UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-23818
MERIX CORPORATION
(Exact name of registrant as specified in its charter)
OREGON 93-1135197
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1521 Poplar Lane, Forest Grove, Oregon 97116
(Address of principal executive offices) (Zip Code)
(503) 359-9300
(Registrant's telephone number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the Registrant's Common Stock outstanding as of December
31, 1998 was 6,284,931 shares.
<PAGE>
MERIX CORPORATION
FORM 10-Q
TABLE OF CONTENTS
Part I Financial Information Page
Item 1. Financial Statements:
Balance Sheets as of November 28, 1998 and
May 30, 1998 2
Statements of Operations for the three months and six
months ended November 28, 1998 and November 29, 1997 3
Statements of Cash Flows for the six months
ended November 28, 1998 and November 29, 1997 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosure About Market Risk 13
Part II Other Information
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
MERIX CORPORATION
BALANCE SHEETS
(unaudited, in thousands)
November 28, May 30,
1998 1998
------------ ------------
<S> <C> <C>
Assets
Cash and short-term investments $ 14,249 $ 22,899
Accounts receivable, net of allowance
of $259 (1999 and 1998) 13,358 21,804
Inventories (Notes 3 and 6) 6,848 10,795
Tax refund receivable 759 759
Deferred income taxes 953 1,577
Other current assets 1,263 2,454
------------ ------------
Total current assets 37,430 60,288
Property, plant and equipment, net
(Notes 4 and 6) 58,954 70,262
Goodwill, net (Note 6) - 2,027
Deferred income taxes 16,740 -
Other assets 235 2,591
------------ ------------
Total assets $ 113,359 $ 135,168
============ ============
Liabilities and Shareholders' Equity
Accounts payable $ 10,784 $ 10,584
Accrued compensation (Note 6) 2,613 2,512
Current portion of long-term debt 10,329 4,529
Other accrued liabilities (Note 6) 9,330 1,908
------------ ------------
Total current liabilities 33,056 19,533
Long-term debt (Note 7) 32,000 40,000
Deferred income taxes 4,171 4,171
Other liabilities - 1,273
------------ ------------
Total liabilities 69,227 64,977
Shareholders' equity:
Preferred stock, no par value;
authorized 10,000 shares; none issued - -
Common stock, no par value; authorized
50,000 shares; issued and outstanding
1999: 6,266 shares, 1998: 6,203 shares 44,618 44,625
Unearned compensation (7) (250)
Retained earnings (479) 25,816
------------ ------------
44,132 70,191
------------ ------------
Total liabilities and shareholders' equity $ 113,359 $ 135,168
============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
MERIX CORPORATION
STATEMENTS OF OPERATIONS
(unaudited, in thousands, except per share amounts)
Three Months Ended Six Months Ended
Nov. 28, Nov. 29, Nov. 28, Nov. 29,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 30,032 $ 46,571 $ 50,546 $ 91,130
Cost of sales 29,571 40,102 57,197 78,899
------------ ------------ ------------ ------------
Gross profit (loss) 461 6,469 (6,651) 12,231
------------ ------------ ------------ ------------
Engineering 1,021 1,448 2,047 2,979
Selling, general and administrative 2,109 3,543 4,911 6,883
Restructuring expense (Note 6) - 1,878 27,879 1,878
------------ ------------ ------------ ------------
Total operating expense 3,130 6,869 34,837 11,740
Operating (loss) income (2,669) (400) (41,488) 491
Interest and other expense, net (434) (622) (924) (1,109)
------------ ------------ ------------ ------------
Loss before taxes (3,103) (1,022) (42,412) (618)
Income taxes (1,179) (381) (16,117) (270)
------------ ------------ ------------ ------------
Net loss $ (1,924) $ (641) $ (26,295) $ (348)
============ ============ ============ ============
Basic and diluted net loss per share $ (0.31) $ (0.10) $ (4.23) $ (0.06)
============ ============ ============ ============
Shares used in basic and diluted
per share calculations 6,241 6,191 6,221 6,248
============ ============ ============ ============
The accompanying notes are an integral part of the financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
MERIX CORPORATION
STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
Six Months Ended
November 28, November 29,
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (26,295) $ (348)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 4,369 5,008
Deferred income taxes (16,117) 360
Amortization of unearned compensation 41 145
Restructuring charge 19,624 1,149
Contribution of common stock to 401(k) plan 335 -
Other 151 (58)
Changes in assets and liabilities:
Accounts receivable 8,446 (1,598)
Inventories 3,947 (1,256)
Income tax refund receivable - 2,308
Other current assets 1,191 266
Accounts payable 200 (945)
Accrued compensation 101 211
Other accrued liabilities 6,145 1,300
------------ ------------
Net cash provided by operating activities 2,138 6,542
------------ ------------
Cash flows from investing activities:
Capital expenditures (8,839) (7,345)
Short-term investments: purchases (11,016) (9,500)
maturities 7,395 7,587
Proceeds from sale of assets 253 20
------------ ------------
Net cash used in investing activities (12,207) (9,238)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt (2,200) (61)
Proceeds from exercise of stock options - 362
Reacquired common stock (2) (181)
------------ ------------
Net cash (used in) provided by financing activities (2,202) 120
------------ ------------
Decrease in cash and cash equivalents (12,271) (2,576)
Cash and cash equivalents at beginning of period 15,430 16,537
------------ ------------
Cash and cash equivalents at end of period 3,159 13,961
Short-term investments 11,090 10,473
------------ ------------
Cash and short-term investments at end of period $ 14,249 $ 24,434
============ ============
Supplemental disclosure of non-cash information:
Tax benefit related to stock-based compensation $ - $ 127
Surrender of unvested shares of restricted stock 293 -
Asset acquired by recognition of liability - 1,100
Supplemental disclosure of cash flow information:
Cash paid for interest, net of amount capitalized $ 1,395 $ 1,619
The accompanying notes are an integral part of the financial statements.
</TABLE>
4
<PAGE>
MERIX CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
Note 1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Merix Corporation (the
Company) have been prepared pursuant to Securities and Exchange Commission rules
and regulations. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's annual
report on Form 10-K for the fiscal year ended May 30, 1998.
The financial information included herein reflects all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results for interim periods. The
results of operations for the three and six months ended November 28, 1998 are
not necessarily indicative of the results to be expected for the full year.
The Company's fiscal year is the 52 or 53-week period ending the last Saturday
in May. Fiscal year 1999 is a 52-week year ending May 29, 1999 and fiscal year
1998 was a 52-week year ended May 30, 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130) which establishes requirements
for disclosure of comprehensive income and is effective for the Company's fiscal
year ending May 1999. Reclassification of earlier financial statements for
comparative purposes is required. The Company adopted SFAS 130 in the first
quarter of fiscal year 1999. Comprehensive loss did not differ from currently
reported net loss in the periods presented.
Note 2. RECLASSIFICATION
The Company has reclassified certain prior year information to conform with the
current year presentation.
