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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, 1999
/ / 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 (IRS 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 18
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At March 15, 2000 the aggregate market value of the voting stock of the
Registrant held by non-affiliates was approximately $62,807,779.
At March 15, 2000 the Registrant had 6,116,741 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
2000 Annual Meeting of Stockholders
which will be held on May 16, 2000.
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PART I
Item 1: Business
(a) General. SEMX Corporation consists of a Delaware corporation and its
wholly owned and majority owned subsidiaries (collectively the "Company").
The Company primarily provides specialty materials and services to the
microelectronic and semiconductor industries on a worldwide basis through
its Materials and Services Groups.
At the end of fiscal 1999, the Company's Materials Group consisted of the
operating division of the parent company Semiconductor Packaging Materials
Co. ("SPM") and its subsidiary, Polese Company, Inc. ("Polese"). The
Materials Group primarily designs, develops, manufactures and markets
metal matrix heat dissipation products, assembled products and components
that utilize the heat dissipation products, bonding wire, precision metal
stampings, seal frames, tape and reel packaged products and other
specialty products and materials. Such products are incorporated into
electronic components used in high end internet servers, the wireless
products industry, automotive control systems, fiber optic packages and
thermal management in the RF industry. The Company also serves related
markets outside of the electronics industry. 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. The Company sold 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 harness assemblies.
The Company's Services group consists of its American Silicon Products,
Inc. ("ASP") and American Silicon Products B.V. ("ASP BV") subsidiaries 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.
History - The registrant, SEMX Corporation, 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 financial and management resources to further the
growth of the companies.
Acquisitions
In 1993, the Company acquired Polese. Polese manufactures and markets heat
dissipation products and assembled products which incorporate the heat
dissipation materials, seal frames 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. At the time of acquisition, the Company acquired from Frank J. Polese
all of the rights, including, but not limited to, a patent which had been
recently 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.
In that same year, 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.
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. 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 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.
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Dispositions
In February 1999, the Company completed the sale of its Retconn and S.T.
connector businesses (collectively "Retconn") to Litton Systems Inc.
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 relevant only 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
Thermal Management - Thermal management products are used to conduct heat away
from critical areas of electronic components. Areas utilizing this product line
includes high power wireless communication devices and high-speed microprocessor
packages. Polese utilizes a patented, proprietary method to manufacture
copper/tungsten heat dissipation products. Polese has developed or acquired a
family of other metal matrix composites to become a full service provider of
thermal management solutions. The other products include Silvar, Nitral(TM) and
AlSiC. 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 1998, Polese
bought the rights to Alcoa's AlSiC technology, which is used for thermal
management products as well as various electronic application.
Other 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, complex
parts for the medical supply and various other industries.
Wire, Stampings and Tape on Reel Products - The Company manufactures bonding
wire that is used to conduct electrical signals between two points of a circuit.
Further, it produces precision metal stampings out of various metals for
interconnect or heat dissipation purposes. Since many of the Company's customers
are unable to accommodate bulk shipments of the final stampings, the Company
offers a selection of packaging options. The main alternative option is tape on
reel packaging to support surface mount assembly operations. Bonding wire is
primarily manufactured from pure aluminum or gold alloys: stamping from
aluminum, copper, molybdenum, kovar, invar, silicon carbide or a combination of
these materials (including clad materials); and tape on reel which packaging
method utilizes plastic tape manufactured for the individual products being
inserted.
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. Reclaimed wafers are used in the evaluation and
testing of equipment and processes in semiconductor fabrication.
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 reevaluated and rated on an
ongoing basis. The Company's precious metals vendors include Fleet Precious
Metals, Sigmund Cohen, Handy and Harmon and Degussa Metz Metallurgical Corp.
SPM makes extensive use of precious metals, including gold, as raw materials in
the manufacture of certain products. 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 SPM'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 SPM is required to replace the gold. The prices paid by SPM for its
purchases are generally based upon the Comex or the Second London gold price and
are fixed automatically on a first-order, first-priced basis. SPM pays for gold
in cash as of the date of purchase and pays a fee computed daily, currently at
the rate of 5.5% per annum, based upon the value of gold consigned SPM. The
revised and amended agreement with Fleet expires on June 30, 2000. The Company
believes that there are alternative sources of supply for SPM's gold
requirements in the event that the agreement with Fleet is terminated.
Production Process
Products manufactured to customer specifications account for almost all of the
Company's total revenues.
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The manufacturing process for metal matrix composite thermal management 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.
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 utilized 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. The Company ships stampings in bulk form or employs packaging
methods to integrate its stampings with automated manufacturing equipment
utilized by its customers.
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. 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 backside 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.
SPM 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"), and employs 25 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, 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 greatly aids 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 received QS
9000 Quality certification during 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, 2000, the Company had arrangements with 24 sales
representatives in the United States and 16 sales representatives 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. 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.
The Company currently employs 27 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
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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 recent years these
efforts have led to the development of various new products and processes.
The Company has expanded its product lines and processing capabilities through
various acquisitions and a joint venture 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 high end
internet server, wireless communications, automotive, aerospace, military,
medical and semiconductor industries. The Company's customers include Kyocera
America, Motorola, IBM, Texas Instruments, National Semiconductor, Hewlett
Packard, Analog Devices, Lucent, 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, 1999 and 1998, sales of the Company's products
to the Company's five largest customers accounted for approximately 41% and 29%,
respectively, of the Company's revenues. For the year ended December 31, 1999,
two customers accounted for approximately 21% and 10% of the Company's total
revenues. For the year ended December 31, 1998 a single customer accounted for
10% 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, 1999
and 1998, direct sales of the Company's products into foreign markets accounted
for approximately 24% and 18%, respectively, 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 it 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 December 31 1999 and 1998, the Company's backlog of orders which
are believed to be firm, and exclude Retconn and ST, was approximately
$17,184,000 and $15,161,000, respectively. The Company believes that the
majority of the Company's backlog of orders existing as of December 31, 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, Williams Advanced Materials, Climax Specialty
Metals, Inc., Exsil, Sumitomo Corporation, and Kobe. The Company believes that
it is one of a limited number of manufacturers which produces all of its primary
products and services. The Company believes that this capability provides an
advantage in marketing products to customers that seek to limit the number of
their suppliers.
The ability of the Company to compete successfully will depend in large measure
on its ability to fund and maintain development
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capabilities in connection with upgrading its products and quality control
procedures and to adapt to technological changes and advances in the electronics
industry.
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, as well as others, 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 material, Nitral(TM)and three new patents in 1999. These include:
Heat Dissipating Package for Microcircuit Devices, Heat Dissipating Substrate
for Microelectronic Devices and Fabrication Method and Heat Dissipating Package
for Microcircuit Devices and Process for Manufacture. 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, 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.
Executive Corporate Officers of the Company
Gilbert D. Raker, 56, Chairman of the Board and Chief Executive Officer of the
Company since May 1990; President since December 31, 1995: Vice President of the
Company from November 1988 until May 1990.
Frank J. Polese, 43, Vice-Chairman of the Company since January 1996 and a
Director of the Company since July 1993. In December of 1999, in addition to
remaining as Vice-Chairman of the Company, he was appointed as the President of
the Company's Materials Group. 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, 61, 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.
Richard J. Brown, 50, President of the ASP subsidiary since May 1999, joined
ASP in June 1995 as Vice President of Finance. Prior to joining ASP, Mr. Brown
held a number of positions within Kendal Company, last serving as Director of
Risk and Asset Management.
Mark A. Koch, 41, Chief Accounting Officer, and Secretary of the Company since
February 1999; joined the Company in September
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1998 as Corporate Controller. Prior to joining the Company, Mr. Koch was
Corporate Controller of Reunion Industries, Inc. a publicly traded manufacturer
of specialty plastics and molded products. Prior to joining Reunion
Industries, Mr. Koch was Assistant Corporate Controller of Terex Corporation.
Employees
As of February 28, 2000, the Company employed approximately 615 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 SPM'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 3,000 square foot facility in
Casablanca, Morocco in January 1999 to supply various products to North Africa
and Europe. In May 1999 SPM opened a 3,440 square foot facility in Penang,
Malaysia to supply the Asian markets.
Polese entered into an agreement to lease approximately 24,211 square feet of
industrial space at 10103 Carroll Canyon Road and 34,615 square feet 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 January 1,
2000 and expires on December 31, 2002 and calls for a monthly rental of $ 6,678
with an increase of 4% effective January 1, 2001. In addition, Polese entered
into a lease for a facility adjacent to its 10111 Carol Canyon Road facility for
22,976 square Feet. The lease commenced on February 25, 2000 and extends through
December 31, 2005 and calls for an initial payment of $15,843 for the first year
and increasing 4% for each year thereafter. The facilities are suitable for the
Company's current and future needs. 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. The Company completed its remaining lease obligations
regarding two leased facilities in Garland, Texas and vacated these facilities
as of February 28, 1999. American Silicon Products, B.V.'s operations are
located in a Company owned facility of approximately 25,800 square feet at
Achterdijk 8, 5705 CB, Helmond, Netherlands. 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.
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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.
During 1998, the Securities and Exchange Commission conducted an investigation
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 a
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, 1999.
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PART II
Item 5: Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock trades on the NASDAQ National Market (Ticker
Symbol: SEMX). The prices of the Company's Common Stock for each quarter
during 1999 and 1998 were as follows:
1999 1998
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HIGH LOW HIGH LOW
1st Quarter............... 4-3/4 1-3/8 9-1/2 7-1/4
2nd Quarter............... 3-3/8 1-1/2 8-1/2 5
3rd Quarter............... 6-1/2 3-1/8 6-1/2 2-1/8
4th Quarter............... 8 5-1/6 4-7/8 2-1/16
As of March 15, 2000 there were approximately 89 holders of record of the
Company's Common Stock. On March 15, 2000, the high and low bid price of the
Common stock was $13 3/4 and $12 3/4 per share, respectively. The Company paid
no dividends on its Common Stock in 1999 or 1998.
On March 26, 1999, the Company's Board of Directors unanimously adopted a
shareholders rights plan (the "Rights Plan"), commonly referred to as a poison
pill. Under the Rights Plan, shareholders of record on June 15, 1999 (unless
excepted under the terms of the Rights Plan), until the distribution date, will
receive rights to purchase a unit consisting of one one-thousandth of a Series
of Preferred Shares of the Company at $50 per unit.
The Board of Directors may declare a distribution date within ten (10) business
days following (i) the acquisition of or right to acquire, by a person or group,
fifteen (15) percent or more of the outstanding shares of the Company or (ii)
the commencement of a tender offer or exchange offer that would, if consummated,
result in a person or group owning fifteen (15) percent or more outstanding
shares of the Company. Upon the declaration of a distribution date, each holder
of the right will have the right to receive, upon exercise, common shares having
a value equal to two times the exercise price of the right. In the alternative,
the Board of Directors, at its option, may exchange all outstanding and
exercisable rights for common shares at an exchange ratio of one common share
per each right. The Board may redeem the rights prior to an event triggering a
distribution date at $.001 per right.
<PAGE>
Item 6: Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
(In thousands except per
share amounts) 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Operating Data:
Revenue $ 28,064 $ 46,027 $ 71,076 $ 65,903 $ 63,524
Net income (loss) $ 2,526 $ 3,805 $ 3,793 ($11,958) $ 7,383
Amounts Per Common Share:
Basic $ .53 $ .64 $ .62 ($ 1.98) $ 1.22
Diluted $ .50 $ .62 $ .61 ($ 1.98) $ 1.19
Weighted average number
of common and common
equivalent shares:
Basic 4,784 5,968 6,070 6,054 6,047
Diluted 5,064 6,170 6,232 6,054 6,223
Dividends declared $ 0 $ 0 $ 0 $ 0 $ 0
Balance Sheet Data:
Working capital (deficiency) $ 9,175 $ 10,947 $ 9,486 ($14,064) $ 4,213
Total assets $ 36,071 $ 56,489 $ 91,865 $ 82,324 $ 61,072
Long-term obligations
excluding current portion $ 2,863 $ 12,432 $ 32,717 $ 13,055 $ 13,335
Shareholders' equity $ 29,261 $ 33,940 $ 37,458 $ 25,371 $ 32,564
</TABLE>
1) Financial data presented includes the results of the following acquisitions
and disposition: 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 transactions please
reference the Management Discussion and Analysis, Liquidity and Capital
Resources sections. Dispositions - On February 19, 1999, the Company sold
its Retconn and S.T. businesses.
