<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 13, 1998
REGISTRATION NO. 333-57467 THROUGH 333-57467-04
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HADCO CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
SEE TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<S> <C> <C>
MASSACHUSETTS 3672 04-2393279
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NO.)
</TABLE>
12A MANOR PARKWAY
SALEM, NEW HAMPSHIRE 03079
(603) 898-8000
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
PATRICIA RANDALL, ESQ.
VICE PRESIDENT AND
GENERAL COUNSEL
HADCO CORPORATION
12A MANOR PARKWAY
SALEM, NEW HAMPSHIRE 03079
(603) 898-8000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
STEPHEN A. HURWITZ, ESQ.
TESTA, HURWITZ & THIBEAULT, LLP
HIGH STREET TOWER
125 HIGH STREET
BOSTON, MASSACHUSETTS 02110
(617) 248-7000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
ADDRESS, INCLUDING ZIP CODE PRIMARY
AND TELEPHONE NUMBER, STATE OR OTHER STANDARD
INCLUDING AREA CODE, OF JURISDICTION OF INDUSTRIAL
NAME OF REGISTRANT AS REGISTRANT'S PRINCIPAL INCORPORATION OR CLASSIFICATION I.R.S. EMPLOYER
SPECIFIED IN ITS CHARTER EXECUTIVE OFFICES ORGANIZATION CODE NUMBER IDENTIFICATION NO.
- ------------------------ --------------------------- ---------------- -------------- ------------------
<S> <C> <C> <C> <C>
Hadco Santa Clara, Inc. c/o Hadco Corporation Delaware 3672 94-2348052
12A Manor Parkway
Salem, NH 03079
(603) 898-8000
Hadco Phoenix, Inc. c/o Hadco Corporation Delaware 3672 86-0267198
12A Manor Parkway
Salem, NH 03079
(603) 898-8000
CCIR of California Corp. c/o Hadco Corporation California 3672 77-0469690
12A Manor Parkway
Salem, NH 03079
(603) 898-8000
CCIR of Texas Corp. c/o Hadco Corporation Texas 3672 74-2821373
12A Manor Parkway
Salem, NH 03079
(603) 898-8000
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND
EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY
BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE
IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED OCTOBER 13, 1998
PROSPECTUS
, 1998
HADCO CORPORATION
OFFER TO EXCHANGE ITS 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, FOR ANY AND ALL OF ITS OUTSTANDING
9 1/2% SENIOR SUBORDINATED NOTES DUE 2008
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1998, UNLESS EXTENDED.
Hadco Corporation, a Massachusetts corporation ("Hadco" or the "Company"),
hereby offers (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus (the "Prospectus") and the accompanying
letter of transmittal (the "Letter of Transmittal"), to exchange its 9 1/2%
Senior Subordinated Notes due 2008 (the "Exchange Notes"), which have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement (as defined) of which this Prospectus is a
part, for an equal principal amount of its outstanding 9 1/2% Senior
Subordinated Notes due 2008 (the "Original Notes"), of which $200 million
aggregate principal amount is outstanding on the date hereof. The Exchange Notes
and the Original Notes are collectively referred to herein as the "Notes."
Subject to the terms and conditions set forth in this Prospectus and the
Letter of Transmittal, the Company will accept for exchange any and all Original
Notes that are validly tendered and not withdrawn on or prior to 5:00 p.m., New
York City time, on , 1998, unless the Exchange Offer is extended
(the "Expiration Date"). Tenders of Original Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange
Notes will be issued and delivered promptly after the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Original
Notes being tendered for exchange. The Exchange Offer is, however, subject to
certain customary conditions. See "The Exchange Offer -- Conditions." Original
Notes may be tendered only in integral multiples of $1,000. In the event the
Company terminates the Exchange Offer and does not accept for exchange any
Original Notes, the Company will promptly return all previously tendered
Original Notes to the holders thereof. The Company has agreed to pay the
expenses of the Exchange Offer. See "The Exchange Offer."
The Exchange Notes will be obligations of the Company evidencing the same
debt as the Original Notes, and will be entitled to the benefits of the same
Indenture, dated as of May 18, 1998 (the "Indenture"), between the Company, the
Guarantors (as defined) and State Street Bank and Trust Company, as trustee (the
"Trustee"). The Exchange Notes will be identical in all material respects to the
Original Notes except that (i) the Exchange Notes will have been registered
under the Securities Act, (ii) the Exchange Notes will not include provisions
providing for an increase in the interest rate in certain circumstances relating
to the timing of the consummation of the Exchange Offer and (iii) the holders of
the Exchange Notes will not be entitled to certain rights under the Registration
Rights Agreement (as defined), which rights will terminate upon the consummation
of the Exchange Offer. See "The Exchange Offer."
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY HOLDERS OF ORIGINAL NOTES WHO TENDER THEIR
ORIGINAL NOTES IN THE EXCHANGE OFFER AND PROSPECTIVE INVESTORS IN THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
(cover page continued on next page)
<PAGE> 4
Interest on each Exchange Note will accrue from the last date on which
interest was paid on the Original Note surrendered in exchange therefor or, if
no interest has been paid on the Original Note, from the date of original
issuance of such Original Note. No interest will be paid on the Original Notes
accepted for exchange, and holders of Original Notes whose Original Notes are
accepted for exchange will be deemed to have waived the right to receive any
payment in respect of interest on the Original Notes accrued up until the date
of the issuance of the Exchange Notes. Holders of Original Notes that are not
exchanged will receive the accrued interest payable on December 15, 1998 in
accordance with the Indenture. See "The Exchange Offer -- Terms of the Exchange
Offer."
Interest on the Exchange Notes is payable semi-annually in cash on June 15
and December 15 of each year, commencing December 15, 1998. The Exchange Notes
will be redeemable at the option of the Company, in whole or in part, at any
time on or after June 15, 2003, at 104.75% of their principal amount, plus
accrued interest, declining ratably to 100% of their principal amount, plus
accrued interest. At any time on or prior to June 15, 2001, up to 35% of the
aggregate principal amount of the Exchange Notes may be redeemed, at the option
of the Company, with the proceeds of one or more Equity Offerings (as defined)
at 109.50% of the principal amount thereof, plus accrued interest; provided,
however, that at least 65% of the original aggregate principal amount of the
Notes remains outstanding following each such redemption. In addition, at any
time prior to June 15, 2003, the Company may redeem the Exchange Notes at its
option, in whole or in part, at a price equal to the principal amount thereof,
together with accrued interest, plus the Applicable Premium (as defined). Upon a
Change of Control (as defined), the Company will be required to make an offer to
purchase the Exchange Notes at a price equal to 101% of their principal amount
on the date of purchase, plus accrued interest, if any. There can be no
assurance that the Company will have sufficient funds available at the time of
any Change of Control or will be permitted under its Senior Indebtedness (as
defined) to make any such repurchase of the Exchange Notes. See "Description of
the Notes."
The Exchange Notes will be unsecured, senior subordinated indebtedness of
the Company, will be subordinated to all Senior Indebtedness of the Company,
will rank pari passu to any senior subordinated indebtedness of the Company and
will be senior to any indebtedness of the Company subordinated to the Exchange
Notes. As of August 1, 1998, Hadco Corporation (exclusive of subsidiaries) had
approximately $162 million of Senior Indebtedness outstanding, no Indebtedness
pari passu with the Original Notes (and the Exchange Notes, assuming they were
outstanding on such date) and no Indebtedness subordinated to the Original Notes
(and the Exchange Notes, assuming they were outstanding on such date). The
Company's obligations under the Exchange Notes will be fully and unconditionally
guaranteed (the "Note Guarantees"), on a senior subordinated basis, jointly and
severally, by each of the Company's U.S. Restricted Subsidiaries (the
"Guarantors"). The Guarantors currently consist of Hadco Santa Clara, Inc., a
Delaware corporation ("Hadco Santa Clara"), Hadco Phoenix, Inc., a Delaware
corporation ("Hadco Phoenix"), CCIR of California Corp., a California
corporation ("CCIR of CA"), and CCIR of Texas Corp., a Texas corporation ("CCIR
of TX"). The Note Guarantees will be subordinated to all Senior Indebtedness of
the Guarantors on the same basis as the Exchange Notes are subordinated to the
Senior Indebtedness of the Company, pari passu with any senior subordinated
indebtedness of the Guarantors and senior to any indebtedness of the Guarantors
subordinated to the Note Guarantees. As of August 1, 1998, the Guarantors had
approximately $169 million of Senior Indebtedness outstanding ($160 million of
which represented guarantees of the Company's indebtedness under the Credit
Facility (as defined)), no Indebtedness pari passu with the Note Guarantees
which guarantee the Original Notes (and, upon the consummation of the Exchange
Offer, will guarantee the Exchange Notes) and no Indebtedness subordinated to
the Note Guarantees.
As of August 1, 1998, the Company had $160 million outstanding under the
Credit Facility, all of which was guaranteed by the Guarantors.
The Original Notes were originally issued and sold on May 18, 1998 (the
"Closing Date") to Morgan Stanley & Co. Incorporated, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, BancAmerica Robertson Stephens and BT Alex. Brown
Incorporated (collectively, the "Initial Purchasers") in a transaction not
registered under the Securities Act (the "Original Notes Offering"). The Initial
Purchasers subsequently resold the Original Notes to "qualified institutional
buyers" in reliance on Rule 144A under the Securities Act and to certain
offshore purchasers in reliance on Rule 904 of Regulation S under the Securities
Act.
ii
<PAGE> 5
Accordingly, the Original Notes may not be offered for resale, resold or
otherwise transferred unless registered under the Securities Act or unless an
applicable exemption from the registration requirements of the Securities Act is
available. The Exchange Notes are being offered hereunder in order to satisfy
the obligations of the Company under a Registration Rights Agreement, dated May
13, 1998, by and among the Company, the Guarantors and the Initial Purchasers
(the "Registration Rights Agreement").
Based on interpretations by the staff of the Securities and Exchange
Commission (the "Commission"), as set forth in no-action letters issued to third
parties unrelated to the Company, the Company believes that the Exchange Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than any holder that is (i) a
broker-dealer that acquired Original Notes as a result of market-making
activities or other trading activities or (ii) an "affiliate" of the Company or
any Guarantor within the meaning of Rule 405 under the Securities Act) without
compliance with the registration or prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such Exchange Notes. Any holder who tenders
Original Notes in the Exchange Offer with the intention to participate, or for
the purpose of participating, in a distribution of the Exchange Notes or who is
an affiliate of the Company or any Guarantor may not rely upon such
interpretations by the staff of the Commission and, in the absence of an
exemption therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any secondary resale
transaction. Failure to comply with such requirements in such instance may
result in such holder incurring liabilities under the Securities Act for which
the holder is not indemnified by the Company. The staff of the Commission has
not considered the Exchange Offer in the context of a no-action letter, and
there can be no assurance that the staff of the Commission would make a similar
determination with respect to the Exchange Offer as in such other circumstances.
By tendering Original Notes in exchange for Exchange Notes, each holder
will represent to the Company, among other things, that: (i) any Exchange Notes
to be received by such holder will be acquired in the ordinary course of such
holder's business; (ii) such holder has no arrangement or understanding with any
person to participate in a distribution (within the meaning of the Securities
Act) of the Exchange Notes; and (iii) such holder is not an "affiliate" of the
Company or any Guarantor (within the meaning of Rule 405 under the Securities
Act), or if such holder is an affiliate, that such holder will comply with the
registration and prospectus delivery requirements of the Securities Act to the
extent applicable. Each broker-dealer that receives Exchange Notes for its own
account in exchange for Original Notes, where such Original Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of Exchange Notes
received in exchange for Original Notes where such Original Notes were acquired
as a result of market-making or other trading activities; however, this
Prospectus may not be used for resales of Notes acquired directly from the
Company. The Company has agreed that, for a period ending on the earlier to
occur of 180 days after the Expiration Date or the time when all persons subject
to the prospectus delivery requirements of the Securities Act have sold all
Exchange Notes held by them, it will furnish additional copies of this
Prospectus, as amended or supplemented, to any broker-dealer that reasonably
requests such documents for use in connection with any such resale. See "Plan of
Distribution."
Holders of Original Notes not tendered and accepted in the Exchange Offer
will continue to hold such Original Notes and will be entitled to all the rights
and benefits and will be subject to the limitations applicable thereto under the
Indenture and with respect to transfer under the Securities Act.
There has not previously been any public market for the Original Notes or
the Exchange Notes, and no assurance can be given as to the liquidity of the
trading market for the Original Notes or Exchange Notes. The Company does not
intend to list the Exchange Notes on any securities exchange or to seek approval
for quotation through any automated quotation system. The Company does intend,
however, to make an application to list the Notes on the Luxembourg Stock
Exchange. There can be no assurance that an active
iii
<PAGE> 6
market for the Exchange Notes will develop. See "Risk Factors -- Absence of
Public Market." Moreover, to the extent that Original Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted Original Notes could be adversely affected. In addition, the
Company will have no further obligation to such holders to provide for the
registration under the Securities Act of the Original Notes, pursuant to the
Registration Rights Agreement or otherwise. See "Risk Factors -- Consequences of
Failure to Exchange."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF ORIGINAL NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER.
iv
<PAGE> 7
The Company was incorporated in Massachusetts in 1966. The principal
executive offices of the Company are located at 12A Manor Parkway, Salem, New
Hampshire 03079 and its telephone number is (603) 898-8000.
------------------------
Market and industry data used throughout this Prospectus were obtained
through Company research, surveys or studies conducted by third parties and
industry or general publications. The Company has not independently verified
market and industry data provided by third parties or industry or general
publications. Similarly, internal Company surveys, while believed by management
of the Company to be reliable, have not been verified by any independent
sources.
------------------------
Hadco(R), Zycon(TM), ResistAIR(TM), Buried Capacitance(TM) and
[mu]icroPath(TM) are trademarks of the Company. This Prospectus also includes
the trademarks of other companies.
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED. ALL STATEMENTS REGARDING THE COMPANY'S EXPECTED FINANCIAL
POSITION, BUSINESS AND FINANCING PLANS AND OTHER EXPECTATIONS AS TO THE FUTURE
(INCLUDING, WITHOUT LIMITATION, STATEMENTS USING THE WORDS "ANTICIPATES,"
"BELIEVES," "EXPECTS," "ESTIMATES," "INTENDS," "MAY," "FUTURE," "COULD," "WILL"
AND SIMILAR WORDS OR EXPRESSIONS AS WELL AS OTHER WORDS OR EXPRESSIONS
REFERENCING FUTURE EVENTS, CONDITIONS OR CIRCUMSTANCES) ARE FORWARD-LOOKING
STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN
SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT
SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH EXPECTATIONS ("CAUTIONARY
STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, IN
CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND
UNDER "RISK FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY, ITS SUBSIDIARIES OR PERSONS ACTING ON THEIR BEHALF
ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS. THE
COMPANY EXPRESSLY DISCLAIMS ANY OBLIGATION OR UNDERTAKING TO RELEASE PUBLICLY
ANY UPDATES OR REVISIONS TO ANY FORWARD-LOOKING STATEMENT CONTAINED HEREIN TO
REFLECT ANY CHANGE IN THE COMPANY'S EXPECTATIONS WITH REGARD THERETO OR ANY
CHANGE IN EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH ANY SUCH STATEMENT IS
BASED.
v
<PAGE> 8
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PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including, without limitation, those set forth under "Risk Factors' and
elsewhere in this Prospectus. The following summary is qualified in its entirety
by, and should be read in conjunction with, the more detailed information,
including "Risk Factors" and the Company's and Continental's (as defined herein)
historical consolidated financial statements and pro forma condensed
consolidated financial statements, and the notes thereto, appearing elsewhere in
this Prospectus.
As used herein, the terms "Company" and "Hadco," unless otherwise indicated
or the context otherwise requires, refer to Hadco Corporation and its
subsidiaries, including Hadco Phoenix, Inc. ("Hadco Phoenix") (formerly
Continental Circuits Corp. ("Continental")) and Hadco Santa Clara, Inc. ("Hadco
Santa Clara") (formerly Zycon Corporation ("Zycon")). Zycon Corporation and
Continental Circuits Corp. are currently wholly owned subsidiaries of the
Company and are merely name holding entities. Hadco Santa Clara holds the assets
formerly held by Zycon Corporation, and Hadco Phoenix holds the assets formerly
held by Continental Circuits Corp. References herein to a fiscal year end relate
to a year ending on the last Saturday in October (for example, fiscal 1997
refers to the Company's fiscal year ended October 25, 1997). On March 20, 1998,
the Company acquired all of the outstanding capital stock of Continental (the
"Continental Acquisition"), and on January 10, 1997, the Company acquired all of
the outstanding capital stock of Zycon (the "Zycon Acquisition"). The
Continental Acquisition and the Zycon Acquisition are collectively referred to
herein as the "Acquisitions." Unless otherwise indicated or the context
otherwise requires, the results of Zycon's operations and other financial
information relating to Zycon since January 10, 1997 are included in the
Company's historical consolidated financial information presented herein.
Similarly, unless otherwise indicated or the context otherwise requires, the
results of Continental's operations and other financial information relating to
Continental since March 20, 1998 are included in the Company's historical
consolidated financial information presented herein.
THE COMPANY
GENERAL
Hadco is the largest manufacturer of advanced electronic interconnect
products in North America. The Company offers a wide array of sophisticated
manufacturing, engineering and systems integration services to meet its
customers' electronic interconnect needs. The Company's principal products are
multilayer rigid printed circuits and backplane assemblies. Printed circuits are
the basic platforms used to interconnect microprocessors, integrated circuits
and other components essential to the functioning of electronic systems.
Backplane assemblies are generally larger and thicker printed circuits on which
connectors are mounted to receive and interconnect printed circuits, integrated
circuits and other electronic components. Hadco's largest customers include many
of the leading companies in the electronics industry, such as Cabletron Systems,
Compaq Computer, Hewlett-Packard, Lucent Technologies, Northern Telecom,
Solectron and Sun Microsystems.