Note 3. INVENTORIES
<TABLE>
<CAPTION>
November 28, May 30,
1998 1998
------------ ------------
<S> <C> <C>
Raw materials $ 927 $ 3,684
Work in process 4,391 3,638
Finished goods 1,530 3,473
------------ ------------
Total $ 6,848 $ 10,795
============ ============
</TABLE>
Note 4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
November 28, May 30,
1998 1998
------------ ------------
<S> <C> <C>
Land $ 2,190 $ 2,190
Buildings and grounds 23,587 24,267
Machinery and equipment 88,266 100,282
Construction in progress 5,698 2,828
------------ ------------
119,741 129,567
Less accumulated depreciation (60,787) (59,305)
------------ ------------
Property, plant and equipment, net $ 58,954 $ 70,262
============ ============
</TABLE>
5
<PAGE>
Note 5. LOSS PER SHARE
Basic and diluted net loss per share are computed using the weighted average
number of shares of common stock outstanding for the period. The dilutive effect
of outstanding stock options were not included in the accompanying net loss per
share calculations, because to do so would have been antidilutive. Options were
outstanding for the purchase of 1,247,302 shares and 1,237,700 shares at
November 28, 1998 and November 29, 1997, respectively. Of the stock options
outstanding at November 28, 1998, 80% had exercise prices below the market price
of the underlying common stock at that date.
Note 6. RESTRUCTURING
During the first quarter of fiscal 1999 the Company announced a restructuring
plan, undertaken to improve capacity utilization and lower the Company's
break-even point, as a response to the general electronics industry downturn and
increasing pricing pressures. Pursuant to the restructuring plan, the Company
permanently closed its Loveland, Colorado facility and reduced approximately 35
employees from administrative, engineering and support functions at its Forest
Grove, Oregon location. Closure of the Loveland facility, which was completed on
October 30, 1998, resulted in the layoff of approximately 340 manufacturing and
support employees. The Company transferred a portion of the Loveland production
to its Forest Grove facility. Additionally, the Company transferred a portion of
the manufacturing equipment previously used in the Loveland facility to the
Forest Grove site and expects to install such equipment beginning in spring
1999.
Also pursuant to the restructuring plan, the Company announced it would sell or
close its Soladyne facility in San Diego, California. In the second quarter of
fiscal 1999, the Company received several non-binding letters of interest in the
Soladyne facility, and anticipates that a sale of the facility will occur in the
third quarter of fiscal year 1999.
The components of the restructuring charge recorded in the first quarter of
fiscal year 1999 were as follows:
Non-cash charges:
Write-down and write-off of manufacturing equipment $ 15,672
Write-off of goodwill and intangible assets 3,952
---------
19,624
Cash charges:
Severance benefits 2,801
Lease termination costs 4,758
Other costs 696
---------
8,255
Total restructuring expense $ 27,879
=========
Write-off of inventory, included in cost of sales $ 2,118
=========
Cash payments during the second quarter of fiscal year 1999 related to the
restructuring charge consisted of $2,152 of severance benefits, $161 of lease
termination costs and $294 of other costs. At November 28, 1998, $649 was
included in accrued compensation and $4,999 was included in other accrued
liabilities. A portion of the equipment from the Loveland facility was sold in
an auction in late December, and the Company anticipates that a sale of the
Soladyne facility will occur in the third quarter of fiscal year 1999. Upon the
conclusion of these two events, the Company will evaluate its original estimated
restructuring charge and record adjustments in the third quarter of fiscal year
1999, as appropriate.
Results of operations for the second quarter of fiscal 1998 included a $1,878
charge for the costs associated with a restructuring plan undertaken to improve
the Company's profitability. The restructuring plan consisted of a work force
reduction in the support and administrative functions, the write-down of certain
6
<PAGE>
manufacturing equipment, and other miscellaneous costs. In the third quarter of
fiscal 1998, the Company paid all outstanding liabilities associated with the
restructuring plan.
Note 7. LONG-TERM DEBT
The Company has $40 million outstanding under a private placement of senior
unsecured notes with two insurance companies which include certain financial
covenants (including minimum net worth, debt ratio and interest coverage
requirements) and cross-default provisions. As of November 28, 1998, the Company
was not in compliance with the covenants which specify minimum net worth and
interest coverage requirements. Compliance with such covenants was waived by the
holders of the unsecured notes as of and for the quarter ended November 28,
1998.
Note 8. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133).
SFAS 133 establishes accounting and reporting standards requiring every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS 133 also requires changes in the
derivative's fair value be recognized currently in results of operations unless
specific hedge accounting criteria are met. SFAS 133 is effective for fiscal
years beginning after June 15, 1999. The Company does not expect SFAS 133 to
have a material impact on its consolidated financial statements.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Dollars in thousands)
This discussion and analysis is designed to be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations set forth in the Merix Corporation (the Company) Form 10-K for the
fiscal year ended May 30, 1998.
Results of Operations
Fiscal year. The Company's fiscal year is the 52 or 53-week period ending the
last Saturday in May. Fiscal year 1999 is a 52-week year ending May 29, 1999 and
fiscal year 1998 was a 52-week year ended May 30, 1998.
Net Sales. Net sales for the second quarter of fiscal 1999 were $30,032, a
decrease of 35.5% from net sales of $46,571 in the second quarter of fiscal
1998. Net sales for the first six months of fiscal 1999 were $50,546, a decrease
of 44.5% from net sales of $91,130 in the first six months of fiscal 1998. Net
sales decreased due to lower unit sales and lower average selling prices which
resulted from the general electronics industry downturn, pricing pressures in
the printed circuit industry and excess inventory conditions. Average selling
prices of the Company's products decreased approximately 3% in the second
quarter of fiscal 1999 compared to the first quarter of fiscal 1999, and
decreased approximately 10% in the first quarter of fiscal year 1999 compared to
the fourth quarter of fiscal year 1998. Net sales in the second quarter of
fiscal 1999 increased 46.4%, compared to net sales of $20,515 in the first
quarter of fiscal 1999. The Company attributes this increase to its efforts to
penetrate new customers and new programs and to a return of demand from its
existing customers as their inventory and market issues are resolved. Although
customer order levels are beginning to increase, the Company believes the impact
of the electronics industry slowdown and excess capacity issues will continue to
have a negative impact on results into the third quarter of fiscal 1999.
Sales by market segments as a percent of net sales are shown in the table below.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------------- ---------------------------------------
Nov. 28, 1998 Nov. 29, 1997 Nov. 28, 1998 Nov. 29, 1997
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Market Segments
Computers 33% $ 9,821 29% $13,274 32% $16,145 27% $24,381
Communications 31 9,391 24 11,332 30 15,316 26 24,144
Test and Instruments 33 10,055 44 20,435 35 17,733 44 39,786
Other 3 765 3 1,530 3 1,352 3 2,819
------- ------- ------- ------- ------- ------- ------- -------
Total 100% $30,032 100% $46,571 100% $50,546 100% $91,130
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
The Company's five largest customers comprised approximately 71% and 75% of net
sales in the second quarter of fiscal year 1999 and 1998, respectively, and 68%
and 75% of net sales in the first six months of fiscal year 1999 and 1998,
respectively. The Company continues to focus on additional diversification of
its customer base. As shown in the table above, the Company is beginning to
achieve its objectives with regard to increasing its sales in the high end
computing and communications market segments and decreasing its sales of lower
margin products in the test and measurement market segment.
The Company's 90 day backlog was approximately $17.2 million at November 28,
1998, compared to $15.8 million at the end of fiscal 1998. A substantial portion
of the Company's backlog is typically scheduled for delivery within 60 days.
Cancellation and postponement charges generally vary depending upon the time of
cancellation or postponement, and a significant portion of the Company's backlog
is subject to cancellation or postponement without significant penalty. The
level and timing of orders placed by the Company's customers vary due to many
factors, including customer attempts to manage inventory, timing of new product
introductions and variation in demand for customer products. Accordingly, the
Company's backlog is not necessarily indicative of future quarterly or annual
financial results. The Company typically does not obtain long-term purchase
orders or commitments from its customers and a
8
<PAGE>
variety of conditions may cause customers to cancel, reduce or delay orders that
were previously placed. The Company cannot assure the timely replacement of
canceled, delayed or reduced orders.
