<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JANUARY 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 0-12102
HADCO CORPORATION
-----------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2393279
- ------------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation organization) Identification No.)
12A MANOR PARKWAY, SALEM, NEW HAMPSHIRE 03079
- --------------------------------------- -----
(Address of principal executive offices) (Zip Code)
TELEPHONE (603) 898 8000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports). and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Registrant has 13,134,192 shares of Common Stock, $0.05 Par Value, outstanding
at March 11, 1998.
<PAGE> 2
HADCO CORPORATION AND SUBSIDIARIES
INDEX
PART I PAGE
Financial Information:
Consolidated Condensed Balance Sheets as of
JANUARY 31, 1998 and OCTOBER 25, 1997, respectively ...... 3
Consolidated Condensed Statements of Operations
for the Quarter ended JANUARY 31, 1998 and
JANUARY 25, 1997 respectively............................. 4
Consolidated Condensed Statements of Cash Flows
for the three months ended JANUARY 31, 1998
and JANUARY 25, 1997 respectively......................... 5
Notes to Consolidated Condensed Financial
Statements................................................ 6
Management's Discussion and Analysis of Results
of Operations and Financial Condition...................... 16
PART II
Other Information.......................................... 19
Signatures................................................. 20
2
<PAGE> 3
HADCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
ASSETS
------
January 31, October 25,
1998 1997
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents .................... $ 9,813 $ 12,171
Short-term investments ....................... 1,582 1,562
Accounts receivable, net of allowance for
doubtful accounts of $1,750 in 1998 and
$1,700 in 1997, respectively ................. 99,912 92,222
Inventories .................................. 54,016 46,000
Deferred tax asset ........................... 10,982 10,483
Prepaid and other expenses ................... 4,232 4,245
-------- --------
Total current assets ........................ 180,537 166,683
Property, Plant and Equipment, net ............. 239,819 231,490
Acquired Intangible Assets, net ................ 97,870 101,131
Other Assets ................................... 7,601 3,213
-------- --------
$525,827 $502,517
======== ========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' INVESTMENT
<S> <C> <C>
Current Liabilities:
Short-term debt, current portion of long-term
debt and capital lease obligations .......... $ 4,793 $ 5,064
Accounts payable ............................ 69,382 68,594
Accrued payroll and other employee benefits . 22,733 28,279
Accrued taxes ............................... 8,669 1,775
Other accrued expenses ...................... 8,443 9,278
--------- ---------
Total current liabilities ........... 114,020 112,990
--------- ---------
Long-Term Debt and Capital Lease Obligations,
net of current portion ...................... 118,769 109,716
--------- ---------
Deferred Tax Liability ....................... 31,185 30,685
--------- ---------
Other Long-Term Liabilities .................. 9,192 9,214
--------- ---------
Commitments and Contingencies ................
Stockholders' investment:
Common stock, $.05 par value-
Authorized 25,000 shares
Issued and outstanding 13,114 in 1998 and
13,086 in 1997 ............................... 657 655
Paid-in Capital .............................. 168,843 168,246
Deferred Compensation ........................ (93) (117)
Retained Earnings ............................ 83,254 71,128
--------- ---------
Total stockholders' investment ............. 252,661 239,912
--------- ---------
$ 525,827 $ 502,517
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
<PAGE> 4
HADCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
(In thousands, except share data)
<TABLE>
<CAPTION>
Quarter Ended
-------------
January 31, January 25,
1998 1997
----------- -----------
<S> <C> <C>
Net Sales ..................................................... $ 198,276 $ 111,536
Cost of Sales ................................................. 159,208 85,159
----------- -----------
Gross Profit ............................................. 39,068 26,377
Operating Expenses ............................................ 17,784 10,820
Write-off of acquired in-process
research and development ................................. - 78,000
----------- -----------
Income (Loss) From Operations ................................. 21,284 (62,443)
Interest and Other Income, (net) .............................. 533 880
Interest Expense .............................................. (2,099) (933)
----------- -----------
Income (Loss) Before
Provision for Income Taxes .................................... 19,718 (62,496)
Provision for Income Taxes .................................... 7,591 6,665
----------- -----------
Net Income (Loss) ............................................. $ 12,127 $ (69,161)
=========== ===========
Income (loss) per common and common equivalent Shares (Note 1)
Basic Net Income (Loss) Per Share ........................ $ 0.93 $ (6.64)
=========== ===========
Diluted Net Income (Loss) Per Share ...................... $ 0.90 $ (6.64)
=========== ===========
Weighted average common and common equivalent Shares (Note 1)
Basic .................................................... 13,095,776 10,413,306
=========== ===========
Diluted .................................................. 13,504,957 10,413,306
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE> 5
HADCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------
January 31, January 25,
1998 1997
----------- -----------
<S> <C> <C>
Total Cash Provided From Operations Activities ............................... $ 7,653 $ 8,331
Cash Flows From Investing Activities:
Purchases of short-term investments ..................................... (2,020) 6,137
Maturities of short-term investments .................................... 2,000 --
Purchases of property, plant and equipment .............................. (19,366) (11,011)
Acquisition of Zycon Corp. .............................................. -- (209,661)
-------- ---------
Net Cash Used In Investing Activities ........................................ (19,386) (214,535)
Cash Flows From Financing Activities:
Principal payments under capital lease obligations ...................... (255) (413)
Principal payments of long-term debt .................................... (969) (33,690)
Proceeds from issuance of long-term debt ................................ 10,000 215,000
Proceeds from exercise of stock options ................................. 147 328
Tax benefit from stock options .......................................... 452 1,018
-------- ---------
Net Cash Provided by Financing Activities .................................... 9,375 182,243
-------- ---------
Net decrease in Cash and Cash Equivalents .................................... (2,358) (23,961)
Cash and Cash Equivalents Beginning of Period ................................ 12,171 32,786
-------- ---------
Cash and Cash Equivalents End of Period ...................................... $ 9,813 $ 8,825
======== =========
Supplemental disclosure of cash flow information:
Cash paid during period for:
Interest ............................................................... $ 1,407 $ 311
======== =========
Income taxes (net of refunds) ......................................... $ 322 $ 405
======== =========
Acquisition of Zycon Corporation
Fair value of assets acquired ........................................... $ 212,509
Liabilities assumed ..................................................... (114,993)
Cash Paid ............................................................... (204,885)
Acquisition costs incurred .............................................. (7,600)
Write-off of acquired in-process
research and development ............................................... 78,000
---------
Goodwill ................................................................ $ (36,969)
=========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
<PAGE> 6
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hadco Corporation's (the "Company") principal products are complex
multilayer rigid printed circuits and backplane assemblies. The
consolidated financial statements reflect the application of certain
accounting policies. For information as to the significant accounting
policies followed by the Company and other financial and operating
information, see this note and elsewhere in the accompanying notes to
consolidated condensed financial statements, as well as the Company's Form
10-K as filed with the Securities and Exchange Commission (SEC) on January
16, 1998; These financial statements should be read in conjunction with the
financial statements included in the above-referenced SEC filing.
SHORT TERM INVESTMENTS
The Company's investments in held-to-maturity securities are as follows:
<TABLE>
<CAPTION>
(in thousands)
January 31, October 25,
1998 1997
----------- -----------
Fair Fair
Market Market
Cost Value Cost Value Maturity
---- ----- ---- ----- --------
<S> <C> <C> <C> <C> <C>
Certificate of Deposit ........ $1,582 $1,582 $1,562 $1,562 Within 1 year
====== ====== ====== ======
</TABLE>
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's Malaysian subsidiary is the United
States dollar. Accordingly, all remeasurement gains and losses resulting
from transactions denominated in currencies other than United States
dollars are included in the consolidated statements of operations. To date,
the resulting gains and losses have not been material.
RECLASSIFICATION
The Company has reclassified certain prior year information to conform with
the current year's presentation.
