Total number of pages: 52
With Exhibits
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended September 30, 1996 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________________ to ____________________
Commission file number 0-20506
BKC SEMICONDUCTORS INCORPORATED
(Exact name of registrant as specified in its charter)
Massachusetts 04-2883532
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6 Lake Street, Lawrence, Massachusetts 01841
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 681-0392
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for, such shorter period that the registrant was
required to filed such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No ___
Indicate by check mark 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 the 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.[ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant, based upon the closing sale price of the
Common Stock on September 30, 1996, was approximately $2,239,899 on the NASDAQ
National Market System. The number of shares held by non affiliates was 639,971.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
The number of outstanding shares of the registrant's Common Stock on September
30, 1996, was 1,276,411.
Portions of the registrant's definitive Proxy Statement for its Annual Meeting
of Stockholders to be held on March 25, 1997 (the "Proxy Statement") are
incorporated by reference in Part III.
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<PAGE>
PART I
ITEM 1. BUSINESS
General
BKC Semiconductors Incorporated, which was formed in 1985,
manufactures a wide range of discrete semiconductor diodes for signal switching,
voltage conversion, rectification, and surge suppression in electronic circuits.
The Company's manufacturing and executive offices are located at 6 Lake Street,
Lawrence, Massachusetts 01841. The telephone number is (508) 681-0392, and the
fax number is (508) 681-9135.
Products
The Company's product line includes:
Silicon Switching Diodes. Silicon switching diodes are designed
for relatively low-power (500 milliwatt or less) applications. In end
applications, they provide voltage rectification. These diodes are generally
used for signal switching functions.
Rectifiers. High voltage diodes are often called rectifiers.
Zener Diodes. A zener diode is analogous to a valve which
stops flow in one direction but breaks down at a specific well-defined pressure
and allows flow in the reverse direction. When reverse voltage is applied to a
zener diode, it resists the flow of current until its breakdown voltage is
reached, at which point it allows current to flow at a particular voltage level.
A zener diode can therefore be used as a voltage regulator, maintaining the
voltage across it at the breakdown voltage. Zener diodes are used to maintain a
particular voltage in an electronic unit.
Transient Suppressors. Transient suppressors operate as higher-power
zener diodes just as rectifiers operate as higher-power diodes.
Schottky Diodes. Schottky diodes operate in much the same ways
as silicon and germanium diodes, but they are manufactured with metal as well as
semiconducting materials. A Schottky diode provides a low voltage drop like that
of a germanium diode but also switches very rapidly.
Germanium Diodes. Diodes can be made from several semiconducting
materials. Silicon is the most common, but germanium has several advantages
in some applications. A germanium diode functions similarly to a silicon
diode, but it has a lower voltage drop across it in operation.
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<PAGE>
Markets
Due to the broad applications of discrete semiconductor devices,
any industry manufacturing electronic systems is a potential user of BKC
products. The Company generally sells its products in two main markets: the
military/aerospace and the commercial/industrial markets.
High-Reliability Military/Aerospace Product Market. BKC has
established itself as a high reliability manufacturer of discrete semiconductor
devices to military specifications. Sales of products built to military
specifications are made primarily in the U.S. These sales represented
approximately 50% of total revenues of the Company in fiscal year 1996. The
Company does business with a number of suppliers of conventional military
products, including Motorola, Honeywell, Magnavox, Rockwell, Texas Instruments,
Boeing, Raytheon and Hughes.
Despite anticipated reductions in many areas of the US.
military budget, BKC believes that the demand for its products, built to
military specifications, for use in satellite communications, civil aviation and
space applications will remain strong. The Company believes that there is
significant market share growth opportunities considering the ever increasing
supplier base. This is coupled with BKC's broad line of product and reputation
for excellent service and high quality.
Commercial/Industrial Product Market. The market for BKC's
commercial/ industrial products includes such applications as consumer products,
automotive electronic systems, computers, telecommunications and industrial
production. Sales of commercial/ industrial products represented approximately
50% of the Company's sales in fiscal year 1996.
The commercial market is a very price competitive arena for
discrete semiconductors with many high volume suppliers. As such, BKC's strategy
for this market includes a combination of specialized and sourced products to
attack profitable niche opportunities.
Customers
The Company's business strategy includes working closely with
a limited customer base to develop partnership programs and products designed to
meet customers' ongoing needs. The Company has franchise agreements with several
major components distributors, including Zeus/Arrow, Hamilton/Hallmark and
Future Electronics. The Company also has several major end users as customers,
including GM Delco, Hughes, Motorola, Lucent, Ericsson and Alcatel. Of these
only one customer represents approximately 10% of the Company's sales. While the
loss of any one of these key customers would be significant, the Company is not
dependent on any one or two customers.
Competition
In general, the discrete semiconductor industry is very
competitive and characterized by continual technological change and product
obsolescence, periodic shortages of materials,
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variations in manufacturing yields and efficiencies and significant foreign
competition. The Company has a number of major competitors in the discrete
semiconductor components commercial/industrial market. Many of the Company's
current and prospective competitors are larger, offer broader product lines
and have substantially greater technical, financial, marketing, manufacturing,
and other resources than the Company. In spite of these conditions, BKC sees
significant growth opportunities through focusing on its core competencies of
high quality/reliability, niche market capitalization and customer service
excellence.
Sales and Distribution
The Company's products are sold by independent sales
representatives as well as the premier distributors, such as Zeus/Arrow,
Hamilton/Hallmark, and Future Electronics.
BKC's products are sold in North America, the Far East,
Israel, Canada, Western Europe and elsewhere. The Company's sales force covers
North America, Europe and the Far East, working with its 31 independent sales
representatives. In 1996 approximately 38% of sales were made through
distributors.
Manufacturing
All of BKC's manufacturing operations are conducted at its
facility in Lawrence, Massachusetts. BKC's manufacturing process comprises six
operations: wafer fabrication, assembly, testing, military processing, finishing
operations, and quality assurance.
Wafer Fabrication -- Silicon Products. BKC purchases silicon
wafers with an epitaxial layer already applied. Each line of diodes and
rectifiers as well as each zener of a particular voltage has its own specific
requirements as to silicon substrate and epitaxial resistivities. Each silicon
wafer is processed through a multitude of steps, producing a die lot. Once the
die lot is completed, samples are evaluated and tested in order to determine
yield information and establish a reliability confidence level. If a die lot
meets BKC standards, it is approved for assembly.
Wafer Fabrication -- Germanium Diodes. BKC purchases raw
germanium material then recasts it into a workable mold. This mold is then drawn
into a germanium ingot using radio frequency energy while doping the impurities
necessary to produce the desired resistivity. Different resistivities are
required for each line of specifications being targeted. Once obtained, the
ingot is sliced into wafers, which are processed through multiple steps in order
to produce a die lot. The die lot is then tested and approved in the manner
described above.
Assembly and Testing. The Company assembles its products into
hermetically sealed protective packages. The Company uses an automated assembly
line which is intended to reduce packaging time and improve quality. The test
area, which is equipped to process all BKC part types, tests the electrical
characteristics of each part and sorts each part by electrical specification.
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<PAGE>
Military Processing. Parts designed to meet military, high
reliability specifications are specially processed in the reliability
department. This processing is conducted to remove infant-mortality type
failures which cannot be detected by standard electrical testing and is designed
for customers needing products with above-average reliability.
Finishing. Finishing operations include electroplating a
solderable finish on the device leads, marking the part with the specific part
number, polarity band and BKC logo, and packaging the parts for shipment.
Quality Assurance. The function of BKC's Quality Assurance
group is to measure the quality level at which manufacturing is operating. The
quality level is monitored by using a Statistical Process Control system located
at strategic points throughout the manufacturing process, commencing in the
wafer fabrication area and ending with a quality monitor just prior to shipping.
Backlog
The backlog of unfilled orders totaled $3,185,000, as of
September 30, 1996, as compared to approximately $4,173,000 as of September 30,
1995. The main cause of the lower backlog level at the end of fiscal year 1996
was the reduction of the buy-resale product lines related to the personal
computer industry. Orders counted in the backlog may be postponed or canceled by
the customer at any time subject to the terms of the purchase order. Therefore,
the backlog level is not necessarily indicative of future operating results. The
Company expects to fill all orders of its current backlog during the 1997 fiscal
year.
Patents and Proprietary Rights
The Company has a number of proprietary processes and
techniques; however, the Company does not own any patents on any of its
technologies or processes nor are any pending. The Company attempts to restrict
access to its proprietary technologies and processes by requiring that its
salaried employees sign non-disclosure agreements as a condition of employment
and by restricting customer and visitor access to proprietary technology and
information of the Company. There can be no assurance that the Company will be
successful in its efforts to protect its proprietary technologies or processes.
In addition, the laws of some foreign countries in which the Company sells or
may sell its products do not protect the Company's proprietary rights in such
products to the same extent as do the laws of the U.S.
Research and Development
BKC believes that its future is significantly dependent on its
ability to develop and introduce new products for its targeted markets in a
timely manner. Based upon information furnished by the Sales organization, as
well as demand from key customers, R&D efforts will continue in areas that will
broaden wafer fab capability and expand package types that the Company can
utilize to service the market.
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<PAGE>
Raw Materials
The principal raw materials used by the Company include
germanium and silicon. Each of these items is currently available from several
sources at the quality level and in the quantities that the Company requires.
Strong industry demand has often extended the lead time for production of its
products. In the past, extended lead times for raw materials have tended to be
industry-wide, affecting the Company's competitors as well as the Company. The
Company also relies on third parties for the manufacture of certain assemblies
which are incorporated into certain of the Company's products, such as wafers
for silicon switching diodes, zeners and rectifiers. The loss of any critical
supply or supplier could have a material effect on the performance of the
Company.
Employees
As of September 30, 1996, the Company had 108 full-time
employees, 92 of whom were engaged in manufacturing (including test development,
quality and materials functions), and 3 in product development, 5 in sales, and
8 in finance and administration. The Company's employees are not represented by
any collective bargaining agreements and the Company has never experienced a
work stoppage.
Environmental Matters
The Company is a potentially responsible party in connection
with the contamination of soil and groundwater on the Company's leased
manufacturing site in Lawrence. The Company, as tenant, might be considered an
"operator" and therefore strictly liable for cleanup costs or liable for damages
to third parties, unless it can establish certain defenses. The Company believes
that its use, storage and disposal of material are carefully controlled and do
not result and have not in the past resulted in a release thereof. New England
Environmental Technologies Corporation ("NEET") has conducted preliminary site
investigations and has advised the Company that, although one of the
contaminants found is used in the Company's operations, the Company is not a
likely source of the contamination and that the contamination most likely
results from historical improper disposal of chlorinated solvents on the site
and upgradient of the site predating the Company's occupancy of the property.