Hadco's advanced manufacturing and assembly facilities are designed to meet
the accelerated time-to-market and time-to-volume requirements of its customers
whose markets are characterized by high growth rates, rapid technological
advances and short product life-cycles. During the past five fiscal years,
Hadco, Continental and Zycon have invested approximately $342 million in fixed
assets, such as facilities and equipment (including those used in the
development of new technologies). Hadco provides customers with a broad range of
products and services that includes development, design, quick-turn prototype,
pre-production, volume production, and backplane assembly. Hadco is one of a
small number of printed circuit manufacturers with the technology and advanced
production facilities necessary to offer all of these services. The Company
believes its combination of a broad product offering and advanced technological
capabilities facilitates long-term relationships with existing customers,
attracts new customers, and helps customers meet their time-to-market and
time-to-volume needs.
- --------------------------------------------------------------------------------
1
<PAGE> 9
Hadco's customers are a diverse group of electronics original equipment
manufacturers ("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. Hadco
provided its products and services to a diverse base of approximately 560
customers in fiscal 1997 (approximately 590 customers pro forma for the
Continental Acquisition) including approximately 77 customers with purchases in
excess of $1 million (approximately 85 customers pro forma for the Continental
Acquisition). The Company's ten largest customers accounted for approximately
47% of net sales in fiscal 1997. In fiscal 1997, one customer, Solectron,
accounted for approximately 15% of the net sales of the Company (approximately
13% pro forma for the Continental Acquisition).
INDUSTRY OVERVIEW
In 1997, the worldwide market for rigid printed circuits was $29.4 billion,
and the domestic market for rigid printed circuits was $7.9 billion. In
addition, in 1997 the domestic market for backplane assemblies was $1.2 billion.
The market for higher layer count multilayer rigid printed circuits (eight
layers and above) constituted approximately 40% of the total United States rigid
printed circuit market in 1997, and has increased at an annual compounded growth
rate of 16% over the last two years, compared to approximately 11% for the
overall printed circuit market. The growth of the printed circuit market has
been driven by a number of factors, including: (i) new end-user markets in
telecommunications and computers, (ii) an increasing number of products
containing electronic components, (iii) shorter product life cycles for
electronic products, and (iv) advances in the speed and complexity of electronic
components and products.
In 1997, approximately 93% of the domestic printed circuit market was
served by independent manufacturers (compared to approximately 71% in 1992). The
need for expanded service offerings, advanced technological capabilities and
broader geographic scope has led to consolidation in recent years, reducing the
number of printed circuit manufacturers in North America from approximately 950
in 1992 to approximately 550 in 1997. Although the printed circuit market has
been experiencing consolidation over the past several years, it remains
fragmented. Of the approximately 550 printed circuit manufacturers in the United
States in 1997, only seven had revenues in excess of $100 million.
RECENT ACQUISITIONS
On March 20, 1998, Hadco acquired all of the outstanding capital stock of
Continental, a manufacturer of multilayer printed circuits, for approximately
$190 million (including acquisition costs). On January 10, 1997, Hadco acquired
all of the outstanding capital stock of Zycon, a manufacturer of multilayer
printed circuits and backplane assemblies, for approximately $212 million
(including acquisition costs). Pro forma for the Acquisitions, Continental and
Zycon would have added approximately $396 million to Hadco's fiscal 1997 net
sales. The Acquisitions also added approximately 865,000 square feet of
manufacturing space (approximately a 129% increase) and substantially expanded
Hadco's geographic reach. The Continental Acquisition added facilities for
volume production of multilayer printed circuits in Phoenix, Arizona, a
quick-turn prototype facility in Austin, Texas, and a flexible printed circuit
manufacturing facility and printed circuit engineering and design operation in
California. The Zycon Acquisition added facilities for volume production of
multilayer printed circuits and backplane assemblies in the Silicon Valley area,
a quick-turn prototype and design facility in Haverhill, Massachusetts, and a
newly constructed facility for volume production of printed circuits in
Malaysia. The Acquisitions have also broadened the Company's customer base,
expanded its involvement in many fast growing industry sectors, added new
proprietary technologies, and increased the size of its sales force. See "Risk
Factors -- Risks Relating to the Acquisitions and the Company's Acquisition
Strategy" and "-- Recent Development."
RECENT DEVELOPMENT
On September 15, 1998, the Company amended its Credit Facility with the
Third Amendment and Modification Agreement dated as of September 14, 1998. This
most recent amendment to the Credit Facility, among other things, amended and
added certain covenants, changed the available borrowing capacity under
2
<PAGE> 10
the Credit Facility from $400 million to the lesser of $300 million and the
Borrowing Base (as defined in the Credit Facility), and granted the banks a
first priority mortgage and security interest in substantially all of the assets
of the Company and each of the subsidiaries which are guarantors of the Credit
Facility. The Company is also required to pay a quarterly usage fee based on an
Applicable Base Rate Usage Fee Margin and an Applicable Eurodollar Rate Usage
Fee Margin (both as defined in the Credit Facility). See "Risk
Factors -- Restrictions Imposed by Terms of Indebtedness," "Description of
Certain Indebtedness," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
STRATEGY
The Company's strategy is to increase sales and profitability by providing
a wide range of electronic interconnect solutions and services to a broad and
diversified customer base and by capitalizing on major industry trends as
follows:
Provide a Broad and Integrated Offering. Hadco develops and maintains
long-term customer relationships by providing a full range of integrated
services, from development, design, quick-turn prototype and pre-production
through volume printed circuit production and backplane assembly. The Company
believes its broad range of integrated services provides significant value to
its customers by shortening their new product development cycles, helping them
to meet their time-to-market and time-to-volume requirements, lowering
manufacturing costs, and providing technological expertise. By working closely
with customers at the design and prototype stage, the Company believes it
strengthens long-term relationships with its customers and gains an advantage in
securing a preferred vendor status when customers begin volume production.
Serve Diversified Customer Base in High Growth Segments. The Company
concentrates its marketing efforts on OEMs and contract manufacturers serving
OEMs in segments of the electronics market characterized by high growth, rapid
technological advances, short product development cycles and accelerated
time-to-market and time-to-volume requirements. To more fully support its
strategy of developing a large and diversified customer base, the Company
intends to offer certain large customers single points of contact to service
their needs on a global basis, and the Company is focusing on the further
development of its international sales force.
Develop Advanced Manufacturing and Process Technologies. The Company is
committed to remaining a leader in the development of advanced materials and
sophisticated process technologies that enable it to cost-effectively produce
reliable and technologically advanced products. The Company believes its
manufacturing and process capabilities provide a significant competitive
advantage and is committed to continuous improvement to maintain its leadership
position.
Maintain High Levels of Investment. Hadco believes its significant ongoing
investment in production technology allows it to maintain a leadership position
in the development of advanced materials and process technologies. The Company
has made substantial investments in production facilities and new technologies
during the past five fiscal years that have increased capacity and operating
efficiencies, improved management control and provided more consistent product
quality. As a result, the Company believes it is one of the few interconnect
manufacturers capable of satisfying the full range of volume production,
time-to-market, time-to-volume and technology requirements of customers in the
electronics industry.
Expand Backplane Assembly Operations. In recent years, to extend its
integrated offering, the Company has expanded its backplane assembly operations,
thereby broadening its range of manufacturing services, reducing customer costs
and improving product quality. With this backplane assembly expansion, the
Company is well-positioned to capture an increasing share of the full range of
interconnect requirements of its customers.
Pursue Strategic Acquisitions. The Company will consider strategic
acquisitions of companies and technologies that enhance its competitive
position, build economies of scale and help fulfill its other strategic
objectives. In evaluating possible acquisition candidates, the Company
considers, among other things, the
3
<PAGE> 11
opportunity for synergistic product offerings, complementarity of client base,
new technological capabilities and potential for increased geographic reach.
Increase Geographic Reach. Hadco has pursued a strategy of expanding the
capacity and geographic scope of its manufacturing facilities to better serve
high growth segments of the electronics industry in key geographic markets.
Hadco believes it is the only independent North American printed circuit
manufacturer with a full service offering of design, quick-turn prototype and
volume printed circuit manufacturing and backplane assembly on both the East and
West Coasts. In addition, its volume production facility in Malaysia, which
commenced operations in fiscal 1997, is intended to provide the Company with
access to U.S. customers expanding into Asian markets. The Company also intends
to broaden its presence in Europe and other international markets.
4
<PAGE> 12
- --------------------------------------------------------------------------------
THE ORIGINAL NOTES OFFERING
Original Notes................ The Original Notes were sold by the Company on
May 18, 1998 to the Initial Purchasers pursuant
to a Purchase Agreement (the "Purchase
Agreement") dated May 13, 1998 by and among the
Company, the Guarantors and the Initial
Purchasers. The Initial Purchasers subsequently
resold the Original Notes to "qualified
institutional buyers" in reliance upon Rule
144A under the Securities Act and to offshore
purchasers in reliance on Rule 904 of
Regulation S under the Securities Act.
The purpose of the Original Notes Offering was
to finance the repayment of borrowings under
the Credit Facility incurred by the Company in
connection with the Acquisitions.
Registration Rights
Agreement................... Pursuant to the Purchase Agreement, the
Company, the Guarantors and the Initial
Purchasers entered into the Registration Rights
Agreement, which granted the holders of the
Original Notes certain exchange and
registration rights. The Exchange Offer is
intended to satisfy such rights which terminate
upon the consummation of the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered............ $200,000,000 aggregate principal amount of
9 1/2% Senior Subordinated Notes due 2008.
The Exchange Offer............ $1,000 principal amount of Exchange Notes will
be issued in exchange for each $1,000 principal
amount of Original Notes validly tendered and
not withdrawn pursuant to the Exchange Offer.
As of the date hereof, $200 million in
aggregate principal amount of Original Notes is
outstanding. Subject to the terms and
conditions set forth in this Prospectus and the
Letter of Transmittal, the Company will issue
the Exchange Notes to tendering holders of
Original Notes promptly after the Expiration
Date. See "The Exchange Offer."
Resales....................... Based on an interpretation by the staff of the
Commission set forth in Morgan Stanley & Co.
Incorporated, SEC No-Action Letter (available
June 5, 1991) (the "Morgan Stanley Letter"),
Exxon Capital Holdings Corporation, SEC
No-Action Letter (available May 13, 1988) (the
"Exxon Capital Letter") and similar letters,
the Company believes that Exchange Notes issued
pursuant to the Exchange Offer in exchange for
Original Notes may be offered for resale,
resold and otherwise transferred by any person
receiving such Exchange Notes, whether or not
such person is the holder (other than any such
holder or other person which is (i) a broker-
dealer that receives Exchange Notes for its own
account in exchange for Original Notes, where
such Original Notes were acquired by such
broker-dealer as a result of market-making or
other trading activities, or (ii) an
"affiliate" of the Company or any Guarantor
within the meaning of Rule 405 under the
Securities Act (collectively, "Restricted
Holders")) without compliance with the
registration and prospectus delivery provisions
of the Securities Act, provided that (a) such
Exchange Notes are acquired in the ordinary
course of business of such holder or other
person,
- --------------------------------------------------------------------------------
5
<PAGE> 13
- --------------------------------------------------------------------------------
(b) neither such holder nor such other person
is engaged in or intends to engage in a
distribution of such Exchange Notes and (c)
neither such holder nor other person has any
arrangement or understanding with any person to
participate in the distribution of such
Exchange Notes. If any person were to be
participating in the Exchange Offer for the
purposes of participating in a distribution of
the Exchange Notes in a manner not permitted by
the Commission's interpretation, such person
(a) could not rely upon the Morgan Stanley
Letter, the Exxon Capital Letter or similar
letters and (b) must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with a secondary resale transaction.
See Morgan Stanley & Co. Incorporated SEC
No-Action Letter (available June 5, 1991) and
Exxon Capital Holdings Corporation, SEC
No-Action Letter (available May 13, 1988). Each
broker or dealer that receives Exchange Notes
for its own account in exchange for Original
Notes, where such Original Notes were acquired
by such broker or dealer as a result of market-
making or other trading activities, must
acknowledge that it will deliver a Prospectus
in connection with any sale of such Exchange
Notes. See "Plan of Distribution."
Expiration Date............... 5:00 p.m., New York City time, on , 1998,
unless the Exchange Offer is extended, in
which case the term "Expiration Date" means
the latest date and time to which the Exchange
Offer is extended.
Accrued Interest on the
Exchange Notes and Original
Notes....................... Interest on each Exchange Note will accrue from
the last date on which interest was paid on the
Original Note surrendered in exchange therefor
or, if no interest has been paid on the
Original Note, from the date of original
issuance of such Original Note. No interest
will be paid on the Original Notes accepted for
exchange, and holders of Original Notes whose
Original Notes are accepted for exchange will
be deemed to have waived the right to receive
any payment in respect of interest on such
Original Notes accrued to the date of issuance
of the Exchange Notes. Holders of Original
Notes that are not exchanged will receive the
accrued interest payable on December 15, 1998
in accordance with the Indenture. See "The
Exchange Offer -- Terms of the Exchange Offer."
Conditions to the Exchange
Offer......................... The Exchange Offer is subject to certain
customary conditions. The conditions are
limited and relate in general to proceedings
which have been instituted or laws which have
been adopted that might impair the ability of
the Company to proceed with the Exchange Offer.
As of the date of this Prospectus, none of
these events had occurred, and the Company
believes their occurrence to be unlikely. If
any such conditions exist prior to the
Expiration Date, the Company may (a) refuse to
accept any Original Notes and return all
previously tended Original Notes, (b) extend
the Exchange Offer or (c) waive such
conditions. See "The Exchange
Offer -- Conditions."
Procedures for Tendering
Original Notes.............. Each holder of Original Notes wishing to accept
the Exchange Offer must complete, sign and date
the Letter of Transmittal, or a
- --------------------------------------------------------------------------------
6
<PAGE> 14
- --------------------------------------------------------------------------------
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
the Original Notes to be exchanged and any
other required documentation to the Exchange
Agent (as defined) at the address set forth
herein and therein. Tendered Original Notes,
the Letter of Transmittal and accompanying
documents must be received by the Exchange
Agent by 5:00 p.m., New York City time, on the
Expiration Date. See The "Exchange
Offer -- Procedures for Tendering." By
executing the Letter of Transmittal, each
holder will represent to the Company that,
among other things, the Exchange Notes acquired
pursuant to the Exchange Offer are being
obtained in the ordinary course of business of
the person receiving such Exchange Notes,
whether or not such person is the holder, that
neither the holder nor any such other person is
engaged in or intends to engage in a
distribution of the Exchange Notes or has an
arrangement or understanding with any person to
participate in the distribution of such
Exchange Notes, and that neither the holder nor
any such other person is an "affiliate," as
defined under Rule 405 of the Securities Act,
of the Company or any Guarantor or, if such
holder or other person is such an affiliate,
that such holder will comply with the
registration and prospectus delivery
requirements of the Securities Act to the
extent applicable. In lieu of physical delivery
of the certificates representing Original
Notes, tendering holders of Original Notes may
transfer Original Notes pursuant to the
procedure for book-entry transfer as set forth
under "The Exchange Offer -- Procedures for
Tendering."
Untendered Original Notes..... Following the consummation of the Exchange
Offer, holders of Original Notes eligible to
participate in the Exchange Offer but who do
not tender their Original Notes will not have
any further exchange or registration rights and
such Original Notes will continue to be subject
to certain restrictions on transfer.
Accordingly, the liquidity of the market for
such Original Notes could be adversely
affected. See "Risk Factors -- Consequences of
Failure to Exchange."
Consequences of Failure to
Exchange...................... The Original Notes that are not exchanged
pursuant to the Exchange Offer will remain
restricted securities. Accordingly, such
Original Notes may be resold only (i) to the
Company, (ii) pursuant to Rule 144A or Rule 144
under the Securities Act or pursuant to another
exemption under the Securities Act, (iii)
outside the United States to a foreign person
pursuant to the requirements of Rule 904 under
the Securities Act, or (iv) pursuant to an
effective registration statement under the
Securities Act. See "The Exchange
Offer -- Consequences of Failure to Exchange."
Shelf Registration
Statement..................... In the event that (i) the Company and the
Guarantors determine that the Exchange Offer is
not available or may not be consummated as soon
as practicable after the Expiration Date
because it would violate applicable law or the
applicable interpretations of the staff of the
Commission, (ii) the Exchange Offer is not for
any
- --------------------------------------------------------------------------------
7
<PAGE> 15
- --------------------------------------------------------------------------------
other reason consummated by November 18, 1998
or (iii) the Exchange Offer has been completed
and in the opinion of counsel for the Initial
Purchasers a registration statement must be
filed and a prospectus must be delivered by the
Initial Purchasers in connection with any
offering or sale of Original Notes, each of the
Company and the Guarantors have agreed to use
its best efforts to register the Original Notes
on a shelf registration statement (the "Shelf
Registration Statement") and use its best
efforts to cause it to be declared effective by
the Commission. In the event that the Company
is required to file a Shelf Registration
Statement, the Company has agreed to maintain
the effectiveness of such Shelf Registration
Statement for, under certain circumstances, a
maximum of two years, to cover resales of the
Original Notes.
Special Procedures for
Beneficial Holders............ Any beneficial holder whose Original Notes are
registered in the name of such holder's broker,
dealer, commercial bank, trust company or other
nominee and who wishes to tender in the
Exchange Offer should contact such registered
holder promptly and instruct such registered
holder to tender on behalf of such beneficial
holder. If such beneficial holder wishes to
tender on his, her or its own behalf, such
beneficial holder must, prior to completing and
executing the Letter of Transmittal and
delivering Original Notes owned by him, her or
it, either make appropriate arrangements to
register ownership of the Original Notes in
such holder's name or obtain a properly
completed bond power from the registered
holder. The transfer of record ownership may
take considerable time. See "The Exchange
Offer -- Procedures for Tendering."