INTERIM FINANCIAL STATEMENTS
The accompanying consolidated balance sheet as of January 31, 1998, and the
consolidated statements of operations and cash flows for the three month
periods ended January 25, 1997 and January 31, 1998 are unaudited but, in
the opinion of management, include all adjustments (consisting of normal,
recurring adjustments) necessary for a fair presentation of results for
these interim periods. Results of operations for the interim period are not
necessarily indicative of results to be expected for the entire year or any
future period.
6
<PAGE> 7
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
NET INCOME (LOSS) PER SHARE
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share", replaces the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Basic earnings per share
is calculated by dividing net income or loss by the weighted average number
of common shares outstanding for the period. Diluted earnings per share
reflects the potential dilution of stock options that could share in the
earnings of the Company. Diluted income (loss) per common share is computed
using the weighted average number of common and common equivalent shares
outstanding during each period. For those periods where a net loss is
reported, stock options are not considered; as their effect would be
anti-dilutive.
Basic and diluted income (loss) per share, as required by SFAS No. 128, are
as follows:
<TABLE>
<CAPTION>
Three Months Ended
January 31, January 25,
1998 1997
----------- -----------
(in thousands except per share data)
<S> <C> <C>
Income (Loss) ............................... $12,127 $(69,161)
======= ========
Basic weighted average shares outstanding .... 13,096 10,413
Weighted average common equivalent shares .... 409 -
------- --------
Diluted weighted average shares outstanding .. 13,505 10,413
======= ========
Basic Net Income (Loss) Per Share ............ $ 0.93 $ (6.64)
======= ========
Diluted Net Income (Loss) Per Share .......... $ 0.90 $ (6.64)
======= ========
</TABLE>
These financial statements have been prepared and presented based on the
new standard. Prior period amounts have been restated to conform to current
year presentation. For the three month periods ended January 31, 1998 and
January 25, 1997, 485,290 and -0- anti-dilutive weighted shares,
respectively, have been excluded from the number of potential common shares
outstanding.
2. ACQUISITION OF ZYCON
On January 10, 1997, the Company acquired substantially all of the
outstanding common stock of Zycon Corporation ("Zycon"). The acquisition
was accounted for as a purchase in accordance with Accounting Principles
Board Opinion No. 16, and accordingly, Zycon's operating results since
January 10, 1997 are included in the accompanying consolidated financial
statements. Unaudited pro forma operating results for the Company, assuming
the acquisition of Zycon occurred on October 29, 1995 are as follows:
7
<PAGE> 8
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
2. ACQUISITION OF ZYCON (CONTINUED)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
(in thousands, except per
share data)
January 31, January 25,
1998 1997
----------- -----------
<S> <C> <C>
Net Sales ......................... $198,276 $172,547
Net Income ........................ 12,127 8,274
Basic Net Income (Loss) Per Share . $ 0.93 $ 0.76
Diluted Net Income (Loss) Per Share $ 0.90 $ 0.76
</TABLE>
For purposes of these pro forma operating results, the in-process R&D was
assumed to have been written off prior to October 29, 1995, so that the
operating results presented include only recurring costs.
3. INVENTORIES
Inventories are stated at the lower of cost, first-in, first-out (FIFO), or
market and consist of the following (in thousands):
<TABLE>
<CAPTION>
January 31, October 25,
1998 1997
----------- -----------
<S> <C> <C>
Raw Materials ......... $19,143 $14,167
Work-in-process ....... 34,873 31,833
------- -------
$54,016 $46,000
======= =======
</TABLE>
4. INTANGIBLE ASSETS
The Company has assessed the realizability of its acquired intangible
assets in accordance with SFAS No.121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of. Under SFAS
No. 121, the Company is required to assess the valuation of its long-lived
assets, including intangible assets, based on the estimated cash flows to
be generated by such assets.
5. LINES OF CREDIT
The Company has an unsecured Revolving Credit Agreement, as amended, (the
"Agreement") with a group of banks. The Agreement provides for direct
borrowings or letters of credit for up to $400 million and expires January
8, 2002. Borrowings under the Agreement bear interest, at the Company's
option, at either; (i) the Eurodollar Rate plus the Applicable Eurodollar
Rate Margin (both as defined in the Agreement) ranging between .5% and
1.1375%, based on certain financial ratios of the Company, or (ii) the Base
Rate, as defined. The Company is required to pay a quarterly commitment fee
ranging from .2% to .375% per annum, based on certain financial ratios of
the Company, of the unused commitment under the Agreement. If the Company
obtains certain debt financing, as defined, the banks may require the
Company to repay up to $150,000,000 of amounts
8
<PAGE> 9
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
LINES OF CREDIT (CONTINUED)
outstanding under the Agreement. At January 31, 1998, borrowings of
$110,000,000 were outstanding under the agreement at a weighted average
interest rate of 6.34%.
The Agreement places several restrictions on the Company, including
limitations on mergers, acquisitions and sales of a substantial portion of
its assets, as well as certain limitations on liens, guarantees, additional
borrowings, changes in the Company's capitalization, as defined, and
investments. The Agreement also requires the Company to maintain certain
financial covenants, including minimum levels of consolidated net worth, a
maximum ratio of funded debt to EBITDA, maximum capital expenditures and
minimum interest coverage, as defined, during the term of the Agreement.
At January 31, 1998, the Company was in compliance with all loan covenants.
The Company has a line of credit arrangement with a Malaysian bank
denominated in Malaysian ringgits and U.S. dollars for aggregate borrowings
of approximately $4.0 million for the purpose of acquiring land, facilities
and equipment for the Company's Malaysian subsidiary. The arrangement is
renewable annually. At January 31, 1998, there were no amounts outstanding
under this arrangement.
6. LONG TERM DEBT
<TABLE>
<CAPTION>
January 31, October 25,
1998 1997
----------- ------------
(in thousands)
<S> <C> <C>
Loan agreements in connection with the expansion of a building
The loans bear interest at rates from 1%to 7% through March,
2011 and are collateralized by property and an
irrevocable letter of credit .................................. $ 801 $ 820
Revolving credit agreement (Note 5) ........................... 110,000 100,000
Obligations under capital leases .............................. 12,761 13,960
-------- --------
123,562 114,780
Less - Current portion ........................................ 4,793 5,064
-------- --------
$118,769 $109,716
======== ========
</TABLE>
7. SUBSEQUENT EVENT
In February 1998, the Company entered into an agreement to acquire the
outstanding common stock of Continental Circuits Corp., an Arizona based
manufacturer of printed circuits, for approximately $185 million or $23.90
per share. It is currently expected that if this transaction is
successfully completed, its completion will occur in the second quarter of
fiscal 1998 and will be accounted for as a purchase business combination in
accordance with APB No. 16 "Accounting for Business Combinations."
9
<PAGE> 10
HADCO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the matters
discussed below or elsewhere in this quarterly report including, without
limitation, "Environmental Matters," are forward-looking statements that
involve risks and uncertainties. The Company makes such forward-looking
statements under the provisions of the "Safe Harbor" section of the Private
Securities Litigation Reform Act of 1995. Any forward-looking statements
should be considered in light of the factors described below under "Factors
That May Affect Future Results." Actual results may vary materially from
those projected, anticipated or indicated in any forward-looking
statements. In this quarterly report, the words "anticipates," "believes,"
"expects," "intends," "future," "could," and similar words or expressions
(as well as other words or expressions referencing future events,
conditions or circumstances) identify forward-looking statements.