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:
Fiscal Year Ended
December 31 1999 1998 1997
---- ---- ----
Net Sales 100.0 100.0 100.0
Cost of Sales 66.6 80.6 71.3
Gross Profit 33.4 19.4 28.7
Selling, General and
Administrative Expenses 22.1 24.0 16.9
Operating Income (loss) 11.2 (21.6) 11.8
Interest Expense (Net) 3.1 5.3 3.7
Income (Loss)
before Income Taxes 21.4 (26.9) 8.1
Provision (Credit)
for Income Taxes 9.8 (8.3) 3.1
Net Income (Loss) 11.6 (18.1) 5.3
RESULTS OF OPERATIONS (1999 COMPARED TO 1998)
Total revenue for the 1999 period of $63,524,000 decreased $2,379,000 or 3.6%
from the comparable 1998 period. On February 19, 1999, the Company sold its
connector business, ("Retconn") as described herein. Retconn had sales through
the February 1999 disposition date of $2,122,000 compared to sales of
$17,974,000 for the year 1998. Excluding Retconn sales from all periods
presented, the Company's total revenue for 1999 increased $13,473,000 or 28.1%.
The Materials Group includes the Company's SPM, Polese and Retconn business
units. Excluding Retconn, the Materials Groups 1999 sales of $44,544,000
increased $14,994,000 or 50.7% from 1998 levels. SPM's 1999 sales increased by
$191,000 or 1.5% as compared to the comparable 1998 periods. Polese Company's
1999 sales increased by $14,803,000 or 89.5% as compared to the prior year
periods. Polese sales have increased due to improved sales of thermal management
products, microprocessor lids, wireless technology products and the introduction
of new products.
The Company's Services Group 1999 revenues decreased $1,521,000 to
$16,858,000 for 1999 as compared to the prior year. The Service Group
includes the Company's American Silicon Products ("ASP"), American Silicon
Products B.V. ("ASP B.V.") and International Semiconductor Products Pte. Ltd.
("ISP") business units. The Services Group 1999 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. Further, in July of 1998,
the Company closed its Texas operations and consolidated all of ASP's
domestic business into its Rhode Island facility. The 1999 and 1998 periods
included $0 and $1,537,000, respectively, in revenue from the Texas
operation. The Service Group's revenue from ASP's U.S. and European
operations for the year 1999 decreased a total of $2,515,000 or 16% as
compared to the comparable 1998 periods. Revenue from ISP of $2,930,000 for
1999 increased by $994,000 or 51% over the comparable 1998 periods.
Direct sales of the Company's products into foreign markets as a percentage of
consolidated revenue during 1999 was 24% compared to 18% for 1998. 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."), in
Malaysia, SPM ("MSDN.BHD") and in Singapore, ISP. In 1999, the Company derived
revenue from ASP B.V. of $3,260,000, from S.A.R.L. of $770,000, from MSDN.BHD of
$115,000 and from ISP of $2,930,000. Foreign sales made through the Company's
domestic operations are made through foreign manufacturer's representatives and
are priced and paid for in U.S. dollars. Sales for ASP B.V., S.A.R.L., MSDN.BHD
and ISP are conducted in the local currencies of Dutch Guilders, Dirhams,
Ringits, and Singapore Dollars, respectively, and account for 11% of
consolidated revenues in 1999 and are subject to currency fluctuations.
The Company's consolidated backlog as of December 31, 1999 was $17,184,000 and,
excluding the backlog from the Retconn business, was $15,161,000 at December 31,
1998. The Polese backlog which was $5,003,000 at the end of 1998, has improved
to $8,117,000 as of December 31, 1999. The backlog for SPM increased $219,000 to
$3,440,000 as of December 31, 1999. The backlog for ASP decreased $1,310,000 to
$5,627,000 since the end of 1998.
GROSS PROFIT
Gross profit of $21,206,000 for 1999 increased $8,428,000 or 66%, from the
comparable 1998 periods. Excluding Retconn from all periods presented, 1999
gross profit increased by $12,456,000 or 159%, from 1998 levels. Without Retconn
the Materials Group's 1999 gross profit of $16,427,000 increased $11,804,000 or
255% as compared to 1998. The Materials Group's gross profit
<PAGE>
increases primarily reflected the increased sales at Polese Company. The Service
Group's gross profit of $3,888,000 increased $652,000 or 20% as compared to the
comparable periods in 1998 primarily due to the effects of cost reductions
during 1999.
GROSS MARGINS
The Company's gross margins increased from 19% to 33% over the comparable 1998
period. Excluding Retconn, the Company's gross margin for 1999 increased from
28% to 35%. The Materials Group's 1999 gross margin increased from 16% to 37%
from the comparable 1998 period. The Service Group's 1999 gross margins
increased from 18% to 23% from the comparable 1998 periods, reflecting the
consolidation of domestic operations and improved performance at ISP.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expenses in 1999, decreased
$1,727,000 or 11% from the comparable 1998 periods. The decrease in SG&A in 1999
reflects savings realized by the closing of the Services Group Texas Plant
during the second quarter of 1998 as well as reductions in SG&A due to the sale
of Retconn. Excluding Retconn, 1999 SG&A increased by $1,638,000 or 14%.
SG&A expenses as a percentage of revenue decreased from 24% in 1998 to 22%
in 1999 as a result of the above.
SPECIAL CHARGES
In 1998, the Company recorded special charges of $11,217,000, primarily related
to adjustments of the carrying values of the Company's Service Group assets and
the closing of a Service Group plant. During 1998 the Company performed 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 a more severe than anticipated market decline, the
division continued operating at a loss in 1998 which 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 were eliminated. Due to
financial problems experienced during 1998, at the Service Groups 50.1% 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 recorded no special charges during the year ended December 31, 1999.
GAIN ON SALE OF CONNECTOR BUSINESS
Income before income taxes and minority interest for 1999 includes a pretax gain
of $8,430,000 on the sale of Retconn to Litton Corporation on February 19, 1999
as described below in Liquidity and Capital Resources.
INTEREST EXPENSE (NET)
Net interest expense for 1999 decreased $1,515,000 from the comparable 1998
periods. The decrease in net interest expense is due to reduced debt levels from
February 19, 1999 forward due to the principal repayments from proceeds from the
sale of the Retconn business.
PROVISION (CREDIT) FOR INCOME TAXES
A provision of $6,201,000 for income taxes has been made for 1999 as compared to
a credit of $5,500,000 for the comparable 1998 periods. The provision in 1999
includes $4,527,000 associated with the gain on the sale of Retconn. The Company
has Federal net operating loss carryforwards available to offset a substantial
portion of the income tax return liability associated with the gain. The credit
for 1998 includes a $3,477,000 income tax credit associated with the special
charges recorded during that year.
MINORITY INTEREST
In 1999 and 1998 the Company has included income of $31,000 and loss of $244,000
respectively, associated with ISP in its income (loss) before minority interest
in (income) loss of consolidated subsidiary, net of tax. The Company has a 50.1%
interest in the joint venture and has accordingly, excluded 49.9% of such income
(loss) from its consolidated net income.
NET INCOME
As a result of the above, net income of $7,383,000 for 1999 increased by
$19,341,000 from the comparable 1998 period.
YEAR 2000
The year 2000 (Y2K) problem was a potential issue for the Company since many
computer programs and some pieces of computer hardware manipulate and store
dates as a two-digit field and were unable to recognize dates past December 31,
1999. In preparation for the year 2000 problem, the Company assessed the systems
and software at all of its operations, including external interfaces with
<PAGE>
critical suppliers and customers. During 1999, the Company replaced
non-compliant hardware, installed new manufacturing enterprise computer software
systems at SPM and installed software upgrades that are year 2000 compliant at
its other locations. The Company completed the installation and testing of these
new systems and upgrades by the end of 1999. Outside suppliers, and customers
were contacted and requested to complete the Company's assessment questionnaire
to determine their readiness.
The Company has expended approximately $500,000 through the end of 1999 in
addressing the potential Y2K problem. The Company experienced no known problems
upon the changeover to the year 2000 with any of its internal systems or
external interfaces with suppliers and customers.
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 on 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 ASP, ASP B.V. and 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 18%
and 15% of consolidated revenue for the years ended December 31, 1998 and
1997, respectively. 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, 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. These sales account for 8% and 6% of the
consolidated revenue for the years ended December 31, 1998 and 1997,
respectively and are subject to fluctuations in foreign currency exchange
rates.
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 was primarily the result of $200,000, $2,334,000 and
$594,000 decreases at Polese, ASP and Retconn, 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 1998, Polese
experienced a significant increase in its backlog from December 1997 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% 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
<PAGE>
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.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
General
To maintain its 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 had Bank short term debt maturities, standby letter of
credit maturities, gold consignment agreements and debt service requirements
which were deferred until October 31, 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 its then existing Bank debt. On
November 1, 1999 the Company entered into a Revolving Credit, Term Loan and
Security Agreement with PNC Bank, National Association ("PNC Bank") as lender
and agent ("the Credit Facility"). The Credit Facility, replaced the existing
revolving credit and interim term loan facilities with First Union and Fleet.
Summary of 1999 Activity
At December 31, 1999, the Company had cash and cash equivalents of $0, due to
the agreement with PNC Bank, and an available balance on its revolving credit
facility of $2,688,000 as compared to $1,141,000 and $200,000 respectively at
December 31, 1998.
Net cash provided by operating activities during 1999 amounted to $9,561,000 as
compared to cash provided of $872,000 in the comparable 1998 period. Cash
provided by operations increased compared to 1998 principally as a result of
1999 income and working capital changes. The decrease in the deferred tax assets
is due to utilization of net operating loss carryforwards generated by the 1998
losses.
Cash provided by investing activities amounted to $19,561,000 during the year
ended December 31, 1999. On February 19, 1999 the Company completed the sale of
Retconn, and realized cash proceeds of $22,191,000. During the years ended
December 31, 1999 and 1998, the Company invested $2,719,000 and $3,063,000,
respectively, in property and equipment. This investment excludes $896,000 and
$3,078,000, respectively, in the 1999 and 1998 periods for equipment acquired
under capital leases.
Net cash used by financing activities amounted to $26,131,000 during 1999 as
compared to cash provided of $916,000 during 1998. During the year ended
December 31, 1999 the Company repaid $23,868,000 under a bank term loan
facilities and $6,173,000 under its Bank revolving line of credit. In addition,
the Company made payments of $2,487,000 under capital leases obligations.
Current Credit Facilities
On November 1, 1999 the Company entered into a Revolving Credit, Term Loan
and Security Agreement with PNC Bank. The Credit Facility replaced the
existing revolving credit and interim term loan facilities with First Union
and Fleet. The Credit Facility, which has a three year term, consists of a
formula based $8,500,000 revolving credit facility and a $6,234,000 term loan
which are secured by substantially all of the Company's domestic assets.
Revolving credit facility availability of up to S$5,000,000 Singapore dollars
(approximately $3,000,000 US) is reserved for issuance of a standby letter of
credit in support of the Company's continuing guarantee of ISP's debt. The
interest rate on revolving credit borrowings are, at the Company's option,
based on either the prime rate or a floating Eurodollar rate plus a margin of
2.75%. At the Company's option, the term loan interest rate is based on
either prime plus 0.5% or a floating Eurodollar rate plus a margin of 3.0%.
Principal payments under the $6,234,000 term loan are due in equal monthly
installments of $74,214 over the three-year term.
Upon the November 2, 1999 funding of the Credit Facility, the Company repaid
its $7,664,000 remaining indebtedness to First Union and Fleet, with a
combination of $6,234,000 borrowed under the PNC term loan and $1,430,000 of
the Company's cash. Upon closing, the Company had excess PNC Bank revolving
credit borrowing availability of over $2,000,000.
The Company has guaranteed S$5,000,000 Singapore dollars (approximately
$3,000,000 US) of the debt of its 50.1% owned Singapore operation ISP. The
guarantee was secured by a standby letter of credit of up to S$5,000,000
Singapore dollars issued by First Union and Fleet in favor of ISP's lenders.
