-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WH5jB/lhBH+f8Y7eHJRhN55DwMB9b+OQUWwW64ftmTjPf+42rFSXG3ljiKZMBkeU lq9lK+RB3SZ0zqZF5JGR7g== /in/edgar/work/20000626/0000912057-00-029777/0000912057-00-029777.txt : 20000920 0000912057-00-029777.hdr.sgml : 20000920 ACCESSION NUMBER: 0000912057-00-029777 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000401 FILED AS OF DATE: 20000626 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HCC INDUSTRIES INC /DE/ CENTRAL INDEX KEY: 0000316884 STANDARD INDUSTRIAL CLASSIFICATION: [3640 ] IRS NUMBER: 952691666 STATE OF INCORPORATION: DE FISCAL YEAR END: 0403 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 333-32207 FILM NUMBER: 661042 BUSINESS ADDRESS: STREET 1: 4232 TEMPLE CITY BLVD STREET 2: PO BOX 739 CITY: ROSEMEAD STATE: CA ZIP: 91770-1592 BUSINESS PHONE: 2132837500 MAIL ADDRESS: STREET 1: 4232 TEMPLE CITY BLVD STREET 2: PO BOX 739 CITY: ROSEMEAD STATE: CA ZIP: 91770-1592 10-K 1 a10-k.txt 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ------------------- (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended: April 1, 2000 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the transition period from _________ to __________ Commission file number: 333-32207 HCC INDUSTRIES INC. (Exact name of Registrant as specified in its charter) DELAWARE 95-2691666 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4232 Temple City Blvd., Rosemead, California 91770 -------------------------------------------------- (Address of principal executive offices) (626) 443-8933 -------------------------------------------------- (Registrant's telephone number, including area code) ------------------- Securities registered pursuant to Section 12 (b) of the Act: Title of each class Name of each exchange on which registered ------------------ ----------------------------------------- None None Securities registered pursuant to Section 12 (g) of the Act: 10 3/4% Senior Subordinated Notes Due 2007 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 such filing requirements for the past 90 days. Yes ( X ) No ( ) Registrant's Common Stock, outstanding at April 1, 2000 was 135,495 shares. DOCUMENTS INCORPORATED BY REFERENCE: Documents referenced on Exhibits Index, which begins on page 45 HCC INDUSTRIES INC. INDEX TO ANNUAL REPORT ON FORM 10-K
CAPTION PAGE PART I Item 1. - BUSINESS.............................................. 3 Item 2. - PROPERTIES............................................ 11 Item 3. - LEGAL PROCEEDINGS..................................... 11 Item 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...................................... 14 PART II Item 5. - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................ 15 Item 6. - SELECTED FINANCIAL DATA............................... 15 Item 7. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................................ 16 Item 7a. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RATE RISK................................ 20 Item 8. - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.................................................. 20 Item 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE............................................ 39 PART III Item 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................ 39 Item 11. - EXECUTIVE COMPENSATION................................ 40 Item 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................. 44 Item 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................... 45 PART IV Item 14. - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K............................... 46 SIGNATURES....................................................................... 50
2 PART I ITEM 1 - BUSINESS GENERAL Except where the context indicates otherwise, the term "Company" means HCC Industries Inc. and its wholly owned subsidiaries Hermetic Seal Corporation, Glasseal Products, Inc., Sealtron, Inc., Norfolk Avon Realty Trust, HCC Industries International, HCC Machining Company, Inc. and HCC Foreign Sales Corporation. The Company was incorporated in Delaware in 1985 and is one of the largest custom manufacturers of high precision hermetically sealed electronic connection devices in the United States. High precision hermetic seals are used primarily to permit the flow of electricity across a barrier used to separate different atmospheric media (such as gas or liquid to air or vacuum) existing on opposite sides of the barrier. A hermetic seal is generally accomplished through the creation of a glass-to-metal seal ("GTMS").The hermetic seals manufactured by the Company generally fall into four categories - terminals, headers, connectors and microelectronics packages. A "terminal" is a device characterized by having only a single contact pin, while a "header" has multiple contact pins inserted in a frame. A "connector" is a type of terminal or header which can be mechanically coupled to or uncoupled from another connection. A "microelectronic package" is a container for thick and thin film substrates onto which hybrid circuitry has been etched. The Company operates in the premium segment of the market by providing high precision GTMS, custom designed to meet specific customer requirements. Each GTMS generally consists of a metal body or housing, metal contact pins, and an insulator fabricated from glass, ceramic or glass/ceramic mixtures. GTMS range in size from a two foot long, eight inch diameter cylindrical connector utilized for through-hull communication links for nuclear submarines, to a 40/1000 inch outside diameter (12/1000 inch inside diameter) implant to measure pressure in the heart chamber. The Company believes that it has been an industry leader in the design and manufacture of GTMS since it developed its GTMS process in 1945. The Company has developed over 75,000 different configurations, primarily for the following industries: (1) automotive (for use in, for example, the initiators in airbags and seat belt pretensioners); (2) aerospace and military electronics (for use in, for example, gyro guidance devices, flight instrumentation, jet engine controls, and space suit controls); (3) test and measurement (for use in, for example, temperature and pressure transducers, infrared detection instrumentation, electro-optical devices and fuel injection monitoring devices); (4) medical electronics (for use in, for example, pacemakers, kidney dialysis machines and devices for monitoring vital life signs); (5) telecommunications (for use, in for example, fiber optics); and (6) energy (for use in, for example, oil drilling equipment and down-hole logging instrumentation and for conventional and nuclear electric power generating plants). On February 14, 1997, pursuant to a Stock Purchase and Sale Agreement (the "Recapitalization Agreement") dated as of December 23, 1996, the Company, certain members of management, Windward Capital Associates, L.P. ("Windward") and certain affiliates of Windward (collectively, with Windward, the "Windward Group") and Metropolitan Life Insurance Company ("MetLife") completed a recapitalization of the Company (the "Recapitalization"). The Windward Group is a group of related entities which make merchant banking investments pursuant to certain program agreements. In connection with the Recapitalization, among other things: (i) the Company entered into Credit Facilities, consisting of: (a) a $10,000,000 five year Revolving Credit Facility, (b) a $30,000,000 five year Tranche A Term Loan and (c) a $30,000,000 six and one-half year Tranche B Term Loan; (ii) the Company issued $19,300,000, net of discount, in subordinated notes to the Windward Group and MetLife along with 8,614 shares of common stock and certain contingent anti-dilution warrants for an aggregate purchase price of $22,500,000; (iii) the Company purchased a portion of the shares of Common Stock (at $370 per share) beneficially owned by the selling stockholders for $87,500,000, including certain transaction expenses, in cash and $5,000,000 in contingent subordinated notes; (iv) the Windward Group purchased 87,721 shares of Common Stock (at $370 per share) from the Company for $32,500,000 in cash; and (v) the Company repaid certain of its 3 outstanding indebtedness. In accounting for the recapitalization, no fair value adjustments were made to the book value of the Company's assets and no goodwill was recognized. On March 28, 1998, $2,500,000 of the contingent subordinated notes vested upon achievement by the Company of certain operating performance thresholds. On that date, the Company recorded a $2,500,000 charge to equity to reflect additional purchase price associated with the shares purchased in the Recapitalization. On May 6, 1997, the Company issued $90,000,000 in principal amount of Senior Subordinated Notes due in May 2007 (the "Old Notes") and used the proceeds of such issuance to, among other things, (i) repay 100% of the outstanding principal amount, together with all accrued but unpaid interest thereon, of each of Term Loan A and Term Loan B and (ii) repurchase all outstanding Mezzanine Units for $22,500,000, the initial purchase price thereof, together with accrued but unpaid interest on the Mezzanine Notes. As a result of this refinancing, the Company recorded an extraordinary loss of $986,000, net of taxes. In addition on May 6, 1997, the Company amended the Revolving Credit Facility to, among other things, increase the amount available thereunder from $10,000,000 to $20,000,000. Pursuant to the Registration Rights Agreement entered into with the issuance of the Old Notes, the Company on November 3, 1997 filed a Registration Statement under the Securities Act of 1933 with the SEC to exchange the Old Notes for $90,000,000 of Senior Subordinated Exchange Notes (the "New Notes"). The terms of the New Notes and the Old Notes are identical in all material respects. On June 20, 1997, the Company acquired substantially all of the assets and assumed certain liabilities of Connector Industries of America, a glass-to-metal sealing company. The purchase price was $2,100,000 paid in cash. The transaction was accounted for as an asset purchase. In conjunction with the acquisition, the Company assigned $1,372,000 to intangibles which will be amortized over a 14 year period on a straight line basis. The demand for the Company's products is largely dependent on the automotive and aerospace industries. Sales to Special Devices Inc. ("SDI"), the Company's largest customer, accounted for approximately 39% of the Company's consolidated sales for the fiscal year ended April 1, 2000. Sales to the Company's ten largest customers accounted for approximately 57% of consolidated sales during the 2000 fiscal year. Approximately 70% of the Company's consolidated sales for fiscal 2000 were to customers with which the Company had contractual agreements, sole source relationships, letters of intent or long-term purchase orders. A substantial portion of these business relationships are informal and certain of the Company's contractual arrangements may be terminated at will. In the past, SDI has attempted to find second source suppliers and to secure a license from the Company to produce GTMS products internally. In early 1997, SDI announced its intention to internally produce 100,000 glass-to-metal seal units per week in partial substitution of the units supplied to SDI by the Company. Currently, the Company believes that SDI is in qualification testing on their internally produced units. The Company shipped a weekly average of approximately 1,000,000 units to SDI during fiscal 2000. On March 18, 1999, the Company signed a new supply agreement with SDI through the year 2002. The agreement provided for price concessions to SDI in consideration of a two year contract extension. 4 COMPETITIVE STRENGTHS The Company believes that it has the following competitive strengths: LONG-TERM CUSTOMER RELATIONSHIPS. Many of the Company's customers, including SDI, have been customers for over ten years. The Company believes that both automotive and aerospace OEMs continue to seek long-term partnerships with fewer core suppliers. The Company's relationships are strengthened by the fact that many of its arrangements with its customers provide for the Company to act as the sole source of supply for the customer. The Company estimates that approximately 70% of the Company's consolidated sales for fiscal year 2000 were from contractual agreements, sole source relationships, letters of intent or long-term purchase orders. MARKET LEADERSHIP. A number of the Company's products hold leading market positions in their respective niche markets. The Company currently believes based upon internal estimates that it produces hermetically sealed products for approximately 50% of the airbag initiators produced in the United States. The Company believes, based upon long-term relationships with SDI and other airbag initiator suppliers, that it is well positioned to continue to increase its market share, as well as expand its sales internationally. COMMITMENT TO QUALITY AND SERVICE. The Company believes that its commitment to provide consistent, high quality products and services and flexible manufacturing and custom designed products at competitive prices, forms the basis for its strong and diversified customer relationships. The Company manufactures most of its parts to specific customer requirements. The Company utilizes Statistical Process Control, Design Failure Mode Effects Analysis, Process Failure Mode Analysis, and a strict adherence to complete manufacturing documentation in order to manufacture high quality products for internal use as well as external customer sales. The Company's three operating subsidiaries are registered to ISO 9001. PROPRIETARY TECHNOLOGY. The Company operates in the automotive, aerospace and general industrial technologies markets in which products typically require sophisticated engineering and production techniques. The Company designs and manufactures new products to fulfill customer needs, and has developed proprietary manufacturing technology since its founding in 1945. The Company believes that this proprietary technology helps enable it to attract and retain customers who require customized, high tolerance products. The Company estimates that it has produced over 75,000 different variations of GTMS. LOW COST OPERATIONS. The Company believes that its extensive "in-house" capabilities and vertical integration are competitive advantages that have allowed it to become a low cost producer. By controlling the tolerance of the component parts, the Company has been able to reduce scrap and to increase the yields of its products. Furthermore, the Company is continually developing and assessing its programs designed to increase efficiency and enhance economies of scale in order to further reduce costs. DIVERSE PRODUCTS AND CUSTOMERS. The Company has a diverse customer base, with sales of numerous product variations to approximately 1,200 customers in fiscal 2000. Over the past several years, the Company has recognized consistent growth in sales of GTMS products to the automotive, aerospace and general industrial markets. 5 BUSINESS STRATEGY The Company's strategy is to expand its business through: FOCUSING ON CORE STRENGTHS. The Company continues to focus on what it believes are its core strengths and to invest in those businesses that are consistent with those strengths and which exhibit high growth potential. Core strengths include the timely custom design and manufacturing of high tolerance, high reliability components and the effective program management of long term contracts and supply agreements. LEVERAGING CUSTOMER RELATIONSHIPS. The Company works closely with its customers to jointly develop and design new products and to improve the performance and lower the cost of the Company's customers' products. The Company has sole source supply contracts, shares product development, and enters into other teaming arrangements with its key customers to further strengthen and broaden its relationships. The Company believes that this strategy, together with the successful performance under existing contracts has led to additional long-term business from key existing customers and new customers. PURSUING SELECTIVE ACQUISITIONS. The Company intends to pursue selective acquisitions and to add products and capabilities that are complementary to its existing operations. Priority is expected to be given to acquiring businesses whose products can be manufactured in the Company's existing facilities ("fold-in" acquisitions). The Company's operations are characterized by a relatively high level of operating leverage; therefore, such fold-in acquisitions should allow the Company to allocate costs across broader synergistic product lines and represent additional volume through the Company's existing facilities which should provide opportunities to improve profitability. EXPANDING INTERNATIONALLY. The Company is considering the expansion of its operations in Europe. The primary motivation in a geographic expansion would most likely be to service the growth of its current customers' operations as they expand their production operations abroad. INDUSTRIES The Company estimates the total size of the GTMS market to be $600 million, with approximately one-half estimated to be the specialized, high precision segments in which the Company competes. The Company believes based upon internal analysis that the market for high-end hermetically sealed products is extremely fragmented, with no other competitor offering the same breadth of products as the Company. The Company believes that its focus on the high-end, custom segment of the GTMS market enables it to achieve higher margins. The Company sells its products to four principal industries: (i) the automotive parts industry for use in airbag initiators, automotive crash sensors, seat belt pretensioners, climate control devices and anti-lock braking systems; (ii) the aerospace industry for use primarily in commercial and military aviation and electronics; (iii) general industry for use primarily in process control, and other industrial, medical and telecommunications applications; and (iv) the petrochemical industry, for use primarily in oil and gas downhole analysis equipment. AUTOMOTIVE The Company provides GTMS products used in initiators for airbag devices. At present, each airbag device requires at least one initiator (the device that deploys the airbag). The automotive airbag industry has undergone dynamic growth over the recent past stemming from increased consumer demand for automotive safety devices and federal regulations requiring such devices. Regulations adopted by the National Highway Traffic Safety Administration require that airbags be the automatic frontal crash protection system used for both the driver and front passenger in 100% of all passenger automobiles, light trucks and vans manufactured for sale in the U. S. after August 31, 1998. 6 Although not mandated by law, initiator-based safety systems are also employed in automobiles produced and sold in Europe and Asia, although fewer than in the U. S. The systems utilized in Europe and Asia include airbag systems similar to those in use in the U. S. and seat-belt pretensioners that employ initiators. While the majority of airbag initiators manufactured for use in cars outside the U. S. employ plastic initiators, there is a trend toward using GTMS in such products due to their increased reliability. COMMERCIAL AND MILITARY AVIATION AND ELECTRONICS The Company provides hermetic seals that are used for a number of different applications in commercial and military aviation and electronics, primarily to protect guidance and sensor devices from the effects of changes in atmospheric conditions. The Company believes based upon internal estimates that GTMS products are utilized in almost every model of commercial aircraft currently in production and its customers include essentially all major aerospace suppliers. The Company's sales to the aerospace industry are dependent to a certain extent on new construction of commercial and military aircraft. The Company competes with a number of different suppliers in this market, based on quality, delivery and price. GENERAL AND INDUSTRIAL The Company provides GTMS used in pressure and temperature transducers (sensors), industrial process control equipment, capacitor end-seals for electronic devices and other industrial, medical and telecommunications applications to a number of manufacturers. The Company believes that its ability to help customers develop products to meet demanding specifications allow for significant opportunities within this market segment, including those customers not currently served by the Company's products. The Company also believes that the increased sophistication of equipment and increased level of automation being used in industrial applications will increase demand for GTMS products. PETROCHEMICAL The Company provides GTMS used for down-hole logging equipment in the oil and gas industry primarily under long-term contracts to oil field equipment and service companies. The Company's sales to this industry during any period are somewhat dependent on the current level of exploration and drilling in the oil and gas industry and current demand for and price of crude oil. The Company believes that it is one of only two significant providers of GTMS to this industry. The Company expects that the trend toward more sophisticated measurement-while-drilling equipment in the petrochemical industry is likely to lead to more demand for the Company's products. CUSTOMERS AND APPLICATIONS In the past year, the Company has sold products to over 1,200 customers. The Company's ten largest customers accounted for approximately 57% of net sales for fiscal year 2000. The Company's largest customer, SDI (a manufacturer of airbag initiators), represented approximately 39% of consolidated sales for the fiscal year ended April 1, 2000. 7 Approximately 70% of the Company's consolidated sales for fiscal year 2000 were to customers with which the Company had contractual agreements, sole source relationships, letters of intent or long-term purchase orders. The Company only begins to manufacture products upon receipt of a purchase order. The Company's relationship with SDI includes a contract expiring December 31, 2002 to produce approximately 75% of SDI's GTMS for its initiators provided the Company maintains pricing and quality which are generally equivalent to or better than other suppliers. The Company believes that it currently provides nearly all of SDI's GTMS components. In early 1997, SDI announced its intention to internally produce 100,000 glass-to-metal seal units per week in partial substitution of the glass-to-metal seal units supplied to SDI by the Company. Currently, the Company believes that SDI is in qualification testing on their internally produced units. The following table sets forth the Company's principal end-user markets, certain applications for its products and certain of the Company's customers in fiscal year 2000.
End Markets Automotive Aerospace Industrial/Petrochemical - ----------- ---------- --------- ------------------------ Applications: Airbag Initiators Jet Engine Monitors Process Control Sensors Crash Sensors Avionics Down Hole Drilling Sensors Thermistors Fuel Gauge Indicators Lithium Batteries Airbag Pressure Temperature Sensors Telecommunication Switches De-icing Sensors Devices ABS Air Speed Indicators Hybrid Circuit Packaging Variable Speed Transmission Controls Customers*: SDI Allied Signal/Honeywell Druck, Ltd. NCS Pyrotechnie Rosemount Aerospace Hawker Eternacel Keystone Hamilton Sundstrand Foxboro Takata ITT Aerospace Schlumberger Ametek Aerospace Halliburton Bluestar Battery Panametrics Kemet Lucent Specific example of product Airbag initiator Temperature Sensors High pressure electrical application: bulkheads for down-hole use (oil exploration) What the product does: Electric current flows Passes electric current Carries electrical signals from crash sensor through from sensors that detect between geological initiator to begin excessive heat and/or fire formation measurement tools inflation of the airbag. in aircraft and sensors. Result: Airbag is inflated in Warning signal and Allows precise measurement approximately 6 to 14 automatic release of fire of geology while protecting milliseconds retardant sensitive equipment from extreme heat and pressure.
* Other than SDI, all of the customers listed represented individually less than 5% of the Company's consolidated sales for fiscal year 2000. 8 MANUFACTURING PROCESS A GTMS is made by assembling three sets of component parts (metal contacts or pins, glass bead(s) and an outer metal housing or shell) on a graphite fixture. This assembly is put through a controlled atmosphere furnace at approximately 1,800 degrees Fahrenheit until the glass becomes molten. The graphite fixture is used to hold the components in place while the glass is molten. As the assembly cools, a physical and chemical bond is formed between the glass and the shell as well as the glass and the pin, thus forming a hermetic seal. The Company believes that its extensive "in-house" capabilities are a key competitive advantage that has allowed it to become a low cost producer. By specifically controlling the tolerance of the component parts, the Company believes that it is able to increase the end yields of its product. This attention to quality throughout the manufacturing process also helps to ensure the timely delivery of its products. It also enables the Company to respond very quickly to prototype and new product development opportunities. The Company manufactures most of its parts to specific customer requirements. All three of the Company's operating subsidiaries use Computer Aided Design ("CAD") to produce the drawings and specifications required by the customer. The Company estimates that it has produced over 75,000 different variations to GTMS since 1945. This extensive library of designs enables the Company to suggest design changes to its customers that reduce manufacturing costs without sacrificing quality and therefore reduce the cost to the customer (value engineering). The Company has made a significant investment in Computer Numerically Controlled ("CNC") machine tools in order to manufacture the metal shells and pins to demanding customer specifications. The Company also machines most of its own graphite fixtures thereby allowing it to maintain process quality. Many of the glass preforms used in the Company's products are manufactured internally as well. The Company has many proprietary formulas for glass and glass/ceramic mixtures that it has developed in over 50 years of manufacturing. The Company utilizes Statistical Process Control ("SPC"), Design Failure Mode Effects Analysis, Process Failure Mode Effects Analysis and a strict adherence to complete manufacturing documentation in order to manufacture high quality products for internal use as well as external customer sales. The Company believes that its knowledge and use of these procedures give the Company a competitive advantage. Hermetic, Glasseal and Sealtron are ISO 9001 registered. The ISO 9001 registration, an international standard of quality, should facilitate business expansion in Europe. MARKETING AND SALES The Company's products are marketed throughout the Unites States to customers in a wide variety of industries, both by Company-employed salespersons, who work out of the Company's plants, and by a number of independent regional manufacturers' sale representatives. The 14 Company-employed salespersons receive a base salary plus bonus potential. Sales in Europe are through a two person office in Northampton, England. As part of the Company's growth strategy, the Company believes that it can capture an increasing share of the business outside the United States. Economic, political, governmental and regulatory conditions in such international markets could adversely affect the Company's ability to successfully enter or operate in such markets. Therefore, no assurances can be given that the Company's attempts to expand its business into such international markets will be successful. The Company currently has 18 independent regional manufacturers-sales representatives spread geographically across the U. S. and Europe. These representatives, who do not exclusively sell the Company's products, are remunerated on a commission basis. The Company believes there is a significant opportunity to increase its sales through expansion of its sales and distribution efforts, both within the markets it currently serves and in new markets. 9 COMPETITION The Company believes based upon internal analysis that most of the Company's competitors in the GTMS sector of the industry in which it competes are smaller and have less technological and manufacturing expertise than the Company. The Company believes that it occupies a favorable competitive position because of its experience in engineering and production techniques. Price has generally been a less significant competitive factor than the quality and design of the GTMS because their cost typically is a small percentage of the total cost of the end products in which they are used and because of the importance of the uses to which many of the Company's products are put. In addition, products for airbag initiators are qualified for particular new automotive models and new products are subject to design and process verification testing (prior to which there are no sales) which typically takes 8 to 24 months and, therefore, helps to inhibit new entry into the market. BACKLOG As of April 1, 2000, the Company had a backlog of $36.2 million compared to $26.9 million as of April 3, 1999. The Company sells a majority of its products pursuant to contractual agreements, sole source relationships, letters of intent or long-term purchase orders, each of which may permit early termination by the customer. However, due to the specialized, highly engineered nature of the Company's product, it is not practical in many cases for customers to shift their business to other suppliers without incurring significant switching and opportunity costs. EMPLOYEES At April 1, 2000, the Company had approximately 750 employees, substantially all of whom were located in the United States. None of the Company's employees is subject to a union contract. The Company considers its relations with its employees to be excellent. RAW MATERIALS The Company obtains raw materials, component parts and supplies from a variety of sources and generally from more than one supplier. The Company's principal raw materials are steel and glass. The Company's suppliers and sources of raw materials are based in the United States and the Company believes that its sources are adequate for its needs for the foreseeable future. The loss of any one supplier would not have a material adverse effect on the Company's financial condition or results of operations. ENVIRONMENTAL MATTERS The Company's operations are subject to numerous Environmental laws, including those regulating air emissions and discharges to water, and the storage, handling and disposal of solid and hazardous waste. The Company believes that it is in substantial compliance with such laws and regulations. Because Environmental Laws are becoming increasingly more stringent, the Company's environmental capital expenditures and costs for environmental compliance may increase in the future. Under certain Environmental Laws, in particular CERCLA, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under or in such property. Generally, liability under CERCLA is joint and several and remediation can extend to properties owned by third parties. Persons who arrange for the disposal or treatment of hazardous or toxic substances or otherwise cause the release of such substances into the environment may also be liable under such laws for the costs of removal or remediation of such substances at a disposal or treatment facility or other location where the substances have migrated or come to be located, whether or not such facility or location is or ever was operated by such person and regardless of whether 10 the method of disposal or treatment was legal at the time. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for the presence of such hazardous or toxic substances, and the liability under such laws has been interpreted to be strict, joint and several unless the harm is divisible and there is a reasonable basis for the allocation of responsibility. In addition, the presence of hazardous or toxic substances, or the failure to remedy such property properly may adversely affect the market value of the property, as well as the owner's ability to sell or lease the property. The Company has potential liability under Environmental Laws for the remediation of contamination at two of its facilities (see Item 3 for further discussion of environmental matters). ITEM 2 - PROPERTIES FACILITIES The Company's principal executive offices are owned by the Company and are located in the Hermetic Seal facility located in Rosemead, California. Additionally, the Company has operating facilities in El Monte, California; Lakewood, New Jersey, and Reading, Ohio, as set forth below. The Company also owns approximately 47,400 square feet of plant and office space in Avon, Massachusetts, which is currently vacant.