Guaranteed Delivery
Procedures.................... Holders of Original Notes who wish to tender
their Original Notes and whose Original Notes
are not immediately available or who cannot
deliver their Original Notes and a properly
completed Letter of Transmittal or any other
documents required by the Letter of Transmittal
to the Exchange Agent prior to the Expiration
Date may tender their Original Notes according
to the guaranteed delivery procedures set forth
in "The Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights............. Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date.
Acceptance of Original Notes
and Delivery of Exchange
Notes....................... Subject to certain conditions, the Company will
accept for exchange any and all Original Notes
which are properly tendered in the Exchange
Offer and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange
Offer will be delivered promptly after the
Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
United States Federal Tax
Consequences................ The exchange of Original Notes for Exchange
Notes pursuant to the Exchange Offer should not
be a taxable event for United States federal
income tax purposes. A holder's holding period
for
- --------------------------------------------------------------------------------
8
<PAGE> 16
Exchange Notes should include the holding
period for Original Notes. See "United States
Federal Tax Consequences."
Exchange Agent................ State Street Bank and Trust Company is serving
as exchange agent (the "Exchange Agent") in
connection with the Exchange Offer. The mailing
address of the Exchange Agent is State Street
Bank and Trust Company, P.O. Box 778, 4th
Floor, Boston, Massachusetts 02102-0078,
Attention: Corporate Trust Division/Kellie
Mullen. Deliveries by hand or overnight courier
should be addressed to State Street Bank and
Trust Company, Two International Place, 4th
Floor, Boston, Massachusetts 02110, Attention:
Corporate Trust Division/Kellie Mullen.
Eligible Institutions (as defined) may fax the
Exchange Agent at (617) 664-5290. For
information with respect to the Exchange Offer,
call the Exchange Agent at (617) 664-5587 or
fax it at (617) 664-5290.
Use of Proceeds............... The Company will not receive any proceeds from
the Exchange Offer. See "Use of Proceeds." The
Company has agreed to bear the expenses of the
Exchange Offer pursuant to the Registration
Rights Agreement. No underwriter is being used
in connection with the Exchange Offer.
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The Exchange Offer constitutes an offer to exchange up to $200 million
aggregate principal amount of the Exchange Notes for up to an equal aggregate
principal amount of Original Notes. The Exchange Notes will be obligations of
the Company evidencing the same indebtedness as the Original Notes, and will be
entitled to the benefit of the same Indenture. The form and terms of the
Exchange Notes are substantially the same as the form and terms of the Original
Notes except that (i) the Exchange Notes have been registered under the
Securities Act, (ii) the Exchange Notes do not include provisions providing for
an increase in the interest rate in certain circumstances relating to the timing
of the consummation of the Exchange Offer and (iii) the holders of Exchange
Notes will not be entitled to certain rights under the Registration Rights
Agreement, which rights will terminate upon the consummation of the Exchange
Offer. See "Description of the Notes."
COMPARISON WITH ORIGINAL NOTES
Freely Transferable........... The Exchange Notes will be freely transferable
under the Securities Act by holders who are not
Restricted Holders. Restricted Holders are
restricted from transferring the Exchange Notes
without compliance with the registration and
prospectus delivery requirements of the
Securities Act. The Exchange Notes will be
identical in all material respects (including
interest rate, maturity date and restrictive
covenants) to the Original Notes, with the
exception that the Exchange Notes will be
registered under the Securities Act. See "The
Exchange Offer -- Terms of the Exchange Offer."
Registration Rights........... The holders of Original Notes currently are
entitled to certain registration rights
pursuant to the Registration Rights Agreement,
dated May 13, 1998 (the "Registration Rights
Agreement"), by and among the Company, the
Guarantors and Morgan Stanley & Co.
Incorporated, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, BancAmerica Robertson
Stephens and BT Alex. Brown
9
<PAGE> 17
Incorporated, as the initial purchasers of the
Original Notes (collectively, the "Initial
Purchasers"), including the right to cause the
Company to register the Original Notes under
the Securities Act if the Exchange Offer is not
consummated prior to the date which is six
months after the date the Original Notes were
issued, and in certain other limited
circumstances. See "The Exchange
Offer -- Conditions." However, pursuant to the
Registration Rights Agreement, such
registration rights will expire upon
consummation of the Exchange Offer.
Accordingly, holders of Original Notes who do
not exchange their Original Notes for Exchange
Notes in the Exchange Offer will not be able to
reoffer, resell or otherwise dispose of their
Original Notes unless such Original Notes are
subsequently registered under the Securities
Act or unless an exemption from the
registration requirements of the Securities Act
is available.
TERMS OF THE EXCHANGE NOTES
Securities Offered............ $200 million aggregate principal amount of
9 1/2% Senior Subordinated Notes due 2008.
Maturity...................... June 15, 2008.
Interest...................... Interest on the Exchange Notes will be payable
semi-annually in cash, on June 15 and December
15 of each year, commencing on December 15,
1998.
Ranking; Subordination........ The Exchange Notes will be unsecured, senior
subordinated indebtedness of the Company, will
be subordinated to all Senior Indebtedness of
the Company, will rank pari passu to any senior
subordinated indebtedness of the Company and
will be senior to any indebtedness of the
Company subordinated to the Exchange Notes. The
Exchange Notes will also be effectively
subordinated to all Senior Indebtedness of the
Guarantors. In addition, the Exchange Notes
will be effectively subordinated to all
existing and future liabilities of the
Company's subsidiaries that are not Guarantors
(the "Non-Guarantor Subsidiaries"). At August
1, 1998, the Company and the Guarantors had
approximately $172 million of Senior
Indebtedness outstanding and, pro forma to give
effect to the most recent amendment to the
Credit Facility, the Company would have had
approximately $55 million available to it under
the Credit Facility (as defined), which, if
borrowed, would constitute Senior Indebtedness.
See "Description of the Notes -- Ranking;
Subordination."
Optional Redemption........... The Exchange Notes will be redeemable at the
option of the Company, in whole or in part, at
any time on or after June 15, 2003, at the
redemption prices set forth herein, plus
accrued interest, if any, to the date of
redemption. See "Description of the Notes." In
addition, at any time on or prior to June 15,
2001, up to 35% of the aggregate principal
amount of Exchange Notes will be redeemable, at
the option of the Company, with the proceeds of
one or more Equity Offerings at 109.50% of the
original principal amount thereof, plus accrued
interest; provided, however, that at least 65%
of the original aggregate principal amount of
the Notes
10
<PAGE> 18
remains outstanding following each such
redemption. In addition, the Exchange Notes
will be redeemable at the option of the
Company, in whole or in part, at any time prior
to June 15, 2003, at a redemption price equal
to the principal amount thereof, together with
accrued and unpaid interest to the date of
redemption, plus the Applicable Premium. See
"Description of the Notes -- Optional
Redemption."
Note Guarantees............... The Company's obligations under the Exchange
Notes will be fully and unconditionally
guaranteed, on a senior subordinated basis,
jointly and severally, by each of the
Guarantors. The Guarantors currently consist of
Hadco Santa Clara, Hadco Phoenix, CCIR of CA
and CCIR of TX. The Note Guarantees will be
subordinated to all Senior Indebtedness of the
Guarantors on the same basis as the Exchange
Notes are subordinated to the Senior
Indebtedness of the Company, pari passu with
any senior subordinated indebtedness of the
Guarantors and senior to any indebtedness of
the Guarantors subordinated to the Note
Guarantees. At August 1, 1998, the Guarantors
had Senior Indebtedness of approximately $9
million (in addition to approximately $160
million representing guarantees of the
Company's borrowings under the Credit
Facility). In addition, the Note Guarantees
will be effectively subordinated to all
existing and future liabilities of the
Non-Guarantor Subsidiaries. At August 1, 1998,
the Non-Guarantor Subsidiaries had
approximately $6 million of outstanding
liabilities. See "Description of the
Notes -- Note Guarantees" and Note 16 of the
Notes to the Company's Consolidated Financial
Statements.
Change of Control............. Upon a Change of Control (as defined herein),
the Company will be required to make an offer
to purchase the Exchange Notes at a purchase
price equal to 101% of their principal amount
on the date of purchase, plus accrued interest,
if any. There can be no assurance that the
Company will have sufficient funds available at
the time of any Change of Control or will be
permitted under the Credit Facility or other
Senior Indebtedness to make any such repurchase
of the Exchange Notes. See "Description of the
Notes -- Repurchase of Notes upon a Change of
Control."
Certain Covenants............. The Indenture contains certain covenants that,
among other things, will limit the ability of
the Company and its Restricted Subsidiaries (as
defined) or, in certain cases, the Guarantors,
to incur indebtedness, pay dividends, prepay
subordinated indebtedness, repurchase capital
stock, make investments, create liens, engage
in transactions with stockholders and
affiliates, sell assets and engage in mergers
and consolidations. However, these limitations
will be subject to a number of important
qualifications and exceptions. See "Description
of the Notes -- Covenants."
RISK FACTORS
Holders of Original Notes exchanging such Original Notes for Exchange Notes
in the Exchange Offer and prospective investors in the Notes should carefully
consider all the information set forth in this Prospectus and, in particular,
should evaluate the specific factors under "Risk Factors."
11
<PAGE> 19
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT RATIOS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
---------------------------------------------------------------------- ---------------------
OCTOBER 25, OCTOBER 25,
1997 1997 JULY 26, AUGUST 1
OCTOBER 28, OCTOBER 26, OCTOBER 25, PRO PRO FORMA AS 1997 1998
1995 1996 1997(1) FORMA(2) ADJUSTED(2)(3) ACTUAL(1) ACTUAL(4)
----------- ----------- ----------- ----------- -------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales............ $265,168 $350,685 $648,705 $830,468 $830,468 $475,472 $609,255
Gross profit......... 67,440 90,455 141,392 170,772 170,772 104,094 94,378
Write-off of acquired
in-process research
and development..... -- -- 78,000 -- -- 78,000 63,050
Restructuring and
other non-recurring
charges............. -- -- -- -- -- -- 7,052
-------- -------- -------- -------- -------- --------- ---------
Income (loss) from
operations.......... 33,906 51,532 (1,194) 86,055 86,055 (21,049) (36,359)
Interest expense..... (537) (338) (10,923) (27,544) (33,802) (8,679) (14,329)
Net income (loss).... 21,374 32,014 (36,493) 36,210 32,502 (47,843) (54,493)
STATEMENT OF CASH
FLOWS DATA:
Cash flows from
operating
activities.......... $ 36,349 $ 55,629 $ 50,667 $ 26,915 $ 33,549
Cash flows from
investing
activities.......... (31,104) (47,910) (268,913) (248,070) (259,843)
Cash flows from
financing
activities.......... (3,002) 3,760 197,631 213,235 219,056
Capital
expenditures........ 28,865 54,998 69,851 $ 97,341 $ 97,341 47,810 68,873
OTHER DATA:
Depreciation and
amortization........ $ 15,194 $ 18,843 $ 41,850 $ 57,972 $ 58,597 $ 29,939 $ 49,274
Adjusted
EBITDA(6)........... 49,100 70,375 118,656 144,027 144,027 86,890 83,017
Ratio of earnings to
fixed charges(7).... 66.2x 156.3x 0.2x 3.2x 2.6x -- --
Ratio of Adjusted
EBITDA to interest
expense............. 91.4x 208.2x 10.9x 5.2x 4.3x 10.0x 5.8x
Ratio of total debt
to Adjusted EBITDA.. 0.09x 0.05x 0.97x 2.23x 2.27x 1.51x 4.47x
<CAPTION>
NINE MONTHS ENDED
---------------------------
AUGUST 1, AUGUST 1,
1998 1998
PRO PRO FORMA AS
FORMA(5) ADJUSTED(3)(5)
--------- ---------------
<S> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales............ $661,206 $661,206
Gross profit......... 94,864 94,864
Write-off of acquired
in-process research
and development..... -- --
Restructuring and
other non-recurring
charges............. 7,052 7,052
-------- --------
Income (loss) from
operations.......... 20,181 20,181
Interest expense..... (20,118) (23,504)
Net income (loss).... 1,139 (901)
STATEMENT OF CASH
FLOWS DATA:
Cash flows from
operating
activities..........
Cash flows from
investing
activities..........
Cash flows from
financing
activities..........
Capital
expenditures........ $ 79,670 $ 79,670
OTHER DATA:
Depreciation and
amortization........ $ 54,879 $ 54,879
Adjusted
EBITDA(6)........... 82,112 82,112
Ratio of earnings to
fixed charges(7).... 1.1x 1.0x
Ratio of Adjusted
EBITDA to interest
expense............. 4.1x 3.5x
Ratio of total debt
to Adjusted EBITDA.. 4.52x 4.52x
</TABLE>
<TABLE>
<CAPTION>
AUGUST 1, 1998
--------------
ACTUAL
--------------
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments........... $ 4,933
Working capital............................................. 91,213
Total assets................................................ 733,802
Long-term debt, net of current portion...................... 366,898
Stockholders' investment.................................... 190,581
</TABLE>
- ---------------
(1) Net loss for the year ended October 25, 1997 and the nine months ended July
26, 1997 includes a non-recurring write-off relating to the Zycon
Acquisition for acquired in-process research and development. Before
deducting the non-recurring write-off, income from operations was $76.8
million and $57.0 million, net income was $41.5 million and $30.2 million,
and the ratio of earnings to fixed charges was 7.3 and 6.8, for the year
ended October 25, 1997 and the nine months ended July 26, 1997,
respectively.
(2) Gives effect to the Acquisitions assuming they had occurred on October 27,
1996. See Pro Forma Condensed Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
12
<PAGE> 20
(3) Adjusted to reflect (i) the sale by the Company of the Notes offered hereby,
less discounts and commissions and estimated offering expenses payable by
the Company, and (ii) the application of the net proceeds therefrom. See
"Use of Proceeds."
(4) Net loss for the nine months ended August 1, 1998 includes a non-recurring
write-off of $63 million relating to the Continental Acquisition for
acquired in-process research and development, as well as a $4.2 million
charge, net of tax, for restructuring and other non-recurring expenses
related to the consolidation of the Company's East Coast Tech Center
operations and limited restructuring of the Company's workforce. The limited
restructuring reduced the Company's workforce by approximately 3%. Before
deducting such non-recurring write-off, charge for restructuring and other
non-recurring expenses, income from operations was $33.7 million, net income
was $12.8 million and the ratio of earnings to fixed charges was 2.5 for the
nine months ended August 1, 1998.
(5) Gives effect to the Continental Acquisition assuming it had occurred on
October 27, 1996. See Pro Forma Condensed Consolidated Financial Statements.
(6) Adjusted EBITDA represents net income before interest, income taxes,
depreciation and amortization, write-off of acquired in-process research and
development and restructuring and other non-recurring charges. Adjusted
EBITDA pro forma as adjusted does not include the amortization of deferred
financing costs related to the Notes of $0.6 million annually. Adjusted
EBITDA is presented because management understands it is used by certain
investors as one measure of an issuer's historical ability to service its
debt. Adjusted EBITDA is not a measurement of financial performance under
generally accepted accounting principles. Adjusted EBITDA is not, and should
not be considered, an alternative to the Company's net income, operating
income or cash flow. Adjusted EBITDA is not, and should not be considered,
more meaningful than the Company's net income, operating income or cash flow
as an indicator of the Company's operating performance or liquidity. The
Adjusted EBITDA measures presented herein may not be comparable to other
similarly titled measures of other companies.
(7) Computed by dividing the sum of net income (loss), before deducting
provisions for income taxes and fixed charges, by total fixed charges. Fixed
charges consist of interest on debt and amortization of debt issuance costs
and a portion of capital lease costs that is intended to represent interest
expense.
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RISK FACTORS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including, without limitation, those set forth in the following risk factors and
elsewhere in this Prospectus. In addition to the other information included or
incorporated by reference in this Prospectus, the following risk factors should
be considered carefully in evaluating the Company and its business before
exchanging Original Notes for Exchange Notes offered hereby or making an
investment decision to purchase Notes.
LEVERAGE; INCREASED DEBT SERVICE
The Acquisitions significantly increased the Company's debt service
obligations. At August 1, 1998, the Company and its subsidiaries had
approximately $543 million of total liabilities, and approximately $190 million
of stockholders' investment, and the Company and the Guarantors had
approximately $172 million of outstanding Senior Indebtedness and, pro forma to
give effect to the most recent amendment to the Credit Facility, the Company
would have had approximately $55 million available to it under the Credit
Facility, which, if borrowed, would constitute Senior Indebtedness. At August 1,
1998, the Guarantors had Senior Indebtedness of approximately $9 million (in
addition to approximately $160 million representing guarantees of the Company's
borrowings under the Credit Facility). The Company and its subsidiaries
(including the Guarantors) will be permitted to incur substantial additional
indebtedness, including Senior Indebtedness, in the future. See "Capitalization"
and "Description of the Notes -- Covenants -- Limitation on Indebtedness." The
Company's annual debt service was approximately $15 million for fiscal 1997 and
is currently approximately $31.5 million.
Although the Company's cash flow from operations has been sufficient to
meet its debt service obligations in the past, there can be no assurance that
the Company's operating results will continue to be sufficient for the Company
to meet such obligations. The Company's ability to comply with the terms of the
Indenture and the Credit Facility, to make cash payments with respect to the
Notes and under the Credit Facility and to satisfy its other debt obligations or
to refinance any of such obligations will depend on the future performance of
the Company, which in turn is subject to prevailing economic conditions and
financial and other factors beyond its control. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Description of the Notes" and "Description of Certain
Indebtedness."
