Item 1. Business
General
Uniroyal Technology Corporation is engaged in the development, manufacture and sale of a broad range of materials employing compound semiconductor technologies and plastic vinyl coated fabrics used in the production of consumer, commercial and industrial products.
We are organized into two primary business segments: Compound Semiconductor and Optoelectronics and Coated Fabrics.
The Compound Semiconductor and Optoelectronics segment manufactures wafers, epitaxial wafers and package-ready dies used in high brightness light emitting diodes ("HB-LEDs"), switches and transformers.
The Coated Fabrics segment manufactures a wide selection of plastic vinyl coated fabrics for use in furniture and seating applications. The Coated Fabrics business is a leading supplier in its marketplace because of its ability to provide specialized materials with performance characteristics customized to the end user and its ability to provide technical and customer support in connection with the use of its products in manufacturing.
On November 9, 2001, we closed the sale of certain net assets of our Uniroyal Adhesives and Sealants division ("UAS"), which comprised our Specialty Adhesives segment. The Specialty Adhesives segment manufactured and marketed liquid adhesives and sealants for use in the commercial roofing industry and in the manufacture of furniture, truck trailers and recreational vehicles.
The price of our common stock fell below $1.00 per share in January 2002. On February 22, 2002, the Nasdaq Stock Market, Inc. notified us that our stock was subject to delisting from the Nasdaq National Market if it did not close at $1.00 per share for a minimum of 10 trading days prior to May 23, 2002. On June 18, 2002, our common stock was transferred to the Nasdaq SmallCap Market. Our stock was delisted by the Nasdaq SmallCap Market on September 5, 2002 and now trades in the Pink Sheets.
For more information, see "Certain Business Risks and Uncertainties."
Uniroyal is a Delaware corporation. Our principal executive offices are located at 602 Sarasota Quay, Sarasota, Florida 34236, and our telephone number at that address is (941) 362-1808.
Current Developments
On August 25, 2002, Uniroyal and all of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). Uniroyal and its subsidiaries (jointly referred to as the "Debtors") are continuing to manage their properties and operate their businesses as "debtors-in-possession" in the ordinary course under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code.
In connection with its filing for reorganization, the Debtors entered into a Debtor-in-Possession Financing Agreement with The CIT Group/Business Credit, Inc. The agreement provides for a credit line of up to $15 million for the Debtors based on certain borrowing base limitations. As of January 3, 2003, the Debtors had drawn down approximately $8.4 million under the agreement under interim orders issued by the Bankruptcy Court. As of January 3, 2003, we had approximately $342,000 of availability under this agreement. The Bankruptcy Court has not yet issued a final order approving the agreement.
Uniroyal's subsidiary, Sterling Semiconductor, Inc. ("Sterling"), entered into an Asset Purchase Agreement as of November 27, 2002 to sell substantially all of its assets to Dow Corning Enterprises, Inc. for a purchase price of $11.2 million, subject to certain adjustments. On or about December 20, 2002, the Bankruptcy Court issued an order approving bidding procedures for the sale of Sterling's assets. Uniroyal anticipates that the Bankruptcy Court will issue an order approving the sale of Sterling's assets to Dow Corning Enterprises or a higher bidder on January 16, 2003. The sale is important to the Debtors to provide liquidity for their reorganization.
Uniroyal has retained an investment banker and plans to file a Plan of Reorganization ("Plan"). Uniroyal can give no assurances as to the value, if any, current common shareholders will receive once the Plan is approved by the Bankruptcy Court. Investment in Uniroyal's stock involves considerable risk and subject to a total loss of an investor's investment. The Company discourages investment in the common stock.
Coated Fabrics Segment
General
The Coated Fabrics segment's Naugahyde(R) vinyl coated fabrics products have various performance characteristics. We sell these products in various markets depending upon the performance characteristics required by end users. For example, for recreational products which are used outdoors, such as boats, personal watercraft, golf carts and snowmobiles, the segment sells a Naugahyde(R) product that is designed primarily for weatherability. It also manufactures Naugahyde(R) products that can withstand powerful cleaning agents, which are widely used in hospitals and other medical facilities. Flame and smoke retardant Naugahyde(R) vinyl coated fabrics are used for a variety of commercial and institutional furniture applications, including hospital furniture and school bus seats.
The segment has a state-of-the-art production line which produces coated fabrics in more than 600 colors and 45 textures and patterns.
Competition
The Coated Fabrics segment competes with respect to its Naugahyde(R) products primarily on the basis of style, color, quality and technology as well as price and customer service through technical support and performance characteristics which meet customer needs.
The segment's principal competitors with respect to its Naugahyde(R) products are:
o C. G. Spradling & Company; o Morbern, Inc.; and o OMNOVA Solutions.
Marketing
A predecessor of the segment introduced the segment's coated fabrics products more than 50 years ago. Today, we market these products under several nationally recognized brand names, including NAUGAHYDE(R), NAUGASOFT(TM), NAUGAFORM(R) and DURAN(R). We market our coated fabrics with a protective top finish under the name BEAUTYGARD(R), and our flame and smoke retardant coated fabrics under the brand name FLAME BLOCKER(R).
We market and sell our coated fabrics primarily through 12 national sales representatives, who are employees of Uniroyal, and independent sales representatives. In the contract furniture manufacturing market, we generally sell our coated fabrics through our sales representatives and to distributors who sell to furniture manufacturers, upholsterers and fabric distributors.
Representative customers and end users of the Coated Fabrics segment include:
o Bombardier, Inc.; o Club Car, Inc.; o Deere & Co.; o Freightliner Corporation; o Harley-Davidson, Inc.; o Kawasaki Heavy Industries, Inc.; o Lazy-Boy, Incorporated; o Michigan Seat Co.; o Monaco Coach Corporation; o Okamoto USA, Inc.; o Polaris Industries, Inc.; o Shelby Williams Industries, Inc.; and o Yamaha Motor Corporation, USA.
Manufacturing Facilities
We manufacture our coated fabrics products at our facility located in Stoughton, Wisconsin. The segment ceased manufacturing at the facility in Port Clinton, Ohio on November 11, 1998. We own both of these facilities. The Port Clinton facility is subject to a contract of sale.
Trademarks and Patents
We own and control patents, trade secrets, trademarks, trade names, copyrights and confidential information, which in the aggregate are material to our business. We are not materially dependent, however, upon any single patent or trademark. We have several trademarks that have wide recognition and are valuable to our business. Among the trademarks that are of material importance to us are NAUGAHYDE(R), NAUGAFORM(R) and DURAN(R). Our trademarks are registered in the United States and in a number of foreign jurisdictions with terms of registration expiring generally between 2003 and 2016. No trademark registration of material importance to us expired during fiscal 2002. We intend to renew in a timely manner all those trademarks that are required for the conduct of our business. We also hold 4 patents (either current or pending) in the United States and Canada.
We use the trade name and trademark "Uniroyal" pursuant to a license from Uniroyal Goodrich Licensing Services, Inc.
Raw Materials
The principal raw materials for the segment's coated fabrics are casting paper, knit fabric, PVC plastic resins and plasticizers. We have multiple sources for these materials.
Compound Semiconductor and Optoelectronics Segment
General
Compound semiconductors have emerged as an enabling technology to meet the complex requirements of today's highly advanced electronic devices. Many compound semiconductor materials have unique physical properties that allow electrons to move at least four times faster through them than through silicon-based devices. Advantages of compound semiconductor devices over silicon devices include:
o higher operating speeds; o lower power consumption; o higher heat tolerance; o reduced noise and distortion; and o light emitting and detecting optoelectronics properties.
Compound semiconductors are composed of two or more elements and usually consist of a metal, such as gallium, aluminum or indium, and a non-metal, such as arsenic, phosphorous or nitrogen. The resulting compounds include gallium arsenide, indium phosphide, gallium nitride, indium antimonide and indium aluminum phosphide. The performance characteristics of compound semiconductors are dependent on the composition of these compounds. Many of the unique properties of compound semiconductor materials are achieved by layering different compound semiconductor materials in the same device. This layered structure creates an optimal configuration to permit the emission or detection of light and the detection of magnetic fields.
Although compound semiconductors are more expensive to manufacture than silicon-based devices, electronics manufacturers are increasingly integrating compound semiconductor devices into their products in order to achieve higher performance applications targeted for a wide variety of markets. These include solid-state lighting, wireless communications and consumer and automotive electronics.
HB-LEDs are solid-state compound semiconductor devices that emit light when direct current is applied. The advantages of HB-LEDs over conventional light sources include:
o Efficiency. LEDs efficiently convert electricity to light and require approximately 90% less energy than conventional light sources.
o Longevity. LEDs have an expected life span of 50 times longer than incandescent bulbs. LEDs also operate on low voltage and qualify for UL low-wattage certification.
o Design Flexibility. LEDs can be arranged in virtually an infinite number of configurations, making the use of lines, points, fields and curves possible. LEDs can be easily programmed to create subtle changes in color and quality of light.
o Range of Colors. LEDs produce high-purity colored light that can be mixed to create millions of colors.
SiC-based devices offer significant advantages over competing products made from silicon, gallium, arsenide, sapphire and other materials for certain electronic applications. SiC is a third generation compound semiconductor material possessing unique physical and electrical properties that far exceed those of silicon and GaAs, the first and second generation materials, respectively. Electronic devices made from this material can operate more efficiently and at much higher temperatures than devices made from other common semiconductor materials. SiC devices operate at much higher voltage levels and allow power devices to be significantly smaller while carrying power levels the same as or greater than comparable silicon and GaAs-based devices. SiC is an excellent thermal conductor compared to other commercially available semiconductor materials. This feature enables SiC-based devices to operate at higher power levels and still dissipate the excess heat generated. SiC has an extremely high melting point and is one of the hardest known materials in the world. As a result, SiC can withstand much higher electrical pulses and is much more radiation-resistant than silicon or GaAs. SiC is also extremely resistant to chemical breakdown and can operate in harsh environments.
Current product offerings include:
o Gallium nitride (GaN)-based blue, green and ultraviolet LED products; o 4H and 6H poly type SiC substrates in diameters of 50.8mm (2-inch) and a recent introduction of 76.2mm (3-inch) 6H substrates; o SiC substrates with epitaxial thin film coatings; and o custom lighting products.
Future product offerings on a commercial basis include:
o semi-insulating SiC wafers useful in the manufacture of microwave devices and o SiC devices.
Competition
The semiconductor industry is intensely competitive and is characterized by rapid technological change, price erosion and intense foreign competition.
In the LED marketplace, our primary U.S. competitor is Cree, Inc., a leading developer and manufacturer of compound semiconductor materials and electronic devices, and currently the market leader in the segment. Other competitors include:
o Hewlett Packard Corporation; o LumiLeds Lighting, a joint venture between Agilent Technologies and Philips Lighting; o Nichia Chemical Industries, Ltd.; o Siemens AG's subsidiary, Osram; o Toshiba Corporation; and o Toyoda Gosei Co. Ltd.