Location Owned/Leased Square Feet Rosemead, CA................................ Owned 37,000 El Monte, CA................................ Owned 110,000 Lakewood, NJ................................ Owned 50,000 Reading, OH................................. Owned 37,000
ITEM 3 - LEGAL PROCEEDINGS ENVIRONMENTAL MATTERS ROSEMEAD, CALIFORNIA REGIONAL GROUNDWATER CONTAMINATION. A portion of the San Gabriel Valley in which the Rosemead facility is located was designated by the EPA as a federal Superfund site in 1984. To facilitate cleanup and improve administration of the site, the EPA subdivided the valley into seven geographically distinct "operable units". The Company has been named as a potentially responsible party ("PRP") under CERCLA for the El Monte Operable Unit. The El Monte Operable Unit underlies the City of El Monte and portions of the Cities of Temple City and Rosemead and has boundaries which are defined roughly by the extent of known solvent contamination in the shallow groundwater. If the Rosemead facility contributed to the regional contamination, such contribution is in connection with alleged spills of the degreasing solvent tetracholoroethylene (PCE) during the period from the 1950's until sometime in the mid-1980's when the Company stopped using this solvent. Many other companies are believed to be contributors to the groundwater contamination in the El Monte Operable Unit. The Company and 18 other such companies have formed the Northwest El Monte Community Task Force (the "Task Force") to undertake the investigation of the remediation, to identify other potential contributors and potentially to undertake required remediation. In March of 1995, the Task Force entered into a Consent Administrative Order with the EPA to perform a Remedial Investigation and Feasibility Study (RI/FS) of the operable unit. The RI/FS was completed in 1999 and the EPA issued an interim record of decision. The RI/FS costs of approximately $2.4 million to date have been funded with about one-quarter of the costs coming from governmental entities and the balance paid pursuant to a confidential interim allocation agreement of Task Force members. The interim agreement with respect to the allocation of RI/FS expenses is not binding on any of the participants regarding the allocation of remediation expenses. An additional $500,000 has been spent to undertake early remediation efforts on a voluntary basis and an additional $1.0 million will be spent in 2000. This money has been raised 11 pursuant to a matching funds, cost sharing agreement with the San Gabriel Basin Water Quality Authority, a public entity. ON-SITE/SOIL AND GROUNDWATER CLEANUP COSTS. In addition to the Operable Unit Remediation costs, the Company has voluntarily undertaken both on-site soil and groundwater remediation. In 1995, the Company installed a soil vapor extraction system. The system has been operational for approximately five years, and although it is not possible to determine how long it will take to complete the remediation, to date the remediation system has removed over 97% of contaminants in the soil. The Company has installed a groundwater extraction system in conjunction with a neighboring facility. This system extracts contaminated water from the shallow aquifer and pumps the water for use in our neighbor's manufacturing process prior to discharge to the municipal sanitary sewer. The system has been operational since August 1996 and is designed to capture contaminated groundwater from under the Company's property before it impacts the regional groundwater flow. Although the system has been successful, it is premature to determine how long it will be needed to remediate the groundwater to acceptable levels, or if the operation of the system will be discontinued and replaced with a regional groundwater remediation program. The Company believes that its financial liability with respect to regional groundwater contamination may be substantially reduced by acting on its own initiative to commence early remediation of groundwater contamination under its property. AVON, MASSACHUSETTS The Company's facility in Avon, Massachusetts, currently inactive, was purchased in 1985 and operated as its Hermetite facility until June 1988. The facility became inactive in August of 1989. Subsequent to its closure, the Company identified significant levels of solvents in the groundwater. Subsurface investigations have delineated a plume of contaminants extending from the facility, beneath a neighboring property and into a town public water supply wellfield about 800 feet to the southeast of the property. Since the discovery of contaminants in 1991, the level of contaminants at the facility has decreased. Despite the fact that contaminants continue to move toward the wellfield, the levels at the well field remain within acceptable drinking water standards. The Avon property is subject to Massachusetts "Chapter 21E," the state's hazardous site cleanup program. The property is classified as a "Tier 1B" category based on the level of contaminants. Under Tier 1B procedures, the Company may design its own remediation program subject to state oversight, auditing, and scheduling. Pursuant to this procedure, the Company, through its licensed consultants, designed a remediation system which is intended to capture the contaminants before they reach the town wells. In July 1996, the program was approved by the Massachusetts Department of Environmental Protection. Construction of the system has been completed and the system is operational. In late 1999, to accelerate the cleanup, the Company installed additional extraction wells closer to the source area and removed the suspected source of contamination. No additional infrastructure is anticipated at this time. REMEDIATION Uncertainty as to (a) the extent to which the Company caused, if at all, the conditions being investigated, (b) the extent of environmental contamination and risks, (c) the applicability of changing and complex environmental laws (d) the number and financial viability of other PRP's, (e) the stage of the investigation and/or remediation, (f) the unpredictability of investigation and/or remediation costs (including as to when they will be incurred), (g) applicable clean-up standards, (h) the remediation (if any) that will ultimately be required, and (i) available technology make it difficult to assess the likelihood and scope of further investigation or remediation activities or to estimate the future costs of such activities if 12 undertaken. In addition, liability under CERCLA is joint and several, and any potential inability of other PRP's to pay their prorata share of the environmental remediation costs may result in the Company being required to bear costs in excess of its prorata share. In fiscal 1997, the Company with the help of independent consultants, determined a range of estimated costs of $9,000,000 to $11,000,000 associated with the various claims and assertions it faces. The time frame over which the Company expects to incur such costs varies with each site, ranging up to 20 years as of April 1, 2000. These estimates are based partly on progress made in determining the magnitude of such costs, experience gained from sites on which remediation is ongoing or has been completed, and the timing and extent of remedial actions required by the applicable governmental authorities. As a result, the Company accrued $10,000,000 in fiscal 1997 for existing estimated environmental remediation and other related costs which the Company believes to be the best estimate of the liability. As of April 1, 2000, the accrual for estimated environmental costs was $9,178,000. Claims for recovery of costs already incurred and future costs have been asserted against various insurance companies. The Company has neither recorded any asset nor reduced any liability in anticipation of recovery with respect to such claims made. The Company believes its accrual is adequate, but as the scope of its obligations becomes more clearly defined, this accrual may be modified and related charges against earnings may be made. OTHER On March 3, 1998, Walter Neubauer, a former stockholder of the Company and a current stockholder of SDI, filed a lawsuit in California Superior Court (Case BC186937; Walter Neubauer vs. Andrew Goldfarb, et. al.) against the Company and certain other stockholders alleging (i) breach of fiduciary duty, (ii) fraud, (iii) negligent misrepresentation, (iv) negligence, (v) violations of corporations code and (vi) breach of contract. The allegations primarily relate to the Company's exercise of an option to acquire Mr. Neubauer's stock in August 1996. In September 1999, five of the six claims were dismissed upon a summary judgement motion made by the Company, including all of the claims against the Company. The remaining claim is against Andrew Goldfarb for alleged violations of oral representations. On May 7, 1998, the Company filed a lawsuit against Mr. Neubauer in California Superior Court alleging (i) breach of contract, (ii) intentional interference with business relations and (iii) interference with prospective business advantage. All allegations relate to violations of the noncompetition agreement executed by Mr. Neubauer in August 1996. A preliminary injunction was granted in September 1998. The Company is seeking damages of $50.0 million. The case was consolidated with Mr. Neubauer's action, discussed above. There are other various claims and legal proceedings against the Company relating to its operations in the normal course of business, none of which the Company believes will be material to its financial position and results of its operations. The Company currently maintains insurance coverage for product liability claims. There can be no assurance that coverage under insurance policies will be adequate to cover any future product liability claims against the Company. In addition, product liability insurance coverage is expensive, difficult to maintain and may be unobtainable in the future on acceptable terms. INDEMNIFICATION Pursuant to the Recapitalization Agreement, the Selling Group has agreed to indemnify the Company with respect to the after-tax costs of contingent environmental and other liabilities, subject to a cap for all indemnified liabilities of $30 million. In February 1997, a $6.0 million interest bearing escrow account was established by the selling stockholders (the "Deferred Amount") to secure indemnity claims 13 of the Company and others, including with respect to environmental liabilities. Although there can be no assurances, the Company believes that the Deferred Amount should be adequate to cover these liabilities. In the event the Deferred Amount is inadequate to cover the liabilities, the Company has been informed by the individual members of the Selling Group that they will draw upon personal funds to cover such excess costs. If the Selling Group has aggregate indemnification liabilities in respect of environmental matters in excess of $30 million, the Company has agreed to indemnify the Selling Group for such claims to the extent such claims exceed $30 million. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None 14 PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS Not Applicable ITEM 6 - SELECTED FINANCIAL DATA The following selected consolidated financial information for each of the five fiscal years in the period ended April 1, 2000 has been derived from the audited consolidated financial statements of the Company. The information presented below should be read in conjunction with Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements of the Company and related notes thereto appearing elsewhere herein (in thousands).
March 30, March 29, March 28, April 3, April 1, 1996 1997 1998 1999 2000 --------- --------- --------- -------- --------- STATEMENT OF OPERATIONS DATA: Net sales $ 52,207 $ 56,683 $ 64,561 $ 67,701 $ 54,607 Cost of goods sold 32,562 35,729 38,922 41,361 39,794 --------- --------- --------- -------- --------- Gross profit 19,645 20,954 25,639 26,340 14,813 Selling, general and administrative expenses 9,107 9,308 8,552 7,213 8,073 Non-recurring expense(1) -- 10,000 1,250 -- -- --------- --------- --------- -------- --------- Earnings from operations 10,538 1,646 15,837 19,127 6,740 Interest and other income 279 479 510 755 734 Interest expense (1,924) (2,946) (10,327) (11,190) (11,333) ---------- ---------- ---------- --------- ---------- Earnings (loss) before taxes, and extraordinary item 8,893 (821) 6,020 8,692 (3,859) Taxes (benefit) on earnings (loss) 3,230 (293) 2,406 3,325 (1,525) --------- --------- --------- -------- ---------- Earnings (loss) before extraordinary item 5,663 (528) 3,614 5,367 (2,334) Extraordinary loss, net of tax(2) -- (1,186) (986) -- -- --------- --------- --------- -------- --------- Net earnings (loss) $ 5,663 $ (1,714) $ 2,628 $ 5,367 $ (2,334) ========= ========= ========= ======== ========== BALANCE SHEET DATA (AT PERIOD END) Total assets $ 33,668 $ 116,141 $ 62,860 $ 70,368 $ 71,322 Working capital 10,387 7,594 16,883 22,079 13,127 Long-term debt, less current portion 9,811 78,916 98,201 102,043 97,475 Stockholders' equity (deficit) 14,885 (53,340) (56,940) (51,372) (53,706) Dividends declared --- --- --- --- --
(1) Represents $10.0 million non-recurring expense for environmental remediation for fiscal 1997 and $1.3 million non-recurring expense for financial advisory fee for fiscal 1998. (2) Represents loss on retirement of debt, net of tax benefit. 15 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table and discussion should be read in conjunction with the information contained in the consolidated financial statements and notes thereto of the Company appearing elsewhere herein. Unless otherwise stated, all references to years means the Company's fiscal year ending April 1, 2000 (2000), April 3, 1999 (1999), and March 28, 1998 (1998), respectively. RESULTS OF OPERATIONS (IN MILLIONS)
2000 Percent 1999 Percent 1998 Percent ---- ------- ---- ------- ---- ------- Net sales $54.6 100.0% $67.7 100.0% $64.6 100.0% Gross profit 14.8 27.1% 26.3 38.9% 25.6 39.7% Selling, general and administrative expenses 8.1 14.8% 7.2 10.7% 8.5 13.2% Non-recurring expense - - - - 1.3 1.9% Earnings from operations 6.7 12.3% 19.1 28.3% 15.8 24.5% Other income/(expense) (10.6) (19.4%) (10.4) (15.4%) (9.8) (15.2%) Extraordinary loss (1) - - - - (1.0) (1.5%) Net earnings (loss) ($2.3) (4.3%) $5.4 7.9% $2.6 4.1%
(1) Represents extraordinary loss on retirement of debt, net of tax benefit. COMPARISON OF THE FISCAL YEAR ENDED 2000 WITH 1999 NET SALES The Company's net sales decreased by approximately 19.4% or $13.1 million to $54.6 million for 2000 compared to sales of $67.7 million for 1999. The significant decrease was due to decreasing demand in all product lines. Sales to existing aerospace, industrial process control, and petrochemical customers decreased significantly in 2000. Net non-automotive shipments decreased by approximately 23% in 2000 compared to 1999. Based on current order volume, the Company expects strengthening in the aerospace, industrial process control and petrochemical markets in the near term. On the automotive side, sales of airbag initiator products decreased significantly due to weak customer demand on existing programs. The Company's airbag initiator shipments (in units) to its largest customer, Special Devices, Inc. ("SDI") was flat for 2000 compared to 1999. The flat units volume was compounded by a price reduction effected under a supply agreement with SDI and decreases in automotive shipments to other customers. The agreement with SDI was effective March 18, 1999 and expires on December 31, 2002. Overall, revenue from all automotive shipments decreased approximately 14% in 2000 compared to 1999. Based on current order volume, the Company expects no significant change in revenue from automotive products over the near term. For the longer term, the Company expects SDI's unit volume to decrease as a result of the recent purchase of SDI's largest domestic competitor by SDI's largest customer. GROSS PROFIT Gross profit decreased by approximately 43.7% or $11.5 million, to $14.8 million for 2000 compared to $26.3 million for 1999. Gross margin decreased to 27.1% for 2000 from 38.9% for 1999. The decrease in gross profit is attributable to the decreased sales volume. The decrease in gross margin was primarily attributable to the significant decrease in revenue and the corresponding impact of fixed overhead costs leveraged against lower revenue. Additionally, gross margin was impacted by price 16 concessions on automotive products that have exceeded the Company's ability to reduce its production costs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative ("S,G&A") expenses increased by approximately 12.5% or $0.9 million to $8.1 million for 2000 compared to $7.2 million for 1999. S,G&A expenses as a percent to sales increased to 14.8% in 2000 from 10.7% for 1999. The $0.9 million increase in S,G&A expenses was primarily attributable to the write off of due diligence costs associated with two abandoned acquisitions as well as severance costs incurred from the termination of certain management employment contracts. The increase in the percentage of S,G&A expenses to sales reflects the impact of the abandoned acquisition costs and severance costs spread over decreased sales compared to 1999. EARNINGS FROM OPERATIONS Operating earnings decreased $12.4 million to $6.7 million for 2000 compared to $19.1 million for 1999. The significant decrease in operating earnings and margin was attributable to the same factors (as discussed above) that contributed to the decrease in gross profit, gross margin and S,G&A expenses as a percent to sales. OTHER EXPENSE, NET Other expense, net (which is predominantly net interest expense) increased 1.9% or $0.2 million to $10.6 million in 2000 compared to $10.4 million in 1999. The $0.2 million increase was attributable to additional interest expense incurred from additional indebtedness and net of increased interest income recognized in 2000 compared to 1999. The Company has $104.5 million of indebtedness as of April 1, 2000 compared to $103.2 million at April 3, 1999. NET EARNINGS Net earnings decreased by approximately $7.7 million to a net loss of $2.3 million for 2000 from net earnings of $5.4 million in 1999. The decrease in net earnings was primarily attributable to the decrease in earnings from operations and the increase in interest expense (discussed above). COMPARISON OF THE FISCAL YEAR ENDED 1999 WITH 1998 NET SALES The Company's net sales increased by approximately 4.8% or $3.1 million to $67.7 million for 1999 compared to sales of $64.6 million for 1998. The increase was primarily due to increasing demand in automotive products. Unit shipments of airbag initiator products continued its year over year significant volume increase. Shipments on existing programs and the development of some new programs resulted in an overall 29% increase in unit shipments. This increased volume was partially offset by both a price reduction effected under a new supply agreement with the Company's largest customer, Special Devices, Inc. ("SDI") and a change in the mix of automotive products. Overall, revenue from automotive shipments increased approximately 7.4% in 1999 compared to 1998. The new agreement with SDI was effective March 18, 1999 and expires on December 31, 2002. On the non-automotive side, sales to existing aerospace, industrial process control, and petrochemical customers increased slightly in 1999. Net non-automotive shipments increased by approximately 3.3% in 1999 compared to 1998. Most of the increase was recognized in the first six months of fiscal 1999. 17 GROSS PROFIT Gross profit increased by approximately 2.7% or $0.7 million, to $26.3 million for 1999 compared to $25.6 million for 1998. Gross margin decreased to 38.9% for 1999 from 39.7% for 1998. The increase in gross profit was attributable to the increased sales volume. The decrease in gross margin was primarily attributable to price concessions on automotive products that have exceeded the Company's ability to reduce its production costs. Raw material prices have remained stable in both periods. The Company continued to invest in its manufacturing operations to increase its capacity, vertical integration and automation on high volume lines. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative ("S,G&A") expenses decreased by approximately 15.7% or $1.3 million to $7.2 million for 1999 compared to $8.5 million for 1998. S,G&A expenses as a percent to sales decreased to 10.7% in 1999 from 13.2% for 1998. The $1.3 million decrease in S,G&A expenses reflects a $1.9 million reduction in contingent compensation costs in 1999 compared to 1998. The reduction in contingent compensation costs was partially offset by increased legal expenses associated with an abandoned business acquisition and an approximate 5% increase in other administrative costs. Selling expenses were flat for 1999 compared to 1998 as the higher sales volume was driven from non-commissioned sales. The improvement in the percentage of S,G&A expenses to sales reflects the increased growth in net sales and the reduction of certain contingent compensation charges partially offset by increased legal and administrative expenses. EARNINGS FROM OPERATIONS Operating earnings increased $3.3 million to $19.1 million for 1999 compared to $15.8 million for 1998. The increase in operating earnings and operating margin was primarily attributable to the $0.7 million increased gross profit , the $1.3 million reduction in non-recurring expenses, and lower S,G&A expenses in 1999 compared to 1998. OTHER EXPENSE, NET Other expense, net increased $0.6 million to $10.4 million in 1999 from $9.8 million for 1998. This increase was attributable to the increased interest expense associated with additional indebtedness incurred in 1998 from the Subordinated Notes due Selling Shareholders and Subordinated Bonus Notes which was largely offset by higher interest income on invested cash balances. The Company had $103.2 million of debt as of April 3, 1999 compared to $99.1 million at March 28, 1998. NET EARNINGS Net earnings increased by approximately $2.8 million to $5.4 million for 1999 from $2.6 million in 1998. The increase in net earnings was primarily attributable to the increase in earnings from operations (discussed above), partially offset by the increase in net interest expense in 1999. 18 LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $0.1 million for 2000 compared to $7.0 million for 1999. The decrease of $6.9 million was primarily attributable to decreased net earnings (discussed above). Net cash used in investing activities was $1.6 million for 2000 compared to $2.2 million for 1999. Net cash used in financing activities was $1.3 million for 2000 compared to $0.8 million for 1999. As of April 1, 2000, the Company's outstanding indebtedness was $104.5 million, consisting of $90.0 million principal amount of the senior subordinated notes and $14.5 million of other borrowings. The Company amended the Revolving Credit Facility ("the Agreement") subsequent to its debt offering to augment its liquidity requirements by increasing the size of the facility to $20.0 million. Borrowings under the Agreement may be used for general and other corporate purposes. The Agreement provides for interest on outstanding balances at the bank's prime rate plus 1-1/4% and is collateralized by accounts receivable and inventories of the Company. At April 1, 2000 there was $17,570,000 available under the Agreement. The Agreement includes covenants requiring maintenance of certain financial ratios. At April 1, 2000 and April 3, 1999 there were no borrowings outstanding under the Agreement and the Company was in compliance with the required financial ratios.. The Company has a current Capital Lease Line of $2.6 million for financing manufacturing equipment expiring June 30, 2000. The agreement provides for three year or five year terms with interest at 2.20% above the bank's index rate. The bank's index rate is the U.S. Treasury Note bond-equivalent yield per annum corresponding to the average life of the lease. At April 1, 2000 and April 3, 1999, there was $5.1 million and $3.8 million, respectively, outstanding under the capital leases, respectively. The Company believes that cash flow from operations and the availability of borrowings under the Revolving Credit Facility and Capital Lease Line will provide adequate funds for ongoing operations, planned capital expenditures and debt service during the terms of such facilities. Capital expenditures for fiscal 2001 are expected to focus on vertical integration with investments in equipment to expand manufacturing capacity in machining, glass production, sealing and plating, as well as automation equipment to lower production costs on the high volume production lines. Expected capital expenditures for fiscal 2001 are approximately $3.5 million and will be financed through working capital and the Capital Lease Line. YEAR 2000 ISSUE To date we have not experienced any Year 2000 issues. In addition, we believe that it is unlikely we will experience any significant Year 2000 issues in the future. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Company has no Derivative Instruments and Hedging Activities as defined in SFAS No. 133. In December 1999, the Securities Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements". The Company does not believe that the SAB will have any impact on the Company's financial statements. 19 FACTORS AFFECTING FUTURE PERFORMANCE Although increases in operating costs could adversely affect the Company's operations, management does not believe inflation has had a material effect on operating profit during the past several years. DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS This filing contains statements that are "forward looking statements", and includes, among other things, discussions of the Company's business strategy and expectations concerning market position, future operations, margins, profitability, liquidity and capital resources. Although the Company believes that the expectations reflected in such forward looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. All phases of the operations of the Company are subject to a number of uncertainties, risks and other influences, including general economic conditions, regulatory changes and competition, many of which are outside the control of the Company, any one of which, or a combination of which, could materially affect the results of the Company's operations and whether the forward looking statements made by the Company ultimately prove to be accurate. ITEM 7a - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk from changes in interest rates on the Company's Revolving Credit Facility. At April 1, 2000, the Company had no outstanding borrowings under the line of credit and, therefore, changes in interest rates would have no impact on the Company's results of operations. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEX TO FINANCIAL STATEMENTS PAGE Report of Independent Accountants 21 Consolidated Balance Sheets as of April 1, 2000 and April 3, 1999 22 Consolidated Statements of Operations for the years ended April 1, 2000, April 3, 1999 and March 28, 1998 23 Consolidated Statements of Stockholder's Equity (Deficit) for the years ended April 1, 2000, April 3, 1999 and March 28, 1998 24 Consolidated Statements of Cash Flows for the years ended April 1, 2000, April 3, 1999 and March 28, 1998 25 Notes to Consolidated Financial Statements 26 Schedule II - Valuation and Qualifying Accounts 38
