-----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, J9NPU/1jeypOEoZE890YOXZZZh2tELKDw6IlzOWyxkg1qRMTRf5iXg4OnqJE++Jk 09XqPEZLLyK4BVdr9S6+/Q== 0000950136-02-002471.txt : 20020821 0000950136-02-002471.hdr.sgml : 20020821 20020821142849 ACCESSION NUMBER: 0000950136-02-002471 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020821 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SEMX CORP CENTRAL INDEX KEY: 0000880858 STANDARD INDUSTRIAL CLASSIFICATION: METAL FORGING & STAMPINGS [3460] IRS NUMBER: 133584740 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10938 FILM NUMBER: 02744655 BUSINESS ADDRESS: STREET 1: 1 LABRIOLA COURT CITY: ARMONK STATE: NY ZIP: 10504 BUSINESS PHONE: 9146985353 MAIL ADDRESS: STREET 1: 431 FAYETTE AVE CITY: MAMARONECK STATE: NY ZIP: 10543 FORMER COMPANY: FORMER CONFORMED NAME: SEMICONDUCTOR PACKAGING MATERIALS CO INC DATE OF NAME CHANGE: 19930328 10-Q 1 file001.txt QUARTERLY REPORT U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 1-10938 SEMX CORPORATION ---------------- (Exact Name of Registrant as specified in its charter) DELAWARE 13-3584740 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 1 LABRIOLA COURT, ARMONK, NEW YORK 10504 (Address of principal executive offices, including zip code) (914) 273-5500 (Registrant's telephone number, including area code) 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. (1) Yes [X] No [ ] (2) Yes [X] No [ ] The number of shares outstanding of the Registrant's sole class of common stock, as of August 7, 2002 was 6,330,703 shares. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION
Page No ------- Independent Accountant's Report 3 Consolidated Balance Sheets at June 30, 2002 (unaudited) and December 31, 2001 4 Consolidated Statements of Operations for the three and six months ended June 30, 2002 and 2001 (unaudited) 5 Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001 (unaudited) 6 Notes to Consolidated Financial Statements 7-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-17 PART II OTHER INFORMATION Item 6. Exhibits 18 Signatures 18
FORWARD LOOKING INFORMATION Portions of the narrative set forth in this document that are not historical in nature may be forward-looking statements. These forward-looking statements speak only as of the date of this document, and the Company expressly disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statements contained herein. The Company's actual performance may differ materially from that contemplated by the forward-looking statements as a result of a variety of factors that include, but are not limited to, the general economic or business climate, business conditions of the electronic, microelectronic and semiconductor markets and the automotive and communications industry which the Company serves, the disposition of the remaining discontinued operation and the economic volatility in geographic markets, such as Asia and the ability of the Company to meet its capital requirements and to maintain compliance with NASDAQ listing qualifications. -2- INDEPENDENT ACCOUNTANT'S REPORT To the Board of Directors SEMX Corporation We have reviewed the accompanying consolidated balance sheet of SEMX Corporation and Subsidiaries as of June 30, 2002, and the related consolidated statements of operations for the three-month periods and the six-month periods ended June 30, 2002 and 2001 and cash flows for the six-month periods ended June 30, 2002 and 2001. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the consolidated financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2001, and the related consolidated statements of operations, shareholders' equity and cash flows for the year then ended (not presented herein); and in our report dated January 29, 2002, except for Note 3, as which the date is February 28, 2002 and Note 11 as it relates to Redeemable Preferred Stock, as to which date is March 29, 2002, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2001, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations, has a working capital deficiency, has a gold consignment lending agreement which expires on September 16, 2002, has a banking arrangement that expires on October 31, 2002 for which an extension or replacement financing has not yet been secured, and the Company's preferred shareholder currently has the ability to redeem the preferred stock for cash effective April 3, 2003 in an amount that would exceed available funds. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. GOLDSTEIN GOLUB KESSLER LLP New York, New York July 24, 2002 -3- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SEMX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
June 30, 2002 Unaudited December 31, --------- 2001 -------------------- ----------------- ASSETS Current Assets: Cash and cash equivalents $ 381 $ 395 Accounts receivable, less allowance for doubtful accounts of $ 588 and $ 857, respectively 4,603 3,415 Inventories 5,416 5,629 Assets attributable to discontinued operations, at net realizable value 350 5,512 Escrow receivable 300 - Income tax refunds receivable 1,418 1,745 Prepaid expenses and other current assets 678 817 Deferred income tax assets 1,506 1,270 -------------------- ----------------- TOTAL CURRENT ASSETS 14,652 18,783 -------------------- ----------------- Property, Plant and Equipment, net 21,405 22,674 -------------------- ----------------- OTHER ASSETS Net non-current assets attributable to discontinued operations - 600 Goodwill 1,514 1,514 Technology rights and intellectual property 1,486 1,574 Deferred income tax asset 1,819 2,351 Other 399 705 -------------------- ----------------- TOTAL OTHER ASSETS 5,218 6,744 -------------------- ----------------- TOTAL ASSETS $ 41,275 $ 48,201 ==================== ================= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 4,017 $ 3,390 Accrued expenses 2,259 1,907 Accrued Obligation to Repurchase Warrants issued to Preferred Shareholders 3,175 Current portion of long-term debt and short term obligations 5,723 8,147 Current portion of obligations under capital leases 1,766 1,778 -------------------- ----------------- TOTAL CURRENT LIABILITIES 16,940 15,222 -------------------- ----------------- Long-term debt 2,414 2,420 Non-current portion of obligations under capital leases 2,694 3,172 -------------------- ----------------- TOTAL LIABILITIES 22,048 20,814 -------------------- ----------------- Redeemable Preferred Stock: Preferred stock - $.10 par value; authorized 1,000,000 shares; designated as Series B Preferred Stock: $100 stated value, 100,000 shares issued and outstanding 9,103 9,283 Commitments and Contingencies Common Shareholders' Equity: Common stock-$.10 par value; authorized 20,000,000 shares, issued 6,668,503 and 6,663,503 shares, respectively 667 666 Additional paid-in-capital 30,453 30,136 Accumulated other comprehensive income 4 25 Accumulated deficit (20,781) (12,504) -------------------- ----------------- TOTAL 10,343 18,323 -------------------- ----------------- Less: Treasury stock: 337,800 shares at cost (219) (219) -------------------- ----------------- TOTAL COMMON SHAREHOLDERS' EQUITY 10,124 18,104 -------------------- ----------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 41,275 $ 48,201 - ----------------------------------------------------------------------------------------- ==================== =================
See Notes to Consolidated Financial Statements. -4- SEMX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
For The Three Months Ended For The Six Months Ended June 30, June 30, 2002 2001 2002 2001 ------------ ------------- ------------- ----------- Net Sales $ 8,239 $ 11,219 $ 15,333 $ 25,374 Cost of Goods Sold 7,219 8,090 14,199 18,947 ------------ ------------- ------------- ----------- Gross Profit 1,020 3,129 1,134 6,427 Selling, General and Administrative Expenses 2,276 2,942 5,246 6,095 ------------ ------------- ------------- ----------- Operating Income (Loss) (1,256) 187 (4,112) 332 Interest Expense (244) (325) (561) (634) ------------ ------------- ------------- ----------- Loss from Continuing Operations Before Income Tax Benefit (1,500) (138) (4,673) (302) Income Tax Benefit - (62) - (128) ------------ ------------- ------------- ----------- Loss From Continuing Operations (1,500) (76) (4,673) (174) DISCONTINUED OPERATIONS: Loss From Discontinued Operations, net of tax benefit and minority interest - (608) - (653) ------------ ------------- ------------- ----------- NET LOSS (1,500) (684) (4,673) (827) Preferred Stock Dividends, Accretion and Warrant repurchase obligation 3,403 201 3,604 402 ------------ ------------- ------------- ----------- Net Loss Attributable to Common Shareholders $ (4,903) $ (885) $ (8,277) $ (1,229) ============ ============= ============= =========== Net Loss per Common Share - Basic and Diluted Net Loss from Continuing Operations $ (.77) $ (.04) $ (1.31) $ (.09) Net Loss from Discontinued Operations $ - $ (.10) $ - $ (.10) ------------ ------------- ------------- ----------- Net Loss Per Common Share $ (.77) $ (.14) $ (1.31) $ (.19) ============ ============= ============= =========== Weighted Average Number of Common Shares Outstanding Basic and Diluted 6,329 6,324 6,329 6,321
See Notes to Consolidated Financial Statements -5- SEMX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS)
For The Six Months Ended June 30, 2002 2001 ---- ---- Cash flows from operating activities: Net Loss $ (4,673) $ (827) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization of property and equipment 1,904 3,419 Other amortization 174 493 Deferred income taxes - (51) Minority interest - (49) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (1,188) 2,726 (Increase) decrease in inventories 213 (674) (Increase) decrease in prepaid expenses and other current assets 139 (416) Increase in escrow receivable (300) - Decrease in tax refund receivable 623 - Increase in accounts payable 627 162 Increase (decrease) in accrued expenses 52 (511) Decrease in income taxes payable - (127) ---------------- --------------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (2,429) 4,145 ---------------- --------------- Cash flows from investing activities: Purchase of property and equipment (505) (3,273) Net proceeds from sale of subsidiary and assets, excluding escrowed cash 5,780 - (Increase) decrease in other assets 181 (354)- ---------------- --------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 5,456 (3,627) ---------------- --------------- Cash flows from financing activities: Proceeds from exercise of stock options 8 36 Proceeds from long-term debt and short-term obligations 156 1,447 Repayments of long-term debt and short-term obligations (1,708) (916) Borrowings (repayments) under revolving credit facilities (878) 141 Payments under capital leases (619) (1,266) Payments of Series B Preferred Stock Dividends - (299) ---------------- --------------- NET CASH USED IN FINANCING ACTIVITIES (3,041) (857) ---------------- --------------- Effect of exchange rate change on cash - (159) Net decrease in cash and cash equivalents (14) (498) Cash and cash equivalents at beginning of period 395 1,300 ---------------- --------------- Cash and cash equivalents at end of period $ 381 $ 802 ================ =============== SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITY: Machinery and equipment, net of trade-in, acquired under capital leases $ 129 $ 376 See Notes to Consolidated Financial Statements