If the Company were required to pay cleanup costs, applicable
hazardous waste laws allow the Company to seek contribution from other parties
who caused the contamination or are also subject to strict liability (i.e.,
current and former owners and operators). The current owner and the prior lessee
have agreed to hold harmless the Company with respect to any contamination that
may have occurred prior to October 16, 1985.
Although the outcome of this matter and the cost, if any, to
the Company cannot be reasonably estimated at this time, management does not
believe that the cost, if any, to the Company will have a material adverse
effect on the financial position of the Company.
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<PAGE>
Federal, state and local regulations impose various
environmental controls on the discharge of chemicals and gases used in BKC's
manufacturing process. The Company believes that its operations are currently in
substantial compliance with all applicable environmental laws and regulations
and that costs of continuing compliance will not, except as described herein, be
material to the Company's financial condition.
The Company believes that it has insurance coverage in amounts
and scope which are adequate and customary for its industry. The Company's
policies contain exclusionary provisions attempting to limit the insurer's
responsibility for damages, if any, arising from certain events, including those
arising from pollution or contamination of the environment. Whether these
limitations would ultimately preclude recovery by the Company of damages arising
from these types of losses would likely be the subject of a dispute between the
Company and its insurers at or after the time at which such liability arises.
ITEM 2. PROPERTIES
The Company's executive offices and manufacturing facilities
are located in Lawrence, Massachusetts, and consist of one building containing
approximately 160,000 gross square feet. The building is occupied by the Company
pursuant to a lease expiring in October, 2000. Approximately 100,000 square feet
of the building are occupied by the Company, 45,000 square feet are sub-leased
by the Company to third parties, 15,000 square feet are common area. The Company
believes its currently leased facilities are adequate for all its reasonably
foreseeable requirements.
ITEM 3. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of fiscal 1996, no matter was
submitted to a vote of the security holders through the solicitation of proxies
or otherwise.
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<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the NASDAQ National
Market System under the symbol BKCS. The following table sets forth for the
periods indicated the high and low bid quotations of the common stock as
reported by NASDAQ. Such quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1994 1995 1996
High Bid Low Bid High Bid Low Bid High Bid Low Bid
Fiscal Quarter Bid
First quarter 7.25 5.62 4.00 2.00 3.75 1.88
Second quarter 6.25 4.25 3.37 1.75 4.00 1.75
Third quarter 5.25 3.75 2.75 1.75 4.75 1.75
Fourth quarter 4.25 3.75 7.50 2.25 3.75 2.25
</TABLE>
On September 30, 1996, the last reported bid price for the Common
Stock on the NASDAQ market was $3 1/2, per share.
As of September 30, 1996, the Company estimated that there are
approximately 700 record holders of the Company's Common Stock.
The Company has not paid any cash dividends on its Common
Stock since inception, and it does not anticipate paying any cash dividends in
the foreseeable future.
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<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The following table summarizes certain financial data which are
qualified by more detailed financial statements included herein.
<TABLE>
<CAPTION>
STATEMENT OF CONSOLIDATED INCOME (LOSS) DATA:
<S> <C> <C> <C> <C> <C>
FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
Revenue $9,797 $11,277 $11,384 $9,775 $8,361
Gross profit 1,947 1,278 2,005 2,915 2,607
Income (loss) from operations 96 (1,530) (533) 700 977
Net income (loss) 34 (1,207) (475) 353 407
Net income (loss) per share .03 (.97) (.38) .28 .28
Weighted average shares outstanding 1,273 1,244 1,247 1,248 785
CONSOLIDATED BALANCE SHEET DATA:
AT SEPTEMBER 30,
----------------------------------------------------------------
1996 1995 1994 1993 1992 (1)
Working capital $2,015 $1,744 $3,100 $3,232 $3,379
Total assets 6,429 7,824 8,351 7,761 6,468
Short-term debt 1,805 2,967 2,144 1,556 211
Long-term debt and non-current capital lease
obligations 581 915 1,219 591 396
Stockholders' equity 2,969 2,852 4,062 4,558 4,385
<FN>
1 On August 27, 1992, the Company completed its initial public offering of
500,000 shares of its common stock. In connection therewith, the redemption
rights on certain common stock were canceled and/or expired.
</FN>
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operation
1996 compared to 1995. Revenues for 1996 fiscal year were
$9,796,858 versus $11,277,350 for fiscal year 1995. A major element attributing
to the lower revenue for fiscal year 1996 was a decrease in the level of product
resale revenue which is derived from resale of components manufactured for BKC
from an off-shore vendor. During fiscal year 1996 the total revenue from
components resale was $1,115,000 versus $2,166,000 during fiscal year 1995. This
drop of $1,051,000 in such revenue during fiscal year 1996 is related to the
sensitivity of the computer industry's inventory levels and model design
changes. BKC's core product line which is 100% manufactured at its Lawrence
site, saw a slight decline in fiscal year 1996 versus fiscal year 1995 resulting
from BKC actions regarding increased pricing and product pruning.
Net Income for the year was $34,156, or $.03 per share, versus
a net loss of ($1,207,469), or ($.97) per share, for fiscal year 1995. Included
in the net income figure for the year was a gain on disposal of property and
equipment of $208,815. The additional improvement in net income versus the prior
year was due to increased pricing and resultant margins, plus positive results
from cost reductions and reduced spending actions throughout the Company.
Gross Profits for fiscal year 1996 were $1,947,406, or 20% of
sales, versus $1,277,972, or 11% of sales in fiscal year 1995. This improvement
was a result of management instituted initiatives involving increased prices,
manufacturing cost reductions and decreasing the manufacturing spending levels.
Operating Expenses for the year were $1,851,051, versus
$2,808,197 for fiscal year 1995, which in fiscal year 1995 included a write down
of assets in the amount of $574,873 due to the Company's decision to exit the
photo detector business. Selling expenses for the current fiscal year were
$898,714, versus $1,286,202 for fiscal year 1995. The improvement in selling
expenses was due to the elimination of selling expenses related to the photo
detector business and reduction in the general expenses and spending related to
the selling activity.
General and Administrative Expenses were $740,512 for the
fiscal year compared to $785,415 for fiscal year 1995. The reduction in spending
was a result of the company-wide focus on cost reduction and profit improvement
objectives.
Research and Development Expenses (R&D) were $211,825 versus
$161,707 for the prior fiscal year. This increase in spending was a planned
action to invest in new product development such as the square ended melf
product line which had its production launch during the first quarter of fiscal
year 1997. The increased spending reflects management's commitment to new
product development as the Company returns to profitability.
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The major risks the Company faces include the availability of
silicon wafers, which is a total industry problem, other raw materials, and the
speed and effectiveness in accomplishing performance improvement initiatives
planned for fiscal year 1997.
As discussed above, fiscal year 1996, in total, had overall
positive net income. The first through third quarter of fiscal year 1996 had
positive performance, while quarter four had both a decrease in revenue compared
to prior quarters, negative operating profits, and negative net income. The
issues with the fourth quarter were a major decrease in resale product revenue,
and a softening in demand from BKC's distributors and some key OEM customers. In
addition, during the fourth quarter of fiscal year 1996 certain adjustments were
made to recognize the return of products by some BKC distributors and
product/customer account issues. Looking ahead, there is continued concern
regarding market demand as we enter the new year. Meeting business plan shipping
and manufacturing levels will be a critical factor in reaching the Company's
fiscal year 1997 goals.
1995 compared to 1994. Revenues for 1995 fiscal year were
$11,277,000 versus $11,384,000 for 1994, indicating no growth for the Company as
there had been in past years. Impacting revenues for 1995 was the DESC (Defense
Electronics Supply Center) hold shipment during the first quarter, which had an
estimated $400,000 negative effect on shipments. The hold shipment order was
issued pursuant to a DESC audit of the BKC facility during October 1994. The
auditors determined that certain military product lines were marginally out of
conformance to military specifications and had to be re-tested. It is estimated
that the Company re-tested over three million parts including 600,000 that were
in the field.
Net Loss for the year was $(1,207,000), or $(.97) per share,
versus a net loss of $(475,000), or $(.38) per share for fiscal year 1994. There
were several factors which caused the poor performance for 1995. First, the DESC
hold shipment in the first quarter fiscal year 1995 cost the Company
approximately $400,000 in revenues and an estimated $197,000 in net income or
$.16 per share. Second, the Board decided to close the Photo Detector operation
and write down the assets. This write-down cost the Company $376,000 in net
income or $.30 per share. Third, the management completed an extensive study of
commercial inventories and determined that an after-tax reduction in value of
$364,000 or $.29 per share was necessary. The total of these three items reduced
net income by $937,000 or $.75 per share.
During the fourth quarter 1995, the management instituted a
number of initiatives affecting the future operation of the Company. Included in
these initiatives were strategy changes, management reorganization, price
increases, product pruning, headcount reductions, and a manufacturing focus on
cycle time improvements and on-time delivery. Excluding the commercial inventory
write-down, the Company was able to achieve better than break-even income from
operations during the quarter on sales of $2,950,000.
Gross Profits for 1995 were $1,278,000, or 11.3% of sales
versus $2,005,000 or 17.6% of sales for 1994. Fiscal year 1995 gross profits
were adversely affected by three events: (1) the DESC hold shipment in the first
quarter which had an estimated $328,000 impact on gross profits, (2) the losses
on the Photo Detector line in the first and second quarters had a $96,000
impact, and (3) the inventory write-down in the fourth quarter impacted gross
profits an
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<PAGE>
additional $552,000. Excluding these three events, gross profits for 1995
would have increased to approximately $2,254,000 or 20.0% of sales.
Operating Expenses for the year, excluding the write down of
the Photo Detector assets of $574,873, were down by 12% or $304,745, to
$2,233,324 from $2,538,069 in 1994. Selling expenses were flat year-to-year as
1995 expenses were $1,286,000 or 11.4% of sales versus 1994 expenses of
$1,287,000 or 11.3% of sales. Management targeted reductions in selling expenses
during the fourth quarter of 1995 fiscal year and were able to reduce the
spending levels to $286,000, or 9.7% of sales, for the quarter.
