except as set forth in Schedule 4.16(b), none of the Companies is in
default, and, to the Best Knowledge of the Shareholder, no other party is in
default and there is no basis for any valid claim of default against the
Companies, in any material respect under any Material Contract.
(c) To the Best Knowledge of the Shareholder no contract or bids were bid
at a loss. No progress payments or deposits have been received by the Companies
with respect to any Material Contract.
Section 4.17 Labor Relations.
(a) Except as and to the extent set forth in Schedule 4.17: (i) no
collective bargaining agreement presently covers (nor has any, in the past,
covered) any employees of any of the Companies, nor is any currently being
negotiated by any of the Companies; (ii) each of the Companies is in material
compliance with all federal, state and local laws, including, without
limitation, the
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rules and regulations of the Department of Labor and the Office of Federal
Contract Compliance Programs, respecting employment and employment practices,
terms and conditions of employment and wages and hours, and are not engaged in
any unfair labor practice; (iii) there is no unfair labor practice complaint
against any of the Companies pending or, to the Best Knowledge of the
Shareholder, threatened before the National Labor Relations Board; (iv) there is
no labor strike, dispute, slowdown or stoppage actually pending or, to the Best
Knowledge of the Shareholder, threatened against or involving any of the
Companies; (v) no attempt to organize any group or all of the employees of any
of the Companies has been made or proposed in the past three (3) years; (vi) no
charges with respect to or relating to any of the Companies are pending before
the Equal Employment Opportunity Commission or any state, local or foreign
agency responsible for the prevention of unlawful practices; (vii) none of the
Companies has received notice of the intent of any federal, state, local or
foreign agency responsible for the enforcement of labor or employment laws to
conduct an investigation of or relating to any of the Companies and no such
investigation is in progress; (viii) no private agreement restricts any of the
Companies from relocating, closing or terminating any of its operations or
facilities; and (ix) none of the Companies has in the past three (3) years
experienced any work stoppage or other labor difficulty or committed any unfair
labor practice.
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(b) The employee policy manual heretofore delivered to the Purchaser
contains all material current employee policies which have been communicated to
the employees of the Companies and/or by which the Companies are bound.
(c) Annexed hereto as Schedule 4.17(c) is a list as of a recent date of the
employees of the Companies and their date of hire.
Section 4.18 Compliance with Applicable Law.
(a) Except as set forth in Schedule 4.18(a), none of the Companies has in
the past been, nor is it presently, in material violation of, except violations
which have been waived or cured and which have not recurred and with respect to
which there is no ongoing liability, in respect of its operations, real
property, intellectual property, equipment and all other aspects of its
businesses, any applicable law (whether statutory or otherwise), rule,
regulation, order, ordinance, judgment or decree of any governmental authority
(federal, state, local or otherwise) (collectively, "Laws"), including but not
limited to the Federal Occupational Safety and Health Act, the Worker Adjustment
Retraining and Notification Act, the Americans With Disabilities Act, the
Foreign Corrupt Practices Act and ERISA.
(b) Except as described in Schedule 4.18(b), none of the Companies has
received any notification of any asserted present or past material failure of it
to comply with any of such Laws, except failures of compliance which have been
waived or cured and
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which have not recurred and with respect to which there is no ongoing liability.
Section 4.19 Environmental Matters.
(a) Definitions.
(1) "Environmental Proceedings" means any and all administrative,
regulatory or judicial actions, orders, suits, demands, demand letters,
claims, liens, notices of noncompliance or violation, investigations or
proceedings relating to any Environmental Law or Environmental Permit or
Hazardous Substance, including, without limitation, (A) any and all
Environmental Proceedings 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
Environmental Proceedings by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting
from Hazardous Substances or arising from alleged injury or threat of
injury to the environment.
(2) "Environmental Laws" means collectively any federal, state, or
local statute, law, rule, regulation, ordinance, code, policy or rule of
common law 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 or Hazardous Substances, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability
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Act of 1980, as amended by the Super-Fund Amendments and Reauthorization
Act of 1986, 42 U.S.C. 9601 et seq.; the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. 11001 et seq.; the Resource Conservation and
Recovery Act, 42 U.S.C. 6901 et seq.; the Federal Water Pollution Control
Act, 33 U.S.C. 1251 et seq.; the Clean Air Act, as amended, 42 U.S.C. 7401
et seq.; the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.
136 et seq.; the Safe Drinking Water Act, 42 U.S.C. 300f et seq.; the Toxic
Substances Control Act, 15 U.S.C. 2601 et seq.; the Oil Pollution Act of
1990, 33 U.S.C. 1001 et seq.; or the Hazardous Materials Transportation
Act, as amended, 49 U.S.C. 1801 et seq.; and the corresponding state laws,
regulations and local ordinances, etc. which may be applicable, as any such
laws, rules, regulations, etc. have been be amended.
(3) "Environmental Permits" means collectively all permits, approvals,
identification numbers, licenses and other authorizations required under
any applicable Environmental Law.
(4) "Hazardous Substances" means collectively (A) any chemicals,
materials or substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes", "toxic
substances," "toxic pollutants," "hazardous air pollutants," "pollutants,"
"contaminants," "toxic chemicals," "petroleum or petroleum products,"
"toxics," "hazardous chemicals," "extremely hazardous substances,"
"pesticides," "polychlorinated biphenyls" or related materials,
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as now or in the past defined in any applicable Environmental Law; (B) any
petroleum or petroleum products, natural or synthetic gas, radioactive
materials, asbestos-containing materials, urea formaldehyde foam insulation
and radon; and (C) any other chemical, material or substance exposure to
which is prohibited, limited or regulated by any governmental authority.
(b) (i) None of the Companies has violated nor is it in violation of any
applicable Environmental Law in any material respect; (ii) each of the Companies
has all Environmental Permits necessary to conduct its business and is in
compliance with their requirements; (iii) to the Best Knowledge of the
Shareholder, none of the properties currently or formerly owned, leased or used
by any of the Companies (including, without limitation, soils, surface and
ground waters and buildings) is contaminated with any Hazardous Substances as
the result of any action or omission of any of the Companies; and (iv) there are
no past, pending or threatened Environmental Proceedings against any of the
Companies and, to the Best Knowledge of the Shareholder, there exists no
circumstances that could reasonably be anticipated to form the basis thereof
against any of the Companies.
Section 4.20 Inventory. Except as set forth on Schedule 4.20, all inventory
received by the Companies and on hand at the date hereof has passed all required
testing specifications and receiving inspections under applicable contracts.
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Section 4.21 Accounts Receivable. Schedule 4.21 is a list of all accounts
receivable of the Companies as of a recent date. All such accounts receivable
arose from bona fide transactions in the ordinary course of business consistent
with past practice, are the valid and legally binding obligations of the persons
obligated to pay such accounts receivable, and are, to the Best Knowledge of the
Shareholder, subject to no material defense, counterclaim, set-off, reduction or
condition. There are no guarantees and other enhancements issued in favor of any
of the Companies with respect to its accounts receivable by parties other than
the account debtor.
Section 4.22 Certain Interests. Except as set forth on Schedule 4.22, no
Affiliate of the Companies, nor any officer or director of any of the Companies'
or any Affiliate thereof, has any material interest in any property used in or
pertaining to the Companies; no such person is indebted or otherwise obligated
to the Companies; and the Companies are not indebted or otherwise obligated to
any such person, except for amounts due under normal arrangements applicable to
all employees generally as to salary or reimbursement of ordinary business
expenses not unusual in amount or significance. Except as provided in Section
3.8, the consummation of the transactions contemplated by this Agreement will
not (either alone, or upon the occurrence of any act or event, or with the lapse
of time, or both) result in any benefit or payment (severance or other) arising
or becoming due from the
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Companies or the successor or assign of any thereof to any person.
Section 4.23 Intercompany Transactions. Except as set forth on Schedule
4.23 and except for intercompany transactions permitted by the provisions of
Section 7.1 hereof, (i) the Companies have not engaged in any transaction with
the Shareholder or any Affiliate thereof, (ii) the Companies have no liabilities
or obligations to the Shareholder or any Affiliate thereof and (iii) neither the
Shareholder nor any Affiliate thereof has any obligations to the Companies.
Except as set forth on Schedule 4.23 or as otherwise expressly provided for in
this Agreement, the consummation of the transactions contemplated by this
Agreement will not (either alone, or upon the occurrence of any act or event, or
with the lapse of time, or both) result in any payment arising or becoming due
from the Companies or the successor or assign of any thereof to the Shareholder
or any Affiliate thereof.
Section 4.24 Product Warranty; Product Liability. Except as set forth on
Schedule 4.24 or provided for in the Financial Statements, the Companies have
not committed any act, and there has been no omission by the Companies, which
may reasonably be expected to result in, and there has been no occurrence
relating to any product or service of the Companies which may reasonably be
expected to result in, product liability or liability for breach of warranty
(whether covered by insurance or not) on the part of the Companies, with respect
to products designed,
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manufactured, assembled, repaired, maintained, delivered or installed or
services rendered prior to or on the Closing Date.
Section 4.25 Backlog. Schedule 4.25 sets forth the backlog of the Companies
as of a recent date.
Section 4.26 Certain Payments. None of the Companies nor any director,
officer, agent or employee thereof, nor any other person associated with or
acting for or on behalf of the Companies, has indirectly or directly (A) made
any contribution, gift, bribe, rebate, payoff, influence payment, kickback or
other payment to any person, private or public, regardless of form, whether in
money, property or services (i) to obtain favorable treatment in securing
business; (ii) to pay for favorable treatment for business secured; (iii) to
obtain special concessions or for special concessions already obtained for or in
respect of the Companies; or (iv) in violation of any applicable law; or (B)
established or maintained any fund or asset that has not been recorded in the
books and records of the Companies.
Section 4.27 Books and Records. Except as set forth in Schedule 4.27, the
Companies have none of their records, systems, data or information recorded,
stored, maintained, operated or otherwise wholly or partly dependent upon or
held by any means (including any electronic, mechanical or photographic process,
whether computerized or not) which (including all means of access thereto and
therefrom) are not under the exclusive ownership and direct control of the
Companies. The books of the Companies are complete and correct in all material
respects, and all material
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transactions involving the business of the Companies have been in all material
respects accurately set forth in such books and records. The Companies have
retained all business records in accordance with all applicable Laws.
Section 4.28 Government Contracts and Foreign Government Contracts. The
Companies have no government contracts or foreign government contracts.