In the event of default, as defined by ISP's lending agreements, ISP's bank
could draw down the S$5,000,000 standby letter of credit provided by the
Company's Bank. On November 1, 1999 in conjunction with the closing of the
Credit Facilities, PNC Bank issued a backup letter of credit in support of
First Union and Fleet's existing S$5,000,000 standby letter of credit. In
January 2000 ISP's lenders accepted PNC Bank's sponsored standby letter of
credit in place of the existing instrument.
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, FPM
and the Bank extended the maturity to October 31, 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 5.5% per annum based upon the value of all gold consigned to
the Company. On November 1, 1999, in conjunction with the closing of the Credit
Facility, FPM and the Bank granted a 90-day extension of the Gold Consignment
<PAGE>
Agreement to permit the Company time to negotiate terms of a new agreement
with FPM. The final agreement with FPM extended the current gold agreement to
June 30, 2000.
Former Credit Facilities - refinanced on November 1, 1999
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"). 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. Coincident with the sale of its
Retconn subsidiary, on February 19, 1999 the Company repaid the remaining
$15,050,000 principal balance outstanding under this term loan.
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 October 31,
1999. This credit line included a standby letter of credit for ISP in the amount
of approximately $3,000,000. Coincident with the sale of its Retconn subsidiary,
on February 19, 1999 the Company repaid $7,141,000 of the outstanding borrowings
under this facility. The remaining principal amount was paid in full in
conjunction with the PNC Bank refinancing described above.
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
October 31, 1999. The remaining principal amount was paid in full in conjunction
with the PNC Bank refinancing described above.
Other
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 from May 1993, 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. During 1999, the Company charged against operations a
total of $500,000 under 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. During 1998 the
Company repurchased 34,600 shares at a cost of $212,000. The Company has
suspended the repurchase of any further stock at this time.
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.
Forward Looking Statements
Portions of the narrative set forth in this document that are not historical in
nature are forward looking statements. These forward-looking statements speak
only as of the date of this document, and the Company expressly disclaims any
obligation or undertaking to publicly release any updates or revisions to any
forward-looking statements contained herein. The Company's actual performance
may differ materially from that contemplated by the forward looking statements
as a result of a variety of factors that include, but are not limited to, the
general economic or business climate, business conditions of the microelectronic
and semiconductor markets and the automotive and communications industry which
the Company serves and the economic volatility in geographic markets, such as
Asia.
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.
<PAGE>
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:
<TABLE>
<S> <C>
Report of Independent Auditors' F-2
Consolidated Balance Sheet as of December 31, 1999 and 1998 F-3
Consolidated Statement of Income for the Years
Ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statement of Shareholders' Equity for the Years
Ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statement of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7 - F-21
</TABLE>
<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)
10.10(a) Company's Employee Stock Option Plan (4)
10.10(b) Company's Amended Employee Stock Option Plan (6)
10.12(a) Stock Purchase Agreement dated April 30, 1993 by and between
Registrant and Frank J. Polese (5)
10.12(b) Asset Purchase Agreement dated April 30, 1993 by and between the
Registrant and Frank J. Polese (5)
10.13(a) Term Loan and Security Agreement dated May 27, 1993, between the
Registrant and Union Trust Company (5)
10.13(c) Promissory Note dated May 27, 1993 from the Registrant to Union
Trust Company (5)
10.13(d) Guaranty and Security Agreement between Polese Company, Inc. and
Union Trust Company (5)
10.15 Lease Agreement dated as of October 22, 1993 between Transamerica
Occidental Life Insurance Company and Polese Company, Inc. (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)
<PAGE>
(c) Subordination and Pledge Agreement (8)
(d) Guaranty and Security Agreement of Parent (8)
(e) Guaranty and Suretyship Agreement of Polese Company, Inc. (8)
(f) Assignment of Patents (8)
10.21 Loan Modification Agreement dated November 23, 1994 to Revolving
Credit Agreement between the Registrant and Union Trust Company (8)
10.22 Form of Modification of Gold Lease Agreement between the Registrant
and Republic National Bank of New York dated December 6, 1994 (8)
10.23(a) Employment Agreement dated as of December 15, 1994 between the
Company and Gilbert D. Raker (8)
10.23(b) Modification of Employment Agreement dated as of December 15, 1994
between Polese Company, Inc and Frank J. Polese (8)
10.23(c) Employment Agreement dated as of December 15, 1994 between the
Company and Kenneth J. Huth (8)
10.25 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.
<PAGE>
(a) Term Loan Agreement
(b) Term Promissory Note
10.31(a) Termination Agreement dated as of October 27, 1995 between the
Company and John P. Holmes, III.
10.31(b) Termination Agreement dated as of October 27, 1995 between the
Company and J. Francis Lavelle.
10.31(c) Termination Agreement dated as of October 27, 1995 between the
Company and Rolf E. Soderstrom.
10.31(d) Termination Agreement dated as of October 27, 1995 among the
Company Peter J. Hurley, Harrison Hurley & Co., Inc and Harrison
Hurley & Co. II, Inc.
10.49 1994 Amendment to Employees' Incentive Stock Option Plan. (9)
10.50 1995 Amendment to Employees' Incentive Stock Option Plan. (9)
10.51 Commercial Grid Note dated May 31, 1995 in the amount of $1,250,000
from the Company to Union Trust Company. (9)
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 Subsidiaries and First Union Bank dated as of January 13, 1999
(14)
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.(14)
<PAGE>
10.65 Sixth Amendment and Forebearance Agreement among SEMX Corporation
and Subsidiaries and First Union National Bank dated as of February
19, 1999.(14)
10.66 Rights Agreement, dated as of June 15, 1999, between the Company
and Continental Stock Transfer and Trust Company (15)
10.67 Seventh Amendment and Forbearance Agreement among SEMX Corporation
and Subsidiaries and First Union National Bank dated as of June
29,1999. (16)
10.68 Employment agreement dated as of August 1, 1999 between the Company
and Gilbert D. Raker (16)
10.69 Employment agreement dated as of August 1, 1999 between the Company
and Frank J. Polese (16)
10.70 Revolving Credit, Term Loan and Security Agreement between the
Company and Subsidiaries and PNC Bank National Association (as
agent and lender) dated November 1, 1999. (17)
10.71 Seventh Amendment, Waiver and Modification to the Consignment
agreement Between Fleet Precious Metal Inc. and SEMX Corporation
dated February 1, 2000
10.72 Form of Intellectual Property Protection Agreement
10.73 Employment agreement dated as of May 1, 1999 between American
Silicon Products, Inc. and SEMX Corporation and Richard Brown.
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 7, 2000.
27 Financial Data Schedule
(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
<PAGE>
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
(14) Incorporated by reference to the Company's Annual Report for
the year ended December 31, 1998, filed with the Securities
and Exchange Commission on April 15, 1999
(15) Incorporated by reference to the Company's Form 8-K filed
June 24, 1999
(16) Incorporated by reference to the Company's 10-Q filed for the
the quarter ended June 30, 1999
(17) Incorporated by reference to the Company's 10-Q filed for the
the quarter ended September 30, 1999
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
================================================================================
Independent Auditors' Report F-2
Consolidated Balance Sheet as of December 31, 1999 and 1998 F-3
Consolidated Statement of Operations for the Years Ended
December 31, 1999, 1998 and 1997 F-4
Consolidated Statement of Shareholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997 F-5
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F-7 - F-21
<PAGE>
INDEPENDENT AUDITORS' 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, 1999 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, 1999. 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, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted accounting principles.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
February 7, 2000
F-2
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
DECEMBER 31, 1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ -- $ 1,141
Accounts receivable, less allowance for doubtful
accounts of $656 and $245, respectively 7,700 8,007
Inventories 5,903 10,447
Prepaid expenses and other current assets 1,024 948
Deferred income tax assets 999 5,643
- ---------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 15,626 26,186
- ---------------------------------------------------------------------------------------------
Property, Plant and Equipment - at cost, net of accumulated
depreciation and amortization of $18,309 and $13,974,
respectively 34,837 38,352
- ---------------------------------------------------------------------------------------------
Other Assets:
Goodwill 8,573 15,938
Technology rights and intellectual property 897 963
Other 1,139 885
- ---------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 10,609 17,786
- ---------------------------------------------------------------------------------------------
TOTAL ASSETS $ 61,072 $ 82,324
=============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 3,846 $ 5,262
Accrued expenses 2,544 2,947
Income taxes payable 589 --
Current portion of long-term debt and short-term obligations 1,893 29,393
Current portion of obligations under capital leases 2,541 2,648
- ---------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 11,413 40,250
- ---------------------------------------------------------------------------------------------
Deferred Income Tax Liabilities 2,431 2,329
Long-term Debt 9,255 6,657
Obligations under Capital Leases 4,080 6,398
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES 27,179 55,634
- ---------------------------------------------------------------------------------------------
Commitments and Contingencies
Minority Interest in Subsidiary 1,329 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 6,396,241 and 6,375,616 shares respectively 640 638
Additional paid-in capital 28,296 28,199
Accumulated other comprehensive loss (611) (322)
Retained earnings (accumulated deficit) 4,451 (2,932)
- ---------------------------------------------------------------------------------------------
32,776 25,583
Less treasury stock: 334,600 shares, at cost (212) (212)
- ---------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 32,564 25,371
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 61,072 $ 82,324
=============================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Net sales $ 46,666 $ 47,524 $ 48,029
Service revenue 16,858 18,379 23,047
- ----------------------------------------------------------------------------------------------------------
63,524 65,903 71,076
- ----------------------------------------------------------------------------------------------------------
Cost of goods sold and services performed:
Cost of goods sold 29,348 37,982 33,185
Cost of services performed 12,970 15,143 17,514
- ----------------------------------------------------------------------------------------------------------
42,318 53,125 50,699
- ----------------------------------------------------------------------------------------------------------
Gross profit 21,206 12,778 20,377
Selling, general and administrative expenses (14,061) (15,788) (11,992)
Special charges -- (11,217) --
- ----------------------------------------------------------------------------------------------------------
Operating income (loss) 7,145 (14,227) 8,385
Gain on sale of connector business 8,430 -- --
Interest expense - net (1,960) (3,475) (2,601)
- ----------------------------------------------------------------------------------------------------------
Income (loss) before provision (benefit) for income
taxes and minority interest in (income) loss of consolidated
subsidiary 13,615 (17,702) 5,784
Provision (benefit) for income taxes 6,201 (5,500) 2,214
- ----------------------------------------------------------------------------------------------------------
Income (loss) before minority interest in (income) loss of
consolidated subsidiary 7,414 (12,202) 3,570
Minority interest in (income) loss of consolidated subsidiary (31) 244 223
- ----------------------------------------------------------------------------------------------------------
Net income (loss) $ 7,383 $(11,958) $ 3,793
==========================================================================================================
Earnings (loss) per common share:
Basic $ 1.22 $ (1.98) $ .62
Diluted $ 1.19 $ (1.98) $ .61
==========================================================================================================
Shares used in computing earnings (loss) per common share:
Basic 6,047 6,054 6,070
Diluted 6,223 6,054 6,232
==========================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
ACCUMULATED
OTHER RETAINED
ADDITIONAL COMPREHENSIVE EARNINGS TOTAL
COMMON STOCK PAID-IN INCOME (ACCUMULATED TREASURY STOCK SHAREHOLDERS'
SHARES AMOUNT CAPITAL (LOSS) DEFICIT) SHARES AMOUNT EQUITY
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 6,355,516 $636 $28,070 $ -- $ 5,233 (300,000) $ -- $ 33,939
Proceeds from exercise of stock
options 20,100 2 129 -- -- -- -- 131
Comprehensive Income:
Net Income -- -- -- -- 3,793 -- -- --
Foreign currency translation
adjustment - net of deferred
taxes of $385 -- -- -- (405) -- -- -- --
Total comprehensive income -- -- -- -- -- -- -- 3,388
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 6,375,616 638 28,199 (405) 9,026 (300,000) -- 37,458
Purchase of treasury stock -- -- -- -- -- (34,600) (212) (212)
Comprehensive loss:
Net loss -- -- -- -- (11,958) -- -- --
Foreign currency translation
adjustment - net of deferred
taxes of $85 -- -- -- 83 -- -- --
Total comprehensive loss -- -- -- -- -- -- -- (11,875)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 6,375,616 638 28,199 (322) (2,932) (334,600) (212) 25,371
Proceeds from exercise of stock
options 20,625 2 56 -- -- -- -- 58
Compensation expense from
stock grants -- -- 41 -- -- -- -- 41
Comprehensive income:
Net Income -- -- -- -- 7,383 -- -- --
Foreign currency translation
adjustment - net of deferred
taxes of $160 -- -- -- (289) -- -- -- --
Total comprehsensive income -- -- -- -- -- -- -- 7,094
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 6,396,241 $640 $28,296 $(611) $ 4,451 (334,600) $(212) $ 32,564
==================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 7,383 $(11,958) $ 3,793
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Gain on sale of connector business (8,430) -- --
Write-offs and accrued special charges -- 9,267 --
Gain on sale of property, plant and equipment (11) -- (56)
Depreciation and amortization of property, plant and equipment 5,079 5,182 4,072
Other amortization 629 1,022 855
Compensation expense from issuance of stock grants 41 -- --
Deferred income taxes 4,906 (5,542) 1,058
Minority interest in subsidiary income (loss) 31 (244) (223)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,007) 2,641 (3,195)
(Increase) decrease in inventories (1,537) 1,994 (2,298)
(Increase) decrease in prepaid expenses and other current assets (217) 539 (322)
Increase (decrease) in accounts payable (483) (2,136) 3,210
Increase (decrease) in accrued expenses (497) 107 1,000
Increase (decrease) in income taxes payable 579 -- (1,497)
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 5,466 872 6,397
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (2,719) (3,063) (13,119)
Net proceeds from sales of connector business 22,191 -- --
Payments for acquisition of subsidiaries, net of cash acquired -- -- (14,939)
Payment for technology rights -- -- (400)
Proceeds from sale of property and equipment 64 -- 278
(Increase) decrease in other assets 25 129 (873)
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 19,561 (2,934) (29,053)
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from exercise of stock options 58 -- 131
Net proceeds under revolving credit 528 4,925 6,875
Payments under capital leases (2,487) (2,222) (1,617)
Payments under long-term debt (30,041) (3,371) (4,263)
Proceeds from long-term debt 6,234 1,796 20,343
Payment of financing costs (423) -- --
Purchase of treasury stock -- (212) --
- ---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (26,131) 916 21,469
- ---------------------------------------------------------------------------------------------------------------------
Effect of foreign translation on cash (37) 27 (84)
- ---------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1,141) (1,119) (1,271)
Cash and cash equivalents at beginning of year 1,141 2,260 3,531
=====================================================================================================================
Cash and cash equivalents at end of year $ 0 $ 1,141 $ 2,260
=====================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year
for:
Interest $ 2,111 $ 3,623 $ 2,654
=====================================================================================================================
Income taxes $ 664 $ 285 $ 2,849
=====================================================================================================================
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Machinery and equipment, net of trade-in, acquired under capital lease $ 896 $ 3,078 $ 4,271
=====================================================================================================================
Accrued amounts relating to acquisition of subsidiary $ 0 $ 0 $ 621
=====================================================================================================================
Notes payable in connection with the acquisition of a subsidiary $ 0 $ 0 $ 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 BUSINESS ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
The accompanying consolidated financial statements include the accounts of
SEMX Corporation ("SPM") and its wholly owned and majority-owned
subsidiaries (collectively the "Company"). All significant intercompany
transactions and balances have been eliminated. As further described in
Note 2, on January 2, 1996, the Company acquired Retconn Incorporated
("Retconn"). 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 2.