-6- SEMX CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS) (UNAUDITED) NOTE 1. BASIS OF PRESENTATION The consolidated financial statements include the accounts of SEMX Corporation ("SEMX") and its wholly and majority owned subsidiaries. As used herein, the term "Company" refers to SEMX, its predecessors and its subsidiaries unless the context indicates otherwise. The Consolidated Balance Sheet at June 30, 2002 and the Consolidated Statements of Operations for the three and six months ended June 30, 2002 and 2001 and the Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001, have been prepared by the Company and are unaudited. In the opinion of management, the financial statements reflect all adjustments necessary to present fairly the results for the interim periods. Such results are not necessarily indicative of results to be expected for the full year. The Consolidated Balance Sheet at December 31, 2001 has been derived from the audited financial statements at that date. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2001. The financial statements included herein for the three and six month periods ended June 30, 2002 and 2001 have been reviewed in accordance with Statement on Auditing Standards No. 71 "Interim Financial Information" by the Company's independent accountants. In conjunction with a strategy to focus on its core business, in the fourth quarter of 2001 the Company's Board of Directors made a decision to discontinue the operations of its Wafer Reclaim Services Group. The Company's Wafer Reclaim Services Group reclaimed silicon test wafers for the semiconductor industry through facilities located in North America, Europe and Asia. The Company completed the sale of the assets and selected liabilities of its North American operations ("ASP US") on February 28, 2002. In addition, the Company completed the sale of the stock of its European operation ("ASP BV") on May 2, 2002. Accordingly, as of December 31, 2001 SEMX operates in one principal segment: Microelectronic Packaging and Materials. The Microelectronic Packaging and Materials Group includes the Company's Semiconductor Packaging Materials Co. ("SPM") division and related overseas operations and its wholly owned subsidiary, Polese Company, Inc. ("Polese"). For comparability, certain 2001 amounts have been reclassified, where appropriate, to conform to the financial statement presentation used in 2002, including the adjustments necessary to conform to the discontinued operations presentation of the Wafer Reclaim Services Group during 2001. The Company has not recorded an income tax benefit for its operating loss incurred during the period due to uncertainty about future utilization of such loss. Accordingly, no additional income tax benefits are included for the three and six months ended June 30, 2002. However, if future profits are recognized, the Company will not include a tax expense thereon until the excluded benefits are fully utilized. The federal tax related valuation allowance against the Company's deferred tax asset increased by approximately $1,589 for the six months ended June 30, 2002 and $639 for the three months ended June 30, 2002. In June 2001, SFAS No. 142 "Goodwill and Other Intangible Assets," was issued. SFAS No. 142 is required to be applied for fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 142 as of January 1, 2002. SFAS No. 142 eliminates the amortization of goodwill and certain other intangible assets. It also requires a test for impairment of these assets at least annually, as well as a transitional goodwill impairment test within six months from the date of adoption. In accordance with the transitional impairment test the Company has completed its initial assessment of fair value of its business units. The testing indicates the net book carrying value is in excess of the fair values of one of its business units which is an indicator that there may be impairment present. The Company plans to complete the impairment test, which will measure the amount of impairment loss, if any, during the second half of 2002 and will at that time, record any resultant impairment as a cumulative effect of a change in accounting principle. SFAS No. 142 also requires disclosure of what net income (loss) would have been in all periods presented had SFAS No. 142 been in effect. The following table is provided to disclose what net loss would have been had SFAS No. 142 been adopted in the prior period: -7-
For the Three Months Ended For the Six Months Ended June 30, June 30, 2002 2001 2002 2001 -------------- -------------- ------------- ------------ Reported loss from continuing operations $ (1,500) $ (76) $ (4,673) $ (174) Add back: Goodwill amortization from continuing operations, net of tax benefit - 24 - 48 -------------- -------------- ------------- ------------ Adjusted loss from continuing operations (1,500) (52) (4,673) (126) -------------- -------------- ------------- ------------ Loss from discontinued operations - (608) - (653) Add back: Goodwill amortization from discontinued operations, net of tax benefit - 63 - 128 -------------- -------------- ------------- ------------ Adjusted net loss (1,500) (597) (4,673) (651) Preferred Stock Dividends and Accretion 3,403 201 3,604 402 -------------- -------------- ------------- ------------ Net loss attributable to common shareholders $ (4,903) $ (798) $ (8,277) $ (1,053) ============== ============== ============= ============ Net loss per common shares basic and diluted Adjusted net loss from continuing operations $ (.77) $ (.04) $ (1.31) $ (.08) Adjusted net loss from discontinued operations $ - $ (.09) $ - $ (.09) -------------- -------------- ------------- ------------ Adjusted net loss per common share $ (.77) $ (.13) $ (1.31) $ (.17) ============== ============== ============= ============
The Company does not believe that any other recently issued but not yet effective accounting standards will have a material effect on the Company's consolidated financial position or results of operations. NOTE 2. FINANCIAL RESULTS AND LIQUIDITY The Company's independent public accountants have included a going concern explanatory paragraph in their review report accompanying the June 30, 2002 unaudited consolidated financial statements. The paragraph states that the Company's recurring losses, working capital deficiency, gold consignment agreement, short-term debt maturities and Preferred Stock redemption requirements raise substantial doubt about the Company's ability to continue as a going concern. The report identifies the fact that the financial statements do not include adjustments that might result from the outcome of this uncertainty. The Company's continuing operations incurred net losses of $4,866 during the year ended December 31, 2001 and $4,673 during the six months ended June 30, 2002, of which $1,500 was incurred in the quarter ended June 30, 2002. These results are primarily attributable to the decline in the telecommunications and other markets that the Company serves, and the continuing slower than expected economic recovery experienced during 2002. Despite passing through the low point in the Company's revenues during December, 2001, the Company has experienced continued softness in its markets from historical levels, with first six months 2002 revenues declining 39.6% from the first half of 2001 levels and second quarter 2002 revenues declining 26.6% from last years second quarter. Although the Company has initiated various cost reduction programs including headcount reductions, salary freezes, utility supply contracts, shifting production overseas and management pay cuts in response to the sharp declines in revenues, the Company's fixed manufacturing and facilities costs are such that profitability was not achieved in these periods. However, the Company was successful in reducing its 2002 losses from first quarter levels of $3,173 to a loss of $1,500 in the second quarter, most of which was incurred in April. In addition, the Company has as of June 30, 2002 reduced its borrowings and capital lease obligations by approximately $2,900 from beginning of year levels. The Company may need additional cash to meet its working capital needs until revenues increase and a return to profitability is achieved. The Company's revolving credit facility, which expires on October 31, 2002, is collateralized by the Company's eligible accounts receivable and inventory. Due to revenue declines during 2002, the Company's eligible accounts receivable and inventory have decreased thereby limiting the Company's ability to borrow under its credit facilities. Further, the Company has a gold consignment lending agreement that provides for the supply of gold used in the Company's manufacturing process, which expires on September 16, 2002. While there is no assurance that funding will be available to support future liquidity needs, the Company is in preliminary discussions with lenders to refinance its existing credit facilities prior to the October 31, 2002 expiration date and may be in a better borrowing position due to reductions of $2,900 in bank and capital lease obligations. -8- The Company's Series B Preferred Stock Agreements contain a provision that currently allows the preferred shareholder to redeem the stock for cash on April 3, 2002. In addition, the Warrant repurchase formula would require an additional amount, currently $3,175, to be paid to the shareholders on January 3, 2003 if the Company's common stock does not trade at $5.00 for 20 consecutive trading days during the remainder of 2002, or in the event of a bankruptcy or change in control. This amount has been accrued at June 30, 2002. In the event that both short and long-term support from its current lenders and Preferred Stock investors or replacement lenders is not available, the Company is exploring alternatives. The Company has hired professional advisors to assist with these efforts that could include, but are not limited to, strategic combinations, additional equity investors, alternative lenders, and selling substantially all of the Company assets. The Company has received a notification from the NASDAQ Stock Market that is out of compliance with NASDAQ National Marketplace rules and subject to commencement of delisting proceedings on October 22, 2002. The Company is considering transferring to the NASDAQ SmallCap market, prior to any delisting proceedings and believes it could qualify its stock to trade on the SmallCap market. Should the Company be unable to successfully appeal National Market delisting proceeding action or effect a transfer to the Small Cap market, the liquidity of its Common Stock could be substantially diluted and the ability to raise common equity may be impaired. Management believes that despite the financial uncertainties going forward it has valuable manufacturing processes and technology and that it is capable of profitability provided that sufficient liquidity is preserved. The support of the Company's vendors, customers, lenders, investors, stockholders and employees will continue to be essential to the Company's future success. NOTE 3. LOSS PER SHARE Basic loss per share is computed based on the weighted average number of common shares outstanding during the period. Net loss attributable to common shareholders reflects preferred stock dividends and the accretion of related costs on the Company's Redeemable Preferred Stock issued on June 1, 2000, including the accrual of costs related to a preferred stock warrant repurchase agreement. Common stock equivalents have been omitted as their inclusion would be antidilutive. NOTE 4. DISPOSITIONS The Company completed the sale of the assets of its ASP US business on February 28, 2002 for gross proceeds of approximately $6,100 and the assumption of certain liabilities. In conjunction with the sale the purchaser held $300 in escrow subject to the absence of certain conditions as defined in the sale agreement and the resolution of any adjustments for changes in working capital between the letter of intent signing and the February 28, 2002 closing date. $1,300 of the proceeds was used to pay down the Company's term debt outstanding under the PNC Credit Facility and the balance, after severance and professional fees, was used to pay the revolving credit borrowings. The Company completed the sale of the stock of its Netherlands based ASP BV subsidiary on May 2, 2002 for gross proceeds of $1,167 and the assumption of certain liabilities of the business. The balance of the proceeds, after closing costs, were used to pay down revolving credit borrowings. -9- NOTE 