General and Administrative Expenses were $785,000 or 7.0% of
sales for 1995 as compared to $1,089,000 or 9.6% of sales for 1994. The lower
cost of G&A for 1995 can be attributed to the phase out of Photo Detectors and
Souza Semiconductor subsidiaries, headcount reductions, and lower discretionary
spending.
Product Development Expenses (R&D) were also flat year-to-year as
1995 spending totaled $162,000 or 1.4% of sales, as did 1994 spending.
Liquidity and Capital Resources. The Company's ability to meet its
short term commitments are reflected by its working capital ratios.
<TABLE>
<S> <C> <C> <C>
WORKING CAPITAL:
(Data in $000's except ratios) 1994 1995 1996
---- ---- ----
Beginning of Year $3,232 $3,100 $1,744
End of Year 3,100 1,744 2,015
Increase/(decrease) in W.C. (132) (1,356) 271
W.C. Ratio 2.0 1.4 1.7
</TABLE>
The Company generated a $1,193,000 positive cash flow from
operations during 1996 versus a positive cash flow of $34,000 for the same
period in 1995. In addition to lower fiscal spending and improved collections,
the Company received a $204,000 income tax refund which helped operating cash
flow.
Cash flows were also increased through investing activities by
an additional $281,000. The Company sale of property located at 85 Broadway,
Lawrence, MA, and other equipment generated proceeds of $426,000 which were
partially offset by $145,000 of property and equipment purchases.
The Company used its total positive cash flows of $1,474,000
to pay down its credit line by $849,000 and make principal payments on its long
term debt of $704,000.
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<PAGE>
As of September 30, 1996, the Company has a revolving credit
line with Eastern Bank for $2,500,000 collateralized by accounts receivable and
inventories. The balance used on the line is $1,430,839. The line of credit
agreement contains certain restrictive covenants which the Company has complied
with or the bank has waived.
The Company had long term debt, including the amount due
within one year, of $955,000 as of fiscal year end 1996. This debt is secured by
all the assets of the Company. Refer to Notes 5 and 6 within the consolidated
financial statements for details. In September 1996, the Company closed on new
long term financing of $1,100,000 which replaced all prior existing long term
debt and will provide additional operating capital of $145,000 along with a
$16,000 reduction in monthly payments. This term loan is secured by all the
assets of the firm along with a $450,000 loan guarantee from HUD. The loan
agreement contains restrictive covenants which require, among other things, the
maintenance of certain financial ratios. There is no certainty the Company's
future performance will result in compliance with the covenant requirements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and schedules together with the auditors
reports thereon are referenced in Part IV and are attached hereto.
ITEM 9. DISAGREEMENTS WITH THE ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None
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<PAGE>
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS OF REGISTRANT
The executive officers and directors of the Company and their ages
as of September 30, 1996, are as follows:
Name Age Positions Held with Company
Albert A. Magdall 61 Chairman, Director
James R. Shiring 55 President, CEO, Director
John L. Campbell 62 Strategic Marketing and Distribution,
Clerk, Director
William J. Kady 56 Vice President of Quality, Director
Gerald T. Billadeau 54 Director
W. Randle Mitchell, Jr. 62 Director
Thomas M. Cunneen 36 Vice President Marketing and Sales
Bryan A. Schmidt 44 Controller, Treasurer
Messrs. Billadeau, Kady and Campbell founded the Company in 1985.
Mr. Billadeau served as the Company's President and Chief Executive Officer
from 1985 through July of 1995.
Mr. Magdall was elected to the Board of Directors in November
of 1994, elected Chairman of the Board in May of 1995, and served as interim
President, Chief Executive Officer until a new President was hired by the
Company on March 19, 1996 at which time Mr. Magdall resumed his role as an
independent Director and Chairman of the Board. Mr. Magdall has a long record of
successful management in product development and manufacturing with IBM and
managing four European sales and service companies as a Senior Vice President
and Corporate Officer at Genicom Corporation.
Mr. Shiring joined BKC as its President and Chief Executive
Officer on March 19, 1996. Mr. Shiring had been Managing Director of Clare
Europe, a unit of CP Clare, a worldwide manufacturer of electronic components,
and prior to that Chief Operating Officer of the parent company of CP Clare. Mr.
Shiring's professional background covers 33 years of progressive global
experience in the electronics industry with the focus on semiconductor
components. His prior professional experience has been with Westinghouse,
Varian, Semicon, Teledyne, and Theta-J Corporation, the forerunner to CP Clare
Corporation for the past thirteen years.
Prior to the founding of BKC, Mr. Billadeau served as Vice
President and Controller of the ITT Semiconductors Division of ITT from 1980 to
1985. From 1973 to 1980, Mr. Billadeau served as Assistant Controller and
Financial Manager of a subsidiary of ITT. Mr. Billadeau left BKC June 1995 to
pursue other interests. He remains a Director of the Company.
Mr. Kady served in various capacities in the ITT Semiconductors
Division of ITT, primarily in the areas of engineering, quality and reliability,
with the exception of the period from 1970 to 1979, during which time Mr. Kady
owned and managed an automobile dealership.
- 14 -
<PAGE>
From 1963 to 1985, Mr. Campbell held a number of sales and
marketing positions in the ITT Semiconductors Division of ITT, lastly as Eastern
Regional Sales Manager.
Mr. Mitchell was elected to the Board of Directors of the
Company on December 16, 1994. He joined Amoskeag Company (a company involved in
the home furnishing textile business) in 1979 as VP, Treasurer and CFO and most
recently served as President and CEO, a position he left in 1994 following the
sale of Amoskeag to Fieldcrest Cannon, Inc. He was Executive VP and CFO of
Fieldcrest Cannon from 1985 to 1990, Amoskeag's former 80% controlled
subsidiary. He also served as the Senior VP and CFO of Wellington Management
Company in Boston and held various financial management positions with the Merck
Sharp & Dohme International Division of Merck & Co.
Mr. Thomas M. Cunneen joined BKC as its Vice President of
Sales and Marketing on May 14, 1996. Prior to joining BKC, Mr. Cunneen had been
Vice President, Field Operations of CP Clare, a worldwide manufacturer of
electronic components. Mr. Cunneen's professional background covers fourteen
years of progressive global experience in the electronics industry with the
focus on semiconductor components. His prior professional experience has been
with Sprague, Sigma Instruments and Theta-J Corporation, the forerunner to CP
Clare Corporation for the past ten years.
Mr. Bryan A. Schmidt joined BKC as its Controller on June 24,
1996 and was subsequently elected treasurer at the BKC Board Meeting of July 23,
1996. Mr. Schmidt's professional training includes degrees of BS and MBA in
Finance from Northeastern University and progressive financial management
experience within manufacturing concerns for the last twenty years. Prior to
joining BKC, Mr. Schmidt was Controller and CFO for Gare, Inc., a manufacturer
of products for the ceramics industry.
All directors hold office until the next annual meeting of
stockholders and until their successors have been elected. The officers of the
Company are elected annually and serve at the discretion of the Board of
Directors of the Company. There are no family relationships among any of the
directors and executive officers of the Company.
The Company's outside directors, Mr. W. R. Mitchell, Jr., along with
Mr. A. A. Magdall, Chairman, will serve on the Audit and Compensation
Committees.
Certain information regarding reports required to be filed
pursuant to Section 16(a) of the Securities Exchange Act of 1934 by directors,
officers and beneficial owners of 10% or more of the Company's Common Stock is
contained in the Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required with respect to executive compensation
of the Company is incorporated herein by reference to "Executive Officer
Compensation" in the Proxy Statement and is incorporated herein by reference.
- 15 -
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item with respect to security
ownership and management and certain beneficial owners of the Company is
incorporated by reference to the caption "Stock Ownership of Directors,
Executive Officers and Principal Stockholders" contained in the Proxy Statement
and is incorporated herein by reference.
The Company knows of no arrangements, including any pledge by
any person of securities of the Company, the operation of which may at a
subsequent date result in a change in control of the Company. The Company also
knows of no agreements among its shareholders which relate to voting or
investment power of its shares of Common Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
- 16 -
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES
(a) Documents filed as part of this report:
(1) Financial Statements: Page
Index to Consolidated Financial Statements and 20
Schedules
Report of Independent Certified Public 21
Accountants
Consolidated Balance Sheet, September 30, 1996 22
and 1995
Statement of Consolidated Income (Loss) for the 23
years ended September 30, 1996, 1995 and 1994
Statement of Consolidated Stockholders' Equity 24
for the years ended September 30, 1996, 1995
and 1994
Statement of Consolidated Cash Flows for the 25
years ended September 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements, 26
September 30, 1996, 1995 and 1994
(2) Schedules for the years ended September 30,
1996, 1995 and 1994:
II - Valuation and Qualifying Accounts 38
All other schedules called for under Regulation S-X are not submitted
because they are not applicable or not required, or because the
required information is included in the Consolidated Financial
Statements and Notes thereto.
(3) Exhibits:
The following exhibits are filed herewith:
Exhibit
No. Title
*1.3 - Agreement among Registrant, Arthur W. Wood
Company, Inc. and McGinn, Smith & Co.
**1.4 - Warrant Agreement between Registrant and Arthur
W. Wood Company, Inc.
**3.2 - Restated Articles of Organization of the
Registrant
**3.4 - Amended and Restated By-Laws of the Registrant
*4.3 - Specimen share certificate.
*10.3 - Registrant's Savings Plan dated September 20,
1991.
**10.28 - Agreement dated March 25, 1992 between
Registrant and Arthur W. Wood Company, Inc.
- 17 -
<PAGE>
Exhibit
No. Title
10.39 - Financing with Eastern Bank, filed as an exhibit
to the Company's Form 10-K for the year ended
September 30, 1994 and incorporated herein by
reference.
10.40 - BKC/Eastern Bank/City of Lawrence - HUD
Financing Agreement dated November 25, 1996
27.1 - Financial data schedule
***99.1 - Registrant's 1994 Stock Option Plan
***99.2 - Registrant's 1994 Non-Employee Director Stock
Option Plan
* Incorporated by reference to the same exhibit number to the
Registration Statement on Form S-18 filed with the Commission on June
22, 1992.
** Incorporated by reference to the same exhibit number of
Amendment No. 1 to the Registration Statement on Form S-18
filed with the Commission on August 4, 1992.
*** Incorporated by references to the same exhibit number of the
Registration Statement on Form S-8 filed with the Commission on May 29,
1995.