RESULTS OF OPERATIONS
FIRST QUARTER
Net sales for the three months ended January 31, 1998 increased 77.8% over
the three months ended January 25, 1997. The increase resulted from several
factors including the acquisition of Zycon, which added $63.4 million to
printed circuit net sales in the quarter, and an increase in both backplane
and printed circuit net sales excluding Zycon. Backplane assembly net sales
increased due to higher product volume and shipments. Printed circuit net
sales increased due to higher production volume and shipments and a shift
toward products with more layers and greater densities. In addition,
average pricing for printed circuits decreased slightly for the first
quarter of 1998 over the same period in 1997. Net sales from backplane
assemblies increased to 20.5% of net sales (excluding Zycon printed circuit
net sales) from 18.1% in the first quarter of 1997.
The gross profit margin decreased to 19.7% in the three months ended
January 31, 1998 from 22.3% in the comparable period in fiscal 1997. The
decrease resulted from increased investment in new capacity and
technologies at certain facilities, start-up expenses for the west coast
backplane operation, and lower overall gross margins from the Zycon
operations (including ongoing start-up expenses associated with the volume
production facility in Malaysia).
Operating expenses, as a percent of net sales, decreased to 9.0% in the
three months ended January 31, 1998 from 9.7% in the comparable period in
fiscal 1997 due to increased net sales and the fixed nature of the
Company's operating expenses.
Income (loss), as a percent of net sales, from operations decreased to
10.7% in the three months ended January 31, 1998 from 13.9% in the
comparable period in fiscal 1997, primarily as a result of the same factors
affecting gross profits.
Interest income decreased in the first quarter of 1998 as compared to the
first quarter of 1997 due to lower average cash balances available for
investing. Interest expense increased in the first quarter of 1998 as
compared to the first quarter of 1997, due to an increase in outstanding
debt relating to the acquisition of Zycon.
The Company includes in operating expenses charges for actual expenditures
and accruals, based on estimates, for environmental matters. To the extent
and in amounts Hadco believes circumstances warrant, it will continue to
accrue and charge to operating expenses cost estimates relating to
environmental matters. The Company believes the ultimate disposition of
known environmental matters will not have a material adverse effect upon
the liquidity, capital resources, business or consolidated financial
position of the Company. However, one or more of such environmental matters
could have a significant negative impact on the Company's consolidated
financial results for a particular reporting period.
10
<PAGE> 11
HADCO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER (CONTINUED)
The Company believes that excess capacity may exist in the printed circuit
and electronic assembly industries, as well as fluctuating growth rates in
the electronics industry as a whole. Both factors could have a material
adverse effect on future orders and pricing. Despite these beliefs
regarding the electronics industry as a whole, it should be noted that the
Company has historically needed to increase its own manufacturing capacity
to maintain and expand its market position. However, the Company's
manufacturing capacity needs could change at any time or times in the
future. The Company also believes that the potential exists for a shortage
of materials in such industries, which could have a material adverse effect
on future unit costs. In response to such concerns, the Company engages in
the normal industry practices of maintaining primary and secondary vendors
and diversifying its customer base. There can be no assurances, however,
that such measures would be sufficient to protect the Company against any
shortages of materials.
INCOME TAXES
In accordance with generally accepted accounting principles, the Company
provides for income taxes on an interim basis, using its effective annual
income tax rate. The Company anticipates an effective annual income tax
rate for fiscal 1998 of 38.5%, which is slightly less than the combined
federal and state statutory rates. The effective rate was increased by
amortization of goodwill which is not tax deductible, and was offset by the
tax benefit of the Company's foreign sales corporation and various state
investment tax credits. The effective tax rate for fiscal 1998 is based on
current tax laws.
LIQUIDITY AND CAPITAL RESOURCES
At January 31, 1998, the Company had working capital of approximately $66.5
million and a current ratio of 1.58, compared to working capital of
approximately $53.7 million and a current ratio of 1.48 at October 25,
1997. Cash, cash equivalents and short-term investments at January 31, 1998
were approximately $11.4 million, a decrease of $2.3 million from
approximately $13.7 million at October 25, 1997.
In December 1997, the Company negotiated a $400 million unsecured senior
revolving credit loan facility with a group of banks, which amended and
restated an existing credit facility (the "Amended Credit Facility").
Interest on loans outstanding under the Amended Credit Facility is, at the
Company's option, bear interest at either (1) the Eurodollar Rate, plus the
Applicable Eurodollar Rate Margin (both as defined in "Amended Credit
Facility"). Or (2) the Base Rate as defined in the Amended Credit
Facility. At January 31, 1998, $110 million was outstanding under the
Amended Credit Facility. The Amended Credit Facility matures in January
2002. See Note 5 to Notes to Consolidated Condensed Financial Statements.
The Company believes its existing working capital and borrowing capacity,
coupled with the funds generated from the Company's operations will be
sufficient to fund its anticipated working capital, capital expenditure and
debt payment requirements through fiscal 1998. Because the Company's
capital requirements cannot be predicted with certainty, however, there is
no assurance that the Company will not require additional financing during
this period. There is no assurance that any additional financing will be
available on terms satisfactory to the Company or not disadvantageous to
the Company's security holders. The Company intends to draw on the Amended
Credit Facility in connection with its proposed acquisition of Continental
Circuits Corp. should such transaction be successfully consummated. See
Note 7 to Notes to Consolidated Condensed Financial Statements.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a changing environment that involves a number of
risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks.
11
<PAGE> 12
HADCO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DEPENDENCE ON ELECTRONICS INDUSTRY
The Company's principal customers are electronics OEMs and contract
manufacturers in the computing (mainly workstations, servers, mainframes,
storage and notebooks), data communications/telecommunications and
industrial automation industries, including process controls, automotive,
medical and instrumentation. These industry segments, and the electronics
industry as a whole, are characterized by intense competition, relatively
short product life-cycles and significant fluctuations in product demand.
In addition, the electronics industry is generally subject to rapid
technological change and product obsolescence. Discontinuance or
modifications of products containing components manufactured by the Company
could have a material adverse effect on the Company's business, financial
condition and results of operations. Further, the electronics industry is
subject to economic cycles and has in the past experienced, and is likely
in the future to experience, recessionary periods. A recession or any other
event leading to excess capacity or a downturn in the electronics industry
would likely result in intensified price competition, reduced gross margins
and a decrease in unit volume, all of which would have a material adverse
effect on the Company's business, financial condition and results of
operations.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results have varied and may continue to
fluctuate significantly. At times in the past, the Company's net sales and
net income have decreased from the prior quarter. Operating results are
affected by a number of factors, including the timing and volume of orders
from and shipments to customers relative to the Company's manufacturing
capacity, level of product and price competition, product mix, the number
of working days in a particular quarter, trends in the electronics industry
and general economic factors. In recent years, the Company's gross margins
have varied primarily as a result of capacity utilization, product mix,
lead times, volume levels and complexity of customer orders. There can be
no assurance that the Company will be able to manage the utilization of
manufacturing capacity or product mix in a manner that would maintain or
improve gross margins or the Company's business, financial condition and
results of operations. The timing and volume of orders placed by the
Company's customers vary due to customer attempts to manage inventory,
changes in customers' manufacturing strategies and variation in demand for
customer products. An interruption in manufacturing resulting from
shortages of parts or equipment, fire, earthquake or other natural
disaster, equipment failure or otherwise would have a material adverse
effect on the Company's business, financial condition and results of
operations. The Company's expense levels are relatively fixed and are
based, in part, on expectations of future revenues. Consequently, if
revenue levels are below expectations, this occurrence is likely to
materially adversely affect the Company's business, financial condition and
results of operations. Results of operations in any period are not
necessarily indicative of the results to be expected for any future period.
Due to all of the foregoing factors, it is possible that in some future
quarter the Company's operating results may be below the expectations of
public market analysts and investors. Such an event could have a material
adverse effect on the price of the Company's Common Stock.