5. INVENTORY Inventories consisted of the following: June 30, 2002 December 31, (Unaudited) 2001 ----------------- ----------------- Raw materials $ 2,781 $ 2,574 Work-in-process 1,562 1,851 Finished goods 1,073 1,204 ----------------- ----------------- $ 5,416 $ 5,629 ================= ================= The Company has a consignment arrangement with a bank, as described in Management's Discussion and Analysis, which provides for the leasing of precious metals by the Company. The Company pays for these precious metals based on actual usage. NOTE 6. DISCONTINUED OPERATIONS During the fourth quarter of 2001, the Company's Board of Directors made a decision to discontinue the operations of its Wafer Reclaim Services Group. Accordingly, the Company reported the results of operations of the Wafer Reclaim Services Group as discontinued operations and made an accrual as of December 31, 2001 of the expected loss on disposal and anticipated operating losses of the Wafer Reclaim Services Group business units through the date of disposal. On February 28, 2002, the Company completed the sale of the assets of its Wafer Reclaim Services Group's ASP US subsidiary and on May 2, 2002, the Company completed the sale of the stock of its Netherlands-based ASP B.V. subsidiary. The cash proceeds of these sales (See Footnote 3, Dispositions) were credited to the net current assets attributable to discontinued operations. The Company is in discussions regarding alternatives for its 50.1% interest in its Singapore-based ISP business unit. During the three and six months, respectively ended June 30, 2001, the Discontinued Wafer Reclaim Services Group recorded service revenues of $4,044 and $9,312, respectively and realized a net loss after tax benefits of $608 and $653, which is recorded as Loss from Discontinued Operations on the accompanying Statement of Operations. During the three and six months ended June 30, 2002, the Wafer Reclaim Services Group recorded service revenues of $1,104 and $3,996 and had no net loss because the estimated loss from the Wafer Reclaim Services Group operations and disposal was recorded at December 31, 2001. On the accompanying balance sheet, the remaining net assets attributable to discontinued operations relate to ISP and are classified as a current asset. -10- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Prior to the fourth quarter of 2001, the Company operated in two business segments: the Microelectronic Packaging and Materials Group and the Wafer Reclaim Services Group. In conjunction with a strategy to focus on its core business, during the fourth quarter of 2001, the Company's Board of Directors made a decision to discontinue the operations of its Wafer Reclaim Services Group. The accompanying Financial Statements have been reclassified to segregate the Discontinued Operations results from the continuing Microelectronic Packaging and Materials Group operating results. Accordingly, most of the discussion herein will focus on the continuing operations of the Microelectronic Packaging and Materials Group as the Company's remaining business. RESULTS OF OPERATIONS - SECOND QUARTER AND FIRST SIX MONTHS 2002 COMPARED TO SECOND QUARTER AND FIRST SIX MONTHS 2001 REVENUE: Total revenue for the second quarter 2002 of $8,239,000 decreased by $2,980,000 or 26.6% as compared to the second quarter 2001, reflecting reduced customer requirements in the electronics sectors that the Group serves. SPM's second quarter 2002 sales decreased slightly by $49,000 or 1.4 % as compared to the comparable 2001 period, reflecting market conditions and decreased gold wire sales, although sales were stronger at the overseas locations. Polese Company's second quarter 2002 sales decreased by $2,931,000 or 38.6% as compared to the prior year period reflecting market conditions, particularly in the telecommunications industry. Total revenue for the first six months 2002 of $15,333,000 decreased by $10,041,000 or 39.6% as compared to the prior years period, which reflected strong first quarter 2001 revenues. During the second quarter of 2002, the Company has experienced continued strengthening in the electronics industry markets from first quarter 2002 sales levels of $7,094,000 and fourth quarter 2001 sales levels of $5,336,000 which was the low point of its recent quarterly revenue levels. The Company does a significant amount of international business, both from its domestic locations, as well as through overseas manufacturing locations. Domestic and international sourced sales of the Company's products into foreign markets, as a percentage of consolidated revenue during the first half of 2002 was 44.9%, as compared to 23.3% for the first half of 2001. This compares to a domestic and international sourced sales percentages of 51.4% for the second quarter 2002 and 31.1% for the second quarter 2001. Domestically sourced sales of the Company's products into foreign markets, as a percentage of consolidated revenue during the first half of 2002 was 33.2%, as compared to 19.7% for the first half of 2001. This compares to domestically sourced sales percentages of 37.9% for the second quarter 2002 and 26.3% for the second quarter 2001. The majority of domestically sourced foreign sales contracts are written in US dollars with payment remitted directly in US dollars. Therefore, there is a reduced risk of currency exposure. The Company has foreign manufacturing in Morocco, Semiconductor Materials S.A.R.L. ("S.A.R.L."), and in Malaysia, SPM(M) SDN.BHD and SPM Tape and Reel Industries (M)SDN.BHD ("SPMT&R(M)"). During the second quarter of 2002, the Company derived revenue from S.A.R.L. of $785,000, from SPM(M) of $304,000 and from SPMT&R(M) of $23,000. During the first half of 2002, the Company derived revenue from S.A.R.L. of $1,249,000, from SPM(M) of $519,000 and from SPMT&R(M) of $23,000. Sales for these locations are conducted in the local currencies of Dirhams and Ringits, which constitute a foreign sales percentage of 11.7% and 3.7% for the first half of 2002 and 2001, respectively. This compares to foreign sales percentage of 1.2% for the second quarter 2002 and 1.8% for the second quarter 2001. These sales are subject to currency fluctuations, although exchange rate fluctuations have not historically been large during the periods the Company has operated in these jurisdictions. The Company's consolidated backlog as of June 30, 2002 was approximately $12,120,000 compared to a backlog of approximately $19,498,000 at June 30, 2001 and $12,980,000 at December 31, 2001. The decrease in consolidated -11- backlog from the prior year period and December 31 period was primarily due to a softening in the telecommunications markets, and a change of one of the Company's largest customers to a different ordering system, partially offset by a strengthening in the backlog of orders for wire and precision stampings during 2002. The Company believes the majority of the consolidated backlog at June 30, 2002 includes orders that are expected to be shipped within one year. GROSS PROFIT: Gross profit of $1,020,000 for the second quarter 2002 decreased by $2,109,000, or 67.4%, from the second quarter 2001. The Microelectronic Packaging Group's gross profit decrease primarily reflects operating its manufacturing facilities at a level which exceeded that necessary to generate the revenue earned in the period. As a result of the above, the Microelectronic Packaging Group's gross margin decreased from 27.9% in last years second quarter to 12.4% in the second quarter 2002. Gross profit of $1,134,000 for the first six months 2002 decreased by $5,293,000, or 82.4%, from the first six months 2001. The Microelectronic Packaging Group's gross margin decreased from 25.3% in last years first six month period to 7.4% in the first six months of 2002 for reasons outlined above. The Company noted a 2002 quarter to quarter improvement in gross margins from 1.6% in the first quarter to the aforementioned 12.4% in the second quarter, as sales levels continued to increase from the fourth quarter 2001 levels. The Microelectronic Packaging Group's gross profit for the first six months of 2001 reflects the write off during the quarter of approximately $326,000 of inventory damaged as a result of the ammonia release and accompanying disruptions in production. SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative ("SG&A") expenses in the second quarter 2002 decreased by $666,000, or 22.6% from the comparable 2001 period. SG&A expenses in the first six months of 2002 decreased by $849,000, or 13.9% from the comparable 2001 period. The decrease in SG&A during the second quarter and first six months of 2002 was due to cost reductions, volume reductions. SG&A expenses as a percentage of revenue increased from 26.2% in the second quarter 2001 to 27.6% for the second quarter 2002 due the reduction in sales. SG&A expenses as a percentage of revenue increased from 24.0% in the first six months 2001 to 34.2% for the first six months 2002, reflecting the reduction in sales. INTEREST EXPENSE (NET): Net interest expense for the second quarter 2002 decreased by $81,000 from the second quarter 2001. Net interest expense for the first six months 2002 decreased by $73,000 from the first six months of last year. The slight decrease in net interest expense is due to reduced levels of bank term and revolving credit debt, and lower interest rates. PROVISION (CREDIT) FOR INCOME TAXES: The Company recorded a credit of $62,000 at an effective rate of 44.9% for the second quarter of 2001 and a credit of $128,000 at an effective rate of 42.3% for the first six months 2001. The Company has not recorded a credit for income tax benefits from continuing operations for an operating loss incurred in the current period due to uncertainty about future utilization. NET LOSS: As a result of the above, the Company had a net loss from continuing operations of $1,500,000 and $4,673,000 for the second quarter and first six months 2002 as compared to a net loss from continuing operations of $76,000 and $174,000 for the second quarter and first six months 2001, respectively. The net loss was increased by the increase in the valuation allowance against the Company's deferred tax asset. The federal tax related valuation allowance increased by approximately $1,589,000 for the six months ended June 30, 2002 and $639,000 for the three months ended June 30, 2002. -12- NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS: Net loss attributable to common shareholders is the numerator in the Company's calculation of Basic and Diluted Income per common share and reflects dividends and the accretion of related costs of the Series B Preferred Stock issued on June 1, 2000. The Company accrues approximately $76,000 per month representing dividends payable and accretion related to the Series B Preferred Stock. As of June 30, 2002 the Company has accrued an additional amount pursuant to a warrant repurchase formula contained in the Series B Preferred Stock agreement of $3,175,000 as described in Note 2. DISCONTINUED OPERATIONS - SECOND QUARTER 2002 COMPARED TO SECOND QUARTER 2001 During the fourth quarter of 2001, the Company's Board of Directors made a decision to dispose of the Wafer Reclaim Services Group which includes American Silicon Products ("ASP"), American Silicon Products B.V. ("ASP B.V.") and Singapore based, International Semiconductor Products Pte. Ltd. ("ISP") business units. The Wafer Reclaim Services Group's revenues for the second quarter and six months ended June 30, 2002 were $1,104,000 and $3,996,000 respectively, as compared to revenues of $4,044,000 and $9,312,000 for the second quarter and six months of 2001, respectively. The Wafer Reclaim Services Group revenue decrease for the second quarter and six months ended June 30, 2002 compared to the prior year periods primarily were due to the sales of ASP and ASP B.V. during the 2002 periods. For the second quarter and first six months of 2001, the Wafer Reclaim Services Group recognized a