In addition, AXT, Inc., Lucky Goldstar and other Asian-based companies have announced intentions to begin production of blue and green LEDs.
In the custom lighting arena, traditional light source manufacturers are the main competition. Solid-state lighting, however, will probably displace incandescent, fluorescent, neon and other sources over time. Three multinationals, Philips Lighting, General Electric and Osram, control 80% to 90% of the worldwide market. Each has created joint ventures to address solid-state lighting.
In the SiC marketplace, Cree, Inc. is currently the dominant supplier of SiC wafers, commanding approximately 90% of the market. SiCrystal, a German-based company that entered the wafer market in 1998 and has limited capacity, produces low commercial volumes and presently lacks epitaxy capability. Sixon Ltd, a development stage company affiliated with the Kyota Institute of Technology in Japan, has been active commercially for two years and has limited production capability. II-VI, Inc., a U.S.-based company, produces a variety of compound semiconductor crystals and has announced its intentions to enter the SiC market.
Marketing
We market our optoelectronics products generally through an executive sales approach, relying predominantly on the efforts of senior management and a small direct sales staff for domestic product sales. We believe that this approach is preferable in view of our current customer base and product mix, particularly since the production of lamp and display products incorporating LED chips is concentrated among a relatively small number of manufacturers. Sales in Japan, Taiwan, Hong Kong and Europe are primarily made by distributors and independent sales representatives.
Customers for epitaxy and device dies include distributors with value-added chip processing and testing capabilities, packagers on a stand-alone basis and integrated packagers. Customers for packaged components include original equipment manufacturers and various suppliers.
Initial efforts have been focused on EPI wafers and die, while introduction of packaged components has begun only in the first quarter of fiscal 2002. New representatives and distributors have been signed on for this effort. In addition, efforts to partner with other LED producers who lack a die and/or epitaxial capability are ongoing. A partner would provide the economical solution to package our die into lamps and provide our customers a high brightness die (blue, green, yellow and red) at a cost-effective price. It would also be our intent to market the finished product in that producer's home market through their distribution channel. This marketing effort would allow us to obtain greater visibility in the market for our lamps.
In North America, we sell SiC substrates and epitaxy directly to the customers and track customer needs through a database designed for this purpose. In Europe, we are represented by a European distributor based in England, and with offices in Germany and Sweden. The distributor sells the company's SiC wafers in addition to other compound semiconductor wafers manufactured in the United Kingdom. The distributor has been in the semiconductor business since the late 1950s.
In Japan, we established a sales presence in 1997 for our SiC substrates through a representation agreement with a Japanese distributor with sales offices in Tokyo and Osaka. The distributor has a 41-year track record in selling U.S. and European materials to the Japanese electronics industry on behalf of Fortune-500 firms as well as small producers of specialty products. We also sell through representatives in Korea and Taiwan.
Manufacturing Facility
We operate a 77,000 square foot, state-of-the-art facility in Tampa, Florida, for the development and manufacture of HB-LEDs. The infrastructure and capital equipment were completed in two phases with a total investment of approximately $54 million. The second phase of construction, completed in August 2001, provided the infrastructure and necessary space for future capacity expansion. Additional reactors for blue, green and UV HB-LEDs will be staged in as required to further increase the production capacity. The estimated cost of machinery for this additional capacity is approximately $25.0 million. This is a leased facility.
Our primary SiC facility, an ISO-9002 certified facility which manufactures SiC and performs research and development, and executive offices are located in Danbury, Connecticut. Sterling also subleases a portion of Uniroyal Optoelectronics' Tampa, Florida facility for SiC epitaxy. Both facilities are leased. We consolidated our former Sterling, Virginia facility and the Danbury, Connecticut facility in November, 2002.
The Company's NorLux Corp. subsidiary operates a 12,000 square foot facility with a state-of-the-art 2,000 square foot manufacturing section dedicated to HB-LED assembly. The facility houses an engineering design and development lab, administrative offices and warehouse to support the supply of custom and standard products. The production environment provides for the appropriate atmosphere to manufacture microelectronic products and LED assemblies. The facility supports high-quality prototype, pre-production and stocking builds as well as continuous pilot production in low- to mid-volumes. This is a leased facility.
Intellectual Property
Currently, our SiC substrate, epitaxy and device production and research development processes are not patented. As a general rule, we believe that disclosing process technology in a patent could potentially help competitors gain insight into our processes in a way that could adversely affect the benefits of the patent. Therefore, we retain our processes as trade secrets and seek to maintain them, along with other trade secrets, in confidence through appropriate non-disclosure agreements with employees and others to whom the information needs to be disclosed. However, we may in the future patent certain discrete elements of our processes in cases in which the benefits of doing so outweigh the risk of disclosing process information. We cannot give assurances that non-disclosure agreements or any future patents will provide meaningful protection against unauthorized or use of our proprietary technology know-how, or that it will not otherwise become known or independently discovered by others.
Raw Materials
We depend on a limited number of suppliers for certain raw materials, components and equipment used in the Optoelectronics business, including certain key materials and equipment used in our wafering, polishing, epitaxial deposition, device fabrication and device test processes. In addition, the availability of these materials, components and equipment to us is dependent in part on our ability to provide our suppliers with accurate forecasts of our future requirements. We endeavor to maintain ongoing communication with our suppliers to guard against interruptions in supply and, to date, generally have been able to obtain adequate supplies from our existing sources. Most of our suppliers demand cash in advance payments for their products and services. From time-to-time cash issues have led to periodic disruptions in the purchase of raw materials leading to production delays. However, any significant interruption in the supply of these key materials, components or equipment could have a significant adverse effect on our operations.
General
Employees
The Company has approximately 318 employees, including approximately 156 hourly wage employees and 162 salaried employees. We believe that at the present time our workforce is adequate to conduct our business and that our relations with employees are generally satisfactory, although there have been no salary increases in the last twelve months and certain senior level employees have voluntarily reduced their base salaries. Also, cash constraints have delayed payments under our health care plans for active employees and retirees.
The Company is a party to one collective bargaining agreement. At our coated fabrics manufacturing facility located in Stoughton, Wisconsin, approximately 112 hourly employees are covered by an agreement expiring on September 17, 2003 with Local 7-1207 of P.A.C.E. International Union (formerly known as the United Paperworkers International Union).
Research and Development
We are engaged in research and development programs designed to develop new products, manufacturing processes, systems and technologies and to enhance our existing products and processes. Research and development is conducted within each of our business segments. Investment in research and development has been an important factor in establishing and maintaining our competitive position in many of the specialized niche markets in which our products are marketed.
We currently employ a staff of approximately 40 individuals in connection with our research and development efforts. The individuals include chemists, process development engineers and laboratory technicians and are responsible for new product development and improvement of production processes.
Environmental Matters
The Company is subject to a wide range of federal, state and local laws and regulations designed to protect the environment and worker health and safety. The Company's management emphasizes compliance with these laws and regulations. The Company has instituted programs to provide guidance and training and to audit compliance with environmental laws and regulations at Company owned or leased facilities. The Company's policy is to accrue environmental and cleanup-related costs of a non-capital nature when it is probable both that a liability has been incurred and that the amount can be reasonably estimated. The ultimate amounts of environmental liabilities cannot be precisely determined and estimates of such liabilities made by management, after consultation with internal and external environmental consultants, require assumptions about future events due to a number of uncertainties including the extent of contamination, the appropriate remedy, the financial viability of other potentially responsible parties and the final apportionment, if any, among the potentially responsible parties. The estimates do not take into consideration any potential increases in disposal costs but are based upon current cost estimates. Since the ultimate outcome of these matters may differ from the estimates used in our assessment to date, the recorded liabilities will be periodically evaluated, as additional information becomes available, to ascertain whether the accrued liabilities are adequate. The Company does not reduce its estimated obligations for proceeds from other potentially responsible parties or insurance companies. Proceeds, if any, would be recorded as an offset to environmental expense when received.
The Company may become subject to claims relating to certain environmental matters. The operations of predecessor companies and certain of their affiliates produced waste materials that, prior to 1980, were disposed of at some 36 known unregulated sites throughout the United States. After 1980, waste disposal was limited to sites permitted under federal and state environmental laws and regulations. If any of the disposal sites are found to be releasing hazardous substances into the environment, under current federal and state environmental laws, the appropriate company might be subject to liability for clean-up and containment costs.
Pursuant to a 1992 settlement agreement with the United States Environmental Protection Agency (the "EPA"), the United States Department of the Interior and the States of Wisconsin and Indiana (the "EPA Settlement Agreement") in the event that the United States, Wisconsin or Indiana asserts a claim against the Company for response costs associated with pre-petition disposal activities at certain sites, the governmental party will be entitled to pursue its claim in the ordinary course, and the Company will be entitled to assert all of its defenses. However, if and when the Company is held liable, and if the liability is determined to arise from pre-petition disposal activities of its predecessors, the Company may pay the liability in discounted "plan dollars" (i.e., the value of the consideration that the party asserting such claim would have received if the liability were treated as a general unsecured claim under the Plan of Reorganization of our predecessors). Such payment may be made in cash or in the Company's stock, or a combination thereof, at the Company's option. Claims arising from real property owned by the Company are not affected by the EPA Settlement Agreement.
Coated Fabrics Segment
In October 2001, the EPA sent the Company a General Notice and Notice of Potential Liability concerning the Chemical Recovery Systems site in Elyria, Ohio. While a unit of Uniroyal, Inc. in Port Clinton, Ohio is alleged to have sent hazardous materials to the site between 1974 and 1981, the Company's records do not support the allegation. The Company does not have sufficient information to ascertain the level, if any, of its liability in respect to the site. In any event, if the Company is found to have liability in connection with the site, such liability will be subject to the terms of the EPA Settlement Agreement.
Specialty Adhesives Segment
In connection with the July 1996 acquisition of a manufacturing facility in South Bend, Indiana for the UAS operations, the Company assumed costs of remediation of soil and ground water contamination. Under the terms of the agreement for the purchase of the facility, the Company placed $1,000,000 in an escrow account to be used for the remediation. The $1,000,000 represented the total estimate of the clean-up cost over a five to seven year period and was treated as a part of the purchase price of the facility. As of December 31, 2002, the Company had spent approximately $817,000 of related remediation costs and had approximately $213,000 left in the original environmental escrow account. In accordance with the asset purchase agreement for the sale of UAS on November 9, 2001, $300,000 of the sales proceeds were placed in another environmental escrow account pursuant to the terms of an environmental escrow agreement with the purchaser of UAS.
Upon the sale of UAS in November 2001, the Company recorded the $566,000 in the environmental escrow accounts as both an asset and a liability within the net liabilities of the discontinued operations of UAS. The Company has received a cost opinion from an independent environmental consulting and engineering firm that estimated the remediation costs for the South Bend facility at $416,000 over a four-to-five year period. Because of the uncertainty regarding the ultimate costs, the Company will not reverse any portion of the environmental liability established for the South Bend facility until such point in time that the funds from the environmental escrow accounts, in excess of the anticipated remediation costs, are released to the Company, which release is subject to certain conditions. We have agreed with the purchaser of UAS that we will transfer the environmental escrow accounts to such purchaser, which will assume responsibility for completing the remediation.
