EXHIBIT 99.1
RISK FACTORS
Investing in the common stock involves certain risks. Investors should carefully
consider the following risk factors, together with all of the other information
included in this report and in other filings by Uniroyal Technology Corporation
(the "Company" or "Uniroyal"), in deciding whether to invest in the common stock
of the Company.
General
Possible Volatility of Stock Price
The market price of Uniroyal's common stock has been and may continue
to be subject to wide fluctuations. Factors affecting the stock price may
include:
o variations in our operating results and our competitors from quarter to
quarter;
o changes in earnings estimates by securities analysts;
o market conditions in the compound semiconductor, coated fabrics and
specialty adhesives industries; and
o general economic conditions.
Uniroyal's stock price has fluctuated widely. For example, between the
first quarter of 1997 and the fourth quarter of 1998, the high and low closing
sale prices of our common stock fluctuated between approximately $1.063 and
$5.438 per share. Between the first quarter of 1999 and the first quarter of
2000, the high and low closing sale prices of our common stock fluctuated
between approximately $3.625 and $6.313 per share. From the first quarter of
2000 to the end of the second quarter of 2000, the high and low closing sale
prices of our common stock fluctuated between approximately $4.500 and $35.563
per share. The prices have been adjusted to give effect to the two-for-one stock
split declared on March 10, 2000 for stockholders of record on March 20, 2000.
The current market price of our common stock may not be indicative of future
market prices, and investors may not be able to sustain or increase the value of
their investment in the common stock.
Competition
The coated fabrics, specialty adhesives, compound semiconductor and
optoelectronics industries, in general, are highly competitive. Many of our
competitors have substantially greater resources than we do. Oversupply and
intense price competition periodically characterize the coated fabrics and
specialty adhesives industries.
We believe that our reputation for high quality products, innovative
technology and strong customer technical service permits us to compete
successfully in the markets that we presently serve. However, we may not be able
to continue to compete successfully in such markets or to apply such strengths
successfully to additional markets. In addition, new entrants may come into the
markets that we serve. Companies may offer products based on alternative
technologies and processes that may be superior to ours in price, performance or
otherwise.
Joint Venture with Emcore Corporation
Uniroyal owns, through a wholly-owned subsidiary, the majority interest
in a joint venture company established with Emcore Corporation. The joint
venture company, together with the business of Sterling, comprises our Compound
Semiconductor and Optoelectronics business segment. The joint venture company is
governed by a board of managers with representatives from both Emcore and
Uniroyal. Certain decisions must be approved by both parties to the joint
venture, which means we will be unable to direct extraordinary changes in the
operation of the joint venture without the agreement of Emcore. If Uniroyal and
Emcore are unable to agree on important issues, the business of the joint
venture and accordingly, our Compound Semiconductor and Optoelectronics segment,
may be delayed or interrupted, which may materially and adversely affect
Uniroyal's business, financial condition and results of operations.
We have devoted and will be required to continue to devote significant
funds and technologies to the joint venture to develop and enhance its products.
In addition, the joint venture requires that some of Uniroyal's employees devote
much of their time to the joint venture's projects. This could place a strain on
Uniroyal's management and financial employees. If the joint venture is
unsuccessful in developing and marketing its products, our business, financial
condition and results of operations may be materially and adversely affected.
If the joint venture and accordingly our Compound Semiconductor and
Optoelectronics business is successful, we share only a portion of the benefits
in accordance with our 51% ownership interest in the joint venture.
Dependence on Management
The continued success of Uniroyal depends in part on our ability to
retain certain members of senior management. In particular, we are highly
dependent on the management services of Howard R. Curd, our Chairman of the
Board and Chief Executive Officer, Robert L. Soran, our President and Chief
Operating Officer, and George J. Zulanas, Jr., our Executive Vice President and
Chief Financial Officer. While we have entered into employment agreements with
Messrs. Curd, Soran and Zulanas, there can be no assurance that such employees
will not leave or compete with Uniroyal. Failure to retain senior management
could have a material adverse effect on Uniroyal's business, financial condition
and results of operations.