VARIABILITY OF ORDERS
The level and timing of orders placed by the Company's customers vary due
to a number of factors, including customer attempts to manage inventory,
changes in the customers' manufacturing strategies and variation in demand
for customer products due to, among other things, technological change, new
product introductions, product life-cycles, competitive conditions or
general economic conditions. Since the Company generally does not obtain
long-term purchase orders or commitments from its customers, it must
anticipate the future volume of orders based on discussions with its
customers. A substantial portion of sales in a given quarter may depend on
obtaining orders for products to be manufactured and shipped in the same
quarter in which those orders are received. The Company relies on its
estimate of anticipated future volumes when making
12
<PAGE> 13
HADCO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
VARIABILITY OF ORDERS (CONTINUED)
commitments regarding the level of business that it will seek and accept,
the mix of products that it intends to manufacture, the timing of
production schedules and the levels and utilization of personnel and other
resources. A variety of conditions, both specific to the individual
customer and generally affecting the customer's industry, may cause
customers to cancel, reduce or delay orders that were previously made or
anticipated. A significant portion of the Company's released backlog at any
time may be subject to cancellation or postponement without penalty. The
Company cannot assure the timely replacement of canceled, delayed or
reduced orders. Significant or numerous cancellations, reductions or delays
in orders by a customer or group of customers could materially adversely
affect the Company's business, financial condition and results of
operations.
ACQUISITIONS
In February 1998, the Company entered into an agreement to acquire all of
the outstanding stock of Continental Circuits Corp., ("Continental")
pursuant to a cash tender offer for all of the outstanding shares of common
for approximately $185 million or $23.90 per share. If completed
successfully, the tender offer is expected to be completed in the second
fiscal quarter of 1998. See Note 7 to Notes to Consolidated Condensed
Financial Statements.
The Company acquired 100% of the capital stock of Zycon, a manufacturer of
electronic interconnect products, on January 10, 1997 (the "Zycon
acquisition"). Zycon currently operates as a wholly-owned subsidiary of the
Company under the name Hadco Santa Clara, Inc. The Company has limited
experience in integrating acquired companies or technologies into its
operations. Therefore, there can be no assurance that the Company will
operate any acquired business profitably in the future. Contemporaneous
with the Zycon acquisition, nine senior management personnel of Zycon were
terminated. There can be no assurance that the Company will not be
materially adversely affected by such terminations or that the Company will
be able to retain key personnel at any acquired business. Accordingly,
operating expenses associated with the acquired business may have a
material adverse effect on the Company's business, financial condition and
results of operations in the future.
The Company may from time to time pursue the acquisition of other
companies, assets, products or technologies. The Company may incur
additional indebtedness in connection with a future business acquisition,
and the incurrence of substantial amounts of debt in connection with future
acquisitions could increase the risk of the Company's operations. If the
Company's cash flow and existing working capital are not sufficient to fund
its general working capital requirements or to service its indebtedness,
the Company would have to raise additional funds through the sale of its
equity securities, the refinancing of all or part of its indebtedness or
the sale of assets or subsidiaries. There can be no assurance that any of
these sources of funds would be available in amounts sufficient for the
Company to meet its obligations. The cost of debt financing may also impair
the ability of the Company to maintain adequate working capital or to make
future acquisitions. In addition, the issuance of additional shares of
Common Stock in connection with future acquisitions could be dilutive to
existing investors. Acquisitions involve a number of operating risks that
could materially adversely affect the Company's operating results,
including the diversion of management's attention to assimilate the
operations, products and personnel of the acquired companies, the
amortization of acquired intangible assets, and the potential loss of key
employees of the acquired companies. Furthermore, acquisitions may involve
businesses in which the Company lacks experience. There can be no assurance
that the Company will be able to manage one or more acquisitions
successfully, or that the Company will be able to integrate the operations,
products or personnel gained through any such acquisitions without a
material adverse effect on the Company's business, financial condition and
results of operations.
13
<PAGE> 14
HADCO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
COMPETITION
The electronic interconnect industry is highly fragmented and characterized
by intense competition. The Company believes that its major competitors are
the large U.S. and international independent and captive producers that
also manufacture multilayer printed circuits and provide backplane and
other electronic assemblies. Some of these competitors have significantly
greater financial, technical and marketing resources, greater name
recognition and a larger installed customer base than the Company. In
addition, these competitors may have the ability to respond more quickly to
new or emerging technologies, may adapt more quickly to changes in customer
requirements and may devote greater resources to the development, promotion
and sale of their products than the Company.
During periods of recession or economic slowdown in the electronics
industry and other periods when excess capacity exists, electronics OEMs
become more price sensitive, which could have a material adverse effect on
interconnect pricing. In addition, the Company believes that price
competition from printed circuit manufacturers in Asia and other locations
with lower production costs may play an increasing role in the printed
circuit markets in which the Company competes. This price competition from
Asian printed circuit manufacturers may intensify in times of Asian
economic turmoil, currency devaluations or financial market instability,
such as many Asian countries are currently experiencing. Moreover, the
Company's basic interconnect technology is generally not subject to
significant proprietary protection, and companies with significant
resources or international operations may enter the market. Increased
competition could result in price reductions, reduced margins or loss of
market share, any of which could materially adversely affect the Company's
business, financial condition and results of operations.
The demand for printed circuits has continued to be affected by the
development of smaller, more powerful electronic components requiring less
printed circuit area. Expansion of the Company's existing products or
services could expose the Company to new competition. Moreover, new
developments in the electronics industry could render existing technology
obsolete or less competitive and could potentially introduce new
competition into the industry. There can be no assurance that the Company
will continue to compete successfully against present and future
competitors or that competitive pressures faced by the Company will not
have a material adverse effect on the Company's business, financial
condition and results of operations.
TECHNOLOGICAL CHANGE, PROCESS DEVELOPMENT AND PROCESS DISRUPTION
The market for the Company's products and services is characterized by
rapidly changing technology and continuing process development. The future
success of the Company's business will depend in large part upon its
ability to maintain and enhance its technological capabilities, develop and
market products and services that meet changing customer needs and
successfully anticipate or respond to technological changes, on a
cost-effective and timely basis. In addition, the electronic interconnect
industry could in the future encounter competition from new technologies
that render existing electronic interconnect technology less competitive or
obsolete, including technologies that may reduce the number of printed
circuits required in electronic components. There can be no assurance that
the Company will effectively respond to the technological requirements of
the changing market. To the extent the Company determines that new
technologies and equipment are required to remain competitive, the
development, acquisition and implementation of such technologies and
equipment are likely to continue to require significant capital investment
by the Company. There can be no assurance that capital will be available
for this purpose in the future or that investments in new technologies will
result in commercially viable technological processes or that there will be
commercial applications for these technologies. Moreover, the Company's
business involves highly complex manufacturing processes that have in the
past and could in the future be subject to periodic failure or disruption.
Process disruptions can result in delays in certain product shipments.
There can be no assurance that failures or disruptions will not occur in
the future. The loss of revenue and earnings to the Company from such a
technological change, process development or process disruption, as well as
any
14
<PAGE> 15
HADCO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
TECHNOLOGICAL CHANGE, PROCESS DEVELOPMENT AND PROCESS DISRUPTION
(CONTINUED)
disruption of the Company's operations resulting from a natural disaster
such as an earthquake, fire or flood, could have a material adverse effect
on the Company's business, financial condition and results of operations.
MALAYSIA FACILITY
Hadco Santa Clara (formerly Zycon) completed construction of a volume
manufacturing facility for printed circuits in Malaysia in fiscal 1997.
Hadco's management has no experience in operating foreign manufacturing
facilities, and there can be no assurance that the Company will operate the
new facility on a profitable basis. The Company expects that the Malaysia
facility may continue to incur operating losses during future quarters of
operations as a result of various factors, including, without limitation,
initial operating inefficiencies, other start-up costs, and price
competition for the products which the Company intends to produce at the
new facility. International operations are also subject to a number of
risks, including unforeseen changes in regulatory requirements, exchange
rates, tariffs and other trade barriers, misappropriation of intellectual
property, currency fluctuations, and political and economic instability.