All other financial statement schedules not listed have been omitted since the required information is included in the consolidated financial statements, the notes thereto, is not applicable, or not required. 20 REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors and Stockholders HCC Industries Inc. and Subsidiaries Rosemead, California In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of HCC Industries Inc. and Subsidiaries at April 1, 2000 and April 3, 1999, and the results of their operations and their cash flows for each of the three years in the period ended April 1, 2000 in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion expressed above. /s/ PricewaterhouseCoopers LLP Los Angeles, California June 2, 2000 21 HCC INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS APRIL 1, APRIL 3, 2000 1999 --------- --------- CURRENT ASSETS: Cash and cash equivalents $ 14,537 $ 17,395 Trade accounts receivable, less allowance for doubtful accounts of $51 at April 1, 2000 and $46 at April 3, 1999 10,041 9,834 Inventories 4,515 4,370 Income taxes receivable 2,255 403 Prepaid and other current assets 728 695 --------- --------- Total current assets 32,076 32,697 PROPERTY, PLANT AND EQUIPMENT, NET 21,605 19,153 OTHER ASSETS: Intangible assets 5,063 5,352 Deferred financing costs 2,727 3,108 Deferred income taxes 4,100 4,275 Restricted cash 6,197 6,120 --------- --------- TOTAL ASSETS $ 71,768 $ 70,705 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Current portion of long-term debt $ 6,994 $ 1,125 Accounts payable 2,950 2,449 Accrued liabilities 8,877 7,044 --------- --------- Total current liabilities 18,821 10,618 LONG TERM LIABILITIES: Long-term debt, net of current portion 97,475 102,043 Other long-term liabilities 9,178 9,416 --------- --------- 125,474 122,077 --------- ------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY (DEFICIT): Common stock; $.10 par value; authorized 550,000 shares, issued and outstanding 135,495 shares at April 1, 2000 and April 3, 1999 14 14 Additional paid-in capital 200 200 Accumulated deficit (53,920) (51,586) --------- --------- TOTAL STOCKHOLDERS' DEFICIT (53,706) (51,372) --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 71,768 $ 70,705 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 22 HCC INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS)
FOR THE YEAR ENDED ---------------------------------------------- APRIL 1, APRIL 3, MARCH 28, 2000 1999 1998 -------- -------- ----------- NET SALES $ 54,607 $ 67,701 $ 64,561 Cost of goods sold 39,794 41,361 38,922 ----------- ----------- ----------- GROSS PROFIT 14,813 26,340 25,639 Selling, general and administrative expenses 8,073 7,213 8,552 Non-recurring expense --- --- 1,250 ----------- ----------- ----------- EARNINGS FROM OPERATIONS 6,740 19,127 15,837 ----------- ----------- ----------- OTHER INCOME (EXPENSE): Interest and other income 734 755 510 Interest expense (11,333) (11,190) (10,327) ------------ ----------- ----------- Total other expenses, net (10,599) (10,435) (9,817) ------------ ----------- ----------- EARNINGS (LOSS) BEFORE TAXES AND EXTRAORDINARY ITEM (3,859) 8,692 6,020 Taxes (benefit) on earnings (loss) (1,525) 3,325 2,406 ------------ ----------- ----------- Earnings (loss) before extraordinary item (2,334) 5,367 3,614 Extraordinary loss on retirement of debt, net of tax benefit of $656 (1998) --- --- (986) ----------- ----------- ----------- NET EARNINGS (LOSS) $ (2,334) $ 5,367 $ 2,628 ============ =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. 23 HCC INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (IN THOUSANDS)
Common Stock Additional Retained Total ------------ Paid-in Earnings Stockholders' Shares Amount Capital (Deficit) Equity(deficit) --------------- ------- --------- --------------- BALANCE, MARCH 29, 1997 144 $ 14 $ -- $(53,354) $(53,340) Repurchases of stock (9) (1) -- (6,227) (6,228) Net earnings --- --- -- 2,628 2,628 --- ---- ---- -------- ------ BALANCE, MARCH 28, 1998 135 13 --- (56,953) (56,940) Sale of stock --- 1 200 --- 201 Net earnings --- --- -- 5,367 5,367 --- ---- ---- -------- ------ BALANCE, APRIL 3, 1999 135 14 200 (51,586) (51,372) Net loss --- --- --- (2,334) (2,334) --- ---- ---- --------- ------- BALANCE, APRIL 1, 2000 135 $ 14 $ 200 $(53,920) $(53,706) === ==== ======= ======== ========
The accompanying notes are an integral part of these consolidated financial statements. 24 HCC INDUSTRIES INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
For The Year Ended --------------------------------------- April 1 April 3, March 28, 2000 1999 1998 ---------- ---------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $ (2,334) $ 5,367 $ 2,628 Reconciliation of net earnings (loss) to net cash provided by operating activities: Depreciation 1,773 1,684 1,442 Amortization 670 715 715 Deferred income taxes 108 (333) (1,111) Extraordinary loss --- --- 986 Non-cash expense --- 1,085 3,000 Changes in operating assets and liabilities: (Increase) decrease in trade accounts receivable, net (207) 302 (2,853) (Increase) decrease in inventories (145) 240 25 (Increase) in other assets (43) (159) (91) Increase in other liabilities 1,595 120 810 (Decrease) increase in accounts payable and income taxes payable/receivable (1,351) (2,033) 3,120 ---------- ---------- -------- Net cash provided by operating activities 66 6,988 8,671 --------- --------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment (1,644) (2,242) (1,666) Business acquisition --- --- (2,200) --------- --------- --------- Net cash used in investing activities (1,644) (2,242) (3,866) --------- ---------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on long-term debt (1,280) (993) (80,607) Proceeds from issuance of long-term debt --- --- 90,000 Repurchases of stock --- --- (3,728) Deferred financing costs --- --- (3,870) Sale of stock --- 201 --- --------- --------- -------- Net cash (used in) provided by financing activities (1,280) (792) 1,795 ---------- ---------- -------- Net (decrease) increase in cash and cash equivalents (2,858) 3,954 6,600 Cash and cash equivalents at beginning of period 17,395 13,441 6,841 --------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,537 $ 17,395 $ 13,441 ========= ========= ======== SUPPLEMENTAL NONCASH FINANCING ACTIVITIES: Capital lease obligations and mortgages $ 2,581 $ 3,978 $ 1,796 Notes payable to stockholders --- --- 2,500 Bonus notes payable to employees --- 1,085 3,000
The accompanying notes are an integral part of these consolidated financial statements. 25 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: General HCC Industries Inc. and Subsidiaries ("HCC" or "Company") was incorporated in Delaware in 1985. HCC designs, manufactures and markets broad lines of state-of-the-art, high precision electronic connection devices known as hermetic seals. The Company's products are sold primarily in North America and Europe to the aerospace, energy, telecommunications, test and measurement and automotive industries. On February 14, 1997, pursuant to a Stock Purchase and Sale Agreement (the "Recapitalization Agreement") dated as of December 23, 1996, the Company, certain members of management, Windward Capital Associates, L.P. ("Windward") and certain affiliates of Windward (collectively, with Windward, the "Windward Group") and Metropolitan Life Insurance Company ("MetLife") completed a recapitalization of the Company (the "Recapitalization"). The Windward Group is a group of related entities which make merchant banking investments pursuant to certain program agreements. In connection with the Recapitalization, among other things: (i) the Company entered into Credit Facilities, consisting of: (a) a $10,000,000 five year Revolving Credit Facility, (b) a $30,000,000 five year Tranche A Term Loan and (c) a $30,000,000 six and one-half year Tranche B Term Loan; (ii) the Company issued $19,300,000, net of discount, in subordinated notes to the Windward Group and MetLife along with 8,614 shares of common stock and certain contingent anti-dilution warrants ("Mezzanine Units") for an aggregate purchase price of $22,500,000; (iii) the Company purchased a portion of the shares of Common Stock (at $370 per share) beneficially owned by the selling stockholders for $87,500,000, including certain transaction expenses, in cash and $5,000,000 in contingent subordinated notes; (iv) the Windward Group purchased 87,721 shares of Common Stock (at $370 per share) from the Company for $32,500,000 in cash; and (v) the Company repaid certain of its outstanding indebtedness. In accounting for the recapitalization, no fair value adjustments were made to the book value of the Company's assets and no goodwill was recognized. The contingent subordinated notes vest upon achievement by the Company of certain operating performance thresholds or achievement by the Windward Group of certain investment performance thresholds. On March 28, 1998, upon vesting of the Contingent Subordinated Notes, the Company recorded a $2,500,000 charge to equity to reflect additional purchase price associated with the shares purchased in the Recapitalization as described in (iii) above. In addition, in connection with the Recapitalization, a $6,000,000 interest bearing escrow account was established by the selling stockholders to fund certain contingencies and/or items specifically indemnified by the selling stockholders. The escrow account has been classified as restricted cash on the consolidated balance sheet. The restricted cash escrow balance was $6,197,000 at April 1, 2000 and $6,120,000 at April 3, 1999. Any funds remaining in this account upon satisfaction of conditions specified in the escrow agreement, will be paid to the selling stockholders. On May 6, 1997, the Company issued $90,000,000 in principal amount of Senior Subordinated Notes due in May 2007 (the "Old Notes") and used the proceeds of such issuance to, among other things, (i) repay 100% of the outstanding principal amount, together with all accrued but unpaid interest thereon, of each of Term Loan A and Term Loan B and (ii) repurchase all outstanding Mezzanine Units for $22,500,000, the initial purchase price thereof, together with accrued but unpaid interest on the related notes. As a result of this refinancing, the Company recorded an extraordinary loss of $986,000, net of taxes. In addition on 26 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED May 6, 1997, the Company amended the Revolving Credit Facility to, among other things, increase the amount available thereunder from $10,000,000 to $20,000,000. Pursuant to the Registration Rights Agreement entered into with the issuance of the Old Notes, the Company on November 3, 1997 filed a Registration Statement under the Securities Act of 1933 with the SEC to exchange the Old Notes for $90,000,000 of Senior Subordinated Exchange Notes (the "New Notes"). The terms of the New Notes and the Old Notes are identical in all material respects. On June 20, 1997, the Company acquired substantially all of the assets and assumed certain liabilities of Connector Industries of America, a glass-to-metal sealing company. The purchase price was $2,100,000 paid in cash. The transaction was accounted for as an asset purchase. In conjunction with the acquisition, the Company assigned $1,372,000 to intangibles which are being amortized over a 14 year period on a straight line basis. Principles Of Consolidation The consolidated financial statements include the accounts of the Company and all wholly owned subsidiaries. All significant intercompany transactions (which are primarily sales/purchases and receivables/payables) have been eliminated in consolidation. The Company's Senior Subordinated Notes are guaranteed by all operating subsidiaries of the Company (the "Subsidiary Guarantors"). The guarantee obligations of the Subsidiary Guarantors (which are all direct or indirect wholly owned subsidiaries of the Company) are full, unconditional and joint and several. The aggregate assets, liabilities, earnings, and equity of the Subsidiary Guarantors are substantially equivalent to the total assets, liabilities, earnings and equity of HCC Industries Inc. and its subsidiaries on a consolidated basis. Separate financial statements of the Subsidiary Guarantors are not included in the accompanying financial statements because management of the Company has determined that separate financial statements of the Subsidiary Guarantors would not be material to investors. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, reported results of operations and disclosure of contingencies at the dates of the consolidated financial statements. Actual results could differ from those estimates. Accounting Period The consolidated financial statements are based on the fiscal year ending on the Saturday nearest to March 31. Revenue Recognition The Company generally manufactures products under both individual firm purchase orders and fixed price, long-term production contracts. The contracts vary in length, but generally are completed within 12 to 24 months. Sales under individual purchase orders and long-term production contracts are recognized at the time units are shipped. 27 Cash Equivalents The Company considers all highly liquid investments purchased with an initial maturity of three months or less to be cash equivalents. The Company has bank balances, including cash and cash equivalents, which at times may exceed federally insured limits. 28 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Accounts Receivable And Concentration Of Credit Risk The Company grants uncollateralized credit to its customers who are located in various geographical areas. Estimated credit losses and returns have been provided for in the financial statements and, to date, have been within management's expectations. Sales to the Company's four largest customers accounted for 47% (2000), 44% (1999), and 42% (1998) of total sales. At April 1, 2000 and April 3, 1999, the four largest customers accounted for approximately 61% and 42% of total accounts receivable, respectively. Sales to Special Devices, Incorporated ("SDI") were $21,193,000, $24,642,000, and $23,836,000 for the fiscal years 2000, 1999, and 1998, respectively. Accounts receivable from SDI as of April 1, 2000 and April 3, 1999 were $4,713,000 and $3,016,000, respectively. Inventories Inventories are stated at the lower of cost (first-in, first-out method) or market. Property, Plant and Equipment Property, plant and equipment is recorded at cost. Depreciation is computed generally by the straight-line method over the estimated useful lives of the respective assets of 3 years to 40 years. Repairs and maintenance are charged directly to expense as incurred. Additions and betterments to property, plant and equipment are capitalized. When assets are disposed of, the related cost and accumulated depreciation thereon are removed from the accounts and any resulting gain or loss is included in operations. Intangible Assets The excess of purchase price over net assets acquired is amortized on a straight-line basis over the estimated useful lives of the respective assets of 14 to 40 years. Amortization expense was $289,000 (2000), $291,000 (1999), and $264,000 (1998). Accumulated amortization on the excess purchase price over net assets acquired was $2,538,000 and $2,249,000 as of April 1, 2000 and April 3, 1999. Long-Lived Assets In accordance with SFAS No. 121, long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the Company evaluates the carrying value of its goodwill and property, plant and equipment on an ongoing basis and recognizes an impairment when the estimated future undiscounted cash flows from operations are less than the carrying value of the related long-lived assets. Income Taxes The Company accounts for income taxes under the liability method. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. 29 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Stock Based Employee Compensation Awards Statement of Financial Accounting Standards No. 123, "Accounting for the Awards of Stock-Based Compensation to Employees" ("SFAS No. 123") encourages, but does not require companies to record compensation cost for stock-based compensation plans at fair value. The Company has adopted the disclosure requirements of SFAS No. 123, which involves pro forma disclosure of net income under SFAS No. 123, detailed descriptions of plan terms and assumptions used in valuing stock option grants. The Company has chosen to continue to account for stock-based employee compensation awards in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Reclassifications Certain reclassifications have been made to previously reported amounts to conform with the current year presentation. Recently Issued Accounting Standards In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Company has no Derivative Instruments and Hedging Activities as defined in SFAS No. 133. In December 1999, the Securities Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial Statements". The Company does not believe that the SAB will have any impact on the Company's financial statements. 2. INVENTORIES:
Inventories consist of the following (in thousands): April 1, April 3, 2000 1999 --------- ----------- Raw materials and component parts $ 3,036 $ 2,279 Work in process 1,479 2,091 --------- ----------- $ 4,515 $ 4,370 ========= ===========
30 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following (in thousands): April 1, April 3, 2000 1999 ---------- --------- Land $ 4,017 $ 4,017 Buildings and improvements 9,160 8,699 Furniture, fixtures and equipment 19,043 15,278 ---------- --------- 32,220 27,994 Less accumulated depreciation (10,615) (8,841) ---------- --------- $ 21,605 $ 19,153 ========== =========
4 LONG-TERM DEBT:
Long-term debt consists of the following (in thousands): April 1, April 3, 2000 1999 ---------- --------- 10 3/4% Senior Subordinated Notes - interest payable semi-annually; due May 15, 2007 $ 90,000 $ 90,000 Subordinated Notes due Selling Shareholders - 12% interest payable semi-annually; due March 28, 2001 2,500 2,500 Subordinated Bonus Notes - 10% interest payable semi-annually; $3,000,000 due March 28, 2001 and $1,085,000 due April 3, 2002 4,085 4,085 Term loans on land, building and improvements - 8% interest payable monthly; due May 2008 2,762 2,762 Other 5,122 3,821 ---------- --------- 104,469 103,168 Less current portion 6,994 1,125 ---------- --------- $ 97,475 $ 102,043 ========== =========
In issuing the 10 3/4% Senior Subordinated Notes ("Notes"), the Company incurred $3,870,000 in deferred financing costs. These costs are being amortized using the straight-line method over the term of the respective notes. For the year ended April 1, 2000, the Company incurred amortization expense of $381,000 on the deferred financing costs. The fair value of the Notes may vary from time to time based on the Company's operating performance and other market related factors external to the Company. Presently, the Company believes the fair value of the Notes to be significantly less than the carrying value. 31 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The Senior Subordinated Notes are redeemable at the option of the Company commencing on May 15 of the year set forth below at the redemption prices also set forth below:
Redemption Period Price ------ ----- 2002 ...............................................105.375% 2003 ...............................................103.583% 2004 ...............................................101.792% 2005 and thereafter ................................100.000%
Minimum payments due under long-term debt as of April 1, 2000 are as follows (in thousands):
Fiscal Year Amount ---- ------ 2001 $ 6,994 2002 2,429 2003 1,154 2004 726 2005 434 2006 and thereafter 92,732 -------- $104,469 ========
Cash payments for interest were $10,906,000 (2000), $10,752,000 (1999) and $6,893,000 (1998). 5. LINES OF CREDIT: The Company has a revolving credit facility agreement, as amended on November 3, 1999, (the "Agreement") of up to $20,000,000 expiring on February 14, 2002. The Agreement provides for interest on outstanding balances at the bank's prime rate plus 1-1/4% and is collateralized by accounts receivable and inventories of the Company. At April 1, 2000 and April 3, 1999, the prime rate was 9.00% and 7.75%, respectively. At April 1, 2000 there was $17,570,000 available under the Agreement. The Agreement includes covenants requiring maintenance of certain financial ratios. At April 1, 2000 and April 3, 1999 there were no borrowings outstanding under the Agreement. The Company has a capital lease line of credit of $2,600,000 for financing manufacturing equipment expiring June 30, 2000. The agreement provides for three year or five year terms with interest at 2.20% above the bank's index rate. The bank's index rate is the U.S. Treasury Note bond-equivalent yield per annum corresponding to the average life of the lease. At April 1, 2000 and April 3, 1999 there were $5,122,000 and $3,821,000 in borrowings outstanding under the capital leases, respectively. 32 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 6. TAXES ON EARNINGS: The components of income tax expense (benefit) consist of the following (in thousands):
2000 1999 1998 ----------- -------- ------- Current: Federal $ (1,341) $ 3,090 $ 2,392 State (292) 568 469 ----------- --------- -------- (1,633) 3,658 2,861 ----------- --------- -------- Deferred: Federal 91 (290) (942) State 17 (43) (169) ---------- --------- -------- 108 (333) (1,111) ---------- --------- -------- $ (1,525) $ 3,325 $ 1,750 =========== ========= ========
The Company's effective tax rate differs from the statutory federal income tax rate as follows:
2000 1999 1998 ---------- -------- ------ Tax provision (benefit) at the statutory rate (34.0%) 34.0% 34.0% Nondeductible expenses 2.1% 1.0% 2.2% State taxes, net of federal benefit (4.7%) 4.0% 4.6% Other (2.9%) (0.7%) (0.8%) --------- ------- ------- (39.5%) 38.3% 40.0% ========= ======= =======
The components of the net deferred taxes are as follows (in thousands):
April 1, April 3, 2000 1999 ---------- --------- Deferred Tax Assets: Environmental liabilities $ 3,671 $ 3,766 Accrued bonus and other 1,928 1,862 ---------- --------- 5,599 5,628 Deferred Tax Liabilities: Depreciation and other (1,205) (1,126) ---------- --------- Deferred Tax Asset, net $ 4,394 $ 4,502 ========== =========
Cash tax payments were $239,000 (2000), $5,302,000 (1999), and $859,000 (1998). 33 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED 7. CAPITAL STOCK: The Company is authorized to issue an aggregate of 550,000 shares of common stock. These shares may be issued in four different classes (A, B, C or D shares) which differ only in voting rights per share as follows:
Voting Rights Class Per Share --------- A 1 B 1 C None D 10
The changes in each class of common shares for each of the three years in the period ended April 1, 2000 are as follows (in thousands):
Class of Common Stock ------------------------------------------------------------- A B C D Total -------------- Par Par Par Par Par Shares Value Shares Value Shares Value Shares Value Shares Value ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- Balance - March 29, 1997 111 $ 10 28 $ 3 4 $ 1 1 $ -- 144 $ 14 Repurchase of Stock (8) (1) (1) --- -- --- -- -- (9) (1) ------- ---- -- ---- -- --- -- ---- ------ ---- Balance - March 28, 1998 103 9 27 3 4 1 1 -- 135 13 Sale of Stock --- 1 --- --- -- --- -- -- -- 1 ------- ---- ---- ---- -- --- -- ---- ------ ---- Balance - April 3, 1999 103 10 27 3 4 1 1 -- 135 14 ------- ---- -- ---- - --- - ---- ------ ---- Balance - April 1, 2000 103 $ 10 27 $ 3 4 $ 1 1 $ -- 135 $ 14 ======= ==== == ==== = === = ==== ====== ====