(b) Reports on Form 8-K:
None
- 18 -
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
BKC Semiconductors Incorporated
Date: /s/ James R. Shiring
--------------------------------------------
By: James R. Shiring, President and Chief
Executive Officer, Director
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 registrant and in the capacities and on the dates indicated.
Date: December 26, 1996 /s/ James R. Shiring
--------------------------------------------
James R. Shiring, President and Chief
Executive Officer, Director
Date: December 26, 1996 /s/ Bryan A. Schmidt
--------------------------------------------
Bryan A. Schmidt, Controller, Treasurer
Date: December 26, 1996 /s/ John L. Campbell
--------------------------------------------
John L. Campbell, Strategic Marketing and
Distribution, Clerk, Director
Date: December 26, 1996 /s/ William J. Kady
--------------------------------------------
William J. Kady, Vice President Quality,
Director
--------------------------------------------
Albert A. Magdall, Chairman, Director
--------------------------------------------
W. Randle Mitchell, Jr., Director
--------------------------------------------
Gerald T. Billadeau, Director
- 19 -
<PAGE>
BKC SEMICONDUCTORS INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page
Financial Statements:
Report of Independent Certified Public Accountants 21
Consolidated Balance Sheet, September 30, 1996 and 1995 22
Statement of Consolidated Income (Loss) for the years 23
ended September 30, 1996, 1995 and 1994
Statement of Consolidated Stockholders' Equity for the 24
years ended September 30, 1996, 1995 and 1994
Statement of Consolidated Cash Flows for the years 25
ended September 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements, September 26
30, 1996, 1995 and 1994
Schedules for the years ended September 30, 1996, 1995 and 1994:
II - Valuation and Qualifying Accounts 38
All other schedules called for under Regulation S-X are not submitted because
they are not applicable or not required, or because the required information
is included in the Consolidated Financial Statements and Notes thereto.
- 20 -
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
BKC Semiconductors Incorporated
We have audited the accompanying consolidated balance sheet of
BKC Semiconductors Incorporated and subsidiaries as of September 30, 1996 and
1995, and the consolidated statements of income (loss), stockholders' equity and
cash flows for the years ended September 30, 1996, 1995 and 1994. 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 consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
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 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 BKC
Semiconductors Incorporated and subsidiaries as of September 30, 1996 and 1995,
and the results of their operations and their cash flows for the years ended
September 30, 1996, 1995 and 1994 in conformity with generally accepted
accounting principles.
Our audits, referred to above, also include the financial
schedules listed in the Index at Item 14(a)(2). In our opinion, based on our
audits, such financial schedules present fairly the information required to be
set forth therein.
/s/ Sullivan Bille, P.C.
SULLIVAN BILLE, P.C.
Boston, Massachusetts
November 11, 1996 (except for Notes 5 and 6
for which the date is November 25, 1996)
- 21 -
<PAGE>
<TABLE>
<CAPTION>
BKC SEMICONDUCTORS INCORPORATED
CONSOLIDATED BALANCE SHEET, SEPTEMBER 30, 1996 AND 1995
<S> <C> <C>
1996 1995
ASSETS
CURRENT ASSETS:
Cash $ 5,921 $ 28,340
Accounts and notes receivable - trade (less
allowance for doubtful accounts: 1996,
$11,694; 1995, $20,000) 1,274,927 1,899,748
Refundable income taxes 215,255
Inventories 3,119,741 3,038,082
Prepaid expenses 33,577 54,357
Deferred income taxes 460,000 491,400
---------- ----------
Total current assets 4,894,166 5,727,182
PROPERTY AND EQUIPMENT - Net 1,426,439 1,996,220
OTHER ASSETS 107,908 100,939
---------- ----------
TOTAL $6,428,513 $7,824,341
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable - bank $1,430,839 $2,279,647
Accounts payable 1,019,836 894,853
Accrued liabilities 54,481 120,998
Current maturities of long-term debt 374,070 687,671
---------- ----------
Total current liabilities 2,879,226 3,983,169
---------- ----------
LONG-TERM DEBT - Net of current maturities 580,610 915,251
---------- ----------
DEFERRED INCOME TAXES 73,900
---------- ----------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, Series A - 6%,
authorized, 5,000 shares of no par value;
issued 2,940 shares 242,078 242,078
Common stock - authorized, 2,000,000 shares
of no par value; issued, 1996, 1,295,311
shares; 1995, 1,262,311 shares 3,916,721 3,834,221
Deficit (834,503) (868,659)
---------- ----------
Total 3,324,296 3,207,640
Less cost of shares held in treasury:
Convertible preferred stock, 2,940 shares 235,200 235,200
Common stock, 18,900 shares 120,419 120,419
---------- ----------
Stockholders' equity - net 2,968,677 2,852,021
---------- ----------
TOTAL $6,428,513 $7,824,341
========== ==========
</TABLE>
See notes to consolidated financial statements.
- 22 -
<PAGE>
<TABLE>
<CAPTION>
BKC SEMICONDUCTORS INCORPORATED
STATEMENT OF CONSOLIDATED INCOME (LOSS)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<S> <C> <C> <C>
1996 1995 1994
REVENUE $9,796,858 $11,277,350 $11,383,732
COST OF REVENUE 7,849,452 9,999,378 9,378,271
---------- ----------- -----------
GROSS PROFIT 1,947,406 1,277,972 2,005,461
---------- ----------- -----------
OPERATING EXPENSES:
Selling 898,714 1,286,202 1,287,418
General and administrative 740,512 785,415 1,088,629
Research and development 211,825 161,707 162,022
Write down of assets of Photo
Detector division 574,873
---------- ----------- -----------
Total operating expenses 1,851,051 2,808,197 2,538,069
---------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 96,355 (1,530,225) (532,608)
---------- ----------- -----------
OTHER (INCOME) EXPENSE:
Interest expense 293,262 311,727 236,470
Gain on disposal of property and
equipment (208,815)
---------- ----------- -----------
Other expense - net 84,447 311,727 236,470
---------- ----------- -----------
INCOME (LOSS) BEFORE CREDIT FOR
INCOME TAXES 11,908 (1,841,952) (769,078)
CREDIT FOR INCOME TAXES (22,248) (634,483) (293,825)
---------- ----------- -----------
NET INCOME (LOSS) $ 34,156 $(1,207,469) $ (475,253)
========== =========== ===========
NET INCOME (LOSS) PER SHARE $.03 $(.97) $(.38)
==== ===== =====
</TABLE>
See notes to consolidated financial statements.
- 23 -
<PAGE>
<TABLE>
<CAPTION>
BKC SEMICONDUCTORS INCORPORATED
STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<S> <C> <C> <C> <C> <C> <C>
CONVERTIBLE
CONVERTIBLE RETAINED PREFERRED COMMON
PREFERRED COMMON EARNINGS STOCK HELD STOCK HELD STOCKHOLDERS'
STOCK STOCK DEFICIT) IN TREASURY IN TREASURY EQUITY - NET
BALANCE AT SEPTEMBER 30, 1993 $242,078 $3,834,221 $ 814,063 $(235,200) $ (97,535) $4,557,627
PURCHASE OF 4,000 SHARES OF
COMMON STOCK FOR THE
TREASURY (20,580) (20,580)
NET LOSS FOR THE YEAR (475,253) (475,253)
-------- --------- -------- --------- --------- ----------
BALANCE AT SEPTEMBER 30, 1994 242,078 3,834,221 338,810 (235,200) 118,115) 4,061,794
PURCHASE OF 1,000 SHARES OF
COMMON STOCK FOR THE
TREASURY (2,304) (2,304)
NET LOSS FOR THE YEAR (1,207,469) (1,207,469)
-------- --------- --------- --------- --------- ----------
BALANCE AT SEPTEMBER 30, 1995 242,078 3,834,221 (868,659) (235,200) (120,419) 2,852,021
ISSUANCE OF 33,000 SHARES OF
COMMON STOCK 82,500 82,500
NET INCOME FOR THE YEAR 34,156 34,156
-------- --------- --------- -------- --------- ---------
BALANCE AT SEPTEMBER 30, 1996 $242,078 $3,916,721 $ (834,503) $(235,200) $(120,419) $2,968,677
======== ========= ======= ======= ======= =========
</TABLE>
See notes to consolidated financial statements.
- 24 -
<PAGE>
<TABLE>
<CAPTION>
BKC SEMICONDUCTORS INCORPORATED
STATEMENT OF CONSOLIDATED CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
<S> <C> <C> <C>
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers and
tenants $10,413,935 $10,990,248 $11,248,193
Cash paid to suppliers and employees (9,123,310) (11,047,999) (11,219,829)
Interest paid (293,262) (311,727) (236,470)
Income taxes paid (8,030) (32,800) (194,569)
Income tax refunds received 204,003 436,627 64,850
----------- ----------- -----------
Net cash provided by (used in)
operating activities 1,193,336 34,349 (337,825)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (145,049) (268,196) (892,572)
Proceeds from disposal of property and
equipment 426,344
----------- ----------- -----------
Net cash provided by (used in)
investing activities 281,295 (268,196) (892,572)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under line-
of-credit agreements (848,808) 647,596 375,022
Proceeds from issuance of long-term
debt 55,819 26,864 2,652,539
Principal payments on long-term debt (704,061) (462,065) (1,811,568)
Purchase of stock for the treasury (2,304) (20,580)
----------- ----------- ----------
Net cash provided by (used in)
financing activities (1,497,050) 210,091 1,195,413
----------- ----------- -----------
NET DECREASE IN CASH (22,419) (23,756) (34,984)
CASH AT BEGINNING OF YEAR 28,340 52,096 87,080
----------- ----------- -----------
CASH AT END OF YEAR $ 5,921 $ 28,340 $ 52,096
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
- 25 -
<PAGE>
BKC SEMICONDUCTORS INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996, 1995 AND 1994
1. OPERATIONS
BKC Semiconductors Incorporated (the Company), and its subsidiaries,
Souza Semiconductors, Inc. (Souza), BKC Photo Detector Division,
Inc. (Photo Detector), which was organized in December 1992, and
Clearwater Enterprises of Massachusetts, Inc. (Clearwater), which
was organized in October 1993, design, manufacture and market
discrete and photo detector semi-conductor devices in the United
States and internationally. The Company grants credit to its
customers in the industrial, automotive, telecommunications,
military and aerospace industries. Approximately 8%, 19% and 16% of
revenues during the years ended September 30, 1996, 1995 and 1994,
respectively, were from international sales.