During periods of slowdown in the electronics industry, the Company's customers
are more price sensitive, which has had, and could continue to have, an adverse
effect on interconnect pricing. Additionally, as a result of the current
economic situation in Asia, many Asian printed circuit companies have turned to
the U.S. domestic market as a source of new customers to utilize their excess
capacity. This additional competition in the domestic printed circuit market has
created intensified pricing pressures from both international and domestic
competitors in many of the markets in which the Company competes.
In December 1997, the Company announced plans for a major expansion of its
Forest Grove manufacturing capacity. The Company currently expects the expansion
project to be completed in early spring 1999, and also expects to add
approximately 140 direct production employees by the end of fiscal year 1999.
Customer orders are beginning to increase and the completion of the expansion
project is expected to position the Company to take advantage of this higher
demand. However, the future profitability of the Company will in part depend on
its ability to utilize its manufacturing capacity in an effective manner. The
failure to successfully integrate, manage and utilize additional manufacturing
capacity could adversely affect the Company's business, financial condition and
results of operations.
Gross profit (loss). The Company's gross profit (loss) was 1.5% and 13.9% in the
second quarters of fiscal year 1999 and 1998, respectively, and was (13.2%) and
13.4% in the first six months of fiscal year 1999 and 1998, respectively. The
decreases in gross profit were attributable to lower capacity utilization, lower
product pricing, and the effect of a $2.1 million write-down of inventory
related to the restructuring charge recorded in the first quarter of fiscal year
1999. See Note 6 of Notes to Financial Statements and "Restructuring" below. The
Company expects gross profit to improve as a result of increasing customer
demand, a lower cost structure as a result of the restructuring and increased
capacity utilization of the Forest Grove manufacturing facility, although the
Company expects continuing pricing pressures to negatively impact gross profit.
The Company's customers are demanding more sophisticated products, which
incorporate high technology and increasing layer counts. The Company plans to
continue increasing its sales in the high end computing and communications
market segments and decreasing its sales of lower margin products in the test
and measurement market segment. However, there can be no assurance that these
efforts will result in higher profits. The Company's basic interconnect
technology is generally not subject to significant proprietary protection, and
companies with significant resources may develop expertise in these higher
technology processes and products and compete with the Company. Increased
competition could result in price reductions, reduced margins or loss of market
share, which could materially adversely affect the Company's business, financial
condition and results of operations.
Engineering. Engineering expenses were $1,021 and $1,448 in the second quarters
of fiscal year 1999 and 1998, respectively, and were 3.4% and 3.1% of sales,
respectively. Engineering expenses were $2,047 and $2,979 in the first six
months of fiscal years 1999 and 1998, respectively, and were 4.0% and 3.3% of
sales, respectively. These expenses decreased as a result of reduced headcount
and the capitalization of approximately $250 and $650 of dedicated engineering
labor in the second quarter and first six months of fiscal year 1999,
respectively, related to the Forest Grove expansion project currently underway.
Engineering expenses, as a percentage of sales, increased as a result of lower
sales in the second quarter and first six months of fiscal year 1999.
Selling, General and Administrative. Selling, general and administrative
expenses were $2,109 and $3,543 in the second quarters of fiscal years 1999 and
1998, respectively, and were 7.0% and 7.6% of sales, respectively. Selling,
general and administrative expenses were $4,911 and $6,883 in the first six
months of fiscal years 1999 and 1998, respectively, and were 9.7% and 7.6% of
sales, respectively. These expenses decreased due to reduced headcount resulting
from the restructurings, cost controls and reduced selling expenses as a result
of a lower level of sales. See Note 6 of Notes to Financial Statements.
9
<PAGE>
Restructuring Expense. During the first quarter of fiscal 1999 the Company
announced a restructuring plan, undertaken to improve capacity utilization and
lower the Company's break-even point, as a response to the general electronics
industry downturn and increasing pricing pressures. Pursuant to the
restructuring plan, the Company permanently closed its Loveland, Colorado
facility, and reduced approximately 35 employees from administrative,
engineering and support functions at its Forest Grove, Oregon location. Closure
of the Loveland facility, which was completed on October 30, 1998, resulted in
the layoff of approximately 340 manufacturing and support employees. The Company
transferred a portion of the Loveland production to its Forest Grove facility.
Additionally, the Company transferred a portion of the manufacturing equipment
previously used in the Loveland facility to the Forest Grove site and expects to
install such equipment beginning in spring 1999.
Also pursuant to the restructuring plan, the Company announced it would sell or
close its Soladyne facility in San Diego, California. In the second quarter of
fiscal 1999, the Company received several non-binding letters of interest in the
Soladyne facility, and anticipates that a sale of the facility will occur in the
third quarter of fiscal year 1999.
The components of the restructuring charge recorded in the first quarter of
fiscal year 1999 were as follows:
Non-cash charges:
Write-down and write-off of manufacturing equipment $ 15,672
Write-off of goodwill and intangible assets 3,952
--------
19,624
Cash charges:
Severance benefits 2,801
Lease termination costs 4,758
Other costs 696
--------
8,255
Total restructuring expense $ 27,879
========
Write-off of inventory, included in cost of sales $ 2,118
========
Cash payments during the second quarter of fiscal year 1999 related to the
restructuring charge consisted of $2,152 of severance benefits, $161 of lease
termination costs and $294 of other costs. At November 28, 1998, $649 was
included in accrued compensation and $4,999 was included in other accrued
liabilities. A portion of the equipment from the Loveland facility was sold in
an auction in late December, and the Company anticipates that a sale of the
Soladyne facility will occur in the third quarter of fiscal year 1999. Upon the
conclusion of these two events, the Company will evaluate its original estimated
restructuring charge and record adjustments in the third quarter of fiscal year
1999, as appropriate. See Note 6 of Notes to Financial Statements.
Results of operations for the second quarter of fiscal year 1998 included a
$1,878 charge for the costs associated with a restructuring plan undertaken to
improve the Company's profitability. The restructuring plan consisted of a work
force reduction in the support and administrative functions, the write-down of
certain manufacturing equipment, and other miscellaneous costs. In the third
quarter of fiscal year 1998, the Company paid all outstanding liabilities
associated with the restructuring plan.
Interest and Other Expense, net. Interest and other expense, net was $434 and
$622 for the second quarters of fiscal years 1999 and 1998, respectively, and
$924 and $1,109 for the first six months of fiscal years 1999 and 1998,
respectively. Interest expense decreased due to the capitalization of interest
related to the Forest Grove expansion project of $220 and $400 in the second
quarter and first six months of fiscal year 1999, respectively.
10
<PAGE>
Income Taxes. In the first six months of fiscal year 1999, the Company recorded
a benefit of $16,117 from the recognition of net operating loss carryforwards.
The Company estimates its effective income tax rate will be approximately 38% in
fiscal year 1999.
Liquidity and Capital Resources
Cash and short-term investments at November 28, 1998 were $14,249 compared with
$22,899 at May 30, 1998. Cash and short-term investments are expected to
continue to decline as the Company funds its capital expansion project. Working
capital decreased to $4,374 at November 28, 1998 from $40,755 at May 30, 1998,
primarily as a result of reclassification of long-term debt to current
liabilities to reflect an $8,000 payment due in September 1999, and decreases in
cash and accounts receivable.