Malaysia and other Asian countries have recently experienced economic
turmoil and a significant devaluation of their local currencies. There can
be no assurance that this period of Asian economic turmoil will not result
in increased price competition, restrictions on the transfer of funds
overseas, employee turnover, labor unrest, the reversal of current policies
encouraging foreign investment and trade, or other domestic Asian economic
problems that could materially adversely affect the Company. Therefore,
there can be no assurance that economic problems in Malaysia or other Asian
countries will not have a material adverse impact on the Company's
business, financial condition or results of operations.
CUSTOMER CONCENTRATION
During the past several years, the Company's sales to a small number of its
customers have accounted for a significant percentage of the Company's
annual net sales. During fiscal 1995, 1996 and 1997, the Company's ten
largest customers accounted for approximately 46%, 48% and 47% of net
sales, respectively, and 43% in fiscal 1996 on a pro forma basis including
Zycon. In fiscal 1997, Solectron accounted for approximately 15% of the net
sales of the Company. The Company generally does not obtain long-term
purchase orders or commitments from its customers, and the orders received
by the Company generally require delivery within 90 days. Given the
Company's strategy of developing long-term purchasing relationships with
high growth companies, the Company's dependence on a number of its most
significant customers may increase. There can be no assurance that the
Company will be able to identify, attract and retain customers with high
growth rates or that the customers that it does attract and retain will
continue to grow. Although there can be no assurance that the Company's
principal customers will continue to purchase products and services from
the Company at current levels, the Company expects to continue to depend
upon its principal customers for a significant portion of its net sales.
The loss of or decrease in orders from one or more major customers could
have a material adverse effect on the Company's business, financial
condition and results of operations.
MANUFACTURING CAPACITY
The Company believes its long-term competitive position depends in part on
its ability to increase manufacturing capacity. The Company may obtain such
additional capacity through acquisitions or expansion of its current
facilities. Either approach would require substantial additional capital,
and there can be no assurance that such capital will be available from cash
generated by current operations. Further, there can be no assurance that
the Company will be able to acquire sufficient capacity or successfully
integrate and manage such additional facilities. In addition, the Company's
expansion of its manufacturing capacity has significantly increased and
will continue to significantly increase its fixed costs, and the future
profitability of the Company will depend on its ability to utilize its
manufacturing capacity in an effective manner. The
15
<PAGE> 16
HADCO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANUFACTURING CAPACITY (CONTINUED)
failure to obtain sufficient capacity or to successfully integrate and
manage additional manufacturing facilities could adversely affect the
Company's relationships with its customers and materially adversely affect
the Company's business, financial condition and results of operations. The
Company has a large manufacturing facility in Santa Clara, California, and
an earthquake or other natural disaster in that area that results in an
interruption of manufacturing at such facility would have a material
adverse effect on the Company's business, financial condition and results
of operations.
MANAGEMENT OF GROWTH
The Company has initiated significant expansion, including geographic
expansion, of its operations, which has placed, and will continue to place,
significant demands on the Company's management, operational, technical and
financial resources. These demands are compounded by the Zycon acquisition
and the proposed acquisition of Continental Circuits Corp. The Company
expects that expansion will require additional management personnel and the
development of further expertise by existing management personnel. The
Company's ability to manage growth effectively, particularly given the
increasing scope of its operations, will require it to continue to
implement and improve its operational, financial and management information
systems as well as to further develop the management skills of its managers
and supervisors and to train, motivate and manage its employees. The
Company's failure to effectively manage future growth, if any, could have a
material adverse effect on the Company's business, financial condition and
results of operations. Competition for personnel is intense, and there can
be no assurance that the Company will be able to attract, assimilate or
retain additional highly qualified employees in the future, especially
engineering personnel. The failure to hire and retain such personnel could
have a material adverse effect on the Company's business, financial
condition and results of operations.
ENVIRONMENTAL MATTERS
The Company is subject to a variety of local, state and federal
environmental laws and regulations relating to the storage, use, discharge
and disposal of chemicals, solid waste and other hazardous materials used
during its manufacturing process, as well as air quality regulations and
restrictions on water use. When violations of environmental laws occur, the
Company can be held liable for damages and the costs of remedial actions
and can also be subject to revocation of permits necessary to conduct its
business. Any such revocations could require the Company to cease or limit
production at one or more of its facilities, which could have a material
adverse effect on the Company's business, financial condition and results
of operations. Moreover, the Company's failure to comply with present and
future regulations could restrict the Company's ability to expand its
facilities or could require the Company to acquire costly equipment or to
incur other significant expenses to comply with environmental regulations.
Environmental laws could become more stringent over time, imposing greater
compliance costs and increasing risks and penalties associated with
violation. The Company operates in several environmentally sensitive
locations and is subject to potentially conflicting and changing regulatory
agendas of political, business and environmental groups. Changes or
restrictions on discharge limits, emissions levels, or material storage or
handling might require a high level of unplanned capital investment and/or
relocation. There can be no assurance that compliance with new or existing
regulations will not have a material adverse effect on the Company's
business, financial condition and results of operations.
AVAILABILITY OF RAW MATERIALS AND COMPONENTS
While the Company has not entered into any supply agreements and does not
have any guaranteed sources of raw materials or components, it routinely
purchases raw materials and components from several key material suppliers.
Although alternative material suppliers are currently available, a
significant unplanned event at a
16
<PAGE> 17
HADCO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AVAILABILITY OF RAW MATERIALS AND COMPONENTS (CONTINUED)
major supplier could have a material adverse effect on the Company's
operations. Hadco Santa Clara has experienced shortages of certain types of
raw materials in the past. The potential exists for shortages of certain
types of raw materials or components and any such future shortages or price
fluctuations in raw materials could have a material adverse effect on the
Company's manufacturing operations and future unit costs, thereby
materially adversely affecting the Company's business, financial condition
and results of operations. Product changes and the overall demand for
electronic interconnect products could increase the industry's use of new
laminate materials, standard laminate materials, multilayer blanks,
electronic components and other materials, and therefore such materials may
not be readily available to the Company in the future. Electronic
components used by the Company in producing backplane assemblies are
purchased by the Company and, in certain circumstances, the Company may
bear the risk of component price fluctuations.
There can be no assurance that shortages of certain types of electronic
components will not occur in the future. Component shortages or price
fluctuations could have a material adverse effect on the Company's
backplane assembly business, thereby materially adversely affecting the
Company's business, financial condition and results of operations. To the
extent that the Company's backplane assembly business expands as a
percentage of the Company's net sales, component shortages and price
fluctuations could, to a greater extent, materially adversely affect the
Company's business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends to a large extent upon the continued
services of key managerial and technical employees, none of whom, except
for the President/Chief Executive Officer, is bound by an employment
agreement or a non-competition agreement. The President/Chief Executive
Officer's non-competition agreement is for one year after the termination
of his employment with the Company. The loss of the services of any of the
Company's key employees could have a material adverse effect on the
Company. The Company believes that its future success depends on its
continuing ability to attract and retain highly qualified technical,
managerial and marketing personnel. Competition for such personnel is
intense, especially for engineering personnel, and there can be no
assurance that the Company will be able to attract, assimilate or retain
such personnel. If the Company is unable to hire and retain key personnel,
the Company's business, financial condition and results of operations may
be materially adversely affected.
INTELLECTUAL PROPERTY
The Company's success depends in part on its proprietary techniques and
manufacturing expertise, particularly in the area of complex multilayer
printed circuits. The Company has few patents and relies primarily on trade
secret protection of its intellectual property. There can be no assurance
that the Company will be able to protect its trade secrets or that others
will not independently develop substantially equivalent proprietary
information and techniques or otherwise gain access to the Company's trade
secrets. In addition, litigation may be necessary to protect the Company's
trade secrets, to determine the validity and scope of the proprietary
rights of others or to defend against claims of patent infringement. If any
infringement claim is asserted against the Company, the Company may seek to
obtain a license of the other party's intellectual property rights. There
is no assurance that a license would be available on reasonable terms or at
all. Litigation with respect to patents or other intellectual property
matters could result in substantial costs and diversion of management and
other resources and could have a material adverse effect on the Company's
business, financial condition and results of operations.