net loss from discontinued operations of $608,000 and $653,000, respectively, which were recorded at December 31, 2001. In February 2002, the Company completed the sale of the assets of the ASP US business and in May 2002, the Company completed the sale of the ASP BV business unit as described more fully below in Liquidity and Capital Resources. The Company is in discussions regarding alternatives for its 50.1% interest in its Singapore-based ISP business unit. LIQUIDITY AND CAPITAL RESOURCES: General The Company's independent public accountants have included a going concern explanatory paragraph in their review report accompanying the June 30, 2002 unaudited financial statements. The paragraph states that the Company's recurring losses, working capital deficiency, gold consignment agreement, short-term debt maturities and Preferred Stock redemption requirements raise substantial doubt about the Company's ability to continue as a going concern. The report identifies the fact that the financial statements do not include adjustments that might result from the outcome of this uncertainty. The status of these matters is discussed below and management's plans in regards to these uncertainties are included in the Outlook section. On July 24, 2002, management received a letter from the NASDAQ, which stated the Company's common stock had not maintained the minimum market value of publicly held shares ("MVPHS") of $5,000,000 and a minimum bid price ("MBP") of $1.00 per share for the last 30 days as required under NASDAQ Market place rules. The Company has until October 22, 2002 to regain compliance which is defined as the MVPHS exceeding $5,000,000 and the MBP exceeding $1.00 for a period of ten consecutive trading days. If compliance cannot be demonstrated by October 22, 2002, NASDAQ will provide a written notification that the Company's common stock will be delisted from the NASDAQ National market, at which time the Company may appeal to a Listing Qualifications Panel. NASDAQ has indicated that the Company has the option of applying for a transfer to the NASDAQ SmallCap Market before October 22, 2002 and achieving a stay of delisting proceedings pending review of the transfer application. Although there can be no assurance that the Company will regain compliance with the NASDAQ National Market, the Company believes it can successfully transfer to the NASDAQ SmallCap Market. To support the Company's growth, the Company has historically made significant capital expenditures to support its facilities and manufacturing processes as well as working capital needs. The Company has financed its capital needs through cash flow from operations, and Preferred Stock, line of credit facilities, term loans from banks, other bank financing, including gold consignment supply agreements, and capital leases and common stock issuance. The Company's revolving credit facilities, which expire on October 31, 2002, are collateralized by the Company's eligible accounts receivable and inventory. Due to revenue declines during 2002, the Company's eligible accounts receivable and inventory have decreased thereby limiting the Company's ability to borrow under its credit facilities. The ability to issue additional equity may be impacted if the Company's Common Stock continues to trade below book value, and may result in additional dilution to current Shareholders. However, at current volume levels, the Company does not anticipate a need to make significant capital expenditures over the next twelve months. -13- Summary of 2002 Activity At June 30, 2002, the Company had cash and cash equivalents of $381,000 and had an available balance on its revolving credit facility of $596,000 as compared to $802,000 and $1,503,000 respectively at June 30, 2001. Net cash used in operating activities in the first six months of 2002 amounted to a use of $2,429,000 as compared to cash provided of $4,145,000 in the first six months of 2001. Cash provided by operations decreased compared to the prior years period, principally as a result of the first six months net loss and working capital changes. Cash provided by investing activities amounted to $5,456,000 in the first six of 2002 compared to cash used of $3,627,000, in the prior year period. This change was principally due to the sale of ASP US and ASP BV. During the three months ended June 30, 2002 and 2001, the Company invested $505,000 and $3,273,000, respectively, in property and equipment. This investment excludes $129,000 in the 2002 period and $ 376,000 in the 2001 period for equipment acquired under capital leases. Net Cash used in financing activities amounted to $3,041,000 in the first six months of 2002 as compared to cash used of $857,000 during the 2001 period. During the first six month of 2002 the Company repaid $1,708,000 under long-term debt and short-term obligations and $878,000 under its Bank revolving line of credit. In addition, the Company made payments of $619,000 under capital lease obligations. FEDERAL REFUND AND CARRYBACK CLAIM Under the Federal Economic Stimulus Act signed into law during 2002, the period for carrying back losses to generate income tax refunds was extended from three to five years. During the first six months of 2002 the Company has filed for $934,000 of refunds and received $455,000 during the period. The balance of the $934,000 in expected refunds ($478,000) was received in July 2002. In addition, on August 5, 2002 the Company filed a 2001 Federal income tax return and an amended carryback claim, generating an expected refund of approximately $939,000, which the Company expects to receive in September 2002. CREDIT FACILITIES: On November 1, 1999, the Company entered into a Revolving Credit, Term Loan and Security Agreement with the Business Credit section of PNC Bank. The Credit Facility replaced revolving credit and term loan facilities the Company had with other banks. The current Credit Facility has a three-year term, which expires on October 31, 2002. It consists of a formula-based, as amended $5,000,000 revolving credit facility and an original $6,234,000 term loan, that are collectively secured by substantially all of the Company's domestic assets and the stock of the Company's foreign subsidiaries. Revolving credit facility availability of up to S$4,000,000 Singapore dollars (approximately $2,260,000 US) is reserved for issuance of a standby letter of credit in support of the Company's partial guarantee of ISP's debt. The interest rate on revolving credit borrowings is, at the Company's option, based on either the prime rate or a floating Eurodollar rate plus a margin of 2.75%. At the Company's option, the term loan interest rate is based on either prime plus 0.5% or a floating Eurodollar rate plus a margin of 3.0%. On July 18, 2002 PNC imposed a 2% per anum surcharge on the interest rates otherwise in effect under the Credit Agreement. Principal payments under the $6,234,000 term loan are due in equal monthly installments of $74,214 over the three-year term. Full payment of outstanding debt is due on October 31, 2002. In April 2001, the Company entered into an additional $1,447,000 term borrowing under the PNC facility, subject to the same terms and amortization as the original term loan. The proceeds from the term loan were used to pay down an equivalent amount of revolving credit borrowings. At the February 28, 2002 closing of the sale of the assets of the ASP US subsidiary, the Company repaid $1,300,000 of the term loan balance and PNC placed a reserve of $1,200,000 upon the Company's formula-based borrowing that was reduced to $600,000 during the first quarter of 2002. As of December 31, 2001 and March 31, 2002, the Company was not in -14- compliance with certain financial ratio covenants as defined in the Credit Facility. PNC waived the covenant violation existing at December 31, 2001 and March 31, 2002. As of June 30, 2002, the Company was not in compliance with certain financial ratio covenants as modified previously. As the Revolving Credit borrowings are classified as Short-term liabilities on the accompanying balance sheet due to the upcoming maturity on October 31, 2002, the Company has declined to request a waiver from PNC as of June 30, 2002. The Company is in preliminary discussions with replacement lenders for the refinance of the PNC Credit Facility, but there is no assurance that said discussions will be successful. In the event that the Company is unable to refinance the PNC Credit Facility, this would materially effect the future operation of the Company. The Company is current on its payments of all interest and principal under the Credit Facility. In December 1996, the Company entered into a consignment agreement (the "Gold Consignment Agreement") with Fleet Precious Metals ("FPM"), which, as amended, expires September 16, 2002. Under the Gold Consignment Agreement, the Company utilizes gold in its manufacturing process. This consigned gold is not owned by the Company and accordingly is not included in inventory on the accompanying financial statements. As the Company ships finished goods manufactured with the consigned gold from FPM, it purchases gold in the open market to replenish the consignment. The Gold Consignment Agreement, as amended provides for gold on consignment not to exceed the lesser of 3,355 troy ounces of gold or gold having a market value of $1,200,000. At June 30, 2002, the Company's obligation under the Gold Consignment Agreement was approximately 3,776 troy ounces of gold valued at approximately $1,203,000. The Gold Consignment Agreement requires the Company to pay a consignment fee, presently at a rate of 10.0% per annum, based upon the value of all gold consigned to the Company. This consignment fee is included in interest expense. As of December 31, 2001, the Company was not in compliance with certain financial ratio covenants. FPM has agreed to waive the covenant violation existing at December 31, 2001. The Company entered into an interim amended facility with FPM on July 17, 2002 which provided that consignment facility be moved to a demand facility, the Company maintains its owned gold of at least 10% of the consignment, and the Company return $25,000 per week in the form of either cash or Gold to FPM through the August 16, 2002 expiration. In order to provide additional collateral to FPM, the Company issued a $150,000 standby letter of credit in favor of FPM, and the Company's preferred stock investors issued a $250,000 standby letter of credit in favor of FPM. On August 15, 2002 the Company entered into an amended facility with FPM that extended the expiration date through September 16, 2002, lowered the consignment levels and required the return of 100 ounces of gold by August 23, 2002, and the continuation of the $25,000 per week return of gold through expiration. Should FPM demand return of the consigned gold and the Company be unable to replace the consignment facility, there would be a material adverse impact to the Company. The Company is current on its payment of interest on the FPM consignment interest and is maintaining the required Gold levels under the agreement. In August, 2000, the Company's 50.1% owned ISP subsidiary refinanced its existing debt and entered into a credit facility with Keppel Tatlee Bank. The facility provides for a total of S$11,950,000 (approximately $6,760,000 US) in term and overdraft borrowings secured by ISP's property and equipment and is partially guaranteed by the Company. Interest on the facility is payable at rates ranging from 3.5% to 6.75% and the loans are repayable in monthly installments over a period of five to ten years. In conjunction with the refinancing, the Company was able to reduce its guarantee of ISP's debt from S$5,000,000 Singapore dollars (approximately $2,830,000 US) to S$4,000,000 (approximately $2,260,000 US). The reduced guarantee is secured by a standby letter of credit of up to S$4,000,000 issued by PNC Bank in favor of ISP's lenders which is subject to renewal as of September 2002. In July