Cash provided by operating activities in the first six months of fiscal year
1999 was $2,138, which primarily consisted of a net loss for the period adjusted
for depreciation and amortization, and an increase in deferred income taxes,
primarily offset by the restructuring charge, a decease in accounts receivable
and an increase in other accrued liabilities. Deferred income taxes increased as
a result of the net loss in the period and accounts receivable decreased as a
result of the lower level of sales in the period. Other accrued liabilities
increased due to accruals made in the first quarter of fiscal year 1999 related
to the restructuring charge. See Note 6 of Notes to Financial Statements.
Cash used in investing activities in the first six months of fiscal year 1999
was $12,207, which primarily consisted of $8,839 of capital expenditures for
manufacturing equipment, and $11,016 of purchases of short-term investments,
offset by $7,395 of maturities of short-term investments. The Company's policy
is to hold such short-term investments to maturity.
Cash used in financing activities in the first six months of fiscal year 1999
was $2,202, which primarily consisted of payment of long-term debt during the
period.
The Company has $40 million outstanding under a private placement of senior
unsecured notes with two insurance companies. The notes bear interest at 7.92%,
payable on a semi-annual basis, with payment of principal in five equal annual
installments commencing on September 15, 1999.
The senior unsecured notes include certain financial covenants (including
minimum net worth, debt ratio and rolling four quarter interest coverage
requirements) and cross-default provisions. As of November 28, 1998, the Company
was not in compliance with the covenants which specify minimum net worth and
interest coverage requirements. Compliance with such covenants was waived by the
holders of the unsecured notes as of and for the quarter ended November 28,
1998. See Note 7 of Notes to Financial Statements. The Company expects that it
will not satisfy certain of the existing covenants as of the end of its quarter
ending February 27, 1999 and will negotiate with the lenders to obtain waivers
or amendment of these covenants. If the covenants are not further amended or
waived, the notes could become immediately due in full. The Company plans to
seek additional financing during the 1999 calendar year to meet its working
capital and capital expenditure requirements and is exploring additional
financing alternatives, including equipment leasing. There are no assurances
that additional financing will be available to the Company.
The Company had capital commitments of approximately $9,500 at November 28,
1998, primarily related to expansion of manufacturing capacity at its Forest
Grove facility. The Company currently expects to finance the expansion with
available resources.
Year 2000 Disclosure
The Company has developed a plan to perform assessment and remediation of its
computer software programs and operating systems, including applications used in
its financial, shop-floor control and manufacturing equipment control systems,
to determine their readiness for the Year 2000 (the "Year 2000 Program"). The
inability of computer software programs and operating systems to accurately
recognize, interpret and process date codes designating the Year 2000 and beyond
could cause systems to yield
11
<PAGE>
inaccurate results or encounter operating problems, including disruption of the
business operations these systems control. With respect to its financial and
shop-floor control systems, the Company's assessment is 90% complete and its
remediation is 25% complete. With respect to its manufacturing equipment control
systems, the Company's assessment is 80% complete and no remediation has been
performed. The Company expects to complete its assessment of its computer
software programs and operating systems by the end of the third quarter of
fiscal year 1999, and to complete its remediation by the end of the second
quarter of fiscal year 2000.
The Company also may be exposed to risks from computer systems of parties with
which the Company transacts business. The Company has contacted most of its
critical suppliers to determine the extent to which the Company may be
vulnerable to those parties' failure to remedy their own Year 2000 issues and to
ascertain what actions, if needed, may be taken by the Company in response to
such risks. To date, approximately 85% of the suppliers contacted have indicated
they are, or expect to be, Year 2000 compliant.
The Company currently estimates that it will spend between $385 and $1,000 in
addressing the Year 2000 issue, of which approximately $75 has been incurred
through the second quarter of fiscal year 1999. The estimates are subject to
change as additional information is obtained in connection with the Year 2000
Program.
Based on its assessments to date, the Company believes it will not experience
any material disruption as a result of Year 2000 issues in its computer software
programs and operating systems used in its internal operations, its interface
with key suppliers and customers, or processing orders and billing. However, if
certain critical third party suppliers, such as those supplying electricity,
water, telephone service or critical materials, experience difficulties
resulting in disruption of the service or delivery of supplies to the Company,
or if the Company's internal operating systems fail to comply, a shutdown of the
Company's operations could occur for the duration of the disruption. The Company
has not developed a contingency plan to handle such events, but intends to
decide by the beginning of the fourth quarter of fiscal year 1999 whether to
develop such a plan. Furthermore, due to the general uncertainty inherent in the
Year 2000 problem, there can be no assurances that Year 2000 issues will not
have a material adverse effect on the Company's business, financial condition or
results of operations.
Forward-looking Statements
Information set forth in this Report on Form 10-Q relating to fiscal year 1999
and beyond, including the Company's plans and expectations with respect to cost
savings, its restructuring plan, changes in product mix, gross margin, customer
demand, increases in manufacturing capacity, and Year 2000 matters constitute
forward-looking statements. Information contained in forward-looking statements
is based on current expectations and is subject to change, and actual results
may differ materially from the forward-looking statements.
Many factors could cause actual results to differ materially from the
forward-looking information. This Report on Form 10-Q discusses certain of these
factors, including the general slow-down in the electronics and printed circuit
board industries and the economic situation in Asia; a decline in customer
orders and the resulting excess capacity; pricing and other competitive
pressures in the industry; risks related to the Company's capacity expansion
project; customer concentration and difficulties in diversifying the customer
base and increasing sales in the high end computing and communications markets;
risks related to customer cancellation, postponement or reduction of orders; the
effects of the restructuring; negotiations relating to the Company's loan
agreements; difficulty in seeking additional financing in calendar year 1999;
and unanticipated costs associated with any required modifications to the
Company's manufacturing equipment computer systems and associated software and
other risks related to the Year 2000 issue. Other factors include business
conditions and growth in the general economy and the electronic and interconnect
industries; raw material availability; production delays; product mix; customer
acceptance of new technologies; costs and yield issues associated with
production; the ability to attract and retain a talented workforce;
unanticipated costs to comply with environmental laws; and other risks listed
from time to time in the Company's Securities and Exchange Commission reports or
otherwise disclosed by the
12
<PAGE>
Company. Any forward-looking statements should be considered in light of these
factors. Forward-looking statements speak only as of date made. The Company
undertakes no obligation to publicly release the results of any revision to
forward-looking statements which may be made to reflect subsequent events or
circumstances or to reflect the occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of shareholders was held on October 5, 1998.
The only item considered at the meeting was the election of directors. The
results of the voting with respect to the six nominees for director identified
in the Company's Proxy Statement were as follows:
<TABLE>
<CAPTION>
Votes For Votes Withheld
<S> <C> <C>
Deborah A. Coleman 5,510,938 123,728
Carlene M. Ellis 5,546,928 87,738
William C. McCormick 5,551,345 83,321
Carl W. Neun 5,551,387 83,279
Dr. Koichi Nishimura 5,552,787 81,879
Robert C. Strandberg 5,550,795 83,871
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The exhibits filed as part of this report are listed below:
Exhibit
No.
---
10.32 * Executive Severance Agreement between the Company and
Janie S. Brown as of October 5, 1998
27 Financial Data Schedule
* This Exhibit constitutes a management contract or compensatory
plan or arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended November
28, 1998.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized this 11th day of January, 1999.
MERIX CORPORATION
By: /s/ JANIE S. BROWN
-------------------------------------
Janie S. Brown
Vice President, Treasurer and Chief
Financial Officer (Principal
Financial Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit
No.
----
10.32 * Executive Severance Agreement between the Company and
Janie S. Brown as of October 5, 1998
27 Financial Data Schedule
* This Exhibit constitutes a management contract or compensatory
plan or arrangement.