17
<PAGE> 18
HADCO CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
VOLATILITY OF STOCK PRICE
The Company's Common Stock has experienced significant price volatility
historically, and such volatility may continue to occur in the future.
Factors such as announcements of large customer orders, order
cancellations, new product introductions by the Company or competitors or
general conditions in the electronics industry, as well as quarterly
variations in the Company's actual or anticipated results of operations,
may cause the market price of the Company's Common Stock to fluctuate
significantly. Furthermore, the stock market has experienced extreme price
and volume fluctuations in recent years, which has had a substantial effect
on the market price for securities issued by many technology companies,
often for reasons unrelated to the operating performance of the specific
companies. These broad market fluctuations may materially adversely affect
the price of the Company's Common Stock. There can be no assurance that the
market price of the Company's Common Stock will not experience significant
fluctuations in the future, including fluctuations that are unrelated to
the Company's performance.
18
<PAGE> 19
HADCO CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits
3.1 - Amendment to Restated Articles of Organization dated March 4, 1998.
*10.1 - Outside Directors Compensation Plan of 1998.
*10.2 - Employee Stock Purchase Plan of November 17, 1997 (filed as Exhibit
10.1 to the Registration Statement No. 333-47589 on Form S-8 and
incorporated herein by reference.
(*) Indicates a management contract or any compensatory plan, contract or
arrangement required to be filed as an exhibit.
(b) Reports on From 8-K
None
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
Hadco Corporation
Date: March 11, 1998 By: /s/ TIMOTHY P. LOSIK
------------------------
Timothy P. Losik
Chief Financial Officer,
Senior Vice President
<PAGE> 1
FEDERAL IDENTIFICATION
NO. 04-2393279
------------------
- --------- THE COMMONWEALTH OF MASSACHUSETTS
Examiner William Francis Galvin
Secretary of the Commonwealth
ONE ASHBURTON PLACE, BOSTON, MASSACHUSETTS 02108-1512
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
- ---------
Name
Approved
We, Andrew E. Lietz
-------------------------------------------, *President/XXXXXXX,
and James C. Hamilton
-------------------------------------------, *Clerk/XXXXXXXXXXX,
of HADCO CORPORATION
-----------------------------------------------------------------,
(Exact name of corporation)
located at: c/o James C. Hamilton, 73 Tremont Street, Boston, MA 02108,
---------------------------------------------------------
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered:
Article 3
-------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5, and/or 6 being amended)
of the Articles of Organization were duly adopted at a meeting held on
March 4, 1998, by vote of:
10,377,873 shares of common stock of 13,107,357 shares outstanding,
------------ -------------- ----------
(type, class & series if any)
shares of of shares outstanding, and
----------- ------------- ----------
(type class & series if any)
shares of of shares outstanding.
------------ -------------- ----------
(type, class & series if any)
C [] 1**being at least a majority of each type, class or series outstanding
P [] and entitled to vote thereon:/XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
M [] XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
R.A.[] XXXXXXXXX:
*Delete the inapplicable words. **Delete the inapplicable clause.
1 For amendments adopted pursuant to Chapter 156B, Section 70.
2 For amendments adopted pursuant to Chapter 156B, Section 71.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on one side only of separate
8 1/2 X 11 sheets of paper with a left margin of at least 1 inch.
- ---- Additions to more than one article may be made on a single sheet so
P.C. long as each article requiring each addition is clearly indicated.
<PAGE> 2
To change the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
Common: N/A Common: 25,000,000 $0.05
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: N/A Preferred: N/A N/A
- --------------------------------------------------------------------------------
Change the total authorized to:
- --------------------------------------------------------------------------------
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- --------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- --------------------------------------------------------------------------------
Common: N/A Common 50,000,000 $0.05
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: N/A Preferred: N/A N/A
- --------------------------------------------------------------------------------
<PAGE> 3
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date: .
-----------------------------
SIGNED UNDER THE PENALTIES OF PERJURY, this 4th day of March, 1998.
/s/ Andrew E. Lietz , *President/*XXXXXXX
- -------------------------------------------------------
Andrew E. Lietz
/s/ James C. Hamilton , *Clerk/*XXXXXXXX
- -------------------------------------------------------
James C. Hamilton
*Delete the inapplicable words.
<PAGE> 4
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(General Laws, Chapter 156B, Section 72)
================================================================================
I hereby approve the within Articles of Amendment, and the filing fee in the
amount of $ ___________ having been paid, said article is deemed to have been
filed with me this ________ day of_____________, 19____.
Effective date:
------------------
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
James C. Hamilton, Esquire
Berlin, Hamilton & Dahmen, LLP
---------------------------------------
73 Tremont Street, Suite 403
---------------------------------------
Boston, MA 02108
---------------------------------------
<PAGE> 1
EXHIBIT 10.1
HADCO CORPORATION
OUTSIDE DIRECTORS' COMPENSATION PLAN OF 1998
1. PURPOSE AND ESTABLISHMENT
Hadco Corporation (the "Company"), hereby establishes the Hadco
Corporation Outside Directors' Compensation Plan of 1998 (the "Plan") for those
directors of the Company who are neither officers nor employees of the Company.
All of the directors' annual fee will be paid in Restricted Stock of the Company
and all or a portion of the Additional Director Fees (hereinafter defined) may
be paid in Restricted Stock of the Company. The Plan also provides the
opportunity for eligible directors to request that the Company defer payment of
that portion of the annual fee or Additional Director Fees taken as shares of
Restricted Stock of the Company, and further allows the director to defer
Additional Director Fees taken as cash payments, as described more fully below.
The purposes of this Plan are to align the interests of the directors more
closely with the interests of other shareholders of the Company, to encourage
the highest level of director performance by providing the directors with a
direct interest in the Company's attainment of its financial goals, and to help
attract and retain qualified directors.
2. DEFINITIONS
a. "Additional Director Fees" means all those fees, in addition to the
annual fee, that a Director may be entitled to in any year of service for
attendance at Board or committee meetings and/or serving as a chairman of a
committee.
b. "Board" means the Board of Directors of the Company.
c. "Committee" means the Joint Stock Option and Compensation Committee
of the Board.
d. "Common Stock Equivalent" means a hypothetical share of Stock which
shall have a value on any date equal to the Fair Market Value of one share of
Stock on that date. The amount distributed to a Director pursuant to Section 7
hereof shall be that number of shares of Stock equal to the number of Common
Stock Equivalents then in the participating Director's Deferral Account.
e. "Deferral Account" means the bookkeeping account established by the
Company in respect to each Director pursuant to Section 6.3 hereof and to which
shall be credited the Common Stock Equivalents into which deferred portions of
the annual fee and/or Additional Director Fees are converted, and to which
dividends are credited, and to which deferred cash payments, plus accrued
interest, of the Additional Director Fees are credited pursuant to the Plan.
<PAGE> 2
f. "Director" means a member of the Board who is neither an officer nor
an employee of the Company, who was elected or appointed to the Board in a
manner prescribed in the Bylaws of the Company.
g. "Effective Date" means the date on which this Plan is approved by
the Board.
h. "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
i. "Fair Market Value" means as of any applicable date: (i) if the
Company's Stock is actively traded in the established over-the-counter market,
the mean between the bid and asked prices quoted in such over-the-counter market
at the close on the date nearest preceding the applicable date; (ii) if such
Stock is listed on any national exchange, or traded in the NASDAQ National
Market, the mean between the high and low sale prices quoted on such exchange or
market on the trading day nearest preceding the applicable date; or (iii) if the
Stock is not publicly traded, the value as determined from time to time by the
Board.
j. "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
k. "Restricted Stock" means shares of Stock of the Company subject to
terms and conditions as imposed from time to time by the Board, which shall
include the following:
(i) Restricted Stock awards may not be sold, exchanged, transferred,
pledged, hypothecated or otherwise disposed of except in accordance
with the terms of the Plan and each transfer agent for the Stock shall
be instructed to such effect.