Dependence on Key Personnel
The continued success of Uniroyal depends in part on our ability to
attract and retain certain key personnel, including scientific, operational and
management personnel. For example, some of the equipment used in the production
of HB-LED and SiC products must be modified before it is put to use, and only a
limited number of employees possess the expertise needed to perform these
modifications. Furthermore, the number of individuals with experience in the
production of HB-LED and SiC products is limited. Accordingly, the future
success of the Compound Semiconductor and Optoelectronics segment depends in
part on retaining those individuals who are already employees.
The competition for attracting and retaining employees, especially
scientists for the Compound Semiconductor and Optoelectronics segment, is
intense. Because of this intense competition for these skilled employees, we may
be unable to retain our existing personnel or attract additional qualified
employees in the future. Specifically, we may experience increased costs in
order to attract and retain skilled employees. Failure to retain senior
management and skilled employees and attract additional qualified employees
could have a material adverse effect on Uniroyal's business, financial condition
and results of operations.
Intellectual Property
Trade Secrets. Uniroyal's success and competitive position depend on
protecting our trade secrets and other intellectual property. Particularly with
respect to the business of our Compound Semiconductor and Optoelectronics
segment, including Sterling, our strategy is to rely more on trade secrets than
patents to protect our manufacturing and sales processes and products, but
reliance on trade secrets is only an effective business practice insofar as
trade secrets remain undisclosed and a proprietary product or process is not
reverse engineered or independently developed. We take certain measures to
protect our trade secrets, including executing non-disclosure agreements with
our employees, joint venture partners, customers and suppliers. If parties
breach these agreements or the measures we take are not properly implemented, we
may not have an adequate remedy. Disclosure of our trade secrets or reverse
engineering of our proprietary products, processes or devices could materially
and adversely affect Uniroyal's business, financial condition and results of
operations.
Patent Protection. Although Uniroyal currently holds nine U.S. patents,
these patents do not protect any material aspects of the current or planned
commercial versions of our products for our Compound Semiconductor and
Optoelectronics business segment. We are actively pursuing patents on some of
our recent inventions, but these patents may not be issued. Even if these
patents are issued, they may be challenged, invalidated or circumvented. In
addition, the laws of certain other countries may not protect Uniroyal's
intellectual property to the same extent as U.S. laws.
Other companies may hold or obtain patents on inventions or may
otherwise claim proprietary rights to technology necessary to Uniroyal's
business, especially with respect to the business of our Compound Semiconductor
and Optoelectronics segment. We cannot assure you that third parties will not
attempt to assert infringement claims against us with respect to our current or
future products, including our core products. We cannot predict the extent to
which such assertions may require us to seek licenses or, if required, whether
such licenses will be offered or offered on acceptable terms or that disputes
can be resolved without litigation. Litigation against us or any of our
customers could impair our ability to sell our products. Litigation to determine
the validity of infringement claims alleged by third parties could result in
significant expense to us and divert the efforts of our technical and management
personnel, whether or not the litigation is ultimately determined in our favor.
We cannot predict the occurrence of future intellectual property claims that
could prevent us from selling products, result in litigation or give rise to
indemnification obligations or damage claims.
Protracted Product Qualification Periods
Many of the markets in which we compete are characterized by long lead
times for new products requiring significant working capital investment by
Uniroyal and extensive testing, qualification and approval by our customers and
the end users of products. We face a significant risk that we will incur
significant costs for research and development, manufacturing equipment,
training, facility-related overhead and other expenses to develop such products,
only to have our customers or end users not select them.
Even if our products are eventually approved and purchased by customers
and end users, our investment may fail to generate revenues for several years
while we develop and test such products.
Environmental Considerations
Our operations are subject to extensive federal, state and local laws
and regulations: (1) controlling the discharge of materials into the environment
or otherwise relating to the protection of the environment; and (2) regulating
conditions which may affect the health and safety of workers.