EXHIBIT 10.32
AMENDED EXECUTIVE SEVERANCE AGREEMENT
October 5, 1998
Janie S. Brown
7634 SW Afton Lane
Durham, Oregon 97224 Executive
Merix Corporation
an Oregon corporation
PO Box 3000
Forest Grove, Oregon 97116 Merix
Merix considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best interests of
Merix and its shareholders. In this connection, Merix recognizes that, as is the
case with many publicly held corporations, the possibility of a change of
control may exist and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or distraction
of management personnel to the detriment of Merix and its shareholders. In order
to induce Executive to remain employed by Merix in the face of uncertainties
about the long-term strategies of Merix and possible change of control of Merix
and their potential impact on Executive's position with Merix and in recognition
of Executive's promotion to Chief Financial Officer of the Company, this
Agreement, which has been approved by the Board of Directors of Merix, sets
forth the severance benefits that Merix will provide to Executive in the event
Executive's employment by Merix is terminated under the circumstances described
in this Agreement.
1. Employment Relationship. Executive is currently employed by Merix as
Vice President and Chief Financial Officer. Executive and Merix acknowledge that
either party may terminate this employment relationship at any time and for any
or no reason, subject to the obligation of Merix to provide the severance
benefits specified in this Agreement in accordance with the terms hereof.
2. Release of Claims. In consideration for and as a condition precedent to
receiving the severance benefits outlined in this Agreement, Executive agrees to
execute a Release of Claims in the appropriate form attached as Exhibit A
("Release of Claims"). Executive promises to execute and deliver the Release of
Claims to Merix within the later of (a) 45 days from the date Executive receives
the Release of Claims or (b) the last day of Executive's active employment.
3. Compensation Upon Termination. In the event of a Termination of
Executive's Employment (as defined in Section 8.1) at any time other than for
Cause (as defined in Section 8.2 of this Agreement), death or Disability (as
defined in Section 8.4 of this Agreement), and contingent upon Executive's
execution of the Release of Claims and compliance with Section 10, Executive
shall be entitled to the following benefits:
3.1 As severance pay and in lieu of any other compensation for periods
subsequent to the date of termination, Merix shall pay Executive, in a single
payment after employment has entered and eight days have passed following
execution of the Release of Claims without revocation, an amount in cash equal
to one year of Executive's annual base pay at the rate in effect immediately
prior to the date of termination.
3.2 Executive is entitled to extend coverage under any group health
plan in which Executive and Executive's dependents are enrolled at the time of
termination of employment under the COBRA continuation laws for the 18-month
statutory period, or so long as Executive remains eligible under COBRA. Merix
will pay Executive a lump sum payment in an amount equivalent to the reasonably
estimated cost Executive may incur to extend for a period of 18 months under the
COBRA continuation laws Executive's group health and dental plan coverage in
effect at the time of termination. Executive may use this payment, as well as
any payment made under Section 3.1, for such COBRA continuation coverage or for
any other purpose.
1
<PAGE>
3.3 Executive shall be entitled to a portion of the benefits under any
annual cash incentive plans in effect at the time of termination equal to the
greater of (a) 50% of Executive's target benefit under such plan for the year or
(b) a prorated amount representing the portion of the plan year during which
Executive was a participant. For purposes of this Agreement, Executive's
participation in any such plan will be considered to have ended on Executive's
last day of active employment. In making the proration calculation, the amount
of Executive's award if Executive had been a participant for the full incentive
period shall be divided by the total number of days in the incentive period and
the result multiplied by the actual number of days Executive participated in the
plan. The payment amount shall be calculated at the end of the incentive period
and the amount shall not be due and payable by Merix to Executive until the date
that all awards are payable to other eligible employees after the close of the
incentive period, except that Executive may elect at any time after termination,
by written notice to Merix, to receive 50% of Executive's target benefit instead
of the prorated amount, in which case the payment shall be made within 20 days
of such election. If the applicable plan provides for a greater payment for a
participant whose employment terminates prior to the end of an incentive period,
the applicable plan payment shall be made.
3.4 Merix will pay up to $12,500 to a third party outplacement firm
selected by Executive to provide career counseling assistance to Executive for a
period of one year following Executive's termination date. Executive may elect
to receive the $12,500 in cash in lieu of payment to a third party outplacement
firm.
3.5 All outstanding stock options, restricted stock, stock bonuses or
other stock awards shall be governed by the terms of the applicable agreement or
plan.
3.6 In the event that Executive's employment with Merix terminates for
any reason prior to a Change of Control (as defined in Section 8.3), other than
at the direction of a person who has entered into an agreement with Merix, the
consummation of which will constitute a Change of Control, Executive shall not
be entitled to benefits under Section 4 of this Agreement.
4. Additional Compensation Upon Termination Following A Change of Control.
In the event of a Termination of Executive's Employment other than for Cause,
death or Disability within 24 months following a Change of Control, or prior to
a Change of Control at the direction of a person who has entered into an
agreement with Merix, the consummation of which will constitute a Change of
Control, and contingent upon Executive's execution of the Release of Claims and
compliance with Sections 5 and 10, Executive shall be entitled to the following
benefits, which benefits shall be in addition to the benefits provided in
Section 3, except that the benefits provided for in Sections 4.4 and 4.5 shall
not be available to Executive if Merix desires to enter into a transaction
accounted for as a pooling of interest and Merix, in its sole discretion after
discussion with its independent public accountant, determines that the benefits
provided in Sections 4.4 and 4.5 and similarly worded sections of other
Severance Agreements are the only reason that could cause Merix to be ineligible
to be a party to such a transaction accounted for as a pooling of interests:
4.1 Merix shall pay Executive, in a single payment within the latter
of (a) eight days after the last day of employment, including employment during
the up to the six months employment period referred to in Section 5 if Merix or
the surviving company has requested Executive to continue employment during such
period and (b) eight days after execution of the Release of Claims without
revocation, an amount in cash equal to one year of Executive's annual base
compensation at the rate in effect immediately prior to the date of termination.
4.2 Executive shall be entitled to receive an amount such that the
amount payable pursuant to Section 3.3 plus the amount payable pursuant to this
Section 4.2 equals 100% of the Executive's target benefit for the year under
annual cash incentive plans in effect at the time of termination. The amount
payable pursuant to Section 4.2 shall be paid on the same date that the Section
4.1 payment is payable.
4.3 Merix shall maintain in full force and effect, at its sole cost
and expense, for Executive's continued benefit for a period terminating 18
months after the date of termination a life
2
<PAGE>
insurance policy insuring Executive's life with coverage equal to two times
Executive's annual base pay in effect immediately prior to termination, provided
that Executive's continued participation is possible under the general terms and
provisions of such policy. At Executive's election or in the event that
Executive's continued participation in such policy is barred, Merix shall make a
lump sum payment to Executive equal to the total premiums that would have been
paid by Merix for such 18 month period. The maximum amount that Merix shall be
obligated to pay pursuant to this Section 4.3 in premiums and payments to
Executive shall be $5,000.
4.4 The possibility of forfeiture to Merix of all stock issued to
Executive under all Executive Stock Bonus Agreements shall immediately lapse.
4.5 All outstanding stock options held by Executive under all stock
option and stock incentive plans of Merix shall become immediately exercisable
in full and shall remain exercisable until the earlier of (a) two years after
termination of employment or (b) the option expiration date as set forth in the
applicable option agreement.