High Performance Plastics Segment
During the second quarter of Fiscal 2000, the Company established a $3,843,000 reserve for future environmental remediation costs of the Stamford, Connecticut, Hackensack, New Jersey and Stirling, New Jersey facilities used by HPPI in their operations, which reserve was included within the discontinued operations of HPPI. The majority of this environmental reserve ($3,693,000) related to a portion of the Stamford real property acquired by the Company in October of 1995. Prior to the purchase of this property in 1995, the previous owner had performed extensive environmental remediation and the Company received an environmental report showing lack of further contamination. In connection with the sale of HPPI in February of 2000, the Company conducted an environmental assessment in compliance with the laws of the State of Connecticut. The environmental assessment indicated that the portion of the Stamford real estate that was acquired by the Company in 1995 was contaminated with total petroleum hydrocarbons, DDT and other pesticide chemicals. The initial reserve for the Stamford environmental remediation costs, established in the second quarter of fiscal 2000, was based upon cost estimates from independent environmental contractors. The Company spent approximately $1,557,000 on remediation costs for the Stamford property during fiscal 2000 and charged the expenditures against the reserve established above. At the end of fiscal 2000, the Company adjusted its environmental reserves for HPPI (primarily as it related to the Stamford facility) to $1,070,000. The adjustment was included with the gain on the disposition of discontinued operations and was based upon the revised estimates from third party environmental consultants. The remediation cost estimate was reduced primarily as a result of a revised remediation methodology which was ultimately approved by the Connecticut Department of Environmental Protection in November of 2001. The Company spent approximately $50,000 of remediation costs on the Stamford real property during Fiscal 2001 and $494,000 during fiscal 2002. As of September 29, 2002, the Company estimated, and has reserved for, environmental remediation costs at the Stamford facility of approximately $253,000 which are expected to be incurred over the next 28 years. The purchaser of HPPI has deferred taking title to this portion of the Stamford real property until it is comfortable with the environmental condition of the property.
The balance of the HPPI environmental reserve established in February of 2000 ($150,000) related to the Hackensack, New Jersey real property and the Stirling, New Jersey property (which is currently listed as held-for-sale). The reserves were established at that time based upon ongoing environmental assessments at those facilities and trust agreements entered into with the State of New Jersey. Remediation expenditures for Hackensack and Stirling were minimal during fiscal 2000. The Company spent approximately $43,000 between the two facilities on remediation efforts during fiscal 2001 and $5,000 during fiscal 2002. At September 29, 2002, the Company (through both internal and external environmental consultants) has estimated that the remediation costs for both facilities approximates $250,000 which is expected to be incurred over a three-year period. The Company's remediation cost estimates for the Hackensack real property are based on the fact that the majority of the original contamination identified has naturally biodegraded and the remaining contamination has resulted from an upstream property, the owner of which will be responsible for the clean-up. The purchaser of HPPI has deferred taking title to the Hackensack real property until it is comfortable with the environmental condition of the property.
Based on information available as of September 29, 2002, the Company believes that the costs of known environmental matters have been adequately provided for; however, given the current liquidity crisis of the Company, any additional environmental matters could have a material adverse effect on the Company's operations, cash flows or financial position.
History of Company
Our businesses trace their origins to a number of predecessor companies which eventually were reorganized pursuant to the Third Amended Plan of Reorganization under the Bankruptcy Code for Polycast Technology Corporation and Its Affiliated Debtors (as subsequently modified, the "Plan of Reorganization").
In October and November 1991, the predecessor companies filed voluntary bankruptcy petitions with the United States Bankruptcy Court for the Northern District of Indiana, South Bend Division (the "Indiana Bankruptcy Court") for relief under the Bankruptcy Code.
The Plan of Reorganization of the predecessor companies was substantially consummated on September 27, 1992. Pursuant to the Plan of Reorganization, each of the predecessor companies transferred substantially all of its assets to a newly organized subsidiary with a name that was substantially identical to the name of its corresponding predecessor company. In exchange, each of these new subsidiaries, including Polycast Technology Corporation ("Polycast"), Uniroyal Engineered Products, Inc. ("UEP"), Uniroyal Adhesives and Sealants Company, Inc. ("UAS") and Ensolite, Inc. ("Ensolite"), agreed to assume certain of the liabilities of its corresponding predecessor company. In addition, we issued, or authorized for issuance, 19,150,000 (post-split basis) shares of our common stock to holders of allowed unsecured claims against the predecessor companies and 50 shares of Series A Preferred Stock and 50 shares of Series B Preferred Stock to the Pension Benefit Guaranty Corporation (the "PBGC"). The Indiana Bankruptcy Court issued its final decree closing the bankruptcy of the predecessor companies on September 27, 1999.
On June 7, 1993, in conjunction with the public offering of our 11.75% Senior Secured Notes, we merged each of our operating subsidiaries into the Company. In May 1993 we called and repurchased from the PBGC all of the outstanding shares of Series A Preferred Stock and 15 shares of the outstanding shares of Series B Preferred stock. On December 16, 1996, we repurchased an additional 15 shares of such stock, and on February 4, 1997, we repurchased the remaining 20 shares of preferred stock. On November 13, 1997, the Company, certain officers and directors of the Company and certain other persons purchased all of the common stock held by the PBGC.
On April 14, 1998, we transferred all of the assets of our High Performance Plastics segment to a newly created wholly-owned subsidiary, High Performance Plastics, Inc. (HPPI). On that same day HPPI, as borrower, entered into a credit agreement with Uniroyal HPP Holdings, Inc. (the parent of HPPI and a wholly-owned subsidiary of the Company), the Company and certain banks, including Fleet National Bank. The credit agreement provided, among other things, for the borrowing by HPPI of an aggregate principal amount of up to $110.0 million. On April 14, 1998, HPPI paid approximately $95.0 million to the Company. We used this amount to defease the outstanding 11.75% Senior Secured Notes due June 1, 2003, including the call premium and interest accrued through the call date and to pay down its revolving line of credit with CIT. The redemption of the outstanding Senior Secured Notes was completed by June 1, 1998 at a call premium of 4.41%.
On February 28, 2000, we sold substantially all of the assets of our High Performance Plastics segment to Spartech Corporation.
On November 9, 2001, we sold substantially all of the assets of our Specialty Adhesives business to Royal Adhesives and Sealants, LLC.
On August 25, 2002, we filed for reorganization under Chapter 11 of the United States Bankruptcy Code.
Certain Business Risks and Uncertainties
General
The Company discourages investment in its common stock.
Note that although we have agreed to sell our Sterling Semiconductor, Inc. subsidiary, as discussed in "Item 1. Business "Current Developments," such sale is subject to outstanding conditions. Therefore, a number of the risks described below continue to describe aspects of the operations of this subsidiary.
We Are Experiencing a Liquidity Crisis.
On August 25, 2002, Uniroyal and all of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). Uniroyal and its subsidiaries (jointly referred to as the "Debtors") are continuing to manage their properties and operate their businesses as "debtors-in-possession" in the ordinary course under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code.
In connection with its filing for reorganization, the Debtors entered into a Debtor-in-Possession Financing Agreement with The CIT Group/Business Credit, Inc. The agreement provides for a credit line of up to $15 million for the Debtors based on certain borrowing base limitations. As of January 3, 2003, the Debtors had drawn down approximately $8.4 million under the agreement under interim orders issued by the Bankruptcy Court. As of January 3, 2003, we had approximately $342,000 of availability under this agreement. The Bankruptcy Court has not yet issued a final order approving the agreement.
Uniroyal's subsidiary, Sterling Semiconductor, Inc. ("Sterling"), entered into an Asset Purchase Agreement as of November 27, 2002 to sell substantially all of its assets to Dow Corning Enterprises, Inc. for a purchase price of $11.2 million, subject to certain adjustments. On or about December 20, 2002, the Bankruptcy Court issued an order approving bidding procedures for the sale of Sterling's assets. Uniroyal anticipates that the Bankruptcy Court will issue an order approving the sale of Sterling's assets to Dow Corning Enterprises or a higher bidder on January 16, 2003. The sale is important to the Debtors to provide liquidity for their reorganization.
Uniroyal has retained an investment banker and plans to file a Plan of Reorganization ("Plan"). Uniroyal can give no assurances as to value, if any, current common shareholders will receive once the Plan is approved by the Bankruptcy Court. Investment in Uniroyal stock is at high risk and subject to total loss of capital. The Company discourages investment in the common shares.
We experienced net operating losses and negative cash flows during fiscal 2001 and fiscal 2002 as we continued our transition to the high technology arena. Investment spending related to start-up costs and capital expenditures at our subsidiaries, Uniroyal Optoelectronics, LLC and Sterling Semiconductor, Inc., have been significant, and our liquidity became strained in early fiscal 2002 and remains strained.
Our strategy to provide liquidity to fund our operations requires us to reduce our operating costs and to sell certain assets and close the sale of our Sterling Semiconductor subsidiary (which is under contract). We have taken steps to reduce operating costs, including layoffs of employees and reduction of salaries of officers. Even if we successfully complete these steps, we will need to obtain additional financing, which could require selling other assets at unfavorable terms or borrowing funds which might not be available or might only be available to us at terms we would not deem acceptable. Our failure to implement our liquidity strategy successfully would have a material adverse effect on our financial condition and results of operations.
The Market Price of Our Common Stock Has Fluctuated Widely and Could Be of No Value in the Future.
The market price of Uniroyal's common stock has been and may continue to be subject to wide fluctuations. Factors affecting the stock price may include:
o variations in our operating results and those of our competitors from quarter to quarter; o changes in earnings estimates by securities analysts; o market conditions in the compound semiconductor and coated fabrics industries; o cash flow constraints; o significant sales of our securities; and o general economic and market conditions.
Uniroyal's stock price has fluctuated widely. For example, between January 1, 2000 and September 29, 2002, the high and low sale prices of our common stock fluctuated between approximately a high of $36.44 and a low of $0.02 per share. The prices have been adjusted to give effect to the 100% stock dividend declared on March 10, 2000 for stockholders of record on March 20, 2000. The current market price of our common stock may not be indicative of future market prices, and investors may not be able to sustain or increase the value of their investment in the common stock. The stock currently trades in the Pink Sheets. At the close of trading on January 3, 2003, the price per share of common stock was $0.005. It is possible that stockholders will receive no value in the Company's reorganization.
Our future results of operations involve a number of significant risks and uncertainties. Factors that could affect our future operating results and cause actual results to vary materially from expectations include, but are not limited to, dependence on key personnel, product obsolescence, ability to generate consistent sales, ability to finance research and development, government regulation, technological innovations and acceptance, competition, reliance on certain vendors and credit risks. Our historical sales results and our current backlog cannot ensure that we will be able to achieve the higher sales levels required for profitability. If our sales do not increase significantly from historic levels or such increases are not enough, we will have to further reduce our expenses and capital expenditures to maintain cash levels necessary to sustain our operations. Our future success will depend on increasing our revenues and reducing our expenses to enable us to reach profitability.