Section 4.29 Customer Furnished Assets. Schedule 4.29 identifies by
description or inventory number all personal property, equipment and fixtures
loaned, bailed or otherwise furnished to the Companies by or on behalf of any
customer that are or should be in the possession of the Companies (collectively,
the "Customer Furnished Items"). Schedule 4.29 identifies each government
contract or other executory contract pursuant to which each such Customer
Furnished Item is furnished. The Companies have complied in all material
respects with all of its obligations relating to the Customer Furnished Items,
and, upon the return thereof to the customer who provided such Customer
Furnished Item in the condition thereof on the date hereof, the Companies would
have no material liability with respect thereto.
Section 4.30 Disclosure.
(a) No representation or warranty to the Purchaser contained in this
Agreement, and no statement contained in the Schedules hereto or any certificate
furnished to the Purchaser pursuant to the provisions hereof, contains any
untrue statement
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of a material fact or omits to state a material fact necessary in order to make
the statements herein or therein not misleading.
(b) Any matter disclosed on a schedule annexed hereto shall be deemed
incorporated by reference and disclosed in all other schedules annexed hereto
whether or not explicitly cross referenced.
Section 4.31 Future Compliance.
(a) From and after the date hereof and through the Closing Date, the
Shareholder will use diligent efforts to cause each of the Companies to take all
action necessary and will not take any action nor permit any inaction by any of
the Companies which would cause any of the representations, warranties,
covenants and/or agreements set forth in this Agreement to be untrue, incorrect
or unsatisfied in any particular.
(b) Each representation and warranty set forth in this Agreement shall be
true on and as of the Closing Date as though such representation and warranty
was made again on and as of such time without exception for changes occurring in
the ordinary course of business except as otherwise specifically permitted or
contemplated by any such representation or warranty hereunder and provided such
changes either individually or in the aggregate have not had a Material Adverse
Effect.
(c) The Shareholder shall deliver updated Schedules to the Purchaser three
(3) business days prior to the Closing Date.
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ARTICLE V
FURTHER REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
The Shareholder further represents and warrants to the Purchaser as
follows:
Section 5.1 Authorization and Valid and Binding Agreement.
(a) The Shareholder is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has the corporate
power and authority to enter into this Agreement, to carry out the transactions
contemplated hereby, to own and lease the properties and other assets it
presently owns or leases and to carry on its business as presently conducted.
(b) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by the Board of
Directors of the Shareholder and the resolutions adopted by the Board of
Directors of the Shareholder evidencing such authorization, a copy of which as
certified by the Secretary or Assistant Secretary of the Shareholder has been
previously delivered to the Purchaser, were duly and validly adopted, and have
not been modified, revoked or rescinded in any respect and are in full force and
effect. No other corporate proceedings on the part of the Shareholder are
necessary to authorize this Agreement, or the transactions contemplated hereby.
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(c) This Agreement constitutes a valid and binding agreement of the
Shareholder enforceable against the Shareholder in accordance with its terms.
(d) The copy of the Certificate of Incorporation, and all amendments
thereto, of the Shareholder, as certified by the Secretary of State of the State
of Delaware, and the By-Laws, as amended to date, of the Shareholder, as
certified by its Secretary or Assistant Secretary previously delivered to the
Purchaser are true, complete and correct copies of the Certificate of
Incorporation and By-Laws of the Shareholder, as amended and presently in
effect.
Section 5.2 Consents; No Violation. Except as set forth in Schedule 5.2,
neither the execution or delivery of this Agreement, the consummation of the
transactions contemplated hereby, nor the compliance with any of the provisions
hereof, (i) violates any statute or law or any rule, regulation, order, award,
judgment or decree of any court or governmental authority, affecting the
Shareholder in any way, (ii) violates or conflicts with or constitutes a default
under any contract, commitment, agreement, understanding, arrangement, trust or
restriction of any kind to which the Shareholder is a party, by which it is
bound or which otherwise in any way affects it, (iii) will cause, or give any
persons valid grounds to cause (with or without notice, the passage of time or
both), the maturity of any debt, any liability or obligation of the Shareholder
to be accelerated, or will increase any such liability or obligation, (iv)
requires
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any filing with, the notification of, or the obtaining of any permit,
authorization, consent or approval of any third party or governmental or
regulatory authority, foreign or domestic, or (v) violates or conflicts with the
Certificate of Incorporation or By-Laws, as amended, of the Shareholder.
Section 5.3 No Default. The Shareholder is not in default under the terms
of its loan agreements with the Bank in any material respect.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES BY THE PURCHASER
The Purchaser hereby represents and warrants to the Shareholder as follows:
Section 6.1 Organization. The Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has the corporate power and authority to enter into this Agreement and to
carry out the transactions contemplated hereby.
Section 6.2 Authorization. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by the Board of Directors of the Purchaser and the Executive
Committee of the Purchaser's parent, Litton Industries, Inc., and the
resolutions adopted by the Board of Directors of the Purchaser and the Executive
Committee of Litton Industries, Inc. evidencing such authorization, copies of
which as certified by the Secretary or Assistant Secretary of the Purchaser and
Litton Industries, Inc.,
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as the case may be, previously have been delivered to the Shareholder, were duly
and validly adopted, and have not been modified, revoked or rescinded in any
respect and are in full force and effect. No other corporate proceedings on the
part of the Purchaser or Litton Industries, Inc. are necessary to authorize this
Agreement or the transactions contemplated hereby.
Section 6.3 Valid and Binding Agreement. This Agreement constitutes a valid
and binding agreement of the Purchaser enforceable against the Purchaser in
accordance with its terms.
Section 6.4 Consents; No Violation. Except as set forth in Schedule 6.4,
neither the execution or delivery of this Agreement, the consummation of the
transactions contemplated hereby, nor the compliance with any of the provisions
hereof, (i) violates any statute or law or any rule, regulation, order, award,
judgment or decree of any court or governmental authority, affecting the
Purchaser in any way, (ii) violates or conflicts with or constitutes a default
under any contract, commitment, agreement, understanding, arrangement, trust or
restriction of any kind to which the Purchaser is a party, by which it is bound
or which otherwise in any way affects it, (iii) will cause, or give any persons
valid grounds to cause (with or without notice, the passage of time or both),
the maturity of any debt, liability or obligation of the Purchaser to be
accelerated, or will increase any such liability or obligation, (iv) requires
any filing with, the notification of, or the obtaining of any permit,
authorization, consent or approval of any third party or
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governmental or regulatory authority, foreign or domestic, or (v) violates or
conflicts with the Certificate of Incorporation or By-Laws, as amended, of the
Purchaser.
Section 6.5 Limited Representations. (a) Purchaser acknowledges and agrees
that it is not relying upon any representation or warranty concerning the
Companies, the Shareholder, the Foreign Subsidiary's Shares, the business,
assets, liabilities, operations or profitability of the Companies except for the
representations and warranties set forth in Articles IV and V.
(b) The Purchaser represents and warrants that it has no reason to believe
that any of the representations and warranties set forth in Articles IV and V
contains any untrue statement of a material fact or omits to state a material
fact in order to make the statements therein not misleading.
ARTICLE VII
CONDUCT OF BUSINESS OF THE COMPANY PENDING THE CLOSING DATE
Each of the Companies and the Shareholder agree with the Purchaser that,
except as contemplated by this Agreement or otherwise as provided in Schedule
7.1, from the date hereof until the Closing Date, unless otherwise consented to
by the Purchaser in writing:
Section 7.1 Conduct and Preservation of Business. Each of the Companies
will conduct its business diligently, in the ordinary course and consistent with
past practice and exclusively through the Companies. Each of the Companies will
use all
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reasonable efforts (without making any commitments on behalf of Purchaser) to
preserve its business organization intact, to keep available to Purchaser the
present officers and employees of the Companies, to maintain in effect all
existing qualifications, franchises, licenses, permits, consents, authorizations
and registrations of the Companies with respect to their businesses, and to
preserve for Purchaser the present relationships of the Companies with material
suppliers, customers and others having business relations with the Companies.
Each of the Companies will conduct its business and operations in a manner
consistent with the conduct of its business operations prior to the date hereof.
Each of the Companies shall continue all practices, policies, procedures and
operations relating to its business in substantially the same manner as
heretofore conducted. Without limiting the generality of the foregoing, and
except as otherwise expressly provided in this Agreement or with the prior
written consent of Purchaser, from the date hereof to the Closing Date, none of
the Companies will:
(a) incur any obligations or liabilities (whether absolute, accrued,
contingent or otherwise and whether due or to become due), except obligations or
liabilities incurred in the ordinary course of business and consistent with past
practice, or permit any change in any assumptions underlying or methods of
calculating any bad debt, contingency or other reserves;
(b) permit or allow any of its properties or assets (whether real, personal
or mixed, tangible or intangible) to be
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mortgaged, pledged or subjected to any lien or encumbrance, except liens for
taxes not yet delinquent;
(c) cancel or release any debts or claims, or waive any rights of
substantial value or sell, transfer or convey any of its properties or assets
(whether real, personal or mixed, tangible or intangible), except in the
ordinary course of business and consistent with past practice;
(d) dispose of or permit to lapse any license, permit or other form of
material authorization; or dispose of or disclose to any person, other than
employees, consultants and representatives bound by confidentiality obligations
or agreements, any trade secret, formula, process or know-how;
(e) except with the prior consent of the Purchaser, grant any increase in
the compensation of any officer or employee (including, without limitation, any
increase pursuant to any bonus (other than year-end bonuses consistent with past
practices which each of the Companies shall timely pay), pension, profit-sharing
or other plan or commitment); make any payment under any existing Employee Plan
not required under the terms thereof; institute or adopt any new Employee Plan;
modify, amend or terminate any existing Employee Plan or extend the term or
alter the terms of any employment agreement;
(f) make any capital expenditures or commitments in excess of One Hundred
Thousand ($100,000) Dollars in the aggregate for replacements or additions to
property, plant or equipment;
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(g) declare, pay or make, or set aside for payment or making, any dividend
or other distribution in respect of its capital stock or other securities, or
directly or indirectly redeem, purchase or otherwise acquire any of its capital
stock or other securities;
(h) issue, authorize or propose the issuance of any shares of its capital
stock or securities convertible into, or rights, warrants or options to acquire,
any such shares or other convertible securities;
(i) delay or defer payment of accounts payable or other obligations of any
of the Companies or accelerate collection of accounts receivable or other
obligations due the Companies in a manner inconsistent with past practice;
(j) pay, loan or advance any amount to or in respect of, or sell, transfer
or lease any properties or assets (whether real, personal or mixed, tangible or
intangible) to, or enter into any agreement, arrangement or transaction with,
the Shareholder, any of the officers or directors of the Shareholder or any of
the Companies, any Affiliate of the Shareholder, the Companies or any of their
respective officers or directors, or any business or entity in which the
Shareholder or any Affiliate of any such persons has a direct or indirect
interest except that the foregoing shall not be construed to prevent the
Companies from transferring cash to one another or to the Shareholder or from
purchasing goods or services from the Shareholder or any Affiliates in
conformity with past practices;
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(k) subdivide or in any way reclassify any shares of its capital stock;
(l) terminate or voluntarily suffer the termination of any Material
Contract except for Material Contracts which are not Assumed Contracts and
except for Material Contracts expiring in the ordinary course of business
pursuant to their terms and which would not reasonably be expected to have,
either individually or in the aggregate, a Material Adverse Effect on the
Companies considered as a whole, or, in any material respect, amend or suffer
the amendment of, or fail to perform all of its obligations or suffer or permit
any default to exist under, any Material Contract which is also an Assumed
Contract;
(m) enter into or obtain any contract, lease, commitment, license, permit
or authorization, except (i) contracts or commitments for the purchase of
services, supplies, inventory or equipment (not to exceed Fifty Thousand
($50,000) Dollars for any one purchase contract or commitment unless authorized
by Purchaser, which authorization shall not be unreasonably withheld or delayed)
or the sale of products provided in each case such contract or commitment is
entered into in the ordinary course of business and at rates consistent with
normal and usual practices, and (ii) other contracts or commitments entered into
in the ordinary course of business and consistent with past practice, provided
that any such other contract or commitment (x) is terminable by the Companies on
not more than ninety (90) days' notice and (y) will not require any of the
Companies to expend
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more than Fifty Thousand ($50,000) Dollars during the term thereof;
(n) enter into any license of any material intellectual property, whether
as licensor, licensee, grantor or grantee, except in connection with the sale of
products in the ordinary course of business;
(o) fail to take such action as may be reasonably necessary to maintain,
preserve, renew and keep in full force and effect the corporate existence,
qualifications and franchises of the Companies, or fail to comply with any law
applicable to the conduct of the businesses of any of the Companies;
(p) amend the Certificate of Incorporation or By-Laws (or other similar
charter documents) of any of the Companies; or
(q) agree, whether in writing or otherwise, to take any action prohibited
in this Section 7.1.