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 companies SPM, Polese Company, Inc. ("Polese")
and Retconn (through the February 1999 disposition). The Services Group
includes the Company's American Silicon Products, Inc. ("ASP"), American
Silicon Products B.V. ("ASP BV") 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 stockholders' 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.
F-7
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
================================================================================
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates by management
affecting the reported amounts of assets and liabilities and revenue and
expenses and the disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.
The excess of cost over fair value of net assets acquired (goodwill),
amounting to approximately $10,597 and $18,281 at December 31, 1999 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, 1999 and 1998 was approximately $2,024 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 $1,333 and $1,311 at December 31, 1999 and 1998,
respectively, are being amortized over periods ranging from 11 to 17 years
using the straight-line method. Accumulated amortization at December 31,
1999 and 1998 was approximately $436 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 are 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 to purchase common
stock. Incremental shares of 175,878 in 1999 and 162,536 in 1997 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 No. 130 had no
impact on total shareholders' equity. Prior-year financial statements have
been reclassified to conform with SFAS No. 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.
2. ACQUISITIONS, DISPOSITIONS AND INVESTMENTS:
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. 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
F-8
<PAGE>
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.
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 and ST, 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 was subject to adjustment for
changes in Retconn's closing date balance sheet and in December, 1999
the Company paid Litton $320 in settlement of the final purchase price
adjustment. In addition, the Company is prevented from directly
competing in the connector business for a period of three years. The
Company recorded a pretax gain, during the first quarter of 1999, of
$8,430 on the transaction.
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, 1999 the Company's ownership interest would
have increased to 61%.
Effective January 23, 1997, the Company's Services Group acquired SMS for
approximately $10,400 in cash plus the working capital of SMS as of January
23, 1997, approximately $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, amounted to
approximately $15,609 and liabilities assumed amounted to approximately
$637. SMS provides silicon wafer polishing and reclamation services to the
semiconductor industry. As described in Note 13, the Company closed the
Texas operations of SMS during 1998.
3. INVENTORIES:
The components of inventories are as follows:
December 31, 1999 1998
-----------------------------------------------
Precious metals $1,243 $ 1,245
Nonprecious metals 4,660 9,202
-----------------------------------------------
$5,903 $10,447
===============================================
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.
F-9
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
================================================================================
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost, consists of the following:
<TABLE>
<CAPTION>
Estimated
December 31, 1999 1998 Useful Life
-------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 642 $ 642
Buildings and leasehold improvements 10,856 10,301 1.5 to 39 years
Machinery and equipment 40,771 40,387 3 to 15 years
Construction-in-progress 877 996
-------------------------------------------------------------------------------
53,146 52,326
Less accumulated depreciation and
amortization 18,309 13,974
-------------------------------------------------------------------------------
Property, plant and equipment, net $34,837 $38,352
===============================================================================
</TABLE>
Included in machinery and equipment are approximately $15,229 and $15,531
at December 31, 1999 and 1998 respectively, 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 $5,486 and $3,929 at December 31, 1999 and 1998,
respectively. The property held under these leases is collateral for the
related capital lease obligations described in Note 7. Included in
machinery and equipment and in leasehold improvements are $63 and $75,
respectively, of capitalized interest for the year ended December 31, 1999.
5. ACCRUED EXPENSES:
Accrued expenses consist of the following:
December 31, 1999 1998
-------------------------------------------------------------
Accrued payroll, bonuses and vacations $1,423 $ 801
Other (all amounts are less than 5% of
total current liabilities) 1,121 2,146
-------------------------------------------------------------
$2,544 $2,947
=============================================================
F-10
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
================================================================================
6. LONG-TERM DEBT AND SHORT-TERM OBLIGATIONS:
Long-term debt and short-term obligations consist of the following:
December 31, 1999 1998
------------------------------------------------------------------------
Term loan (a) (c) (g) $ 6,159 $16,050
Line of credit (b) (c) (g) 528 11,800
Term loan (c) (h) - 1,393
Term loan (d) (h) 3,895 4,578
Term loan (e) (h) - 1,482
Term loan (f) (h) 556 684
Other 10 63
------------------------------------------------------------------------
Total long-term debt and short-term obligations 11,148 36,050
Less current maturities 1,893 29,393
------------------------------------------------------------------------
Long-term debt $ 9,255 $ 6,657
========================================================================
(a) The Company entered into a Term Loan and Security Agreement (and a
revolving credit agreement discussed in (b) ) in November 1999 with
PNC Bank N.A. ("PNC") which has a three-year term and is secured by
substantially all of the Company's domestic assets. The term loan
interest, at the Company's option, is based on either prime plus 1/2%
or a floating Eurodollar rate plus an additional margin of 3%. At
December 31, 1999, the interest rate was 9.25%. The term loan of
$6,234 is payable in equal monthly installments of $74.
(b) Pursuant to the November 1999 financing with PNC, the Company entered
into a Revolving Credit Borrowing and Security Agreement ("the
revolving credit facility"). The revolving credit facility has a
three-year term and provides for up to $8,500 in borrowings based upon
eligible accounts receivable and inventory. The revolving credit
facility includes a standby letter of credit for approximately $3,000
($5,000 Singapore dollars) reserved for possible issuance under a
continuing guarantee of a foreign subsidiary's debt. The interest rate
is based on either prime or a floating Eurodollar rate plus a margin
of 2.75%. At December 31, 1999, the interest rate was 8.75% and the
excess revolving credit borrowing availability was $2,688.
(c) During 1999, the Company repaid a remaining 1997 term loan balance of
$15,050, a 1998 interim term loan balance of $1,000 and $11,800
outstanding under a revolving credit line. These amounts were repaid
with the net proceeds from the sale of its connector business,
Retconn, in February 1999 (see note 2 for additional details) and
proceeds from the refinancing with PNC. In addition, the Company
repaid a 1996 term loan used to acquire a building with proceeds from
the PNC refinancing.
(d) In 1997, ISP entered into a S$19,700 (approximately $11,900 at
December 31, 1999) 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 PNC. In the event of default, as defined
by ISP's lending agreements, ISP's bank could draw down the
S$5,000 standby letter of credit provided by PNC. At December 31,
1999, ISP has outstanding S$6,457 (approximately $3,895) under the
facility.
F-11
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
================================================================================
(e) As described in Note 2, the Company issued notes payable to the former
shareholders of ST. Interest on the notes was payable quarterly, at 7%
per annum. The principal on the notes was 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 business on February 19, 1999, as described in Note 2.
(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 $593
translated at December 31, 1999 exchange rates). 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 $456 translated at December 31, 1999 exchange rates)
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 bank's promissory note discount rate. At
December 31, 1999 there were no amounts outstanding under this
facility.
(g) Because the interest rates will change with changes in the prime rate
and Eurodollar rate, the fair value of the bank debt approximates 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:
Year ending December 31,
2000 $ 1,893
2001 1,885
2002 5,906
2003 641
2004 417
Thereafter 406
------------------------------------------------
$11,148
================================================
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,
and require that the Company maintain a specific financial ratio.
F-12
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
================================================================================
7. OBLIGATIONS UNDER CAPITAL LEASES:
The Company is the lessee of property and equipment acquired under capital
leases expiring in various years through 2004.
Future lease payments under capital leases are as follows:
Year ending December 31,
2000 $2,753
2001 2,521
2002 1,680
2003 545
2004 52
------------------------------------------------
7,551
Less amount representing interest 930
------------------------------------------------
6,621
Less current portion 2,541
------------------------------------------------
$4,080
================================================
Interest rates on these capital leases range from 7.42% to 16.67% per
annum.
8. INCOME TAXES:
The provision (benefit) for income taxes for the years ended December 31,
1999, 1998 and 1997 consists of the following components:
Year ended December 31, 1999 1998 1997
---------------------------------------------------------------------
Current:
Federal $ 312 $ $ 907
State 983 42 249
Deferred:
Federal 5,152 (4,876) 948
State (94) (113) 210
Foreign (152) (553) (100)
---------------------------------------------------------------------
$6,201 $(5,500) $2,214
=====================================================================
The provision (benefit) for income taxes for the years ended December 31,
1999, 1998 and 1997 differs from the amount computed using the federal
statutory rate of 34% as a result of the following:
F-13
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
================================================================================
Year ended December 31, 1999 1998 1997
------------------------------------------------------------------------
Tax at federal statutory rate 34.0% (34.0)% 34.0%
Change in valuation allowance -- 4.3 --
State tax credits (1.4) (1.5) --
State income tax provision (benefit),
net of federal tax effect 4.8 (3.3) 5.0
Effect of permanent differences 7.7 1.8 1.4
Other 0.4 1.6 (2.1)
------------------------------------------------------------------------
45.5% (31.1)% 38.3%
========================================================================
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:
December 31, 1999 1998
--------------------------------------------------------------
Federal net operating loss and tax
credit carryforwards $617 $5,334
Other 382 309
--------------------------------------------------------------
$999 $5,643
==============================================================
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, 1999 1998
--------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax liabilities:
Accelerated depreciation $ 3,818 $ 3,151
Basis difference in amortization of intangibles 835 920
--------------------------------------------------------------------------------
TOTAL DEFERRED INCOME TAX LIABILITIES 4,653 4,071
--------------------------------------------------------------------------------
Deferred income tax assets:
Net loss in foreign subsidiaries 838 686
State tax, net operating loss carryforward 694 649
State investment tax credit carryforward 781 790
Accumulated translation adjustment 460 300
Other 202 74
--------------------------------------------------------------------------------
TOTAL DEFERRED INCOME TAX ASSET 2,975 2,499
--------------------------------------------------------------------------------
Less valuation allowance (753) (757)
--------------------------------------------------------------------------------
NET DEFERRED INCOME TAX ASSET 2,222 1,742
--------------------------------------------------------------------------------
NET LONG-TERM DEFERRED INCOME TAX LIABILITIES $ 2,431 $ 2,329
================================================================================
</TABLE>
At December 31, 1999, the Company has a $764 federal net operating loss
carryforward available to offset future taxable income through 2013. The
Company also has state net operating loss carryforwards
F-14
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
================================================================================
aggregating $15,085, which expire through 2004. State investment tax credit
and research credit carryforwards aggregating $919 at December 31, 1999
expire at various dates from 2003 through 2014. A valuation allowance has
been established for the tax effect of those state net operating loss
carryforwards and state investment tax credit and research credit
carryforwards, which are not expected to be realized.