The Market Price of, and the Efficiency of the Trading Market for, Our Common Stock Could Decline as a Result of Lack of Equity Value in our Reorganization.
Our shares of common stock are traded in the Pink Sheets and are thinly traded.
Our stock may become subject to the so-called penny stock rules that impose restrictive sales practice requirements on broker-dealers who sell those securities.
The Markets in Which We Compete Are Highly Competitive. An Increase in Competition Would Limit Our Ability to Maintain and Increase Our Market Share.
The coated fabrics, compound semiconductor and optoelectronics industries, in general, are highly competitive. Many of our competitors have substantially greater resources than we do. Oversupply and intense price competition periodically characterize the coated fabrics industry.
We believe that our reputation for high quality products, innovative technology and strong customer technical service permits us to compete successfully in the markets that we presently serve. However, we may not be able to continue to compete successfully in such markets or to apply such strengths successfully to additional markets. In addition, new entrants may come into the markets that we serve. Companies may offer products based on alternative technologies and processes that may be superior to ours in price, performance or otherwise.
We have devoted and will be required to continue to devote significant funds and technologies to the Compound Semiconductor and Optoelectronics segment to develop and enhance its products. If the Compound Semiconductor and Optoelectronics segment is unsuccessful in developing and marketing its products, our business, financial condition and results of operations may be materially and adversely affected.
Our Continued Success Depends in Part on Our Ability to Attract and Retain Certain Key Personnel.
The continued success of Uniroyal depends in part on our ability to attract and retain certain key personnel, including scientific, operational and management personnel. For example, some of the equipment used in the production of HB-LED and SiC products must be modified before it is put to use, and only a limited number of employees possess the expertise needed to perform these modifications. Furthermore, the number of individuals with experience in the production of HB-LED and SiC products is limited. Accordingly, the future success of the Compound Semiconductor and Optoelectronics segment depends in part on retaining those individuals who are already employees.
The competition for attracting and retaining employees, especially scientists for the Compound Semiconductor and Optoelectronics segment, is intense. Because of this intense competition for these skilled employees, we may be unable to retain our existing personnel or attract additional qualified employees in the future. Specifically, we may experience increased costs in order to attract and retain skilled employees. Failure to retain skilled employees and attract additional qualified employees could have a material adverse effect on our business, financial condition and results of operations.
Protecting Our Trade Secrets and Securing Patent Protections Are Critical to Our Ability to Compete Effectively for Business.
Trade Secrets. Our success and competitive position depend on protecting our trade secrets and other intellectual property. Particularly with respect to the business of our Compound Semiconductor and Optoelectronics segment, our strategy is to rely more on trade secrets than patents to protect our manufacturing and sales processes and products. Reliance on trade secrets is only an effective business practice insofar as trade secrets remain undisclosed and a proprietary product or process is not reverse engineered or independently developed. We take certain measures to protect our trade secrets, including executing non-disclosure agreements with our employees, customers and suppliers. If parties breach these agreements or the measures we take are not properly implemented, we may not have an adequate remedy. Disclosure of our trade secrets or reverse engineering of our proprietary products, processes or devices could materially and adversely affect Uniroyal's business, financial condition and results of operations.
Patent Protection. Although we currently hold four U.S. patents, these patents do not protect any material aspects of the current or planned commercial versions of our products for our Compound Semiconductor and Optoelectronics business segment. We are actively pursuing patents on some of our recent inventions, but these patents may not be issued. Even if these patents are issued, they may be challenged, invalidated or circumvented. In addition, the laws of certain other countries may not protect our intellectual property to the same extent as U.S. laws.
Enforcement of Intellectual Property Rights by or against Us Could Be Costly and Could Impair Our Business.
Other companies may hold or obtain patents on inventions or may otherwise claim proprietary rights to technology necessary to our business, especially with respect to the business of our Compound Semiconductor and Optoelectronics segment. We cannot assure you that third parties will not attempt to assert infringement claims against us with respect to our current or future products, including our core products. We cannot predict the extent to which such assertions may require us to seek licenses or, if required, whether such licenses will be offered or offered on acceptable terms or that disputes can be resolved without litigation. Litigation against us or any of our customers could impair our ability to sell our products. Litigation to determine the validity of infringement claims alleged by third parties could result in significant expense to us and divert the efforts of our technical and management personnel, whether or not the litigation is ultimately determined in our favor. We cannot predict the occurrence of future intellectual property claims that could prevent us from selling products, result in litigation or give rise to indemnification obligations or damage claims.
Due to Protracted Product Qualification Periods, We May Incur Significant Costs to Develop Products that May Ultimately Be Unsuccessful.
Many of the markets in which we compete are characterized by long lead times for new products requiring significant working capital investment by Uniroyal and extensive testing, qualification and approval by our customers and the end users of products. We face a significant risk that we will incur significant costs for research and development, manufacturing equipment, training, facility-related overhead and other expenses to develop new products, only to have our customers or end users not select them.
Even if our products are eventually approved and purchased by customers and end users, our investment may fail to generate revenues for several years while we develop and test such products.
Unsuccessful Control of Hazardous Materials Used in Our Manufacturing Processes Could Result in Costly Remediation Fees, Penalties or Damages Under Environmental and Safety Regulations.
Our operations are subject to extensive federal, state and local laws and regulations: (1) controlling the discharge of materials into the environment or otherwise relating to the protection of the environment; and (2) regulating conditions which may affect the health and safety of workers.
The operation of any manufacturing plant in the industries in which we participate entails risks under such laws and regulations, many of which provide for substantial fines and criminal sanctions for violation. For example, our manufacturing processes involve the use of certain hazardous raw materials, including, but not limited to, ammonia, phosphine and arsene. If the control systems are unsuccessful in preventing a release of these materials into the environment or other adverse environmental conditions occur, we could experience interruptions in our operations and incur substantial remediation and other costs. We believe that our current legal and environmental compliance and safety programs adequately address such concerns and that we are in substantial compliance with applicable laws and regulations. However, compliance with, or any violation of, current and future laws or regulations could require us to make material expenditures or otherwise have a material adverse effect on our business, financial condition and results of operations.
Certain Provisions of Our Charter and Our Stockholder Rights Plan May Adversely Affect our Stock Price and Make it More Difficult for a Third Party to Acquire Uniroyal even if Such Acquisition Could Be Beneficial to Some of Our Shareholders.
Provisions of Uniroyal's charter documents may have the effect of delaying or preventing a change in control of Uniroyal or its management, which could have a material adverse effect on the market price of the common stock. These include provisions:
o eliminating the ability of stockholders to take actions by written consent; and o limiting the ability of stockholders to raise matters at a meeting of stockholders without giving advance notice.
In addition, the Board of Directors has authority to issue up to 1,000 shares of preferred stock and to fix the rights, preferences, privileges and restrictions, including voting rights, of these shares without any further vote or action by the stockholders. The rights of the holders of common stock will be subject to, and could be adversely affected by, the rights of the holders of any preferred stock that Uniroyal may issue in the future. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of Uniroyal's outstanding voting stock, thereby delaying, deferring or preventing a change in control of Uniroyal.
Uniroyal's Stockholder Rights Plan has certain anti-takeover effects. The plan grants to holders of common stock the right, when exercisable, to purchase from Uniroyal a fraction of a share of Uniroyal's Series C preferred stock. This right will cause substantial dilution to a person or group that attempts to acquire Uniroyal without conditioning the offer on the rights being redeemed or a substantial number of rights being acquired.
Risk Factors Associated with Uniroyal's Coated Fabrics Business Segment
If Labor Relations at our Coated Fabrics Business Segment were Materially Impaired, Our Business Would be Adversely Affected.
We are a party to a collective bargaining agreement at our coated fabrics manufacturing facility located in Stoughton, Wisconsin. Approximately 112 hourly employees are covered by an agreement expiring on September 17, 2003 with Local 1207 of P.A.C.E. (formerly known as the United Paperworkers International Union).
Although we believe our relationships with employees are good, we can give no assurance that we will successfully negotiate the hourly wages and/or benefits of employees at our coated fabrics manufacturing facility when the applicable collective bargaining agreement expires. Moreover, the wages and/or benefits we may agree upon might adversely affect the Coated Fabrics segment's profitability. Furthermore, if we were the subject of a strike, we could incur significant costs.
Growth is Difficult in Our Coated Fabrics Segment Due to the Maturity of the Business Sector in Which it Operates
Our Coated Fabrics segment competes in a mature business sector. We believe the key to generating growth in this sector (besides acquiring other businesses) is to introduce new products or product innovations that address unsatisfied market needs. We believe we will need to significantly increase revenues from product sales and increase profitability in this sector. We can give no assurance that we will have resources available for, or otherwise be successful in, any efforts to achieve such growth.
Our Coated Fabrics Segment is Particularly Sensitive to Changes in General Economic Conditions
The recreational vehicle and upholstery markets, among others in which the Coated Fabrics segment competes, are sensitive to changes in general economic conditions which affect demand for the commercial and consumer items that the Coated Fabrics segment manufactures.
Risk Factors Associated with Uniroyal's Compound Semiconductor and Optoelectronics Business Segment
The Future Success of Our Compound Semiconductor and Optoelectronics Segment Depends on Development of New Products
The future success of the Compound Semiconductor and Optoelectronics segment depends on our ability to develop new products and technology in the optoelectronics and SiC industries. We must introduce new products in a timely and cost-effective manner and secure production orders from our customers. The development of new HB-LED and SiC products involves highly complex processes. The successful development and introduction of these products depends on a number of factors, including the following:
o achievement of technology breakthroughs required to make commercially viable devices; o the accuracy of our predictions of market requirements and evolving standards; o acceptance of our new product designs; o our ability to recruit qualified research and development personnel; o timely completion of product designs and development; o our ability to develop repeatable processes to manufacture new products in sufficient quantities for commercial sales; o acceptance by the market of the products of the Compound Semiconductor and Optoelectronics segment's customers; o consistent cost-effective manufacturing processes; and o cash flow constraints.
If any of these or other factors become problematic, we may not be able to develop and introduce these new products in a timely or cost-effective manner.
Our Compound Semiconductor and Optoelectronics Segment Has a Limited Operating History and We Expect Operating Losses to Continue
The Compound Semiconductor and Optoelectronics business segment started operations in the second quarter of fiscal 2000 and has a limited operating history. The segment faces risks and difficulties as an early stage business in a high growth and rapidly evolving industry. Some of the specific risks and difficulties for the segment include the following:
o building out our operational infrastructure; o expanding our sales structure and marketing programs; o increasing awareness of our products; o providing services to our customers that are reliable and cost-effective; o securing sales of our products; o responding to technological development or product offerings by competitors; o attracting and retaining qualified personnel; and o cash flow constraints.