The remaining 414,505 shares are undesignated as to class. In February 1997, the Company adopted a stock option plan (the "Option Plan") which provides for the grant to employees and directors, from time to time, of non-qualified stock options to purchase up to an aggregate of 22,887 shares of common stock at exercise prices to be determined by the Board of Directors. The Option Plan provides for the grant of management options to purchase 6,393 shares of common stock (the "Management Options"), management performance options to purchase 14,206 shares of common stock (the "Management Performance Options"), director options to purchase 710 shares of common stock (the "Director Options") and director performance options to purchase 1,578 shares of common stock (the "Director Performance Options"). The Management Options and Director Options are subject to a vesting schedule that generally provides for each series of options to vest 20% per year over five years if the Company attains specified annual or cumulative earnings targets as defined in the Option Plan. The Management Performance Options and Director Performance Options are subject to a vesting schedule based on a change in control in which the Windward Group realizes specified annual rates of return on its equity investment in the Company as defined in the Option Plan. All options are exercisable over a period of 10 years and will automatically vest on the seventh anniversary of the date on which the Option Plan was adopted, regardless of whether the performance criteria are achieved. 34 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED The Company granted options to purchase 2,500, 470 and 470 shares of common stock for the fiscal years 2000, 1999, and 1998, respectively, with an exercise price of $370 per share, which is equal to the fair value of common stock at the date of grant, except for 1,000 shares in fiscal year 2000 with an exercise price below estimated fair market value. Such difference will be recognized as additional compensation expense on a straight line basis over the vesting period of the underlying options. At April 1, 2000 1,420 options were exercisable and options to purchase 4,062 shares of common stock remained available for grant. The weighted average fair value of each option granted was estimated on the date of grant to be approximately $100 using the minimum value method with the following assumptions (i) risk-free interest rate of 6.38%, 5.48% and 6.43% for fiscal 2000, 1999 and 1998, respectively, (ii) expected option life of 5 years, (iii) forfeiture rate of 0 and (iv) no expected dividends. The Company has adopted the disclosure only provisions of SFAS No. 123. For the years ended April 1, 2000, April 3, 1999 and March 28, 1998, had the Company recognized compensation expense in accordance with Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", net (loss) earnings would have been ($2,566,000), $5,135,000 and $2,406,000, respectively. 8. EMPLOYEE BENEFIT PLANS: In 1993, the Company adopted the HCC Savings and Investment Plan (the "Plan") which covers all eligible full-time employees. The Company established the Plan to meet the requirements of a qualified retirement plan pursuant to the provisions of Section 401(k) of the Internal Revenue Code. The Plan provides participants the opportunity to make tax deferred contributions to a retirement trust account in amounts up to 15% of their gross wages. The Company has elected to make matching contributions in amounts that may change from year to year. The Company contributed $572,000 (2000), $536,000 (1999) and $466,000 (1998) in matching contributions to the Plan. In connection with the Recapitalization, the Company adopted a bonus plan (the "Bonus Plan"), pursuant to which the Company will grant Bonus Units (each representing an interest in the bonus pool of $6.0 million) to certain key employees. The Bonus Units are awarded by a committee of the Board of Directors of the Company. On April 3, 1999 and March 28, 1998, $1.1 million and $3.0 million of Bonus Units became vested, respectively. Vested contingent bonuses become due and payable on the third anniversary of the applicable vesting date and will bear interest at 10% per annum (payable semi-annually in arrears) from each applicable vesting date until paid in full. 9. COMMITMENTS AND CONTINGENCIES: Environmental As an ongoing facet of the Company's business, it is required to maintain compliance with various environmental regulations. The cost of this compliance is included in the Company's operating results as incurred. These ongoing costs include permitting fees and expenses and specialized effluent control systems as well as monitoring and site assessment costs required by various governmental agencies. In the opinion of management, the maintenance of this compliance will not have a significant effect on the financial position or results of operations of the Company. 35 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED In August 1994, the U.S. Environmental Protection Agency ("EPA") identified the Company as a potentially responsible party ("PRP") in the El Monte Operable Unit ("EMOU") of the San Gabriel Valley Superfund Sites. In early 1995, the Company and the EPA executed an Administrative Consent Order which requires the Company and other PRP's to perform a Remedial Investigation and Feasibility Study ("RI/FS") for the EMOU. In addition, the Company's facility in Avon, Massachusetts is subject to Massachusetts "Chapter 21E", the State's hazardous site clean-up program. Uncertainty as to (a) the extent to which the Company caused, if at all, the conditions being investigated, (b) the extent of environmental contamination and risks, (c) the applicability of changing and complex environmental laws (d) the number and financial viability of other PRP's, (e) the stage of the investigation and/or remediation, (f) the unpredictability of investigation and/or remediation costs (including as to when they will be incurred), (g) applicable clean-up standards, (h) the remediation (if any) that will ultimately be required, and (i) available technology make it difficult to assess the likelihood and scope of further investigation or remediation activities or to estimate the future costs of such activities if undertaken. In addition, liability under CERCLA is joint and several, and any potential inability of other PRP's to pay their prorata share of the environmental remediation costs may result in the Company being required to bear costs in excess of its prorata share. In fiscal 1997, the Company with the help of independent consultants, determined a range of estimated costs of $9,000,000 to $11,000,000 associated with the various claims and assertions it faces. The time frame over which the Company expects to incur such costs varies with each site, ranging up to 20 years as of April 1, 2000. These estimates are based partly on progress made in determining the magnitude of such costs, experience gained from sites on which remediation is ongoing or has been completed, and the timing and extent of remedial actions required by the applicable governmental authorities. As a result, the Company accrued $10,000,000 in fiscal 1997 for existing estimated environmental remediation and other related costs which the Company believes to be the best estimate of the liability. As of April 1, 2000, the accrual for estimated environmental costs was $9,178,000. Actual expenditures for environmental remediation for each of the three years in the period ended April 1,2000 were $238,000 (2000), $203,000 (1999) and $381,000 (1998). Claims for recovery of costs already incurred and future costs have been asserted against various insurance companies. The Company has neither recorded any asset nor reduced any liability in anticipation of recovery with respect to such claims made. The Company believes its accrual is adequate, but as the scope of its obligations becomes more clearly defined, this accrual may be modified and related charges against earnings may be made. 36 HCC INDUSTRIES INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED Other On March 3, 1998, Walter Neubauer, a former stockholder of the Company and a current stockholder of SDI, filed a lawsuit in California Superior Court (Case BC186937; Walter Neubauer vs. Andrew Goldfarb, et. al.) against the Company and certain other stockholders alleging (i) breach of fiduciary duty, (ii) fraud, (iii) negligent misrepresentation, (iv) negligence, (v) violations of corporations code and (vi) breach of contract. The allegations primarily relate to the Company's exercise of an option to acquire Mr. Neubauer's stock in August 1996. In September 1999, five of the six claims were dismissed upon a summary judgement motion made by the Company, including all of the claims against the Company. The remaining claim is against Andrew Goldfarb for alleged violations of oral representations. On May 7, 1998, the Company filed a lawsuit against Mr. Neubauer in California Superior Court alleging (i) breach of contract, (ii) intentional interference with business relations and (iii) interference with prospective business advantage. All allegations relate to violations of the noncompetition agreement executed by Mr. Neubauer in August 1996. A preliminary injunction was granted in September 1998. The Company is seeking damages of $50.0 million. The case was consolidated with Mr. Neubauer's action, discussed above. In addition to the above, the Company is involved in other claims and litigation arising in the normal course of business. Based on the advice of counsel and in the opinion of management, the ultimate resolution of these matters will not have a significant effect on the financial position or the results of operations of the Company. Indemnification Pursuant to the Recapitalization Agreement, the Selling Group has agreed to indemnify the Company with respect to the after-tax costs of contingent environmental and other liabilities, subject to a cap for all indemnified liabilities of $30 million. In February 1997, a $6.0 million interest bearing escrow account was established by the selling stockholders (the "Deferred Amount") to secure indemnity claims of the Company and others, including with respect to environmental liabilities. 10. RELATED PARTY TRANSACTIONS: For the year ended April 1, 2000 the Company paid a total of $218,000 in fees to Windward Capital Partners consisting of an annual management fee of $125,000 and expenses totaling $93,000. For the year ended April 3, 1999 the Company paid a total of $152,000 in fees to Windward Capital Partners consisting of an annual management fee of $125,000 and expenses totaling $27,000. For the year ended March 28, 1998, the Company paid a total of $1,466,000 in fees to Windward Capital Partners consisting of a non-recurring financial advisory fee of $1,250,000, an annual management fee of $125,000 and expenses totaling $91,000. 37 HCC INDUSTRIES INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
ADDITIONS-- BALANCE CHARGED DEDUCTIONS-- AT TO COSTS UNCOLLECTIBLE BALANCE BEGINNING AND ACCOUNTS AT END OF YEAR EXPENSES WRITE OFFS OF YEAR --------- --------- ---------- ------- 2000 Allowance for doubtful accounts $ 46 $ 11 $ 6 $ 51 ======== ========= ========= ======== 1999 Allowance for doubtful accounts $ 40 $ 6 $ --- $ 46 ======== ========= ========= ======== 1998 Allowance for doubtful accounts $ 40 $ --- $ --- $ 40 ======== ========= ========= ========
38 ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS FOR THE REGISTRANT MANAGEMENT The following table sets forth certain information concerning the directors and executive officers of the Company. Each director is elected for a one (1) year term or until such person's successor is duly elected and qualified.
Name Age Position - ---- --- -------- Robert Rau 62 Director of HCC, Chairman Richard Ferraid 44 Director, President and Chief Executive Officer of HCC Christopher H. Bateman 48 Director, Vice President and Chief Financial Officer of HCC Andy Goldfarb 52 Director of HCC Robert H. Barton III 66 Director of HCC Gary L. Swenson 62 Director of HCC Thomas J. Sikorski 39 Director of HCC John M. Leonis 66 Director of HCC Fred Hauser 63 Director of HCC
Mr. Rau was elected a director of HCC in July 1998. Mr. Rau recently retired as President of the Aerostructures Group of The BFGoodrich Company. Prior to its merger with BFGoodrich, Mr. Rau was President and Chief Executive Officer of Rohr, Inc. from 1993 to 1997. Before joining Rohr, he was an Executive Vice President of Parker Hannifin Corporation and President of its Aerospace Sector. In addition, Mr. Rau is a past member of the Board of Governors of the Aerospace Industries Association, a past Chairman of the General Aviation Manufacturers Association, a member of the Board of Trustees of Whittier College and a member of the Board of Directors of Primex Technologies Corp. and Willis Lease Finance Corporation. Mr. Ferraid joined the Company in 1992 and currently serves as the President and Chief Executive Officer of HCC. Prior to becoming the President and CEO of HCC in March 2000, he has served in various capacities including President of Glasseal from 1994-2000. Mr. Ferraid became a director of the Company in February 1997 following the consummation of the Recapitalization. Mr. Ferraid previously worked at Electrical Industries, a competitor of the Company. Mr. Ferraid has over 20 years of experience in the GTMS industry. Mr. Bateman joined the Company in 1986 and has served in various capacities. He currently serves as a Vice President and the Chief Financial Officer of HCC. Mr. Bateman has been a director of the Company since 1989. Prior to joining HCC, Mr. Bateman worked for Touche Ross & Co. from 1978 through 1986. Mr. Goldfarb retired as Chairman, Chief Executive Officer and President of HCC in January 2000 after having served in various capacities since 1976. Mr. Goldfarb has been a director of the Company since 1979 and continues to serve the Company in that role. Mr. Barton was elected a director of HCC in February 1997 following the consummation of the Recapitalization. Mr. Barton was elected Chairman of French Holdings, Inc. in October 1996 and Chairman and CEO of Meridian Automotive Systems, Inc. in April 1997. Mr. Barton was Chairman, President and Chief Executive Officer of Alcoa Fujikura Ltd. from May 1984 to December 1996. He currently serves on the Board of Directors of and as senior advisor to Alcoa Fujikura Ltd., and is Chairman, President and Chief Executive Officer of Meridian Automotive Systems, Inc. 39 Mr. Swenson was elected a director of HCC in February 1997 following the consummation of the Recapitalization. Mr. Swenson has been President and Senior Managing Director of Windward Capital Partners, L.P. since its founding in 1994, and was a Managing Director of CS First Boston Corporation from 1974 to 1994. Mr. Swenson currently serves on the Board of Directors of Furr's Supermarkets, Inc. and Meridian Automotive Systems, Inc. Mr. Swenson is Mr. Sikorski's father-in-law. Mr. Sikorski was elected a director of HCC in February 1997 following the consummation of the Recapitalization. Mr. Sikorski has been a Managing Director of Windward Capital Partners, L.P. since its founding in 1994. Prior to joining Windward Capital Partners, L.P., Mr. Sikorski was Director of Private Equity Investments at MetLife from 1992 to 1994 and prior to that was a Vice President in the leveraged Buyout Group at the First Boston Corporation from 1986 to 1992. Mr. Sikorski currently serves on the Board of Directors of Furr's Supermarkets, Inc., DCV Holdings, Inc. and Palace Entertainment, Inc. Mr. Sikorski is Mr. Swenson's son-in-law. Mr. Leonis was elected a director of HCC in July 1997. Mr. Leonis retired as Chairman of the Board of Directors of Litton Industries, Inc. in April 1999. Mr. Leonis worked at Litton Industries in various capacities for over 36 years. Mr. Leonis currently serves as a member of the Board of Directors of Litton Industries. Mr. Hauser was elected a director of HCC in April 1999. Mr. Hauser retired from Metropolitan Life Insurance Company in 1997 as Senior Vice President and Corporate Controller after 39 years with the company. Mr. Hauser has served as a director of METMOR, MetLife's mortgage banking operations, and MetLife Securities, a broker dealer. Mr. Hauser has also served on the board of the New York chapter of the Financial Executives Institute, an organization of Chief Financial Officers, Treasurers and Controllers of major corporations, and was its President in 1993-1994. ITEM 11 - EXECUTIVE COMPENSATION The following table sets forth the total value of compensation received by the Chief Executive Officer and the two most highly compensated executive officers, other than the Chief Executive Officer, who served as executive officers of the Company as of April 1, 2000, (collectively with the Chief Executive Officer, the "Named Executive Officers") for services rendered in all capacities to the Company for the year ended April 1, 2000. 40 SUMMARY COMPENSATION TABLE (1)
LONG-TERM COMPENSATION - NUMBER OF ANNUAL COMPENSATION SECURITIES FISCAL ------------------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(2) ---- ----- ----- ------- ------------ Richard Ferraid 2000 $218,806 $ 51,150 --- $ 13,590 Chief Executive Officer and 1999 $205,418 $ 40,000 --- $ 13,608 President of HCC 1998 $201,150 $ 40,000 --- $ 13,608 Christopher Bateman 2000 $207,874 $ 51,150 --- $ 20,058 Chief Financial Officer and 1999 $205,418 $ 20,000 --- $ 24,033 Vice President of HCC 1998 $201,150 $ 20,000 --- $ 24,070 Andrew Goldfarb (Retired) 2000 $311,491 $ 77,873 --- $ 33,627 Former Chairman of the Board 1999 $308,045 $ 105,000 --- $ 29,697 of Directors, Chief Executive 1998 $301,725 $ 105,000 --- $ 22,491 Officer and President of HCC
(1) None of the executive officers has received perquisites the value of which exceeded the lesser of $50,000 or 10% of the salary and bonus of such executive officer. (2) For 2000 all other compensation included the following amounts: Mr. Goldfarb, $6,000 of Company contributions into the Company's 401(k) plan, $2,042 for automobile allowance and $25,585 for allocated life insurance; Mr. Bateman, $6,000 for Company contributions into the Company's 401(k) plan, $13,698 for automobile allowance and $360 for allocated life insurance; Mr. Ferraid, $6,000 for Company contributions into the Company's 401(k) plan, $7,350 for automobile allowance and $240 for allocated life insurance. GRANTS OF STOCK OPTIONS Options on 2,500 shares were granted to Mr. Ferraid during the fiscal year ended April 1, 2000. The options vest at 1/3 per year over the next 3 years. The following table sets forth information concerning the value of unexercised options held by the Named Executive Officers. The Named Executive Officers did not exercise any options during the fiscal year ended April 1, 2000.
OPTIONS OUTSTANDING AT APRIL 1, 2000 ----------------------------------------------------- NUMBER OF SHARES VALUE OF UNEXERCISED UNDER OPTION - OPTIONS - EXERCISABLE/ EXERCISABLE/ NAME UNEXERCISABLE UNEXERCISABLE ----------------- ------------------- Richard Ferraid 244 / 5,846(1) $ - /$370,000 Christopher Bateman 244 / 2,952(1) $ - / $ -
- ---------------- (1) There is no public market for the Company's stock. The fair market value of a share of Common Stock is assumed to be equal to the exercise price per share of the options held by the Named Executive Officers. 41 EMPLOYMENT AGREEMENTS In March 2000, Richard Ferraid entered into an employment agreement with HCC (the "Employment Agreement"). Pursuant to the Employment Agreement, Mr. Ferraid will be employed by HCC until March 31, 2003 provided that HCC may terminate Mr. Ferraid by reason of disability, death or for good cause (as defined in the Employment Agreement). Upon termination by the Company for reasons other than death, disability or good cause, Mr. Ferraid will be entitled to receive salary and benefits for a period of 24 months. The agreement provides for a base salary to be determined in accordance with HCC's policies and an annual bonus contingent on certain performance-based criteria. Pursuant to the terms of the agreement, Mr. Ferraid, during the term of the Employment Agreement and a one year period thereafter, may not solicit customers of the Company, engage in business with any competing entity or induce any other employee of the Company to leave his or her employment with the Company. Mr. Goldfarb's employment with the Company expired on April 1, 2000. Presently, a consulting agreement is being negotiated with Mr. Goldfarb. While an agreement has not been finalized, the Company expects to execute an agreement shortly that compensates Mr. Goldfarb at $156,000 per year for consulting services and certain non-compete provisions. The agreement is expected to have a two-year term. Mr. Rau served as the Chief Executive Officer (CEO) of the Company from January 3, 2000 through March 8, 2000 (when Mr. Ferraid was named CEO) and has agreed to serve as the Non-Executive Chairman of the Company for a one year period ending December 31, 2000. Mr. Rau's compensation for the period will be $450,000 of which $200,000 was paid in the fiscal year ended April 1, 2000. If Mr. Rau continues to serve in this capacity after January 1, 2001, his annual compensation will be $80,000 per year. Mr. Rau was also given an option to purchase 2,450 shares of HCC stock at a price of $50,000, which purchase was made in June 2000. OPTION PLAN In connection with the Recapitalization, HCC adopted the Option Plan which provides for the grant to employees from time to time of non-qualified stock options to purchase up to an aggregate of 22,887 shares of Common Stock at exercise prices to be determined by the Board of Directors. The Option Plan provides for the grant of management options to purchase 6,393 shares of Common Stock (the "Management Options"), management performance options to purchase 14,206 shares of Common Stock (the "Management Performance Options"), director options to non-affiliates of Windward to purchase 710 shares of Common Stock (the "Director Options"), and director performance options to non-affiliates of Windward to purchase 1,578 shares of Common Stock (the "Director Performance Options"). The Management Options and Director Options were granted subject to an EBITDA (as defined in the Option Plan) vesting schedule that provides for 20% of each series of options to vest in each of fiscal year 1998 through fiscal year 2002 if the Company attains a specified target for each such year ($21.8 million EBITDA in fiscal 1998, $28.5 million EBITDA in fiscal 1999, $32.6 million EBITDA in fiscal 2000, $35.3 million EBITDA in fiscal 2001 and $37.6 million EBITDA in fiscal 2002). The Options will also vest if certain cumulative EBITDA targets are achieved after certain multiple year periods or, so long as the Windward Group realizes specified rates of return on its aggregate equity investment, upon a Change of Control (as defined in the Option Plan). In addition, regardless of whether the performance criteria are achieved, all Options including, the performance-based Options, will vest automatically on the seventh anniversary of the date of grant. On March 28, 1998, the 20% of stock options related to the 1998 fiscal year became vested. The Management Performance Options and Director Performance Options were granted subject to a vesting schedule providing for 50% of each series of options to vest upon a Change of Control in which the Windward Group realizes a 30% compounded annual rate of return on its aggregate equity investment in the Company and the remaining 50% of each series of options vesting upon a Change of Control in which Windward Group realizes a 40% compounded annual rate of return on its aggregate equity investment in the Company. As of April 1, 2000, 18,825 options have been granted under the Option Plan which entitle the holders to purchase upon vesting 18,825 shares of Common Stock at an exercise price of $370.49 per share. An additional 4,062 options may be granted under the Option Plan. 42 CONTINGENT BONUS PLAN In connection with the Recapitalization, HCC adopted the Bonus Plan, pursuant to which the Company will grant Bonus Units (each representing an interest in the bonus pool of $6.0 million) to certain key employees (the "Participants"). The Bonus Units will be awarded by a committee of the Board of Directors of HCC formed to administer the Bonus Plan. On April 3, 1999 and March 28, 1998, $1.1 million and $3.0 million of Bonus Units became vested, respectively. Vested contingent bonuses become due and payable on the third anniversary of the applicable vesting date and will bear interest at 10% per annum (payable semi-annually in arrears) from each applicable vesting date until paid in full. Pursuant to the Bonus Plan, all of an employee's Bonus Units terminate immediately when such employee ceases to be employed by the Company, unless such employment ceases due to such employees' death or disability, in which case such employee will be vested in a portion of such employee's Bonus Units. DIRECTOR COMPENSATION Each of Messrs. Barton, Leonis, Rau and Hauser receive an annual fee of $20,000. In addition, Mr. Rau received a fee of $200,000 in fiscal 2000 for serving as Chairman of the Board. Messrs. Barton, Leonis and Rau were granted 695, 470 and 470 stock options, respectively, of which 215, 150 and 150, respectively, are subject to a vesting schedule that generally provides for each option to vest 20% per year over five years (25% over four years for Mr. Rau) commencing on the first anniversary of the date of grant if the Company attains specified annual or cumulative earnings targets set forth in the Option Plan and the remaining options vest upon a change in control in which the Windward Group realized specified annual rates of return on its equity investment in the Company as defined in the Option Plan. All options automatically vest on the seventh anniversary of the date of grant regardless of whether the performance criteria are achieved. All options have an exercise price equal to the fair value of the common stock at the date of grant ($370.49 per share). COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION In fiscal 2000, the Company had no compensation committee and compensation matters were handled either by Mr. Goldfarb, Chief Executive Officer and Chairman of the Board of HCC or by the Board of Directors itself. 43 ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table lists all shares of HCC's Common Stock as of April 1, 2000, beneficially owned by each director of HCC, each executive officer of HCC and each person known by the Company to beneficially own more than 5% of such outstanding shares of Common Stock at such date. The table also reflects the percentage of the shares owned beneficially by all executive officers and directors of HCC as a group. Share numbers and percentages in the table are rounded to the nearest whole share. As of April 1, 2000 there were 135,495 shares of Common Stock of HCC outstanding.