4.6 Notwithstanding any provision in this Agreement, in the event that
Executive would receive a greater after-tax benefit from the Capped Benefit (as
defined in the next sentence) than from the payments pursuant to this Agreement
(the "Specified Benefits"), the Capped Benefit shall be paid to Executive and
the Specified Benefits shall not be paid. The Capped Benefit is the Specified
Benefits, reduced by the amount necessary to prevent any portion of the
Specified Benefits from being "parachute payments" as defined in section
280G(b)(2) of the Internal Revenue Code of 1986, as amended ("IRC"), or any
successor provision. For purposes of determining whether Executive would receive
a greater after-tax benefit from the Capped Benefit than from the Specified
Benefits, there shall be taken into account all payments and benefits Executive
will receive upon a change in control of the Company (collectively, excluding
the Specified Benefits, the "Change of Control Payments"). To determine whether
Executive's after-tax benefit from the Capped Benefit would be greater than
Executive's after-tax benefit from the Specified Benefits, there shall be
subtracted from the sum of the before-tax Specified Benefits and the Change of
Control Payments (including the monetary value of any non-cash benefits) any
excise tax that would be imposed under IRC ss. 4999 and all federal, state and
local taxes required to be paid by Executive in respect of the receipt of such
payments, assuming that such payments would be taxed at the highest marginal
rate applicable to individuals in the year in which the Specified Benefits are
to be paid or such lower rate as Executive advises Merix in writing is
applicable to Executive.
5. Additional Service. Executive agrees that, if requested by Merix or the
surviving company following a Change of Control, Executive will continue his or
her employment with Merix or the surviving company for a period of up to six
months following the Change of Control in any capacity requested by Merix or the
surviving company consistent with Executive's areas of professional expertise.
During this period Executive shall receive the same salary and substantially the
same benefits as in effect prior to the Change of Control. Executive shall not
be entitled to any benefits provided by Section 4 if Executive fails to perform
in accordance with this Section 5.
6. Tax Withholding; Subsequent Employment.
6.1 All payments provided for in this Agreement are subject to
applicable tax withholding obligations imposed by federal, state and local laws
and regulations.
6.2 The amount of any payment provided for in this Agreement shall not
be reduced, offset or subject to recovery by Merix by reason of any compensation
earned by Executive as the result of employment by another employer after
termination.
3
<PAGE>
7. Other Agreements. This Agreement replaces and supersedes the Executive
Severance Agreement dated June 30, 1998 between Executive and Merix. In the
event that severance benefits are payable to Executive under any other agreement
with Merix in effect at the time of termination (including but not limited to
any employment agreement, but excluding for this purpose any stock option
agreement or stock bonus agreement or stock appreciation right agreement that
may provide for accelerated vesting or related benefits upon the occurrence of a
change in control), the benefits provided in this Agreement shall not be payable
to Executive. Executive may, however, elect to receive all of the benefits
provided for in this Agreement in lieu of all of the benefits provided in all
such other agreements. Any such election shall be made with respect to the
agreements as a whole, and Executive cannot select some benefits from one
agreement and other benefits from this Agreement.
8. Definitions.
8.1 Termination of Executive's Employment. Termination of Executive's
Employment means that Merix has terminated Executive's employment with Merix
(including any subsidiary of Merix). For purposes of Section 3, if Executive is
assigned additional or different titles, tasks or responsibilities from those
currently held or assigned, consistent with Executive's areas of professional
expertise and with no decrease in annual base compensation, whether at Merix or
any subsidiary of Merix, such circumstances shall not constitute a Termination
of Executive's Employment. For purposes of Section 4, Termination of Executive's
Employment shall include termination by Executive, within 24 months of a Change
of Control, by written notice to Merix referring to the applicable paragraph of
Section 8.1, for "Good Reason" based on:
(A) the assignment to Executive of a different title,
job or responsibilities that results in a decrease in the
level of responsibility of Executive with respect to the
surviving company after the Change of Control when compared
to Executive's level of responsibility for Merix' operations
prior to the Change of Control; provided that Good Reason
shall not exist if Executive continues to have the same or a
greater general level of responsibility for the former Merix
operations after the Change of Control as Executive had
prior to the Change of Control even if the former Merix
operations are a subsidiary or division of the surviving
company;
(B) a reduction by Merix or the surviving company in
Executive's base pay as in effect immediately prior to the
Change of Control;
(C) a significant reduction by Merix or the surviving
company in total benefits available to Executive under cash
incentive, stock incentive and other employee benefit plans
after the Change of Control compared to the total package of
such benefits as in effect prior to the Change of Control;
(D) Merix or the surviving company requires Executive
to be based more than 50 miles from where Executive's office
is located immediately prior to the Change of Control except
for required travel on company business to an extent
substantially consistent with the business travel
obligations which Executive undertook on behalf of Merix
prior to the Change of Control; or
(E) the failure by Merix to obtain from any successor
(whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of
the business and/or assets of
4
<PAGE>
Merix ("Successor") the assent to this Agreement
contemplated by Section 9 hereof.
8.2 Cause. Termination of Executive's Employment for "Cause" shall
mean termination upon (a) the willful and continued failure by Executive to
perform substantially Executive's reasonably assigned duties with Merix (other
than any such failure resulting from Executive's incapacity due to physical or
mental illness) after a demand for substantial performance is delivered to
Executive by the Board, the Chief Executive Officer or the President of Merix
which specifically identifies the manner in which the Board or Merix believes
that Executive has not substantially performed Executive's duties or (b) the
willful engaging by Executive in illegal conduct which is materially and
demonstrably injurious to Merix. No act, or failure to act, on Executive's part
shall be considered "willful" unless done, or omitted to be done, by Executive
without reasonable belief that Executive's action or omission was in, or not
opposed to, the best interests of Merix. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or based upon
the advice of counsel for Merix shall be conclusively presumed to be done, or
omitted to be done, by Executive in the best interests of Merix.
8.3 Change of Control. A Change of Control shall mean that one of the
following events has taken place:
(A) The shareholders of Merix approve one of the
following ("Approved Transactions"):
(i) Any merger or statutory plan of exchange
involving Merix ("Merger") in which Merix is not the
continuing or surviving corporation or pursuant to which
Common Stock would be converted into cash, securities or
other property, other than a Merger involving Merix in which
the holders of Common Stock immediately prior to the Merger
have the same proportionate ownership of Common Stock of the
surviving corporation after the Merger; or
(ii) Any sale, lease, exchange, or other transfer
(in one transaction or a series of related transactions) of
all or substantially all of the assets of Merix or the
adoption of any plan or proposal for the liquidation or
dissolution;
(B) A tender or exchange offer, other than one made by
Merix, is made for Common Stock (or securities convertible
into Common Stock) and such offer results in a portion of
those securities being purchased and the offeror after the
consummation of the offer is the beneficial owner (as
determined pursuant to Section 13(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")),
directly or indirectly, of securities representing at least
20 percent of the voting power of outstanding securities of
Merix;
(C) Merix receives a report on Schedule 13D of the
Exchange Act reporting the beneficial ownership by any
person (other than Tektronix, Inc. or any of its affiliates)
of securities representing 20 percent or more of the voting
power of outstanding securities of Merix, except that (i) if
such receipt shall occur as the result of sale of Common
Stock (or securities convertible into Common Stock) by
Tektronix, Inc. or any of its affiliates, it shall not
constitute a Change of Control, or (ii) if such receipt
shall occur during a tender offer or exchange offer
described in (B) above, a Change of Control shall not take
place until the conclusion of such offer; or
(D) During any period of 12 months or less, individuals
who at the beginning of such period constituted a majority
of the Board of Directors cease
5
<PAGE>
for any reason to constitute a majority thereof unless the
nomination or election of such new directors was approved by
a vote of at least two-thirds of the directors then still in
office who were directors at the beginning of such period.