Section 7.2 Other Transactions. Unless and until this Agreement is
terminated pursuant to Section 11.1, none of the Companies shall, nor shall any
of them permit any of its officers, directors, employees or agents (through a
representative or otherwise) to, (i) furnish any information concerning the
businesses of any of the Companies (other than as required by law) to any person
other than the Purchaser interested in acquiring any of the Companies or any of
the assets, businesses or operations of any of the Companies, or (ii) solicit,
accept or entertain any offer, or enter into discussions or negotiations, with
respect to any merger or consolidation, or
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sale of all or substantially all of the assets, of any of the Companies with any
person other than the Purchaser. None of the Companies nor the Shareholder
shall, nor shall any of them permit any of the officers, directors, employees or
agents of any of the Companies (through a representative or otherwise) to,
acquire, on behalf of any of the Companies, by purchase or otherwise, all or any
part of the business or the assets of, or stock or other evidence of beneficial
ownership of, any firm, corporation or other person.
Section 7.3 Insurance. The Companies shall maintain the insurance coverage
specified in Schedule 4.13, or policies providing substantially equivalent
coverage, in full force and effect.
Section 7.4 Access.
(a) The Companies shall permit the Purchaser and its counsel, accountants
and other representatives full access, during normal business hours throughout
the period pending the Closing Date, to the facilities, personnel, accountants
and other representatives of the Companies and to all of the properties, books,
contracts, commitments and records (including those stored on computer tapes or
discs or other computer format and including the records and work papers
prepared or used by the Companies' accountants during their examinations of the
Companies) of the Companies, and will furnish the Purchaser during such period
with all such information concerning the businesses, operations,
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assets, liabilities and prospects of the Companies as the Purchaser may
reasonably request.
(b) The Companies agree to the performance of environmental testing on or
about the properties occupied by the Companies, subject to the owner's consent,
at the Purchaser's expense; provided, that any such testing shall be done only
upon reasonable written notice to the Companies and shall be performed at such
times as to cause minimal disruption in the Companies' business operations. The
Companies shall be solely responsible for any environmental testing at the West
Pearl Facility required by the West Pearl Lease.
ARTICLE VIII
CERTAIN COVENANTS OF THE PARTIES
Section 8.1 Consents; Third Parties. The Companies and the Shareholder
covenant and agree to use their respective diligent efforts to obtain all
requisite consents and to secure all requisite actions of third parties prior to
the Closing and to deliver to the Purchaser, promptly after receipt thereof but
in no event later than the Closing, executed counterparts of all such consents
or other evidence of such actions.
Section 8.2 Guarantees. The Purchaser covenants and agrees to use
commercially reasonable efforts to obtain the release of all guarantees by the
Shareholder of the obligations of the Companies which are listed on Schedule 8.2
(collectively, the "Shareholder Guarantees"); provided, however, that the
Purchaser shall not be required to pay any amounts to obtain such releases.
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Section 8.3 Supplemental Disclosure. In addition to its obligations under
Section 4.31(c), the Companies and the Shareholder shall have the continuing
obligation until Closing to promptly supplement or amend the Schedules hereto
with respect to any material matter hereafter arising or discovered which, if
existing or known at the date of this Agreement, would have been required to be
set forth or described in the Schedules; provided, however, that for the
purposes of the rights and obligations of the parties hereunder, any such
supplemental or amended Schedules, and any matters discovered by the Purchaser
in the course of its due diligence prior to the Closing Date (collectively, the
"Supplemental Disclosures"), shall not be deemed to cure any breach of any
representation or warranty made in this Agreement or to have been disclosed as
of the date of this Agreement.
Section 8.4 Further Assurances. From time to time (whether at or after the
Closing Date), at the request of any other party and without further
consideration, and at its own expense, each party will execute and deliver to
such other party such other documents, and take such other action, as the other
party may reasonably request in order to consummate more effectively the
transactions contemplated hereby.
Section 8.5 Purchaser Confidentiality Obligations. The Purchaser hereby
agrees that until the Closing shall have occurred, all information gathered by
or provided to the Purchaser with respect to the Companies, including, without
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limitation, information listed in the Schedules to this Agreement and other
information provided in the course of the Purchaser's due diligence
investigation of the Companies, shall be considered confidential information of
the Companies and shall be subject to the confidentiality agreement between the
Shareholder and the Purchaser heretofore executed.
Section 8.6 Hart-Scott-Rodino Filing.
The parties shall, if they have not already done so, file or cause to be
filed with the United States Federal Trade Commission and the United States
Department of Justice all documents required to be filed pursuant to the
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
regulations promulgated thereunder and shall request in such filings early
termination of the "Hart-Scott-Rodino" waiting period. All documents so filed
will be complete and accurate in all material respects.
Section 8.7 No Negotiation With Lenders. Purchaser agrees for itself and
its Affiliates that it will not negotiate with the Shareholder's lenders or
representatives to purchase the stock or assets of the Companies without first
obtaining the prior written consent of the Shareholder.
ARTICLE IX
CLOSING CONDITIONS
Section 9.1 Conditions to the Obligations of the Purchaser. All obligations
of the Purchaser hereunder are subject to the
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fulfillment, prior to or at the Closing, of each of the following conditions:
(a) Representations and Warranties. The representations and warranties made
by the Shareholder in this Agreement shall be true when made and at and as of
the Closing Date as though such representations and warranties were made at and
as of the Closing Date (without exception for changes occurring in the ordinary
course of business except as otherwise specifically permitted or contemplated by
any such representation or warranty hereunder and provided such changes either
individually or in the aggregate have not had a Material Adverse Effect) and the
Companies and the Shareholder shall have performed and complied with all
covenants, agreements, obligations and conditions required by this Agreement to
be so performed or complied with by them on or prior to the Closing Date;
provided, however, that in the event that at any time before the Closing occurs
an Event of Breach is disclosed to or discovered by the Purchaser, Purchaser
shall either terminate this Agreement or Purchaser shall be deemed to have
waived such Event of Breach and any and all liability of the Companies. An
"Event of Breach" means the existence or occurrence of any fact, condition,
circumstance, act or failure to act (other than their willful failure to close)
which now constitutes or would on or after the Closing Date constitute a breach
of any representation, warranty, covenant or agreement of the Companies or the
Shareholder under this Agreement or which would otherwise give rise to actual or
potential liability of the Shareholder or the
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Companies to the Purchaser. Upon the termination of this Agreement by the
Purchaser due to the disclosure or discovery of an Event of Breach, all
liability and obligations of the parties hereto shall terminate, other than
those liabilities and obligations which by their express terms are intended to
survive termination of this Agreement.
(b) Performance. The Companies and the Shareholder shall have performed and
complied with all covenants, agreements, obligations and conditions required by
this Agreement to be so performed or complied with by them on or prior to the
Closing Date.
(c) Shareholder's Certificate. The Shareholder shall have delivered to the
Purchaser a certificate signed by it, dated the Closing Date, certifying as to
the fulfillment of the conditions specified in Section 9.1(a) and (b).
(d) Consents. At the Closing, all consents listed on Schedule 4.4 marked
with an asterisk, UCC-3 releases from the Bank and approvals required by the
terms hereof shall continue to be in full force and effect.
(e) Employment Agreement. The persons listed on Schedule 9.1(e) shall have
executed employment agreements in form and substance satisfactory to Purchaser.
(f) Opinion of Counsel to the Companies and the Shareholder. The Purchaser
shall have received an opinion of counsel to the Companies and the Shareholder,
Salon, Marrow &
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Dyckman, LLP, dated the Closing Date, in form and substance reasonably
satisfactory to the Purchaser.
(g) Material Adverse Change. Since the date of this Agreement, there shall
not have occurred any event that has caused or resulted in, or may reasonably be
expected to cause or result in, a material adverse change in the condition
(financial or otherwise), of the assets, liabilities, earnings, prospects or
business of the Companies considered as a whole.
(h) No Injunction. There shall not be in effect on the Closing Date any
judgment, order, injunction or decree of any court enjoining the consummation of
the transactions contemplated by this Agreement.
(i) No Government Proceeding or Litigation. There shall not be threatened,
instituted or pending any suit, action, investigation, inquiry or other
proceeding by or before any governmental or other regulatory or administrative
agency or commission which in the reasonable judgment of the Purchaser may have
a material adverse effect on the business, prospects, financial condition or
results of operation of any of the Companies or seeks the imposition of
limitations on the ability of the Purchaser to own the Purchased Assets.