Number of Name and Address Shares of of Beneficial Owners Common Stock* Percent - -------------------- ------------- ------- Windward/Park HCC, L.L.C.(a)(b) 53,836 39.7% Windward/Merban, L.P.(a)(b) 10,767 8.0% Windward/Merchant, L.P.(a)(b) 21,535 15.9% Windward Capital Associates, L.P.(a)(b)(c) 87,721 64.7% Windward Capital Associates, Inc.(b)(c) 87,721 64.7% Gary Swenson(b)(d)(e) 87,721 64.7% Thomas J. Sikorski(b)(e) --- ** Robert Barton(h) --- ** John M. Leonis(h) 270 0.2% Robert Rau(g)(h) 270 0.2% Fred Hauser(h) --- ** Andrew Goldarb(h)(j) 30,453 22.5% Christopher Bateman(h)(i) 9,173 6.8% Richard Ferraid(h)(i) 3,558 2.6% All directors and executive officers of the Company as a group (7 persons)(i)(k) 43,724 32.3%
- ----------- * HCC's common equity is divided into four separate classes of Common stock, par value $.10 per share: (i) Class A Common Stock with one vote per share, (ii) Class B Common Stock with one vote per share, (iii) Class C Common Stock with no voting rights, except as required by applicable state law and (iv) Class D Common Stock with 10 votes per share. Except for voting rights, all the common equity of the Company have identical economic terms. Other than Windward/Merban, L.P. and Windward/Merchant, L.P., all other stockholders of HCC own Class A Common Stock. See note (a) below. ** Less than 1.0% (a) Windward/Park HCC, L.L.C. owns 53,836 shares of Class A Common Stock, Windward/Merban L.P. owns 6,451 shares of Class B Common Stock and 4,316 shares of Class C Common Stock, Windward/Merchant, L.P. owns 21,055 shares of Class B Common Stock and 480 shares of Class D Common Stock and Windward Capital Associates, L.P. owns 1,583 shares of Class A Common Stock. The Windward Group due to their common control may be deemed to beneficially own each others shares, but each disclaims such beneficial ownership. The Windward Group consists of Windward, Windward/Merchant, L.P., the partners of which are Windward and an affiliate of Credit Suisse First Boston Corporation, Windward/Merban, L.P., the partners of which are Windward and an affiliate of Credit Suisse First Boston Corporation and Windward/Park HCC, LLC, the members of which are Windward and MetLife. Pursuant to a set of program agreements, the Windward Group, along with certain other entities, invests in merchant banking investments organized and managed by Windward and its affiliates. The program agreements govern the relationship among the Windward Group and provide for, among other things, procedures for investments, allocations of income and loss, distributions of funds, transfers of interests between and among the partners or members or third parties, provisions relating to the activities of the general partner or manager, including in respect of fees, powers and limitations and removal by the other partners or members, and procedures for the limited partners or non-managing members to exercise voting and management control of the investments. Windward and the other members of the Windward Group have reached agreement concerning an early termination of the period during which they may make future investments under their program agreements. Windward and the other members have informed the Company that such termination will not have any effect on their investment in, or the management or control of, the Company. 44 (b) The business address for such person(s) is c/o Windward Capital Partners, L.P., 1177 Avenue of the Americas, 42nd Floor, New York, New York 10036. (c) Windward Capital Associates, L.P. may be deemed to share beneficial ownership of the Common Stock owned of record by the Windward Group, by virtue of its status as the general partner of Windward/Merchant, L.P., Windward/Merban, L.P. and the Managing Member of Windward/Park HCC, L.L.C., but disclaims such beneficial ownership. Windward Capital Associates, Inc. may be deemed to share beneficial ownership of shares of Common Stock owned of record by the Windward Group by virtue of its status as the general partner of Windward Capital Associates, L.P., but disclaims such beneficial ownership. (d) Mr. Swenson may be deemed to share beneficial ownership of the shares of Common Stock owned of record by the Windward Group, by virtue of his status as the sole stockholder of Windward Capital Associates, Inc., the general partner of Windward Capital Associates, L.P. Mr. Swenson disclaims such beneficial ownership. Windward Capital Associates, L.P. is the general partner of Windward/Merchant, L.P., Windward/Merban, L.P. and the Managing Member of Windward/Park HCC, L.L.C. (e) Messrs. Swenson and Sikorski are limited partners of Windward Capital Associates, L.P. None of Messrs. Swenson and Sikorski, in their capacities as limited partners of Windward Capital Associates, L.P., has or shares voting or investment power with Windward Capital Associates, L.P. with respect to the Common Stock owned by Windward Capital Associates, L.P. (f) Includes 270 shares of Common Stock owned by the Leonis Family 1989 Inter Vivos Family Trust dated March 6, 1989. (g) Includes 270 shares of Common Stock owned by the Rau Family Trust dated December 14, 1984. (h) The business address of such person(s) is c/o HCC Industries, Inc., 4232 Temple City Blvd., Rosemead, CA 91770-1592. (i) Excludes outstanding options to purchase shares of Common Stock of which 244 and 244 are exercisable at March 28, 1998 for Mr. Bateman and Mr. Ferraid, respectively. (j) Includes 27,753 shares of Common Stock owned by the Andrew and Denise Goldfarb Revocable Trust of 1995. Also includes 1,350 shares of Common Stock owned by the Jessica Anne Goldfarb Irrevocable Trust and the 1,350 shares of Common Stock owned by the Rebecca Goldfarb Irrevocable Trust of which Mr. Goldfarb's brother is the trustee. Mr. Goldfarb disclaims beneficial ownership of the share of Common Stock owned by such trusts. (k) Excludes shares of Common Stock referred to in notes (d) and (e) above. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For the year ended April 1, 2000 the Company paid a total of $218,000 in fees to Windward Capital Partners consisting of an annual management fee of $125,000 and expenses totaling $93,000. For the year ended April 3, 1999 the Company paid a total of $152,000 in fees to Windward Capital Partners consisting of an annual management fee of $125,000 and expenses totaling $27,000. For the year ended March 28, 1998, the Company paid a total of $1,466,000 in fees to Windward Capital Partners consisting of a non-recurring financial advisory fee of $1,250,000, an annual management fee of $125,000 and expenses totaling $91,000. 45 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are filed as part of this report: Page Reference Form 10-K --------- (a)(1) FINANCIAL STATEMENTS Report of Independent Accountants 21 Consolidated Balance Sheets at April 1, 2000 and April 3, 1999 22 Consolidated Statements of Operations for each of the three years ended April 1, 2000, April 3, 1999 and March 28, 1998 23 Consolidated Statements of Stockholders' Equity for each of the three years April 1, 2000, April 3, 1999 and March 28, 1998 24 Consolidated Statements of Cash Flows for each of the three years ended April 1, 2000, April 3, 1999 and March 28, 1998 25 Notes to Financial Statements 26 (a)(2) FINANCIAL STATEMENT SCHEDULES Schedule II - Valuation and Qualifying Accounts 38
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the applicable instructions or the required information is included in the Consolidated Financial Statements and Notes thereto, or they are inapplicable and are therefore omitted. The guarantee obligations of the Subsidiary Guarantors (which are all direct or indirect wholly owned subsidiaries of the Company) are full, unconditional and joint and several. The aggregate assets, liabilities, earnings, and equity of the Subsidiary Guarantors are substantially equivalent to the total assets, liabilities, earnings and equity of HCC Industries Inc. and its subsidiaries on a consolidated basis. Separate financial statements of the Subsidiary Guarantors are not included in this Form 10-K because management of the Company has determined that separate financial statements of the Subsidiary Guarantors would not be material to investors. (a)(3) EXHIBITS
Regulation S-K Exhibit Table Reference --------------- 2. PLAN OF ACQUISITION, REORGANIZATION, ARRANGEMENT, LIQUIDATION OR SUCCESSION. 2.1 First Amendment and Restatement of the Stock Purchase and Sale Agreement, dated as of December 23, 1996, by and among the Company, the Windward Group, MetLife and the Sellers named therein. (1) 46 2.2 Subordinated Note Agreement, dated as of February 14, 1997, by and among the Company, Windward/Merchant L.P., Windward/Merban L.P. and MetLife. (1) 2.3 Escrow Agreement, dated as of February 14, 1997, by and among the Company, Windward Capital Associates L.P., the Sellers named therein and U. S. Trust Company of California, N.A., as escrow agent. (1) 3. CERTIFICATE OF INCORPORATION AND BY-LAWS. 3.1 Amended and Restated Certificate of Incorporation of the Company.(1) 3.2 Amended and Restated By-Laws of the Company. (1) 3.3 Certificate of Incorporation of Hermetic Seal Corporation. (1) 3.4 By-Laws of Hermetic Seal Corporation. (1) 3.5 Certificate of Incorporation of Glasseal PHroducts, Inc. (1) 3.6 By-Laws of Glasseal Products, Inc. (1) 3.7 Certificate of Incorporation of Sealtron, Inc. (1) 3.8 By-Laws of Sealtron, Inc. (1) 3.9 Certificate of Incorporation of Sealtron Acquisition Corp. (1) 3.10 By-Laws of Sealtron Acquisition Corp. (1) 3.11 Articles of Incorporation of HCC Industries International. (1) 3.12 By-Laws of HCC Industries International. (1) 3.13 Declaration of Trust of Norfolk Avon Realty Trust. (1) 4. INSTRUMENTS DEFINING THE RIGHT OF SECURITY HOLDERS, INCLUDING INDENTURES. 4.1 Indenture, dated as of May 6, 1997 (the "Indenture"), among the Company, the Subsidiary Guarantors and IBJ Schroder Bank & Trust Company, as Trustee, relating to the 10 3/4% Senior Subordinated Notes due 2007 and the 10 3/4% Senior Subordinated Exchange Notes due 2007. (1) 4.2 Form of 10 3/4% Senior Subordinated Exchange Notes due 2007. (1) 4.3 Registration Rights Amendment, dated May 6, 1997, among the Company, the Subsidiary Guarantors, and Credit Suisse First Boston Corporation and Furman Selz LLC, as Initial Purchasers. (1) 4.4 First Supplemental Indenture, dated as of October 24, 1997, to the Indenture. (1) 9. VOTING TRUST AGREEMENT 9.1 Stockholders Agreement, dated as of February 14, 1997, by and among the Company, the Windward Group and the Stockholders named therein. (1) 47 10. MATERIAL CONTRACTS. 10.1 Credit Agreement, dates as of February 14, 1997, by and among the Company, Fleet Capital Corporation, as Agent, and the Lender Parties thereto. (1) 10.2 Amendment No. 1 to the Credit Agreement, dated as of May 6, 1997, by and among the Company, Fleet Capital Corporation, as Agent, and the Lender Parties thereto. (1) 10.2.1 Amendment No. 2 to the Credit Agreement, dated as of October 8, 1999, by and among the Company, Fleet Capital Corporation, as Agent, and the Lender Parties thereto. 10.2.2 Amendment No. 3 to the Credit Agreement, dated as of November 3, 1999, by and among the Company, Fleet Capital Corporation, as Agent, and the Lender Parties thereto. 10.3 HCC Industries Inc. Stock Option Plan, dated February 14, 1997. (1) 10.4 Form of Stock Option Agreement (included in Exhibit 10.3). (1) 10.5 Contingent Bonus Plan of HCC Industries Inc., dated as of February 14, 1997. (1) 10.6 Form of Contingent Bonus Plan Award Agreement. (1) 10.7 Employment Agreement, dated as February 14, 1997, by and between the Company and Andrew Goldfarb. (1) 10.8.1 Employment Agreement dated as of April 3, 2000 by and between the Company and Christopher H. Bateman 10.9.1 Employment Agreement dated as of March 31, 2000, by and between the Company and Richard L. Ferraid 10.10 Financial Advisory Services Agreement, dated as of February 14, 1997, by and between Windward Capital Partners, L.P. and the Company. (1) 10.11 Letter Agreement, dated February 14, 1997 from the Company to Windward Capital Partners, L.P., related to fees. (1) 10.12 Purchase Agreement, dated May 1, 1997, by and among the Company, the Subsidiary Guarantors and Credit Suisse First Boston Corporation and Furman Selz LLC, as Initial Purchasers. (1) 12. RATIO OF EARNINGS TO FIXED CHARGES. 12.1 Statement regarding the computation of ratio of earnings to fixed charges for the Company. 21. SUBSIDIARIES 21.1 Subsidiaries of the Company. (1) 27. Financial Data Schedule
- ------------- (1) Previously filed under the same exhibit number as an exhibit to Registration Statement on Form S-4 (File No. 333-32207) and incorporated herein by reference. (a)(4) REPORTS ON FORM 8-K On January 28, 2000, we filed a Form 8-K regarding the appointment of Robert H. Rau as the Chairman of the Board and Chief Executive Officer of the Company. 48 On April 25, 2000, we filed a Form 8-K regarding the appointment of Richard Ferraid as the Chief Executive Officer of the Company. 49 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Rosemead, State of California, on June 23, 2000. HCC INDUSTRIES INC. By: /s/ Richard Ferraid ------------------------------ Richard Ferraid President and Chief Executives Officer Pursuant to the requirements of the Securities Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date /s/ Robert H. Rau Chairman June 23, 2000 - ------------------------------------ Robert H. Rau /s/ Richard Ferraid President and Chief June 23, 2000 - ------------------------------------ Executive Officer Richard Ferraid (Principle Executive Officer) /s/ Christopher H. Bateman Director, Vice President and June 23, 2000 - ------------------------------------ Chief Financial Officer Christopher H. Bateman (Principle Financial Officer) Principal Accounting Officer) /s/ Robert H. Barton, III Director June 23, 2000 - ------------------------------------ Robert H. Barton, III /s/ Andrew Goldfarb Director June 23, 2000 - ------------------------------------ Andrew Goldfarb /s/ Fred Hauser Director June 23, 2000 - ------------------------------------ Fred Hauser /s/ John M. Leonis Director June 23, 2000 - ------------------------------------ John M. Leonis /s/ Thomas J. Sikorski Director June 23, 2000 - ------------------------------------ Thomas J. Sikorski /s/ Gary L. Swenson Director June 23, 2000 - ------------------------------------ Gary L. Swenson
50 EX-10.2-1 2 ex-10_21.txt EXHIBIT 10.2.1 EXHIBIT 10.2.1 AMENDMENT NO. 2 TO CREDIT AGREEMENT AGREEMENT, dated as of October 8, 1999, among HCC INDUSTRIES INC., a Delaware corporation (the "Borrower"), the lending institutions listed on the signature pages hereof (collectively, the "Lenders") and FLEET CAPITAL CORPORATION, as Agent (the "Agent"). WHEREAS, the Borrower, the Lenders and the Agent are parties to that certain Credit Agreement, dated as of February 14, 1997, as amended by Amendment No. 1 to Credit Agreement, dated as of May 6, 1997, pursuant to which the Lenders have agreed, subject to certain terms and conditions, to make revolving advances to the Borrower and to issue or to cause the issuance of letters of credit for the account of the Borrower (such agreement being referred to herein as the "Credit Agreement"); WHEREAS, in connection with the contemplated repurchase by the Borrower of certain senior subordinated notes, the Borrower has requested that certain changes be made to the provisions contained in the Credit Agreement, and the Lenders and the Agent are agreeable to making such changes, subject to the terms and conditions herein contained. NOW, THEREFORE, the Borrower, the Lenders and the Agent hereby agree as follows: SECTION 1. CAPITALIZED TERMS. Capitalized terms used but not defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement shall be, and upon the fulfillment of the conditions set forth in Section 3 hereof is, amended as follows: 2.1 Section 8.07 of the Credit Agreement is amended by adding the phrase ", and except that the Borrower may repurchase up to $20,000,000 in face value of the Senior Subordinated Debt within 60 days of the Second Amendment Date; PROVIDED that the aggregate amount paid by the Borrower shall not exceed 65% of the face value of the Senior Subordinated Debt repurchased by the Borrower" to the end of such subsection 8.07(b). 2.2 The definition of "Second Amendment Date" is added to Section 10 of the Credit Agreement in the correct alphabetical order and reads as follows: "SECOND AMENDMENT DATE" shall mean October 8, 1999." SECTION 3. EFFECTIVENESS. This Agreement and the amendments contemplated hereby shall become effective when: (a) counterparts hereof have been duly executed and delivered to the Agent on behalf of the Borrower, the Subsidiary Guarantors, the Lenders and the Agent; (b) the Agent shall be satisfied that, immediately after giving effect to the amendments contemplated hereby, there shall exist no Default or Event of Default both on the date hereof and on the date of (and after giving effect to) satisfaction of the conditions precedent under the other clauses of this Section 3 and all representations and warranties contained herein, in the Credit Agreement and in the other Loan Documents shall be true and correct in all material respects both on the date hereof and on the date of (and after giving effect to) satisfaction of the conditions precedent under the other clauses of this Section 3 with the same effect as though such representations and warranties had been made on and as of each such date except to the extent that such representations and warranties relate to a specified date; (c) all required corporate and legal proceedings of the Borrower with respect to this Agreement and the repurchase of the Senior Subordinated Debt shall have been taken; (d) the Agent shall have received such other agreements, certificates and documents as the Agent may reasonably request in connection with the transactions herein contemplated. SECTION 4. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be an original, and all of which, taken together, shall constitute a single instrument. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 5. REFERENCES TO CREDIT AGREEMENT. From and after the effectiveness of this Agreement and the amendments contemplated hereby, all references in the Credit Agreement to "this Agreement", "hereof", "herein", and similar terms shall mean and refer to the Credit Agreement, as amended and modified by this Agreement, and all references in other documents to the Credit Agreement shall mean such agreement as amended and modified by this Agreement. SECTION 6. RATIFICATION AND CONFIRMATION. The Credit Agreement is hereby ratified and confirmed and, except as herein agreed, remains in full force and effect. The Borrower represents and warrants that both on the date hereof and immediately after giving effect to the amendments herein contemplated (i) all representations and warranties contained in any Loan Document are and shall be true and correct in all material respects with the same effect as though such representations and warranties had been made both on and as of the date hereof and immediately after giving effect to the amendments herein contemplated (except to the extent that such representations or warranties expressly related to a specified date) and (ii) there exists and shall exist no Default or Event of Default. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. HCC INDUSTRIES INC. By ---------------------------------- Name: Title: FLEET CAPITAL CORPORATION, Individually and as Agent By ---------------------------------- Name: Title: By its signature below, each of the undersigned hereby (i) consents to the foregoing amendment of the Credit Agreement, (ii) ratifies and confirms each of the Security Documents and Guaranties to which it is a party and the security interests and liens granted by it thereunder and (iii) agrees that pursuant to the Guaranty to which it is a party it continues to guarantee the Obligations (including, without limitation, any now or hereunder created Obligations under the Credit Agreement as amended hereby) and the security interests and liens granted by it under the Security Documents shall continue to secure such Obligations. HERMETIC SEAL CORPORATION By ------------------------------- Name: Title: NORFOLK AVON REALTY TRUST By ------------------------------- Name: Title: GLASSEAL PRODUCTS, INC. By ------------------------------- Name: Title: SEALTRON ACQUISITION CORP. By ------------------------------- Name: Title: SEALTRON, INC. By ------------------------------- Name: Title: HCC INDUSTRIES INTERNATIONAL By ------------------------------- Name: Title: EX-10.2-2 3 ex-10_22.txt EXHIBIT 10.2.2 EXHIBIT 10.2.2 AMENDMENT NO. 3 TO CREDIT AGREEMENT AGREEMENT, dated as of November 3, 1999, among HCC INDUSTRIES INC., a Delaware corporation (the "Borrower"), the lending institutions listed on the signature pages hereof (collectively, the "Lenders") and FLEET CAPITAL CORPORATION, as Agent (the "Agent"). WHEREAS, the Borrower, the Lenders and the Agent are parties to that certain Credit Agreement, dated as of February 14, 1997, as amended by Amendment No. 1 to Credit Agreement, dated as of May 6, 1997, as further amended by Amendment No. 2 to Credit Agreement, dated as of October 8, 1999, pursuant to which the Lenders have agreed, subject to certain terms and conditions, to make revolving advances to the Borrower and to issue or to cause the issuance of letters of credit for the account of the Borrower (such agreement being referred to herein as the "Credit Agreement"); NOW, THEREFORE, the Borrower, the Lenders and the Agent hereby agree as follows: SECTION 1. CAPITALIZED TERMS. Capitalized terms used but not defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement shall be, and upon the fulfillment of the conditions set forth in Section 3 hereof is, amended as follows: 2.1 The first sentence of the definition of "Borrowing Base" in Section 10 of the Credit Agreement is deleted and the following shall be substituted thereafter. "BORROWING BASE" shall mean, as of any date of determination, the sum of (i) 85% of the book value of all Eligible Accounts of the Borrower and the Subsidiary Guarantors plus (ii) 60% of the value (determined at the lower of cost (calculated on a first in, first out basis) or market) of all Eligible Inventory of the Borrower and the Subsidiary Guarantors plus (iii) $8,000,000; PROVIDED that if the ratio of Obligations on the last day of any Test Period to Consolidated EBITDA for such Test Period shall be more than 2.00:1.00 (as determined by the Agent based upon the financial statements of the Borrower required to be delivered to the Lenders pursuant to SECTIONS 7.01(a) AND (b) hereof), then for the period from the tenth day following delivery of the aforesaid financial statements until the tenth day following the next delivery thereof, the amount set forth in clause (iii) shall be $8,000,000 MINUS the amount of Obligations that would be required to be repaid, as of the last day of such Test Period, in order to reduce the ratio of Obligations to Consolidated EBITDA to 2.00:1.00," 2.2 The definition of "Borrowing Base Excess Cashflow" in Section 10 of the Credit Agreement is deleted. SECTION 3. EFFECTIVENESS. This Agreement and the amendments contemplated hereby shall become effective when: (a) counterparts hereof have been duly executed and delivered to the Agent on behalf of the Borrower, the Subsidiary Guarantors, the Lenders and the Agent, (b) the Agent shall be satisfied that, immediately after giving effect to the amendments contemplated hereby, there shall exist no Default or Event of Default both on the date hereof and on the date of (and after giving effect to) satisfaction of the conditions precedent under the other clauses of this Section 3 and all representations and warranties contained herein, in the Credit Agreement and in the other Loan Documents shall be true and correct in all material respects both on the date hereof and on the date of (and after giving effect to) satisfaction of the conditions precedent under the other clauses of this Section 3 with the same effect as though such representations and warranties had been made on and as of each such date except to the extent that such representations and warranties relate to a specified date; (c) the Agent shall have received such other agreements, certificates and documents as the Agent may reasonably request in connection with the transactions herein contemplated. SECTION 4. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be an original, and all of which, taken together, shall constitute a single instrument. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 5. REFERENCES TO CREDIT AGREEMENT. From and after the effectiveness of this Agreement and the amendments contemplated hereby, all references in the Credit Agreement to "this Agreement", "hereof", "herein" and similar terms shall mean and refer to the Credit Agreement, as amended and modified by this Agreement, and all references in other documents to the Credit Agreement shall mean such agreement as amended and modified by this Agreement. SECTION 6. RATIFICATION AND CONFIRMATION. The Credit Agreement is hereby ratified and confirmed and, except as herein agreed, remains in full force and effect. The Borrower represents and warrants that both on the date hereof and immediately after giving effect to the amendments herein contemplated (i) all representations and warranties contained in any Loan Document are and shall be true and correct in all material respects with the same effect as though such representations and warranties had been made both on and as of the date hereof and immediately after giving effect to the amendments herein contemplated (except to the extent that such representations or warranties expressly related to a specified date) and (ii) there exists and shall exist no Default or Event of Default. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. HCC INDUSTRIES INC. By ------------------------------- Name: Title: FLEET CAPITAL CORPORATION, Individually and as Agent By ------------------------------- Name: Title By its signature below, each of the undersigned hereby (i) consents to the foregoing amendment of the Credit Agreement, (ii) ratifies and confirms each of the Security Documents and Guaranties to which it is a party and the security interests and liens granted by it thereunder and (iii) agrees that pursuant to the Guaranty to which it is a party it continues to guarantee the Obligations (including, without limitation, any now or hereunder created Obligations under the Credit Agreement as amended hereby) and the security interests and liens granted by it under the Security Documents shall continue to secure such Obligations. HERMETIC SEAL CORPORATION By ------------------------------- Name: Title: NORFOLK AVON REALTY TRUST By ------------------------------- Name: Title: GLASSEAL PRODUCTS, INC. By ------------------------------- Name: Title: SEALTRON ACQUISITION CORP. By ------------------------------- Name: Title: SEALTRON, INC. By ------------------------------- Name: Title: HCC INDUSTRIES INTERNATIONAL By ------------------------------- Name: Title: EX-10.8-1 4 ex-10_81.txt EXHIBIT 10.8.1 EXHIBIT 10.8.1 EMPLOYMENT AGREEMENT This Employment Agreement is entered into as of April 3, 2000 by and between HCC Industries Inc., a Delaware corporation (the "COMPANY") and Christopher H. Bateman ("EMPLOYEE"). The parties agree as follows. The capitalized terms on EXHIBIT A have the meanings respectively assigned to them, which apply equally to the singular and plural forms of the terms. 1. EMPLOYMENT 1.1 TERM. The Company agrees to employ Employee for the Term, and Employee accepts such employment. 1.2 TITLE; REPORTING; POLICIES. 1.2.1 TITLE; DUTIES. Employee will serve as Vice President and Chief Financial Officer of the Company. Employee will faithfully perform the duties of Employee's office to the best of Employee's ability. Employee will have such duties and responsibilities as are generally consistent with such position in a company of comparable present and projected size. Employee will also serve without additional compensation in such executive capacities for one or more direct or indirect subsidiaries of the Company as the Board, from time to time, requests. Employee will also, subject to Employee's election as such, serve as a member of any committee of the Board to which Employee may be elected or appointed. 1.2.2 REPORTING. Employee will report directly to the Chief Executive Officer of the Company and will be subject to the direction of the Board and to such limits on Employee's authority as the Board from time to time imposes. 1.2.3 POLICIES. Employee will be subject to and comply with the policies, standards and procedures generally applicable to senior executives of the Company from time to time. 1.3 PLACE; TRAVEL. 1.3.1 PLACE OF EMPLOYMENT. Employee will be based at the Company's principal executive offices in Los Angeles, California. 