Notwithstanding anything in the foregoing to the contrary, no Change of Control
shall be deemed to have occurred for purposes of this Agreement by virtue of any
transaction which results in Executive, or a group of persons which includes
Executive, acquiring, directly or indirectly, securities representing 20 percent
or more of the voting power of outstanding securities of Merix.
8.4 Disability. Termination of Executive's Employment based on
"Disability" shall mean termination without further compensation under this
Agreement, due to Executive's absence from Executive's full-time duties with
Merix for 180 consecutive days as a result of Executive's incapacity due to
physical or mental illness, unless within 30 days after notice of termination by
Merix following such absence Executive shall have returned to the full-time
performance of Executive's duties.
9. Successors; Binding Agreement.
9.1 This Agreement shall be binding on and inure to the benefit of
Merix and its Successors and assigns. Upon Executive's written request, Merix
will seek to have any Successor by agreement, assent to the fulfillment by Merix
of its obligations under this Agreement. If such a request is made, failure of
Merix to obtain such assent prior to or at the time a company becomes a
Successor shall constitute Good Reason for termination by Executive of his or
her employment and, if a Change of Control of the Company has occurred, shall
entitle Executive to the benefits pursuant to Section 4.
9.2 This Agreement shall inure to the benefit of and be enforceable by
Executive and Executive's legal representatives, executors, administrators and
heirs.
10. Resignation of Corporate Offices. Executive will resign Executive's
office, if any, as a director, officer or trustee of Merix, its subsidiaries or
affiliates and of any other corporation or trust of which Executive serves as
such at the request of Merix, effective as of the date of termination of
employment. Executive agrees to provide Merix such written resignation(s) upon
request and that no severance will be paid until after such resignation(s) are
provided.
11. Governing Law, Arbitration. This Agreement shall be construed in
accordance with and governed by the laws of the State of Oregon. Any dispute or
controversy arising under or in connection with this Agreement or the breach
thereof, shall be settled exclusively by arbitration under the Mutual Agreement
to Arbitrate Claims signed by the Executive, and judgment upon the award
rendered by the Arbitrator may be entered in any Court having jurisdiction
thereof. Notwithstanding any provision in the Mutual Agreement to Arbitrate
Claims, Merix shall pay all arbitration fees and reasonable attorney's fees and
expenses (including at trial and on appeal) of Executive in enforcing its rights
under this Agreement in the event of a Termination of Executive's Employment
within 24 months following a Change of Control.
12. Amendment. No provision of this Agreement may be modified unless such
modification is agreed to in a writing signed by Executive and Merix.
13. Severability. If any of the provisions or terms of this Agreement shall
for any reason be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other terms of this Agreement, and this
Agreement shall be construed as if such unenforceable term had never been
contained in this Agreement.
MERIX CORPORATION
By: /s/ TERRI TIMBERMAN /s/ JANIE S. BROWN
Title: Senior Vice President, Administration Executive
6
<PAGE>
EXHIBIT A
RELEASE OF CLAIMS
1. PARTIES.
-------
The parties to Release of Claims (hereinafter "Release") are ______________
and Merix Corporation, an Oregon corporation, as hereinafter defined.
1.1 EXECUTIVE.
---------
For the purposes of this Release, "Executive" means _________________
__________________, and his or her attorneys, heirs, executors, administrators,
assigns, and spouse.
1.2 THE COMPANY.
-----------
For purposes of this Release the "Company" means Merix Corporation, an
Oregon corporation, its predecessors and successors, corporate affiliates, and
all of each corporation's officers, directors, employees, insurers, agents, or
assigns, in their individual and representative capacities.
2. BACKGROUND AND PURPOSE.
----------------------
Executive was employed by Company. Executive's employment is ending
effective __________ [following a Change in Control as defined in Section 8.3
("Change in Control") of Amended Executive Severance Agreement ("Agreement")].
Executive has elected pursuant to the terms of Section 3.3 of the [Amended
Executive Severance Agreement ("Agreement")/Agreement] to receive [50 percent of
target/the applicable prorated amount] of Executive's annual cash incentive and
elected pursuant to Section 3.4 of the Agreement to [receive $12,500 (less
proper withholding) in lieu of outplacement services/have payments up to $12,500
paid directly to a third party outplacement firm.] [Pursuant to Section 4.3 of
the Agreement, Merix shall pay [the cash equivalent not exceeding $5,000 (less
proper withholding) of] the cost and expense of maintaining a life insurance
policy for the Executive's benefit for 18 months.]
The purpose of this Release is to settle, and the parties hereby settle,
fully and finally, any and all claims Executive may have against Company,
whether asserted or not, known or unknown, including, but not limited to, claims
arising out of or related to Executive's employment, any claim for reemployment,
or any other claims whether asserted or not, known or unknown, past or future,
that relate to Executive's employment, reemployment, or application for
reemployment.
3. RELEASE.
-------
Except as reserved in paragraphs 3 or 3.1, Executive waives, acquits and
forever discharges Company from any obligations Company has and all claims
Executive may have including but not limited to obligations and/or claims
arising from the Agreement or any other document or oral agreement relating to
employment compensation, benefits severance or post-employment issues. Except as
reserved in Paragraph 3.1, Executive hereby releases Company from any and all
claims, demands, actions, or causes of action, whether known or unknown, arising
from or related in any way to any employment of or past or future failure or
refusal to employ Executive by Company, or any other past or future claim
(except as reserved by this Release or where expressly prohibited by law) that
relates in any way to Executive's employment, compensation, benefits,
reemployment, or application for employment, with the exception of any claim
Executive may have against Company for enforcement of this Release. This release
includes any and all claims, direct or indirect, which might otherwise be made
under any applicable local, state or federal authority, including but not
limited to any claim arising under the Oregon statutes dealing with employment,
discrimination in employment, Title VII of the Civil
1
<PAGE>
Rights Act of 1964, the Civil Rights Act of 1991, the Americans With
Disabilities Act, the Family and Medical Leave Act of 1993, the Equal Pay Act of
1963, Executive Order 11246, the Rehabilitation Act of 1973, the Uniformed
Services Employment and Reemployment Rights Act of 1994, the Age Discrimination
in Employment Act, the Fair Labor Standards Act, Oregon wage and hour statutes,
all as amended, any regulations under such authorities, and any applicable
contract, tort, or common law theories.
3.1 Reservations of Rights.
----------------------
This Release shall not affect any rights which Executive may have
under any medical insurance, disability plan, workers' compensation,
unemployment compensation, applicable company stock incentive plan(s),
indemnifications, or the 401(k) plan maintained by the Company.
3.2 No Admission of Liability.
-------------------------
It is understood and agreed that the acts done and evidenced hereby
and the release granted hereunder is not an admission of liability on the part
of Executive or Company, by whom liability has been and is expressly denied.
4. CONSIDERATION TO EXECUTIVE.
--------------------------
After receipt of this Release fully endorsed by Executive, and the
expiration of the seven- (7) day revocation period provided by the Older Workers
Benefit Protection Act without Executive's revocation, Company shall pay:
a) the lump sum of ___________ DOLLARS ($__________ )to Executive
(less proper withholding) for severance and the reasonable estimate of COBRA
continuation coverage as provided in Section[s] 3.1, 3.2 [and 4.1 and 4.6] of
the Agreement;
b) Company will pay [up to $12,500 directly to the third party
outplacement firm selected by Executive for up to one year's outplacement
services as needed/$12,500 (less proper withholding) in lieu of outplacement
services;]
c) the amount of annual cash incentive when due based on the terms of
Section[s] 3.3 [and 4.2] of the Agreement [as elected by Executive];[and]
[d) [the cash equivalent (less proper withholding) of] the premium to
maintain Executive's life insurance plan for 18 months as provided in Section
4.3 of the Agreement.]