of 2002, the Company issued instructions to PNC bank to renew this standby letter of credit in preparation for September renewal date. In the event of default, as defined by ISP's lending agreements, or in the event the Company is unable to renew the standby letter of credit by September 2002, Keppel Tatlee Bank could draw down the S$4,000,000 standby letter of credit provided by the Company's Bank, which would have a material adverse impact to the Company. PREFERRED STOCK ISSUANCE: On June 1, 2000, the Company received $10,000,000 in gross proceeds from the issuance of Series B Redeemable Preferred Stock ("Preferred Stock") to a group of investors led by ACI Capital Co., Inc. ("ACI investors"). In connection with the issuance of the Preferred Stock, warrants ("Warrants") to purchase one million shares of the common stock of the Company were issued to the ACI investors. The Preferred Stock is subject to mandatory redemption on May 31, 2005 and cash dividends are payable semi-annually at a rate of 6%, subject to rate increases up to 18% in the event of a triggering event as defined in the Preferred Stock. -15- To avoid the possibility of there being a current or a future triggering event under a certain financial covenant provision of the Preferred Stock that would allow the ACI investors to call for immediate redemption of the Preferred Stock, the Company and the ACI investors entered into an agreement on November 13, 2001 that was amended and restated in its entirety on March 29, 2002. The Restated Agreement provided, among other things, that: (i) the redemption price for the Preferred Stock would not in any event be due prior to January 3, 2003, (ii) any increase in the dividend rate to which the ACI investors might otherwise be entitled to would not go into effect prior to January 3, 2003 and (iii) Section 14.1 of the Warrants that now provides that the Company would be obligated to purchase the Warrants (at a price which would provide the ACI investors with a 20% internal rate of return calculated from the date of issuance of the Preferred Stock, after taking into account dividends theretofore paid to the holders of the Preferred Stock and the value determined, as provided in the Warrants, of the shares of common stock of the Company, if any, issued pursuant to any exercises of the Warrants by the holders of the Warrants) upon a change of control pursuant to the formula therein set forth (the "Warrant Repurchase Agreement") was amended to apply also to a Bankruptcy event as therein defined. In addition, the Warrant Repurchase Formula would not apply to any redemption of the Preferred Stock unless, for calendar year 2002, there was no period of twenty consecutive trading days for which the daily market price of the Company's Common Stock was greater than $5.00 per share, and (iv) additional warrants to purchase 250,000 shares of the Company's common stock were granted to the ACI investors, with an exercise price of $3.00 per share. During March 2002, the Company notified the ACI investors that it had elected to pass on the semiannual dividend due March 31, 2002 as is permitted one time without penalty under the Preferred Stock agreement. On May 20, 2002, the Company and ACI entered into an additional agreement that provided that: the redemption price for the Preferred Stock would not in any event be due prior to April 1, 2003. On July 17, 2002, ACI provided a standby letter of credit of $250,000 as additional collateral required for the Company's Gold Consignment Agreement with FPM. Due to the recent trading level of the Company's common stock and the significant uncertainty about the Company's future liquidity, management has concluded that it is reasonably probable that the above mentioned Warrant Repurchase Formula will apply and has accrued an amount through June 30, 2002 of $3,175,000 pursuant to the formula. DISCONTINUED OPERATIONS: The Company completed the sale of the assets of its ASP US business to Rockwood Specialties on February 28, 2002 for gross proceeds of approximately $6,100,000 plus the assumption of certain liabilities by the purchaser. $1,300,000 of the proceeds were used to pay down term debt outstanding under the PNC Term Loan Facility and the balance after severance and professional fees was used to pay the revolving credit borrowings. On May 2, 2002, the Company completed the sale of the stock of ASP BV for cash proceeds of approximately $1,100,000 which were used to pay revolving credit borrowings. The Company is in discussions regarding alternatives for its 50.1% interest in Singapore based ISP including a transfer of its obligation to provide a standby letter of credit as described above. Management of the Company believes that the remaining ISP subsidiary has sufficient liquidity from operations and banking facilities, such that no additional funding from continuing operations is anticipated. OTHER: In conjunction with the Company's acquisition of Polese Company, on May 27, 1993, the Company acquired from Frank J. Polese, the former sole shareholder of Polese Company, all of the rights, including a subsequently issued patent, for certain powdered metal technology and its application to the electronics industry. For a period from May 1993 through the expiration in December 2002, Mr. Polese has the right to receive a portion of (i) the annual pre-tax profit from the copper tungsten product line, after allocating operating costs and (ii) the proceeds of the sale, if any, by the Company of the powdered metal technology. During 2002, the Company has recorded no charges against operations under this agreement. -16- OUTLOOK: The Company may need additional cash to meet its working capital needs until revenues increase and a return to profitability is achieved. While there is no assurance that funding will be available to support future liquidity needs, the Company is in preliminary discussions with lenders to refinance its existing credit facilities prior to the October 31, 2002 expiration date and is better collateralized due to reductions of $2,900,000 in bank and capital lease obligations. In the event that both short and long-term support from its current lenders and Preferred Stock investors or replacement lenders is not available, the Company is exploring alternatives. The Company has hired professional advisors to assist with these efforts that could include, but are not limited to, strategic combinations, additional equity investors, alternative lenders, and selling substantially all of the Company assets. Management believes that despite the financial uncertainties going forward it has valuable manufacturing processes and technology and that it is capable of profitability provided that sufficient liquidity is preserved. The support of the Company's vendors, customers, lenders, investors, stockholders and employees will continue to be essential to the Company's future success. FORWARD-LOOKING STATEMENTS: Portions of the narrative set forth in this document that are not historical in nature may be forward-looking statements. These forward-looking statements speak only as of the date of this document, and the Company expressly disclaims any obligation or undertaking to publicly release any updates or revisions to any forward-looking statements contained herein. The Company's actual performance may differ materially from that contemplated by the forward-looking statements as a result of a variety of factors that include, but are not limited to, the general economic or business climate, business conditions of the electronic, microelectronic and semiconductor markets and the automotive and communications industry which the Company serves, the disposition of the discontinued operations and the economic volatility in geographic markets, such as Asia and the ability of the Company to meet its capital requirements and to maintain compliance with NASDAQ listing qualifications. -17- PART II. OTHER INFORMATION Items 1. - 6. Exhibits and Reports on Form 8-K 10.1 First Amendment to Gold Consignment between the Company and Fleet Precious Metals dated July 17, 2002 10.2 Second Amendment to Gold Consignment between the Company and Fleet Precious Metals dated August 15, 2002 99.1 Certification under section 906 of the Sarbanes-Oxley Act of 2002. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SEMX CORPORATION Date: August 21, 2002 By: /s/ Gilbert D. Raker ------------------------ Name: Gilbert D. Raker Title: Chairman of the Board and acting Chief Financial Officer Date: August 21, 2002 By: /s/ Frank J. Polese ----------------------- Name: Frank J. Polese Title: President and Chief Executive Officer -18- EX-10.1 3 file002.txt FIRST AMENDMENT AND AGREEMENT FIRST AMENDMENT AND AGREEMENT ----------------------------- THIS FIRST AMENDMENT AND AGREEMENT is made as of the 19th day of July, 2002, by and between FLEET PRECIOUS METALS INC., a Rhode Island corporation with its principal office at 111 Westminster Street, Providence, Rhode Island 02903 ("FPM"), and SEMX CORPORATION, a Delaware corporation with its principal office at One Labriola Court, Armonk, New York 10504 (the "Company"). W I T N E S S E T H: WHEREAS, FPM and the Company are parties to a certain Amended and Restated Consignment Agreement dated as of June 30, 2000 (as it has been or may be modified from time to time, the "Consignment Agreement"), pursuant to which FPM agreed to consign certain commodities to the Company upon the terms and conditions specified therein (the "Consignment Facility"); and WHEREAS, the Company's obligations under the Consignment Agreement are secured by that certain Security Agreement by and between FPM and the Company dated as of December 23, 1996 (as it has been or may be modified from time to time, the "Security Agreement"), pursuant to which the Company has granted to FPM a security interest in certain Collateral (as defined in the Security Agreement); and WHEREAS, the Consignment Agreement, the Security Agreement and all other agreements, instruments and documents executed in connection with the Consignment Agreement (as they have been or may be modified from time to time) are sometimes hereinafter collectively referred to as the "Consignment Documents"; and WHEREAS, the Company has also obtained financing pursuant to Revolving Credit, Term Loan and Security Agreement dated October 29, 1999 (as it may have been or may be modified or replaced from time to time, the "PNC Agreement") among the Company, PNC Bank, National Association, as Agent ("PNC") and certain others; and WHEREAS, the Company has requested that FPM waive certain Events of Default (as defined in the Consignment Agreement), and to modify certain aspects of the Consignment Documents; and WHEREAS, FPM has agreed to do so, but only on the terms and conditions set forth herein. NOW THEREFORE, for value received and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Consignment Limit. Section 1.10 of the Consignment Agreement is hereby amended in its entirety to read as follows: "1.10. 'Consignment Limit' means the lesser of: (a) an amount equal to the lesser of: (i) One Million Four Hundred Thousand Dollars ($1,400,000); or (ii) The value (as determined pursuant to Paragraph 2.2 hereof) of up to Three Thousand Seven Hundred and Seventy-Six (3,676) fine troy ounces of gold minus the aggregate value of all Consigned Precious Metals returned to FPM pursuant to Paragraph 2.11(c) hereof; or (b) such other limit as FPM may approve in writing in its sole discretion." 2. Maturity Date. Section 1.27 of the Consignment is hereby amended in its entirety to read as follows: "1.27 'Maturity Date' means August 16, 2002." 3. Certain Definitions. (a) Section 1.32 of the Consignment Agreement is hereby amended in its entirety to read as follows: "1.32 'Security Agreement' means the Security Agreement dated December 23, 1996 of the Company in favor of FPM which secures the payment and performance of the Obligations, as the same may be amended from time to time." (b) Article 1 of the Consignment Agreement is hereby amended to add a new Section 1.35 to read as follows: "1.35. 