1.3.2 TRAVEL. Employee will be expected to engage in periodic travel as is required for the proper discharge of Employee's duties. 1.4 EXCLUSIVE; OUTSIDE ACTIVITIES. Employee will devote full and exclusive business time to the Company. The foregoing will not prohibit Employee from: (a) passive ownership of real or personal property; (b) owning less than 5% of any class of securities of a corporation that is publicly held; (c) owning any class of securities of or being a partner in any other corporation or business not competing directly or indirectly with the Company or providing goods or services to the Company if, in each case, (x) interests are held for investment, (y) Employee does not become involved in active management of an operating business, and (z) such ownership or management does not materially interfere with the performance of Employee's duties. Employee may also hold directorships or similar positions with nonprofit, charitable, community or other similar organizations, so long as such activities do not materially interfere with the performance of Employee's duties. Any other directorships or similar positions must be approved by the Board, which approval will not be unreasonably withheld. 2. COMPENSATION AND BENEFITS 2.1. BASE SALARY. Employee will be paid the Base Salary during the Term in accordance with the Company's policies. 2.2. CASH BONUSES. To the extent made available to other executives of similar position, and at a level as determined at the sole discretion of the Board of Directors, Employee will participate in Company sponsored Cash Bonus programs. 2.3. BENEFIT PLANS. During the Term, Employee will be entitled to participate in Benefit Programs substantially similar to the Benefit Programs in which Employee participates on the date hereof. 2.4. EXPENSES. The Company will pay or reimburse Employee for reasonable travel, entertainment or other expenses Employee incurs on behalf of the Company in connection with the performance of Employee's duties in accordance with Company policy existing at the time the expense was incurred. Any such expenses must be either specifically authorized by the Company or incurred in accordance with Company policies. Employee must furnish the Company with evidence relating to such expenses, as the Company requires substantiating such expenses for tax and accounting purposes. 2.5. CAR. The Company will provide a car or reimburse Employee for car expenses in the amount of $750 / month and will provide maintenance and insurance in each case, in a manner consistent with present practice of the Company. 2.6. D&O INSURANCE. The Company will furnish Employee with the same Directors' and Officers' liability insurance furnished to other executive officers from time to time, and use reasonable efforts to name Employee as a named insured for four (4) years after the Term ends. 2.7. VACATION. Employee will be entitled to paid vacation in accordance with the Company's policies applicable to other executive officers of the Company. Such vacation will be taken at such time each year as may be mutually agreed upon by the Company and Employee. 2.8. INDEMNITY. To the fullest extent permitted by applicable law, as from time to time in effect, the Company will indemnify Employee and hold Employee harmless for any acts or decisions made in good faith in performing services for the Company. If Employee is a party to a definitive indemnification agreement with the Company, the foregoing sentence will not be applicable. 2.9. SECTION 162 (m) OF THE CODE. Notwithstanding anything to the contrary in this Agreement, any payment under this Agreement that is not deductible because of Section 162 (m) of the Code will not be paid until the first day that it is deductible. Any such deferred payment will bear interest at the short term federal rate determined under the Code. 3. TERMINATION 3.1. BY COMPANY. The compensation and other benefits provided to Employee under this Agreement, and the employment of Employee by the Company, can be terminated prior to the expiration of the Term only as set forth in this Section 3.1 and only in accordance with Section 3.4, Effect of Termination. 3.1.1. DEATH. All payments and benefits under this Agreement will terminate upon Employee's death, except as set forth in Section 3.4.1. 3.1.2. UNAVAILABILITY. Employee's employment will terminate upon the date as of which Employee is Unavailable, and upon notice by the Company. All payments and benefits under this Agreement will terminate, except as set forth in Section 3.4.1. 3.1.3. GOOD CAUSE. Employee's employment will terminate upon a determination that there is Good Cause for such termination. All payments and benefits under this Agreement will terminate, except as set forth in Section 3.4.1. 3.1.4. WITHOUT GOOD CAUSE. The Board has the right to terminate Employee's employment at any time, with or without Good Cause. All payments and benefits under this Agreement will terminate, except as set forth in Section 3.4.2. 3.2. BY EMPLOYEE. Employee can terminate employment under this Agreement for Constructive Termination or if Employee has established Good Reason under the terms of this Agreement. All payments and benefits under this Agreement will terminate, except as set forth in Section 3.4.2. 3.3. NOTICE OF TERMINATION. Any termination by the Company for Good Cause or Unavailability, or by Employee for Good Reason or Constructive Termination, will be communicated by Notice of Termination to the other party hereto. A "NOTICE OF TERMINATION" will (a) indicate the specific termination provision in this Agreement relied upon, (b) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee's employment under such provisions and (c) if the Date of Termination is other than the date of receipt of such notice, specify the termination date (which if the Notice of Termination is being set forth by the Company, unless due to Good Cause, Death or Unavailability, the date shall not be less than 180 days after the giving of such notice). The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Good Cause will not waive any right of Employee or the Company hereunder or preclude Employee or the Company from asserting such fact or circumstance in enforcing Employee's or the Company's rights hereunder. 3.4. EFFECT OF TERMINATION. 3.4.1. DEATH; UNAVAILABILITY; GOOD CAUSE; OR TERMINATION BY EMPLOYEE WITHOUT GOOD REASON. If during the Term Employee dies, becomes Unavailable, is terminated for Good Cause, or resigns without Good Reason, the company will pay to Employee (or Employee's estate) the sum of Employee's Base Salary and, in the case of Employee's Termination on account of Employee's death or Unavailability, Earned and Unpaid Bonuses, to which Employee was entitled through the Date of Termination and any other previously earned but unpaid compensation (excluding accrued bonuses other than, in the case of Death or Unavailability, Earned and Unpaid Bonuses) under this Agreement, in each case to the extent not previously paid (the "ACCRUED OBLIGATIONS"). The Accrued Obligations will be paid in a lump sum in cash within thirty (30) days after the Date of Termination. If employment is terminated due to Disability, Employee will, while Disabled, continue to participate in any insurance programs that are part of the Benefit Programs to the extent that such continued participation is possible under their terms. All accruals or vesting of benefits will terminate as of the Date of Termination. 3.4.2. WITHOUT GOOD CAUSE, CONSTRUCTIVE TERMINATION OR FOR GOOD REASON. If during the Term Employee's employment is terminated by the Company for any reason, other than Employee's death, Unavailability or Good Cause, or by the Employee for Constructive Termination or for Good Reason, the Company will pay to Employee the Base Salary and any Earned and Unpaid Bonuses to which Employee would have been entitled for the remainder of the Term. Employee will also be entitled to continue to participate in any of the Benefit Programs, as though Employee remained an employee, for such period. Such amounts will be paid or provided to Employee at such times and in such manner as they would have been paid or provided if no such termination had occurred. If Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein will be secondary to those provided under such other plan during such applicable period of eligibility. 3.4.3. WAIVER. If Employee elects to receive the payments, and accepts the payments, set forth in this Section 3.4, Employee agrees that such payments will constitute Employee's sole and exclusive right and entitlement in connection with Employee's employment by the Company and the termination of such employment and any and all matters related to or arising in connection with such employment. Employee's acceptance of such amounts will release the Company and its affiliated entities (including, but not limited to, all directors, officers, employees and agents) from any claims that Employee might otherwise have or assert in connection with such matters. In addition, the Company is entitled to condition such payment on Employee's execution of a normal release. If Employee desires to pursue or enforce any such rights, entitlements or remedies that would otherwise be waived and released, then Employee must refuse the payments provided for in Section 3.4 in their entirety. If Employee accepts such payments, Employee will be deemed to have agreed to the foregoing exclusivity of rights and waiver of claims. 3.4.4. MITIGATION. Employee shall have no obligation to seek or accept employment elsewhere after any termination under this Agreement pursuant to Section 3.4.2. Additionally, if Employee accepts employment elsewhere after any termination under this Agreement pursuant to Section 3.4.2, the Company will have no right to offset any amounts paid to Employee from such other employment during the remaining term hereof, including, but not limited to, any benefits to which Employee is entitled under the other company's benefit plans and programs. 3.4.5. EFFECT ON BENEFIT PROGRAMS. The termination of this Agreement will not affect any vested rights that Employee may have at the Date of Termination under any Benefit Program. 3.4.6. COOPERATION. Following termination of employment with the Company for any reason, Employee will cooperate with the Company for the longer period of either 90 days or for the period of time that the Employee is receiving benefits, as reasonably requested by the Company, to effect a transition of Employee's responsibilities and to ensure that the Company is aware of all matters being handled by Employee. 3.4.7. CONTINGENT BONUS PLAN BENEFITS. Notwithstanding Section 6.3 of the Contingent Bonus Plan of the Company, if this Agreement is terminated by the Company under Sections 3.1.1, 3.1.2, or 3.1.4, by the Employee under Section 3.2 or by the Employee providing a six month notice of non-renewal of this Agreement, the Employee's vested benefits, if any, under the Contingent Bonus Plan shall not terminate. Such benefits will be paid to the Employee on March 28, 2001 for the Bonus Units granted from Bonus Amount A and April 3, 2002 for the Bonus Units granted from Bonus Amount B, all as defined in the Contingent Bonus Plan of the Company. 4. OTHER AGREEMENTS 4.1. CONFIDENTIAL INFORMATION, ETC. 4.1.1. CONFIDENTIAL INFORMATION. Employee will hold all Confidential Information in a fiduciary capacity for the benefit of the Company. After termination of Employee's employment, Employee will not, without the prior written consent of the Company or as may otherwise be required by court order, communicate or divulge any such Confidential Information to anyone other than the Company and those designated by it. Employee acknowledges that Employee has reviewed and signed the Property Rights and Confidentiality Agreement attached hereto as EXHIBIT B and agrees that Employee's current signature on that Agreement acknowledges his or her receipt thereof. 4.1.2. CLIENTS; EMPLOYEES. During the Term and afterwards for a period of six (6) months, Employee will not (a) solicit customers, suppliers or clients of the Company to reduce or discontinue their business with the Company or to engage in business with any competing entity or (b) attempt to induce any employee of the Company to leave such employment. 4.1.3. PUBLICATIONS. If Employee desires to publish the results of Employee's work for or experiences with the Company through literature, interviews or speeches, Employee will submit requests for such interviews or such literature or speeches to the Chief Executive Officer at least five (5) days before any dissemination of such information for a determination of whether such disclosure is in the best interests of the Company. Employee will not publish, disclose or otherwise disseminate such information without the prior written approval of the Company. 4.1.4. DOCUMENTS. On the Date of Termination, Employee shall deliver to the Company and not keep or deliver to anyone else any and all notes, notebooks, memoranda, documents, regardless of whether such materials are in hard copy form or on computer disks and, in general, any and all material, relating to the Company's business. Employee shall not retain any such materials without prior written approval by the Company. 4.2. WORK PRODUCT. 4.2.1 OWNERSHIP OF WORK PRODUCT. If Employee conceives of, discovers, invents or creates inventions, improvements, new contributions, literary property, material, ideas and discoveries, whether patentable or copyrightable or not (all of the foregoing being collectively referred to herein as "WORK PRODUCT"), or receives information about business opportunities for the Company, unless Company otherwise agrees in writing, all of the foregoing will be owned by and belong exclusively to Company and that Employee will have not personal interest therein, if they are either related in any manner to the business (commercial or experimental) of Company, or are, in the case of Work Product, conceived or made on Company's time or with the use of Company's facilities or materials, or, in the case of business opportunities, are presented to Employee for the possible interest or participation of Company. Employee will further, unless Company otherwise agrees in writing, (a) promptly disclose any such Work Product and business opportunities to Company; (b) assign to Company, upon request and without additional compensation, the entire rights to such Work Product and business opportunities; (c) sign all papers necessary to carry out the foregoing; and (d) give testimony in support of Employee's inventorship or creation in any appropriate case. Employee will not assert any rights to any Work Product or business opportunity as having been made or acquired by Employee prior to the date of this Agreement except for Work Product or business opportunities, if any, disclosed to and acknowledged by Company in writing prior to the date thereof. 4.2.2 NONASSIGNABLE SECTION 2870 INVENTIONS. In the event that Employee's employment is subject to the California Labor Code, except for Employee's obligations under Section 4.2.3. below, this Agreement does not apply to Work Product with qualifies as a nonassignable Work Product under Section 2870 of the California Labor Code ("Section 2870"). Employee acknowledges that Employee has reviewed the Employee-Owned Invention Notification attached hereto as EXHIBIT C and agrees that Employee's signature on that Notification acknowledges his or her receipt thereof. 4.2.3 EMPLOYEE DISCLOSURE OBLIGATION. Employee shall, during the employment and for six months thereafter, promptly disclose to the Company fully and in writing all Work Product made, conceived or first reduced to practice by Employee, either alone or jointly with others, including, if Section 2870 applies to Employee, any Work Product that Employee believes fully qualifies for protection under Section 2870, together with all evidence, in writing, necessary to substantiate that belief. In addition, Employee will disclose to the Company all patent applications filed by Employee or on Employee's behalf within a year after termination of the employment. The Company will maintain such information in confidence and will not use for any purpose or disclose to third parties any such information without Employee's consent except to the extent necessary to exploit and enforce any proprietary or intellectual property right the Company may have in such disclosed information. 4.3. INSURANCE. The Company will have the right to take out life, health, accident, "Key-man" or other insurance covering Employee, in the name of the Company and at the Company's expense in any amount deemed appropriate by the Company. Employee will assist the Company in obtaining such insurance, including, but not limited to, submitting to any reasonably required medical examination. The Company will be the owner and beneficiary of any and all policies for such insurance. 4.4. ASSISTANCE IN LITIGATION, QUASI-LEGAL PROCEEDINGS, INCLUDING, EXTERNAL OR INTERNAL INVESTIGATIONS. Employee will furnish information, render assistance, advice and counsel to the Company at its request regarding any litigation, quasi-legal, proceeding, including, but not limited to, any external or internal investigation, matter, dispute or controversy with which the Company or any of its affiliates or in which any of them is, or may become involved and of which Employee has or may have reason to have knowledge, information or expertise. Such services will be without additional compensation if Employee is then employed by the Company or if the Employee is drawing on benefits after termination and for reasonable compensation and subject to Employee's reasonable availability if Employee is not. In any event, the Company will pay all of Employee's reasonable out-of-pocket expenses in connection therewith. 4.5. WITHHOLDING TAXES. To the extent required by the law in effect at the time any amounts under this Agreement are paid, the Company will withhold from such payments the taxes and other amounts required to be withheld by applicable law. 4.6. MEDICAL EXAMINATION. Employee will submit to and cooperate in, from time to time, such examinations as the Company reasonably requests to determine whether Employee is or continues to be able to perform the essential functions of his/her position. 5. DISPUTE RESOLUTION 5.1. DISPUTE RESOLUTION. Except as necessary for the Company to specifically enforce its rights under Sections 1.4, 4.1 and 4.2 of the Agreement or to obtain injunctive relief, the parties agree that any disputes that may arise in connection with, arising out of or relating to this Agreement, or any dispute that relates in any way, in whole or in part, to Employee's employment with the Company, the termination of that employment or any other dispute by and between the parties or their successors or assigns, will be submitted to binding arbitration in Los Angeles, California according to the Employment Dispute Resolution rules and procedures of the American Arbitration Association and California Code of Civil Procedure Section 1283.05. Each party will pay half of any costs associated with the arbitration. This arbitration obligation extends to any and all claims that may arise by and between the parties or their successors, assigns or affiliates, and expressly extends to, without limitation, claims or causes of action for wrongful termination, impairment of ability to compete in the open labor market, breach of an express or implied contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, fraud, misrepresentation, defamation, slander, infliction of emotional distress, disability, loss of future earnings, and claims under the California or other State Constitutions, the United States Constitution, and applicable state and federal fair employment laws, federal equal employment opportunity laws, and federal and state labor statues and regulations, including, but not limited to, the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended, the Americans With Disabilities Act of 1990, the Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security Act of 1974, as amended, and the Age Discrimination in Employment Act of 1967. 5.2 RIGHTS AND REMEDIES UPON BREACH. If Employee breaches, or threatens to commit a breach of, any of the provisions of Sections 1.4, 4.1 and 4.2 of the Agreement (the "Restrictive Covenants"), the Company and its subsidiaries, affiliates, successors or assigns shall have the following rights and remedies, each of which shall be independent of the others and severally enforceable, and each of which shall be in addition to, and not in lieu of, any other rights or remedies available to the Company or its subsidiaries, affiliates, successors or assigns at law or in equity: 5.2.1 SPECIFIC PERFORMANCE. The right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company or its subsidiaries, affiliates, successors or assigns and that money damages would not provide an adequate remedy to the Company or its subsidiaries, affiliates, successors or assigns; 5.2.2 ACCOUNTING. The right and remedy to require Employee to account for and pay over to the Company or its subsidiaries, affiliates, successors or assigns, as the case may be, all compensation, profits, monies, accruals, increments or other benefits derived or received by Employee as a result of any transaction or activity constituting a breach of the Restrictive Covenants; 5.2.3 SEVERABILITY OF COVENANTS. Employee acknowledges and agrees that the Restrictive Covenants are reasonable and valid in geographic and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect without regard to the invalid portions; 5.2.4 BLUE-PENCILING. If any court determines that any of the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or geographic scope of such provision, such court shall have the power to reduce the duration or scope of such provision, as the case may be, and, in its reduced form, such provision shall then be enforceable; 5.2.5 ENFORCEABILITY IN JURISDICTION. Employee intends to and hereby confers jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographic scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants unenforceable by reason of the breadth of such scope or otherwise, it is the intention of Employee that such determination not bar or in any way affect the Company's or its subsidiaries', affiliates', successors' or assigns' right to the relief provided above in the courts of any other jurisdiction within the geographic scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants. 5.3 PREVAILING PARTY. The prevailing party in any action relating to this Agreement will be entitled to recover, in addition to other appropriate relief, reasonable legal fees, costs and expenses incurred in such action. 5.4 SUCCESSOR. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 6. GENERAL PROVISIONS 6.1. ASSIGNMENT. This Agreement is a personal contract, and the rights, interests and obligations of Employee under this Agreement may not be sold, transferred, assigned, pledged or hypothecated by Employee, except that this Agreement may be assigned by the Company to any corporation or other business entity that succeeds to all or substantially all of the business of the Company or any division or subunit thereof through merger, consolidation, corporate reorganization or by acquisition of all or substantially all of the assets of the Company and that assumes the Company's obligations under this Agreement. The term and conditions of this Agreement will inure to the benefit of and be binding upon any successor to the business of the Company and Employee's heirs and legal representatives. 6.2. AMENDMENTS; WAIVERS. Amendments, waivers, demands, consents and approvals under this Agreement must be in writing and designated as such. No failure or delay in exercising any right will be deemed a waiver of such right. 6.3. INTEGRATION. This Agreement is the entire agreement between the parties pertaining to its subject matter, and supersedes all prior agreements and understandings of the parties in connection with such subject matter. 6.4. INTERPRETATION; GOVERNING LAW. This Agreement is to be construed as a whole and in accordance with its fair meaning. This Agreement is to be interpreted in accordance with the laws of the State of California. 6.5. HEADINGS. Headings of Sections and subsections are for convenience only and are not a part of this Agreement. 6.6. COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which constitute one agreement. 6.7. SUCCESSORS AND ASSIGNS. This Agreement is binding upon and inures to the benefit of each party and such party's respective heirs, personal representatives, successors and assigns. Nothing in this Agreement, express or implied, is intended to confer any rights or remedies upon any other person. 6.8. EXPENSES. If the Employee seeks legal representation in connection with this Agreement, the Company shall reimburse the Employee for legal expenses in an amount not to exceed $1000.00. 6.9. REPRESENTATION BY COUNSEL; INTERPRETATION. The Employee acknowledges that he/she has had the opportunity to be represented by counsel in connection with this Agreement. Any rule of law, including, but not limited to, Section 1654 of the California Civil Code, or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it, has no application and is expressly waived. 6.10. TIME IS OF THE ESSENCE. Time is of the essence in the performance of each and every term, provision and covenant in this Agreement. 