5. NO DISPARAGEMENT.
----------------
Executive agrees that henceforth Executive will not disparage or make false
or adverse statements about Company. The Company should report to Executive any
actions or statements that are attributed to Executive that the Company believes
are disparaging. The Company may take actions consistent with breach of this
Release should it determine that Executive has disparaged or made false or
adverse statements about Company. The Company agrees to follow the applicable
policy(ies) regarding release of employment reference information.
6. CONFIDENTIALITY, PROPRIETARY, TRADE SECRET AND RELATED INFORMATION.
------------------------------------------------------------------
Executive acknowledges the duty and agrees not to make unauthorized use or
disclosure of any confidential, proprietary or trade secret information learned
as an employee about Company, its products, customers and suppliers, and
covenants not to breach that duty. Moreover, Executive acknowledges that,
subject to the enforcement limitations of applicable law, the Company reserves
the right to enforce the terms of Executive's Employment Agreement with Company
and any paragraph(s) therein. Should Executive, Executive's attorney or agents
be requested in any judicial, administrative, or other proceeding to disclose
confidential, proprietary or trade secret information Executive learned as an
2
<PAGE>
employee of Company, Executive shall promptly notify the Company of such request
by the most expeditious means in order to enable the Company to take any
reasonable and appropriate action to limit such disclosure.
7. ARBITRATION OF CERTAIN DISPUTES.
-------------------------------
Executive and Company agree that should the issue arise of whether either
party to this Agreement has failed to satisfy or has breached the terms of this
Agreement, any dispute regarding the issue, except for any claim excepted under
the Mutual Agreement to Arbitration Claims, shall be submitted to arbitration
pursuant to the Mutual Agreement to Arbitrate Claims signed by Executive. In
such event, [each party shall pay its own costs and attorneys'
fees/notwithstanding contrary language in the Mutual Agreement to Arbitrate
Claims, because this Release follows a Change in Control, the reasonable
attorneys fees incurred by Executive to seek enforcement of this Release shall
be paid by the Company].
8. SCOPE OF RELEASE.
----------------
The provisions of this Release shall be deemed to obligate, extend to, and
inure to the benefit of the parties; Company's parents, subsidiaries,
affiliates, successors, predecessors, assigns, directors, officers, and
employees; and each parties insurers, transferees, grantees, legatees, agents
and heirs, including those who may assume any and all of the above-described
capacities subsequent to the execution and effective date of this Release.
9. OPPORTUNITY FOR ADVICE OF COUNSEL.
---------------------------------
Executive acknowledges that Executive has been encouraged to seek advice of
counsel with respect to this Release and has had the opportunity to do so.
10. ENTIRE RELEASE.
--------------
This Release, the Mutual Agreement to Arbitrate Claims, [as modified
herein] and the Employment Agreement signed by Executive contain the entire
agreement and understanding between the parties and, except as reserved in
paragraph 3 and 3.1, supersede and replace all prior agreements written or oral
including but not limited to the Agreement and the Executive Stock Bonus
Agreement, prior negotiations and proposed agreements, written or oral.
Executive and Company acknowledge that no other party, nor agent nor attorney of
any other party, has made any promise, representation, or warranty, express or
implied, not contained in this Release concerning the subject matter of this
Release to induce this Release, and Executive and Company acknowledge that they
have not executed this Release in reliance upon any such promise,
representation, or warranty not contained in this Release.
11. SEVERABILITY.
------------
Every provision of this Release is intended to be severable. In the event
any term or provision of this Release is declared to be illegal or invalid for
any reason whatsoever by a court of competent jurisdiction or by final and
unappealed order of an administrative agency of competent jurisdiction, such
illegality or invalidity should not affect the balance of the terms and
provisions of this Release, which terms and provisions shall remain binding and
enforceable.
12. PARTIES MAY ENFORCE RELEASE.
---------------------------
Nothing in this Release shall operate to release or discharge any parties
to this Release or their successors, assigns, legatees, heirs, or personal
representatives from any rights, claims, or causes of action arising out of,
relating to, or connected with a breach of any obligation of any party contained
in this Release.
3
<PAGE>
13. COSTS AND ATTORNEY'S FEES.
-------------------------
[The parties each agree to bear their own costs and attorneys' fees which
have been or may be incurred in connection with any matters released herein or
in connection with the negotiation and consummation of this Release. In the
event of any administrative or civil action to enforce the provisions of this
Release, the prevailing party shall be entitled to attorney fees and costs
through trial and/or on appeal. /Because this Release follows a Change of
Control, reasonable attorneys' fees which have been or may be incurred in
connection with any matters released herein or in connection with the
negotiation and consummation of this Release shall be paid by Company. In the
event of any administrative or civil action to enforce the provisions of this
Release, the Company shall pay Executive's reasonable attorneys' fees through
trial and/or on appeal.]
14. ACKNOWLEDGMENTS.
---------------
Executive acknowledges that the Release provides severance pay and benefits
which the Company would otherwise have no obligation to provide.
Executive acknowledges that Company has provided the following information:
(a) the class or group of employees offered the opportunity to obtain severance
benefits similar to those in the Release, (b) the eligibility factors required
to obtain severance benefits similar to those in the Release, (c) the time
limits required to obtain severance benefits similar to those in the Release,
(d) the job titles and ages of employees eligible or selected for severance
benefits similar to those in the Release, and (e) the ages of employees in the
same classification either not eligible or not selected.
15. REVOCATION.
----------
As provided by the Older Workers Benefit Protection Act, Executive's is
entitled to have forty-five (45) days to consider this Release. For a period of
seven (7) days from execution of this Release, Executive may revoke this
Release. Upon receipt of Executive's signed Release and the end of the
revocation period, payment by Company as described in paragraph 4 above will be
forwarded by mail in a timely manner as provided herein.
Dated: __________ __, 199_
[Name of Executive]
STATE OF OREGON )
) ss.
County of __________ )
Personally appeared the above named __________________________________ and
acknowledged the foregoing instrument to be his or her voluntary act and deed.
Before me:
Notary Public for
My commission expires:
MERIX CORPORATION
By: Dated:
Its:
On Behalf of "Company"
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements found in the Company's Quarterly Report on
Form 10Q for the quarter ended November 28, 1998, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-29-1999
<PERIOD-START> MAY-31-1998
<PERIOD-END> NOV-28-1998
<CASH> 14,249
<SECURITIES> 0
<RECEIVABLES> 13,617
<ALLOWANCES> 259
<INVENTORY> 6,848
<CURRENT-ASSETS> 37,430
<PP&E> 119,741
<DEPRECIATION> 60,787
<TOTAL-ASSETS> 113,359
<CURRENT-LIABILITIES> 33,056
<BONDS> 0
0
0
<COMMON> 44,618
<OTHER-SE> (486)
<TOTAL-LIABILITY-AND-EQUITY> 113,359
<SALES> 50,546
<TOTAL-REVENUES> 50,546
<CGS> 57,197
<TOTAL-COSTS> 57,197
<OTHER-EXPENSES> 34,837
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (42,412)
<INCOME-TAX> (16,117)
<INCOME-CONTINUING> (26,295)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (26,295)
<EPS-PRIMARY> (4.23)
<EPS-DILUTED> (4.23)
</TABLE>