'Consignment Documents' means this Agreement, the Security Agreement and any and all agreements, instruments and documents executed in connection herewith or therewith, all as they have been or may be modified from time to time." 4. Payments of Purchase Price. Section 2.3(d) of the Consignment Agreement is hereby amended to delete the third sentence thereof and substitute the following sentences in its place: "All payments of purchase price for Consignment Precious Metal are to be made, by bank wire to a bank of FPM's designation or by direct debit or credit to an account maintained at a financial institution designated by FPM for such purpose, at or before the date and time of Company's purchase of such Metal or Company's withdrawal of such Metal from consignment under the Consignment Facility. Title to Consigned Precious Metal shall not pass to the Company until the full purchase price for the same had been paid to FPM in immediately available finds in accordance with this Agreement." 2 5. Return of Consigned Precious Metal. Section 2.11 of the Consignment Agreement is hereby amended to add the following subsection 2.11(c): "(c) Commencing on Wednesday, July 24, 2002 and continuing for each week thereafter through and including the Maturity Date, the Company shall, as a permanent reduction of the Consignment Limit, either (i) deliver to FPM at FPM's vault in Providence, Rhode Island Consigned Precious Metal theretofore consigned but not purchased and paid for in full by the Company having an aggregate value of not less than $25,000 computed in accordance with Paragraph 2.2 hereof (the physical return of Consigned Precious Metal to FPM's vault in Providence shall be at the Company's expense and risk and shall only be credited to Company's account upon FPM's assaying the value thereof) or (ii) purchase and withdraw Consigned Precious Metal from consignment under the Consignment Facility, Consigned Precious Metal theretofore consigned but not purchased and paid for by the Company having an aggregate value of not less than $25,000 computed in accordance with Paragraph 2.2 hereof." 6. Security. Article 4 of the Consignment Agreement is hereby amended in its entirety to read as follows: "4. SECURITY. The Obligations shall be secured by the Security Agreement. Additionally, the Obligations shall at all times be secured by and subject to FPM's prior receipt and the continued effectiveness of one or more standby irrevocable letters of credit issued on behalf of the Company by PNC (or such other financial institution(s) as may be acceptable to FPM in its discretion), substantially in the form attached hereto as Exhibit A and otherwise in form and substance satisfactory to FPM in its discretion (collectively, if more than one, the "Letter of Credit"). The Letter of Credit shall have an expiry date of no earlier than September 20, 2002 and shall by its terms be payable to FPM upon presentation of FPM's draft accompanied by a signed statement of FPM, certifying that the amount of the draft represents the sum of: (i) the dollar value of Consigned Precious Metal; and (ii) any other amounts due to FPM by the Company. The face amount of the Letter of Credit available to the drawn by FPM shall be not less than $400,000. 7. Equity Gold. Paragraph 6.10 of the Consignment Agreement is hereby amended in its entirety to read as follows: "6.10. Equity Gold. Own, at all times, inventory free and clear of all liens (except liens in favor of FPM, the Bank or the Lender) with a gold content equal to not less than ten percent (10%) of the aggregate amount of then-outstanding Consigned Precious Metal." 8. Reporting. Paragraph 6.11 (c) of the Consignment Agreement is hereby amended in its entirety to read as follows: 3 "(c) by Wednesday of each week, a gold inventory summary for the Company for the previous week, including as to the Company's compliance with Sections 6.10 and 6.18 of this Agreement, in such form as FPM shall reasonably request, certified by the chief financial officer of the Company or by an Authorized Representative of the Company;" 9. On-Premise Requirement. Article 6 of the Consignment Agreement is hereby amended to add the following Section 6.18: "On-Premise Requirement. Physically maintain at all times on the Company's premises at One Labriola Court, Armonk, New York inventory owned by Company free and clear of all liens (except liens in favor of FPM, the Bank or the Lender) with a gold content equal to not less than ninety percent (90%) of the aggregate amount of then-outstanding Consigned Precious Metal." 10. Floating Consignment Fee. Section 2.3(a) of the Consignment Agreement is hereby amended in its entirety to read as follows: "(a) During such time as Consigned Precious Metal is consigned to the Company hereunder and until the same is withdrawn from consignment and paid for in full by the Company as hereinafter provided, the Company will pay (i) effective as of July 1, 2002, to FPM a fee computed daily on the value of such Consigned Precious Metal at the rate of six and three-quarters percent (6.75%) per annum or at such other rate as FPM shall announce from time to time in writing, and (ii) effective on the date of execution of the First Amendment and Agreement, to FPM a fee computed daily on the value of such Consigned Precious Metal at the rate of ten percent (10%) per annum or such other rate as FPM shall announce from time to time in writing, such fees to be accrued on a daily basis and paid to FPM not later than the fifth Business Day following the receipt of billing; further provided, however, that such rate automatically shall be increased to fourteen percent (14%) upon the occurrence of an Event of Default. A consignment fee calculated in accordance with this subparagraph shall be known as a 'Floating Consignment Fee'." 11. Certain Defaults. (a) Section 7.1(i) of the Consignment Agreement is hereby amended to read in its entirety as follows: "(i) the occurrence of a default in the payment or performance of any of the Company's obligations or agreements to the Lender, whether now or hereafter existing and howsoever arising, incurred or evidenced, whether or not such default is waived by the Lender; or"; (b) Section 7.1(k) of the Consignment Agreement is hereby amended to add the word "or" at the end thereof; 4 (c) Section 7.1 of the Consignment Agreement is hereby amended to add a new Section 7.1(l) thereto, as follows: "(l) the cancellation, or other impairment of the ability of FPM to draw upon, the Letter of Credit;" and (d) Upon satisfaction of all Conditions Precedent (as defined below), FPM shall (i) be deemed to have waived any Event of Default arising under the Consignment Documents caused solely by the Company's failure to comply with its affirmative covenants under Section 6.15, 6.16 and 6.17 of the Consignment Agreement for all periods through June 30, 2002 and (ii) rescind that certain letter delivered to PNC Bank, National Association ("PNC") dated June 27, 2002 pursuant to which FPM provided PNC with "Enforcement Notice" and commenced the "Enforcement Period" as provided for and defined in that certain Intercreditor Agreement by and between FPM and PNC dated as of November 1, 1999. 12. Deferral of Certain Charge. FPM hereby defers the Company's obligation to pay a waiver and extension fee in the amount of $3,375.00 (which the Company hereby acknowledges as due and outstanding) (the "Deferred Fee") to the date of execution of this First Amendment. 13. Expenses. Article 9 of the Consignment Agreement is hereby amended in its entirety to read as follows: "9. EXPENSES The Company shall pay on demand all reasonable expenses of FPM in connection with the preparation, administration, default, collection, waiver or amendment of terms, or in connection with FPM's exercise, preservation or enforcement of any of its rights, remedies or options under this Agreement, including, without limitation, reasonable fees of outside legal counsel or the reasonable allocated costs of in-house legal counsel, accounting, consulting, brokerage or other similar fees or expenses, and any reasonable fees or expenses associated with travel or other costs relating to any appraisals or examinations conducted in connection with the Consignment Facility or any collateral therefor, and the amount of all such expenses shall, until paid, bear interest at the rate set forth in Paragraph 2.3(e) and be an obligation secured by any Collateral." 14. Set-Off, Etc. Paragraph 10.7 of the Consignment Agreement is hereby amended in its entirety to read as follows: "10.7. Setoff. The Company hereby grants to FPM a continuing lien, security interest, right of debit and right of setoff for all liabilities and Obligations, whether now existing or hereafter arising, upon and against any and all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of FPM or any other affiliate of FleetBoston Financial Corporation or in transit to any of them. FPM is hereby authorized at any time 5 and from time to time, without demand or notice to the Company, to set off the same or any part thereof and apply the same to any of the Obligations even though unmatured and regardless of the adequacy of any other collateral securing such Obligations. ANY AND ALL RIGHTS TO REQUIRE FPM TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE COMPANY OR ANY GUARANTORS, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. 15. Conditions Precedent. This agreement shall be effective upon the satisfaction of each of the following (collectively, "Conditions Precedent"): (a) execution and delivery of this Amendment by each of the Company and FPM; (b) receipt by FPM of the Letter of Credit; (c) execution by the Company and delivery to FPM of the Company's resolutions substantially is the form attached as Exhibit B hereto; (d) receipt by FPM, either physically at FPM's vault in Providence, Rhode Island or through a recognized third party, of the return of 100 fine troy ounces gold of Consigned Precious Metal; and (e) receipt by FPM of the Company's payment of the Deferred Fee and of FPM's costs (including reasonable attorneys' fees and expenses) relating to the negotiation, drafting and execution of this Amendment and all matters incidental thereto. 16. Miscellaneous. (a) Article 10 of the Consignment Agreement is hereby amended to add a new Section 10.16 and a new Section 10.17 to read as follows: "10.16. Integration. This Agreement and the other Consignment Documents are intended by the parties as the final, complete and exclusive statement of the transactions evidenced by the Consignment Documents. All prior or contemporaneous promises, agreements and understandings, whether oral or written, are deemed to be superceded by the Consignment Documents, and no party is relying on any promise, agreement or understanding not set forth in the Consignment Documents. 