We incurred a significant net loss in fiscal 2002 and a $46.5 million in fiscal 2001. See "Item 1. Business - Current Developments." We expect to continue to incur losses in 2003. To support the segment's growth, we have increased our expense levels and our investments in inventory and capital equipment. As a result, we will need to significantly increase revenues and profit margins for the Compound Semiconductor and Optoelectronics segment to become and stay profitable. If the segment's sales and profit margins do not increase to support the higher levels of operating expenses and if its product offerings are not successful, our business, financial condition and results of operations could be materially and adversely affected.
The Industries in Which Our Compound Semiconductor and Optoelectronics Segment Operates are Rapidly Changing
The Compound Semiconductor and Optoelectronics segment competes in markets characterized by rapid technological change, evolving industry standards and continuous improvements in products. Due to constant changes in these markets, its future success depends on our ability to improve our manufacturing processes and tools and our products. To remain competitive, we must continually introduce manufacturing tools with higher capacity and better production yields and refine production processes to meet ever higher customer requirements.
Because we generally are unable to predict the amount of time required and the costs involved to achieve certain research, development and engineering objectives, actual development costs could exceed budgeted amounts, and estimated product development schedules could be extended. Our business, financial condition and results of operations could be materially and adversely affected if with respect to the Compound Semiconductor and Optoelectronics business:
o we are unable to improve our existing products on a timely basis; o our new products are not introduced on a timely basis; o we incur budget overruns or delays in our research and development efforts; o our new products experience reliability or quality problems; or o we experience cash flow constraints that interfere with any of the foregoing.
Our Operating Results Could be Harmed if We Lose Access to Certain Limited Sources of Materials, Components or Equipment Used in Our Compound Semiconductor and Optoelectronics Segment
We depend on a limited number of suppliers for certain raw materials, components and equipment used in the Compound Semiconductor and Optoelectronics segment, including certain key materials and equipment used in our wafering, polishing, epitaxial deposition, device fabrication and device test processes. In addition, the availability of these materials, components and equipment to us is dependent in part on our ability to provide our suppliers with accurate forecasts of our future requirements. We endeavor to maintain ongoing communication with our suppliers to guard against interruptions in supply and, to date, generally have been able to obtain adequate supplies in a timely manner from our existing sources. Most of our suppliers demand cash in advance payments for their products and services. From time-to-time cash issues have led to periodic disruptions in the purchase of raw materials leading to production delays. However, any significant interruption in the supply of these key materials, components or equipment could have a significant adverse effect on our operations.
The Manufacture of the Compound Semiconductor and Optoelectronics Segment's Products is a Highly Complex and Precise Process and Production Could be Impaired or Disrupted if We Experience Manufacturing Difficulties
The manufacture of the Compound Semiconductor and Optoelectronics segment's products is a highly complex and precise process. We now manufacture nearly all of our HB-LED epitaxial wafers and dies at our Tampa, Florida facility. Minute impurities, difficulties in the production process, defects in the layering of the wafers' and dies' constituent compounds, wafer breakage or other factors can cause a substantial percentage of wafers and dies to be rejected or numerous dies on each wafer to be non-functional. These factors can result in lower than expected production yields, which would delay product shipments and could materially and adversely affect our operating results. Because the majority of the manufacturing costs for the Optoelectronics business are relatively fixed, the number of shippable dies per wafer for a given product is critical to the segment's financial results.
Additionally, because we manufacture most of our HB-LEDs at our facility in Tampa, Florida, any interruption in manufacturing resulting from fire, natural disaster, equipment failures or otherwise could materially and adversely affect the Compound Semiconductor and Optoelectronics segment's business, financial condition and results of operations.
Item 2.
Item 2. Properties
The following table sets forth the location, size, general character and nature of the Company's facilities:
*The Company has entered into agreements to sell the Stirling, New Jersey and Port Clinton, Ohio facilities. **Operations and some staff of the Sterling, Virginia facility have been distributed between the Danbury, Connecticut and Tampa, Florida locations. The Sterling, Virginia location was closed as of December 31, 2002.
Item 3.
Item 3. Legal Proceedings
On February 23, 2001, the Company and its wholly owned subsidiary, Sterling, were served with a complaint by AFG-NVC, LLC in the Loudoun County, Virginia Circuit Court. The complaint sought approximately $8,106,000 for alleged default under a lease and benefits that the landlord believed it would have received under such lease. The Company filed an answer seeking not less than $7,000,000 for breaches of contract, fraud and constructive fraud on the part of the plaintiff. On February 11, 2002, the Company reached a settlement and on April 26, 2002, executed settlement documents with the plaintiff whereby the Company paid AFG-NVC, LLC $650,000 in the form of a secured promissory note and 300,000 shares of the Company's common stock (valued at approximately $135,000 at the time of settlement). The promissory note is secured by a security interest in the Company's Stirling, New Jersey facility which is currently subject to a sale contract. The term of the note is one year and is due in full at maturity. Interest is payable quarterly at 8% per annum. The Company recorded the $785,000 settlement during the first quarter of Fiscal 2002.
The Company and certain of its officers are currently defendants in five putative class action securities lawsuits filed in July 2002 in the United States District Court for the Middle District of Florida. The suits allege, among other things, violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), in connection with the valuation of a promissory note held by the Company in December 1999, the write-down of goodwill in the Company's subsidiary Sterling in December 2001, and statements made in filings with the Securities and Exchange Commission (the "SEC") and in press releases concerning Sterling. Management intends to defend these suits vigorously.
The Company and certain of its officers are currently defendants in a putative class action securities lawsuit filed by certain former shareholders of Sterling in July 2002 in the United States District Court for the Eastern District of Virginia. This action was transferred to the United States District Court for the Middle District of Florida in December, 2002. This suit alleges, among other things, violations of Sections 11, 12 and 15 of the Securities Act of 1933, as amended, and Sections 10(b) and 20(a) of the Exchange Act in connection with the exchange of common stock of the Company for securities of Sterling in May 2000. The plaintiffs allege that the Company misrepresented the timing of the attainment of commercial viability of the Company's subsidiary UOE. Management intends to defend this suit vigorously.
The Company and certain of its subsidiaries have been served with several actions brought by vendors seeking approximately $4 million for purchases of equipment, supplies and services for which the Company or such subsidiaries have failed to make payments. In one suit the vendor has obtained pretrial attachment to certain of the Company's bank accounts, effectively freezing approximately $142,000 of the Company's cash. This amount was reclassified from cash to prepaid and other assets as of June 30, 2002. These actions have been stayed under the United States Bankruptcy Code and will be resolved in the Company's Chapter 11 reorganization proceedings.
Uniroyal Retiree Benefits, Inc. ("URBI"), which provides health care and life insurance services to certain persons who retired from predecessors of the Company and certain other employers, filed an action in June 2002 in the United States Bankruptcy Court for the Northern District of Indiana seeking reopening of a 1995 order in an adversary proceeding and a contempt citation against the Company in connection with the Company's failure to make payments to URBI aggregating $665,457. This action has been stayed and will also be resolved in the Company's reorganization process.
Mechanics' liens have been filed against premises occupied by UOE in Tampa, Florida and by Sterling in Sterling, Virginia. The claims in connection with such liens aggregate approximately $2,411,000 in the case of UOE and approximately $2,132,000 in the case of Sterling. The existence of such liens violates the terms of the leases for such premises. The failure to cure such defaults could result in the termination of the leases, which could have a material adverse effect on the businesses of UOE and Sterling. The landlord of the Tampa facility filed an eviction notice in Hillsborough County Court based in part on the existence of mechanics' liens against the premises. A forbearance agreement was entered into with the landlord which has since expired. These matters will be resolved in the Company's reorganization proceedings. As of December 31, 2002, the Company closed the Sterling, Virginia plant.
The Company knows of no other pending legal proceedings to which the Company or any of its subsidiaries is a party or of which any of their property is the subject other than routine litigation incidental to the Company's business.
No legal proceedings, other than those previously mentioned, were terminated during the fiscal year ended September 29, 2002, other than routine litigation incidental to the Company's business.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of fiscal 2002 to a vote of security holders, through the solicitation of proxies or otherwise.
Part II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Prior to the effective date of a plan of reorganization on September 27, 1992, none of the Company's common stock, par value $.01 per share (the "Common Stock"), was issued, and consequently there was no public market for the Common Stock. The Common Stock was admitted to trading on the Nasdaq National Market System on September 28, 1992. The common stock was transferred to the Nasdaq SmallCap Market on June 18, 2002 and was delisted on September 5, 2002. It currently trades in the Pink Sheets. At the close of trading on January 3, 2003, the price per share of Common Stock was $0.005.
As of January 3, 2003, there were 1,273 holders of record of shares of Common Stock.
The following table sets forth the high and low sales price per share of the Company's Common Stock as reported by Nasdaq and other market information provides for the indicated dates. The prices have been adjusted to give effect to the two-for-one stock split declared on March 10, 2000 for stockholders of record on March 20, 2000:
Fiscal Year Ended Fiscal Year Ended September 29, 2002 September 30, 2001 -------------------------------- -----------------------------
Quarter High Low High Low - ------- ---- ---- ---- ---- First $ 4.19 $ 2.20 $ 15.13 $ 5.25 Second $ 3.20 $ .27 $ 8.75 $ 5.88 Third $ .80 $ .08 $ 10.11 $ 6.94 Fourth $ .29 $ .02 $ 8.50 $ 2.54
We have never paid cash dividends on our common stock. The payment of any future dividends will be subject to the discretion of our Board of Directors and will depend on our results of operations, financial position and capital requirements, general business conditions, legal restrictions on the payment of dividends and other factors our Board of Directors deem relevant. We currently do not anticipate paying cash dividends on the common stock in the foreseeable future.
Item 6.
Item 6. Selected Financial Data.
Omitted.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation.
Omitted.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risks.
See Item 1 above - "Certain Business Risks and Uncertainties."
Item 8.
Item 8. Financial Statements and Supplementary Data.
Omitted.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Part III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Directors of the Company
============================================================================= NOMINEE AGE POSITION DIRECTOR SINCE
============================================================================= Peter C.B. Bynoe 51 Director 1992 ----------------------------------------------------------------------------- Thomas E. Constance 66 Director 1998 ----------------------------------------------------------------------------- Howard R. Curd 63 Chairman of the Board, 1992 Chief Executive Officer and Director ----------------------------------------------------------------------------- Curtis L. Mack 60 Director 1992 ----------------------------------------------------------------------------- Roland H. Meyer 75 Director 1992 ----------------------------------------------------------------------------- John A. Porter 59 Director 1994 ----------------------------------------------------------------------------- Robert L. Soran 59 President, 1993 Chief Operating Officer and Director =============================================================================
Peter C.B. Bynoe is Chairman of the Audit Committee and a member of the Executive Committee of the Board of Directors. Mr. Bynoe is Chairman of Telemat Ltd., a project management and financial services consulting firm he founded. He is also a partner in the law firm of Piper Rudnick. Mr. Bynoe also formerly served as the Executive Director of the Illinois Sports Facilities Authority, a joint venture of the City of Chicago and the State of Illinois created to build a new Comiskey Park for the Chicago White Sox. Mr. Bynoe was formerly the co-owner and Managing General Partner of the National Basketball Association's Denver Nuggets. Mr. Bynoe was an Overseer of Harvard University until June 2001.