The Company files a consolidated federal income tax return that includes
the results of all its domestic subsidiaries and separate state and local
income tax returns.
9. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS:
The Company has noncancelable operating leases expiring through 2004 for
the rental of office and manufacturing facilities. The leases also require
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.
Approximate minimum future rental payments, exclusive of payments for real
estate taxes and other operating costs under these leases, are as follows:
Year ending December 31,
2000 $ 827
2001 830
2002 832
2003 746
2004 394
Thereafter 1,551
-----------------------------------------------
$5,180
===============================================
Rent expense charged to operations for the years ended December 31, 1999,
1998 and 1997 amounted to $741, $853, and $669, respectively.
The Company has employment agreements with 4 officers (the "Officers"),
expiring through 2004. The approximate aggregate commitment for future
salaries, excluding bonuses, under these employment agreements is as
follows:
Year ending December 31,
2000 $ 701
2001 547
2002 414
Thereafter 327
-----------------------------------------------
$1,989
===============================================
The employment agreement with one of these Officers automatically
extends for one year and for two Officers automatically extend on a
year to year basis unless modified or terminated by one of the parties.
The Officers 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.
F-15
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
================================================================================
In December 1996, the Company entered into a consignment agreement (the
"Gold Consignment Agreement") with Fleet Precious Metals ("FPM") which, as
amended, expires on June 30, 2000. 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. The Gold Consignment Agreement requires the Company to pay a
consignment fee of 5.5% per annum based upon the value of all gold
consigned to the Company. The Company and FPM intend to negotiate a longer
term committed arrangement before the present June 30, 2000 maturity of the
Gold Consignment Agreement. At December 31, 1999, the Company's obligation
under the Gold Consignment Agreement was approximately 3,776 troy ounces of
gold valued at approximately $1,096.
The Securities and Exchange Commission (the "SEC") conducted 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 has cooperated 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.
In connection with the Company's acquisition of Polese in 1993, for a
period of 10 years from the date of acquisition, the former sole
shareholder of Polese and a current executive officer of the Company, 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. For the year ended December 31, 1999, $500 has been
charged to operations pursuant to this agreement.
10. CAPITAL TRANSACTIONS:
SHARE HOLDER RIGHTS PLAN: On March 26, 1999, the Company's Board of
Directors unanimously adopted a shareholder rights plan (the "Rights
Plan"), commonly referred to as a "poison pill." Under the Rights Plan,
shareholders of record on June 15, 1999 (unless excepted under the terms of
the Rights Plan) will receive rights until the distribution date to
purchase a unit consisting of one one-thousandth of a Series of Preferred
Shares of the Company at $50 per unit.
The Board of Directors may declare a distribution date within ten (10)
business days following (i) the acquisition of or right to acquire, by a
person or group, fifteen (15%) percent or more of the outstanding shares of
the Company or (ii) the commencement of a tender offer or exchange offer
that would, if consummated, result in a person or group owning fifteen
(15%) percent or more of the outstanding shares of the Company. Upon the
declaration of a distribution date, each holder of a right will have the
right to receive, upon exercise, common shares having a value equal to two
times the exercise price of the right. In the alternative, the Board of
Directors, at its option, may exchange all outstanding and exercisable
rights for common shares at an exchange ratio of one common share per each
right. The Board may redeem the rights prior to an event triggering a
distribution date at $.001 per right.
STOCK OPTIONS: 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
F-16
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
================================================================================
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, 1999, options to purchase 652,750 and 172,500 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, 1999, options to purchase
211,250 shares of common stock have been granted outside the Incentive Plan
and the Nonqualified Plan at a price equal to the fair market value of the
shares at the date of grant.
A summary of the status of the Company's options as of December 31, 1999,
1998 and 1997, and changes during the years then ended is presented below:
<TABLE>
<CAPTION>
December 31, 1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
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 492,925 $5.01 644,950 $7.69 510,000 $7.00
Canceled (135,275) 6.11 (555,550) 7.73 (23,000) 8.06
Granted 403,000 2.64 403,525 4.48 178,050 9.55
Exercised (20,625) 2.83 - N/A (20,100) 6.37
-------------------------------------------------------------------------------------------------------------------
Outstanding at 740,025 $3.58 492,925 $5.01 644,950 $7.69
end of year
===================================================================================================================
Options exercisable 467,025 386,050 499,900
at year-end
===================================================================================================================
Weighted-average fair value of $1.54 $1.83 $4.88
options granted during the year
===================================================================================================================
</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 of 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-17
<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, 1999:
<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 1999 Life Price 1999 Price
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.65 - $ 1.79 243,000 8.6 $ 1.64 10,000 $ 1.63
$ 1.85 - $ 3.88 234,025 5.5 3.05 224,025 3.05
$ 4.00 - $ 6.63 191,500 6.4 4.78 161,500 3.37
$ 7.69 - $ 8.25 45,500 2.1 8.10 45,500 8.10
$ 8.88 - $ 9.88 26,000 1.8 9.83 26,000 9.88
- ------------------------------------------------------------------------------------------------------------
$ 1.65 - $ 9.88 740,025 6.4 $ 3.58 467,025 $ 4.01
============================================================================================================
</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 (loss) and earnings (loss) per common share
for the years ended December 31, 1999, 1998 and 1997 would approximate the
pro forma amounts indicated in the table below.
Year ended December 31, 1999 1998 1997
---------------------------------------------------------------------------
Net income (loss) - as reported $7,383 $(11,958) $3,793
===========================================================================
Net income (loss) - pro forma $7,124 $(12,111) $3,245
===========================================================================
Earnings (loss) per share - as reported:
Basic $ 1.22 $ (1.98) $ .62
Diluted $ 1.19 $ (1.98) $ .61
===========================================================================
Earnings (loss) per share - pro forma:
Basic $ 1.18 $ (2.00) $ .53
Diluted $ 1.14 $ (2.00) $ .52
===========================================================================
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, 1999, 1998 and 1997,
respectively: expected volatility of 79.30%, 66.6% and 57%, respectively;
risk-free interest rates of 5.2%, 5.6% and 6.3%, respectively; and
expected lives of 4.1 years, 4.9 years and 3.5 years, respectively.
F-18
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
================================================================================
11. SEGMENT INFORMATION
In 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. 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>
Corporate and
Year Ended Materials Services Reconciling Consolidated
December 31, 1999 Group Group Items Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $46,666 $16,858 $ - $ 63,524
Cost of goods sold and
services performed 29,348 12,970 - 42,318
---------------------------------------------------------------------------------------
Gross profit 17,318 3,888 - 21,206
Operating expenses 10,065 3,996 - 14,061
---------------------------------------------------------------------------------------
Income (loss) from operations $ 7,253 $ (108) $ - $ 7,145
=======================================================================================
Segment assets $62,627 $33,484 $ (35,039) $ 61,072
=======================================================================================
Capital expenditures $ 2,468 $ 251 $ - $ 2,719
=======================================================================================
Depreciation expense $ 2,530 $ 2,549 $ - $ 5,079
=======================================================================================
<CAPTION>
Corporate and
Year Ended Materials Services Reconciling Consolidated
December 31, 1998 Group Group Items Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $47,524 $ 18,379 $ - $ 65,903
Cost of goods sold and
services performed 37,982 15,143 - 53,125
---------------------------------------------------------------------------------------
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>
F-19
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
================================================================================
<TABLE>
<CAPTION>
Corporate and
Year Ended Materials Services Reconciling Consolidated
December 31, 1997 Group Group Items Total
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $48,029 $23,047 $ - $71,076
Cost of goods sold and
services performed 33,185 17,514 - 50,699
---------------------------------------------------------------------------------------
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
=======================================================================================
</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 two customers
accounted for 31% of the Company's total revenue for the year ended
December 31, 1999. Revenue from one of these customers accounted for 10% of
the Company's total revenue for the year ended December 31, 1998. For the
year ended December 31, 1997 revenue from the other customer accounted for
11% of the Company's total revenue.
12. EXPORT REVENUE:
For the years ended December 31, 1999, 1998 and 1997, export revenue to
unaffiliated customers amounted to approximately 24%, 18% 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 Service
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
F-20
<PAGE>
SEMX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
================================================================================
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 50.1%-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 of 1998, 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.
14. ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Information relating to the allowance for doubtful accounts is as follows:
Balance at Charged to Balance
Beginning Costs and at End
Description of Year Expenses Deductions of Year
Year ended December 31,
1999 $245 $417 $ 6(a) $656
===========================================================================
1998 $181 $188 $124(a) $245
===========================================================================
1997 $143 $103 $ 65(a) $181
===========================================================================
(a) Write-off of uncollectible accounts receivable.
F-21
<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: March 29, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the date indicated.
/s/ Gilbert D. Raker March 29, 2000
- ------------------------------------
Gilbert D. Raker, Chief Executive
Officer, President, Chairman of
the Board of Directors and Director
/s/ Frank J. Polese March 29, 2000
- ------------------------------------
Frank J. Polese, Vice Chairman
and Director
/s/ Mark A. Koch March 29, 2000
- ------------------------------------
Mark A. Koch,
Controller and Secretary
Chief Accounting Officer
/s/ Mark A. Pinto March 29, 2000
- ------------------------------------
Mark A. Pinto, Director
/s/ John U. Moorhead, II March 29, 2000
- ------------------------------------
John U. Moorhead, II, Director
/s/ Andrew Lozyniak March 29, 2000
- ------------------------------------
Andrew Lozyniak, Director
/s/ Steven B. Sands March 29, 2000
- ------------------------------------
Steven B. Sands, Director
/s/ Richard D. Fain March 29, 2000
- ------------------------------------
Richard D. Fain, Director
<PAGE>
Exhibit 10.71
WAIVER, MODIFICATION AND SEVENTH AMENDEMENT
TO CONSIGNMENT AGREEMENT
THIS SEVENTH AMENDMENT ("Seventh Amendment") is entered into as February
1,2000, by and between FLEET PRECIOUS METALS INC., a Rhode Island corporation,
with its principal office located at 111 Westminster Street, Providence, Rhode
Island 02903 ("FPM"), and SEMX CORP., as successor in interest to Semiconductor
Packaging Materials Co., Inc., a Delaware corporation with its principal office
located at 1 Labriola Court, Armonk, New York (the "Company").
BACKGROUND
FPM and the Company are parties to a Consignment Agreement dated as of
December 23, 1996 (as amended, supplemented or otherwise modified from time to
time, the "Consignment Agreement") pursuant to which FPM consigns certain
commodities to the Company on the terms and conditions and in reliance upon the
representations and warranties of the Company set forth in the Consignment
Agreement.
The Company has had continuing discussions with FPM relating to the
operating and financial condition of the Company. In order to permit the
Company to complete the restructuring of its business operations including
the closing of its replacement financing facility from PNC Bank, the Company
has requested that FPM amend the Consignment Agreement to, among other
things, extend the Maturity Date and waive certain Events of Default (the
"Waiver"). In order to induce FPM to issue the Waiver and extend the
Consignment Agreement through June 30, 2000 as herein provided, the Company
has agreed to certain modifications of the Consignment Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
promises hereinafter contained, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. DEFINITIONS. All capitalized terms not otherwise defined herein shall
have the meanings given to them in the Consignment Agreement.