10.17. Pledge to Federal Reserve. FPM may at any time pledge all or any portion 6 of its rights under any of the Consignment Documents to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement thereof shall release FPM from its obligations hereunder or under the other Consignment Documents." (b) Section 3 of the Security Agreement is hereby amended in its entirety to read as follows: "Section 3. Filing; Further Assurances. The Debtor irrevocably designates and appoints each Secured Party as Debtor's true and lawful attorney with full power of substitution and revocation to prepare, execute, deliver, and file or record in the name of the Debtor all financing statements, amendments, continuation statements, title certificate lien applications and other documents deemed by the Secured Party to be necessary or advisable to secure, evidence, perfect or to continue the perfection of the Security Interests. The Debtor hereby irrevocably authorizes each Secured Party to file the aforesaid documents without the signature of the Debtor. The Debtor will pay the cost of filing or recording the aforesaid documents or filing or recording this Agreement in all public offices wherever filing or recording is deemed by the Secured Parties to be necessary or desirable." (c) Except as amended hereby, the Consignment Documents shall remain in full force and effect and are in all respects hereby ratified and affirmed. (d) The Company hereby affirms each representation, warranty and covenant set forth in the Consignment Documents as if fully set forth herein in full. The Company acknowledges and confirms that there are no defenses, claims or setoffs available to the Company which would operate to limit its obligations under the Consignment Documents and hereby releases any and all such defenses, claims and setoffs, and hereby further releases any and all causes of action or any other type of claim against FPM or its employees, representatives, officers and agents of any type whatsoever, whether or not now known, and regardless of the nature of the same. (e) The Company shall pay all out-of-pocket expenses, costs and charges incurred by FPM (including reasonable fees and disbursements of counsel) in connection with the preparation and implementation of this Amendment. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 7 IN WITNESS WHEREOF, the undersigned parties have caused this First Amendment and Agreement to be executed by their duly authorized officers as of the date first above written. WITNESS: FLEET PRECIOUS METALS INC. By: - ---------------------------- ---------------------------------- Name: -------------------------------- Title: ------------------------------- By: - ---------------------------- ---------------------------------- Name: -------------------------------- Title: ------------------------------- WITNESS: SEMX CORPORATION By: - ---------------------------- ---------------------------------- Name: -------------------------------- Title: ------------------------------- STATE OF NEW YORK COUNTY OF __________ On the ____ day of July, 2002, before me personally came ______________________, to me known, who, being by me duly sworn, did depose and say that he/she is the ________________________ of SEMX CORPORATION, and that the foregoing is his/her free act and deed and the free act and deed of SEMX Corporation. --------------------------------- Notary Public My Commission Expires____________ 8 EXHIBIT A FORM OF LETTER OF CREDIT Amount: U.S.$[150,000] Date of Issuance: July ___, 2002 Fleet Precious Metals Inc. 111 Westminster Street Providence, RI 02903 Ladies and Gentlemen: We hereby establish our Irrevocable Standby Letter of Credit No. ____ at the request and for the account of SEMX Corporation, a Delaware corporation ("Company"), for an amount not to exceed in the aggregate U.S. [$150,000 ONE HUNDRED FIFTY THOUSAND DOLLARS] in favor of Fleet Precious Metals Inc. ("FPM") available by FPM's sight draft drawn on us and bearing the clause "Drawn under Letter of Credit No. ____ of PNC Bank, National Association issued July ___, 2002 accompanied by a signed statement by an authorized representative of FPM certifying: (a) That an Event of Default has occurred as defined in that certain Consignment Agreement between Fleet Precious Metals Inc. and SEMX Corporation dated as of June 30, 2000, as the same may have been amended from time to time ("Agreement"); and (b) That the amount of the draft represents the sum of: (i) the dollar value of precious metals on consignment from Fleet Precious Metals Inc. to SEMX Corporation under the Agreement; and (ii) any other amounts due to Fleet Precious Metals Inc. from SEMX Corporation. Partial and multiple drawings are permitted. We hereby undertake with FPM that a draft drawn under and in compliance with the terms of this Letter of Credit will be duly honored by us if presented to this office on or before September 20, 2002. This Letter of Credit is subject to the International Standby Practices ISP98 (1998), International Chamber of Commerce, Publication No. 590. Sincerely, PNC BANK, NATIONAL ASSOCIATION By: ------------------------------ Authorized Signature EXHIBIT B --------- CERTIFIED CORPORATE RESOLUTIONS ------------------------------- To: Fleet Precious Metals Inc. 111 Westminster Street Providence, RI 02903 Att'n: Paul M. Mongeau Vice President The undersigned Secretary of SEMX CORPORATION, a Delaware corporation (the "Corporation"), hereby certifies that at a meeting of the Board of Directors of the Corporation duly called and held as of the ____ day of July, 2002 at which meeting a quorum was duly present and acting throughout, the following votes were duly adopted: VOTED: That the Chairman, the President, any Vice President or Treasurer of the Corporation, signing singly, and their respective successors in office, be and they hereby are authorized, empowered and directed on behalf of the Corporation to do and perform all acts and things and to execute, acknowledge and deliver all instruments and documents of whatsoever kind and nature necessary or incidental to or required by Fleet Precious Metals Inc., a Rhode Island corporation ("FPM"), for the transaction of all of the business of the Corporation with FPM, and, without limiting the generality of the foregoing, in particular (i) to sign, endorse or deposit any and all drafts, notes, acceptances, documents of title, contracts for the opening of commercial credits and for the creation of acceptances, and spot or forward contracts in foreign exchange, and the use is hereby authorized of a rubber stamp endorsement on drafts, notes and acceptances whose proceeds are credited to any account of the Corporation with FPM; (ii) to borrow and otherwise effect consignments, loans and advances or any extensions of credit, at any time and in any amount or form, for this Corporation from FPM; (iii) to sell to or discount with FPM any or all commercial paper, receivables and other evidences of debt at any time held by the Corporation; and (iv) to pledge, hypothecate, mortgage, assign, transfer, endorse and deliver to FPM as security for the payment of any obligation at any time owed to FPM, any and all property of every description, real or personal, and any interest therein at any time held by the Corporation; and it is further VOTED: That the Corporation enter into a First Amendment and Agreement (the "Amendment Agreement") with FPM pursuant to which the parties will amend that certain Amended and Restated Consignment Agreement by and between FPM and the Corporation dated as of June 30, 2000 (the "Consignment Agreement"): (i) to extend the maturity of the consignment facility to August 15, 2002; (ii) to reduce the facility limit and to amend the equity gold, financial reporting and several other terms and covenants contained therein; (iii) to provide for the issuance of a standby letter of credit to further secure the obligations of the Corporation to FPM; (iv) to provide for Certain standard documentation provisions common to all facilities extended by FleetBoston Financial Corporation affiliates; and (v) to make certain other conforming or otherwise necessary changes in the Consignment Agreement; which Amendment Agreement is to be substantially in the form presented to this meeting, with such changes in the text, form and terms thereof as the officer of the Corporation executing such document may deem necessary or desirable and proper (the necessity or desirability and propriety of such changes to be conclusively evidence by the execution and delivery of such document); and it is further VOTED: That the Chairman, the President, any Vice President or Treasurer be, and any one of them acting singly hereby is, authorized, empowered and directed to execute, acknowledge and deliver to FPM the Amendment on behalf of the Corporation; and it is further VOTED: That the Chairman, the President, any Vice President or Treasurer be, and any one of them hereby is, authorized, empowered and directed to execute, acknowledge and deliver to FPM any and all other documents (including, without limitation, any UCC Financing Statements) and to take any and all other action as such officer deems appropriate to effectuate the purposes of these resolutions; and any and all documents and agreements heretofore executed, acknowledged and delivered and acts or things heretofore done to effectuate the purposes of these resolutions are hereby in all respects ratified, confirmed and approved as the act or acts of the Corporation; and it is further VOTED: That FPM is hereby authorized to rely upon these resolutions and the following certificate of the Secretary of the Corporation until FPM receives written notice of the revocation thereof. I hereby certify that I have personally examined the Articles or Certificate of Incorporation and By-laws and all amendments thereto of the Corporation and the agreements, indentures and other instruments to which the Corporation is a party; that neither the resolutions set forth above nor any action taken or to be taken pursuant thereto are or will be in contravention of any provision or provisions of the Articles or Certificate of Incorporation or By-laws of the Corporation or any agreement, indenture or other instrument to which the Corporation is a party; that neither the Articles or Certificate of Incorporation of the Corporation 2 nor any amendment thereto contains any provisions requiting any vote or consent of shareholders of the Corporation to authorize any creation of a security interest in all or any part of the Corporation's property or any interest therein or to authorize any other action taken or to be taken pursuant to such resolutions; that the foregoing resolutions are and remain in full force and effect on and as of the date of this certificate, and have not been amended or revoked; and that the following were duly elected to and are now holding the offices set opposite their signatures: Title Name Signature - ----- ---- --------- Chairman ----------------------- ----------------------- President ----------------------- ----------------------- Vice President ----------------------- ----------------------- Secretary, Treasurer and Mark A. Koch Controller ----------------------- I certify that attached hereto is a true and correct copy of the bylaws of the Corporation. IN WITNESS WHEREOF, I have set my hand and affixed the seal of the Corporation as of the ____ day of July, 2002. ---------------------------------- Mark A. Koch Secretary 3 EX-10.2 4 file003.txt SECOND AMENDMENT AND AGREEMENT SECOND AMENDMENT AND AGREEMENT THIS SECOND AMENDMENT AND AGREEMENT is made as of the 15th day of August, 2002, by and between FLEET PRECIOUS METALS INC., a Rhode Island corporation with its principal office at 111 Westminster Street, Providence, Rhode Island 02903 ("FPM"), and SEMX CORPORATION, a Delaware corporation with its principal office at One Labriola Court, Armonk, New York 10504 (the "Company"). W I T N E S S E T H: WHEREAS, FPM and the Company are parties to a certain Amended and Restated Consignment Agreement dated as of June 30, 2000, as amended by a certain First Amendment and Agreement dated as of July 19, 2002 (as it has been or may be modified from time to time, the "Consignment Agreement"), pursuant to which FPM agreed to consign certain commodities to the Company upon the terms and conditions specified therein (the "Consignment Facility"); WHEREAS, the Company's obligations under the Consignment Agreement are secured by that certain Security Agreement by and between FPM and the Company dated as of December 23, 1996 (as it has been or may be modified from time to time, the "Security Agreement"), pursuant to which the Company has granted to FPM a security interest in certain Collateral (as defined in the Security Agreement); WHEREAS, the Consignment Agreement, the Security Agreement and all other agreements, instruments and documents executed in connection with the Consignment Agreement (as they have been or may be modified from time to time) are sometimes hereinafter collectively referred to as the "Consignment Documents"; WHEREAS, the Company has also obtained financing pursuant to Revolving Credit, Term Loan and Security Agreement dated October 29, 1999 (as it may have been or may be modified or replaced from time to time, the "PNC Agreement") among the Company, PNC Bank, National Association, as Agent ("PNC") and certain others; and WHEREAS, the Maturity Date is August 16, 2002 and the Company has requested an extension of the Maturity Date; and WHEREAS, FPM has agreed to do so, but only on the terms and conditions set forth herein. NOW THEREFORE, for value received and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Consignment Limit. Section 1.10 of the Consignment Agreement is hereby amended in its entirety to read as follows: "1.10. 