The degree to which the Company and the Guarantors are leveraged could have
important consequences to holders of the Notes, including, but not limited to:
(i) adversely affecting their ability to satisfy their obligations with respect
to the Notes, (ii) increasing their vulnerability to general adverse economic
and industry conditions, (iii) limiting their ability to obtain additional
financing to fund potential acquisitions, future working capital, capital
expenditures and other general corporate requirements, (iv) requiring the
dedication of a substantial portion of their cash flow from operations to the
payment of principal of, and interest on, its indebtedness, thereby reducing the
availability of such cash flow to fund working capital, capital expenditures or
other general corporate purposes, (v) limiting their flexibility in planning
for, or reacting to, changes in its business and the industry, (vi) they may be
substantially more leveraged than certain of their competitors, which may place
them at a relative competitive disadvantage, (vii) a significant portion of
their borrowings are and may continue to be at variable rates of interest, which
exposes them to the risk of increased interest rates, and (viii) the
indebtedness outstanding under the Credit Facility will mature prior to the
maturity of the Notes. In addition, the Credit Facility contains financial and
other restrictive covenants that will limit the ability of the Company to, among
other things, borrow additional funds. See "Description of Certain
Indebtedness." See "Summary -- Recent Development."
SUBORDINATION OF NOTES AND NOTE GUARANTEES
The Notes are unsecured, senior subordinated indebtedness of the Company,
are subordinated to all Senior Indebtedness of the Company, rank pari passu to
any senior subordinated indebtedness of the
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Company and are senior to any indebtedness of the Company subordinated to the
Notes. The Company's obligations under the Notes are fully and unconditionally
guaranteed, on a senior subordinated basis, jointly and severally, by the
Guarantors. The Note Guarantees are subordinated to all Senior Indebtedness of
the Guarantors on the same basis as the Notes are subordinated to the Senior
Indebtedness of the Company, pari passu with any senior subordinated
indebtedness of the Guarantors and senior to any indebtedness of the Guarantors
subordinated to the Note Guarantees. The Notes are also effectively subordinated
to all Senior Indebtedness of the Guarantors. In addition, the Notes and the
Note Guarantees are effectively subordinated to all existing and future
liabilities of the Non-Guarantor Subsidiaries. Upon any distribution to
creditors of the Company or the Guarantors in a liquidation or dissolution or in
a bankruptcy, reorganization, insolvency, receivership or similar proceeding,
the holders of Senior Indebtedness will be entitled to be paid in full in cash
before any payment may be made with respect to the Notes or the Note Guarantees.
In addition, the subordination provisions of the Indenture will provide that
payments with respect to the Notes and the Note Guarantees will be blocked in
the event of a payment default on Senior Indebtedness and may be blocked for up
to 179 days each year in the event of certain non-payment defaults on Senior
Indebtedness. In the event of a bankruptcy, liquidation or reorganization, the
payment of the principal of, or premium, if any, and interest on the Notes and
the Note Guarantees is subordinated to the extent provided in the Indenture to
the prior payment in full of all Senior Indebtedness. There can be no assurance
that the Company or the Guarantors will have sufficient funds remaining after
payments to holders of Senior Indebtedness to make payments to the holders of
the Notes or the Note Guarantees. By reason of the subordination, in the event
of the liquidation or dissolution of the Company or the Guarantors, holders of
Senior Indebtedness may receive more, ratably, and holders of the Notes may
receive less, ratably, than the other creditors of the Company. In any of the
foregoing events, there can be no assurance that there would be sufficient
assets to pay amounts due on the Notes or the Note Guarantees. See "Description
of the Notes -- Ranking; Subordination."
At August 1, 1998, the Company and the Guarantors had approximately $172
million of Senior Indebtedness outstanding and, pro forma to give effect to the
most recent amendment to the Credit Facility, the Company would have had
approximately $55 million available to it under the Credit Facility, which, if
borrowed, would constitute Senior Indebtedness. At August 1, 1998, the
Guarantors had Senior Indebtedness of approximately $9 million (in addition to
approximately $160 million representing guarantees of the Company's borrowings
under the Credit Facility). The Company's annual debt service was approximately
$15 million for fiscal 1997 and is currently approximately $31.5 million. See
"Description of Certain Indebtedness."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The total amount available for borrowing under the Credit Facility is the
lesser of $300 million and the Borrowing Base (as defined in the Credit
Facility). The Credit Facility contains a number of covenants that, among other
things, restrict the ability of the Company and its subsidiaries to incur
additional indebtedness, change its capitalization, pay dividends or other
distributions, prepay subordinated indebtedness, dispose of certain assets,
enter into sale and leaseback transactions, create liens, enter into guarantees,
make certain investments, acquisitions or mergers, and that otherwise restrict
corporate activities. In addition, under the Credit Facility the Company is
required to maintain specified financial covenants, including (i) a 4.0:1
(decreasing to 3.5:1 in the third quarter of fiscal 1999 and 3.25:1 in the
fourth quarter of fiscal 1999 and thereafter) or lower ratio of Consolidated
Funded Debt to EBITDA for any rolling four quarters, (ii) commencing with the
second quarter of fiscal 1999, a 1.5:1 (increasing over the next three
consecutive quarters to 2.5:1) or greater ratio of EBIT to Consolidated Total
Interest Expense for any quarter, (iii) a Consolidated Net Worth of greater than
the sum of $60 million plus a cumulative 50% of positive Consolidated Net Income
(starting with the fiscal quarter ended January 25, 1997) plus 100% of the net
proceeds from the sale since January 8, 1997 of equity securities (including
warrants and rights) minus Non-Cash Acquisition Expenses, (iv) a 1.10:1 or
greater ratio of EBITDA for any rolling four quarters (less certain Capital
Expenditures and cash taxes paid for such period) to principal payments on
indebtedness (plus Consolidated Total Interest Expense) (although such covenant
has been suspended by the Company's banks until the third quarter of 1999), and
(v) for the third quarter of fiscal 1998, a 1.7:1 or greater ratio of EBITDA to
Consolidated Total Interest Expense (increasing to 2.7:1 for the fourth quarter
of fiscal 1998 and 3.15:1 for
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<PAGE> 23
the first quarter of fiscal 1999, after which time such covenant is no longer
effective). The Company and its subsidiaries are also required to limit Capital
Expenditures for each quarter commencing with the third quarter of fiscal 1998
through and including the fourth quarter of fiscal 1999, to $22,500,000 in the
aggregate plus, in the case of the fourth quarter of fiscal 1998 and the first,
second, third and fourth quarters of fiscal 1999, 50% of any amount permitted to
be, but not actually, expended during the immediately preceding quarter. The
ability of the Company to comply with such provisions may be affected by events
beyond its control. The breach of any of these covenants could result in a
default under the Credit Facility. In the event of any such default, depending
on the actions taken by the lenders under the Credit Facility, the Company could
be prohibited from making any payments on the Notes. In addition, in the event
of any such default such lenders could elect to declare all amounts borrowed
under the Credit Facility, together with accrued interest, to be due and payable
and exercise their rights with respect to their first priority mortgage and
security interests in substantially all of the assets of the Company and each of
the subsidiaries which are guarantors of the Company's obligations. The Company
was in default as of the four quarter period ended August 1, 1998 with respect
to two of its financial covenants (EBIT to Consolidated Total Interest Expense
and EBITDA (less certain Capital Expenditures and cash taxes paid) to principal
payments on indebtedness plus Consolidated Total Interest Expense), which
defaults have been waived by the Company's banks. No sinking fund is provided
for the Notes. In addition, the loan instruments governing the indebtedness of
certain of the Company's subsidiaries contain certain restrictive covenants
which limit the payment of dividends and distributions to, and the transfer of
assets to, the Company and require such subsidiaries to satisfy specific
financial covenants. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources,"
"Description of the Notes" and "Description of Certain Indebtedness." See
"Summary -- Recent Development."
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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business -- Industry Overview and Trends"
and "-- Markets and Customers."
RISKS RELATING TO FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company's quarterly operating results have varied and may continue to
fluctuate significantly from period to period, including on a quarterly basis.
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, product and price competition,
product mix, number of working days in a particular quarter, manufacturing
process yields, the timing of expenditures in anticipation of future sales, raw
material and component availability, the length of sales cycles, 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 will
maintain or improve gross margins. The timing and volume of orders placed by the
Company's customers
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vary due to customer attempts to manage inventory, changes in customers'
manufacturing strategies and variation in demand for customer products. 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. Fluctuations
in quarterly operating results could have a material adverse effect on the price
of the Notes and on the cash flow of the Company necessary to pay amounts due on
the Notes. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
RISKS RELATING TO VARIABILITY OF ORDERS FROM CUSTOMERS; BACKLOG
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 variations in demand for customer
products due to, among other things, technological changes, 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
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. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Released Backlog."
RISKS RELATING TO THE ACQUISITIONS AND THE COMPANY'S ACQUISITION STRATEGY
On March 20, 1998, the Company acquired all of the outstanding capital
stock of Continental for approximately $190 million (including acquisition
costs). On January 10, 1997, the Company acquired all of the outstanding capital
stock of Zycon for approximately $212 million (including acquisition costs). 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 the acquired businesses profitably in the future. The gross profit
margins for Continental and Zycon for their respective fiscal years ended July
31, 1997 and December 31, 1996 were 18.2% and 15.7%, respectively. The gross
profit margins for Hadco (not including Continental or Zycon) for its fiscal
years ended October 26, 1996 and October 25, 1997 were 25.8% and 21.8%,
respectively. As a result of the Acquisitions, the Company expects its gross
profit margin will be lower in future fiscal quarters than has historically been
the case. Operating expenses associated with the acquired businesses may have a
material adverse effect on the Company's business, financial condition and
results of operations in the future. In addition, shortly after the Continental
Acquisition, one senior member of Continental's management left the Company.
There can be no assurance that the Company will be able to retain key personnel
at Continental. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business -- General."
The Company may from time to time pursue the acquisition of other
companies, assets, products or technologies. The Company may incur additional
indebtedness and additional charges against earnings in connection with future
acquisitions, and such incurrences could have material adverse consequences to
holders of Notes. See "-- Leverage." 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,
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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. See "Business -- Strategy."
RISKS OF INABILITY TO MANAGE SIGNIFICANT GROWTH
In fiscal 1997 and 1998, the Company has significantly expanded its
operations, including geographically, which has placed, and will continue to
place, significant demands on the Company's management, operational, technical
and financial resources. The Acquisitions have intensified these demands. 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 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. See "-- Acquisitions."
COMPETITION
The electronic interconnect industry is highly fragmented and characterized
by intense competition. The Company believes 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 as a result of economic turmoil, currency devaluations or financial
market instability that 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. See "Business -- Industry
Overview and Trends" and "-- Competition."
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RISKS RELATING TO OPERATION OF MALAYSIAN FACILITY AND ASIAN ECONOMIC TURMOIL
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 believes that the Malaysian facility could incur
operating losses in the future as a result of various factors, including,
without limitation, operating inefficiencies and price competition for the
products which the Company intends to produce at the 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, reduced sales by the Company's
customers in Asia with a concomitant reduction in such customers' orders for the
Company's products, 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's business, financial condition or
results of operations.
RAPID TECHNOLOGICAL CHANGE, CONTINUING PROCESS DEVELOPMENT AND POTENTIAL 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 in the future could 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, and there can be no assurance that failures or
disruptions will not occur in the future. In addition, the Company has a large
manufacturing facility in Santa Clara, California, an area of the United States
that is subject to significant natural disasters, including earthquakes, fires
and flooding. The loss of revenue and earnings to the Company from such a
technological change, process development or process disruption, as well as any
disruption of the Company's operations resulting from a natural disaster such as
an earthquake, fire, flood or drought in California or other locations where the
Company has facilities, could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Industry Overview and Trends," "-- Strategy" and "-- Products and
Services."
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. 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,
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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. See "Business -- Markets and Customers" and
"-- Variability of Orders."
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. Although the Company has historically needed to increase its
manufacturing capacity, the Company believes that excess capacity may exist in
the printed circuit and electronic assembly industries. In addition, growth
rates in the electronics industry as a whole have fluctuated historically. These
factors could have a material adverse effect on future orders and pricing. 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 failure to obtain sufficient
capacity when needed or to successfully integrate and manage additional
manufacturing facilities could adversely impact the Company's relationships with
its customers and materially adversely affect the Company's business, financial
condition and results of operations. See "-- Rapid Technological Change,
Continuing Process Development and Potential Process Disruption" and
"Business -- Manufacturing and Facilities."
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.
See "Business -- Environmental Matters," "-- Legal Proceedings and Claims" and
Note 9 of Notes to the Company's Consolidated Financial Statements.
RISKS OF INABILITY TO OBTAIN RAW MATERIALS AND COMPONENTS
Although the Company does not have guaranteed sources of raw materials and
components utilized in its operations, it does have supply agreements with a
limited number of key suppliers, and it routinely purchases raw materials and
components from several material suppliers. Although alternative material
suppliers are currently available, a significant unplanned event at a 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
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the past. The Company believes that the potential exists for shortages of
materials in the printed circuit and electronic assembly industries, which could
have a material adverse effect on the Company's manufacturing operations and
future unit costs. 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. See "Business -- Supplier Relationships."
DEPENDENCE ON KEY PERSONNEL
The Company's future success depends to a large extent upon the continued
services of key managerial and technical employees. All of the executive
officers of the Company are bound by employment or non-compete agreements. The
non-compete restrictions expire one year or, under certain circumstances, up to
two years, after the termination of the executive officer's employment with the
Company. Certain other key employees of the Company also have employment or
non-compete agreements. 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. See "Management."
INVESTMENTS IN INTELLECTUAL PROPERTY; INTELLECTUAL PROPERTY PROTECTION
The Company's success depends in part on its proprietary techniques and
manufacturing expertise, particularly in the area of complex multilayer printed
circuits. As of August 1, 1998, the Company had capitalized approximately $194
million of acquired intangible assets, consisting primarily of developed
technology, customer relationships and goodwill. These intangible assets are
being amortized over lives ranging from 12 to 30 years. The Company assesses the
realizability and valuation of intangible assets based on the estimated cash
flows to be generated by such assets. Based on its most recent analyses, the
Company believes that no material impairment of intangible assets exists as of
August 1, 1998. Impairment occurs when actual cash flows generated do not equal
or exceed estimated cash flows. However, the estimated cash flows are based on
assumptions the Company believes to be reasonable, but which are inherently
uncertain and unpredictable. The Company's assumptions may be incomplete or
inaccurate, and no assurance can be given that unanticipated events and
circumstances will not occur. Accordingly, actual cash flows may vary from the
projected cash flows. In such event, the Company may be required to write-off or
write-down the value of assets which are impaired. Any such write-off or
write-down may result in a material adverse effect on the financial condition
and results of operations of the Company. See Notes 2 and 5 of Notes to
Consolidated Financial Statements.
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
21
<PAGE> 29
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. See "Business -- Legal
Proceedings and Claims" for a description of a notice received by the Company
from the Lemelson Medical, Education & Research Foundation Limited Partnership
alleging infringement of certain patents.
POSSIBLE INABILITY TO FUND A CHANGE OF CONTROL OFFER
Upon a Change of Control, the Company will be required to offer to
repurchase all outstanding Notes at 101% of the principal amount thereof plus
accrued and unpaid interest to the date of repurchase. However, there can be no
assurance that sufficient funds will be available at the time of any Change of
Control to make any required repurchases of Notes tendered or that restrictions
in the Credit Facility or other Senior Indebtedness will allow the Company to
make such required repurchases. The Company's repurchase of Notes upon a Change
of Control, absent a waiver, would constitute a default under the terms of the
Company's Credit Facility. Any future credit agreements or other agreements
relating to other indebtedness (including other Senior Indebtedness) to which
the Company becomes a party may contain similar restrictions and provisions. In
the event a Change of Control occurs at a time when the Company is prohibited
from repurchasing Notes, the Company could seek the consent of its lenders to
the repurchase of the Notes or could attempt to refinance the borrowings that
contain such prohibition. If the Company does not obtain such a consent or repay
such borrowings, the Company would remain prohibited from repurchasing Notes.
Any failure by the Company to repurchase the Notes when required following a
Change of Control would result in an Event of Default under the Indenture
whether or not such repurchase is permitted by the subordination provisions of
the Indenture. Any such default may, in turn, cause a default under Senior
Indebtedness of the Company. Moreover, the occurrence of a Change of Control may
cause an event of default under Senior Indebtedness of the Company. As a result,
in each case, any repurchase of the Notes would, absent a waiver, be prohibited
under the subordination provisions of the Indenture until the Senior
Indebtedness is paid in full. Notwithstanding these provisions, the Company
could enter into certain transactions, including certain recapitalizations that
would not constitute a Change of Control but would increase the amount of debt
outstanding at such time. See "Description of the Notes -- Covenants" and
"-- Repurchase of Notes upon a Change of Control" and "Description of Certain
Indebtedness."
FRAUDULENT CONVEYANCE
In the event of the bankruptcy or insolvency of any of the Guarantors, the
incurrence of the Note Guarantee of such Guarantor would be subject to review
under relevant federal and state fraudulent conveyance and similar statutes in a
bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of
such Guarantor. Under those statutes, if a court were to find that the Note
Guarantee of such Guarantor was incurred with the intent of hindering, delaying
or defrauding creditors or that such Guarantor received less than a reasonably
equivalent value or fair consideration therefor and, at the time of its
incurrence, such Guarantor either (i) was insolvent or rendered insolvent by
reason thereof, (ii) was engaged in a business or transaction for which its
remaining unencumbered assets constituted unreasonably small capital or (iii)
intended to or believed that it would incur debts beyond its ability to pay as
they matured or became due, the court could void those obligations.
The measure of insolvency for purposes of a fraudulent conveyance claim
will vary depending upon the law of the jurisdiction being applied. Generally,
however, a company will be considered insolvent at a particular time if the sum
of its debts at that time is greater than the then fair value of its assets or
if the fair salable value of its assets at the time is less than the amount that
would be required to pay its probable liability on its existing debts as they
become absolute and mature. The Company believes that, after giving effect to
the Original Notes Offering and the incurrence of the Note Guarantees by the
Guarantors, each of the Guarantors will be (i) neither insolvent nor rendered
insolvent by the incurrence of its Note Guarantee, (ii) in possession of
sufficient capital to run its business effectively and (iii) incurring debts
within its ability to pay as the same mature or become due. No assurance can be
given, however, that the assumptions and methodologies used by the Company in
reaching its conclusions about the solvency of the Company and any Guarantor
would be adopted by a court or that a court would concur with those conclusions.