6.11. NOTICES. Any notice to be given hereunder must be in writing and delivered to the following addresses (or to another address as either shall designate in writing). Such notice will be effective (a) if given by telecopy or if confirmed by returned telecopy, (b) one Business Day after delivery through a generally recognized and reputable overnight courier or messenger for next day deliver, (c) if given by mail or any other means, when actually delivered to the address specified. IF TO THE COMPANY: IF TO EMPLOYEE: HCC Industries Inc. At Employee's most recent 4232 Temple City Blvd. address on the books and Rosemead, California 91770 records of the Company. Attention: Chairman of the Board The parties have signed this Agreement effective as of the date on page three. HCC INDUSTRIES INC. By: ----------------------------- Its: ---------------------------- EMPLOYEE -------------------------------- Christopher H. Bateman EXHIBIT A DEFINED TERMS "AGREEMENT" means this Employment Agreement, as amended from time to time. "BASE SALARY" means the annual amount of $212,000. Base salary may be increased from time to time at the sole discretion of the Board of Directors. In no event will Base Salary be reduced. "BENEFIT PROGRAMS" means programs such as group health, dental, life and disability, 401k and similar programs (but excluding bonus plans). "BOARD" means the Company's Board of Directors as composed at the time, not including Employee. "BUSINESS DAY" means any day except a Saturday, Sunday or other day national banks in the State of California are authorized or required by law to close. "CHANGE OF CONTROL" means the occurrence of any of the following events: (a) the sale, lease, transfer or other disposition of all or substantially all of the assets of the Company or its subsidiaries (taken as a whole) to any Person or related group of Persons other than the Stockholders (all as defined in the Stockholders Agreement); (b) the merger or consolidation of the Company with or into another corporation, or the merger of another corporation into the Company, with the effect that Persons other than the Stockholders (and their Permitted Transferees (as defined in the Stockholders Agreement) or any "group" (as defined in the rules promulgated under Section 13(d) of the Securities Exchange Act of 1934, as amended) of which any Stockholder or Permitted Transferees is a member) hold more than 50% of the total voting power on a fully diluted basis entitled to vote in the election of directors, managers or trustees of the surviving corporation of such merger or the corporation resulting from such consolidation; and (c) any other event which results in a Person or "group" other than the Stockholders (and their Permitted Transferees or any "group" of which any Stockholder or their Permitted Transferees is a member) holding, directly or indirectly, in the aggregate more than 50% of common stock to the issuance of all shares of common stock issuable (i) upon conversion of all convertible securities outstanding at such time and all convertible securities issuable upon the exercise of any warrants, options and other rights outstanding at such time, and (ii) upon exercise of all other warrants, options and other rights outstanding at such time. "CHANGE OF STATUS" means any change in Employee's title, duties and responsibilities, or place of employment (beyond 25 miles of Employee's current place of employment). "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "COMMON STOCK" means the Company's common stock, $0.10 par value. "COMPANY" means HCC Industries Inc., a Delaware corporation, together with its subsidiaries. "CONFIDENTIAL INFORMATION" means information not known by the trade generally or not reasonably available to a knowledgeable person in the trade, even though such information may have been disclosed to one or more third parties pursuant to consulting agreements, joint research agreements, or other agreements entered into by the Company and includes, but is not limited to, trade secrets, designs, plans, formulas, customer lists, lists of suppliers, and all other confidential and proprietary information. "CONSTRUCTIVE TERMINATION" means that if there is a Change of Status or a Change of Control in the Company, which results in a Change of Status for the Employee and thus an effective termination, Employee may, at Employee's sole discretion, terminate as though he/she were terminating for Good Reason. "CONTINGENT BONUS PLAN" means the Contingent Bonus Plan, dated February 14, 1997 between the Company and the Participants, as that term is defined therein. "DATE OF TERMINATION" means: (a) the end of the Term, if Employee's employment has not terminated before then; (b) if Employee's employment is terminated by the Company for Good Cause, or by Employee for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (c) if Employee's employment is terminated by reason of death or Unavailability, the date of death of Employee or the effective date, of the Unavailability, as the case may be; and (d) if Employee's employment is terminated by the Company other than for Good Cause, Death or Unavailability, or by the Employee for Good Reason or Constructive Termination, 180 days after the date on which the Company notifies Employee of such termination. "DISABILITY" means the Employee's inability to substantially render to the Company the services required under this Agreement for more than 60 days out of any consecutive 120 day period because of mental or physical illness or incapacity, as determined in good faith by the Board. "EARNED AND UNPAID BONUSES" means with respect to any date, bonuses which have been earned by Employee as of the end of the Company's fiscal year preceding such date but not paid to Employee. "GOOD CAUSE" means a finding by the Board in good faith that Employee has (a) been engaged in an act or acts of dishonesty that were intended to and did result directly or indirectly in gain or personal enrichment to Employee at the expense of the Company; (b) failed to substantially perform Employee's duties hereunder (other than failure resulting from Employee's Unavailability due to Disability) persisting for a reasonable period following the delivery to Employee of written notice specifying the details of any alleged failure to perform, which failure has, at the sole discretion of the Company, resulted in material injury and damage to the Company; (c) breached this Agreement in any material respect; or (d) been convicted of any felony offense or misdemeanor offense involving fraud, theft or dishonesty at any time. An event specified in (b) or (c) above will not constitute "GOOD CAUSE" until the Board provides Employee with written notice of such event setting forth in reasonable detail the specifics of such event and such event has not been cured to the reasonable satisfaction of the Board, within thirty days of such notice (except upon the subsequent occurrence of a substantially similar event, in which case such second event will constitute "Good Cause" without any notice or cure period). "GOOD REASON" means, other than an event also constituting Good Cause, the Company's material breach of this Agreement. "STOCKHOLDERS AGREEMENT" means the Stockholders Agreement, dated February 14, 1997 among the Company, Windward, Windward/Park, Windward/Merban, Windward/Merchant, and the Management Stockholders as defined therein. "TERM" means the period from the date hereof through 180 days after the Notice of Termination date in which the Employee is terminated for any reason other than Good Cause, Death, Unavailability or voluntary termination. "UNAVAILABILITY" means Employee being unable to fully perform Employee's duties by reason of Disability or other incapacity, or by reason of any statute, law, ordinance, regulation, order, judgment or decree, except for an instance that would constitute Good Cause. EXHIBIT B PROPERTY RIGHTS AND CONFIDENTIALITY AGREEMENT In consideration of my employment and the compensation paid me by HCC Industries Inc., or any of its subsidiary companies (hereinafter collectively referred to as the "Company"), I hereby agree as follows: 1. CONFIDENTIALITY. I agree that for and during the entire term of my employment any of the following shall be considered and kept as the private and privileged records of the Company and will not be divulged to any person, firm, or institution except with the prior written authorization of the President of HCC: a) Sales and marketing: customer lists and files, price lists, forecasts, reports, data, research, orders, RFQ'S, and related information whether documented in hard copy form or in electronic files; b) Financial: financial reports, budgets, forecasts, operating analyses whether documented in hard copy form or in electronic files; c) Other: engineering processes and designs, drawings, trade secrets, purchasing data, quality levels and yields, and personnel files, whether documented in hard copy form or in electronic files. Further, upon termination of my employment for any reason, I agree that I will continue to treat as private and privileged such information and will not release any such information to any person, firm or institution without prior written authorization of the President of HCC, and the Company shall be entitled to an injunction by any competent court to enjoin and restrain the authorized disclosure of such information. 2. OWNERSHIP OF EMPLOYEE'S INVENTIONS. All inventions, processes, procedures, systems, discoveries, designs, glass formulae, trade secrets and improvements conceived by me, alone or with others, during the term of my employment, that are within the scope of the Company's business operations or that relate to any of the Company's work or projects, are the exclusive property of the Company. I agree to assist the Company, at its expense, to obtain patents on any such patentable ideas, inventions, and other developments, and I agree to execute all documents necessary to obtain such patents in the name of the Company. 3. RETURN OF PROPERTY. Upon termination of my employment, regardless of how effected, I shall immediately turn over to the Company all of the Company's property, including, but not limited to, all items used by me in rendering services to the Company that may be in my possession or under my control, including, but not limited to, all notes, memoranda, notebooks, drawings, records, reports, software, electronic systems, computers, computer disks, paper files, electronic files and other documents in either hard copy form or electronic media (and all copies or reproductions of such material). I acknowledge that this material is the sole property of the Company. 4. MISCELLANEOUS. a) In the event I seek employment with any person, firm or other enterprise competitive with the Company, I will disclose this Agreement to them. b) I acknowledge that this Agreement is not in any way intended to create an Employment Contract, either expressed or implied. c) This Agreement is governed by and will be construed under the laws of the State of California. EMPLOYEE: Dated: ----------------- -------------------------- Employee's Signature ------------------------- Employee's Name HCC INDUSTRIES INC.: Dated: By: ----------------- ----------------------- EXHIBIT C EMPLOYEE-OWNED INVENTION NOTIFICATION This Employee-Owned Invention Notification ("Notification") is to inform Employee in accordance with Section 2872 of the California Labor Code that the Agreement between Employee and the Company does not require Employee to assign or offer to assign to the Company any invention that Employee developed or develops entirely on his or her own time without using the Company's equipment, supplies, facilities or trade secret information except for those inventions that either: 1. Relate at the time of conception or reduction to practice of the invention to the Company's business, or actual or demonstrably anticipated research or development of the Company; or 2. Result from any work performed by Employee for the Company. To the extent a provision in the Agreement purports to require Employee to assign an invention otherwise excluded from the preceding paragraph, the provision is against the public policy of the State of California and is unenforceable. This Notification does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States. Employee acknowledges receipt of a copy of this Notification: By: --------------------------- (Printed Name of Employee) Date: ------------------------- Witnessed By: - -------------------------------- (Printed Name of Representative) Date: ----------------------------- EX-10.9-1 5 ex-10_91.txt EXHIBIT 10.9.1 EXHIBIT 10.9.1 EMPLOYMENT AGREEMENT This Employment Agreement is entered into as of the 31st day of March, 2000 by and between HCC INDUSTRIES, INC., a Delaware corporation (the "Company") and RICHARD FERRAID ("Employee"). The parties agree as follows. The capitalized terms on Exhibit A have the meanings respectively assigned to them, which apply equally to the singular and plural forms of the terms. 1. EMPLOYMENT 1.1 TERM. The Company agrees to employ Employee for the Term, and Employee accepts such employment. 1.2 TITLE; REPORTING; POLICIES. 1.2.1 TITLE; DUTIES. Employee will serve as President and Chief Executive Officer of the Company. Employee will faithfully perform the duties of Employee's office to the best of Employee's ability. Employee will have such duties and responsibilities as are generally consistent with such position in a company of comparable present and projected size. Employee will also serve without additional compensation in such executive capacities for one or more direct or indirect subsidiaries of the Company as the Board from time to time requests. Employee will also, subject to Employee's election as such, serve as a member of any committee of the Board to which Employee may be elected or appointed. 1.2.2 REPORTING. Employee will report directly to the Chairman of the Board of Directors of the Company and will be subject to the direction of the Board and to such limits on Employee's authority as the Board from time to time imposes. 1.2.3 POLICIES. Employee will be subject to and comply with the policies, standards and procedures generally applicable to senior executives of the Company from time to time. 1.3 PLACE; TRAVEL. 1.3.1 PLACE OF EMPLOYMENT. The Company shall furnish Employee with proper offices, other facilities and equipment, and such support staff and services as are suitable for the performance of his duties and functions hereunder. Employee will be based at the Company's offices in Lakewood, New Jersey, or at offices in Rosemead or El Monte, California at the discretion of Employee. Employee shall not be transferred to another location outside of New Jersey without his prior, written consent. 1.3.2 TRAVEL. Employee will be expected to engage in frequent travel as is required for the proper discharge of Employee's duties. Employee shall be entitled to reimbursement for his travel expenses and when flying between New Jersey and California, Employee shall be entitled to fly first class except on flights where business class is available. While traveling, Employee shall be entitled to stay in quality hotel accommodations. 1.4 EXCLUSIVE; OUTSIDE ACTIVITIES. Employee will devote full and exclusive business time to the Company. The foregoing will not prohibit Employee from: (a) passive ownership of real or personal property; (b) owning less than 5% of any class of securities of a corporation that is publicly held; (c) owning any class of securities of or being a partner in any other corporation or business not competing directly or indirectly with the Company or providing goods or services to the Company if, in each case (x) interests are held for investment, (y) Employee does not become involved in active management of an operating business, and (z) such ownership or management does not materially interfere with the performance of Employee's duties. Employee may also hold directorships or similar positions with nonprofit, charitable, community or other similar organizations, so long as such activities do not materially interfere with the performance of Employee's duties. Any other directorships or similar positions must be approved by the Board, which approval will not be unreasonably withheld. 2. COMPENSATION AND BENEFITS 2.1 BASE SALARY. Employee will be paid the Base Salary during the Term in accordance with the Company's policies. 2.2(a) PERFORMANCE BONUS - FY 2001. In addition to the Base Salary payable under Section 2.1, the Company shall pay Employee an annual Performance Bonus predicated upon the Company's achieving the EBITDA Target (the "EBITDA Target") established by the Company and identified on Exhibit C annexed hereto and made a part hereof, as determined by the Company's independent auditing firm based upon the Company's fiscal year-end audited financial statement. The amount of Employee's Performance Bonus is expressed as a percentage of his Base Salary and corresponds to a percentage of the EBITDA Target set forth in Exhibit C. As an example, in the event that the Company achieves 100% of the targeted EBITDA, the Employee's Performance Bonus shall equal 35% of his Base Salary. This Performance Bonus will decrease or increase as the Company falls short or exceeds the EBITDA Target as shown by the graph on Exhibit C. Any changes in the EBITDA Target will be evidenced by a substituted Exhibit C to this Agreement which shall be initialed by the Chairman of the Board of Directors and Employee and attached to, and made a part of, this Agreement. In the event that Employee is entitled to a Performance Bonus under this Section 2.2, such bonus shall be paid within thirty (30) days of the issuance of the Company's fiscal year-end audited financial statement. In the event that this Agreement is terminated by the Company, unless such termination is pursuant to Section 3.2.3, Employee shall be entitled to a Performance Bonus for the fiscal year of the Company in which the termination occurs, equal to the greater of (i) the Target Bonus for such fiscal year, or (ii) Employee's actual Performance Bonus for the previous fiscal year. 2.2(b) PERFORMANCE BONUS - FY 2002 AND SUBSEQUENT FISCAL YEARS. For fiscal years beginning April 1, 2001 and beyond, the employee shall be entitled to a target bonus of not less than 35% of Base Salary. Such target bonus shall be based upon a Bonus Plan developed for FY 2002 and subsequent years as approved by the Board of Directors. The provisions of such Bonus Plans are at the sole discretion of the Board except that such provisions must provide employee with a reasonable opportunity to earn 35% of Base Salary. 2.3 STOCK OPTIONS. In consideration of Employee's execution of this Agreement, the Company shall grant Employee an option to purchase 2,500 shares of the Company's common stock (the "Option"). The exercise price of the Option shall be as follows:
Number of Shares subject to Option Exercise Price 1,000 $0 1,500 $370.49
The Option shall expire on, and shall not be exercisable on and after, the tenth (10th) anniversary of the Effective Date, subject to earlier expiration in accordance with Section 3 below. No portion of the Option shall be exercisable on the Option's date of grant, but a percentage of the Option shall become exercisable on, and shall remain exercisable on and after, each of the first three (3) anniversaries of the Effective Date, as set forth in the table below:
Percentage of Option which is Anniversary of the Exercisable and Remains Effective Date Exercisable Until Option Expires 0 0% 1st 33 1/3% 2nd 66 2/3% 3rd 100%
The foregoing notwithstanding, in the event of a Change of Control, the Option shall be deemed to have become fully (i.e., 100%) vested and exercisable and shall remain exercisable for a period of one (1) year thereafter regardless of whether Employee continues to be employed by the Company or, if longer, then for the period during which such Option would otherwise be exercisable under this Agreement. 2.4 BENEFIT PROGRAMS. During the Term, Employee will be entitled to participate in those Benefit Programs made generally available to the senior executives of the Company, which shall in any event provide no less benefit to Employee than those Benefit Programs in which Employee participates on the date hereof. 2.5 EXPENSES. The Company will pay or reimburse Employee for all reasonable travel (see Section 1.3.2), entertainment or other expenses incurred by Employee in connection with the performance of his duties in accordance with Company policy existing at the time the expense was incurred. Any such expenses must be either specifically authorized by the Company or incurred in accordance with Company policies. Employee must furnish the Company with evidence relating to such expenses, as the Company reasonably requires, substantiating such expenses for tax and accounting purposes. 2.6 CAR. The Company will either (a) provide Employee with the use of a car (luxury class) or reimburse Employee in the amount of $750.00 per month for car expenses and will provide maintenance and insurance in each case, in a manner consistent with present practice of the Company. 2.7 D&O INSURANCE. The Company will furnish Employee with the same Directors' and Officers' liability insurance furnished to other executive officers from time to time, and use reasonable efforts to name Employee as a named insured for four (4) years after the Term ends. 2.8 VACATION. Employee shall be entitled to four weeks paid vacation per year, taken at a time, at employee's discretion, in order to best meet employee's personal desires while minimizing any potential for disruption to the Company's business. Employee is encouraged to take the vacation provided for here. The Company recognizes that it may be in the best interest of the Company for employee to defer some portion of his vacation. However, in no case can employee accrue vacation in excess of six weeks without prior written consent of the Board of Directors. 2.9 INDEMNITY. To the fullest extent permitted by applicable law, as from time to time in effect, the Company will indemnify Employee and hold Employee harmless for any acts or decision made in good faith in performing services for the Company. If Employee is a party to a definitive indemnification agreement with the Company, then the foregoing sentence will not be applicable. 2.10 SECTION 162(m) OF THE CODE. Notwithstanding anything to the contrary in this Agreement, any remuneration under this Agreement or any other agreements to which the Company and Employee are parties in respect of employment that is not deductible for any taxable year of the Company because of Section 162(m) of the Code will be deferred until the first day that any excess remuneration becomes deductible under Section 162(m) or by virtue of its repeal or amendment. Any such deferred payment will bear interest at the short term federal rate determined under the Code beginning with the date such payment is first deferred. Notwithstanding any provision in this Agreement to the contrary, this Section 2.10 shall survive the termination of this Agreement. 3. TERM AND TERMINATION. 3.1 TERM. Unless terminated as provided in Sub-Section 3.2, the Term of this Agreement shall be two (2) years, commencing on April 1, 2000 and terminating on March 31, 2002; provided, however, that the Term of this Agreement shall automatically renew for a period of two (2) years on March 31st of each year (such date, the "Renewal Date"), unless the Board of Directors shall have elected to terminate this Agreement by delivering written notice of its election to terminate to Employee not fewer than thirty (30) days prior to the Renewal Date. 3.2 TERMINATION BY COMPANY. The compensation and other benefits provided to Employee under this Agreement, and the employment of Employee by the Company, can be terminated prior to the expiration of the Term only as set forth in this Section 3.2. 3.2.1 DEATH. Employee's employment will terminate upon his death. 3.2.2 UNAVAILABILITY. Employee's employment will terminate upon the date as of which Employee is Unavailable, without further action or notice by the Company. 3.2.3 GOOD CAUSE. Employee's employment will terminate upon a determination that there is Good Cause for such termination. 3.2.4 WITHOUT CAUSE. The Board has the right to terminate Employee's employment at any time, with or without Good Cause. 3.3 TERMINATION BY EMPLOYEE. Employee can terminate employment under this Agreement for Constructive Termination or if Employee has established Good Reason under the terms of this Agreement. 3.4 NOTICE OF TERMINATION. Any termination by the Company for Good Cause, or by Employee for Good Reason or Constructive Termination, will be communicated by Notice of Termination to the other party hereto. A "Notice of Termination" will (a) indicate the specific termination provision in this Agreement relied upon; (b) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee's employment under such provisions; and (c) if the Date of Termination is other than the date of receipt of such notice, specify the termination date (which date shall not be more than fifteen (15) days after the giving of such notice). The failure by the Employee or the Company to set forth in the Notice of Termination any fact or circumstance that contributes to a showing of Good Reason or Good Cause will not waive any right of Employee or the Company hereunder or preclude Employee or the Company from asserting such fact or circumstance in enforcing Employee's or the Company's rights hereunder. 3.5 EFFECT OF TERMINATION. 3.5.1 TERMINATION BY COMPANY FOR ANY REASON OTHER THAN FOR GOOD CAUSE. If, during the Term, Employee's employment is terminated by the Company for any reason other than for Good Cause, the Company will continue to pay to Employee the Base Salary and any Earned and Unpaid Performance Bonuses to which Employee would have been entitled for a period of twenty-four (24) months from the date of termination. Employee will also be entitled to continue to participate in any insurance programs that are part of the Benefit Programs, as though Employee remained an employee, for such period. Such amounts will be paid or provided to Employee at such times and in such manner as they would have been paid or provided if no such termination had occurred. If Employee becomes re-employed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, then the medical and other welfare benefits described herein will be secondary to those provided under such other plan during such applicable period of eligibility. 3.5.2 TERMINATION BY COMPANY FOR GOOD CAUSE OR TERMINATION BY EMPLOYEE WITHOUT GOOD REASON. If during the Term, Employee is terminated for Good Cause, or resigns without Good Reason, then the Company will pay to Employee the sum of Employee's Base Salary and Earned and Unpaid Performance Bonuses, to which Employee was entitled through the Date of Termination, and any other previously earned but unpaid compensation under this Agreement, in each case to the extent not previously paid (the "Accrued Obligations"). The Accrued Obligations will be paid in a lump sum in cash within thirty (30) days after the Date of Termination. All accruals or vesting of benefits will terminate as of the Date of Termination. 3.5.3 TERMINATION BY EMPLOYEE FOR GOOD REASON OR CONSTRUCTIVE TERMINATION. If, during the Term, Employee's employment is terminated by Employee by Constructive Termination or for Good Reason, then the Company will continue to pay to Employee the Base Salary and any Earned and Unpaid Performance Bonuses to which Employee would have been entitled for a period of twenty-four (24) months from the date of termination.. Employee will also be entitled to continue to participate in any insurance programs that are part of the Benefit Programs, as though Employee remained an employee, for such period. Such amounts will be paid or provided to Employee at such times and in such manner as they would have been paid or provided if no such termination had occurred. If Employee becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, then the medical and other welfare benefits described herein will be secondary to those provided under such other plan during such applicable period of eligibility. 3.5.4 CONTINGENT BONUS PLAN BENEFITS. Notwithstanding Section 6.3 of the Contingent Bonus Plan of the Company, if this Agreement is terminated by the Company under Sections 3.2.1, 3.2.2 or 3.2.4 or by the Employee under Section 3.3 the Employee's vested benefits, if any, under the Contingent Bonus Plan of the Company shall not terminate. Such benefits will be paid to the Employee in accordance with the payment provisions of the Contingent Bonus Plan of the Company. 3.5.5 WAIVER. If Employee elects to receive the payments, and accepts the payments, set forth in this Section 3.5, then Employee agrees that such payments will constitute Employee's sole and exclusive right and entitlement in connection with Employee's employment by the Company and the termination of such employment and any and all matters related to or arising in connection with such employment. Employee's acceptance of such amounts will release the Company and its affiliated entities (including all directors, officers, employees and agents) from any claims that Employee might otherwise have or assert in connection with such matters. In addition, the Company is entitled to condition such payment on Employee's execution of a release in customary form. If Employee desires to pursue or enforce any such rights, entitlements or remedies that would otherwise be waived and released, then Employee must refuse the payments provided for in Section 3.5 in their entirety. If Employee accepts such payments, then Employee will be deemed to have agreed to the foregoing exclusivity of rights and waiver of claims. 3.5.6 Mitigation. Employee shall have no obligation to seek or accept employment elsewhere after any termination under this Agreement pursuant to Section 3.5.1 or 3.5.3. Additionally, if Employee accepts employment elsewhere after any termination under this Agreement pursuant to Section 3.5.3, then the Company will have no right to offset any amounts paid to Employee from such other employment during the remaining Term hereof, including any benefits to which Employee is entitled under the other company's benefit plans and programs. 3.5.7 EFFECT ON BENEFIT PROGRAMS. The termination of this Agreement will not affect any vested rights that Employee may have at the Date of Termination under any Benefit Program. 3.5.8 COOPERATION. Following termination of employment with the Company for any reason, Employee will cooperate with the Company, as reasonably requested by the Company, to effect a transition of Employee's responsibilities and to ensure that the Company is aware of all matters being handled by Employee. Employee will, upon reasonable notice, furnish such information and assistance to the Company as may reasonably be required by the Company in connection with any legal or quasi-legal, proceeding, including any external or internal investigation, involving the Company or any of its affiliates or in which any of them is, or may become, a party; provided, however, that the Company shall reimburse Employee for any reasonable expenses incurred by him in effecting such cooperation and assistance. 4. OTHER AGREEMENTS 4.1 CONFIDENTIAL INFORMATION; ETC. 4.1.1 CONFIDENTIAL INFORMATION. Employee will hold all Confidential Information in a fiduciary capacity for the benefit of the Company. After termination of Employee's employment, Employee will not, without the prior written consent of the Company or as may otherwise be required by court order, communicate or divulge any such Confidential Information to anyone other than the Company and those designated by it. 4.1.2 CLIENTS; EMPLOYEES. During the Term and afterwards for a period of one (1) year, Employee will not (a) solicit customers, suppliers or clients of the Company to reduce or discontinue their business with the Company or to engage in business with any competing entity or (b) attempt to induce any employee of the Company to leave such employment. 