Thomas E.Constance is a member of the Audit, Compensation, Option, Trust Fund and Executive Committees of the Board of Directors. Mr. Constance is Chairman and partner of Kramer, Levin, Naftalis & Frankel, a law firm in New York City. He was a partner of Shea & Gould from 1971 to 1994 and served as Chairman of the Executive Committee of that firm. Mr. Constance serves as a Trustee of the M.D. Sass Foundation and St. Vincent's Services. He also serves on the Advisory Board of Barrington Capital, L.P. and serves as a director of Kroll, Inc. and Siga Technologies, Inc.
Howard R. Curd was appointed Chief Executive Officer of the Company as of September 21, 1992. Mr. Curd is also a member of the Executive Committee of the Board of Directors.
Curtis L. Mack is Chairman of the Trust Funds Committee and a member of the Executive Committee of the Board of Directors. An attorney specializing in labor law, Mr. Mack is a partner in the law firm of McGuireWoods LLP. Mr. Mack was formerly a partner in Mack, Haygood & McLean, a law firm based in Atlanta, Georgia, from 1994 to 1999 and was before that a partner in Mack & Bernstein, a law firm based in Atlanta, Georgia, from 1983 to 1994. Mr. Mack taught labor and employment law at the University of Florida Law School in 1973-1974; he was General Counsel of the Florida Public Employees Relations Commission from 1974 to 1975, and he was Chairman of the Commission from 1975 to 1976; from 1976 to 1981 he was Regional Director of the National Labor Relations Board in Atlanta, Georgia. Presently Mr. Mack is an adjunct professor at the University of Michigan Law School, and also serves on the Advisory Board to the School of Social Science at Michigan State University. Mr. Mack has served as Special Assistant Attorney General for the State of Georgia since 1989 and as Chairman of the Human Relations Commission of the City of Atlanta since 1989.
Roland H. Meyer is Chairman of the Compensation Committee and the Option Committee and a member of the Executive Committee of the Board of Directors. Mr. Meyer was elected Vice Chairman of American National Can Company, a leading manufacturer of metal, glass and plastic packaging products, in 1987. He was elected Chief Operating Officer of American National Can in 1988 and President in 1989. Mr. Meyer served as President and Chief Operating Officer of American National Can until his retirement in June 1992. Mr. Meyer was a director of Allied Van Lines from 1987 to 1992 and was a director and Vice Chairman of the Can Manufacturers Institute, Inc. from 1985 to 1994. Mr. Meyer was a director of American National Can and a member of American National Can's Executive Committee from 1984 to 2000. Mr. Meyer also served for various periods as a director of certain subsidiaries of American National Can. Mr. Meyer was also a director, Vice Chairman and Chairman of the Executive Committee of First Commercial Bank of Tampa from 1988 to 2001 and is a director of the Catholic Education Foundation, Inc. of the Diocese of St. Petersburg, Florida.
John A. Porter is a member of the Audit and Executive Committees of the Board of Directors. Mr. Porter was formerly a director of WorldCom Inc., one of the largest telecommunications companies in the United States. He was Chairman of the Board of Directors of LDDS Communications, Inc. ("LDDS") from 1988 until its merger with Metromedia Communications in 1993 and was Vice Chairman of the Board from 1993 to 1997. He served as President and Chief Executive Officer of Telephone Management Corporation from 1987 until it was acquired by LDDS in August 1988. Mr. Porter is a former director of Inktomi Corporation. Mr. Porter also serves as Chairman of the Board of Directors of TelTek, Inc., a holding company that currently holds all of the stock of Phillips & Brooks/Gladwin, Inc., an equipment manufacturer for deregulated electrical and telecommunications markets, and Industrial Electric Manufacturing Inc., a manufacturer of electrical power distribution products.
Robert L. Soran was elected President and Chief Operating Officer of the Company as of September 21, 1992. Mr. Soran is also a member of the Executive Committee of the Board of Directors. Mr. Soran was President and Chief Executive Officer of Tropicana Products Inc., a fruit beverage processor ("Tropicana"), from 1986 until September 1991. Mr. Soran is a trustee of the University of South Florida.
Executive Officers of the Company
Officers of the Company are appointed to serve until the meeting of the Board of Directors following the next annual meeting of stockholders or until their respective successors have been duly elected and qualified. Any officer of the Company may be removed, pursuant to the Company's By-Laws, with or without cause, by a vote of a majority of the entire Board of Directors. The following table sets forth the name, age and position of each executive officer of the Company:
================================================================================ NAME AGE POSITION ================================================================================ Howard R. Curd 63 Chairman of the Board of Directors and Chief Executive Officer - -------------------------------------------------------------------------------- Robert L. Soran 59 Director, President and Chief Operating Officer - -------------------------------------------------------------------------------- George J. Zulanas, Jr. 58 Executive Vice President, Chief Financial Officer and Treasurer - -------------------------------------------------------------------------------- Oliver J. Janney 56 Executive Vice President, General Counsel and Secretary - -------------------------------------------------------------------------------- Martin J. Gutfreund 61 Vice President, Human Resources and Administration ================================================================================
The business experience of Messrs. Curd and Soran is described above under "Directors of the Company."
Messrs. Zulanas, Janney and Gutfreund were elected to the positions set forth above as of September 21, 1992, except that Messrs. Zulanas and Janney were elected to the office of Executive Vice President on March 10, 2000.
Mr. Gutfreund resigned as an officer of the Company effective October 1, 2002.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company's officers and directors and persons who own more than ten percent of a registered class of the Company's equity securities to file reports of ownership and changes of ownership with the Securities and Exchange Commission (the "S.E.C."). Officers, directors and beneficial owners of more than ten percent of the Company's common stock, $.01 par value per share ("Common Stock"), are required by S.E.C. regulations to furnish the Company with copies of all reports that they file with the S.E.C. pursuant to Section 16(a) of the Exchange Act. Based solely on a review of the copies of such forms furnished to the Company, the Company believes that during fiscal 2002 its officers, directors and beneficial owner of more than ten percent of the Common Stock complied with applicable Section 16(a) filing requirements, except that Mr. Mack failed to file a report on Form 4 in connection with a division of his stock holdings with his former spouse, which transaction will be reflected in a report in Form 5.
Item 11.
Item 11. Executive Compensation
Compensation of Directors
Each director who is not an officer of the Company receives an annual fee (the "Annual Retainer Fee") of $25,000, plus $1,000 for each meeting of the Board of Directors attended, $2,500 per annum for service on a committee (except the chairman of a committee, who receives $3,000 per annum) (the "Committee Retainer Fees") and $500 to $1,000 for each committee meeting attended, depending upon whether the committee meeting is held in conjunction with a meeting of the Board of Directors, independent of a meeting of the Board of Directors or by teleconference. Each director receives reimbursement of his expenses incurred in attending each meeting of the Board of Directors or of a committee.
Directors who are not officers of the Company may elect to apply up to the entire amount of their Annual Retainer Fees and Committee Retainer Fees in exchange for options to purchase Common Stock pursuant to the 1992 Non-Qualified Stock Option Plan (the "1992 Non-Qualified Plan"). The 1992 Non-Qualified Plan provides that Common Stock underlying each option issued pursuant to such Plan may be purchased for 100% of the market price of the Common Stock on the date of grant. Although the amount of the Annual Retainer Fee and Committee Retainer Fees is initially paid for the option, such amount also constitutes 50% of the consideration payable for the underlying Common Stock. When the Director exercises the option, the additional 50% of the purchase price of the Common Stock must be paid in cash by the Director. If the Director does not timely exercise the option to purchase the Common Stock, the Annual Retainer Fee and Committee Retainer Fees applied to acquire the option will be forfeited by the Director. In addition, each director of the Company has received options to purchase shares of Common Stock under the 1995 Non-Qualified Stock Option Plan. No director who is not an officer of the Company may receive options to purchase more than an aggregate of 60,000 shares of Common Stock in any calendar year under all of the Company's stock option plans.
Because of cash constraints, the Company has not paid the cash fees to directors since December 2001.
Compensation Committee Interlocks and Insider Participation
No executive officer of the Company served on the board of directors or compensation committee of any entity which has one or more executive officers serving as a member of the Company's Board of Directors or Compensation Committee.
COMPENSATION OF EXECUTIVE OFFICERS Report of the Compensation Committee and the Option Committee
Roles of the Compensation and Option Committees
The Compensation Committee is responsible for administering the compensation program for the executive officers of the Company, and the Option Committee administers the Company's stock option plans and the 2000 Stock Plan.
Compensation Philosophy
The Company's compensation philosophy with respect to the compensation of the Company's executive officers consists of the following core principles:
o Base salary should be competitive in order to attract, retain and motivate well-qualified executives.
o Incentive compensation should be directly related to achieving specified levels of corporate financial performance. A significant part of the executive officers' compensation should be at risk, based upon the success of the Company.
o Long-term stock ownership of the Company's Common Stock by the Company's executive officers creates a valuable link between the Company's management and stockholders. Stock ownership gives management strong incentives to properly balance the need for short-term profits with long-term goals and objectives and to develop strategies that build and sustain stockholder returns.
Executive Compensation Program
The Company's executive compensation program contains three components which are intended to reflect the Company's compensation philosophy.
Base Salary. Base salary and adjustments to base salary are set by employment agreements with Messrs. Curd, Soran, Zulanas and Janney. The base salaries for executive officers are targeted at the upper quartiles of the competitive market. For this purpose, the Compensation Committee reviews and considers the salary ranges of executive officers in comparable positions at companies comparable to the Company in various industries. The Compensation Committee's practice is to review the base salary of each executive officer annually, at which time the executive officer's base salary may be increased beyond the contractually mandated incremental increases based upon the executive officer's individual performance and contributions to the Company. The Committee has not made any such increase in the past. To meet the Company's cash and profit objectives, the salaries of the executive officers were reduced by 10% - 25% effective October 16, 2001 and higher percentages were deferred indefinitely during the first two months of calendar 2002. On August 28, 2002, each of the executive officers agreed to defer 20-50% of his base compensation from September 15, 2002 until 10 days after the earlier of the consummation of the Company's plan of reorganization or the termination of such officer's employment by the Company.
Annual Bonus. The Company's executive officers, as well as a number of other key employees of the Company, are eligible for an annual cash bonus pursuant to the Company's Management Incentive Plan (the "MIP"). Target annual bonus amounts for the executive officers are established at the beginning of the fiscal year by the Compensation Committee. For this purpose, the Compensation Committee reviews and considers bonus amounts awarded to officers of companies in comparable positions in various industries comparable in size to the Company and also considers Company performance and the achievement of each executive officer in his area of responsibility and the resulting contribution to overall corporate performance. Total payments into the MIP Plan for all participants, including executive officers, were approximately $2,365,591 for fiscal 2000, approximately $96,000 for fiscal 2001, and approximately $105,800 for fiscal 2002. No executive officer received any payment under the MIP for fiscal 2001 or 2002. Under the MIP the Compensation Committee has discretion to adjust an individual's actual bonus payment from the amount that would otherwise be payable under the formula, subject to approval by the full Board of Directors.