'Consignment Limit' means the lesser of: (a) an amount equal to the lesser of: (i) One Million Two Hundred Thousand Dollars ($1,200,000); or (ii) The value (as determined pursuant to Paragraph 2.2 hereof) of up to Three Thousand Three Hundred Fifty-Five (3,355) fine troy ounces of gold minus the aggregate value of all Consigned Precious Metals returned to FPM pursuant to Paragraph 2.11(c) hereof; or (b) such other limit as FPM may approve in writing in its sole discretion." 2. Maturity Date. Section 1.27 of the Consignment is hereby amended in its entirety to read as follows: "1.27 'Maturity Date' means September 16, 2002." 3. Deferral of Certain Charge. FPM hereby defers the Company's obligation to pay a waiver and extension fee in the amount of $15,000.00 (which the Company hereby acknowledges as due and outstanding) (the "Deferred Fee") to August 29, 2002, provided however, that FPM agrees to waive the Deferred Fee upon FPM's receipt of satisfactory evidence on or before August 29, 2002 that the expiry dates of both: (a) a certain Irrevocable Documentary Standby Letter of Credit No. 8-0024 dated July 18, 2002 issued by Wilmington Trust FSB in favor for the account of ACI Capital Fund, LP for an amount not to exceed $250,000, and (b) a certain Irrevocable Standby Letter of Credit dated July 19, 2002 issued by PNC Bank, National Association in favor of Fleet Precious Metals, Inc. for an amount not to exceed $150,000, have been extended to no earlier than October 30, 2002. 4. Conditions Precedent; Conditions Subsequent. (a) This Amendment shall be effective upon the satisfaction of each of the following: (i) execution and delivery of this Amendment by each of the Company and FPM; (ii) execution by the Company and delivery to FPM of the Company's resolutions substantially is the form attached as Exhibit A hereto; and (iii) receipt by FPM of the Company's payment of FPM's costs (including reasonable attorneys' fees and expenses of $3,000.00 through August 16, 2002) relating to the negotiation, drafting and execution of this Amendment and all matters incidental thereto. (b) The effectiveness of this Amendment shall be contingent upon receipt by FPM, either physically at FPM's vault in Providence, Rhode Island or 2 through a recognized third party, of the return of 100 fine troy ounces gold of Consigned Precious Metal by close of business on August 23, 2002. 5. Miscellaneous. (a) Except as amended hereby, the Consignment Documents shall remain in full force and effect and are in all respects hereby ratified and affirmed. (b) The Company hereby affirms each representation, warranty and covenant set forth in the Consignment Documents as if fully set forth herein in full. The Company acknowledges and confirms that there are no defenses, claims or setoffs available to the Company which would operate to limit its obligations under the Consignment Documents and hereby releases any and all such defenses, claims and setoffs, and hereby further releases any and all causes of action or any other type of claim against FPM or its employees, representatives, officers and agents of any type whatsoever, whether or not now known, and regardless of the nature of the same. (c) The Company shall pay all out-of-pocket expenses, costs and charges incurred by FPM (including reasonable fees and disbursements of counsel) in connection with the preparation and implementation of this Amendment. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 3 IN WITNESS WHEREOF, the undersigned parties have caused this First Amendment and Agreement to be executed by their duly authorized officers as of the date first above written. WITNESS: FLEET PRECIOUS METALS INC. By: - ---------------------------- ---------------------------------- Name: -------------------------------- Title: ------------------------------- By: - ---------------------------- ---------------------------------- Name: -------------------------------- Title: ------------------------------- WITNESS: SEMX CORPORATION By: - ---------------------------- ---------------------------------- Name: -------------------------------- Title: ------------------------------- STATE OF NEW YORK COUNTY OF __________ On the ____ day of August, 2002, before me personally came____________________, to me known, who, being by me duly sworn, did depose and say that he/she is the ________________________ of SEMX CORPORATION, and that the foregoing is his/her free act and deed and the free act and deed of SEMX Corporation. ------------------------------- Notary Public My Commission Expires 4 EXHIBIT A CERTIFIED CORPORATE RESOLUTIONS To: Fleet Precious Metals Inc. 111 Westminster Street Providence, RI 02903 Att'n: Paul M. Mongeau Vice President The undersigned Secretary of SEMX CORPORATION, a Delaware corporation (the "Corporation"), hereby certifies that at a meeting of the Board of Directors of the Corporation duly called and held as of the 15th day of August, 2002 at which meeting a quorum was duly present and acting throughout, the following votes were duly adopted: VOTED: That the Chairman, the President, any Vice President or Treasurer of the Corporation, signing singly, and their respective successors in office, be and they hereby are authorized, empowered and directed on behalf of the Corporation to do and perform all acts and things and to execute, acknowledge and deliver all instruments and documents of whatsoever kind and nature necessary or incidental to or required by Fleet Precious Metals Inc., a Rhode Island corporation ("FPM"), for the transaction of all of the business of the Corporation with FPM, and, without limiting the generality of the foregoing, in particular (i) to sign, endorse or deposit any and all drafts, notes, acceptances, documents of title, contracts for the opening of commercial credits and for the creation of acceptances, and spot or forward contracts in foreign exchange, and the use is hereby authorized of a rubber stamp endorsement on drafts, notes and acceptances whose proceeds are credited to any account of the Corporation with FPM; (ii) to borrow and otherwise effect consignments, loans and advances or any extensions of credit, at any time and in any amount or form, for this Corporation from FPM; (iii) to sell to or discount with FPM any or all commercial paper, receivables and other evidences of debt at any time held by the Corporation; and (iv) to pledge, hypothecate, mortgage, assign, transfer, endorse and deliver to FPM as security for the payment of any obligation at any time owed to FPM, any and all property of every description, real or personal, and any interest therein at any time held by the Corporation; and it is further VOTED: That the Corporation enter into a Second Amendment and Agreement (the "Second Amendment Agreement") with FPM pursuant to which the parties will amend that certain Amended and Restated Consignment Agreement by and between FPM and the Corporation dated as of June 30, 2000, as amended by a certain First Amendment and Agreement dated as of July 19, 2002 (the "Consignment Agreement"): (i) to extend the maturity of the consignment facility to September 16, 2002; and (ii) to make certain other conforming or otherwise necessary changes in the Consignment Agreement; which Amendment Agreement is to be substantially in the form presented to this meeting, with such changes in the text, form and terms thereof as the officer of the Corporation executing such document may deem necessary or desirable and proper (the necessity or desirability and propriety of such changes to be conclusively evidence by the execution and delivery of such document); and it is further VOTED: That the Chairman, the President, any Vice President or Treasurer be, and any one of them acting singly hereby is, authorized, empowered and directed to execute, acknowledge and deliver to FPM the Second Amendment on behalf of the Corporation; and it is further VOTED: That the Chairman, the President, any Vice President or Treasurer be, and any one of them hereby is, authorized, empowered and directed to execute, acknowledge and deliver to FPM any and all other documents (including, without limitation, any UCC Financing Statements) and to take any and all other action as such officer deems appropriate to effectuate the purposes of these resolutions; and any and all documents and agreements heretofore executed, acknowledged and delivered and acts or things heretofore done to effectuate the purposes of these resolutions are hereby in all respects ratified, confirmed and approved as the act or acts of the Corporation; and it is further VOTED: That FPM is hereby authorized to rely upon these resolutions and the following certificate of the Secretary of the Corporation until FPM receives written notice of the revocation thereof. I hereby certify that I have personally examined the Articles or Certificate of Incorporation and By-laws and all amendments thereto of the Corporation and the agreements, indentures and other instruments to which the Corporation is a party; that neither the resolutions set forth above nor any action taken or to be taken pursuant thereto are or will be in contravention of any provision or provisions of the Articles or Certificate of Incorporation or By-laws of the Corporation or any agreement, indenture or other instrument to which the Corporation is a party; that neither the Articles or Certificate of Incorporation of the Corporation nor any amendment thereto contains any provisions requiting any vote or consent of shareholders of the Corporation to authorize any creation of a security interest in all or any part of the 2 Corporation's property or any interest therein or to authorize any other action taken or to be taken pursuant to such resolutions; that the foregoing resolutions are and remain in full force and effect on and as of the date of this certificate, and have not been amended or revoked; and that the following were duly elected to and are now holding the offices set opposite their signatures: Title Name Signature - ----- ---- --------- Chairman ----------------------- ----------------------- President ----------------------- ----------------------- Vice President ----------------------- ----------------------- Secretary, Treasurer and Mark A. Koch Controller ----------------------- I certify that attached hereto is a true and correct copy of the bylaws of the Corporation. IN WITNESS WHEREOF, I have set my hand and affixed the seal of the Corporation as of the ____ day of August, 2002. ------------------------------- Mark A. Koch Secretary 3 EX-99.1 5 file004.txt CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 EXHIBIT 99.1 CERTIFICATION Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, being the Chief Executive Officer and the Acting Chief Financial Officer of SEMX Corporation ("the Issuer"), respectively, hereby certify that: 1. The 10-Q Report of the issuer for the quarter ended June 30, 2002 ("10-Q Report") fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, and that 2. The 10-Q Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer. Dated: August ___, 2002 SEMX CORPORATION ----------------------------------------- Frank J. Polese, Chief Executive Officer ------------------------------------------ Gilbert D. Raker, Acting Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----