2. AMENDMENT TO CONSIGNMENT AGREEMENT. Subject to satisfaction of the
conditions precedent set forth in Section 3 below, the Consignment Agreement is
hereby amended in its entirety to provide as follows:
(a) Paragraph 1.28 of the Consignment Agreement is hereby amended in
its entirety to provide as follows:
"MATURITY DATE" means June 30, 2000.
(b) The Floating Consignment Fee as set forth in Paragraph 2.3(a) of
the Consignment Agreement shall be calculated at the rate of five and on-half
percent (5.5%) per annum or at such other rates as FPM shall announce from time
to time in writing in substantially the form of Exhibit C attached to the
Consignment Agreement, such fee to be accrued on a daily basis, billed monthly
and paid to FPM not later than the fifth (5th) Business Day following the
receipt of billing.
<PAGE>
(c) Paragraph 6.10(c) of the Consignment Agreement is hereby amended
in its entirety to provide as follows:
(c) no later than the close of business on every other
Tuesday, an inventory summary for the Company for the two weeks
ending the preceding Friday, in such form as FPM may reasonably
request; and
(d) Paragraph 6.15 of the Consignment Agreement is hereby amended in
its entirety to provide as follows:
6.15. FIXED CHARGE COVERAGE RATIO. Cause to be maintained as
of the end of each month, on a rolling twelve-month basis (except
for each monthly calculation in fiscal year 1999, which shall be
calculated on a cumulative year to date basis commencing January 1,
1999), a Fixed Charge Ratio (as defined in the Revolving Credit,
term Loan and Security Agreement with Lender) equal to or greater
than 1.05 to 1. The Company shall simultaneously provide FPM with
copies of all monthly compliance worksheets provided to Lender with
respect to the Fixed Charge Ratio.
(e) Paragraph 6.17 of the Consignment Agreement is hereby amended in
its entirety to provide as follows:
6.17. EQUITY POSITION. At all times own Precious Metal free
and clear of all liens (except liens in favor of FPM and the Lender)
("Owned Precious Metal") with a gold content equal to not less than
five percent (5%) of the aggregate amount of Consigned Precious
Metal.
3. REPRESENTATIVE AND WARRANTIES. The Company hereby represents and
warrants as follows:
(a) This Seventh Amendment and the Consignment Agreement, as amended
hereby, constitute legal, valid and binding obligations of the Company and are
enforceable against the Company in accordance with their respective terms.
(b) Upon the effectiveness of this Seventh Amendment, Borrowers
hereby reaffirm all covenants, representations and warranties made in the
Consignment Agreement and the Other Agreements to the extent the same are not
amended or waived hereby and acknowledge that all such covenants,
representations and warranties shall be deemed to have been remade and are true
and correct as of the effective date of this Seventh Amendment.
(c) The Company has the corporate power, and have been duly
authorized by all requisite corporate action, to execute and deliver this
Seventh Amendment and to perform it's
-2-
<PAGE>
obligations hereunder. This Seventh Amendment has been duly executed and
delivered by the Company.
(d) The Company's execution, delivery and performance of this
Seventh Amendment does not and will not (i) violate any law, rule, regulations
or court order to which the Company is subject, (ii) conflict with or result in
a breech of the Company's Articles of Incorporation or By-laws or any agreement
or instrument to which the Company is a party or by which its properties are
bound, or (iii) result in the creation or imposition of any lien, security
interest or encumbrance on any of its property, whether now owned or hereafter
acquired.
(e) The Company has no defense, counterclaim or setoff with respect
to the Obligations as of the effective date of this Seventh Amendment.
(f) The recitals set forth in the Background paragraph above are
truthful and accurate and are an operative part of this Seventh Amendment.
(g) The Company expressly reaffirms all security interests and liens
granted to FPM pursuant to the Consignment Agreement.
4. WAIVERS.
(a) The Company waives and affirmatively agrees not to allege or
otherwise pursue any or all defenses, affirmative defenses, counterclaims,
claims, causes of action, setoffs or other rights that they may have as of the
effective date of this Seventh Amendment to contest (1) any Events of Default
which could be declared by FPM; (2) any provisions of the Consignment Agreement
or the Other Agreements; (3) the security interest of FPM in any property,
whether real or personal, tangible or intangible, or any right or other
interest, now or hereafter arising in connection with any collateral security of
FPM; or (2) the conduct of FPM in administering the Consignment Facility.
(b) Subject to the satisfaction of the conditions set forth in
Section 6, FPM waives any default or Event of Default which occurred prior to
and including the date of this Seventh Amendment.
5. RELEASES. The Company hereby releases, remises, acquits and forever
discharges FPM and FPM's employees, agents, representatives, consultants,
attorneys, fiduciaries, officers, directors, partners, predecessors, successors
and assigns, subsidiary corporations, parent corporations, and related corporate
divisions (all of the foregoing hereinafter called the "Released Parties"), from
any and all actions and causes of action, judgements, executions, suits,
character, known or unknown, direct and/or indirect, at law or in equity, of
whatsoever kind or nature, for or because of any matter or things done, omitted
or suffered to be done by any of the Released Parties prior to and including the
date of this Seventh Amendment, and in any way directly or indirectly arising
out of or in any way connected to the Consignment Agreement or the Other
Agreements (all of the foregoing hereinafter called the "Released Matters"). The
Company acknowledges that the agreements in this Paragraph are intended to be in
full satisfaction of all or any alleged injuries or damages arising in
connection with the Released matters.
-3-
<PAGE>
6. CONDITIONS OF EFFECTIVENESS. This Seventh Amendment shall become
effective when and only when FPM shall have received (a) three (3) copies of
this Seventh Amendment executed by the Company, and (b) such other certificates,
instruments, documents, agreements and opinions of counsel as may be required by
FPM or its counsel, each of which shall be in form and substance reasonably
satisfied to FPM and its counsel.
7. EFFECT ON THE CONSIGNMENT AGREEMENT.
(a) Upon the effectiveness of this Seventh Amendment, each reference
in the Consignment Agreement to "this agreement, "hereunder," "hereof,"
"herein", or words of like import shall mean and be a reference to the
Consignment Agreement as amended hereby.
(b) Except as specifically amended herein, the Consignment
Agreement, and all other documents, instruments and agreements executed and/or
delivered in connection therewith shall remain in full force and effect, and are
hereby ratified and confirmed.
(c) Except as specifically set forth herein, the execution, delivery
and effectiveness of this Seventh Amendment shall not operate as a waiver of any
right, power or remedy of FPM, nor constitute a waiver of any provision of the
Consignment Agreement, or any other documents, instruments or agreements
executed and/or delivered under or in connection therewith.
8. PRESUMPTIONS. The Company acknowledges that it has consulted with and
been advised by its counsel and such other experts and advisors as it has deemed
necessary in connection with the negotiation, execution and delivery of this
Seventh Amendment. Therefore, this Seventh Amendment shall be construed without
regard to any presumption or rule requiring that it be construed against any one
party causing this Seventh Amendment or any part hereof to be drafted.
9. ENTIRE AGREEMENT. The Consignment Agreement sets forth the entire
agreement among the parties hereto with respect to the subject matter hereof.
Neither party has relied on any agreements, representation, warranties or
guarantees not herein contained and hereinafter made shall have no force and
effect unless in writing, signed by each party hereto. Each party acknowledges
that it is not relying upon oral representations or statements inconsistent with
the terms and provisions of the Consignment Agreement.
10. BENEFIT OF AGREEMENT. This Seventh Amendment shall be binding upon,
inure to the benefit of and be enforceable by the parties hereto and their
respective permitted successors and assigns as set forth in the Consignment
Agreement. No other Person shall be entitled to claim any right or benefit
hereunder, including, without limitation, any third-party beneficiary of this
Seventh Amendment. FPM's agreement to waive pursuant to Section 4(b) hereof does
not in any manner limit the Company's obligations to comply with, and FPM's
right to insist upon compliance with, each and every one of the terms of the
Consignment Agreement except as specifically amended, modified or waived herein.
-4-
<PAGE>
11. GOVERNING LAW. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns and
shall be governed by and construed in accordance with the laws of the State of
Rhode Island.
12. HEADINGS. Section headings in this Seventh Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Seventh Amendment for any other purpose.
13. COUNTERPARTS. This Seventh Amendment may be executed in any number of
and by different parties hereto on separate counterparts, all of which, when so
executed shall be deemed an original, but all such counterparts shall constitute
one and the same instrument. Any signature delivered by a party by facsimile*
transmission shall be deemed an original signature hereto.
IN WITNESS WHEREOF, this Seventh Amendment has been duly executed as of
the day and year first written above.
SEMX CORP.
By:
---------------------------------------
Name: By/s/ Mark Koch
--------------------------------------
Title: Secretary
-------------------------------------
FLEET PRECIOUS METALS INC.
By:
---------------------------------------
Name: By/s/ Fred Reinhart
--------------------------------------
Title: Vice President
-------------------------------------
-5-
<PAGE>
Exhibit 10.72
SEMX CORPORATION
INTELLECTUAL PROPERTY PROTECTION AGREEMENT
In consideration of my at-will employment --and of my continued at-will
employment-- and my compensation, and the equipment, materials, facilities and
the Company's Confidential Information supplied to me, the Company and I
understand and agree that:
1. RECORDS OF INVENTIONS AND WORKS OF AUTHORSHIP. I will keep complete and
current written records of all Inventions and Works of Authorship
(including illustrations, writings, mask works, software and computer
programs) I make during the period of time I am employed by the Company
and promptly and completely disclose all such Inventions and Works of
Authorship in writing to the Company for the purpose of adequately
determining the Company's rights in each such Invention and Work of
Authorship. I will supplement any such disclosures to the extent the
Company may request. If I have any doubt as to whether or not to disclose
an Invention or Work of Authorship to the Company, I will disclose it. In
this connection, I will not file any patent or copyright application
relating to any Invention or Work of Authorship I make during the period
of time I am employed by the Company without the prior written approval of
the Company.
2. OWNERSHIP OF INVENTIONS AND WORKS OF AUTHORSHIP. Each and every Invention
and Work of Authorship I make during the period of time I am employed by
the Company which (a) relates to the business of the Company or to the
Company's actual or demonstrably anticipated research or development, (b)
results from any work I perform for the Company, or (c) relates to the
Company's Confidential Information, is the sole and exclusive property of
the Company and I will assign my entire right, title and interest in each
such Invention or Work of Authorship to the Company, except those excluded
from any obligation to assign to the Company as a matter of law existing
at the time such Invention or Work of Authorship is made. If I assert any
property right in an Invention or Work of Authorship I make during the
period of time I am employed by the Company as provided by law, I will
promptly notify the Company in writing.
3. DISCLOSURE OF INVENTION OR WORK OF AUTHORSHIP AFTER TERMINATION. I will
promptly and completely disclose in writing to the Company, all Inventions
or Works of Authorship which I make during the one year immediately
following the end of my employment with the Company which (a) relates to
the business of the Company or to the Company's actual or demonstrably
anticipated research or development, (b) results from work I performed for
the Company, or (c) relates to the Company's rights in each such Invention
or Work of Authorship. During this period I will not file any patent or
copyright application relating to any such Invention or Work of Authorship
without the prior written consent of the Company.
1
<PAGE>
If I do not prove that I made the Invention or Work of Authorship entirely
after leaving the Company's employment or if I do not prove that the
invention or Work of Authorship does not in any way relate to my work
assignment at the Company, to the Company's business, or to the Company's
Confidential Information, the Invention or Work of Authorship shall
conclusively be presumed to be the property of the Company. I acknowledge
that the conditions of this paragraph are no greater than is necessary for
protecting the Company's interests in the Company's Confidential
information and in Inventions or Works of Authorship to which it is
rightfully entitled. I agree to assign to the Company all of my interest
in such Inventions or Works of Authorship belonging to the Company and I
will execute any/all papers and do any/all acts which the Company
considers necessary to secure to it any/all rights relating to such
Inventions or Works of Authorship.