There was one customer which accounted for 10% of revenue for the year
ended September 30, 1996. There was no customer accounting for more
than 10% of revenue for the year ended September 30, 1995. One
customer accounted for 11% of total revenue for the year ended
September 30, 1994. No other customers accounted for more than 10%
of revenue in each of the years ended September 30, 1996 and 1994.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries Souza, Clearwater and Photo Detector.
All material intercompany transactions have been eliminated.
Effective September 30, 1996, Clearwater was liquidated. Effective
June 30, 1995, Souza was merged into the Company and Photo Detector
was liquidated. In connection with Photo Detector's liquidation, the
Company recorded a loss of $574,873 in the accompanying statement of
consolidated income (loss) from the write down of inventory and
property and equipment to its net realizable value.
Management Estimates
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
- 26 -
<PAGE>
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition
Revenue from product sales is recorded upon shipment to the customer.
Inventories
Inventories are valued at the lower of cost (first-in-first-out
method) or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and
amortization are computed principally on the straight-line method
for financial accounting purposes, and accelerated methods for tax
purposes, over the estimated useful lives of the assets.
Leasehold improvements are amortized on the straight-line method over
their respective lives or the lease terms, whichever is shorter.
Costs of maintenance and repairs are charged to expense while costs of
significant renewals and betterments are capitalized.
Income Taxes
Amounts in the consolidated financial statements related to income
taxes are calculated using the principles of Financial Accounting
Standards Board Statement No. 109, "Accounting for Income Taxes"
(SFAS 109). Under SFAS 109, prepaid and deferred taxes reflect the
impact of temporary differences between the amounts of assets and
liabilities recognized for financial reporting purposes and the
amounts recognized for tax purposes as well as tax credit
carryforwards and loss carryforwards. These deferred taxes are
measured by applying currently enacted tax rates. A valuation
allowance is used to reduce deferred tax assets when it is "more
likely than not" that some portion or all of the deferred tax assets
will not be realized.
3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<S> <C> <C>
September 30,
-------------------------
1996 1995
---- ----
Raw Material $ 558,008 $ 360,694
Work in Process 1,519,481 1,823,009
Finished Goods 1,042,252 854,379
--------- ----------
Total $3,119,741 $3,038,082
========== ==========
</TABLE>
- 27 -
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<S> <C> <C>
September 30,
---------------------------
1996 1995
---- ----
Machinery and equipment $5,268,890 $5,260,174
Leasehold improvements 233,444 229,137
Equipment under capital lease 132,000 132,000
Real estate 105,316
Furniture and office equipment 31,043 25,627
---------- ---------
Total 5,665,377 5,752,254
Less accumulated depreciation and
amortization 4,238,938 3,756,034
---------- ----------
Property and equipment - net $1,426,439 $1,996,220
========== ==========
</TABLE>
The useful lives employed for computing depreciation and amortization
on principal classes of property and equipment are as follows:
Class Description Years
Machinery and equipment 5 - 10
Leasehold improvements 10
Equipment under capital lease 5
Real estate 31-1/2
Furniture and office equipment 5 - 10
5. NOTE PAYABLE - BANK
Note payable - bank of $1,430,839 and $2,279,647 at September 30, 1996
and 1995, respectively, represents borrowings on the Company's
$2,500,000 line of credit. Interest is payable monthly at prime plus
1% (1996, 9-1/4%; 1995, 9-3/4%). The line is collateralized by a
security interest in substantially all assets of the Company. The
loan documents contain certain restrictive covenants which the
Company has complied with or the bank has waived. The line-of-credit
was renewed by the bank on November 25, 1996.
- 28 -
<PAGE>
6. LONG-TERM DEBT
<TABLE>
<S> <C> <C>
Long-term debt consisted of the following:
September 30,
-----------------------
1996 1995
---- ----
Note payable - bank, prime plus 1%
(9-1/4%), payable in monthly
instalments of $27,500, commencing in
December 1996, plus interest, balance
due March 2000, collateralized by a
security interest in substantially all
assets of the Company and a $450,000
guarantee by the City of Lawrence,
Massachusetts, the guarantee is reduced
by $25,000 per month and expires May
1998, this financing closed on
November 25, 1996 $908,839
Note payable - bank, prime plus 1/2%
(9-1/4%), payable in monthly
instalments of $31,667, plus interest,
to October 1997, collateralized by a
security interest in substantially all
assets of the Company, refinanced
November 25, 1996 $849,523
Note payable - bank, prime plus 1/2%
(9-1/4%), payable in monthly
instalments of $12,500, plus interest,
to May 1998, collateralized by a
security interest in substantially
all assets of the Company, refinanced
November 25, 1996 391,134
Note payable - bank, prime plus 1%
(9-3/4%), payable in monthly
instalments, commencing in December
1995, of $9,584, plus interest through
December 1998 or date paid in full,
collateralized by a security interest
in substantially all assets of the Company,
refinanced November 25, 1996 257,375
Note payable - other, payable in monthly
instalments of $2,778 to January 1997,
collateralized by a security interest in
certain equipment 11,108 41,666
Capital lease obligations, 10.7%,
payable in monthly instalments
aggregating $2,825, including
interest, through December 1997,
collateralized by a security
interest in certain equipment 34,733 63,224
-------- ----------
Total 954,680 1,602,922
Less current maturities 374,070 687,671
------- ----------
Long-term debt - net $580,610 $ 915,251
======== =========
</TABLE>
- 29 -
<PAGE>
6. LONG-TERM DEBT (Continued)
The above notes payable - bank contain the same restrictive covenants
as the Company's line of credit (Note 5) which the Company has
complied with or the bank has waived.
Principal payments of long-term debt as of September 30, 1996 are due
as follows:
<TABLE>
<S> <C>
Year Ended
September 30, Amount
1997 $374,070
1998 279,113
1999 272,640
2000 28,857
-------
Total $954,680
</TABLE>
7. LEASE AGREEMENTS
The Company leases its manufacturing and office facility in Lawrence,
Massachusetts under an eight-year operating lease which expires in
October 2000, at an annual rental of $144,000 through October 1997
and $168,000 thereafter. The lease provides for an option to
purchase the facility at a base price of $960,000 adjusted by
increases in the Consumer Price Index (not to exceed 5% per year).
The option expires in October 1999. The future minimum lease
payments, under the lease, are as follows:
<TABLE>
<S> <C>
Year Ended
September 30, Amount
1997 $144,000
1998 166,000
1999 168,000
2000 168,000
2001 14,000
-------
Total $660,000
</TABLE>
The above future minimum lease payments have not been reduced by the
total sublease rentals to be received of approximately $239,900
under non-cancelable subleases.
The amount charged to rent expense was approximately $144,000, for
each of the years ended September 30, 1996, 1995 and 1994. The
Company received approximately $228,400, $219,000 and $222,000 in
sublease rental income for the years ended September 30, 1996, 1995
and 1994, respectively.
- 30 -
<PAGE>
7. LEASE AGREEMENTS (Continued)
The Company leases certain equipment under operating lease agreements
which expire at various dates through December 1999. The future
minimum lease payments are as follows:
<TABLE>
<S> <C>
Year Ended
September 30, Amount
1997 $ 66,483
1998 45,560
1999 11,211
Total $123,254
</TABLE>
8. INCOME TAXES
Credit for income taxes consisted of the following:
<TABLE>
September 30,
--------------------------------
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Current:
Federal $ 11,252 $(215,988) $(258,868)
State 9,000 30,205 8,719
Deferred:
Federal (42,352) (355,805) 30,044
State (148) (92,895) (73,720)
-------- --------- --------
Credit for income taxes -
net $(22,248) $(634,483) $(293,825)
======== ======== ========
</TABLE>
The differences between the credit for income taxes and income taxes
using the U.S. Federal Income Tax Rate of 34% is as follows:
<TABLE>
September 30,
--------------------------------
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Amount computed using the
above rate $ 4,000 $(626,300) $(261,500)
State income tax - net of
federal tax benefit 10,200 (107,375) (42,900)
Reduction of deferred tax
asset due to uncertainty of
state loss carryforward, net
of federal tax benefit 66,000
Other (36,448) 33,192 10,575
-------- -------- --------
Credit for income taxes -
net $(22,248) $(634,483) $(293,825)
======== ========= =========
</TABLE>
- 31 -
<PAGE>
8. INCOME TAXES (Continued)
The Company has available federal net operating loss carryforwards of
approximately $1,125,400 expiring through September 2011 and state
net operating loss carryforwards of approximately $2,466,000
expiring through September 2001. A deferred tax asset valuation
allowance of $100,000 has been recognized to offset the related
deferred tax asset due to the uncertainty of realizing a portion of
the benefit of the state loss carryforward.
Significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<S> <C> <C>
September 30,
---------------------------
1996 1995
---- ----
Deferred income tax assets:
Federal and state net operating loss
carryforwards $616,900 $298,100
Inventory reserve 51,700 222,300
Write down of assets of Photo Detector
division 142,400
Other non-deductible accruals 6,900 10,900
------- -------
Total deferred income tax
assets 675,500 673,700
Deferred income tax liabilities - tax
over book depreciation (115,500) (156,200)
Valuation allowance for deferred tax
assets (100,000) (100,000)
-------- --------
Net deferred income tax
asset $460,000 $417,500
======== ========
</TABLE>
The above deferred income tax assets and liabilities are shown in the
accompanying consolidated balance sheet under the following
captions:
<TABLE>
<S> <C> <C>
September 30,
--------------------
1996 1995
---- ----
Current asset $460,000 $491,400
Long-term liability (73,900)
-------- --------
Net deferred income tax asset $460,000 $417,500
======== ========
</TABLE>
9. EMPLOYEE BENEFIT PLAN
The Company has a deferred compensation plan (the Plan) under Section
401(k) of the Internal Revenue Code for the benefit of all employees
who meet certain requirements. Each participant in the plan may
elect to defer or contribute up to 20% of his/her annual
compensation on a pre-tax basis to a maximum of $9,500 per year.
- 32 -
<PAGE>
9. EMPLOYEE BENEFIT PLAN (Continued)
The Company is not required to make any contributions under the Plan
and did not make a contribution to the Plan during the years ended
September 30, 1996, 1995 and 1994.
10. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on the weighted average number of
shares of common stock and common stock equivalents outstanding
during the respective period. Shares reserved for outstanding
warrants have been excluded from the net income per share
calculation because their effect is antidilutive. The weighted
average number of shares outstanding is as follows:
Year Ended Number
September 30, of Shares
1996 1,272,895
1995 1,243,978
1994 1,246,767
11. STOCK PURCHASE WARRANTS
Inconnection with the Company's public offering in August 1992, the
Company sold to the underwriter warrants to purchase up to 50,000
shares of common stock at a price per share equal to 140% of the
initial per share public offering price of the common stock of $7.
The underwriter warrants are exercisable for a period of four years
commencing August 21, 1993. No warrants have been exercised as of
September 30, 1996.
12. STOCK OPTION PLANS
During the year ended September 30, 1995, the Company's Board of
Directors and Stockholders approved the 1994 Stock Option Plan (the
Plan) covering its officers and employees. The total number of
shares of common stock, no par value, for which options may be
granted under the Plan cannot exceed 60,000 shares. During the year
ended September 30, 1996, the Plan was amended to increase the
number of shares for which options may be granted to 235,000 shares.
Following the statutory requirements of the Internal Revenue Code, the
Plan provides that the Board of Directors may establish the purchase
price of the stock at the time the option is granted. However, the
purchase price may not be less than 100 percent of the fair market
value of the Company's common stock. The aggregate fair market value
of the stock for which any employee may be granted options in any
calendar year shall not exceed $100,000 plus any unused limit
carried over (as defined in the Plan) to such year from any prior
calendar year. The Plan terminates in 2004, ten years from its
effective date.
- 33 -
<PAGE>
12. STOCK OPTION PLANS (Continued)
No options were granted under the Plan during the year ended September
30, 1995. During the year ended September 30, 1996, the Company
granted options to purchase 212,500 shares of common stock at prices
ranging between $2.00 and $3.00 per share. Options granted during
the year ended September 30, 1996, vest over a period of two to
three years and expire ten years from the date of grant. No options
are exercisable as of September 30, 1996. The Plan provides that any
outstanding options will become immediately exercisable upon merger
or acquisition transaction in which the Company does not survive as
a separate entity.
Also during the year ended September 30, 1995, the Company's Board of
Directors and Stockholders approved the 1994 Non-Employee Director
Stock Option Plan (the NED Plan). The total number of shares of
common stock, no par value, for which options may be granted under
the NED Plan cannot exceed 60,000 shares.
The NED Plan provides that the Board of Directors may select
non-employee directors of the Company to whom the options will be
granted. Options may be granted on April 1 of each year for each
non-employee director for a number of shares of common stock not to
exceed $7,500 in market value at the date of grant. The purchase
price may not be less than 100 percent of the fair market value of
the Company's common stock at the time the option is granted.
Options granted under the NED Plan shall expire ten years after the
date of grant. The NED Plan terminates in 2004, ten years from its
effective date.
No options were granted under the NED Plan during the year ended
September 30, 1995. During the year ended September 30, 1996, the
Company granted options under the NED Plan to purchase 4,000 shares
of common stock at $3.75 per share. Options granted during the year
ended September 30, 1996 vest over a two year period and expires ten
years from the date of grant or 180 days after a director ceases to
be a director. No options are exercisable as of September 30, 1996.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123). SFAS
No. 123 established financial accounting and reporting
standards for stock-based compensation plans and to
transactions in which an entity issues its equity instruments
to acquire goods and services from nonemployees. The new
accounting standards prescribed by SFAS No. 123 are optional,
and the Company may continue to account for its plans under
previous accounting standards. The Company does not expect to
adopt the new accounting standards, consequently, SFAS No. 123
will not have a material impact on the Company's consolidated
- 34 -
<PAGE>
12. STOCK OPTION PLANS (Continued)
results of operations or financial position. However, pro
forma disclosures of net earnings and earnings per share must
be made as if the SFAS No. 123 accounting standards had been
adopted. Adoption of SFAS No. 123 is not required by the
Company until 1997.
13. CASH FLOW INFORMATION
The following is a reconciliation of net income (loss) to net cash
provided by (used in) operating activities for the years ended
September 30, 1996, 1995 and 1994:
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Net income (loss) $ 34,156 $(1,207,469) $(475,253)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Non-cash charges (credits) to
net income (loss):
Depreciation and amorti-
zation 528,061 562,688 592,708
(Gain) loss on disposal of
property and equipment (208,815) 4,581
Write down of assets of
Photo Detector division 574,873
Provision for doubtful
accounts 7,244 11,410
Reserve of inventory
obsolescence 551,908
Deferred income taxes (42,500) (448,700) (43,676)
Decrease (increase) in other
assets (24,058) (24,135) 17,148
Decrease (increase) in
current assets:
Accounts receivable 617,577 (287,102) (135,539)
Refundable income taxes 215,255 218,044 (379,868)
Inventories (81,659) (105,639) 185,818
Prepaid expenses 9,755 15,857 47,234
Increase (decrease) in current
liabilities:
Accounts payable 122,337 179,397 (165,113)
Accrued liabilities 15,983 (6,783) 14,135
--------- ---------- --------
Net cash provided by
(used in) operating
activities $1,193,336 $ 34,349 $(337,825)
========== ========== =========
</TABLE>
- 35 -
<PAGE>
13. CASH FLOW INFORMATION (Continued)
The Company incurred the following non-cash investing and financing
activities:
During the years ended September 30, 1996 and 1994, the Company had
property and equipment additions of $2,646 and $25,851,
respectively, included in accounts payable. In addition, $307,375
of property additions were financed during the year ended
September 30, 1995.
TheCompany issued 33,000 shares of common stock for $82,500 in lieu
of compensation during the year ended September 30, 1996.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
determining its fair value disclosures for financial instruments:
Cash
Thecarrying amount reported in the consolidated balance sheet
approximates fair value.
Short and Long-term debt
Thecarrying amount of the Company's short-term bank borrowings and
floating-rate long-term debt approximates its fair value. The
fair value of the Company's fixed rate long-term debt is
estimated using discounted cash flow analysis.
The carrying amounts and fair values of the Company's financial
instruments as of September 30, 1996 are as follows:
<TABLE>
<S> <C> <C>
Carrying Fair
Amount Value
Cash $ 5,921 $ 5,921
Line-of-credit 1,430,839 1,430,839
Long-term debt (including current
maturities 954,680 954,680
</TABLE>
15. CONTINGENCIES
The Company is a potentially responsible party in connection with the
contamination of soil and groundwater on the Company's leased
manufacturing site in Lawrence. The Company, as tenant, might be
considered an "operator" and therefore strictly liable for cleanup
costs or liable for damages to third parties, unless it can
establish certain defenses. The Company believes that its use,
storage and disposal of materials are carefully controlled and do
not result and have not in the past resulted in a release thereof.
New England Environmental Technologies
- 36 -
<PAGE>
15. CONTINGENCIES (Continued)
Corporation ("NEET") has conducted preliminary site investigations
and has advised the Company that, although one of the contaminants
found is used in the Company's operations, the Company is not a
likely source of the contamination and that the contamination most
likely results from historical improper disposal of chlorinated
solvents on the site and upgradient of the site predating the
Company's occupancy of the property.
If the Company were required to pay cleanup costs, applicable
hazardous waste laws allow the Company to seek contribution from
other parties who caused the contamination or are also subject to
strict liability (i.e., current and former owners and operators).
The current owner and the prior lessee have agreed to hold harmless
the Company with respect to any contamination that may have occurred
prior to October 16, 1985.
Although the outcome of this matter and the cost, if any, to the
Company cannot be reasonably estimated at this time, management does
not believe that the cost, if any, to the Company will have a
material adverse effect on the financial position of the Company.
- 37 -
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
BKC SEMICONDUCTORS INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
<S> <C> <C> <C> <C> <C>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
BALANCE ADDITIONS
AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF YEAR EXPENSES ACCOUNTS DEDUCTIONS OF YEAR
Year Ended September
30, 1994:
Allowance for
doubtful accounts $10,719 $627 (1) $10,092
Year Ended September
30, 1995:
Allowance for
doubtful accounts $10,092 $11,410 $1,502 (1) $20,000
Reserve for
inventory
obsolescence $ -0- $551,908 $551,908
Year Ended September
30, 1996:
Allowance for
doubtful accounts $20,000 $7,244 $15,550 (1) $11,694
Reserve for
inventory
obsolescence $551,908 $423,405 (2) $128,503
<FN>
1 Represents accounts written off during the respective period.
2 Represents inventory written off during the respective period.
</FN>
</TABLE>
- 38 -
Eastern Bank
605 Broadway
Sagas, MA 01906-3206
(617) 233-0400
November 25, 1996
BKC Semiconductors Incorporated
6 Lake Street
Lawrence, Massachusetts 01841
Attn: Mr. Bryan Schmidt
Treasurer
Re: First Amendment of Demand Loan and Security Agreement Accounts Receivable
and Inventory
Gentlemen:
Reference is made to that certain Demand Loan and Security Agreement
Accounts Receivable and Inventory dated July 18, 1994 (the "Agreement") by and
between BKC Semiconductors Incorporated (the "Borrower") and Eastern Bank (the
"Bank"). All capitalized terms used herein, unless otherwise defined, shall have
the meanings ascribed to them in the Agreement.
Notwithstanding the provisions of the Agreement to the contrary, the
Agreement is hereby amended, effective immediately, as follows:
1. Section 5.A. of the Agreement is hereby deleted in its entirety and the
following new Section 5.A. substituted therefor, as follows:
"5. LOANS.