(j) Expiration of Hart-Scott-Rodino Waiting Period. The Hart-Scott-Rodino
waiting period shall have expired or the parties shall have received notice of
the early termination thereof.
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(k) Deliveries at Closing. All agreements, instruments, documents, actions
and payments required to be executed and delivered or taken or made pursuant to
the provisions of Section 2.2 hereof and any other section hereof by the
Companies and the Shareholder shall have been duly executed and delivered or
taken or made, as the case may be.
Section 9.2 Conditions to the Obligations of the Shareholder. All
obligations of the Shareholder and the Companies hereunder are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions:
(a) Representations and Warranties. The representations and warranties made
by the Purchaser in this Agreement shall be true when made and at and as of the
Closing Date as though such representations and warranties were made at and as
of the Closing Date.
(b) Performance. The Purchaser shall have performed and complied with all
covenants, agreements, obligations and conditions required by this Agreement to
be so performed or complied with by it on or before the Closing Date.
(c) Officers' Certificate. The Purchaser shall have delivered to the
Shareholder a certificate of its President or Vice President, dated the Closing
Date, certifying to the fulfillment of the conditions specified in Section
9.2(a) and (b).
(d) Consents. At the Closing, either (i) all consents and approvals
required by the terms hereof shall continue to be in
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full force and effect or (ii) if all such consents and approvals are not in full
force and effect and Purchaser has nonetheless elected to close, Purchaser shall
have agreed to indemnify the Shareholder and the Companies and secured such
indemnity in a manner reasonably satisfactory to the Shareholder against all
losses incurred by reason of the fact that all such consents and approvals were
not in full force and effect.
(e) Opinion of Counsel to the Purchaser. The Shareholder and the Companies
shall have received an opinion of the general counsel of the Purchaser, John
Preston, dated the Closing Date, in form and substance reasonably satisfactory
to the Shareholder and the Companies.
(f) No Injunction. There shall not be in effect on the Closing Date any
judgment, order, injunction or decree of any court enjoining the consummation of
the transactions contemplated by this Agreement.
(g) Restructuring of Loans. An agreement in form and substance satisfactory
to the Shareholder in its sole discretion shall have been entered into with the
Bank and the Shareholder's other lenders within ten (10) business days of the
date hereof providing for the restructuring of its loans with the Bank and such
other lenders.
(h) Hart-Scott-Rodino. The Hart-Scott-Rodino waiting period shall have
expired or the parties shall have received notice of the early termination
thereof.
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(i) Release of Guarantees or Indemnification. All Shareholder Guarantees
shall be released effective the Closing Date or the Purchaser shall have agreed
in writing to indemnify the Shareholder and secured such indemnity in a manner
reasonably satisfactory to the Shareholder.
(j) Employee Releases. The persons listed on Schedule 9.1(j) shall have
executed releases in favor of the Companies and the Shareholder in form and
substance satisfactory to them.
(k) Deliveries at Closing. All agreements, instruments, documents, actions
and payments required to be executed and delivered or taken or made pursuant to
the provisions of Section 2.3 hereof and any other section hereof by the
Purchaser shall have been duly executed and delivered or taken or made, as the
case may be.
ARTICLE X
SURVIVAL OF REPRESENTATIONS AND INDEMNIFICATIONS
Section 10.1 Survival of Representations. All representations, warranties
and agreements made by any party in this Agreement or pursuant hereto shall
survive the Closing; provided, however, that, except with respect to the
representations and warranties of the Purchaser contained in Article VI hereto
and the representations and warranties of the Shareholder contained in Article V
hereof and the representations and warranties contained in Section 4.1
(Organization, Authorization and Valid and Binding Agreement), Section 4.2
(Capitalization of the Foreign Subsidiary), Section 4.8(a)
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(Title to Properties) and Section 4.19 (Environmental Matters) hereof, each of
which representations and warranties shall survive for the applicable statute of
limitations, the representations and warranties contained in this Agreement
shall expire on October 31, 2000 unless a Claim has been made by the Purchaser
or the Shareholder, as the case may be, on or prior to such date or the
Purchaser or the Shareholder, as the case may be, has given notice of a
potential claim setting forth the facts with respect thereto on or prior to such
date.
Section 10.2 Statements as Representations. All statements contained in
this Agreement, the Schedules or any certificate delivered pursuant hereto shall
be deemed representations and warranties for all purposes of this Agreement and
shall expire as provided in Section 10.1 above. Any matter disclosed in or on
any schedule or certificate annexed to this Agreement or delivered pursuant
hereto shall be deemed to have been disclosed for all applicable purposes even
if not disclosed on another applicable schedule or certificate.
Section 10.3 Indemnification of the Purchaser.
Upon the terms and subject to the conditions of this Article X, the
Shareholder hereby agrees to indemnify, defend and hold harmless the Purchaser
from and against all demands, claims, actions or causes of action, assessments,
losses, damages, liabilities, costs and expenses, including, without limitation,
interest, penalties, costs of defense, and reasonable attorneys' fees and
expenses (collectively "Claims"), asserted against,
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imposed upon or incurred by the Purchaser by reason of or resulting from a
breach of any agreement, covenant, representation or warranty of the Companies
or of the Shareholder contained in this Agreement including, without limitation,
all obligations and liabilities of the Selling Companies incurred prior to the
Closing Date and any environmental liability or obligation arising out of the
condition of the Real Property at Closing and any obligations of the Companies
disclosed on Schedule 4.12 other than with respect to the Palco Litigation
(collectively, "Purchaser Claims") other than the Assumed Monetary Liabilities
and Assumed Contractual Liabilities.
Section 10.4 Indemnification of the Shareholder and the Companies. Upon the
terms and subject to the conditions of this Article X, the Purchaser hereby
agrees to indemnify, defend and hold harmless the Shareholder and the Companies
from and against all Claims asserted against, imposed upon or incurred by the
Shareholder or the Companies by reason of or resulting from a breach of any
agreement, covenant, representation or warranty of the Purchaser contained in
this Agreement including, without limitation, the failure of the Purchaser to
duly pay the Assumed Monetary Liabilities or duly perform and pay the Assumed
Contractual Liabilities and with respect to any claim arising by reason of the
ownership or use of the Purchased Assets or the operation by the Purchaser of
the businesses of the Companies acquired hereunder by the Purchaser on or after
the Closing Date. (collectively, "Shareholder Claims").
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Section 10.5 Procedure.
(a) Whenever any Purchaser Claims or Shareholder Claims shall arise for
indemnification hereunder, the party seeking indemnification (the "Indemnified
Party") shall promptly notify each party from whom indemnification is due (the
"Indemnifying Party") of the Claim and, when known, the facts which form the
basis for such Claim. In the event of any such Claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings by
a third person, the notice to the Indemnifying Party shall specify, if known,
the amount or an estimate of the amount of the liability arising therefrom. The
Indemnified Party shall not settle or compromise any claim by a third party for
which it is entitled to indemnification hereunder without the prior written
consent of the Indemnifying Party, which shall not be unreasonably withheld or
delayed, unless a proceeding shall have been instituted against the Indemnified
Party and the Indemnifying Party shall not have taken control of such proceeding
after notification thereof, as provided in Section 10.5(b) of this Agreement.
(b) In connection with any Claim giving rise to indemnity hereunder
resulting from or arising out of any claim, tax assessment or legal proceeding
by a person who is not a party to this Agreement, the Indemnifying Party at its
sole cost and expense may, upon written notice to the Indemnified Party, assume
the defense of any such claim or legal proceeding with counsel reasonably
satisfactory to the Indemnified Party (counsel giving
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opinions under Article IX shall be deemed acceptable); provided that the
Indemnified Party may participate in (but not control) any such proceeding and
be represented by attorneys of its or their own choosing, with the fees and
expenses of such counsel to be at the sole expense of the Indemnified Party
unless (i) the Indemnifying Party shall not have notified the Indemnified Party
in writing that it will assume the defense of such Claim and pay all liabilities
relating thereto and employed counsel reasonably acceptable to the Indemnified
Party as contemplated by this sentence or (ii) the named parties to any such
proceeding include both (x) the Indemnified Party hereunder and (y) the
Indemnifying Party hereunder and representation of both by the same counsel
would be inappropriate due to the conflict of interest between them, and in
either of such circumstances the fees and expenses of such counsel shall be the
sole expense of the Indemnifying Party. The foregoing notwithstanding, if such
proceedings involves both a Claim or Claims subject to indemnification hereunder
and a Claim or Claims not subject to indemnification hereunder, then the
expenses of counsel shall be equitably shared. The Indemnified Party shall be
entitled to participate in (but not control) the defense of any such action,
with its counsel and at its own expense, and the Indemnifying Party shall not
settle or compromise any such action without the prior written consent of the
Indemnified Party, which consent shall not be unreasonably withheld or delayed
(other than settlements that involve only the payment of money by the
Indemnifying Party as to
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which no consent shall be required). If the Indemnifying Party does not assume
the defense of any such Claim or litigation resulting therefrom within twenty
(20) days after notice of such Claim is given, (i) the Indemnified Party may
defend against such Claim or litigation in such manner as it may deem
appropriate, including, but not limited to, settling such Claim or litigation,
after giving notice of the same to the Indemnifying Party, on such terms as the
Indemnified Party may deem appropriate, and (ii) the Indemnifying Party shall be
entitled to participate in (but not control) the defense of such action, with
its counsel and at its own expense. If the Indemnifying Party thereafter seeks
to question the manner in which the Indemnified Party defended such third party
Claim or litigation, or the amount or nature of any such settlement, the
Indemnifying Party shall have the burden to prove by a preponderance of the
evidence that the Indemnified Party did not defend or settle such third party
Claim or litigation in a reasonably prudent manner.
Section 10.6 Remedies Cumulative and Exclusive. The remedies provided
herein shall be cumulative, but shall preclude assertion by any party of any
other rights or the seeking of any other remedies against any other party
hereto.
Section 10.7 Limitations.
(a) The obligations of the Shareholder under this Article X shall not be
effective until the aggregate amount of all such obligations exceeds Two Hundred
Fifty Thousand ($250,000) Dollars
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(the "Deductible Amount"), and then only to the extent such aggregate amount
exceeds the Deductible Amount.
(b) To the extent that a Purchaser Claim hereunder is compensable or
protected under an enforceable contract of insurance maintained by the
Shareholder or the Companies ("Insurance Claim" and "Insurance Policy"), the
Insurance Claim shall be diligently pursued to the full extent of the Insurance
Policy before the Shareholder shall be liable hereunder.