The operation of any manufacturing plant in the industries in which we
participate entails risks under such laws and regulations, many of which provide
for substantial fines and criminal sanctions for violation. For example, our
manufacturing processes involve the use of certain hazardous raw materials,
including, but not limited to, ammonia, phosphine and arsene. If the control
systems are unsuccessful in preventing a release of these materials into the
environment or other adverse environmental conditions occur, we could experience
interruptions in our operations and incur substantial remediation and other
costs. We believe that our current legal and environmental compliance and safety
programs adequately address such concerns and that we are in substantial
compliance with applicable laws and regulations. However, compliance with, or
any violation of, current and future laws or regulations could require us to
make material expenditures or otherwise have a material adverse effect on our
business, financial condition and results of operations.
Risks Associated with Acquisition Strategy
We are actively pursuing strategic acquisitions in the compound
semiconductor industry. Our business, operating results and financial condition
could be negatively impacted if we are unable to integrate businesses we
acquire. We may not achieve the anticipated benefits from any acquisition unless
we successfully combine the acquired businesses with those of Uniroyal in a
timely and efficient manner. The integration of acquisitions could require
substantial attention from our management. The diversion of the attention of
management, and any difficulties encountered in the transition process, could
negatively impact Uniroyal's business, operating results and financial
condition. In addition, the process of integrating various businesses could
cause the interruption of, or a loss of momentum in, the activities of some or
all of these businesses as well as our ongoing business.
Dividends
We have never paid any cash dividends on the common stock. The payment
of any future dividends will be subject to the discretion of our Board of
Directors and will depend on our results of operations, financial position and
capital requirements, general business conditions, legal restrictions on the
payment of dividends and other factors our Board of Directors deems relevant. We
can give no assurance that we will pay a dividend in the future.
Historical Performance No Indication
The historical share prices and earnings performances of Uniroyal are
not necessarily indicative of Uniroyal's future share price or earnings results.
Anti-Takeover Provisions
Provisions of Uniroyal's charter documents may have the effect of
delaying or preventing a change in control of Uniroyal or its management, which
could have a material adverse effect on the market price of the common stock.
These include provisions:
o eliminating the ability of stockholders to take actions by written
consent; and
o limiting the ability of stockholders to raise matters at a meeting of
stockholders without giving advance notice.
Anti-takeover provisions may adversely affect the stock price and make
it more difficult for a third party to acquire Uniroyal.
In addition, the Board of Directors has authority to issue up to 1,000
shares of preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of these shares without any further vote
or action by the stockholders. The rights of the holders of common stock will be
subject to, and could be adversely affected by, the rights of the holders of any
preferred stock that Uniroyal may issue in the future. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of Uniroyal's outstanding
voting stock, thereby delaying, deferring or preventing a change in control of
Uniroyal.
Uniroyal's Stockholder Rights Plan has certain anti-takeover effects.
The plan grants to holders of common stock the right, when exercisable, to
purchase from Uniroyal a fraction of a share of Uniroyal's series C preferred
stock. This right will cause substantial dilution to a person or group that
attempts to acquire Uniroyal without conditioning the offer on the rights being
redeemed or a substantial number of rights being acquired. See "Description of
Capital Stock - Stockholder Rights Plan."
Risk Factors Associated with Uniroyal's Specialty Adhesives and/or Coated
Fabrics Business Segments
Labor Relations
We are a party to two collective bargaining agreements. During July
1999, negotiations with the United Steel Workers of America, United Rubber
Workers Division, in connection with the collective bargaining agreement
covering the hourly wage employees at our adhesives and sealants manufacturing
facility located in South Bend, Indiana, broke down, and a strike ensued for
approximately three weeks. The strike did not have a material adverse effect on
operations of the Specialty Adhesives business segment.
Although we believe our relationships with employees are good, we can
give no assurance that we will successfully negotiate the hourly wages and/or
benefits of employees at two of our facilities when the applicable collective
bargaining agreements expire. Moreover, the wages and/or benefits we may agree
upon might adversely affect the segments' profitability. Furthermore, if we were
the subject of another strike, we could incur significant costs.