22
<PAGE> 30
In the event the Note Guarantee of a Guarantor was voided as a fraudulent
conveyance, holders of the Notes would effectively be subordinated to all
indebtedness and other liabilities of such Guarantor.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Original Notes have not been registered under the Securities Act or any
state securities laws and therefore may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions. Original Notes that
are not tendered in exchange for Exchange Notes or are tendered but not accepted
will, following the consummation of the Exchange Offer, continue to bear a
legend reflecting such restrictions on transfer and will remain restricted
securities. Accordingly, such Original Notes may be resold only (i) to the
Company, (ii) pursuant to Rule 144A or Rule 144 under the Securities Act or
pursuant to another exemption under the Securities Act, (iii) outside the United
States to a foreign person pursuant to the requirements of Rule 904 under the
Securities Act, or (iv) pursuant to an effective registration statement under
the Securities Act. In addition, upon consummation of the Exchange Offer,
holders of Original Notes that remain outstanding will not be entitled to any
rights to have such Original Notes registered under the Securities Act. See "The
Exchange Offer." To the extent that Original Notes are not tendered and accepted
in the Exchange Offer, a holder's ability to sell such Original Notes could be
adversely affected.
ABSENCE OF PUBLIC MARKET
The Exchange Notes will be new securities for which there is currently no
public market. The Company does not intend to list the Exchange Notes on any
national securities exchange or to seek the admission thereof to trading in the
National Association of Securities Dealers Automated Quotation System. The
Company does, however, intend to file an application to list the Notes on the
Luxembourg Stock Exchange, although no assurance can be given that such
application will be accepted. The Initial Purchasers have advised the Company
that they currently intend to make a market in the Exchange Notes, but they are
not obligated to do so and, if commenced, may discontinue such market making at
any time. Further, if any of the Notes are traded, they may trade at a discount
from the initial offering price, depending on prevailing interest rates, the
market for similar securities, and other factors including general economic
conditions and the financial condition, performance, and prospects of the
Company. Accordingly, there can be no assurance as to the development of any
market, or the liquidity of any market that may develop, for the Exchange Notes.
In addition, to the extent that Original Notes are tendered and accepted in
the Exchange Offer, the aggregate principal amount of Original Notes outstanding
will decrease, with a resulting decrease in the liquidity of the market
therefor.
PROCEDURES FOR TENDER OF ORIGINAL NOTES
The Exchange Notes will be issued in exchange for Original Notes only after
timely receipt by the Exchange Agent of such Original Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documents. Therefore, holders of Original Notes desiring to tender such Original
Notes in exchange for Exchange Notes should allow sufficient time to ensure
timely delivery. Neither the Exchange Agent nor the Company is under any duty to
give notification of defects or irregularities with respect to tenders of
Original Notes for exchange. Any holder of Original Notes who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes will be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives Exchange Notes for its own account
in exchange for Original Notes, where such Original Notes were acquired by such
broker-dealer as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. See "Plan of Distribution."
23
<PAGE> 31
FORWARD-LOOKING STATEMENTS
A number of the matters and subject areas discussed in this Prospectus that
are not historical or current facts deal with potential future circumstances and
developments. The discussion of such matters and subject areas is qualified by
the inherent risks and uncertainties surrounding future expectations generally,
and also may differ materially from the Company's actual future experience
involving any one or more of such matters and subject areas. The Company has
attempted to identify, in context, certain of the factors that it currently
believes may cause actual future experience and results to differ from the
Company's current expectations regarding the relevant matter or subject area.
The operations and results of the Company's business also may be subject to the
effect of other risks and uncertainties in addition to the relevant qualifying
factors identified elsewhere in the foregoing "Risk Factors" section, including,
but not limited to, other risks and uncertainties described from time to time in
the Company's reports filed with the Commission.
24
<PAGE> 32
USE OF PROCEEDS
EXCHANGE OFFER
The Exchange Offer is intended to satisfy certain obligations of the
Company and the Guarantors under the Registration Rights Agreement. The Company
will not receive any proceeds from the issuance of the Exchange Notes offered
hereby. The Company has agreed to bear the expenses of the Exchange Offer
pursuant to the terms of the Registration Rights Agreement. No underwriter is
being used in connection with the Exchange Offer.
ORIGINAL NOTES OFFERING
The net proceeds to the Company of the Original Notes Offering of
approximately $193 million were used to repay borrowings under the Credit
Facility incurred in connection with the Acquisitions.
ACQUISITIONS
The table below shows the sources and uses of funds in connection with the
Acquisitions.
<TABLE>
<CAPTION>
ACQUISITION SOURCES USES
- ----------- ------- ----
<S> <C> <C>
Zycon Acquisition approximately $212 million Acquisition of all
from borrowings under the outstanding
the Credit Facility capital stock of Zycon
Continental Acquisition approximately $188 million Acquisition of all
from borrowings under the outstanding
the Credit Facility capital stock of
approximately $32 million Continental, payment
from borrowings under of certain costs related
the Credit Facility to the Continental
approximately $2 million Acquisition and the
of cash generated pay-off of outstanding
from Continental's indebtedness of
operations Continental
</TABLE>
25
<PAGE> 33
CAPITALIZATION
The following table sets forth the consolidated cash, cash equivalents and
short-term investments and capitalization of the Company as of August 1, 1998.
<TABLE>
<CAPTION>
AUGUST 1, 1998
--------------
(IN THOUSANDS)
<S> <C>
Cash, cash equivalents and short-term investments........... $ 4,933
========
Short-term debt and current portion of long-term debt....... $ 4,484
========
Long-term debt:
Credit Facility........................................... $160,000
Notes offered hereby (net of original issue discount of
$663,000).............................................. 199,337
Other long-term debt, net of current portion.............. 7,561
--------
Total long-term debt................................... 366,898
--------
Stockholders' investment:
Common stock, $0.05 par value, 50,000,000 shares
authorized; 13,321,323 shares issued(1)................ 667
Paid-in capital........................................... 173,338
Deferred compensation..................................... (59)
Retained earnings......................................... 16,635
--------
Total stockholders' investment......................... 190,581
--------
Total capitalization.............................. $557,479
========
</TABLE>
- ---------------
(1) Excludes options outstanding as of August 1, 1998 to acquire 1,357,035
shares of Common Stock at a weighted average exercise price of $31.03 per
share and an additional 947,724 shares of Common Stock reserved for issuance
under the Company's stock option plans, employee stock purchase plan and
outside directors' compensation plan. See Note 10 of Notes to the Company's
Consolidated Financial Statements.
26
<PAGE> 34
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated financial
information is based upon historical consolidated financial statements and gives
effect to the Acquisitions and the Original Notes Offering and the use of the
net proceeds therefrom.
In January 1997, the Company acquired all of the outstanding capital stock
of Zycon for approximately $212 million (including acquisition costs). The Zycon
Acquisition was accounted for as a purchase. A significant portion of the
purchase price was identified in an appraisal as intangible assets, including
approximately $78 million of acquired in-process research and development. See
Note 2 of Notes to the Company's Consolidated Financial Statements.
In March 1998, the Company acquired all of the outstanding capital stock of
Continental for approximately $190 million (including acquisition costs). The
Continental Acquisition has been accounted for as a purchase. A significant
portion of the purchase price was identified in an appraisal as intangible
assets, including approximately $63 million of acquired in-process research and
development. See Note 2 of Notes to the Company's Consolidated Financial
Statements.
The Pro Forma Condensed Consolidated Statement of Operations for the year
ended October 25, 1997 assumes the Acquisitions had occurred on October 27, 1996
and includes the actual results of operations of Hadco for its fiscal year ended
October 25, 1997 (including Zycon's actual results of operations from January
10, 1997 through October 25, 1997), Zycon's actual results of operations for the
three months ended December 31, 1996 and Continental's actual results of
operations for its fiscal year ended July 31, 1997. The Pro Forma Condensed
Consolidated Statement of Operations for the nine months ended August 1, 1998
assumes the Continental Acquisition had occurred on October 25, 1997 and
reflects Hadco's actual results of operations for the nine months ended August
1, 1998 and Continental's actual results of operations beginning November 2,
1997, and ending on the date of acquisition, March 19, 1998.
The Pro Forma Condensed Consolidated Statements of Operations do not
include the effect of any non-recurring write-offs directly attributable to the
Acquisitions and are not necessarily indicative of the actual results that would
have been achieved had the Acquisitions occurred at the beginning of the
respective periods, nor do they purport to indicate the results of future
operations of the Company. The accompanying Pro Forma Condensed Consolidated
Financial Statements should be read in conjunction with the Company's and
Continental's historical financial statements and related notes thereto
appearing elsewhere in this Prospectus.
27
<PAGE> 35
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS(1)
FOR THE YEAR ENDED OCTOBER 25, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
---------------------------------------------------- COMBINED
HADCO ZYCON CONTINENTAL ZYCON CONTINENTAL AS ADJUSTED
YEAR ENDED QUARTER ENDED YEAR ENDED PRO FORMA PRO FORMA FOR THE
OCTOBER 25, 1997 DECEMBER 31, 1996 JULY 31, 1997 ADJUSTMENTS ADJUSTMENTS ACQUISITIONS
---------------- ----------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $648,705 $61,011 $120,752 $ -- $ -- $830,468
Cost of sales........... 507,313 52,650 98,698 -- 1,035(2) 659,696
-------- ------- -------- -------- -------- --------
Gross profit............ 141,392 8,361 22,054 -- (1,035) 170,772
Operating expenses...... 64,586 4,753 8,487 1,188(3) 5,703(4) 84,717
Write-off of acquired
in-process research
and development....... 78,000 -- -- (78,000)(5) -- --
-------- ------- -------- -------- -------- --------
Income (loss) from
operations............ (1,194) 3,608 13,567 76,812 (6,738) 86,055
Other expense........... -- (6,019) (365) 6,019(6) -- (365)
Interest and other
income................ 3,296 167 -- (496)(7) -- 2,967
Interest expense........ (10,923) (1,033) (354) (2,703)(8) (12,531)(9) (27,544)
-------- ------- -------- -------- -------- --------
Income (loss) before
provision for income
taxes................. (8,821) (3,277) 12,848 79,632 (19,269) 61,113
Provision for income
taxes................. 27,672 1,247 4,826 (1,953)(12) (6,889)(12) 24,903
-------- ------- -------- -------- -------- --------
Net income (loss)....... $(36,493) $(4,524) $ 8,022 $ 81,585 $(12,380) $ 36,210
======== ======= ======== ======== ======== ========
Net income (loss) per
share
Basic................. $ (3.18) $ 3.16
Diluted............... $ (3.18) $ 3.03
Weighted average shares
outstanding
Basic................. 11,458 11,458
Diluted............... 11,458 11,942
<CAPTION>
PRO FORMA
COMBINED
PRO FORMA AS ADJUSTED
EFFECTS OF FOR THE
THE ORIGINAL ORIGINAL NOTES
NOTES OFFERING OFFERING
-------------- --------------
<S> <C> <C>
Net sales............... $ -- $830,468
Cost of sales........... -- 659,696
------- --------
Gross profit............ -- 170,772
Operating expenses...... -- 84,717
Write-off of acquired
in-process research
and development....... -- --
------- --------
Income (loss) from
operations............ -- 86,055
Other expense........... -- (365)
Interest and other
income................ -- 2,967
Interest expense........ (6,258)(10)(11) (33,802)
------- --------
Income (loss) before
provision for income
taxes................. (6,258) 54,855
Provision for income
taxes................. (2,550)(12) 22,353
------- --------
Net income (loss)....... $(3,708) $ 32,502
======= ========
Net income (loss) per
share
Basic................. $ 2.84
Diluted............... $ 2.72
Weighted average shares
outstanding
Basic................. 11,458
Diluted............... 11,942
</TABLE>
- ---------------
(1) For purposes of the Pro Forma Condensed Consolidated Statement of
Operations, acquired in-process research and development of approximately
$63 million related to the Continental Acquisition was assumed to have been
written off prior to the period presented herein, so that the Pro Forma
Condensed Consolidated Statement of Operations includes only recurring
costs.
(2) Gives effect to conforming Continental's accounting policy of capitalizing
certain inventory and spare parts costs to Hadco's policy of expensing
these inventory and spare parts costs.
(3) Gives effect to amortization for three months of acquired intangible assets
totaling $106.4 million recognized in the Zycon Acquisition over lives
ranging from 12 to 30 years.
(4) Gives effect to the amortization of intangible assets totaling $97.3
million recognized in the Continental Acquisition over lives ranging from
12 to 20 years.
(5) Gives effect to the elimination of a non-recurring write-off of acquired
in-process research and development related to the Zycon Acquisition.
(6) Gives effect to the elimination of non-recurring acquisition costs incurred
by Zycon in connection with the Zycon Acquisition.
(7) Gives effect to a reduction in interest income as a result of utilizing
cash for the Zycon Acquisition.
(8) Gives effect to interest expense related to $212 million of net additional
bank debt to finance the Zycon Acquisition at an assumed 7.5% weighted
average interest rate. For each .125% change in the interest rate, the
interest expense adjustment will change by $.265 million.
(9) Gives effect to the interest expense related to the $187.9 million of bank
debt to finance the Continental Acquisition at an assumed 7% weighted
average interest rate. For each .125% change in the interest rate, the
interest expense adjustment will change by $.235 million.
(10) Reflects additional interest expense related to the issuance of the
Original Notes over the interest expense related to indebtedness, with an
assumed interest rate of 6.7%, which indebtedness is being refinanced with
the net proceeds from the sale of the Original Notes. For each .125% change
in the interest rate under the Credit Facility, the interest expense
adjustment will change by $.250 million.
(11) Gives effect to $0.6 million of amortization expense on deferred financing
costs totaling $6.3 million related to the Original Notes Offering.
(12) Gives effect to an adjustment in the tax provision as a result of the
combination and pro forma adjustments.
28
<PAGE> 36
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS(1)
FOR THE NINE MONTHS ENDED AUGUST 1, 1998
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
HADCO CONTINENTAL PRO FORMA
NINE MONTHS PERIOD FROM EFFECTS OF PRO FORMA
ENDED NOV. 2, 1997 TO PRO FORMA PRO FORMA THE ORIGINAL COMBINED
AUGUST 1, 1998 MARCH 19, 1998 ADJUSTMENTS COMBINED NOTES OFFERING AS ADJUSTED
-------------- --------------- ----------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales................... $609,255 $ 51,951 $ -- $661,206 $ -- $661,206
Cost of sales............... 514,877 52,601 (1,136)(2) 566,342 -- 566,342
-------- -------- -------- -------- ------- --------
Gross profit................ 94,378 (650) 1,136 94,864 -- 94,864
Operating expenses.......... 60,635 7,715 (719)(3,8) 67,631 -- 67,631
Restructuring and other non-
recurring charges......... 7,052 -- -- 7,052 -- 7,052
Write-off of acquired
in-process research and
development............... 63,050 4,300 (67,350)(1) -- -- --
-------- -------- -------- -------- ------- --------
Income (loss) from
operations................ (36,359) (12,665) 69,205 20,181 -- 20,181
Interest and other income
(expense)................. 1,841 (906) 890(8) 1,825 -- 1,825
Interest expense............ (14,329) (969) (4,820)(4) (20,118) (3,386)(5)(6) (23,504)
-------- -------- -------- -------- ------- --------
Income (loss) before
provision for income
taxes..................... (48,847) (14,540) 65,275 1,888 (3,386) (1,498)
Provision for (benefit from)
income taxes.............. 5,646 (4,133) (764)(7) 749 (1,346)(7) (597)
-------- -------- -------- -------- ------- --------
Net Income (loss)........... $(54,493) $(10,407) $ 66,039 $ 1,139 $(2,040) $ (901)
======== ======== ======== ======== ======= ========
Net Income (loss) per share
Basic..................... $ (4.14) $ 0.09 $ 0.07
Diluted................... $ (4.14) $ 0.08 $ 0.07
Weighted Average Shares
Outstanding
Basic..................... 13,172 13,172 13,172
Diluted................... 13,172 13,528 13,172
</TABLE>
- ---------------
(1) Gives effect to the elimination of the write-off of acquired in-process
research and development related to the Continental Acquisition, so that the
Pro Forma Condensed Consolidated Statement of Operations includes only
recurring costs.
(2) Gives effect to conforming Continental's accounting policy of capitalizing
certain inventory and spare parts costs to Hadco's policy of expensing these
inventory and spare parts costs.
(3) Gives effect to the amortization of acquired intangible assets totaling
$101.9 million recognized in the Continental Acquisition over lives ranging
from 12 to 20 years. The amount of the amortization included in this
adjustment was $2.142 million of additional expense.
(4) Gives effect to interest expense related to $187.9 million in bank debt to
finance the Continental Acquisition at an assumed 7% interest rate.
(5) Reflects additional interest expense related to the issuance of the Original
Notes over the interest expense related to indebtedness, with an assumed
interest rate of 6.7%, which indebtedness is being refinanced with the net
proceeds from the sale of the Original Notes.
(6) Gives effect to $0.3 million of amortization expense on deferred financing
costs totaling $6.3 million related to the Original Notes Offering.
(7) Gives effect to an adjustment in the tax provision as a result of the
combination and pro forma adjustments.
(8) Gives effect to the elimination of certain acquisition related costs
including investment banking fees and legal fees incurred by Continental
during the period ended March 19, 1998. The amount of acquisition fees and
expenses included in Operating expenses was $2.859 million, and the amount
included in Interest and other income (expense) was $.891 million.
29
<PAGE> 37
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table presents selected historical consolidated financial
data for the Company. The selected historical consolidated financial data for
each of the years ended October 30, 1993, October 29, 1994, October 28, 1995,
October 26, 1996 and October 25, 1997 have been derived from the Company's
Consolidated Financial Statements, which have been audited by Arthur Andersen
LLP, independent public accountants. The selected consolidated financial data
for the nine months ended July 26, 1997 and August 1, 1998 have been derived
from the Company's unaudited consolidated financial statements, which reflect in
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results for such periods.