(c) No claims under this Article X shall be subject to indemnification
hereunder to the extent that the subject matter thereof is used in computing the
Closing Net Worth of the Companies; provided that this limitation shall be
inapplicable with respect the amount, if any, by which such Claim exceeds the
amount so used to compute the Closing Net Worth.
(d) In no event shall a party be able to claim consequential, special or
indirect damages.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
Section 11.1 Termination. This Agreement may be terminated at any time
prior to the Closing Date by:
(a) mutual written agreement of the Purchaser, on the one hand, and the
Companies and the Shareholder, on the other hand;
(b) the Purchaser if any of the conditions provided in Section 9.1 have not
been satisfied and such event has not been waived by the Purchaser; or
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(c) the Companies and the Shareholder (i) if any of the conditions
provided in Section 9.2 have not been satisfied and such event has not been
waived by the Companies and the Shareholder (ii) at any time on written notice
after February 28, 1999 if the Closing shall not have occurred by such date.
Section 11.2 Effect of Termination. In the event of termination of this
Agreement as provided above, this Agreement shall forthwith become void and
there shall be no liability on the part of any party hereto, except based upon
obligations set forth in Section 8.5 and Section 12.1; provided, however, that
nothing herein contained shall relieve any party from its liability for breach
of the terms of this Agreement; provided further, however, that if a
Supplemental Disclosure has rendered a representation or warranty to be untrue
or if an Event of Breach has otherwise been discovered or disclosed, then the
Purchaser's or Shareholder's only remedy in such case shall be to terminate this
Agreement in which event none of the parties shall have any further liability to
the others hereunder except as set forth above in this Section 11.2.
Section 11.3 Amendment, Extension and Waiver. At any time prior to the
Closing Date, the Purchaser, on the one hand, and the Companies and the
Shareholder, on the other hand, may by an instrument in writing signed on behalf
of each party hereto (i) amend this Agreement, (ii) extend the time for the
performance of any of the obligations or other acts of the parties hereto, (iii)
waive any inaccuracies in the representations and warranties
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contained herein or any document delivered pursuant hereto and (iv) waive
compliance with any of the agreements or conditions contained herein.
ARTICLE XII
MISCELLANEOUS
Section 12.1 Finder's Fees. Each of the Shareholder, the Companies and the
Purchaser represents and warrants that it has not dealt with any third party as
a finder, broker or advisor in connection with the transactions contemplated by
this Agreement other than Compass Partners International, LLC, whose fees and
expenses the Shareholder shall be responsible to pay.
Section 12.2 Expenses. The Shareholder shall bear all fees and
out-of-pocket expenses incurred by any of the Shareholder or the Companies in
connection with this Agreement and the consummation of the transaction
contemplated hereby, and all prior activities related to the sale of the
Purchased Assets. The Purchaser shall bear all fees and out-of-pocket expenses
incurred by the Purchaser in connection with this Agreement and the consummation
of the transaction contemplated hereby.
Section 12.3 Parties in Interest. All the terms and provisions of this
Agreement shall be binding upon, shall inure to the benefit of and shall be
enforceable by the respective successors and assigns of the parties hereto;
provided, however, that the Purchaser shall in such event remain jointly and
severally liable for the performance by such Affiliate of all of the obligations
of the Purchaser hereunder including, without
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limitation, the Purchaser's obligations to assume and perform the Assumed
Contracts. No one not party to this Agreement shall be considered a third party
beneficiary of this Agreement or have any rights hereunder.
Section 12.4 Entire Agreement. This Agreement, including the Exhibits and
Schedules referred to herein or delivered pursuant hereto, together with the
Confidentiality Agreement dated October 22, 1998 and accepted on October 26,
1998 by the Purchaser, between the Purchaser and the Shareholder, contains the
entire understanding of the parties with respect to its subject matter and
supersedes all prior agreements and understandings between the parties with
respect to its subject matter.
Section 12.5 Modification. This Agreement may not be altered, modified or
amended unless such alteration, modification or amendment is in writing and
signed by the parties to this Agreement nor, except as otherwise specifically
set forth herein, may this Agreement be terminated except by a writing signed by
the parties to this Agreement; and no waiver of any breach of any condition,
provision or term of this Agreement on any one occasion shall be deemed to be a
waiver of any subsequent breach, condition, provision or term of this Agreement
on any other occasion whether of like or different nature.
Section 12.6 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered in
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person, or sent by a recognized overnight delivery service such as Federal
Express, DHL or Airborne, with delivery charges paid for next-business-day
delivery, or sent by registered or certified mail, postage prepaid, return
receipt requested, or sent by fax (if confirmed by regular mail), as follows: If
to the Shareholder or the Companies:
SEMX Corporation
1 Labriola Court
Armonk, New York 10504-1336
Fax No. (914) 273-5860
Attention: Gilbert Raker
Copy simultaneously to:
Salon, Marrow & Dyckman, LLP
685 Third Avenue
New York, New York 10017
Fax No. (212) 661-3339
Attention: Joel Salon, Esq.
If to the Purchaser:
c/o Litton Industries, Inc.,
21240 Burbank Blvd.
Woodland Hills, California 91367
Fax No. 818-598-2025
Attn: General Counsel
Any such notice, request, claim, demand or other communication shall be deemed
given upon delivery if given or delivered in person, or upon receipt if sent by
fax which is confirmed by regular mail, or on the third business day following
mailing if mailed as provided above or on the business day immediately following
the date on which such communication is entrusted to such overnight delivery
service. Failure to accept a notice shall not invalidate the same. Any party may
change its address for purposes hereof by written notice in accordance herewith,
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except that notices of change of address shall only be effective upon receipt.
Section 12.7 Law Governing; Jurisdiction; Attorneys Fees.
(a) This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without regard to its
conflict of laws rules.
(b) Except with respect to disputes resolved pursuant to Section 1.2(c)
hereof, the more-prevailing party shall be entitled to recover all costs and
expenses incurred by it in enforcing the terms and conditions of this Agreement,
including, without limitation, expert fees and attorney fees and disbursements;
provided, however, that the parties shall bear their own fees and costs
(including, without limitation, attorneys fees) in connection with the
preparation of this Agreement and the Closing of the transactions contemplated
hereby as provided in Section 12.2 hereof.
(c) Any dispute between the parties hereto (other than with respect to the
Closing Date Balance Sheet, which shall be handled in the fashion described in
Section 1.2(c) above and other than as set forth in Sections 3.1(b)and 3.2(d))
shall be submitted to and finally settled under the Commercial Arbitration Rules
of the American Arbitration Association by an arbitrator appointed in accordance
with those rules. The place of the arbitration shall be in New York City. The
determination by the arbitrator shall be final and binding upon the parties and
shall be enforceable in any court of competent jurisdiction. The arbitrator
shall not
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have any power to change any provision of this Agreement and no decision
rendered by the arbitrator shall have that effect. Each party shall bear
one-half (1/2) of the costs and expenses of the arbitration or as shall be
otherwise determined by the arbitrator.
Section 12.8 Interpretation and Construction.
(a) The captions and the Schedule titles set forth in this Agreement are
for convenience only and shall not be considered as part of this Agreement or as
in any way limiting or amplifying the terms and provisions hereof or thereof.
(b) This Agreement shall be construed according to its fair meaning as if
prepared jointly by the parties hereto.
(c) Each section, subsection and lesser section of this Agreement
constitutes a separate and distinct undertaking, covenant and/or provision
hereof.
(d) If any provision of this Agreement is held invalid, such invalidity
shall not affect the other provisions hereof which can be given effect without
the invalid provisions, and, to this end, the provisions of this Agreement are
intended and shall be deemed severable. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by
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applicable law, the parties hereby waive any provision of law which renders any
provision of this Agreement prohibited or unenforceable in any way. In the event
any such provision is found to be unlawful or otherwise unenforceable, the
parties hereto agree to negotiate in good faith to modify the void or
unenforceable provision, but only to the extent necessary to make such provision
valid and enforceable having full regard for all applicable laws and the
interests and purposes of the parties in entering into this Agreement.
(e) This Agreement may be executed by fax in counterparts, each of which
shall be deemed an original, and all of which shall constitute but one and the
same instrument which may be sufficiently evidenced by one counterpart.
Section 12.9 Public Announcements. Except as hereinafter provided, no
public announcement or press release concerning the transactions contemplated
hereby will be made by any party without the prior consent and joint approval of
all parties; provided, however, that any party may make such public
announcement, press release or other disclosure as it may determine, upon the
advice of counsel, it is required to make in order to comply with its disclosure
obligations under applicable law, provided further, that prior to any such
announcement, release or disclosure such party shall consult with the other
parties as to the need therefor and the content thereof. For greater certainty,
it is understood and agreed that following the initial submission by a
disclosing party to the other parties of
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any form of announcement, release or disclosure that is either consented to or
submitted to the other parties for consultation in cases requiring disclosure
under applicable law, any subsequent announcements, releases or disclosures
which are substantially the same in content need not be submitted to the other
parties for their consent or consultation.
[BALANCE OF THIS PAGE 98 LEFT INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the undersigned on the date first above written.
RETCONN, INCORPORATED
By:______________________________
By:______________________________
S.T. ELECTRONICS, INC.
By:______________________________
By:______________________________
SEMX CORPORATION
By:______________________________
By:______________________________
RETCONN SPM (MALAYSIA) SDN. BHD.
By:______________________________
By:______________________________
LITTON SYSTEMS, INC.