Long-Term Incentives. The executive officers of the Company and other current members of management and other key employees and all employees at the Company's headquarters and the Company's Compound Semiconductor and Optoelectronics segment have been granted and currently hold stock options pursuant to the Company's stock option plans. The Company's stock option plans are intended to provide opportunities for stock ownership by management and other key employees, which will increase their proprietary interest in the Company and, consequently, their identification with the interests of the stockholders of the Company. In addition, the executive officers have purchased stock on their own as a demonstration of their commitment to the Company. Stock options granted under the Company's stock option plans have exercise prices equal to the fair market value of the Company's Common Stock on the dates of grant. The stock options have terms ranging from three to ten years. A deferred compensation plan was instituted for the executive officers in fiscal 1995; this improves the Company's short-term cash flow. A split-dollar life insurance plan was also instituted in fiscal 1995, to facilitate executive officers' saving for retirement; this plan was revised in March 2000, so that each participant could purchase for a nominal sum the paid-up policy at retirement or such earlier date on which benefits would be payable. At the same time the Board of Directors amended the Deferred Compensation Plan to reduce the rate of interest paid by the Company on balances held under the plan. Effective October 1, 1998, the Board of Directors approved a defined contribution retirement plan to provide benefits for certain executives for ten years after their retirement; benefits under such plan are conditional on an executive's being employed by the Company until retirement; in March 2000 the Board of Directors approved an additional ten years of paid-up benefits. On March 10, 2000, the stockholders approved a stock grant plan for directors and key employees, including the executive officers. To meet the Company's cash and profit objectives, the split-dollar life insurance plan and the defined contribution retirement plan were terminated on December 28, 2001.
Internal Revenue Code Section 162(m). Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") generally disallows a tax deduction to publicly held companies for compensation to the chief executive officer and the four other most highly compensated executive officers to the extent that it exceeds $1 million per covered officer in any fiscal year. Certain exceptions are provided for non-discretionary, performance-related compensation. The Compensation Committee will review the effects of Section 162(m), from time to time, as it reviews changes in the compensation arrangements, to the extent it deems appropriate. The Compensation Committee may recommend payments that are not deductible when it considers them in the best interests of the Company and its stockholders. No such payments were made for fiscal 2002.
Chief Executive Officer's Performance
The Compensation Committee has reviewed the compensation of the Chief Executive Officer and has found the level appropriate in comparison with persons holding similar positions in comparable companies and in light of developments at the Company during fiscal 2002, including attempts to restructure the Company, guiding the Company into the Chapter 11 proceedings and the continued reduction in corporate overhead costs. The Compensation Committee believes that the Chief Executive Officer is being appropriately compensated in a manner that relates to the performance of the Company.
Compensation Committee Option Committee - ---------------------- ---------------------- ROLAND H. MEYER, CHAIRMAN ROLAND H. MEYER, CHAIRMAN THOMAS E. CONSTANCE THOMAS E. CONSTANCE
Summary Compensation Table
The following table sets forth the cash and other compensation paid by the Company in respect of the fiscal year ended September 29, 2002, to the Chief Executive Officer and the other four most highly compensated officers of the Company. Certain of the executive officers of the Company also received certain other compensation, including automobile allowances. The amount of such other compensation received by each of these officers was less than the lesser of $50,000 or 10% of his respective cash compensation as set forth in the Salary and Bonus columns of this table. The salary figures set forth below include an aggregate of $143,948 that the listed officers have deferred in fiscal 2002 to accommodate the cash flow needs of the Company.
(1) Includes commission of $1,633,100. (2) Includes commission of $1,305,992. (3) Includes commission of $738,397. (4) Includes funding of supplemental retirement benefits in the amount of $329,505. (5) Includes automobile allowance of $21,002. (6) Includes funding of supplemental retirement benefits in the amount of $452,345.
Compensation Pursuant to Other Programs; Stock Option Plan
In addition to the salary administration program and MIP, in order to retain and attract quality management, the Company maintains a compensation program that includes stock option plans, a stock grant plan and benefit programs such as disability and health insurance and death benefits. Stock options for key employees are granted by the Option Committee, and the Compensation Committee reviews the other benefit programs. The Option Committee has delegated to Messrs. Curd and Soran, acting as a subcommittee of the Board of Directors, the authority to grant limited stock options to key employees other than executive officers.
No options were granted in the last fiscal year to the Chief Executive Officer and the four most highly compensated executive officers of the Company other than the Chief Executive Officer nor were any options exercised by any such persons during fiscal 2002.
Agreements with Executives
Mr. Curd, Chairman of the Board and Chief Executive Officer of the Company, is employed pursuant to an agreement which was amended and restated as of April 25, 1995. The agreement provides for a base salary of $480,300. Mr. Curd's base salary is subject to adjustment annually during the term of the agreement based on changes in the U.S. Consumer Price Index for all Urban Consumers, U.S. City Average (the "CPI"). Pursuant to this provision, Mr. Curd's base salary was increased by 1.5% effective September 1, 2002. Mr. Curd is also entitled to receive a bonus pursuant to the MIP at the end of each fiscal year. Mr. Curd's employment agreement provides for a three-year base term subject to automatic one-year extensions on each anniversary date of the agreement unless such agreement is terminated by either party. In addition, Mr. Curd is entitled to receive the base salary that he would have received for the balance of the term of the agreement plus an amount equal to two years' salary as severance upon termination of his employment by the Company. Mr. Curd's employment agreement was amended to defer 50% of his base salary from September 15, 2002 until 10 days after the earlier to occur of the consummation of the Company's plan of reorganization or the termination of his employment.
Mr. Soran, President and Chief Operating Officer of the Company, is employed pursuant to an agreement which was amended and restated as of April 25, 1995. The agreement is for a two-year term subject to automatic annual one-year extensions on each anniversary date of the agreement unless such agreement is terminated by either party. Mr. Soran's employment agreement provides for a base salary of $395,000. Mr. Soran's base salary is subject to adjustment annually during the term of the agreement based on changes in the CPI. Pursuant to this provision, Mr. Soran's base salary was increased by 1.5% effective September 1, 2002. Mr. Soran is also entitled to receive a bonus pursuant to the MIP at the end of each fiscal year, as determined by the Board of Directors. In addition, Mr. Soran is entitled to receive the base salary that he would have received for the balance of the term of the agreement plus an amount equal to one year's salary as severance upon termination of his employment by the Company. Mr. Soran's employment agreement was amended to defer 50% of his base salary from September 15, 2002 until 10 days after the earlier to occur of the consummation of the Company's plan of reorganization or the termination of his employment.
Mr. Zulanas, Executive Vice President, Treasurer and Chief Financial Officer of the Company, is employed pursuant to an agreement which was amended and restated as of April 25, 1995. The agreement is for a two-year term subject to annual one-year automatic extensions on each anniversary date of the agreement unless such agreement is terminated by either party. Mr. Zulanas' employment agreement provides for a base salary of $200,000. Mr. Zulanas' base salary is subject to adjustment annually during the term of the agreement based on changes in the CPI. Pursuant to this provision, Mr. Zulanas' base salary was increased by 1.5% effective September 1, 2002. Mr. Zulanas is also entitled to receive a bonus pursuant to the MIP at the end of each fiscal year, as determined by the Board of Directors. In addition, Mr. Zulanas is entitled to receive the base salary that he would have received for the balance of the term of the agreement plus an amount equal to one year's salary as severance upon termination of his employment by the Company. Mr. Zulanas's employment agreement was amended to defer 40% of his base salary from September 15, 2002 until 10 days after the earlier to occur of the consummation of the Company's plan of reorganization or the termination of his employment.
Mr. Janney, Executive Vice President, Secretary and General Counsel of the Company, is employed pursuant to an agreement which was amended and restated as of April 25, 1995. The agreement provides for a base salary of $195,500. Mr. Janney's base salary is subject to adjustment annually during the term of the agreement based on changes in the CPI. Pursuant to this provision, Mr. Janney's base salary was increased by 1.5% effective September 1, 2002. Mr. Janney is also entitled to receive a bonus pursuant to the MIP at the end of each fiscal year. Mr. Janney's employment agreement provides for a two-year base term subject to automatic one-year extensions on each anniversary date of the agreement unless such agreement is terminated by either party. In addition, Mr. Janney is entitled to receive his base salary for the balance of the term of the agreement plus an amount equal to one year's salary as severance upon termination of his employment by the Company. Mr. Janney's employment agreement was amended to defer 20% of his base salary from September 15, 2002 until 10 days after the earlier to occur of the consummation of the Company's plan of reorganization or the termination of his employment.
STOCK PERFORMANCE GRAPH
Because the Company is currently in reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code and does not have the resources to prepare the Stock Performance Graph, the graph is not included with this report.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information regarding the beneficial ownership of Common Stock as of January 3, 2003, by (a) each person known to the Company to be the beneficial owner of more than five percent of the Common Stock,(b) all directors and nominees, (c) the Chief Executive Officer and the other four most highly compensated executive officers of the Company and (d) all directors and executive officers of the Company as a group:
At January 3, 2003
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER OF SHARES OWNED(2) PERCENT OF CLASS(3) - -------------------------------- ------------------------- -------------------
Dr. Thomas J. Russell 3,578,410 11.79% Two N. Tamiami Trail, Suite 1200 Sarasota, Florida 34236
Emcore Corporation 1,984,110 6.53% 145 Belmont Drive Somerset, New Jersey 08873
Howard R. Curd 2,240,036 (4) 7.15% Robert L. Soran 1,977,025 (5) 6.27% George J. Zulanas, Jr. 1,092,753 (6) 3.56% John A. Porter 1,057,799 (7) 3.53% Oliver J. Janney 756,235 (8) 2.46% Roland H. Meyer 499,810 (9) 1.64% Peter C.B. Bynoe 142,461 (10) (11) Thomas E. Constance 123,564 (12) (11) Curtis L. Mack 106,423 (13) (11)
All directors and executive officers of the Company as a group 7,953,205 (14) 25.59%
(1) The address for all directors and executive officers is c/o the Company, 602 Sarasota Quay, Sarasota, Florida 34236.
(2) Information contained in the table reflects "beneficial ownership" as defined in Rule 13d-3 under the Securities Exchange Act of 1934. This table is based on information supplied by directors, officers and beneficial owners of ten percent or more of the Common Stock, Forms 13D and 13G filed with the Securities and Exchange Commission by beneficial owners of 5% or more of the Common Stock. Unless otherwise indicated, the stockholders identified in this table have sole voting and investment power with respect to the shares beneficially owned by them.
(3) Applicable percentages are based on 30,362,888 shares of Common Stock outstanding, plus, for each person or group, shares issuable pursuant to options exercisable within 60 days under the Company's stock options plans and shares issuable pursuant to outstanding warrants.