4.1.3 PUBLICATIONS. During the Term and afterwards for a period of one (1) year, if Employee desires to publish the results of Employee's work for or experiences with the Company through literature, interviews or speeches, then Employee will submit requests for such interviews or such literature or speeches to the Board at least thirty (30) days before any anticipated dissemination of such information for a determination of whether such disclosure is in the best interest of the Company. Employee will not publish, disclose or otherwise disseminate such information without the prior written approval of the Company. 4.1.4 DOCUMENTS. On the Date of Termination, Employee shall deliver to the Company and not keep or deliver to anyone else any and all notes, notebooks, memoranda, documents, regardless of whether such materials are in hard copy form or on computer disks and, in general, any and all material, relating to the Company's business. Employee shall not retain any such materials without prior written approval by the Company. 4.1.5 PROPERTY RIGHTS AND CONFIDENTIALITY ARRANGEMENT. Employee shall execute a Property Rights and Confidentiality Agreement attached hereto as Exhibit D. 4.2 WORK PRODUCT. 4.2.1 OWNERSHIP OF WORK PRODUCT. If Employee conceives of, discovers, invents or creates inventions, improvements, new contributions, literary property, materials, ideas, and discoveries, whether patentable or copyrightable or not (all of the foregoing being collectively referred to herein as "Work Product"), or receives information about business opportunities for the Company, unless the Company otherwise agrees in writing, then all of the foregoing will be owned by and belong exclusively to Company and Employee will have no personal interest therein, if they are either related in any manner to the business (commercial or experimental) of Company, or are, in the case of Work Product, conceived or made on Company's time or with the use of Company's facilities or materials, or, in the case of business opportunities, are presented to Employee for the possible interest or participation of Company. Further, unless Company otherwise agrees in writing, Employee will (a) promptly disclose any such Work Product and business opportunities to Company; (b) assign to Company, upon request and without additional compensation, the entire rights to such Work Product and business opportunities; (c) sign all papers necessary to carry out the foregoing; and (d) give testimony in support of Employee's inventorship or creation in any appropriate case. Employee will not assert any rights to any Work Product or business opportunity as having been made or acquired by Employee prior to the date of this Agreement except for Work Product or business opportunities, if any, disclosed to and acknowledged by Company in writing prior to the date thereof. 4.2.2 NONASSIGNABLE SECTION 2870 INVENTIONS. In the event that Employee's employment is subject to the California Labor Code, except for Employee's obligations under Section 4.2.3. below, this Agreement does not apply to Work Product which qualifies as a nonassignable Work Product under Section 2870 of the California Labor Code ("Section 2870"). Employee acknowledges that Employee has reviewed the Employee-Owned Invention Notification attached hereto as Exhibit B and agrees that Employee's signature on that Notification acknowledges his or her receipt thereof. 4.2.3 EMPLOYEE DISCLOSURE OBLIGATION. Employee shall, during the employment and for six (6) months thereafter, promptly disclose to the Company-fully and in writing-all Work Product made, conceived or first reduced to practice by Employee, either alone or jointly with others, including, if Section 2870 applies to Employee, any Work Product that Employee believes fully qualifies for protection under Section 2870, together with all evidence, in writing, necessary to substantiate that belief. In addition, Employee will disclose to the Company all patent applications filed by Employee or on Employee's behalf within one (1) year after termination of the employment. The Company will maintain such information in confidence and will not use for any purpose or disclose to third parties any such information without Employee's consent except to the extent necessary to exploit and enforce any proprietary or intellectual property right the Company may have in such disclosed information. 4.3 INSURANCE. The Company will have the right to take out life, health, accident, "Key-man" or other insurance covering Employee, in the name of the Company and at the Company's expense, in any amount deemed appropriate by the Company. Employee will assist the Company in obtaining such insurance, including, but not limited to, submitting to any reasonably required medical examination. The Company will be the owner and beneficiary of any and all policies for such insurance. 4.4 ASSISTANCE IN LITIGATION. Employee will render assistance, advice, and counsel to the Company at its request regarding any matter, dispute or controversy with which the Company may become involved and of which Employee has or may have reason to have knowledge, information or expertise. Such services will be without additional compensation if Employee is then employed by the Company and for reasonable compensation and subject to Employee's reasonable availability if Employee is not. In any event, the Company will pay all of Employee's reasonable out-of-pocket expenses in connection therewith. 4.5 WITHHOLDING TAXES. To the extent required by the law in effect at the time any amounts under this Agreement are paid, the Company will withhold from such payments the taxes and other amounts required to be withheld by applicable law. 4.6 MEDICAL EXAMINATION. Employee will submit to and cooperate in, from time to time, such examinations as the Company reasonably requests to determine whether Employee is or continues to be able to perform the essential functions of his/her position. 5. DISPUTE RESOLUTION 5.1 DISPUTE RESOLUTION. Except as necessary for the Company to specifically enforce its rights under Sections 1.4, 4.1 and 4.2 of the Agreement or to obtain injunctive relief, the parties agree that any disputes that may rise in connection with, arising out of or relating to this Agreement, or any dispute that relates in any way, in whole or in part, to Employee's employment with the Company, the termination of that employment or any other dispute by and between the parties or their successors or assigns, will be submitted to binding arbitration in Los Angeles, California, according to the Employment Dispute Resolution rules and procedures of the American Arbitration Association and California Code of Civil Procedure Section 1283.05. Each party will pay one-half of the cost of the arbitration, excluding the cost of the parties' respective legal counsel. This arbitration obligation extends to any and all claims that may arise by and between the parties or their successors, assigns or affiliates, and expressly extends to, without limitation, claims or causes of action for wrongful termination, impairment of ability to compete in the open labor market, breach of an express or implied contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, fraud, misrepresentation, defamation, slander, infliction of emotional distress, disability, loss of future earnings, and claims under any State Constitution, the United States Constitution, and applicable state and federal fair employment laws, federal equal employment opportunity laws, and federal and state labor statutes and regulations, including, but not limited to, the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as amended, the Americans With Disabilities Act of 1990, the Rehabilitation Act of 1973, as amended, the Employee Retirement Income Security Act of 1974, as amended, and the Age Discrimination in Employment Act of 1967. 5.2 RIGHTS AND REMEDIES UPON BREACH. If Employee breaches, or threatens to commit a breach of, any of the provision of Sections 1.4, , 4.1 and 4.2 of the Agreement (the "Restrictive Covenants"), then the Company and its subsidiaries, affiliates, successors or assigns shall have the following rights and remedies, each of which shall be independent of the others and severally enforceable, and each of which shall be in addition to, and not in lieu of, any other rights or remedies available to the Company or its subsidiaries, affiliates, successors or assigns at law or in equity: 5.2.1 SPECIFIC Performance. The right and remedy to have the Restrictive Covenants specifically enforced by any court of competent jurisdiction, it being agreed that any breach or threatened breach of the Restrictive Covenants would cause irreparable injury to the Company or its subsidiaries, affiliates, successors or assigns and that money damages would not provide an adequate remedy to the Company or its subsidiaries, affiliates, successors or assigns; 5.2.2 ACCOUNTING. The right and remedy to require Employee to account for and pay over to the Company or its subsidiaries, affiliates, successors or assigns, as the case may be, all compensation, profits, monies, accruals, increments or other benefits derived or received by Employee as a result of any transaction or activity constituting a breach of the Restrictive Covenants; 5.2.3 SEVERABILITY OF COVENANTS. Employee acknowledges and agrees that the Restrictive Covenants are reasonable and valid in geographic and temporal scope and in all other respects. If any court determines that any of the Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the Restrictive Covenants shall not thereby be affected and shall be given full effect without regard to the invalid portions; 5.2.4 BLUE-PENCILING. If any court determines that any of the Restrictive Covenants, or any part thereof, is unenforceable because of the duration or geographic scope of such provision, then such court shall have the power to reduce the duration or scope of such provision, as the case may be, and in its reduced form, such provision shall then be enforceable; 5.2.5 ENFORCEABILITY IN JURISDICTION. Employee intends to and hereby confers jurisdiction to enforce the Restrictive Covenants upon the courts of any jurisdiction within the geographic scope of such covenants. If the courts of any one or more of such jurisdictions hold the Restrictive Covenants unenforceable by reason of the breadth of such scope or otherwise, then it is the intention of Employee that such determination not bar or in any way affect the Company's or its subsidiaries', affiliates', successors' or assigns' right to the relief provided above in the courts of any other jurisdiction within the geographic scope of such covenants, as to breaches of such covenants in such other respective jurisdictions, such covenants as they relate to each jurisdiction being, for this purpose, severable into diverse and independent covenants. 5.3 PREVAILING PARTY. The prevailing party in any action relating to this Agreement will be entitled to recover, in addition to other appropriate relief, reasonable legal fees, costs and expenses incurred in such action. 5.4 SUCCESSOR. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. 6. GENERAL PROVISIONS 6.1 ASSIGNMENT. This Agreement is a personal contract, and the rights, interests and obligations of Employee under this Agreement may not be sold, transferred, assigned, pledged or hypothecated by Employee, except that this Agreement may be assigned by the Company to any corporation or other business entity that succeeds to all or substantially all of the business of the Company or any division or sub-unit thereof through merger, consolidation, corporate reorganization or by acquisition of all of substantially all of the assets of the Company and that assumes the Company's obligations under this Agreement. The term and conditions of this Agreement will inure to the benefit of and be binding upon any successor to the business of the Company and Employee's heirs and legal representatives. 6.2 AMENDMENTS; WAIVERS. Amendments, waivers, demands, consents and approvals under this Agreement must be in writing and designated as such. No failure or delay in exercising any right will be deemed a waiver of such right. 6.3 INTEGRATION. This Agreement is the entire agreement between the parties pertaining to its subject matter, and supersedes all prior agreements and understandings of the parties in connection with such subject matter. 6.4 INTERPRETATION; GOVERNING LAW. This Agreement is to be construed as a whole and in accordance with its fair meaning. This Agreement is to be interpreted in accordance with the laws of the State of New Jersey. 6.5 HEADINGS. Headings of Sections and subsections are for convenience only and are not a part of this Agreement. 6.6 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which constitute one agreement. 6.7 Successors and Assigns. This Agreement is binding upon and inures to the benefit of each party and such party's respective heirs, personal representatives, successors and assigns. Nothing in this Agreement, express or implied, is intended to confer any rights or remedies upon any other person. 6.8 EXPENSES. If the Employee seeks legal representation in connection with this Agreement, the Company shall reimburse the Employee for legal expenses in an amount not to exceed $1,500.00. 6.9 REPRESENTATION BY COUNSEL; INTERPRETATION. The Employee acknowledges that he/she has had the opportunity to be represented by counsel in connection with this Agreement. Any rule of law, including, but not limited to, Section 1654 of the California Civil Code, or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the party that drafted it, has no application and is expressly waived. 6.10 TIME IS OF THE ESSENCE. Time is of the essence in the performance of each and every term, provision and covenant in this Agreement. 6.11 NOTICES. Any notice to be given hereunder must be in writing and delivered to the following addresses (or to another address as either shall designate in writing). Such notice will be effective (a) if given by telecopy or if confirmed by returned telecopy, (b) one Business Day after delivery through a generally recognized and reputable overnight courier or messenger for next day deliver, (c) if given by mail or any other means, when actually delivered to the address specified. If to the Company: HCC Industries, Inc. 4232 Temple City Boulevard Rosemead, California 91770 Attention: Chairman of the Board If to Employee: At Employee's most recent address on the books and records of the Company. The parties have signed this Agreement effective as of the date on page three. HCC INDUSTRIES, INC. By: ----------------------------- Its: ---------------------------- EMPLOYEE: -------------------------------- Richard Ferraid EXHIBIT A DEFINED TERMS "EARNED AND UNPAID PERFORMANCE BONUSES" means with respect to any date, Performance Bonuses which have been earned by Employee as of the end of the Company's fiscal year preceding such date but not paid to Employee. "AGREEMENT" means this Employment Agreement, as amended from time to time. "BASE SALARY" means the annual amount of $350,000.00. Employee's Base Salary shall be reviewed by the Board of Directors annually and may be increased from time to time at the sole discretion of the Board of Directors. In no event will Base Salary be reduced. "BENEFITS PROGRAM" means programs such as group health, dental, life and disability, profit sharing, pension and similar programs (but excluding bonus plans) made generally available to the senior executives of the Company. "BOARD" means the Company's Board of Directors as composed at the time, not including Employee. "BUSINESS DAY" means any day except a Saturday, Sunday or other day national banks in the State of California are authorized or required by law to close. "CHANGE OF CONTROL" means the occurrence of any of the following events: (a) the sale, lease, transfer or other disposition of all or substantially all of the assets of the Company or its subsidiaries (taken as a whole) to any Person or related group of Persons other than the Stockholders; and/or (b) the merger or consolidation of the Company with or into another corporation, or the merger of another corporation into the Company, with the effect that Persons other than the Stockholders and their Permitted Transferees (as such terms are defined in the Stockholders Agreement) or any "group" (as defined in the rules promulgated under Section 13(d) of the Securities Exchange Act of 1934, as amended) of which any Stockholder or Permitted Transferees is a member) hold more than 50% of the total voting power on a fully diluted basis entitled to vote in the election of directors, managers or trustees of the surviving corporation of such merger or the corporation resulting from such consolidation; and/or (c) any other event which results in a Person or "group" other than the Stockholders (and their Permitted Transferees or any "group" of which any Stockholder or their Permitted Transferees is a member) holding, directly or indirectly, in the aggregate more than 50% of common stock to the issuance of all shares of common stock issuable (i) upon conversion of all convertible securities outstanding at such time and all convertible securities issuable upon the exercise of any warrants, options and other rights outstanding at such time, and (ii) upon exercise of all other warrants, options and other rights outstanding at such time; and/or (d) when, during any period of twenty-four consecutive months after the Effective Date, the individuals who, at the beginning of such period, constitute the Board of Directors of the Company (the "Incumbent Directors") cease for any reason other than death to constitute at least a majority thereof, provided that a director who was not a director at the beginning of such twenty-four month period shall be deemed to have satisfied such twenty-four month requirement (and be an Incumbent Director) if such director was elected by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors. "CHANGE OF STATUS" means any change in Employee's title, duties and responsibilities or place of employment. "CODE" means the Internal Revenue Code of 1986, as amended from time to time. "COMMON STOCK" means the Company's common stock, $0.10 par value. "COMPANY" means HCC Industries, Inc., a Delaware corporation, together with its subsidiaries. "CONFIDENTIAL INFORMATION" means information not known by the trade generally or not reasonably available to a knowledgeable person in the trade, even though such information may have been disclosed to one or more third parties pursuant to consulting agreements, joint research agreements, or other agreements entered into by the Company and includes, without limitation, trade secrets, designs, plans, formulas, customer lists, lists of suppliers, and all other confidential and proprietary information. "CONSTRUCTIVE TERMINATION" means that if there is a Change of Control in the Company, or a Change of Status of the Employee, Employee may terminate his employment with the same effect as if he were terminating for Good Reason. However, in event of a Change of Control, if employee is asked to remain as a division or subsidiary president, then there shall not be deemed to be a "constructive termination". "CONTINGENT BONUS PLAN OF THE COMPANY" means the contingent bonus plan that went into effect upon the Recapitalization with Windward Capital February 14, 1997. "DATE OF TERMINATION" means: (a) the end of the Term, if Employee's employment has not terminated before then; (b) if Employee's employment is terminated by the Company for Good Cause, or by Employee for Good Reason, then the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (c) if Employee's employment is terminated by the Company other than for Good Cause, then 180 days after the date on which the Company notifies Employee of such termination; and (d) if Employee's employment is terminated by reason of death or Unavailability, then the date of death of Employee or the effective date, of the Unavailability, as the case may be. "DISABILITY" means the Employee's inability to substantially render to the Company the services required under this Agreement for more than 60 days out of any consecutive 120 day period because of mental or physical illness or incapacity, as determined in good faith by the Board. "EBITDA" means the combined earnings before interest, federal and state income taxes, and depreciation and amortization of the Company and its subsidiaries determined in good faith by the Company in accordance with generally accepted accounting principles. "EFFECTIVE DATE" means April 1, 2000. "GOOD CAUSE" means a finding by the Board in good faith that Employee has (a) been engaged in an act or acts of dishonesty that were intended to and did result directly or indirectly in gain or personal enrichment to Employee at the expense of the Company; (b) failed to substantially perform Employee's duties hereunder (other than failure resulting from Employee's Unavailability due to Disability) persisting for a reasonable period following the delivery to Employee of written notice specifying the details of any alleged failure to perform, which failure has, at the sole but reasonable discretion of the Company, resulted in injury and damage to the Company; (c) breached this Agreement in any material respect; or (d) been convicted of any felony offense or misdemeanor offense involving fraud, theft or dishonesty at any time. An event specified in (b), (c) or (d) above will not constitute "GOOD CAUSE" until the Board provides Employee with written notice of such event setting forth in reasonable detail the specifics of such event and such event has not been cured to the reasonable satisfaction of the Board, if such act or event can be cured, within thirty days of such notice (except upon the subsequent occurrence of a substantially similar event, in which case such second event will constitute "Good Cause" without any notice or cure period). "GOOD REASON" means, other than an event also constituting Good Cause, the Company's material breach of this Agreement. "INCLUDING" OR "INCLUDES," when following any general provision, sentence, clause, statement, term or matter, will be deemed to be followed by, but not limited to, "and," but is not limited to," respectively. "STOCKHOLDERS AGREEMENT" means the Stockholders Agreement, dated February 14, 1997 among the Company, Windward, Windard/Park, Windward/Merban, Windward/Merchant, and the Management Stockholders as defined therein. "TERM" means the period from the Effective Date through 180 days after the Notice of Termination date in which the Employee is terminated for any reason other than Good Cause, Death, Unavailability or voluntary termination. "UNAVAILABILITY" means Employee being unable to fully perform Employee's duties by reason of illness, Disability or other incapacity, or by reason of any statute, law, ordinance, regulation, order, judgment, or decree, except for an instance that would constitute Good Cause. EXHIBIT B EMPLOYEE-OWNED INVENTION NOTIFICATION This Employee-Owned Invention Notification ("Notification") is to inform Employee in accordance with Section 2872 of the California Labor Code that the Agreement between Employee and the Company does not require Employee to assign or offer to assign to the Company any invention that Employee developed or develops entirely on his or her own time without using the Company's equipment, supplies, facilities or trade secret information except for those inventions that either: 1. Relate at the time of conception or reduction to practice of the invention to the Company's business, or actual or demonstrably anticipated research or development of the Company; or 2. Result from any work performed by Employee for the Company. To the extent a provision in the Agreement purports to require Employee to assign an invention otherwise excluded from the preceding paragraph, the provision is against the public policy of the State of California and is unenforceable. This Notification does not apply to any patent or invention covered by a contract between the Company and the United States or any of its agencies requiring full title to such patent or invention to be in the United States. Employee acknowledges receipt of a copy of this Notification. By: --------------------------- Printed Name of Employee Date: ------------------------- Witnessed by: - ------------------------------ Printed Name of Representative Date: --------------------- EXHIBIT C CHART DEPICTING HCC INDUSTRIES FY2001 EXECUTIVE BONUS PLAN (% OF BASE PAY / EBITDA AS A % OF TARGET) EXHIBIT D PROPERTY RIGHTS AND CONFIDENTIALITY AGREEMENT In consideration of my employment and the compensation paid me by HCC Industries Inc., or any of its subsidiary companies (hereinafter collectively referred to as the "Company"), I hereby agree as follows: 1. Confidentiality. I agree that for and during the entire term of my employment any of the following shall be considered and kept as the private and privileged records of the Company and will not be divulged to any person, firm, or institution except with the prior written authorization fo the President of HCC: a) Sales and marketing: customer lists and files, price lists, forecasts, reports, data, research, orders, RFQ'S, and related information; b) Financial: financial reports, budgets, forecasts, operating analyses; c) Other: engineering processes and designs, drawings, trade secrets, purchasing data, quality levels and yields, and personnel files. Further, upon termination of my employment for any reason, I agree that I will continue to treat as private and privileged such information and will not release any such information to any person, firm or institution without the prior written authorization of the President of HCC, and the Company shall be entitled to an injunction by any competent court to enjoin and restrain the authorized disclosure of such information. 2. Ownership of Employee's Inventions. All inventions, processes, procedures, systems, discoveries, designs, glass formulae, trade secrets and improvements conceived by me, alone or with others, during the term of my employment, that are within the scope of the Company's business operations or that relate to any of the Company's work or projects, are the exclusive property of the Company. I agree to assist the Company, at its expense, to obtain patents on any such patentable ideas, inventions, and other developments, and I agree to execute all documents necessary to obtain such patents in the name of the Company. 3. Return of Property. Upon termination of my employment, regardless of how effected, I shall immediately turn over to the Company all of the Company's property, including all items used by me in rendering services to the Company that may be in my possession or under my control, including all notes, memoranda, notebooks, drawings, records, reports, files and other documents (and all copies or reproductions of such material). I acknowledge that this material is the sole property of the Company. 4. Miscellaneous. a) In the event I seek employment with any person, firm or other enterprise competitive with the Company, I will disclose this Agreement to them. b) I acknowledge that this Agreement is not in any way intended to create an Employment Contract, Either expressed or implied. c) This Agreement is governed by and will be construed under the laws of the State of California. EMPLOYEE: Dated: ------------------- ------------------------------------------ Employee's Signature ------------------------------------------ Employee's Name HCC INDUSTRIES INC.: Dated: By: ------------------- --------------------------------- EX-12.1 6 ex-12_1.txt EXHIBIT 12.1 EXHIBIT 12.1 HCC INDUSTRIES INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS)
FOR THE YEAR ENDED ---------------------------------------------- APRIL 1, APRIL 3, MARCH 28, 2000 1999 1998 --------- ----------- ---------- Earnings: Earnings (loss) before taxes and extraordinary item $ (3,859) $ 8,692 $ 6,020 Add: Fixed charges(1) 11,333 11,190 10,327 --------- ----------- ---------- $ 7,474 $ 19,882 $ 16,347 ========= =========== ========== Fixed Charges: (1) Interest expense $ 11,333 $ 11,190 $ 10,327 ========= =========== ========== Ratio of Earnings to Fixed Charges --- (2) 1.8 1.6 ======= =========== ===========
(1) The ratios of earnings to fixed charges were computed by adding earnings before income taxes and extraordinary item to fixed charges and dividing by fixed charges. Fixed charges consist of interest expense and amortization of debt issuance costs. (2) The Company's earnings were insufficient to cover fixed charges for the fiscal year ended April 1, 2000. The dollar amount of the deficiency was $3,859,000. EX-27 7 ex-27.txt EXHIBIT 27
5 1,000 YEAR APR-01-2000 APR-04-1999 APR-01-2000 14,537 0 10,092 (51) 4,515 32,076 32,220 (10,615) 71,768 18,821 97,475 0 0 14 (53,720) 71,768 54,607 54,607 39,794 39,794 8,073 11 11,333 (3,859) (1,525) (2,334) 0 0 0 (2,334) (17.226) (17.226)
-----END PRIVACY-ENHANCED MESSAGE-----