By:______________________________
By:______________________________
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SCHEDULE 1
<TABLE>
<CAPTION>
DEFINITION LOCATION
- ---------- --------
<S> <C>
"Accounts Receivable" Section 1.1(a)(ii)
"Affiliate" Section 3.1(a)
"Affiliated Service Group" Section 4.14(a)(4)
"Agreed Allocation of Estimated
Purchase Price" Section 3.3(a)
"Agreement" Preamble
"Assumed Contracts" Section 1.1(a)(vi)
"Assumed Contractual Liabilities" Section 1.4(b)
"Assumed Monetary Liabilities" Section 1.2(b)
"Bank" Section 4.8(a)
"Benefit Arrangement" Section 4.14(a)(1)
"Best Knowledge of the Shareholder" Section 4.6
"Cash Portion of the Purchase Price" Section 1.2(a)
"Change in Control Payment" Section 3.8
"Claims" Section 10.3(a)
"Closing" Section 1.1(a)
"Closing Date" Section 1.1(a)
"Closing Date Balance Sheet" Section 1.2(c)(i)
"Closing Date Net Worth" Section 1.2(b)[(ix)]
"Code" Section 4.14(a)
"Company" Preamble
"Companies" Preamble
"Confidential Information" Section 3.1(a)
"Continuing Employee" Section 3.2(c)
"Customer Furnished Items" Section 4.29
"Deductible Amount" Section 10.7
"Defined Business" Section 3.2(b)(i)
"Domestic Subsidiary" Preamble
"Employee Pension Benefit Plan" Section 4.14(a)(7)
"Employee Plans" Section 4.14(a)(2)
"Employee Welfare Benefit Plan" Section 4.14(a)(8)
"Employment Agreement" Section 2.2(i)
"Environmental Claims" Section 10.3(c)
"Environmental Laws" Section 4.19(a)(2)
"Environmental Permits" Section 4.19(a)(3)
"Environmental Proceedings" Section 4.19(a)(1)
"ERISA" Section 4.14(a)(3)
"ERISA Affiliate" Section 4.14(a)(4)
"Estimated Cash Portion of the
Purchase Price" Section 1.3
"Event of Breach" Section 9.1(a)
"Excluded Assets" Section 1.1(b)
"Final Allocation" Section 3.3(a)
"Financial Statements" Section 4.5(b)
"Firm" Section 1.2(c)(iv)
"Fixed Assets" Section 1.1(a)(v)
"Foreign Subsidiary" Preamble
"Foreign Subsidiary's Reference
Balance Sheet" Section 4.5(b)
</TABLE>
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<TABLE>
<S> <C>
"Foreign Subsidiary's Shares" Preamble
"Hazardous Substances" Section 4.19(a)(4)
"Indemnified Party" Section 10.5(a)
"Indemnifying Party" Section 10.5(a)
"Insurance Claim" Section 10.7(b)
"Insurance Policy" Section 10.7
"Intangible Property" Section 1.1(a)(iv)
"Inventory" Section 1.1(a)(iii)
"Knowledge of the Shareholder" Section 4.6
"Laws" Section 4.18(a)
"Material Adverse Effect" Section 4.1(e)
"Material Contracts" Section 4.16(a)
"Multiemployer Plan" Section 4.14(a)(5)
"Non-Competition Period" Section 3.2(a)
"Palco Litigation" Section 1.1(a)(iv)
"PBGC" Section 4.14(a)(6)
"Payment Adjustment Date" Section 1.2(c)(v)
"Pending Intellectual Property Rights
Applications" Section 4.11
"Pension Plan" Section 4.14(a)(7)
"Person" Section 3.2(b)(i)
"Price Disputes" Section 1.2(c)(iii)
"Price Dispute Notice" Section 1.2(c)(iii)
"Proposed Closing Date Balance Sheet" Section 1.2(c)(ii)
"Purchase Price" Section 1.2(a)
"Purchased Assets" Section 1.1(a)
"Purchaser" Preamble
"Purchaser Claims" Section 10.3(a)
"Real Property" Section 4.8(d)
"Reference Balance Sheet" Section 1.2(c)(i)
"Registrable Intellectual Property
Rights" Section 4.11
"Resolution Period" Section 1.2(c)(iii)
"Restricted Period" Section 3.1(a)
"Review Period" Section 1.2(c)(iii)
"Selling Companies" Preamble
"Companies' Financial Statements" Section 4.5(a)
"Senior Management Employee" Section 3.8(a)
"Senior Management Employee Agreements" Section 1.1(a)(vi)
"Shareholder" Preamble
"Shareholder Claims" Section 10.4
"Shareholder Guarantees" Section 8.2
"Subsidiaries" Preamble
"Supplemental Disclosures" Section 8.3
"Taxes" Section 4.7(e)
"Voluntary Employee' Beneficiary
Association" Section 4.14(a)(1)
"Welfare Plan" Section 4.14(a)(8)
"West Pearl Facility" Section 1.1(a)(vi)
"West Pearl Lease" Section 1.1(a)(vi)
"Year 2000 Compliant" Section 4.10
</TABLE>
101
<PAGE>
Amendment Agreement dated February 19, 1999 by and among LITTON SYSTEMS,
INC., SEMX CORPORATION, RETCONN, INCORPORATED, S.T. ELECTRONICS, INC. and
RETCONN SPM (MALAYSIA) SDN. BHD.
BACKGROUND
WHEREAS:
A. The parties hereto have entered into an Asset Purchase Agreement dated
as of January 26, 1999 and letter agreement of even date therewith (the
"Purchase Agreement");
B. The parties desire to amend the Purchase Agreement as hereinafter set
forth; and
C. Capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Purchase Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Amendment to Subsection 1.1(b)
Subsection 1.1(b) is hereby amended by adding after the word "all" in
the first line thereof the phrase:
"of the Selling Companies' bank accounts (excluding the net cash
balances thereof which is a Purchased Asset, which shall be reflected
on the Closing Date Balance Sheet and which shall be transferred to
the Purchaser through the purchase price adjustment procedure
described in Section 1.2 via an adjustment in the amount owed to or by
the Purchaser equal to the net cash balances as of the Closing Date),
all"
2. Delivery of Assets Received After Closing. If the Shareholder, the
Selling Companies or any of their Affiliates receive any assets (or the proceeds
of any assets) after Closing which belong to Purchaser by virtue of the
consummation of transactions contemplated by the Purchase Agreement including,
without limitation, checks or other payments for Accounts
<PAGE>
Receivable of the Selling Companies, then they shall turn over the same to the
Purchaser promptly after the receipt of the same. Likewise, if the Purchaser or
any of its Affiliates receive on or after the Closing any asset (or the proceeds
of any asset) which is an Excluded Asset, then they shall turn over the same to
the Shareholder promptly after the receipt of the same.
3. Ratification. Except as modified herein, the Purchase Agreement is
hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
RETCONN, INCORPORATED
By:
--------------------------------
By:
--------------------------------
S.T. ELECTRONICS, INC.
By:
--------------------------------
By:
--------------------------------
SEMX CORPORATION
By:
--------------------------------
By:
--------------------------------
RETCONN SPM (MALAYSIA) SDN. BHD.
By:
--------------------------------
By:
--------------------------------
LITTON SYSTEMS, INC.
By:
--------------------------------
By:
--------------------------------
2
<PAGE>
March 5, 1999
Litton Systems, Inc.
21240 Burbank Boulevard
Woodland Hills, California 91367
Ladies and Gentlemen:
Reference is made to the Asset Purchase Agreement among Litton Systems,
Inc., SEMX Corporation, Retconn, Incorporated, S.T. Electronics, Inc. and
Retconn SPM (Malaysia) SDN. BHD. dated the date hereof (the "Purchase
Agreement"). Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Purchase Agreement.
In the event it is necessary to obtain prior approval from any
governmental authority before the transfer of the Foreign Subsidiary's Shares to
the Purchaser or prior approval from any governmental authority in order to
comply with the terms and conditions of any license issued by any governmental
authority to the Foreign Subsidiary ("Approvals"), then in either of such events
the transactions contemplated by the Purchase Agreement shall close except that
the Foreign Subsidiary's Shares will not be transferred until such time as such
Approvals are obtained. If any Approvals are required, the Company or the
Purchaser, as the case may be, shall apply for the same as soon as is practical
after the execution of the Purchase Agreement.
If the Foreign Subsidiary's Shares are not able to be transferred at
the Closing, then the Estimated Purchase Price to be paid at the Closing shall
be reduced by twenty eight thousand nine hundred twenty-six ($28,926) dollars,
the book value of the Foreign Subsidiary's Shares as at October 31, 1998, and
the book
<PAGE>
Litton Systems, Inc.
March 5, 1999
Page 2
value of the Foreign Subsidiary's Shares shall be excluded from the Closing Date
Balance Sheet. The book value of the Foreign Subsidiary's Shares as of the date
of the transfer of the same to Purchaser shall be determined using the
methodology set forth in the Purchase Agreement and that amount will be paid by
the Purchaser to the Shareholder upon the transfer of the Foreign Subsidiary's
Shares to the Purchaser.
If the Foreign Subsidiary's Shares are not transferred at the Closing,
then the Shareholder and the Companies shall cause the Foreign Subsidiary to
enter into an arrangement with the Purchaser to manufacture cable assemblies for
the Purchaser as soon as is practicable after the Foreign Subsidiary's pending
application to manufacture cable assemblies is approved by the applicable
governmental authority.
If the required Approvals are not obtained within one hundred twenty
(120) days of the date hereof, then either the Purchaser or the Company may
terminate their respective obligations to purchase and sell the Foreign
Subsidiary's Shares upon written notice to the other in which case the
obligations of the parties hereunder and under the Purchase Agreement with
respect to the Foreign Subsidiary and with respect to the purchase and sale of
the Foreign Subsidiary's Shares shall terminate. Further, if after the date
hereof and prior to the consummation of the transfer of the Foreign Subsidiary's
Shares there shall have occurred any event that has caused or resulted in, or
may reasonably be expected to cause or result in, a material adverse change in
the condition (financial or otherwise), of the assets, liabilities, earnings,
prospects or business of the Foreign Subsidiary, then the Purchaser may
terminate its obligations hereunder and under the Purchase Agreement to purchase
the Foreign Subsidiary's Shares upon written notice to the Shareholder whereupon
the obligations of the parties hereunder and under the Purchase Agreement with
respect to the Foreign Subsidiary and with respect to the purchase and sale of
the Foreign Subsidiary's Shares shall terminate.
Notwithstanding anything to the contrary contained above, Litton may
within three (3) business days after the Company has given it written notice
that all Approvals necessary to transfer the Foreign Subsidiary's Shares have
been obtained, terminate its obligation to purchase the Foreign Subsidiary's
Shares by written notice to the Shareholder whereupon the obligations of the
parties hereunder and under the Purchase Agreement with respect to the Foreign
Subsidiary and with respect to the purchase and sale of the Foreign Subsidiary's
Shares shall terminate.
<PAGE>
Litton Systems, Inc.
March 5, 1999
Page 3
If the Shareholder does not notify the Purchaser that an agreement in
form and substance satisfactory to the Shareholder in its sole discretion has
been entered into with the Bank and the Shareholder's other lenders within ten
(10) business days of the date hereof providing for the restructuring of its
loans with the Bank and such other lenders, then the Purchaser may upon written
notice terminate the Purchase Agreement and this Agreement.
Please confirm your agreement with the foregoing by countersigning
below.
Very truly yours,
SEMX CORPORATION
S.T. ELECTRONICS, INC.
RETCONN SPM (MALAYSIA) SDN. BHD.
By:__________________________
Accepted and Agreed:
LITTON SYSTEMS, INC.