(4) Includes 969,131 shares of Common Stock issuable pursuant to options exercisable within 60 days under the Company's stock option plans and 152,600 shares of Common Stock issuable pursuant to warrants.
(5) Includes 1,180,128 shares of Common Stock issuable pursuant to options exercisable within 60 days under the Company's stock options plans. Does not include 72,000 shares held by a family member residing in Mr. Soran's household, as to which Mr. Soran disclaims beneficial ownership.
(6) Includes 569,876 shares of Common stock issuable pursuant to currently exercisable options granted under the Company's stock option plans.
(7) Includes 159,920 shares of Common Stock issuable pursuant to currently exercisable options granted under the Company's 1992 Non-Qualified Stock Option Plan and 1995 Non-Qualified Stock Option Plan.
(8) Includes 414,508 shares of Common Stock issuable pursuant to currently exercisable options granted under the Company's stock option plans.
(9) Includes 170,234 shares of Common Stock issuable pursuant to options exercisable within 60 days under the Company's 1992 Non-Qualified Stock Option Plan and 1995 Non-Qualified Stock Option Plan.
(10) Includes 105,000 shares of Common Stock issuable pursuant to options exercisable within 60 days under the Company's 1992 Non-Qualified Stock Option Plan and 1995 Non-Qualified Stock Option Plan.
(11) Less than one percent.
(12) Consists of Common Stock issuable pursuant to options exercisable within 60 days under the Company's 1992 Non-Qualified Stock Option Plan and 1995 Non-Qualified Stock Option Plan.
(13) Includes 92,823 shares of Common Stock issuable pursuant to options exercisable within 60 days under the Company's 1992 Non-Qualified Stock Option Plan and 1995 Non-Qualified Stock Option Plan.
(14) Includes 3,800,164 shares of Common Stock issuable pursuant to options exercisable within 60 days under the Company's stock option plans.
Item 13.
Item 13. Certain Relationships and Related Transactions
Thomas E. Constance, a director of the Company, is Chairman and a partner of the law firm of Kramer, Levin, Naftalis & Frankel, which performed legal services for the Company during fiscal 2002. Peter C. B. Bynoe, a director of the Company, is a partner of the law firm of Piper Rudnick, which performed legal services for the Company during fiscal 2002. Curtis L. Mack, a director of the Company, is a partner of the law firm of McGuireWoods, which performed legal services for the Company during fiscal 2002.
Part IV
Item 14.
Item 14. Controls and Procedures
Omitted.
Item 15.
Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K
(a) Exhibits:
2.1 Certificate of Ownership and Merger, dated June 7, 1993, of Polycast Technology Corporation, Uniroyal Engineered Products, Inc., Uniroyal Adhesives and Sealants, Inc. and Ensolite, Inc. with Uniroyal. (1)
3.1 Amended and Restated Certificate of Incorporation of Uniroyal. (8)
3.2 By-Laws of Uniroyal, as amended to March 16, 2001. (8)
4.2 Amended and Restated Warrant Agreement dated January 1, 2001 between Uniroyal and Mellon Investor Services, LLC. (7)
10.7 Amended and Restated Employment Agreement, dated as of April 25, 1995, between Howard R. Curd and Uniroyal. (2)
10.8 Amended and Restated Employment Agreement, dated as of April 25, 1995, between Oliver J. Janney and Uniroyal.(2)
10.9 Amended and Restated Employment Agreement, dated as of April 25, 1995, between Robert L. Soran and Uniroyal. (2)
10.10 Amended and Restated Employment Agreement, dated as of April 25, 1995, between George J. Zulanas, Jr. and Uniroyal. (2)
10.16 Amended and Restated Uniroyal Technology Corporation 1992 Stock Option Plan as amended and restated to March 20, 2001. (8)
10.28 Amended and Restated Uniroyal Technology Corporation 1992 Non-Qualified Stock Option Plan as amended November 30, 2000. (6)
10.40 Amended and Restated Uniroyal Technology Corporation 1994 Stock Option Plan as amended and restated to March 16, 2001. (8)
10.41 Amended and Restated Uniroyal Technology Corporation 1995 Non-Qualified Stock Option Plan. (6)
10.44 Amended and Restated Shareholder Rights Agreement, dated as of August 2, 2001, between Uniroyal Technology Corporation and Mellon Investor Services, LLC, as rights agent. (9)
10.51 Asset Purchase Agreement dated as of December 24, 1999, among Spartech Corporation, High Performance Plastics, Inc. Uniroyal HPP Holdings, Inc. and Uniroyal Technology Corporation. (3)
10.53 Amended and Restated Uniroyal Technology Corporation Deferred Compensation Plan Effective August 1, 1995, as amended April 3, 2000. (4)
10.54 Merger Agreement dated as of April 10, 2000, among Uniroyal Technology Corporation, BayPlas4, Inc., and Sterling Semiconductor, Inc. (5)
10.56 Split Dollar Insurance Agreement dated as of August 15, 1995, as amended to March 10, 2000, by and between Uniroyal Technology Corporation and Howard R. Curd. (6)
10.57 Split Dollar Insurance Agreement dated as of August 15, 1995, as amended to March 10, 2000, by and between Uniroyal Technology Corporation and Robert L. Soran. (6)
10.58 Split Dollar Insurance Agreement dated as of August 15, 1995, as amended to March 10, 2000, by and between Uniroyal Technology Corporation and George J. Zulanas, Jr. (6)
10.59 Split Dollar Insurance Agreement dated as of August 15, 1995, as amended to March 10, 2000, by and between Uniroyal Technology Corporation and Oliver J. Janney. (6)
10.60 Split Dollar Insurance Agreement dated as of August 15, 1995, as amended to March 10, 2000, by and between Uniroyal Technology Corporation and Martin J. Gutfreund. (6)
10.61 Uniroyal Technology Corporation 2000 Stock Plan, as amended November 30, 2000. (6)
10.62 Uniroyal Technology Corporation 2001 Stock Option Plan. (8)
10.64 Credit Agreement dated as of August 2, 2001 between Uniroyal and Emcore Corporation. (9)
10.65 Registration Rights Agreement between Uniroyal and Emcore Corporation pursuant to the Membership Interest Purchase Agreement. (11)
10.66 Asset Purchase Agreement dated as of August 24, 2001 between Uniroyal Engineered Products, LLC and SAS Acquisition Corp. (10)
10.69 Debtor-in-Possession Financing Agreement dated August 26, 2002 among Uniroyal Technology Corporation, all subsidiaries of Uniroyal Technology Corporation and the CIT Group/Business Credit,Inc. (12).
21.1 Subsidiaries of Uniroyal Technology Corporation. (13)
Footnotes to Exhibits:
(1) Contained in Uniroyal's Form 8-K, dated June 9, 1993.
(2) Contained in Uniroyal's Quarterly Report on Form 10-Q for the quarterly period ended April 2, 1995 filed on May 12, 1995.
(3) Contained in Uniroyal's 8-K dated March 14, 2000.
(4) Contained in Uniroyal's Quarterly Report on Form 10-Q for the quarterly period ended April 2, 2000, filed on May 17, 2000.
(5) Contained in Uniroyal's 8-K dated June 14, 2000.
(6) Filed with Uniroyal's Annual Report on Form 10-K for the year ended October 1, 2000 filed on December 13, 2000.
(7) Contained in Uniroyal's Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2000 filed on February 5, 2001.
(8) Contained in Uniroyal's Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2001 filed on May 9, 2001.
(9) Contained in Uniroyal's 8-K dated August 6, 2001.
(10) Contained in Uniroyal's 8-K dated November 20, 2001.
(11) Contained in Uniroyal's Quarterly Report on Form 10-Q for the quarterly period ended July 1, 2001 filed on August 15, 2001.
(12) Contained in Uniroyal's 8-K dated August 25, 2002.
(13) Filed with this report.
(b) Reports on Form 8-K:
Report on Form 8-K dated August 6, 2001, related to the completion of the acquisition of Emcore Corporation's minority interest in Uniroyal Optoelectronics, LLC.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: January 14, 2003 By: /s/ Howard R. Curd ---------------------------------- Howard R. Curd, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Robert L. Soran /s/ Curtis L. Mack - ----------------------------------------- ---------------------------------- Robert L. Soran, Director, President and Curtis L. Mack, Director Chief Operating Officer Date: January 14, 2003 Date: January 14, 2003
/s/ George J. Zulanas, Jr. /s/ Roland H. Meyer - ----------------------------------------- ---------------------------------- George J. Zulanas, Jr., Executive Vice Roland H. Meyer, Director President, Treasurer and Chief Financial Date: January 14, 2003 Officer Date: January 14, 2003
/s/ Howard R. Curd /s/ John A. Porter - ----------------------------------------- ---------------------------------- Howard R. Curd, Director, Chairman of the John A. Porter, Director Board and Chief Executive Officer Date: January 14, 2003 Date: January 14, 2003
/s/ Peter C. B. Bynoe - ----------------------------------------- Peter C. B. Bynoe, Director Date: January 14, 2003
/s/ Thomas E. Constance - ----------------------------------------- Thomas E. Constance, Director Date: January 14, 2003
POWER OF ATTORNEY
Each person whose signature to this report appears below hereby appoints Howard R. Curd, Robert L. Soran and Oliver J. Janney, and each individually, any one of whom may act without the joinder of the others, as his agent and attorney-in-fact to sign on his behalf individually and in the capacity stated below and to file all amendments to this report, which amendments make such changes and additions to this report as such agent and attorney-in-fact may deem necessary and appropriate.
/s/ Howard R. Curd /s/ Peter C. B. Bynoe - ----------------------------------------- ---------------------------------- Howard R. Curd, Director, Chairman of the Peter C. B. Bynoe, Director Board And Chief Executive Officer Date: January 14, 2003 Date: January 14, 2003
/s/ Robert L. Soran /s/ Thomas E. Constance - ----------------------------------------- ---------------------------------- Robert L. Soran, Director, President and Thomas E. Constance, Director Chief Operating Officer Date: January 14, 2003 Date: January 14, 2003
/s/ Curtis L. Mack ---------------------------------- Curtis L. Mack, Director Date: January 14, 2003
/s/ Roland H. Meyer ---------------------------------- Roland H. Meyer, Director Date: January 14, 2003
/s/ John A. Porter ---------------------------------- John A. Porter, Director Date: January 14, 2003
UNIROYAL TECHNOLOGY CORPORATION
EXHIBIT 21.1
Subsidiaries of Uniroyal Technology Corporation
The following table sets forth, with respect to each subsidiary of the Company, the state of organization and the percentage of voting securities currently owned by the Company:
(a) A wholly-owned subsidiary of Uniroyal Compound Semiconductors, Inc.
(b) Ownership is as follows: 99% owned by UEP Holdings, Inc. and 1% owned by Uniroyal Compound Semiconductors, Inc.
(c) A wholly-owned subsidiary of Uniroyal Liability Management Company, Inc.
(d) A wholly-owned subsidiary of Uniroyal HPP Holdings, Inc.