(ii) At such time as the Director ceases to serve on the Board, or upon
such earlier date as the Committee or Board shall determine, the
restrictions imposed by the Plan shall lapse.
l. "Stock" means the $0.05 par value common stock of the Company.
m. "Payment Date" means each of the dates each year on which the
Company pays the annual fee and Additional Director Fees to Directors pursuant
to Section 5.
3. PLAN ADMINISTRATION
3.1 The Board shall have full power and authority to interpret and
construe the Plan, any forms and constructions thereof and any action
thereunder.
3.2 The Committee shall have the power and authority to administer the
Plan, including the power and authority to:
a. Impose such limitations, restrictions, and conditions as
shall be deemed appropriate;
2
<PAGE> 3
b. Adopt, amend and rescind administrative guidelines and
other rules and regulations relating to the Plan, including the power
to change the dates by which deferral requests must be submitted to the
Clerk and the sole discretion as to whether deferral and distribution
requests made under the Plan are approved; and
c. Make all other determinations and to take all other actions
necessary or advisable for the implementation and administration of the
Plan.
3.3 Notwithstanding the foregoing, the Committee shall have no
authority, discretion or power to alter any terms or conditions specified in the
Plan, except in the sense of administering the Plan subject to the provisions of
the Plan.
4. STOCK SUBJECT TO THE PLAN
4.1 Number of shares. There shall be authorized for issuance under the
Plan, in accordance with the provisions of the Plan, 24,000 shares of Stock.
This authorization may be increased from time to time by approval of the Board.
The Company shall at all times during the term of the Plan retain as authorized
and unissued Stock at least the number of shares from time to time required
under the provisions of the Plan. The shares of Stock issuable hereunder shall
be authorized and unissued shares or previously issued and outstanding shares of
Stock reacquired by the Company.
4.2 Other Shares of Stock. Any shares of Stock that are subject to a
Common Stock Equivalent and for any reason are not issued to a Director shall
automatically become available again for use under the Plan.
4.3 Adjustments Upon Changes in Stock. If there shall be any change in
the Stock of the Company, through merger, consolidation, reorganization,
recapitalization, stock dividend, stock split, spin-off, split up, dividend in
kind or other change in the corporate structure, appropriate adjustments shall
be made by the Committee (or if the Company is not the surviving corporation in
any such transaction, the board of directors of the surviving corporation) in
the aggregate number and kind of shares subject to the Plan, and the number and
kind of shares which may be issued under the Plan. Appropriate adjustments may
also be made by the Committee in the terms of Common Stock Equivalents under the
Plan to reflect such changes and to modify any other terms on an equitable basis
as the Committee in its discretion determines.
5. PAYMENT OF FEES
5.1 Payment of Annual Fees. Each Director who serves as a director
shall be entitled to payment of an annual fee in such an amount as determined by
the Board from time to time. The entire annual fee shall be distributed to the
Director as Restricted Stock or, if the Director elects to defer payment as set
forth below, shall be credited to the Director's Deferral Account as Common
Stock Equivalents.
3
<PAGE> 4
5.2 Payment of Additional Director Fees. In addition to the annual fee,
Directors may be entitled to additional fees for attendance at Board or
committee meetings and/or serving as chairman of a committee. Such Additional
Director Fees are in amounts to be set from time to time by the Board. A
Director may choose to accept payment of these Additional Director Fees in cash
or Restricted Stock, and the Director may also elect to have such cash or
Restricted Stock payments deferred as set forth in Section 6.1 below. If the
Director fails to make an election regarding the form of payment, the total
amount of the Additional Director Fees shall be paid in cash.
5.3 Payment Dates. All payments, distributions or credits of amounts in
connection with the Director annual fee or Additional Director Fees shall be
made not less than semi-annually. If payments are made semi-annually, the first
payment, distribution or credit is to occur each year on the date of the annual
meeting of the stockholders of the Company and the second payment, distribution
or credit is to occur on the date which is six months after the date of the
annual meeting of the stockholders of the Company.
6. DEFERRAL ELECTIONS
6.1 Deferral Elections for Directors. A Director may elect, in writing,
on or before the last day of the month preceding each annual meeting of
stockholders, on a form to be prescribed by the Clerk, the following:
a. To defer the payment of all or any part of the Restricted
Stock payment constituting the Director annual fee to be earned during
the period immediately following the annual meeting of stockholders and
ending on the date of the next succeeding annual meeting of
stockholders. The Director shall specify on the election form the
percentage amount of the Restricted Stock payment constituting the
annual fee to be deferred. Amounts deferred by a Director pursuant to
this Section 6.1(a) shall be converted into Common Stock Equivalents in
accordance with Section 6.3.
b. To receive payment of all or a specified percentage of the
Additional Director Fees to be earned during the period immediately
following the annual meeting of stockholders and ending on the date of
the next succeeding annual meeting of stockholders, in Restricted Stock
rather than cash. The Director shall specify on the election form the
percentage amount to be paid in cash and the percentage amount to be
paid in Restricted Stock.
c. To defer the payment of all or any portion of the
Additional Director Fees taken as a cash payment. The Director shall
specify on the election form the percentage amount of the cash payment
constituting the Additional Director Fees to be deferred.
4
<PAGE> 5
d. To defer the payment of all or any portion of the
Additional Director Fees taken as Restricted Stock payments pursuant to
subsection (b) of this Section. The Director shall specify on the
election form the percentage amount of the Restricted Stock payment
constituting the Additional Director Fees to be deferred. Amounts
deferred by a Director pursuant to this Section 6.1(d) shall be
converted into Common Stock Equivalents in accordance with Section 6.3.
Once made, the election shall remain in effect until revoked by the
participating Director. Such revocation shall become effective for Directors'
fees earned for the period beginning immediately following the annual meeting of
stockholders next occurring after such revocation notice.
6.2 Deferral Elections for Director Candidates. Any individual who is a
candidate for election to the Board may make elections, as listed in Section 6.1
above, regarding the payment of the annual fee and Additional Director Fees to
be earned during the period beginning with the date of his or her election and
ending on the date of the next succeeding annual meeting of stockholders. The
election shall be made in writing, on or before the last day of the month
preceding the annual meeting of stockholders prior to his or her election, on a
form to be prescribed by the Clerk.
6.3 Establishment of Deferral Accounts. There shall be established for
each participating Director an account which shall reflect the cash or
Restricted Stock amounts deferred by the participating Director which would
otherwise have been paid to such Director had no election to defer been made.
Fees deferred by a Director shall be credited to such Deferral Account as of
each Payment Date or such other date that such amounts would otherwise have been
paid or distributed to the Director. Restricted Stock amounts that the Director
elects to defer shall be converted to Common Stock Equivalents based on the Fair
Market Value as of the Payment Date. A statement will be sent to each
participating Director as to the balance of his or her Deferral Account at least
once each calendar year.
6.4 Term of Deferrals. A deferral request made pursuant to Section 6.1
and approved by the Company shall defer the payment with respect to which the
request was made until the participating Director leaves the Board.
6.5 Deferral Elections - First Year of the Plan. Elections to defer
payment of all or a portion of the Restricted Stock constituting the annual fee,
to have payment of all or any portion of the Additional Director Fees made in
the form of Restricted Stock, or to defer the cash or Restricted Stock payments
constituting Additional Director Fees shall be made by the Director, in writing,
on a form to be prescribed by the Clerk, on or before the 30th day following the
Effective Date of this Plan or on or before the last day of the month preceding
the next annual meeting of stockholders, whichever is later.