By:__________________________
SIXTH AMENDMENT AND FORBEARANCE AGREEMENT
AGREEMENT, made as of February 19, 1999, among SEMX CORPORATION (formerly
known as Semiconductor Packaging Materials Co., Inc.) a Delaware corporation,
(the "Borrower") and AMERICAN SILICON PRODUCTS, INC. ("ASP"), a Delaware
corporation, POLESE COMPANY, INC., a California corporation, TYPE III, INC., a
California corporation, SPM HOLDINGS CORPORATION ("SPM Holdings"), a Delaware
corporation, AMERICAN SILICON PRODUCTS, B.V. ("ASP B.V.") a Netherland
corporation, THERMAL PACKAGING SOLUTIONS, INC. ("TPS") a Nevada corporation,
(collectively, the "Subsidiary Guarantors") and FIRST UNION NATIONAL BANK, a
national banking association as Lender and agent for Fleet National Bank (the
"Lender").
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, inter alia, it will be
selling Retconn, Incorporated and S.T. Electronics, Inc. (the "Sold Subs"). The
Borrower and the Subsidiary Guarantors have requested that the Lender: (i)
modify the Borrower's compliance with the financial covenants contained in the
Fifth Amendment; (ii) extend the maturity of the Interim Note to June 30, 1999;
and (iii) extend the maturity of the Revolving Loan from April 1, 1999 to June
30, 1999.
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:
<PAGE>
1. 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 shall be duly executed by the parties hereto;
(b) Subsidiary Guarantors shall execute a ratification of guaranty in the
form annexed;
(c) Borrower shall deliver a Secretary's Certificate of the Borrower and
each of the Subsidiary Guarantors authorizing this transaction;
(d) Borrower shall deliver a true and complete copy of the December 31,
1998 Report on Form 10-K within three (3) days after filing by the
Borrower with the Securities and Exchange Commission;
(e) Counsel for the Borrower and Subsidiary Guarantors will deliver their
opinion that this Agreement and the documents referred to herein are
authorized, duly executed and enforceable against their clients;
(f) the Borrower shall have paid all of the current and past expenses and
fees as provided in Section 18 due as of the closing out of the
proceeds from the Retconn Sale;
(g) Borrower shall cause the proceeds from the sale of Retconn
Incorporated, S.T. Electronics and Retconn spm (Malasia) SDN. BHD.
(the "Retconn Sale") to be disbursed as set forth in the schedule
annexed hereto and made a part hereof;
(h) Borrower and Subsidiary Guarantors, except ASP B.V. (i) will provide
acknowledgements of the pledge of all bank and/or securities accounts
maintained in their name at institutions other than Lender or Fleet
National Bank on or before March 5, 1999, or close such account and
provide confirmation thereof to Lender, (ii) hereby represent that
they have sent out letters to each such bank or securities firm, and
(iii) shall
2
<PAGE>
provide such acknowledgements for any other accounts they may open
from time to time;
(i) Borrower shall provide such other agreements and instruments as the
Lender reasonably deems necessary to carry out the terms and
provisions of this Agreement.
2. 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:
a) Modification to Credit Agreement
(i) Section 1.1(b) is hereby amended by adding the following at the end of
the paragraph:
The Revolving Loan shall be segregated into four separate facilities:
(i) Borrowing Base Facility equal to $5,130,000; (ii) Unrestricted
Facility equal to $2,220,000.; (iii) Tax Facility equal to
$4,450,000.; and (iv) the Maximum ISP L/C Liability Facility in the
amount of $3,200,000 (collectively, the "Facilities" and individually,
a "Facility").
(ii) Section 1.3 is hereby amended to add a subparagraph (c) as follows:
Section 1.3(c) Each Notice of Borrowing shall indicate which Facility
of the Revolving Loan the Borrower seeks to utilize for its borrowings
and shall attach the referenced items necessary as conditions
precedent to a drawing under the appropriate Facility. No Facility can
be drawn as a Eurodollar Loan and all existing drawings are deemed to
be Prime Rate Loans.
(iii) Section 4.2(b)(i) is hereby deleted in its entirety and is replaced
with a new Section 4.2(b)(i) as follows:
Section 4.2(b)(i) In the event that the value of the Borrowing Base of
the Borrower
3
<PAGE>
and Subsidiary Guarantors falls below $3,600,000 less year end
adjustments for fiscal year 1998 for inventory and accounts receivable
which comprise the Borrowing Base, the Borrower shall within fifteen
days of the time of submission of the report make a payment in
reduction of the Revolving Loan, in the amount equal to the difference
between $3,600,000 less year end adjustments for fiscal year 1998 for
inventory and accounts receivable which comprise the Borrowing Base
and the valuation shown on the periodic Borrowing Base certificate
provided for in Section 8.14.
(iv) Section 6.2 is hereby modified to delete subparagraphs (g) and (h) and
to add new subparagraphs (g) and (h) as follows:
g. After giving effect to the amount of the requested Loan, the amount
outstanding under the Borrowing Base Facility shall not exceed the
lesser of (i) $5,130,000. and (ii) the amount of current Borrowing
Base plus $100,000.
h. The Borrower has submitted a Borrowing Base certificate which shows
the value of the current Borrowing Base to be at least $3,700,000 less
year end adjustments for fiscal year 1998 for inventory and accounts
receivable which comprise the Borrowing Base.
(iv) Section 6.2 is hereby modified to add the following:
(j) With respect to each Revolving Loan advanced under the
Unrestricted Facility, the Borrower need not comply with items (g) and
(h) of this Section 6.2, but in no event shall the amounts outstanding
under the Unrestricted Facility exceed $2,220,000. after giving effect
to the requested Loan.
(k) With respect to each Revolving Loan under the Tax Facility, (i)
the Notice of Borrowing shall be accompanied by a certificate from the
Borrower's chief financial officer stating that an amount equal to the
amount of the Loan sought is necessary to pay federal and state income
tax liability for tax year 1999 and shall
4
<PAGE>
attach a true, accurate and complete copy of the federal and state
income tax forms to be filed by Borrower; (ii) in no event shall the
amounts outstanding under the Tax Facility exceed $4,450,000. after
giving effect to the requested Loan; and (iii) the Borrower need not
comply with items (g) and (h) of this Section 6.2.
(l) After giving effect to the amount of a requested Revolving Loan,
the amount outstanding under the Revolving Loan Commitment shall not
exceed in any event or under any circumstances the sum of $15,000,000.
(v) Section 9.18 is hereby deleted and replaced with a new Section 9.18,
which is hereby added as follows:
Section 9.18 Minimum Sales. Based upon the Borrower's projections, the
Borrower covenants that the consolidated sales of the Borrower
including the Subsidiary Guarantors on a consolidated basis shall not
be less than the following amounts for each of the months specified:
January 1999 $4,320,000.
February 1999 $3,215,000.
March 1999 $3,513,000.
April 1999 $3,295,000.
May 1999 $3,236,000.
June 1999 $3,335,000.
(vi) Section 9.19 is hereby deleted and replaced with a new Section 9.19,
which is hereby added as follows:
Section 9.19 Earnings Covenant. Based on the Borrower's projections,
the Borrower covenants that the Consolidated EBITDA of the Borrower
including the Subsidiary Guarantors shall not be less than the
following amounts for each of the months specified:
January 1999 $ 875,000.
February 1999 $6,862,000.
5
<PAGE>
March 1999 $ 710,000.
April 1999 $ 662,000.
May 1999 $ 649,000.
June 1999 $ 677,000.
(vii) Section 9.20 is hereby deleted and replaced with a new Section 9.20,
which is hereby added as follows:
Section 9.20 Ratio of Current Assets to Current Liabilities. Borrower
including the Subsidiary Guarantors on a consolidated basis shall not
permit the ratio of Current Assets to Current Liabilities to be less
than .75:1.0 at all times and from time to time.
(viii) Section 9.21 is hereby deleted and replaced with a new Section 9.21,
which is hereby added as follows:
Section 9.21 Interest Coverage Ratio. The Borrower including the
Subsidiary Guarantors on a consolidated basis, shall not permit the
Interest Coverage Ratio to be less than 1.5:1.0.
(x) Section 10.11 is hereby deleted and replaced with a new Section 10.11
is hereby added as follows:
10.11 Decrease in the Value of the Borrowing Base. The value of the
Collateral comprising the Borrowing Base, as shown on a certificate
required under this Agreement or otherwise, decreases by more than
$300,000. from $3,700,000. less year end adjustments for fiscal year
1998 for inventory and accounts receivable which comprise the
Borrowing Base.
(xi) Section 11.1 is hereby modified to provide that the following terms
will have the following revised definitions:
"Applicable Margin" shall mean (a) in the case of Revolving Loans which are
Prime Rate Loans, 1% and (b) in the case of the Interim Loan, 1%.
6
<PAGE>
"Interim Loan Maturity Date: shall mean June 30, 1999.
"Revolving Loan Maturity Date" shall mean June 30, 1999.
3. Reaffirmation by the Borrower. The Borrower acknowledges that (a) it is
legally, validly and enforceably indebted to Lender under the Revolving Note and
the Interim Note, without offset, claim, defense, counterclaim or right of
recoupment, (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 and the other Credit Documents, and (c) as of the date hereof, the
amount outstanding under (w) the Revolving Note is $11,845,725 (consisting of
$11,800,000. principal and $45,725. accrued interest); (x) the undrawn amount
under the Letter of Credit is $3,025,718.25. as of January 31; (y) the Interim
Note is $1,003,875. (consisting of $1,000,000 principal and $3,875. accrued
interest), and (z) the amount outstanding under the Mortgage Loan made by First
Union to Borrower is $1,363,999.91 plus applicable interest, reserves and
escrows. In addition, Fleet National Bank's affiliate, Fleet Precious Metals,
Inc., has a separate facility to the Borrower in the approximate amount of
$1,126,000.00 as of February 19, 1999 representing 3,877 troy ounces pursuant to
a consignment agreement (the "Consignment Agreement") in connection with the
consignment of gold (the "Gold Liability") and Lender has a separate equipment
leasing facility to SPM Holding dated October 24, 1995 which have amounts
outstanding under Schedule 1 of $298,364., Schedule 2 of $305,403. and Schedule
3 of $535,134. plus any applicable interest, fees and other costs (the "Lease
Liability"), all of the separate obligations of the Borrower and Subsidiary
Guarantors under the Gold Liability and the Lease Liability are due and owing
without offset, claim, defense, counterclaim or right of recoupment. 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 and the Interim Note. The
Borrower represents that except as described on Current Report for the period
ended September 30, 1998 of the Borrower, which
7
<PAGE>
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. The amount due under the Term Loan which is being paid off
by wire transfer from the proceeds of the Retconn Sale is $15,104,102.42 as of
February 19, 1999.