A. Subject to the terms and provisions of this Agreement, the Bank hereby
establishes a discretionary revolving line of credit in Borrower's favor in the
amount set forth below, as determined by Bank from time to time hereafter. Bank
may make such loans to Borrower, based upon such facts and circumstances
existing at the time of the request, as from time to time Bank elects to make
which are secured by Borrower's Inventory, Accounts and all other Collateral and
the proceeds thereof. Without limiting the discretionary nature of Bank's
obligation to make loans hereunder, or the demand feature of any loans that Bank
does make hereunder, Borrower agrees that the aggregate unpaid principal of all
loans outstanding at any one time shall not exceed the Borrowing Base. The term
'Borrowing Base' as used herein shall mean the sum of the following:
<PAGE>
(a) up to eighty (80%) percent of the unpaid face amount of Qualified Accounts
(as defined below) or such other percentage thereof as may from time to time be
fixed by the Bank upon notice to Borrower, PLUS
(b) the lesser of (i) $600,000.00 or (ii) the sum of (x) up to fifty (50%)
percent of the cost or market value, whichever is lower, of all Eligible
Inventory (as defined below) consisting of raw materials and finished goods
Inventory manufactured by the Borrower, PLUS (y) twenty (20%) percent of the
cost or market value, whichever is lower, of all Eligible Inventory (as
defined below) consisting of 'Trust Hold' Inventory manufactured by the
Borrower: PLUS
(c) the lesser of (i) $300,000.00, or (ii) up to fifty (50%) percent of the cost
or market value, whichever is lower, of all Eligible Inventory consisting of
Inventory purchased by the Borrower for re-sale; MINUS
(d) one hundred percent (100%) of the aggregate amount then undrawn on all
standby letters of credit and acceptances issued by the Bank for the account of
the Borrower; MINUS
(e) One Hundred Thousand ($100,000.00) Dollars, which reserve amount shall
increase by $8,000.00 per month for twelve (12) months, effective as of the
first day of each such month, commencing on December 1, 1996;
but in no event shall the sum of all direct loans plus the sum of the aggregate
amount undrawn on all letters of credit and acceptances be in excess of
$2,500,000.00 or such other sum as may from time to time be fixed by the Bank
upon notice to Borrower. All such loans shall bear interest and at the option
of Bank shall be evidenced by demand notes in form satisfactory to Bank, but
in the absence of notes shall be conclusively evidenced by the Bank's record of
disbursements and repayments and shall be payable ON DEMAND. Interest will be
charged to Borrower at a fluctuating rate which is the daily equivalent to the
Base Rate in effect from time to time, plus one (1%) percent per annum or at
such other rate agreed on from time to time by the parties, upon any balance
owing to Bank at the close of each day and shall be payable monthly in arrears,
on the first day of each month, until the Bank makes demand; PROVIDED THAT
Bank at all times reserves the right exercisable in Bank's sole discretion,
based upon circumstances then existing, to adjust the margin over the Base
Rate payable by Borrower hereunder upon thirty (30) days notice to Borrower.
The rate of interest payable by Borrower shall be changed effective as of that
date in which a change in the Base Rate
<PAGE>
becomes effective. Interest shall be computed on the basis of the actual
number of days elapsed over a year of three hundred sixty (360) days. The term
'Base Rate' as used herein and in any supplement and amendment hereto shall
mean the rate of interest announced from time to time by Bank, at its head
office, as its Base Rate, it being understood that such rate is a reference
rate and not necessarily the lowest rate of interest charged by the Bank. The
Bank represents and warrants that the Bank's Base Rate shall not be
substantially different from the prime rate of The First National Bank of
Boston d/b/a Bank of Boston for more than three (3) consecutive days at any one
time."
1. Section 13(a), and 13(b) and 13(d) of the Agreement are hereby deleted in
their entirety and the following new Sections 13(a), 13(b) and 13(d) substituted
therefor, as follows:
"(a) (Tangible Net Worth) permit its tangible net worth to be less than
$3,000,000.00 on the last day of any fiscal year;
(b) (Debt to Worth) permit the aggregate amount of its indebtedness to be more
than 1.50 times the amount of its tangible net worth on the last day of any
fiscal year;...
(d) (Current Ratio) permit the ratio of its current assets to its current
liabilities to be less than 1.50 to 1 on the last day of any fiscal year;..."
Except as specifically amended hereby, the Agreement remains in full force
and effect and the Borrower hereby reaffirms all representations and warranties
contained t herein, as of the date hereof.
Please acknowledge your acceptance and agreement to the matters contained
herein by signing this letter in the space provided and returning it to the
undersigned, whereupon it shall take effect as an instrument under seal.
Very truly yours,
EASTERN BANK
By: /s/Thomas J. Barry
Thomas J. Barry, Vice President
ACCEPTED AND AGREED TO:
BKC SEMICONDUCTORS INCORPORATED
By: /s/ Bryan Schmidt
Bryan Schmidt, Treasurer
<PAGE>
SECURED TERM NOTE
$1,100,000.00 November 25, 1996
Boston, Massachusetts
For value received, the undersigned promises to pay to Eastern Bank ("Bank"),
or order, at its office, the principal sum of One Million One Hundred Thousand
($1,100,000.00) Dollars in forty (40) installments as follows: $27,500.00 on
December 30, 1996, and the same amount on the last business day of each month
thereafter until March 31, 2000 (when the outstanding principal balance plus all
accrued and unpaid interest shall be due and payable in full), with interest
from the date hereof on the said principal sum from time to time outstanding at
the Base Rate plus one (1%) percent per annum. Such interest shall be payable
monthly in arrears on the last business day of each month, commencing on the
first of such dates next succeeding the date hereof. Interest shall be
calculated on the basis of actual days elapsed and a 360-day year. If this Note
is not paid in full on the date of maturity or upon the exercise by Bank of its
rights in the event of the undersigned's default, interest on unpaid balances
shall thereafter be payable at a fluctuating interest rate per annum equal to
three (3%) percent greater than the rate of interest specified herein.
The term "Base Rate" as used herein shall mean the rate of interest announced
by Bank from time to time, at its head office, as its Base Rate, it being
understood that such rate is a reference rate, and not necessarily the lowest
rate of interest charged by Bank.
The undersigned hereby authorizes Bank to charge the amount of all monthly
interest and principal payments, when due and payable hereunder, against the
undersigned's loan account created pursuant to a Demand Loan and Security
Agreement Accounts Receivable and Inventory dated July 18, 1994, as amended (the
"Agreement").
At the option of the holder, this Note shall become immediately due and
payable without notice or demand upon the occurrence at any time of (i) a
default of any liability, obligation or undertaking of the undersigned,
hereunder or otherwise, including failure to pay in full and when due any
installment of principal or interest hereunder; (ii) an Event of Default as
defined in the Agreement; or (iii) termination of the Agreement.
Any deposits or other sums at any time credited by or due from Bank to the
undersigned or any guarantor hereof, and any securities or other property of the
undersigned or any such guarantor, in the possession of Bank, may at any and all
times be held and treated as security for the payment of the liabilities
hereunder; and Bank may apply or set off such deposits or other sums, at any
time, and
<PAGE>
without notice to the undersigned or to any such guarantor, against
any of such liabilities, whether or not the same have matured, and whether or
not other collateral is available to Bank.
The undersigned agrees to pay all costs of collection including reasonable
fees of attorney.
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right or of any other right of such
holder, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. Every
one of the undersigned and every indorser or guarantor of this Note regardless
of the time, order or place of signing waives presentment, demand, protest and
notices of every kind and assents to any one or more extensions or postponements
of the time of payment or any other indulgences, to any substitutions, exchanges
or releases of collateral if at any time there be available to the holder
collateral for this Note, and to the additions or releases of any other parties
or persons primarily or secondarily liable.
This Note is secured pursuant to the terms of the Agreement.
THE UNDERSIGNED AND BANK EACH HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT THEY MAY HAVE OR HEREAFTER HAVE TO
A TRIAL BY JURY IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS NOTE. The undersigned hereby certifies that neither Bank nor
any of its representatives, agents or counsel has represented, expressly or
otherwise, that Bank would not, in the event of any such suit, action or
proceeding, seek to enforce this waiver of right to trial by jury. The
undersigned acknowledges that it has read the provisions of this Note and in
particular, this Section; has consulted legal counsel; understands the right it
is granting in this Note and is waiving in this Section in particular; and makes
the above waiver knowingly, voluntarily and intentionally.
The undersigned and Bank agree that any action or proceeding to enforce or
arising out of this Note may be commenced in any court of the Commonwealth of
Massachusetts sitting in the counties of Suffolk, Norfolk or Middlesex, or in
the District Court of the United States for the District of Massachusetts, and
the undersigned waives personal service of process and agrees that a summons and
complaint commencing an action or proceeding in any such court shall be properly
served and confer personal jurisdiction if served by registered or certified
mail to the undersigned, or as otherwise provided by the laws of the
Commonwealth of Massachusetts or the United States of America.
<PAGE>
All rights and obligations hereunder shall be governed by the law of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.
Witness: BKC SEMICONDUCTORS INCORPORATED
/s/ Donald E. Church By: /s/ Bryan Schmidt, Treasurer
Donald E. Church Bryan Schmidt, Treasurer
<PAGE>
GUARANTY
1. Identification. This Guaranty is made by The City of Lawrence, Massachusetts,
a body corporate and politic with a mailing address c/o Office of Economic
Development, City Hall, 200 Common Street, Lawrence, MA (the "City") in favor of
Eastern Bank, a Massachusetts Corporation of 94 Pleasant Street, Malden, MA,
("Lender").
2. Background and Reasons for Guaranty.
2.1 Note and Security Instruments. Lender is loaning to BKC Semiconductors,
Incorporated, a Massachusetts Corporation, ("BKC") with a usual place of
business at 6 Lake Street, Lawrence, MA (the "Borrower") the principal sum of
ONE MILLION ONE HUNDRED THOUSAND and 00/100 ($1,100,000.00) DOLLARS (the
"Loan"). The Loan is evidenced by a promissory note of Borrower payable to
Lender dated November 25, 1996 (the "Note"). The Note is secured by a Security
Agreement and other loan documents all of even date as the Note (collectively
the "Security Instruments"). The Borrower's obligations under the Note and
Security Instruments shall be referred to herein as the "Borrower's
Obligations."
2.2 Requirement of Guaranty. As a condition precedent to the making of the
Loan by Lender to Borrower, Lender has required that the City execute and
deliver this Guaranty to Lender.
2.3 Consideration to Guarantor. Guarantor desires to execute and deliver the
Guaranty to Lender because the loan will benefit Guarantor as follows: the loan
will permit BKC to retain 110 jobs and create 15 jobs in the City. Retention and
expansion of jobs in the City is a National Objective of the Community
Development Block Grant Program and the provision of a loan guaranty for a
business entity is an eligible activity under the Section 108 Program and
Regulations, 24 C.F.R. 570.700, et seq.