5
<PAGE> 6
7. DISTRIBUTION OF DEFERRED AMOUNTS
7.1 Distribution of Accounts. As soon as practicable following
termination of service as a Director, a Director shall receive a distribution of
his or her Deferral Account. Distribution of all deferred amounts shall be made
in one lump sum. Distribution of deferred cash amounts shall be made in cash and
shall include interested earned pursuant to Section 7.4. Distribution of the
Restricted Stock amounts shall consist of one share of Stock for each Common
Stock Equivalent credited to such Director's Deferral Account as of the Payment
Date immediately preceding the date of distribution, plus any dividends credited
to such account pursuant to Section 7.3.
7.2 Distribution to a Deceased Director's Estate. In the event of a
Director's death before the distribution of his or her Deferral Account, payment
of the Director's Deferral Account shall then be made to the beneficiary
designated by the Director pursuant to Section 8.1 or, in the absence of a
designation of beneficiary pursuant to Section 8.1, to his or her estate, in the
time and manner selected by the Committee. If no beneficiary is designated, then
the Committee may take into account the application of any duly appointed
administrator or executor of a Director's estate and direct that the balance of
the Director's Deferral Account be paid to his or her estate in the manner
requested by such application.
7.3 Hypothetical Dividends on Common Stock Equivalents. Dividends and
other distributions on Common Stock Equivalents shall be deemed to have been
paid as if such Common Stock Equivalents were actual shares of Stock issued and
outstanding on the respective record or distribution dates. Common Stock
Equivalents shall be credited to the Director's Deferral Account on the basis of
the value of the dividend or other distribution and the Fair Market Value of the
Common Stock Equivalents on the date of the announcement of the dividend or
distribution. Credits to a Director's Deferral Account for dividends or
distributions shall be made on the same day as dividends or other distributions
are otherwise paid. Fractional shares shall be credited to a Director's Deferral
Account cumulatively, but the balance of shares of Common Stock Equivalents in a
Director's Deferral Account shall be rounded to the next lower whole share for
any distributions to such Director pursuant to this Section 7. The value of any
fractional share shall be paid in cash.
7.4 Interest on Deferred Cash Payments. Interest shall be accrued and
credited on deferred cash amounts, to be compounded annually, until distribution
is made to the participating Director under the Plan. The interest rate shall be
a flat rate of six percent (6%) per annum, or such other rate as determined from
time to time by the Board.
7.5 Emergency Payments. In the event of an "unforeseeable emergency" as
defined herein, the Committee may determine the amounts payable under Section 7
hereof and pay all or a part of such amounts in shares of Stock to the extent
the Committee determines that such action is necessary in light of immediate and
substantial needs of the Director occasioned by severe financial hardship. For
the purposes of this Section, an "unforeseeable emergency" is a severe financial
hardship to the Director resulting from a sudden and unexpected illness or
accident of the Director or of a dependent (as defined in Section 152(a) of the
Code) of the Director, loss of the Director's property due to casualty, or other
similar extraordinary and unforeseeable
6
<PAGE> 7
circumstances arising as a result of events beyond the control of the Director.
Payments shall not be made pursuant to this Section to the extent that such
hardship is or may be relieved: (i) through reimbursement or compensation by
insurance or otherwise, (ii) by liquidation of the Director's assets, to the
extent the liquidation of such assets would not itself cause severe financial
hardship, or (iii) by cessation of the Director's deferrals under the Plan. Such
action shall be taken only if a Director (or a Director's legal representatives)
signs an application describing fully the circumstances which are deemed to
justify the payment, together with an estimate of the amounts necessary to
prevent such hardship, which application shall be approved by the Committee
after making such inquiries as the Committee deems necessary and appropriate.
8. DESIGNATION OF BENEFICIARY
8.1 Designation. In the event of death of a participating Director at a
time when deferred amounts remain credited to the Director's Deferral Account,
such amounts will be paid to the beneficiary designated to receive such deferred
amounts on a form to be supplied by and filed with the Clerk of the Company, if
such named beneficiary survives the participating Director. If no beneficiary
designation has been filed with the Clerk, or if the designated beneficiary does
not survive the participating Director, such deferred amounts shall be
distributed pursuant to the terms of Section 7.2.
8.2 Incapacity of the Participating Director or Beneficiary. If the
Company shall find that any person to whom any amount is payable under this Plan
has been judicially declared incompetent to carry on his or her own affairs or
is a minor, distribution or payment of amounts due hereunder may be made to a
duly appointed guardian or other legal representative in accordance with the
applicable provisions of this Plan. Any such distribution or payment shall
completely discharge any obligations or liabilities of the Company under this
Plan with respect to such distributions or payments.
9. RIGHT TO AMEND, ALTER OR REVOKE
The Company reserves the right to amend, alter, modify or revoke in
whole or in part this Plan at any time; provided, however, that with respect to
amounts as to which the period of deferral has commenced at the time of the
Company's exercise of its rights under this Section 9, no exercise of such
rights shall result in a forfeiture of such deferred amounts, a change in the
time of payment of amounts, a change in terms and conditions under which
forfeiture of such deferred amounts may occur, or a change in the provisions of
this agreement governing the crediting of dividends on such deferred amounts,
without the consent of the participating Director(s) affected by such exercise
of rights, except as otherwise provided in this Plan.
7
<PAGE> 8
10. GENERAL CREDITOR STATUS
Each Director, and each other recipient of a Director's Deferral
Account pursuant to Section 7, shall be and remain an unsecured general creditor
of the Company with respect to any payments due and owing to such Director
hereunder. All payments to persons entitled to benefits hereunder shall be made
out of the general assets, and shall be the sole obligations, of the Company.
The Plan is a promise to pay benefits in the future and it is the intention of
the parties that it be "unfunded" for tax purposes (and for purposes of Title I
of the Employment Retirement Income Security Act ("ERISA")).
11. GOVERNING LAW
This Plan shall be construed in accordance with and governed by the
laws of the Commonwealth of Massachusetts.
12. NO TRUST, LEGAL OR BENEFICIAL OWNERSHIP INTENDED
No trust agreement is to be deemed created for the benefit of any
participating Director, or the Director's beneficiary, executors,
administrators, heirs, assigns or legal representatives as a result of this
Plan. Similarly, no legal or beneficial interest in any of the Company's assets
is intended to be conferred by the terms of the Plan.
13. PROHIBITION OF ALIENATION
The right of the participating Director or the Director's designated
beneficiary or any other person to the payment of amounts due under the Plan may
not be assigned, transferred, pledged or encumbered except as otherwise provided
in this Plan.
14. BINDING EFFECT
The Plan, except as otherwise provided herein, shall be binding upon
and inure to the benefit of the Company, the Board, its successors and assigns
and participating Directors, their designated beneficiary, heirs, executors,
administrators and legal representatives.
15. DISTRIBUTION UPON FINDING OF INCLUSION OF DEFERRED AMOUNTS IN GROSS
INCOME
If this Plan shall ever be determined to require the inclusion of all
or part of any participating Director's deferred amounts in the Director's gross
income for federal, state, or local income tax purposes prior to the time such
amount would be required to be distributed or paid under the terms of this Plan,
whether by taxing authorities of the United States or other sovereign nations or
political subdivisions thereof, then only those amounts which would be treated
as includable in gross income at such time will be paid over to the
participating Director. All other deferred amounts will continue to be subject
to the terms of this Plan.
8
<PAGE> 9
16. AGREEMENT
By requesting the Company to defer payment hereunder, a Director
consents to the provisions of this Plan as they exist at the time of such
request and as they may be amended thereafter by the Board, subject to the
consent of the Director when required pursuant to Section 9.
17. EFFECTIVE DATE
The Effective Date of this Plan is March 4, 1998.
9
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