The results for the nine months ended August 1, 1998 are not necessarily
indicative of results for any future period. The selected historical
consolidated financial data should be read in conjunction with each of the
Company's and Continental's consolidated financial statements and the Pro Forma
Condensed Consolidated Financial Statements, and the notes thereto, appearing
elsewhere in this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED, ENDED,
---------------------------------------------------- -------------------
OCT. 30, OCT. 29, OCT. 28, OCT. 26, OCT. 25, JULY 26, AUGUST 1
1993 1994 1995 1996 1997(1) 1997(1) 1998(2)
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................. $189,494 $221,570 $265,168 $350,685 $648,705 475,472 609,255
Cost of sales.............................. 152,849 176,052 197,728 260,230 507,313 371,378 514,877
-------- -------- -------- -------- -------- -------- --------
Gross profit............................... 36,645 45,518 67,440 90,455 141,392 104,094 94,378
Operating expenses......................... 22,935 29,036 33,534 38,923 64,586 47,143 60,635
Write-off of acquired in-process research
and development.......................... -- -- -- -- 78,000 78,000 63,050
Restructuring and other non-recurring
charges.................................. -- 7,052
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations.............. 13,710 16,482 33,906 51,532 (1,194) (21,049) (36,359)
Interest and other income.................. 633 843 1,669 1,287 3,296 1,989 1,841
Interest expense........................... (1,402) (891) (537) (338) (10,923) (8,679) (14,329)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before provision for income
taxes.................................... 12,941 16,434 35,038 52,481 (8,821) (27,739) (48,847)
Provision for income taxes................. 4,714 6,491 13,664 20,467 27,672 20,104 5,646
-------- -------- -------- -------- -------- -------- --------
Net income (loss).......................... $ 8,227 $ 9,943 $ 21,374 $ 32,014 $(36,493) $(47,843) $(54,493)
======== ======== ======== ======== ======== ======== ========
Net income (loss) per share Basic(3)....... $ 0.85 $ 1.01 $ 2.18 $ 3.12 $ (3.18) $ (4.36) $ (4.14)
Diluted(3)............................... $ 0.76 $ 0.93 $ 1.98 $ 2.89 $ (3.18) $ (4.36) $ (4.14)
STATEMENT OF CASH FLOWS DATA:
Cash flows from operating activities....... $ 18,341 $ 29,284 $ 36,349 $ 55,629 $ 50,667 $ 26,915 $ 33,549
Cash flows from investing activities....... (11,237) (23,428) (31,104) (47,910) (268,913) (248,070) (259,843)
Cash flows from financing activities....... (5,923) (5,833) (3,002) 3,760 197,631 213,235 219,056
Capital expenditures....................... 14,270 19,510 28,865 54,998 69,851 47,810 68,873
OTHER DATA:
Depreciation and amortization.............. $ 13,730 $ 14,611 $ 15,194 $ 18,843 $ 41,850 29,939 49,274
Adjusted EBITDA(4)......................... 27,440 31,093 49,100 70,375 118,656 86,890 83,017
Ratio of earnings to fixed charges(5)...... 10.2x 19.4x 66.2x 156.3x 0.2x -- --
Ratio of Adjusted EBITDA to interest
expense.................................. 19.6x 34.9x 91.4x 208.2x 10.9x 10.0x 5.8x(6)
Ratio of total debt to Adjusted
EBITDA................................... 0.34x 0.15x 0.09x 0.05x 0.97x 1.51x 4.47x
BALANCE SHEET DATA (AT END OF PERIOD):
Cash, cash equivalents and short-term
investments.............................. $ 27,445 $ 31,563 $ 36,474 $ 42,187 $ 13,733 $ 24,866 $ 4,933
Working capital............................ 30,593 31,829 41,043 43,561 53,693 64,379 91,213
Total assets...................... 110,782 126,326 162,991 219,501 502,517 500,492 733,802
Long-term debt, net of current portion..... 9,382 4,526 2,387 1,515 109,716 125,995 366,898
Stockholders' investment................... 68,431 77,440 100,774 138,841 239,912 228,418 190,581
</TABLE>
30
<PAGE> 38
- ---------------
(1) Net loss for the nine months ended July 26, 1997 and the fiscal year ended
October 25, 1997 includes a non-recurring write-off relating to the Zycon
Acquisition for acquired in-process research and development. Before
deducting the non-recurring write-off, income from operations was $76.8
million and $57.0 million, net income was $41.5 million and $30.2 million,
the ratio of earnings to fixed charges was 7.3 and 6.8 and diluted net
income per share was $3.48 and $2.62 for the year ended October 25, 1997 and
the nine months ended July 26, 1997, respectively.
(2) Net loss for the nine months ended August 1, 1998 includes a non-recurring
write-off of $63 million relating to the Continental Acquisition for
acquired in-process research and development, as well as a $4.2 million
charge, net of tax, for restructuring and other non-recurring expenses
related to the consolidation of the Company's East Coast Tech Center
operations and limited restructuring of the Company's workforce. The limited
restructuring reduced the Company's workforce by approximately 3%. Before
deducting such non-recurring write-off, charge for restructuring and other
non-recurring expenses, income from operations was $33.7 million, net income
was $12.8 million, the ratio of earnings to fixed charges was 2.5 and
diluted net income per share was $.94 for the nine months ended August 1,
1998.
(3) See Note 1 of Notes to the Company's Consolidated Financial Statements for
an explanation of the basis used to calculate net income (loss) per share.
(4) Adjusted EBITDA represents net income before interest, income taxes,
depreciation and amortization, write-off of acquired in-process research and
development and restructuring and other non-recurring charges. Adjusted
EBITDA is presented because management understands it is used by certain
investors as one measure of an issuer's historical ability to service its
debt. Adjusted EBITDA is not a measurement of financial performance under
generally accepted accounting principles. Adjusted EBITDA is not, and should
not be considered, an alternative to the Company's net income, operating
income or cash flow. Adjusted EBITDA is not, and should not be considered,
more meaningful than the Company's net income, operating income or cash flow
as an indicator of the Company's operating performance or liquidity. The
Adjusted EBITDA measures presented herein may not be comparable to other
similarly titled measures of other companies.
(5) Computed by dividing the sum of net income (loss), before deducting
provisions for income taxes and fixed charges, by total fixed charges. Fixed
charges consist of interest on debt and amortization of debt issuance costs
and a portion of capital lease costs that is intended to represent interest
expense.
(6) After giving pro forma effect to the Continental Acquisition and the
Original Notes Offering as if they had occurred at the beginning of the
period presented, the ratio of Adjusted EBITDA to interest expense would
have been 3.5 based on an effective interest rate of 9.551% on the Notes.
31
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements which involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including, without limitation, those set forth under "Risk
Factors" and elsewhere in this Prospectus.
On March 20, 1998, the Company acquired all of the outstanding capital
stock of Continental, and on January 10, 1997, the Company acquired all of the
outstanding capital stock of Zycon. Unless otherwise indicated or the context
otherwise requires, the results of Zycon's operations and other financial
information relating to Zycon since January 10, 1997 are included in the
Company's historical consolidated financial information presented herein.
Similarly, unless otherwise indicated or the context otherwise requires, the
results of Continental's operations and other financial information relating to
Continental since March 20, 1998 are included in the Company's historical
consolidated financial information presented herein.
OVERVIEW
Hadco is the largest manufacturer of advanced electronic interconnect
products in North America. The Company offers a wide array of sophisticated
manufacturing, engineering and systems integration services to meet its
customers' electronic interconnect needs. The Company's principal products are
multilayer rigid printed circuits and backplane assemblies. Hadco's customers
are a diverse group of 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.
The Company believes that its financial performance is driven primarily by
the same factors that affect the electronic interconnect market. The market for
higher count multilayer rigid printed circuits (eight layers and above)
constituted approximately 40% of the total United States rigid printed circuit
market in 1997, and has increased at an annual compounded growth rate of 16%
over the last two years, compared to approximately 11% for the overall printed
circuit market. This growth has been driven, in part, by (i) new end-user
markets in telecommunications and computers, (ii) an increasing number of
products containing electronic components, (iii) shorter product life-cycles for
electronic products, and (iv) advances in the speed and complexity of electronic
components and products. In addition, the continuing trend by OEMs of
outsourcing manufacturing of both printed circuits and backplanes has
contributed to the Company's growth over time. Lastly, the ongoing consolidation
of the fragmented printed circuit market has created opportunities for larger
companies, such as Hadco, that have broad product offerings, volume
manufacturing capabilities and advanced process technologies.
Since fiscal 1993, net sales of the Company have grown from $189.5 million
to $648.7 million for fiscal 1997. Pro forma for the Acquisitions, net sales for
fiscal 1997 would have been $830.5 million.
ZYCON ACQUISITION
On January 10, 1997, the Company acquired all of the outstanding capital
stock of Zycon. The acquisition added facilities for volume production of
multilayer printed circuits and backplane assemblies in the Silicon Valley area,
a quick-turn prototype and design facility in Massachusetts, and a newly
constructed facility for volume production of printed circuits in Malaysia.
Hadco acquired Zycon for approximately $212 million (including acquisition
costs) and recorded the acquisition under the purchase method of accounting. As
a result, a purchase price premium of approximately $187 million was recorded on
the transaction. A significant portion of the purchase price was identified in
an independent appraisal, using proven valuation procedures and techniques, as
intangible assets. These intangible assets included approximately $78 million
for acquired in-process research and development ("in-process R&D") for projects
that did not have future alternative uses. This allocation represents the
estimated fair market value based on risk-adjusted cash flows related to the
in-process R&D projects. At the date of acquisition, the development of these
projects had not yet reached technological feasibility, and the in-process R&D
had no alternative future uses. Accordingly,
32
<PAGE> 40
these costs were written off in the fiscal quarter ended January 25, 1997. The
remaining premium of approximately $106 million was allocated to identifiable
intangibles and goodwill, and will be written off over 12 to 30 years, with an
average amortization period of 17 years. The acquisition was financed with
borrowings under a $250 million senior revolving credit facility, plus existing
cash, cash equivalents and short-term investments.
On the date of its acquisition, Zycon's in-process R&D value was comprised
of six primary R&D programs that were expected to reach completion between late
1997 and 2001. These projects included the introduction of new technology aimed
at enabling the miniaturization and specialization of Zycon's PCB product line.
At the acquisition date, Zycon's R&D programs ranged in completion from 15% to
75%, and total continuing R&D commitments to complete the projects were expected
to be approximately $9.8 million. Expenditures to complete the Zycon projects
were expected to be approximately $4.0 million, $2.7 million, $2.2 million,
$0.55 million, and $0.3 million in 1997 through 2001, respectively. These
estimates are subject to change, given the uncertainties of the development
process, and no assurance can be given that deviations from these estimates will
not occur. Additionally, these projects will require maintenance expenditures
when and if they have reached a state of technological and commercial
feasibility.
Management believes the Company is positioned to complete each of the major
R&D programs. However, there is risk associated with the completion of the
projects, and there is no assurance that any project will meet with either
technological or commercial success. The substantial delay or outright failure
of the Zycon R&D could adversely impact the Company's financial condition. See
Note 2 of Notes to the Company's Consolidated Financial Statements.
CONTINENTAL ACQUISITION
On March 20, 1998, the Company acquired all of the outstanding capital
stock of Continental, further broadening Hadco's product and service
capabilities. The acquisition added facilities for volume production of
multilayer printed circuits in Phoenix, Arizona, a quick-turn prototype facility
in Austin, Texas, and a flexible printed circuit manufacturing facility and
printed circuit engineering and design operation in California. Hadco acquired
Continental for approximately $190 million (including acquisition costs) and
recorded the acquisition under the purchase method of accounting. As a result, a
purchase price premium of $165.0 million was recorded on the transaction. A
significant portion of the purchase price was identified in an independent
appraisal, using proven valuation procedures and techniques, as intangible
assets. These intangible assets included approximately $63 million for
in-process R&D for projects that did not have future alternative uses. This
allocation represents the estimated fair market value based on risk-adjusted
cash flows related to the in-process R&D projects. At the date of acquisition,
the development of these projects had not yet reached technological feasibility,
and the in-process R&D had no alternative future uses. Accordingly, these costs
were written off in the fiscal quarter ended May 2, 1998. The remaining premium
of $101.9 million was allocated to identifiable intangibles and goodwill, and
will be written off over 12 to 20 years, with an average amortization period of
16 years. The acquisition was financed from borrowings under the Credit
Facility.
Continental's in-process R&D value is comprised of eight primary R&D
programs that are currently expected to reach completion during periods ranging
from 1999 through 2003. These projects are expected to include the introduction
of new technology that could, if successful, enable the miniaturization and
specialization of Continental's PCB product line. At the acquisition date,
Continental's R&D programs ranged in completion from approximately 10% to 80%,
and total continuing R&D commitments to complete the projects are currently
expected to be approximately $12 million. Remaining development efforts for the
Continental programs are complex and aimed at the development and advancement of
advanced chemical, electrical, and engineering solutions.
Certain projects within the Continental R&D programs may, if successful,
begin to bear results in late 1998 and 1999. Expenditures to complete the
Continental projects are currently expected to be approximately $4.0 million,
$2.5 million, and $2.5 million in 1999 through 2001, respectively. These
estimates are subject to change, given the uncertainties of the development
process, and no assurance can be given that deviations
33
<PAGE> 41
from these estimates will not occur. Additionally, these projects will require
maintenance expenditures after they have reached a state of technological and
commercial feasibility.
Management believes the Company is positioned to complete each of the major
R&D programs. However, there is risk associated with the completion of the
projects, and there is no assurance that any project will meet with either
technological or commercial success. The substantial delay or outright failure
of the Continental R&D could adversely impact the Company's financial condition.
See Note 2 of Notes to the Company's Consolidated Financial Statements.
VALUE ASSIGNED TO PURCHASED IN-PROCESS R&D
The value assigned to purchase in-process R&D was determined by estimating
the costs to develop Continental's and Zycon's purchased in-process R&D into
commercially viable products, estimating the resulting net cash flows from the
projects and discounting the net cash flows to their present value. The revenue
estimates used to value the in-process R&D were based on estimates of relevant
market sizes and growth factors, expected trends in technology and the nature
and expected timing of new product introductions by the Company and its
competitors.
The rates utilized to discount the net cash flows to their present value
are based on cost of Continental's and Zycon's weighted average cost of capital.
Given the nature of the risks associated with the estimated growth,
profitability and developmental projects, a discount rate of 14.0% was deemed
appropriate for Continental's business enterprise, while a discount rate of
15.0% was deemed appropriate for Zycon's business enterprise. These discount
rates are intended to be commensurate with each company's corporate maturity and
the uncertainties in the economic estimates described above.
The estimates used by the Company in valuing in-process R&D were based upon
assumptions the Company believes to be reasonable but which are inherently
uncertain and unpredictable. The Company's assumptions may be incomplete or
inaccurate, and no assurance can be given that unanticipated events and
circumstances will not occur. Accordingly, actual results may vary from the
projected results. Any such variance may result in a material adverse effect on
the financial condition and results of operations of the Company.
The gross profit margins for Continental and Zycon for their respective
fiscal years ended July 31, 1997 and December 31, 1996 were 18.2% and 15.7%,
respectively. The gross profit margins for Hadco (not including Continental or
Zycon) for its fiscal years ended October 26, 1996 and October 25, 1997 were
25.8% and 21.8%, respectively. As a result of the Acquisitions, the Company
expects its gross profit margin will be lower in future fiscal quarters than has
historically been the case for Hadco.
34
<PAGE> 42
RESULTS OF OPERATIONS
The following table sets forth certain Consolidated Statements of
Operations data and other data as a percentage of net sales. The table and the
discussion below should be read in conjunction with the Company's and
Continental's consolidated financial statements and the Pro Forma Condensed
Consolidated Financial Statements, and notes thereto, that appear elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED, NINE MONTHS ENDED,
------------------------------------------------ -------------------------------------
OCT. 25, AUGUST 1,
OCT. 28, OCT. 26, OCT. 25, 1997 JULY 26, AUGUST 1, 1998
1995 1996 1997(1) PRO FORMA(2) 1997(1) 1998(3) PRO FORMA(4)
-------- -------- -------- ------------ -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS:
Net sales.................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................ 74.6 74.2 78.2 79.4 78.1 84.5 85.6
----- ----- ----- ----- ----- ----- -----
Gross profit................. 25.4 25.8 21.8 20.6 21.9 15.5 14.4
Operating expenses........... 12.6 11.1 9.2 8.7 9.1 8.8 8.9
Write-off of acquired
in-process research and
development................ -- -- 12.0 -- 16.4 10.3 --
Restructuring and other non-
recurring charges.......... 1.2 1.1
Amortization of acquired
intangible assets.......... -- -- 0.8 1.5 0.8 1.1 1.3
----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations................. 12.8 14.7 (0.2) 10.4 (4.4) (5.9) 3.1
Interest expense............. (0.2) (0.1) (1.7) (3.3) (1.8) (2.4) (3.1)
Interest income (expense) and
other, net................. 0.6 0.4 0.5 0.3 0.4 0.3 0.3
----- ----- ----- ----- ----- ----- -----
Income (loss) before
provision for income
taxes...................... 13.2 15.0 (1.4) 7.4 (5.8) (8.0) 0.3
Provision for income taxes... 5.1 5.9 4.2 3.0 4.2 0.9 0.1
----- ----- ----- ----- ----- ----- -----
Net income (loss)............ 8.1% 9.1% (5.6)% 4.4% (10.0)% (8.9)% 0.2%
===== ===== ===== ===== ===== ===== =====
OTHER DATA:
Capital expenditures......... 10.9% 15.7% 10.6% 10.7% 10.1% 11.3% 12.0%
</TABLE>
- ---------------
(1) Net loss for the nine months ended July 26, 1997 and the fiscal year ended
October 25, 1997 includes a non-recurring write-off relating to the Zycon
Acquisition for acquired in-process research and development. As a
percentage of net sales for the fiscal year ended October 25, 1997, income
from operations was 11.8%, income before provision for income taxes was
10.7%, and net income was 6.4%, all before deducting the non-recurring
write-off.