3. Guaranty. The City, in consideration of Lender making the Loan to Borrower
and Borrower's convenants with the representations to the City, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and for the purpose of inducing Lender to make the Loan, hereby
guarantees to Lender (a) the full, punctual and prompt payment of sums not
greater than Four Hundred Fifty Thousand and 00/100 ($450,000.00) Dollars
payable under the terms of the Note, whether at maturity or by acceleration or
otherwise, in immediately available coin and currency of the United States,
provided however that the guarantee of payment made hereunder shall be reduced
by the amount of Twenty-five Thousand and 00/100 ($25,000.00) Dollars each month
hereafter until May 25, 1998 at which time the obligations of the City hereunder
shall terminate. Amounts guaranteed hereunder shall be reduced on a prorata
basis (i.e. in the
<PAGE>
amount of $833.34 per day) for the portion of any month during which the City's
obligation to pay money to Lender pursuant to this Guaranty may become due. The
Guaranty is subject to the terms and conditions of the Letter Agreement of
Eastern Bank dated November 25, 1996 (the "Letter Agreement") a copy of which
is attached hereto as Addendum "A".
4. Primary Nature of Guaranty. In giving this Guaranty, the City hereby
acknowledges that this Guaranty is a guarantee of payment and not of collection,
and that, subject to the terms and conditions of the Letter Agreement, the
liability of the City, hereunder is present, absolute, unconditional,
continuing, primary, direct and independent of the obligations of Borrower.
Except as set forth in the Letter Agreement, Lender shall not be required to
pursue any other remedies before invoking the benefits of this Guaranty,
including, without limitation, its remedies under the Note and Security
Instruments. With regard to any rights which may accrue to Lender under or in
connection with the Note, the Security Instruments or this Guaranty, Lender may,
at its option, and subject to the terms of the Letter Agreement, look to
Guarantor for the payment of sums due and payable under the Note to the extent
provided herein, without having first commenced any action or proceeding against
Borrower or any other guarantor or any other parties or other security, and
without having obtained any judgment against Borrower or against any other
guarantor. Subject to the terms of the Letter Agreement, enforcement of Lender's
rights against the security given by Borrower for the Loan shall not impair the
right of Lender to enforce this Guaranty, the City expressly agreeing that any
such action by Lender shall not operate as a release of the City's liability
hereunder.
5. Continuing Nature of Guaranty. The liability of the City shall remain and
continue in full force and effect notwithstanding:
(a) the nonliability of Borrower for any reason whatsoever for the payment
of sums due under the Note or any part thereof;
(b) the voluntary or involuntary liquidation, dissolution, sale of all or
substantially all of the property described in the Security Instruments,
marshalling of assets and liabilities, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, arrangement,
composition or readjustment of, or any similar proceeding, affecting Borrower or
any of its assets;
(c) the assignment or transfer of the Note and/or Security Instruments;
(d) the release of Borrower from the observance of any of the agreements,
covenants, terms or conditions contained in the Note and/or Security Instruments
by operation of law; or
<PAGE>
(e) any defenses or rights of set-off or counter claims which Borrower may
have or assert.
it being the intention hereof that the City shall remain liable hereunder, in
the amounts and for the time set forth in Paragraph 3 hereof or until the
amounts due under the Note shall have been fully paid, performed and observed by
Borrower, notwithstanding any act, omission or thing that might otherwise
operate as a legal or equitable discharge of the City. Time shall be of the
essence to the City's obligations hereunder.
6. Certain Rights of Lender. Lender may at any time and from time to time, with
or without consideration, without prejudice to any claim against the City
hereunder, without in any way changing, releasing or discharging the City from
its liabilities and obligations hereunder and without the consent of the City:
(a) exchange, release or surrender all or any part of the security which
Lender may at any time hold;
(b) sell all or any part of the security and become the purchaser thereof at
any such sale;
(c) renew, rearrange or extend the time, manner, place or terms of payment
and performance of the amounts due under the Note or any renewal or extension
thereof; provided however that any such change shall not extend or alter the
City's liability hereunder.
(d) forbear, extend the time for, or grant indulgences with respect to the
enforcement of any of the Borrower's Obligations or the exercise by Lender of
any right or remedy contained in the Note or the Security Instruments, or
available under applicable law, whether such enforcement be fully prosecuted or
otherwise;
(e) supplement, change, amend, substitute, modify, alter or cancel the
Borrower's Obligations, the Note or the Security Instruments;
(f) take other guarantees, collateral or security with respect to the
Borrower's Obligations.
7. Certain Waivers by Guarantor. Guarantor hereby waives:
(a) any right to require Lender to (i) proceed against Borrower; (ii) except
as set forth in the Letter Agreement, proceed against, exhaust or participate in
any security held by Lender for the payment and performance of the Borrower's
Obligations, or (iii) pursue any other remedy that Lender has or to which it may
be entitled;
<PAGE>
(b) any right that Guarantor has or to which Guarantor may be entitled to
cause a marshalling of Borrower's assets.
8. No Waiver by Lender. No failure, omission or delay on the part of Lender in
exercising any rights hereunder or in taking any action to collect or enforce
payment or performance of the Borrower's Obligations or in enforcing observance
or performance of any agreement, covenant, term or condition to be performed or
observed under the Note or Security Instruments, either against Borrower or any
other person liable therefor, shall operate as a waiver of any such right or in
any manner prejudice the rights of Lender against the City.
9. Governing Law. This Guaranty shall be enforced and construed in accordance
with the laws of the Commonwealth of Massachusetts.
10. Cumulative Remedies. All of Lender's rights, remedies and recourse under
the Note, the Security Instruments or this Guaranty, are separate and cumulative
and may be pursued separately, successively or concurrently, are non-exclusive
and the exercise of any one or more of them shall in no way limit or prejudice
any other legal or equitable right, remedy or recourse to which Lender may be
entitled.
11. Modifications. No provision hereof shall be modified or limited except by
a written agreement expressly referring to this Guaranty and to the provision
so modified or limited and signed on behalf of the City and Leader.
12. Notices. The parties agree that any notice or demand shall be deemed to be
sufficiently given or served if it is in writing and is personally served or in
lieu of personal service is mailed by first class certified mail, postage
prepaid, if addressed to the City at the following address:
Mayor
Lawrence City Hall
200 Common Street
Lawrence, MA 01810
with a copy to:
Director City Attorney
Office of Economic Development -and- Lawrence City Hall
200 Common Street 200 Common Street
Lawrence, MA 01840 Lawrence, MA 01840
<PAGE>
and if addressed to Lender at:
Eastern Bank
94 Pleasant Street
Malden, MA 02148
Any notice or demand so mailed shall be deemed received on the date of actual
receipt or on the third business day after mailing, whichever first occurs.
IN WITNESS WHEREOF, the City of Lawrence, acting by and through its Mayor, has
executed this Guaranty under seal this 25th day of November, 1996.
The City of Lawrence
/s/ By: /s/ Mary Claire Kennedy
Witness Mary Claire Kennedy, Mayor
Approved as to form:
/s/ City Attorney
City Attorney
<PAGE>
Addendum "A"
Eastern Bank
605 Broadway
Saugus, MA 01906-3206
(617) 233-0400
November 25, 1996
The City of Lawrence
c/o Community Development Department
225 Essex Street
Lawrence, Massachusetts 01840
Attn: Mayor Mary Claire Kennedy
Re: BKC Semiconductors Incorporated
Ladies and Gentlemen:
We are as of this date extending a term loan (the "Loan") to BKC
Semiconductors Incorporated, a Massachusetts Corporation (hereinafter the
"Borrower"). The Loan is secured by the accounts receivable, inventory and
other assets of the Borrower. You have guaranteed the payment of the Loan to us
by the execution and delivery to us of your guaranty, which guaranty is
secured by the accounts receivable, inventory and other assets of the Borrower.
By this letter we hereby covenant and agree that in the event that the
Borrower shall default in its obligations to us and we should act on that
default and demand repayment of the Loan, and the same shall not be promptly
paid upon demand thereby requiring recourse to the security therefor, we will
not look to your guaranty for recourse until such time as we shall collect,
sell or otherwise dispose of at public or private sale, the available
collateral under the security agreement given by the Borrower.
The term "available collateral" as used herein shall mean such collateral
which we have the legal right to take possession of and which we can obtain
physical possession of through the exercise of reasonable commercial practices
but without resorting to unlawful force, legal process or any violation of law,
and as to which we can otherwise exercise the rights and remedies of a secured
party as provided in the security agreement and under applicable law,
unimpaired by (a) judicial or governmental restraints; (b) any bankruptcy or
insolvency proceedings or any type of judicial or administrative proceeding,
the result or effect of which is to interpose an obstacle to us realizing on
such collateral; (c) any defect in a valid perfected lien superior to the
rights of all
<PAGE>
persons, including all court-appointed officials; or (d) any prior liens or
encumbrances of any kind whatsoever.
If, notwithstanding the disposition of such assets, there remains
indebtedness owing to us by the Borrower, we shall notify you of its intended
course of action and provide you ten (10) days in which to repay such
indebtedness in full prior to taking any action pursuant to your guaranty.
In all events, we shall commence enforcement of our rights under the Security
Agreement given by the Borrower to us prior to seeking recourse against you
pursuant to your Guaranty.
Our agreement not to seek recourse against you pursuant to your guaranty
shall terminate ninety (90) days after the date the Borrower shall default in
its obligations to us and we act on that default either by issuing written
demand for payment, taking possession of the assets or otherwise seeking to
enforce our rights under the respective security interests granted to us by the
Borrower. At the expiration of said ninety-day period this letter agreement
shall be null and void and without further effect.
Signed as a sealed instrument.
Very truly yours,
EASTERN BANK
By: /s/ Thomas J. Barry
Thomas J. Barry, Vice President
AGREED:
THE CITY OF LAWRENCE, MASSACHUSETTS
BY: /s/ Mary Claire Kennedy, Mayor
Mary Claire Kennedy, Mayor
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE SECOND QUARTER 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,921
<SECURITIES> 0
<RECEIVABLES> 1,274,927
<ALLOWANCES> 0
<INVENTORY> 3,119,741
<CURRENT-ASSETS> 4,894,166
<PP&E> 5,665,377
<DEPRECIATION> 4,238,938
<TOTAL-ASSETS> 6,428,513
<CURRENT-LIABILITIES> 2,879,266
<BONDS> 0
0
6,878
<COMMON> 3,796,302
<OTHER-SE> (834,503)
<TOTAL-LIABILITY-AND-EQUITY> 6,428,513
<SALES> 9,796,858
<TOTAL-REVENUES> 9,796,858
<CGS> 7,849,452
<TOTAL-COSTS> 7,849,452
<OTHER-EXPENSES> 1,851,051
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 293,262
<INCOME-PRETAX> 11,908
<INCOME-TAX> (22,246)
<INCOME-CONTINUING> 34,156
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,156
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