4. 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 is or 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, 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 and
remain in full force and effect.
5. Other Representations and Agreements by Borrower and Subsidiary
Guarantors. The parties agree that to the best of their knowledge they are not
aware that any Default or Event of Default has occurred and is continuing, other
than as set forth herein on Schedule 5 annexed hereto and made a part hereof and
that the Lender has not given its consent to or waived any Default or Event of
Default other than set forth on Schedule 5. The Borrower and the Subsidiary
Guarantors represent, warrant and confirm that 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
except to the extent that the Borrower and Subsidiary Guarantors make no
representation or warranty as to the effectiveness of the ASPBV guaranty under
Dutch law. The Borrower and each Subsidiary Guarantor confirm 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 parties acknowledge and agree that the Credit Agreement, the
Credit Documents, the Consignment
8
<PAGE>
Agreement and this Agreement (all as previously amended, modified or
supplemented in writing 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 parties hereto acknowledge and agree that the
parties hereto have not made any representation except as expressly set forth in
this Agreement and even if any such representations were made, the parties have
not relied on any such representation except as expressly set forth in this
Agreement. The Borrower and each of the Subsidiary Guarantors represent and
confirm that as of the date hereof, neither the Borrower nor any of the
Subsidiary Guarantors has any claim or defense (and to the extent any such
defense exists 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 and the
Loans and the remedies provided for under the Credit Agreements.
6. Release of Lender.
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 RELEASE, REMISE AND DISCHARGE THE LENDER ITS
SUBSIDIARIES AND AFFILIATES AND ALL OF THEIR PAST AND PRESENT OFFICERS,
DIRECTORS, REPRESENTATIVES, EMPLOYEES, ATTORNEYS OF AND FROM ALL ACTIONS, CAUSES
OF ACTION, SUITS, REBORROWINGS, CONTROVERSIES, AGREEMENTS, PROMISES, DAMAGES,
JUDGMENTS, 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
ACTION OF THE LENDER OCCURRING TO AND INCLUDING THE DATE OF THIS AGREEMENT.
7. Letters of Credit. The maturity of all letters of credit issued in
connection with revolving commitment including the ISP Letter of Credit shall
not be extended for a term beyond July 15, 1999 and the amount of letters of
credit outstanding on June 30, 1999 shall be secured by cash or marketable
securities other than securities issued by the Borrower at the Lender's ordinary
and customary margin requirements.
9
<PAGE>
8. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York (without regard to such
State's conflicts of law principles).
9. Representation. The execution and delivery of this Agreement and all of
the other Loan Documents are within the Borrowers' and each Subsidiary
Guarantor's powers, corporate or otherwise, have been duly authorized or will be
ratified by all necessary corporate action, and do not contravene, or constitute
a default under any provision of applicable law or regulation of any of its
corporate documents or of any agreement, judgment, injunction, order, decree or
other instrument binding upon the Borrowers and the Subsidiary Guarantors. The
execution and delivery of this Agreement by the Lender are within Lender's power
and has been duly authorized.
10. Acceleration. In the event that the Borrower or any Subsidiary
Guarantor defaults in the prompt payment of the aforesaid obligations or in the
due performance of or compliance with any of the terms or conditions hereof or
of the Credit Documents or if the Borrower or any Subsidiary Guarantor defaults
under any obligations to Fleet National Bank or its affiliates under the Gold
Liability or otherwise or any other loan or facility with Lender under the Lease
Liability or otherwise and after the expiration of any applicable grace, notice
and right to cure provisions in this Agreement or any applicable agreement under
which such default occurred , the Lender may declare all of the obligations in
accordance with the original terms of the Loan Documents to be immediately due
and payable.
11. Remedies. In the event of a demand or default, the Lender shall have
such rights and remedies as are provided and permitted by the Loan Documents and
applicable law.
12. Loan Documents Remain Effective. Except for any modification
specifically set forth herein or in the exhibits, the Loan Documents remain in
full force and effect. Nothing herein shall be construed as a waiver of any
rights or remedies which the Lender may have at law, equity, under the Loan
Documents, as modified hereby, or otherwise, all of which are specifically
reserved.
10
<PAGE>
13. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
14. Amendments, Etc. No amendment, modification, termination, or waiver of
any provision of this Agreement, nor consent to any departure by the parties
from this Agreement, shall in any event be effective unless the same shall be in
writing and signed by the Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
15. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the Lender and the Borrower, the Subsidiary Guarantors and
their respective successors and assigns, except that the Borrower and Subsidiary
Guarantor may not assign or transfer any of its rights under this Agreement
without the prior written consent of the Lender.
16. No Waiver. No delay or omission in the exercise of any power or remedy
herein provided or otherwise available to the Lender shall impair or affect the
Lender's right thereafter to exercise same, including the execution of the
Agreement.
17. Submission to Jurisdiction. (i) Any legal action or proceeding with
respect to this agreement or any document related hereto may be brought in the
courts of the State of New York or of the United States of America for the
Southern District of New York, and, by execution and delivery of this Agreement,
the Borrower and Subsidiary Guarantors hereby accept for itself and in respect
of its property, generally and unconditionally, the jurisdiction of the
aforesaid courts. The parties hereto hereby irrevocably waive any objection,
including, without limitation, any objection to the laying of venue or based on
the grounds of forum non conveniens, which any of them may now or hereafter have
to the bringing of any such action or proceeding in such respective
jurisdiction.
(ii) The Borrower and Subsidiary Guarantors irrevocably consent to the
service of process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
11
<PAGE>
postage prepaid, to the Borrower at its address, and such service will become
complete three days after the date such process is so mailed.
(iii) Nothing contained in this Paragraph 21 shall affect the right of the
Lender to serve process in any other manner permitted by law or commence legal
proceedings or otherwise proceed against the Subsidiary Guarantor in any other
jurisdiction.
18. Expenses. The Borrower shall promptly pay all expenses of the Lender
with respect to: (i) the drafting, negotiation and enforcement of this Agreement
and the documents executed in connection therewith, including, but not limited
to, reasonable attorneys fees and disbursements and the fees incurred in
connection with the January 13, 1999 Fifth Modification Agreement and
Forbearance Agreement and foreign counsel fees; (ii) inspection and evaluation
of any collateral, from time to time, including collateral audits and
appraisals; (iii) any filing, recording, title insurance or other fees and taxes
or search fees incurred in protecting, perfecting and insuring the Lender's lien
or security interest in the Collateral; (iv) all out of pocket expenses in
connection therewith incurred by the Lender, including, but not limited to, site
visits to view and observe the Collateral; (v) any fees due to
PriceWaterhouseCoopers in connection with their work as consultants; and (vi)
Borrower shall pay a restructuring fee in the sum of $50,000. on June 30, 1999
if the Interim Loan, Revolving Loan and ISP Letter of Credit liability has not
been paid in full and terminated, as the case may be. Borrower authorizes Lender
to debit any account for the payment of any such fees and disbursements if such
amounts are not paid as and when due.
19. Lender Releases. (i) Upon receipt of the indefeasible payment of the
proceeds from the Retconn Sale, Lender hereby releases the Sold Subs from any
liability under the Subsidiary Guaranty and the Subsidiary Security Agreement
and acknowledges that the Term Loan has been paid in full.
(ii) The obligations of the Borrower to cause it to perform certain
obligations set forth in the Fifth Amendment and Forbearance Agreement set forth
in Schedule 19(ii) have been waived by the Lender.
12
<PAGE>
20. 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 REVOLVLING NOTE, THE INTERIM
NOTE, THE TERM NOTE, THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS IS A PARTY 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 DURESS, AND ONLY AFTER EXTENSIVE
CONSIDERATION OF THE RAMIFICATIONS OF THIS WAIVER WITH ITS ATTORNEYS.
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
13
<PAGE>
TYPE III, INC.
By: /s/ Douglas G. Sages
-------------------------
Name: Douglas G. Sages
Title: Secretary
SPM HOLDINGS CORPORATION
By: /s/ Douglas G. Sages
-------------------------
Name: Douglas G. Sages
Title: Secretary
THERMAL PACKAGING SOLUTIONS, INC.
By: /s/ Douglas G. Sages
-------------------------
Name: Douglas G. Sages
Title: Secretary
ASP, B.V.
By: /s/ Gilbert D. Raker
-------------------------
Name: G. D. Raker
Title: Chairman
Lender:
FIRST UNION NATIONAL BANK
By: /s/ Nancy Haskins
-------------------------
Name: Nancy Haskins
Title: Vice President
14
<PAGE>
SCHEDULE OF ALLOCATION OF PROCEEDS OF SALE OF RETCONN
INCORPORATED AND ITS SUBSIDIARIES
Initial Sale Price: $23,900,000
Closing costs, including Compass
Bank and legal fees $ 1,680,000
($100,000 escrow for PwC)
Payment of Term Loan. $15,050,000
Reduction of Revolving Loan
but available to pay federal
and state income taxes for tax
year 1999. $ 4,450,000
Reduction in Revolving Loan
and available for formula
drawing. $ 500,000
Reduction in Revolving Loan
but available for drawing,
without formula compliance. $ 2,220,000
-----------
$23,900,000
Any additional proceeds shall be paid to the Lender in reduction of the
Interim Loan.
<PAGE>
SCHEDULE 5
Financial covenants in Sections 9.8, 9.9, 9.10 and 9.11.
Financial covenant in Section 9.19 for January 1999, only.
<PAGE>
SCHEDULE 19(ii)
Section 1(h) requirement to pay $1,000 per day after February 1, 1999.
Section 1(i) vehicles belonging to S.T. Electronics, Inc. are not
required to be pledged as collateral.
Any requirement that Douglas Sages be employed as Chief Financial
Officer.
Section 23(b) and (c) of the Fifth Amendment and Restructuring Agreement.
Any requirement that all the proceeds from the sale of Retconn be distributed
entirely to the Lender, but only on condition that the proceeds be distributed
as provided in this Agreement and on the Schedule annexed.
Polese Company, Inc
Type III, Inc.
Thermal Packaging Solutions, Inc.
American Silicon Products, Inc.
SPM Holdings Corporation
American Silicon Products, B. V.
International Semiconductor Products Pte Ltd
Semiconductor Materials S.A. R. L.
INDEPENDENT AUDITOR'S CONSENT
To the Board of Directors
SEMX Corporation
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
February 5, 1999, except for Note 15 as to which the date is February 19, 1999,
related to the consolidated balance sheet of SEMX Corporation and Subsidiaries
as of December 31, 1997 and 1998, and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1998, which report appears in the December 31,
1998 annual report on Form 10-K of SEMX Corporation.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
April 15, 1999
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