Maturity of Business Sectors
Our Specialty Adhesives and Coated Fabrics segments compete in mature
business sectors. We believe the key to generating growth in such sectors
(besides acquiring other businesses) is to introduce new products or product
innovations that address unsatisfied market needs. We believe we will need to
continue to significantly increase revenues from product sales and increase
profitability in these sectors. We further believe that significant investment
in product development and/or acquisitions or a combination thereof over the
mid-term is necessary to do so. We can give no assurance that we will have
resources available for, or otherwise be successful in, any efforts to achieve
such growth.
Customer Concentration
Our Specialty Adhesives business segment sells splice and bonding
adhesives for the rubber roofing market exclusively to Firestone Building
Products Company. Approximately 68% of this segment's fiscal 1999 sales were
roofing product shipments to Firestone. The loss of Firestone as a customer
would have an adverse effect on Uniroyal.
Seasonality
The roofing adhesives business of the Specialty Adhesives segment is
seasonal. It increases in the warmer months of the year due to an increase in
roofing and other construction activities in such months, and is sensitive to
adverse weather conditions.
Cyclicality
The recreational vehicle, marine and roofing markets among others in
which the Coated Fabrics and Specialty Adhesives segments compete are sensitive
to changes in general economic conditions which affect demand for the commercial
and consumer items that the Coated Fabrics and Specialty Adhesives business
segments manufacture.
Risk Factors Associated with Uniroyal's Compound Semiconductor and
Optoelectronics Business Segment
Operating Results Depend on Development of New Products
The future success of the Compound Semiconductor and Optoelectronics
segment depends on our ability to develop new products and technology in the
optoelectronics and SiC industries. We must introduce new products in a timely
and cost-effective manner and secure production orders from our customers. The
development of new HB-LED and SiC products is a highly complex process. The
successful development and introduction of these products depends on a number of
factors, including the following:
o achievement of technology breakthroughs required to make commercially
viable devices;
o the accuracy of our predictions of market requirements and evolving
standards;
o acceptance of our new product designs;
o our ability to recruit and retain qualified research and development
personnel;
o timely completion of product designs and development;
o our ability to develop repeatable processes to manufacture new products
in sufficient quantities for commercial sales;
o acceptance of the products of the Compound Semiconductor and
Optoelectronics segment's customers by the market; and
o consistent cost-effective manufacturing processes.
If any of these or other factors become problematic, we may not be able
to develop and introduce these new products in a timely or cost-effective
manner.
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Limited Operating History and Operating Losses
The Compound Semiconductor and Optoelectronics business segment started
operations in the second quarter of fiscal 2000 and has a limited operating
history. The segment will face risks and difficulties as an early stage business
in a high growth and rapidly evolving industry. Some of the specific risks and
difficulties for the segment include the following:
o building out our operational infrastructure;
o expanding our sales structure and marketing programs;
o increasing awareness of our products;
o providing services to our customers that are reliable and
cost-effective;
o responding to technological development or product offerings by
competitors; and
o attracting and retaining qualified personnel.
As of July 2, 2000, the Optoelectronics joint venture had an
accumulated deficit of approximately $15.5 million. It incurred losses of
approximately $4.5 million in fiscal 1999. We expect the joint venture to
continue to incur losses. As of December 31, 1999, Sterling's accumulated
deficit was approximately $4.9 million. It incurred losses of approximately $3.1
million in calendar year 1999 (Sterling's fiscal year was a calendar year end
prior to its acquisition by Uniroyal). We expect Sterling to continue to incur
losses. To support the segment's growth, we have increased our expense levels
and our investments in inventory and capital equipment. As a result, we will
need to significantly increase revenues and profit margins for the Compound
Semiconductor and Optoelectronics segment to become and stay profitable. If the
segment's sales and profit margins do not increase to support the higher levels
of operating expenses and if its new product offerings are not successful,
Uniroyal's business, financial condition and results of operations could be
materially and adversely affected.