(2) Gives effect to the Acquisitions assuming they had occurred on October 27,
1996. See Pro Forma Condensed Consolidated Financial Statements and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(3) Net loss for the nine months ended August 1, 1998 includes a non-recurring
write-off relating to the Continental Acquisition for acquired in-process
research and development and for restructuring and other non-recurring
expenses related to the consolidation of the Company's East Coast Tech
Center operations. As a percentage of net sales for the nine months ended
August 1, 1998, income from operations was 5.5%, income before provision for
income taxes was 3.5%, and net income was 2.1%, all before deducting such
non-recurring write-off, charge for restructuring and other non-recurring
expenses.
(4) Gives effect to the Continental Acquisition assuming it had occurred on
October 27, 1996. See Pro Forma Condensed Consolidated Financial Statements.
35
<PAGE> 43
NINE MONTHS ENDED AUGUST 1, 1998 AND JULY 26, 1997
Net sales for the nine months ended August 1, 1998 increased 28.1% over net
sales for the nine months ended July 26, 1997. The increase resulted from
several factors including the acquisitions of Zycon and Continental, which added
$91.5 million to printed circuit net sales in the nine month period, and an
increase in backplane assembly net sales (excluding these Acquisitions).
Backplane assembly net sales increased due to higher production volume and
shipments. Printed circuit net sales increased due to higher production volume
and shipments and a shift towards products with more layers and greater
densities. In addition, average pricing for printed circuits decreased 9.5% for
the first nine months of fiscal 1998 over the same period in fiscal 1997. Net
sales from backplane assemblies increased to 15.2% of net sales from 10.7% in
the first nine months of fiscal 1997. The net sales increase for the nine months
ended August 1, 1998 over the same period in 1997 was partially offset by the
effects of a general slowdown in the broad electronics industry, the economic
situation in Asia, inventory backlogs in the end user market, customer inventory
adjustments and customer product transitions.
The gross profit margin decreased to 15.5% in the nine months ended August
1, 1998 from 21.9% in the comparable period in fiscal 1997. Lower pricing on
printed circuits caused margins to decrease by 6.9%. Lower capacity utilization
from printed circuit operations caused margins to decrease by 2.1%. The effect
of lower overall gross margins from Hadco Santa Clara (formerly Zycon) and Hadco
Phoenix (formerly Continental) operations caused margins to decrease by 1.8%.
All of these decreases were partially offset by lower unit costs achieved
through improved production efficiencies resulting in an overall decrease in the
gross margin of 6.4%. For additional information regarding the factors affecting
gross margin please see "Risk Factors -- Risks Relating to Fluctuations in
Quarterly Operating Results," "Risk Factors -- Dependence on Electronics
Industry" and "Risk Factors -- Risks Relating to the Acquisitions and the
Company's Acquisition Strategy." Operating expenses, as a percent of net sales,
increased to 10.0% in the nine months ended August 1, 1998 from 9.9% in the
comparable period in fiscal 1997, due to goodwill and purchased intangibles
amortization.
Income from operations for the nine months ended August 1, 1998 and July
26, 1997, was reduced by $63 million and $78 million, respectively, due to
non-recurring write-offs of acquired in-process research and development
recorded in connection with the Continental and Zycon acquisitions. The
remaining goodwill and purchased intangibles will be amortized over 12 to 30
years, with an average amortization period of 17 years, which will reduce income
from operations by approximately $3.1 million per fiscal quarter. In addition,
income from operations for the nine months ended August 1, 1998 was reduced by
approximately $7.1 million for restructuring and other non-recurring charges
related to the consolidation of the Company's East Coast Tech Center operations
and limited restructuring of the Company's workforce. The limited restructuring
reduced the Company's workforce by approximately 3%. Included in the
restructuring and other charges is $2.5 million, which represents the write-down
of existing assets to their net realizable value, in accordance with SFAS 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." See Note 6 of the Consolidated Condensed Financial Statements.
Additionally, the general economic slowdown in the broad electronics industry,
the economic situation in Asia, inventory backlogs in the end user market,
customer inventory adjustments and customer product transitions negatively
affected net income for the nine months ended August 1, 1998.
Interest income decreased in the nine months ended August 1, 1998 as
compared to the nine months ended July 26, 1997, due to lower daily average cash
balances available for investing. Interest expense increased in the nine months
ended August 1, 1998 as compared to the nine months ended July 26, 1997, due to
an increase in outstanding debt as a result of the Acquisitions.
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 known 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. See "Business -- Environmental
36
<PAGE> 44
Matters," "-- Legal Proceedings and Claims" and Note 9 of Notes to the Company's
Consolidated Financial Statements.
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. However, the Company has historically
needed to increase its own manufacturing capacity to maintain and expand its
market position, although 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 the printed circuit and
electronic assembly 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 will be sufficient to protect the Company against any shortages of
materials. See "Risk Factors -- Manufacturing Capacity" and "-- Risks of
Inability to Obtain Raw Materials and Components."
In accordance with generally accepted accounting principles, the Company
provides for income taxes on an interim basis, using its effective annual income
tax rate. Although the Company has recorded a loss before income taxes in 1998
and 1997, the Company anticipates an effective annual income tax rate for fiscal
1998 of 39.75%, 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.
FISCAL YEARS ENDED OCTOBER 25, 1997 AND OCTOBER 26, 1996
Net sales during 1997 increased approximately 85% over 1996. The increase
resulted from several factors including the Zycon Acquisition, which added
$216.1 million in printed circuit net sales after January 10, 1997, and an
increase in both backplane assembly and non-Zycon printed circuit net sales.
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 towards products with more layers and greater
densities. In addition, average pricing for printed circuits decreased 0.6% for
1997 over 1996. Net sales from backplane assemblies decreased to 16.2% of total
net sales excluding Zycon, from 16.9% in 1996.
The gross profit margin decreased to 21.8% in 1997 from 25.8% for 1996. The
decrease resulted from increased investment in new capacity and technologies at
certain facilities 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 10.0% in 1997
from 11.1% in 1996, due to increased net sales and the fixed nature of the
Company's operating expenses. The decrease was partially offset by goodwill and
purchased intangibles amortization of $5.2 million.
Income from operations for 1997 was reduced by approximately $78 million
due to a non-recurring write-off relating to acquired in-process research and
development recorded in connection with the Zycon Acquisition. The remaining
goodwill and purchased intangibles will be amortized over 12 to 30 years, with
an average amortization period of 17 years, which will reduce income from
operations by approximately $1.6 million per fiscal quarter.
Excluding the non-recurring write-off of approximately $78 million for
acquired in-process research and development, operating margins decreased to
11.8% for 1997 from 14.7% in 1996, primarily as a result of the same factors
affecting gross profit margins and from the goodwill amortization related to the
Zycon Acquisition.
Interest income decreased in 1997 as compared to 1996 due to lower daily
average cash balances available for investing. Interest expense increased in
1997 as compared to 1996 due to an increase in outstanding debt as a result of
the Zycon Acquisition.
37
<PAGE> 45
In accordance with generally accepted accounting principles, the Company
provides for income taxes on an interim basis, using its effective annual income
tax rate. Although the Company incurred a loss before income taxes during 1997,
the Company recorded an income tax provision because the write-off of acquired
in-process research and development is not deductible for income tax purposes.
Without taking into consideration the write-off of acquired in-process research
and development, the Company's effective annual income tax rate for 1997 was
40.0%, which is approximately equal to the combined federal and state statutory
rates. The effective rate was increased by amortization of goodwill and acquired
intangibles which is not tax deductible, and this item was offset by the tax
benefit of the Company's foreign sales corporation and various state investment
tax credits. The effective tax rate for 1997 was based on then current tax laws.
FISCAL YEARS ENDED OCTOBER 26, 1996 AND OCTOBER 28, 1995
Net sales during 1996 increased 32.3% over 1995. The change was due to a
15.1% increase in the volume of production and shipments and a shift in product
mix to higher layer, higher density products, as compared to 1995. Average
pricing per unit increased 6.1% compared to 1995. Sales of backplane and other
electronic assemblies increased to approximately 17% of the Company's net sales
in 1996, versus approximately 7% for 1995.
The gross profit margin increased to 25.8% in 1996 from 25.4% in 1995. The
increase was a direct result of a higher volume of shipments, an increase in the
technology level of product mix, and improved pricing. These increases were
partially offset by increased costs relating to the implementation of new
production lines and materials and the shift in mix to a higher level of
value-added products.
Operating expenses, as a percent of net sales, decreased to 11.1% during
1996 from 12.6% during 1995, due to increased revenue. Operating expenses
increased to $38.9 million in 1996 from $33.5 million in 1995, primarily as a
result of increased variable costs directly attributable to increased net sales.
Included in operating expenses are charges for actual expenditures and accruals,
based on estimates, for environmental matters. During 1996 and 1995, the Company
made, and charged to operating expenses, actual payments of approximately
$680,000 and $1.1 million, respectively, for environmental matters. In 1996 and
1995, the Company also accrued and charged to operating expenses $1.8 million
and $2.7 million, respectively, as cost estimates relating to known
environmental matters.
In 1996, interest income decreased as a result of lower cash balances
available for investment. Interest expense decreased in 1996 from 1995 due to
decreased average debt balances during the year.
The annual effective tax rate for 1996 and 1995 was 39.0%, which was less
than the then current combined federal and state statutory rates. This
difference was caused primarily by tax advantaged investments and the tax
benefits of a foreign sales corporation.
38
<PAGE> 46
QUARTERLY RESULTS
The following table presents certain unaudited consolidated financial
information for each of the Company's nine fiscal quarters for the period ended
August 1, 1998, as well as certain of such information expressed as a percentage
of net sales for the same period. Information for the three months ended April
26, 1997 includes the results of operations for Hadco Santa Clara (formerly
Zycon) from January 10, 1997, the date of the Zycon Acquisition. Information for
the three months ended May 2, 1998 includes the results of operations for
Continental Circuits Corp. from March 20, 1998, the date of the Continental
Acquisition. In the opinion of management, this information has been prepared on
the same basis as the audited Consolidated Financial Statements of the Company
appearing elsewhere in this Prospectus and includes all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the quarterly
results when read in conjunction with the Company's Consolidated Financial
Statements. The Company's operating results have been subject to fluctuations,
and thus results for any quarter are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
---------------------------------------------------------------------------------------------------
JULY 27, OCT. 26, JAN. 25, APRIL 26, JULY 26, OCT. 25, JAN. 31, MAY 2 AUG. 1,
1996 1996 1997(1) 1997 1997 1997 1998 1998(2) 1998(3)
--------- -------- -------- --------- --------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PERCENTAGES AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENTS OF
OPERATIONS:
Net sales............ $88,225 $97,883 $111,536 $180,662 $183,274 $173,233 $198,276 $209,587 $201,392
Gross profit......... 22,419 24,623 26,377 38,463 39,254 37,298 39,068 36,730 18,580
Income (loss) from
operations......... 12,910 14,385 (62,443) 20,464 21,352 19,855 21,284 (53,793) (3,849)
Net income (loss).... 7,994 8,934 (69,161) 9,953 11,369 11,346 12,127 (59,739) (6,880)
Diluted net income
(loss) per share... $ 0.72 $ 0.81 $ (6.64) $ 0.91 $ 0.93 $ 0.84 $ 0.90 $ (4.54) $ (.52)
AS A PERCENTAGE OF
NET SALES:
Gross profit......... 25.4% 25.2% 23.6% 21.3% 21.4% 21.5% 19.7% 17.5% 9.2%
Income (loss) from
operations......... 14.6 14.7 (56.0) 11.3 11.7 11.5 10.7 (25.7) (1.9)
Net income (loss).... 9.1 9.1 (62.0) 5.5 6.2 6.6 6.1 (28.5) (3.4)
</TABLE>
- ---------------
(1) Net loss for the three months ended January 25, 1997 includes a
non-recurring write-off relating to the Zycon Acquisition for acquired
in-process research and development. Income from operations was $15,557,000,
net income was $8,839,000, net income per share was $0.81 (based on weighted
average shares outstanding of approximately 10,944,000), and, as a
percentage of net sales, income from operations was 13.9% and net income was
7.9%, all before deducting the non-recurring write-off.
(2) Net loss for the three months ended May 2, 1998 includes a non-recurring
write-off relating to the Continental Acquisition for acquired in-process
research and development, and for restructuring and other non-recurring
expenses related to the consolidation of the Company's East Coast Tech
Center operations. Income from operations was $15,204,000, net income was
$6,894,000, net income per share was $0.51 (based on weighted average shares
outstanding of approximately 13,545,000), and as a percentage of net sales,
income from operations was 7.3% and net income was 3.3%, all before
deducting such non-recurring write-off, charge for restructuring and other
non-recurring expenses.
(3) Net loss for the three months ended August 1, 1998 includes a non-recurring
write-off relating to a limited restructuring of the Company's workforce,
which reduced the Company's workforce by approximately 3%. Loss from
operations was $2,744,000, net loss was $6,214,000, net loss per share was
$.47 (based on weighted average shares outstanding of approximately
13,255,000), and as a percentage of net sales, loss from operations was .1%
and net loss was 3.1%, all before deducting the restructuring change.
39
<PAGE> 47
The Company's results of operations have fluctuated and may continue to
fluctuate from period to period, including on a quarterly basis. Variations in
quick-turn prototype and volume production orders, in the average number of
layers per printed circuit, and in the mix of products sold by the Company have
significantly affected both net sales and gross profit. Gross profit declined to
9.2% in the three months ended August 1, 1998 from 21.4% in the three months
ended July 26, 1997 primarily as a result of lower capacity utilization from
printed circuit operations, lower pricing for printed circuits and lower overall
gross margins from the Hadco Santa Clara (formerly Zycon) and Hadco Phoenix
(formerly Continental) operations. Additionally, the general economic slowdown
in the broad electronics industry, the economic situation in Asia, inventory
backlogs in the end user market, customer inventory adjustments and customer
product transitions negatively affected net income for the third quarter of
1998. Operating results generally are also affected by other factors, including
the timing and volume of orders from and shipments to customers relative to the
Company's manufacturing capacity, product and price competition, product mix,
the number of working days in a particular quarter, manufacturing process
yields, the timing of expenditures in anticipation of future sales, raw material
availability, the length of sales cycles, trends in the electronics industry and
general economic factors. Many of these factors are outside the control of the
Company.
The Company generally does not obtain long-term purchase orders or
commitments from its customers, and 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. Sales for future
quarters may not be predictable. The Company relies on its estimate of
anticipated future volumes when making 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. 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, the Company's
business, financial condition and results of operations are likely to be
materially adversely affected. Fluctuations in quarterly operating results could
have a material adverse effect on the price of the Notes and on the cash flow of
the Company necessary to pay amounts due on the Notes. See "Risk
Factors -- Risks Relating to Fluctuations in Quarterly Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1997, the Company's financing requirements were satisfied
principally from cash flows from operations, bank borrowings and the sale of the
Company's Common Stock. Cash provided by operating activities was $50.7 million,
net bank borrowings were $60.2 million, and the proceeds from the sale of Common
Stock were $131.1 million. These funds were used to meet increased working
capital needs and to acquire Zycon for approximately $212 million (including
acquisition costs), as well as for capital expenditures of $69.0 million.
Net cash provided by (used in) operating activities for fiscal 1995, 1996
and 1997 was $36.3 million, $55.6 million and $50.7 million, respectively. In
fiscal 1996 and 1997, cash from operating activities increased primarily due to
increases in net income and depreciation. In fiscal 1997, cash used in operating
activities consisted of the effects of a write-off of acquired in-process
research and development, offset by increases in accounts receivable and
inventories, both of which were affected by the Zycon Acquisition.
Net cash used in investing activities was $(31.1) million, $(47.9) million
and $(268.9) million in fiscal 1995, 1996 and 1997, respectively. In fiscal 1995
and 1996, investing activities consisted primarily of capital expenditures. In
fiscal 1997, investing activities consisted primarily of the $209.7 million
purchase (net of cash balance) of Zycon, and additional capital expenditures.
40
<PAGE> 48
Net cash provided by (used in) financing activities was $(3.0) million,
$3.8 million and $197.6 million in fiscal 1995, 1996 and 1997, respectively. In
fiscal 1995, cash used in financing activities was affected by principal
payments of long-term debt and capital leases. In fiscal 1996, cash provided by
financing activities was affected by a tax benefit from the exercise of options,
partially offset by payments of capital leases. In fiscal 1997, cash provided by
financing activities consisted primarily of borrowings under the Company's
revolving credit facility and the cash proceeds from the sale of Common Stock
which was used for the Zycon Acquisition.
At August 1, 1998, the Company had working capital of $91.2 million and a
current ratio of 1.79, compared to working capital of $53.7 million and a
current ratio of 1.48 at October 25, 1997. Cash, cash equivalents and short-term
investments at August 1, 1998 were approximately $4.9 million, a decrease of
$8.8 million from approximately $13.7 million at October 25, 1997.
The Company currently anticipates that its capital expenditures for fiscal
1998 will be in excess of $90 million, of which $17.8 million represents
commitments to purchase manufacturing equipment and leasehold improvements. The
majority of these capital expenditures is expected to be completed by the end of
fiscal 1998. The amount of these anticipated capital expenditures will
frequently change based on future changes in business plans and conditions of
the Company and changes in economic conditions.