4. COOPERATION WITH THE COMPANY. I will assist and fully cooperate with the
Company in obtaining and maintaining the fullest measure of legal
protection which the Company elects to obtain for Inventions and Works of
Authorship in which it has a property right. I will execute any lawful
document the Company requests me to execute relating to obtaining and
maintaining legal protection for any said Invention or Work of Authorship
(including, but not limited to, executing applications, assignments,
oaths, declarations, and affidavits) and I will make myself available for
interview, depositions and testimony relating to any said Invention or
Work of Authorship, at the expense of the Company and at normal rate of
compensation.
5. PRE-EMPLOYMENT INVENTIONS OR WORKS OF AUTHORSHIP. On schedule A (an
integral part of the Agreement on page 7) I have completely identified,
without disclosing any trade secret or other confidential information,
every Invention or Work of Authorship I made before my employment by the
Company in which I have an ownership interest, and which is not the
subject matter of an issued patent or printed publication at the time I
sign this agreement.
If I become aware of any projected or actual use of any such Invention or
Work of Authorship by the Company, I will promptly notify the Company in
writing of said use. Except as to the Inventions or Works of Authorship
listed on Schedule A or those which are the subject matter of an issued
patent or printed publication at the time I sign this Agreement. I will
not assert any rights against the Company with respect to any Invention or
Work of Authorship made before my employment with the Company.
6. THE COMPANY'S CONFIDENTIAL INFORMATION; RESTRICTIVE COVENANTS. During the
period of time I am employed by the Company and indefinitely thereafter
with respect to Confidential Information which constitute trade secrets
and for a period of five years after my employment with the Company
terminates with respect to Confidential Information which does not
2
<PAGE>
constitute trade secrets, I will not, directly or indirectly, use the
Company's Confidential Information except in the furtherance of the
Company's business nor will I disclose or disseminate the Company's
Confidential Information to anyone who is not an officer, director,
employee, attorney or authorized agent of the Company without the prior
written consent of the Company, unless the specific item of the Company's
Confidential Information is now in, or hereafter (through no breach of
this Agreement) becomes part of the public domain; provided, however, I
agree that none of the provisions of this Agreement including the
foregoing exception for Confidential Information which becomes part of the
public domain and the five year time period with respect to certain
Confidential Information shall be construed to constitute: (a) a waiver by
the Company of any of its right in, or to protect specific items of the
Company's Confidential Information which constitute trade secrets, or (b)
a release of or limit to my legal obligation not to disclose or
misappropriate any such Company trade secrets, during or after my
employment with the Company. I understand that such use, disclosure or
dissemination of the Company's Confidential Information would become
accessible to and reasonably be considered useful to a competitor of the
Company or to a third party which would be assisted in becoming a
competitor of the Company. I will execute any agreement relating to the
protection of the Company's Confidential Information or the Confidential
Information of any third party with whom the Company is under legal
obligation to protect that third party's confidential information if the
Company requests.
I recognize the possibility that I might subsequently own or work for a
business which directly or indirectly competes with the Company. I will
not, without prior written consent of the Company, utilize any
Confidential Information of the Company in any subsequent employment nor
use, disclose or otherwise compromise the integrity of such Confidential
Information.
Without limiting the foregoing, for a period of one year after termination
of my employment with the Company, I will not attempt to divert nor assist
others to acquire any Company business by soliciting, contracting or
communicating with any customer of the Company's products or services with
whom I had contact during the year preceding termination of my employment.
I acknowledge that all documents and tangible things embodying or
containing the Company's Confidential Information are the Company's
exclusive property. I have access to them solely for performing the duties
of my employment for the Company. I will protect the confidentiality of
their content and I will return all of them and all copies, facsimiles and
specimens of them (including excerpts or portion thereof) and any other
forms of the Company's Confidential Information in my possession, custody
or control to the Company before leaving the employment of the Company.
3
<PAGE>
I recognize that irreparable and incalculable injury will result to the
Company, its business and property, in the event of a breach by me of the
restrictions imposed by this Agreement. I therefore agree that in the
event of any such breach, the Company shall be entitled, in addition to
any other remedies and damages, to an injunction restraining further
violation of such restrictions by me and/or by any other person for whom I
may be acting or who is acting for me or in concert with me.
If the Company is awarded an injunction or other remedy in connection with
the enforcement of such restrictions, I further agree to pay all costs and
expenses (including attorney's fees) reasonably incurred by the Company in
such enforcement effort. I waive any requirement for security or the
posting of any bond or other surety and proof of damages in connection
with any temporary or permanent award of injunctive, mandatory or other
equitable relief and I further agree to waive the defense in any action
for specific performance that a remedy at law would be adequate. I WAIVE
THE RIGHT TO A JURY TRIAL OF ANY SUCH ACTION.
In the event that any of the provisions of this Paragraph 6 should ever be
adjudicated to exceed the time, geographic, product or service, or other
limitations permitted by applicable law in any jurisdiction, then the
court shall have the power and shall reform the provisions of this
Paragraph 6 in such jurisdiction to the maximum time, geographic, product
or service, or other limitation permitted by applicable law.
By entering into this Agreement, I acknowledge that: (I) I am familiar
with the nature of the Company's business; (II) I have read and understand
the nature and scope of the restrictions set forth in this Agreement; and
(III) that the Company has invested and will continue to invest
substantial effort and sums of money to develop and promote the Company
products, services and goodwill together with Confidential Information. I
THEREFORE ACKNOWLEDGE AND REPRESENT THAT THE SCOPE OF SUCH RESTRICTIONS
ARE APPROPRIATE, NECESSARY AND REASONABLE FOR THE PROTECTION OF THE
BUSINESS, GOODWILL AND PROPERTY RIGHTS OF THE COMPANY AND WILL NOT PREVENT
OR HINDER ME FROM EARNING A LIVING IN THE EVENT OF, AND AFTER, TERMINATION
OF MY EMPLOYMENT WITH THE COMPANY.
7. CONFIDENTIAL INFORMATION FROM PREVIOUS EMPLOYMENT. I certify that I have
not, and will not, disclose or use during my employment with the Company,
any confidential information which I acquired as a result of any previous
employment or under a contractual obligation of confidentiality before my
employment by the Company.
8. PRIOR RESTRICTIVE OBLIGATIONS. On schedule B (an integral part of this
Agreement on page #7), I have completely identified all prior obligations
(written and oral), such as confidentiality agreements or covenants
restricting future employment, that I have entered into which restrict my
ability to perform the duties of my employment for the Company. I
4
<PAGE>
agree to indemnify and hold the Company harmless from all liabilities and
expenses resulting from my failure to identify all my prior obligations.
9. NOTICE TO FUTURE EMPLOYERS. For a period of one year immediately following
the end of my employment by the Company, I will inform each new employer,
prior or my employment, of the existence of this Agreement and provide the
new employer with a copy of this Agreement. I further agree that the
Company may, if it so desires, send a copy of this Agreement to, or
otherwise make the provisions hereof known to, any such new employer.
10. MISCELLANEOUS. This Agreement binds my heirs, executors, administrators,
legal representatives and assigns and inures to the benefit of the Company
and its successors and assigns.
Only a written amendment executed by both myself and the Company can
constitute a waiver or modification of any provision of the Agreement.
This Agreement becomes effective when I sign it, my obligations under it
continue throughout the entire period of time I am employed by the
Company, without regard to the business organization within the Company
with which I am associated, and these obligations will continue after, and
survive, the end of my employment by the Company. This Agreement replaces
previous agreements relating to the subject matter of the Agreement and
shall be deemed effective as of the first day of my employment by the
Company just as though I had executed this Agreement on that first day
except that such replacement shall not affect the rights and obligations
of me or the Company arising out of any such prior agreement, which rights
and obligations shall remain in effect for that purpose.
If a court of competent jurisdiction determines that any portion of the
Agreement is illegal, invalid or unenforceable, then, subject to the
provisions regarding reformation set forth in paragraph 6 hereof, that
portion shall be considered to be removed from this Agreement and it shall
not affect the legality, validity or enforceability of the remainder of
this Agreement and the remainder of the Agreement shall continue in full
force and effect. This Agreement shall be governed by, and construed
under, the laws of the State of New York without regard to its conflicts
of law rules.
11. DEFINITIONS.
A.) "THE COMPANY" refers collectively to Semx Corporation, a Delaware
corporation, having a place of business at 1 Labriola Court, Armonk, NY 10504
and its predecessors, designees and successors and its past, present and future
operating companies, divisions, parents, subsidiaries, affiliates and other
business units.
5
<PAGE>
B.) "THE COMPANY CONFIDENTIAL INFORMATION" is any information used in the
Company's business which gives the Company an advantage over competitors who do
not know or use such information (for example, a formula, manufacturing process,
manufacturing equipment, proprietary compound, customer lists, marketing plans,
financial data, business data, etc.) and includes not only information
designated by the Company as confidential information but also the Company's
other trade secrets and other confidential or proprietary information, or
confidential information entrusted to it;
C.) "Inventions" or "Works of Authorship" include not only inventions (whether
or not patentable) or Works of Authorship (whether or not copyrightable), but
also innovations, improvements, discoveries, ideas and all other forms of
intellectual property - whether or not any of the foregoing constitutes trade
secrets or other confidential or proprietary information; and
D.) "MAKE" OR " MADE", used in relating to Inventions or Works of Authorship
includes any one or any combination of (I) conception, (II) reduction to
practice, or (III) development of, any Invention or Work of Authorship and is
without regard to whether I am sole or joint inventor or author.
Employee:
Dated:_______________________ _________________________________________
Identified throughout this Agreement by
the use of the first person singular)
Printed Name:____________________________
SEMX Corporation
Dated:_______________________ By:______________________________________
Officer or Human Resources
6
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SCHEDULE A
PRE-EMPLOYMENT INVENTIONS AND WORKS OF AUTHORSHIP
Note: Please describe each such Invention and Work of Authorship you made prior
to your employment by the Company in which you have an ownership interest and
which is not the subject matter of an issued patent or printed publication at
the time you sign this Agreement. DO NOT DISCLOSE CONFIDENTIAL INFORMATION.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE B
PRIOR RESTRICTIVE OBLIGATIONS
Please identify all prior restrictive obligations (written and oral), such as
confidentiality agreements or covenants restricting future employment that are
in effect and which restrict your ability to perform the duties of employment
for the Company.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
7
<PAGE>
EXHIBIT 10.73
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of May 1, 1999 between American Silicon Products
Incorporated, a Rhode Island corporation "American Silicon Products" or (the
"Company"), and SEMX Corporation (the Corporation), and Richard Brown (the
"Executive"), an individual residing at 211 Clafin Street, Belmont, MA 02178.
WITNESSETH
WHEREAS, the Company wishes to employ the Executive as its President and Chief
Executive Officer, an executive who should have influence in the direct
management of the business and should contribute, in part, to the Company's
commercial success.
WHEREAS, the Executive is willing to accept such employment for the inducements
and upon the terms and conditions hereinafter set forth; and
WHEREAS, the Executive has signed the Company's Intellectual Property Agreement
or the Company has also bargained for the Executive simultaneously to execute
the Company's Intellectual Property Agreement, a copy of which is annexed hereto
as Exhibit A.
NOW, THEREFORE, in consideration of the premises and mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the Company and the Executive agree as follows:
SECTION 1. EMPLOYMENT:
(a) TERM OF EMPLOYMENT. Upon the terms and subject to the conditions set
forth in this Agreement, the Company hereby employs the Executive, and
the Executive agrees to be employed as the President and Chief
Executive Officer. Subject to earlier termination as provided in
Section 4 hereof, the term of the Executive's employment by the
Company under this Agreement (the "Employment Term"), shall commence
as of the date hereof, and shall continue for one year, renewing daily
for a term of one year, which enables the Company and the Executive to
avoid renegotiations as the terms of this Agreement are automatically
extended until modified in writing or one of the parties hereto
terminates this Agreement as provided in Section 4, or unless either
party gives written notice of termination to the other of not less
than 60 days prior to the expiration of the Employment Term then in
effect. Any
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extension shall be upon the same terms and conditions as set forth
herein for the Employment Term hereunder except that the Base Salary
as hereinafter defined for any extensions shall be the amount in
effect at the end of the previous term.