Production and Expansion Risks
The Compound Semiconductor and Optoelectronics segment is experiencing
rapid growth. We have added a significant number of new employees to our
Compound Semiconductor and Optoelectronics business. We have a newly-constructed
plant in Tampa, Florida to manufacture epitaxial wafers and package-ready dies
for use in HB-LEDs. We began production at our Tampa facility in the Spring of
2000. However, equipment difficulties have delayed full production at this
facility. We expect to reach full production by the end of 2000, although we
cannot be certain that we will do so. We are planning to build additional
capacity at the Tampa facility within the next year. We are also planning to
expand the physical facilities for Sterling in the next year. Expansion
activities such as these are subject to a number of risks, including the
following:
o unforeseen environmental or engineering problems relating to the
existing facilities;
o unavailability or late delivery of the advanced, and often customized,
equipment used in the production of the segment's products;
o attracting and retaining qualified personnel;
o work stoppages and delays; and
o delays in bringing production equipment on-line.
This growth has placed and will continue to place a significant strain
on our management, financial, sales and other employees and on our internal
systems and controls. If we are unable to effectively manage the rapid growth of
the Compound Semiconductor and Optoelectronics segment, Uniroyal's business,
financial condition and results of operations could be materially and adversely
affected.
Rapid Changes in Technology
The Compound Semiconductor and Optoelectronics segment competes in
markets characterized by rapid technological change, evolving industry standards
and continuous improvements in products. Due to constant changes in these
markets, its future success depends on our ability to improve our manufacturing
processes and tools and our products. To remain competitive, we must continually
introduce manufacturing tools with higher capacity and better production yields.
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Because we generally are unable to predict the amount of time required
and the costs involved in achieving certain research, development and
engineering objectives, actual development costs could exceed budgeted amounts,
and estimated product development schedules could be extended. Uniroyal's
business, financial condition and results of operations could be materially and
adversely affected if with respect to the Compound Semiconductor and
Optoelectronics business:
o we are unable to improve our existing products on a timely basis;
o our new products are not introduced on a timely basis;
o we incur budget overruns or delays in our research and development
efforts; or
o our new products experience reliability or quality problems.
Dependence on Key Suppliers
We depend on a limited number of suppliers for certain raw materials,
components and equipment used in the Compound Semiconductor and Optoelectronics
segment, including certain key materials and equipment used in our wafering,
polishing, epitaxial deposition, device fabrication and device test processes.
In addition, the availability of these materials, components and equipment to us
is dependent in part on our ability to provide our suppliers with accurate
forecasts of our future requirements. We endeavor to maintain ongoing
communication with our suppliers to guard against interruptions in supply and,
to date, generally have been able to obtain adequate supplies in a timely manner
from our existing sources. However, any interruption in the supply of these key
materials, components or equipment could have a significant adverse effect on
our operations.
Difficulty in Manufacturing Products
The manufacture of the Compound Semiconductor and Optoelectronics
segment's products is a highly complex and precise process. We are working to
manufacture all of our HB-LED epitaxial wafers and dies at our Tampa, Florida
facility. Minute impurities, difficulties in the production process, defects in
the layering of the wafers' and dies' constituent compounds, wafer breakage or
other factors can cause a substantial percentage of wafers and dies to be
rejected or numerous dies on each wafer to be non-functional. These factors can
result in lower than expected production yields, which would delay product
shipments and could materially and adversely affect our operating results.
Because the majority of the manufacturing costs for the Optoelectronics business
are relatively fixed, the number of shippable dies per wafer for a given product
is critical to the segment's financial results.
Additionally, because we manufacture most of our HB-LEDs at our
facility in Tampa, Florida, any interruption in manufacturing resulting from
fire, natural disaster, equipment failures or otherwise could materially and
adversely affect the Compound Semiconductor and Optoelectronics segment's
business, financial condition and results of operations.