(b) DUTIES. The Executive will serve as the Company's President and
Chief Executive Officer, and will perform the services and duties for
the Company designated by the Corporation's Chief Executive Officer or
his designee (the "Supervisor"), provided that such duties are
reasonably consistent with Executive's responsibilities and status as
the Company's President and Chief Executive Officer. The Executive
shall also, if elected in accordance with the By-Laws of the Company,
serve as an Officer and/or Director of the Company or its affiliates
without additional compensation and the Company shall indemnify
Executive to the maximum extent allowable under law for his services
as an Officer and/or a Director.
(c) EXTENT OF SERVICES. During the Employment Term, Executive agrees
to: (i) devote all of his/her business time, energy and skill to the
business of the Company; (ii) use his/her best efforts to promote the
interests of the Company; and (iii) discharge such executive and
administrative duties consistent with his/her position as may be
assigned to him/her by the Supervisor. Executive agrees that he/she
will not work for any other profit making organization in a direct or
indirect manner without the written consent of his/her Supervisor and
the Chief Executive Officer of the Corporation.
SECTION 2. COMPENSATION
All compensation due Executive under this Agreement shall be payable by the
Company, whether the services rendered are for the Company or one of its
affiliates.
(a) BASE SALARY. For services rendered by the Executive under the
Agreement, the Company shall pay the Executive an annual salary of One
Hundred Fifty Thousand ($150,000.00) Dollars (the "Base Salary"). The
Base Salary shall be earned and shall be payable in accordance with
the Company's normal accounting and payroll practices and the Company
may increase, but not decrease, the Base Salary at any time.
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(b) BONUS.
(i) In addition to Executive's Base Salary, Executive may be paid an
annual bonus by the Company for a calendar year period (the
"Bonus Period") in such amount (the "Bonus Amount") as may be
determined by the Board of Directors of the Corporation.
(ii) The Bonus Amount, shall be paid to Executive no later than
fifteen (15) days after the completion of the audit of the
Corporation's financial statements for the Bonus Period.
(iii) The Bonus Amount is due and payable to Executive if and only if
Executive is in the employ of the Company on the last day of the
Bonus Period; provided, however, that the Executive (or his/her
estate) shall be entitled to a pro rated portion of the Bonus
Amount (based on time elapsed) if executive: (a) dies, (b)
becomes disabled (c) is terminated without Cause by the Company
(defined below), or (d) exercises the Change of Control provision
of Section 4(d) prior to the end of the Bonus Period. Executive
shall not be entitled to any Bonus Amount for a calendar year in
which Executive did not perform services for the Company or any
affiliate regardless of the reason therefore or if the Board of
Directors of the Company determines that performance targets
established by it with sole discretion (subject to a test of
reasonableness) were not accomplished for the period in question.
SECTION 3. OTHER BENEFITS. During the Employment term, the Executive shall
be entitled to the following benefits:
(a) vacation time, three (3) weeks annually in accordance with the
Company's policy for executives in effect as determined by the Company
and consistent with the Executive completing his/her responsibilities;
(b) participation in all employee group life, group health and other
fringe benefit programs, including, but not limited to, any 401K plan,
incentive compensation, performance unit, bonus, stock purchase or
stock appreciation plans now or hereafter initiated or maintained by
the
3
<PAGE>
Company for officers of the Company for which Executive is eligible
subject to the right of the Company to amend or terminate such plans;
(c) reimbursement for all reasonable and properly documented expenses
incurred or paid by Executive in connection with the performance of
his/her duties hereunder and in accordance with the general expense
reimbursement policy of the Company then in effect; and
(d) use of a car to be leased by the Company or a $1,000 per month car
allowance.
SECTION 4. TERMINATION The Employment Term shall terminate upon any of the
following occurrences; provided, however, that upon such termination the
Executive shall be entitled to receive, as and when they would have been
received in the ordinary course if such termination had not occurred, the
unpaid portion of his Base Salary and other employee benefits as they shall
have accrued and vested through the date of such termination for services
rendered.
(a) VOLUNTARY TERMINATION BY THE EXECUTIVE. Except as set forth in
Section 4 (d) below, if the Executive voluntarily ceases to be
employed by the Company before the end of the Employment Term, with or
without the consent of the Company, then the Employment Term shall end
without further action by either party hereto and all rights and
obligations of the parties under this Agreement, except those set
forth in the Intellectual Property Protection Agreement, shall
terminate as of such date.
(b) TERMINATION FOR CAUSE. The Company may terminate the Employment
Term at any time for Cause. For the purposes of this Agreement,
"Cause" shall mean;
(i) the failure of Executive to perform his duties in all
material respects provided that prior to termination Executive
has been given an opportunity to remedy such dissatisfaction
within thirty (30) days or, if such dissatisfaction is not
subject to cure, the repetition of the act or omission which
dissatisfied his/her Supervisor is repeated by Executive after
Executive received such notice;
4
<PAGE>
(ii) conviction of (A) any serious crime or serious offense
involving misappropriation of money or other property of the
Company, or (B) any felony; or
(iii) Executive's use of narcotics, illegal drugs or controlled
substances other than as prescribed by a licensed physician.
c) TERMINATION UPON DISABILITY. If, during the Employment Term, the Board
of Directors of the Company reasonably determines that the Executive has
been or will be incapable of fulfilling his obligations hereunder because
of injury or physical or mental illness, for a period of more than three
(3) consecutive months or six (6) months in an aggregate during any period
of twelve (12) consecutive months, the Company may, upon written notice to
the Executive, terminate the Employment Term upon thirty (30) days' written
notice to the Executive, to the extent permitted by applicable law.
(d) TERMINATION AFTER CHANGE IN CONTROL. This Agreement may be terminated
by the Executive, if there is a Change in Control of SEMX Corporation or
the Company. If, after a Change in Control, the Executive terminates this
Agreement, the Executive will be entitled to the Severance Benefits. The
terms Change in Control, and Severance Benefits are defined in Schedule 4D
(attached hereto).
SECTION 5. GENERAL
(i) This Agreement shall be binding upon and inure to the benefit of
the Company and its successors and assigns and shall be binding upon
and inure to the benefit of the Executive and his heirs, executors and
administrators. If the Company assigns this Agreement, the assignee
shall be required to expressly assume all obligations of the Company
under this Agreement.
(ii) The waiver by the Company or the Executive of a breach of any
provision of this Agreement by the other party shall not be construed
as a waiver of any subsequent breach of the same provision or of any
other provision of this Agreement.
(iii) All notices, requests, demands and other communications
submitted hereunder shall be in writing and shall be deemed to have
been duly given
5
<PAGE>
if delivered by hand or by commercial overnight delivery service or if
mailed by first class, registered mail, return receipt requested,
postage and registry fees prepaid; and addressed; if to the Executive,
to the address set forth in the first paragraph hereof, and if to the
Company, to 1 Labriola Court, Armonk, New York, 10504, attention
President.
(iv) This Agreement shall be construed and enforced in accordance
with, and governed by, the laws of the State of New York without
regard to the conflict of laws principles thereof.
(v) This Agreement together with the Intellectual Property Protection
Agreement and the Employees' Stock Option Plan Agreement incorporates
the entire understanding of the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements relating to
such subject matter. The invalidity of any section, provision or
portion of this Agreement shall not affect the validity of any other
section, provision or portion of this Agreement, and each such
section, provision or portion shall be enforced to the full extent
permitted by law. This Agreement may not be modified or amended, or
any term or provision hereof waived or discharged, except by a written
instrument signed by the party against whom such amendment,
modification, waiver, or discharge is sought to be enforced. The
headings of this Agreement are for the purposes of reference only and
shall not limit or otherwise affect the meaning hereof. This Agreement
may be executed in several counterparts, all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have dully executed this Agreement as of
the day and year first above written.
Dated: American Silicon Products Incorporated
-------------------
By
- -------------------------------- ------------------------------------
Richard Brown Gilbert D. Raker, Chairman
6
<PAGE>
SCHEDULE 4D
DEFINITIONS
(I) "Change in Control" is defined as the occurrence of any of the following
events:
(A) The acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14 (d)(2) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (collectively, a "person) of beneficial
ownership (as such term is defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of more than fifty (50%) percent of
the then outstanding shares of common stock of SEMX (collectively, the
"Outstanding Common Stock"), or a transfer or sale of more than fifty (50%)
percent of the book value of the gross assets of SEMX measured at the time
of such transfer or sale in one or more transactions, or a transfer or sale
of more than fifty (50%) percent of the book value of the gross assets of
American Silicon Products (the "Company"); provided, however, that the
following shall not constitute a Change in Control:
(i) Any acquisition by an underwriter (as such term is defined in
Section 2 (11) of the Securities Act of 1934, as amended) for the
purpose of making a public offering;
(ii) Any acquisition by SEMX or by any entity controlled by SEMX;
(iii) Any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by SEMX or by any entity controlled by SEMX;
or
(iv) Any transfer of assets to SEMX or any entity controlled by SEMX.
(B) When individuals who are members of the Board of Directors of SEMX
("SEMX's Board") at any one time shall immediately thereafter cease to
constitute a majority of SEMX's Board, or when a majority of SEMX's Board
shall not consist of persons who were elected or nominated for election as
directors with the approval of a majority of the present members of SEMX's
Board in either case within two years of:
(i) The completion of a tender offer or exchange offer for the voting
stock of SEMX (other than a tender off or exchange offer by SEMX) or a
proxy contest in connection with the election of members of the SEMX's
Board; or
(ii) A merger or consolidation of SEMX (other than with SEMX or an
entity controlled by SEMX).
(II) Severance Benefits are defined as if, subsequent to a Change in Control,
this Agreement is terminated by the Company without Cause (and not for
Disability), or by the Executive, for any
1
<PAGE>
reason, then the Executive shall be entitled to the following Severance Benefits
in lieu of any other rights or alleged damages:
(A) The Company shall pay the Executive his full Base Salary through the
date of termination at the rate in effect at the time notice of termination
is given (or at the date of termination, if higher) and any bonus for a
past calendar year which has not yet been awarded or paid to the Executive
under any Incentive Plan;
(B) the Company shall pay the Executive an amount equal to the annual
incentive award earned by the Executive under any Incentive Plans in the
calendar year ending as of the December 31st immediately preceding the date
of termination, pro rated to the Date of Termination.
(C) In lieu of any further salary payments to the Executive for periods
subsequent to the Date of Termination, the Company shall pay as severance
to the Executive a lump sum amount equal to the Executive's Base Salary as
of the date of the Change in Control (or at the date of termination, if
higher) for a period of one (1) years;
(D) Except as otherwise provided herein, any Severance Benefits payable
under this paragraph shall be paid in full in a lump sum not more than
sixty (60) days following the date of termination. If the Company shall
default in the payment of any such sum when due, the interest shall accrue
on the balance of the payments due hereunder at the rate of fifteen (15%)
percent per annum and the Company shall reimburse Executive for all costs
and expenses incurred by him, including legal fees, in enforcing his rights
under this Section 4(d).
(i) If this Agreement is terminated on a date that is not at the end
of a calendar year and if the Executive is entitled to incentive
compensation, the Company will not be obligated to pay the incentive
compensation which may be due until thirty (30) days after the
computation by the Company of the amount which may be due.
(ii) The Executive shall not be required to mitigate the amount of any
payment contemplated herein (whether by seeking new employment or in
any other manner), nor shall any such payment be reduced by earning
that the Executive may receive from any other source.
(iii) The provisions of this Agreement, and any payments provided for
hereunder, shall not reduce any amounts otherwise payable, or in any
way diminish the Executive's existing rights, or rights which would
accrue solely as a result of the passage of time, under any Incentive
Plan, Benefit Plan, employment agreement or other contract, plan or
arrangement.
(iv) Notwithstanding anything contained elsewhere in this agreement.
2
<PAGE>
.
3
<PAGE>
EXHIBIT-22
List of Subsidiaries of the Company
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. (50.1%)
Semiconductor Materials S.A.R.L.
SPM (M) SDN. BHD.
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITOR'S CONSENT
To the Board of Directors
SEMX Corporation
We hereby consent to the 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 7, 2000, on the consolidated balance sheet of SEMX
Corporation and Subsidiaries as of December 31, 1999 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, 1999, which
report appears in the December 31, 1999 annual report on Form 10-K of SEMX
Corporation.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
March 30, 2000
<TABLE> <S> <C>
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<ALLOWANCES> 656
<INVENTORY> 5,903
<CURRENT-ASSETS> 15,626
<PP&E> 53,146
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0
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