In December 1997, the Company negotiated the Credit Facility with various
banks, which amended and restated an existing credit facility. Interest on loans
outstanding under the Credit Facility is, at the Company's option, payable at
either (1) the Base Rate (as defined in the Credit Facility), or (2) the
Eurodollar Rate, plus the Applicable Eurodollar Rate Margin (both as defined in
the Credit Facility). The Company used the $193.82 million in net proceeds from
the sale of the Notes on May 18, 1998 to repay outstanding indebtedness under
the Credit Facility. At August 1, 1998, $160 million was outstanding under the
Credit Facility. As of August 1, 1998, the weighted average interest rate on
loans outstanding under the Credit Facility was 6.75%. The Credit Facility
expires and all outstanding loans thereunder mature on January 8, 2002. The
Company was in default as of the four quarter period ended August 1, 1998 with
respect to two of its financial covenants, which defaults have been waived by
the Company's banks. See "Use of Proceeds," "Description of Certain
Indebtedness," and Note 7 of Notes to the Company's Consolidated Financial
Statements.
On September 15, 1998, the Company amended its Credit Facility with the
Third Amendment and Modification Agreement dated as of September 14, 1998. This
most recent amendment to the Credit Facility, among other things, amended and
added certain covenants, changed the available borrowing capacity under the
Credit Facility from $400 million to the lesser of $300 million and the
Borrowing Base and granted the banks a first priority mortgage and security
interest in substantially all of the assets of the Company and each of the
subsidiaries which are guarantors of the Credit Facility. The Borrowing Base is
an amount, determined monthly (or more frequently in certain circumstances) by
the Agent (as defined in the Credit Facility), equal to the sum of specified
percentages of Eligible Accounts Receivable (domestic and foreign), domestic
Eligible Inventory, Eligible Fixed Assets and a percentage, determined in the
Agent's sole discretion, of Eligible Foreign Inventory, less certain Reserves
(all as defined in the Credit Facility). As of September 26, 1998, the Borrowing
Base was approximately $220 million, approximately $157 million was outstanding
under the Credit Facility and approximately $63 million was available to the
Company under the Credit Facility. Under this most recent amendment to the
Credit Facility, the Company is also required to pay a quarterly usage fee based
on an Applicable Base Rate Usage Fee Margin and an Applicable Eurodollar Rate
Usage Fee Margin.
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 calendar year 1999. 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, including the holders of the Notes. See "Summary -- Recent
Development."
41
<PAGE> 49
YEAR 2000 COMPLIANCE
The Company has undertaken an internal assessment of its operations, from
information and financial systems to each aspect of its manufacturing processes,
in order to determine the extent to which the Company may be adversely affected
by Year 2000 issues. This internal assessment is approximately 75% complete at
present and the Company expects to finish the assessment process by its 1998
fiscal year end. To date, limited testing of systems has been performed. The
Company may conduct further testing and/or an external audit following the
conclusion of its internal assessment. To date, approximately 1,500 hours of
employee time have been devoted to Year 2000 issues, and approximately $1.2
million has been expended in systems upgrades directly relating to Year 2000
issues. Present estimates for further expenditures of both employee time and
expenses to address Year 2000 issues are between 5,500 and 8,000 hours and
between $1.0 million and $3.0 million, respectively.
The Company has also undertaken a survey of its suppliers' Year 2000
compliance status and, to date, has received responses from approximately half
of those surveyed, a majority of whom have certified they are compliant.
Further, the Company has conferred with significant customers to assure that
various systems used for data and information exchanges between them will be
compatible following December 31, 1999.
Based on its assessments to date, the Company believes it will not
experience any material disruption as a result of Year 2000 issues in internal
manufacturing processes, information processing or interface with key customers,
or with processing orders and billing. However, if certain critical third party
providers, such as those supplying electricity, water or telephone service,
experience difficulties resulting in disruption of service to the Company, a
shutdown of the Company's operations at individual facilities could occur for
the duration of the disruption. At present, the Company has not developed
contingency plans but intends to determine whether to develop any such plan
early in fiscal year 1999. There can be no assurance that Year 2000 issues will
not have a material adverse effect on the Company's business, results of
operation and financial condition.
NEW ACCOUNTING STANDARDS
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
This Statement established standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This Statement is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
This Statement, requiring only additional informational disclosures, is
effective for the Company's fiscal year ending October 30, 1999.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. This Statement established standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that enterprises report
selected information about operating segments in interim financial reports
issued to stockholders. This Statement is effective for fiscal years beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. This Statement, requiring only
additional informational disclosures, is effective for the Company's fiscal year
ending October 30, 1999.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This Statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 Reporting on the Costs of Start-Up Activities
(SOP 98-5). SOP 98-5 provides guidance on the financial reporting of start-up
activities and organization costs to be expensed as incurred. SOP 98-5 will not
have a material impact on the Company's financial statements.
42
<PAGE> 50
BUSINESS
The following Business section contains forward-looking statements which
involve risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including, without limitation, those set forth under
"Risk Factors" and elsewhere in this Prospectus.
GENERAL
Hadco is the largest manufacturer of advanced electronic interconnect
products in North America. The Company offers a wide array of sophisticated
manufacturing, engineering and systems integration services to meet its
customers' electronic interconnect needs. The Company's principal products are
multilayer rigid printed circuits and backplane assemblies. Printed circuits are
the basic platforms used to interconnect microprocessors, integrated circuits
and other components essential to the functioning of electronic systems. By
working closely with customers at the design and prototype stage, the Company
believes it strengthens long-term relationships with its customers and gains an
advantage in securing a preferred vendor status when customers begin volume
production. Hadco's largest customers include many of the leading companies in
the electronics industry, such as Cabletron Systems, Compaq Computer,
Hewlett-Packard, Lucent Technologies, Northern Telecom, Solectron and Sun
Microsystems. Pro forma for the Acquisitions, in fiscal 1997 the Company's total
revenues would have been approximately $830 million, and EBITDA would have been
approximately $144 million.
Hadco's advanced manufacturing and assembly facilities are designed to meet
the accelerated time-to-market and time-to-volume requirements of its customers
whose markets are characterized by high growth rates, rapid technological
advances and short product life-cycles. During the past five fiscal years,
Hadco, Continental and Zycon have invested approximately $342 million in fixed
assets, such as facilities and equipment (including those used in the
development of new technologies). Hadco provides customers with a broad range of
products and services that includes development, design, quick-turn prototype,
pre-production, volume production, and backplane assembly. Hadco is one of a
small number of printed circuit manufacturers with the technology and advanced
production facilities necessary to offer all of these services. The Company
believes its combination of a broad product offering and advanced technological
capabilities facilitates long-term relationships with existing customers,
attracts new customers and helps customers meet their time-to-market and
time-to-volume needs.
Hadco's customers are a diverse group of 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. Hadco provided its products and services to a diverse base of
approximately 560 customers in fiscal 1997 (approximately 590 customers pro
forma for the Continental Acquisition), including approximately 77 customers
with purchases in excess of $1 million (approximately 85 customers pro forma for
the Continental Acquisition). The Company's ten largest customers accounted for
approximately 47% of net sales in fiscal 1997.
On March 20, 1998, Hadco acquired all of the outstanding capital stock of
Continental, a manufacturer of multilayer printed circuits, for approximately
$190 million (including acquisition costs). On January 10, 1997, Hadco acquired
all of the outstanding capital stock of Zycon, a manufacturer of multilayer
printed circuits and backplane assemblies, for approximately $212 million
(including acquisition costs). Pro forma for the Acquisitions, Continental and
Zycon would have added approximately $396 million to Hadco's fiscal 1997 net
sales. The Acquisitions also added approximately 865,000 square feet of
manufacturing space (approximately a 129% increase) and substantially expanded
Hadco's geographic reach. The Continental Acquisition added facilities for
volume production of multilayer printed circuits in Phoenix, Arizona, a
quick-turn prototype facility in Austin, Texas, and a flexible printed circuit
manufacturing facility and printed circuit engineering and design operation in
California. The Zycon Acquisition added facilities for volume production of
multilayer printed circuits and backplane assemblies in the Silicon Valley area,
a quick-turn prototype and design facility in Haverhill, Massachusetts, and a
newly constructed facility for volume production of printed
43
<PAGE> 51
circuits in Malaysia. The Acquisitions have also broadened the Company's
customer base, expanded its involvement in many fast growing industry sectors,
added new proprietary technologies, and increased the size of its sales force.
On September 15, 1998, the Company amended its Credit Facility with the
Third Amendment and Modification Agreement dated as of September 14, 1998. This
most recent amendment to the Credit Facility, among other things, amended and
added certain covenants, changed the available borrowing capacity under the
Credit Facility from $400 million to the lesser of $300 million and the
Borrowing Base (as defined in the Credit Facility), and granted the banks a
first priority mortgage and security interest in substantially all of the assets
of the Company and each of the subsidiaries which are guarantors of the Credit
Facility. The Company is also required to pay a quarterly usage fee based on an
Applicable Base Rate Usage Fee Margin and an Applicable Eurodollar Rate Usage
Fee Margin. See "Risk Factors -- Restrictions Imposed by Terms of Indebtedness,"
"Description of Certain Indebtedness," and "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
INDUSTRY OVERVIEW AND TRENDS
Printed circuits are the basic platforms used to interconnect
microprocessors, integrated circuits and other components essential to the
functioning of electronic products. Printed circuits consist of a pattern of
electrical traces etched from copper laminated on an insulated base that is
typically composed of rigid fiberglass or thin flexible circuits. To meet the
increasing requirements of OEMs and contract manufacturers, printed circuit
manufacturers have developed more complex multilayer designs with surface mount
and other attachment technologies, narrower widths and separations of copper
traces, advanced materials, and smaller diameters of vias and through-holes to
connect internal circuitry. Backplane assemblies are generally larger and
thicker printed circuits on which connectors are mounted to receive and
interconnect printed circuits, integrated circuits and other electronic
components.
Electronic interconnect products are customized for specific electronic
applications and are sold to OEMs and contract manufacturers in volumes that
range from several units for prototypes and small quantities for pre-production
to large quantities for volume production. In the 1980s, the electronic
interconnect market was largely comprised of military and computer applications,
and was characterized by periods of cyclicality. However, the proliferation of
electronics and the emergence of new technologies have significantly broadened
this market and reduced the amplitude of interconnect industry cycles in the
1990s. Electronic interconnects such as rigid printed circuits, flexible
circuits and backplane assemblies are now used in a wide variety of industries
and products, including data communications/telecommunications, workstations,
servers, personal computers, peripherals, industrial automation,
instrumentation, medical, transportation and defense.
As electronic products have become smaller and more complex, the
manufacture of interconnect products has required increasingly sophisticated
engineering and manufacturing expertise and substantial capital investment.
These advanced manufacturing process and technology requirements have caused
OEMs to rely more heavily on independent manufacturers and to reduce dependence
on their internal captive facilities. Industry sources estimate that
approximately 93% of the domestic printed circuit market was served by
independent manufacturers in 1997 (compared to approximately 71% in 1992).
Captive manufacturing facilities serve the remaining approximately 7% of the
market. Historically, electronics OEMs used independent printed circuit
manufacturers as offload capacity for their captive facilities. During economic
downturns, independent facilities lost production orders as captives produced a
greater percentage of demand internally. However, as a result of outsourcing of
OEM printed circuit production, the Company believes independents are less
affected by unused captive capacity during market downturns than was previously
the case.
In 1997, the worldwide market for rigid printed circuits was $29.4 billion,
and the domestic market for rigid printed circuits was $7.9 billion. In
addition, higher layer count rigid printed circuits (eight layers and above)
constituted approximately 40% of the total United States market in 1997, and has
increased at an annual compounded growth rate of 16% over the past two years,
compared to approximately 11% for the overall printed circuit market. The need
for expanded service offerings, advanced technological capabilities and broader
geographic scope has led to consolidation in recent years, reducing the number
of printed circuit
44
<PAGE> 52
manufacturers in North America from approximately 950 in 1992 to approximately
550 in 1997. Although the printed circuit market has been experiencing
consolidation over the past several years, it remains fragmented. Of the
approximately 550 rigid printed circuit manufacturers in the United States in
1997, only seven had revenues in excess of $100 million.
According to industry sources, the domestic market for backplane assemblies
was approximately $1.2 billion in 1997. As in the printed circuit market, OEMs
have increasingly come to rely on independent producers of backplane assemblies,
allowing OEMs to reduce their capital investments, improve inventory management
and purchasing power and take advantage of the process technology expertise of
manufacturing specialists.
The Company considers the following trends important in understanding the
electronic interconnect industry:
Industry Consolidation. The Company believes the industry will continue to
consolidate as a result of the substantial capital investment for advanced
production facilities, engineering and manufacturing expertise and technology
required to make increasingly sophisticated electronic interconnect products.
The increased investment requirement for state-of-the-art production facilities
has accelerated consolidation in the electronic interconnect industry and the
exit of smaller companies. In addition, OEMs and contract manufacturers
increasingly recognize that only a few suppliers of interconnect products can
consistently provide timely delivery of required volumes of highly sophisticated
electronic interconnect products. As a result, Hadco believes that companies
with lesser financial and technical resources are likely to exit the industry
and larger interconnect companies with sufficient resources will continue to
gain market share.
Increasing Demand for Single Sourcing. To avoid delays and costs during
the product life-cycle, OEMs are increasingly turning to suppliers capable of
producing electronic interconnect products from development, design, quick-turn
prototype and pre-production through volume production, and backplane assembly.
The accelerated time-to-market and time-to-volume needs of OEMs have resulted in
increased collaboration with qualified suppliers capable of providing a broad
and integrated offering. To meet their rapidly changing electronic interconnect
requirements, many OEMs have moved to limit their vendor base to a smaller
number of technically qualified suppliers capable of providing both quick-turn
prototype and pre-production quantities as well as cost-competitive volume
production quantities.
New and Emerging Markets. The markets for electronic products are growing
as a result of new product introductions, technological change, demands for a
wider variety of electronic product features, and increasingly powerful and less
expensive electronic components. New markets have emerged in computing, data
communications/telecommunications and multimedia. Moreover, existing industries
have significantly expanded applications in areas such as computer networking
and peripherals, digital and mobile communications, video-on-demand, the
Internet/World Wide Web, instrumentation and industrial controls. The Company
believes these new and emerging electronic product markets and applications have
also contributed to the reduction in the amplitude of the electronic
interconnect industry cycles.
Greater Demand for Complex Electronic Products. Advanced communication
equipment, as well as next-generation computer chips and microprocessors,
require interconnect systems that operate at greater speeds and higher
frequencies with minimal signal loss and distortion. Further, electronics OEMs
are designing more compact and portable high performance products. The
complexity of these new products requires higher performance, smaller size,
greater circuit and component density, and increased reliability. These
requirements necessitate greater sophistication in printed circuit manufacturing
and process technologies, including advanced materials, more layers, narrower
line widths and spacing, smaller vias to connect internal circuitry, and more
precise positioning of traces and pads to accommodate a greater density of
surface mount components. These products require increasingly advanced packaging
technologies, such as Multichip Module (MCM), Tape Automated Bonding (TAB),
Direct Chip Attach (DCA), High Density Interposers (HDI), Ball Grid Array (BGA),
and high frequency materials. The trend toward increasingly sophisticated
products also requires greater engineering support and investment in
manufacturing and process technology for suppliers to produce high-quality
electronic interconnect products on-time, in volume, and at acceptable cost.
45
<PAGE> 53
Shorter Product Life-Cycles for Electronic Products. Rapid changes in
technology have significantly shortened the life-cycle of complex electronic
products and placed increased pressure on OEMs to develop new products as
quickly as possible. The time-to-market considerations of OEMs have increased
emphasis on the engineering and quick-turn production of small unit volumes of
electronic interconnects in the prototype development stage. In addition, the
success of first-to-market products has heightened the emphasis on volume
manufacturing expertise and technologically advanced manufacturing
infrastructure.
STRATEGY
The Company's strategy is to increase sales and profitability by providing
a wide range of electronic interconnect solutions and services to a broad and
diversified customer base and by capitalizing on major industry trends as
follows:
Provide a Broad and Integrated Offering. Hadco develops and maintains
long-term customer relationships by providing a full range of integrated
services, from development, design, quick-turn prototype and pre-production
through volume printed circuit production and backplane assembly. The Company
believes its broad range of integrated services provides significant value to
its customers by shortening their new product development cycles, helping them
to meet their time-to-market and time-to-volume requirements, lowering
manufacturing costs, and providing technological expertise. By working closely
with customers at the design and prototype stage, the Company believes it
strengthens long-term relationships with its customers and gains an advantage in
securing a preferred vendor status when customers begin volume production.
Serve Diversified Customer Base in High Growth Segments. The Company
concentrates its marketing efforts on OEMs and contract manufacturers serving
OEMs in segments of the electronics market characterized by high growth, rapid
technological advances, short product development cycles and accelerated
time-to-market and time-to-volume requirements. To more fully support its
strategy of developing a large and diversified customer base, the Company
intends to offer certain large customers single points of contact to service
their needs on a global basis, and the Company is focusing on the further
development of its international sales force.
Develop Advanced Manufacturing and Process Technologies. The Company is
committed to remaining a leader in the development of advanced materials and
sophisticated process technologies that enable it to cost-effectively produce
reliable and technologically advanced products. The Company believes its
manufacturing and process capabilities provide a significant competitive
advantage and is committed to continuous improvement to maintain its leadership
position.
Maintain High Levels of Investment. Hadco believes its significant ongoing
investment in production technology allows it to maintain a leadership position
in the development of advanced material and process technologies. The Company
has made substantial investments in production facilities and new technologies
during the past five fiscal years that have increased capacity and operating
efficiencies, improved management control and provided more consistent product
quality. As a result, the Company believes it is one of the few interconnect
manufacturers capable of satisfying the full range of volume production,
time-to-market, time-to-volume and technology requirements of customers in the
electronics industry.
Expand Backplane Assembly Operations. In recent years, to extend its
integrated offering, the Company has expanded its backplane assembly operations,
thereby broadening its range of manufacturing services, reducing customer costs
and improving product quality. With this backplane assembly expansion, the
Company is well positioned to capture an increasing share of the full range of
interconnect requirements of its customers.
Pursue Strategic Acquisitions. The Company will consider strategic
acquisitions of companies and technologies that enhance its competitive
position, build economies of scale and help fulfill its other strategic
objectives. In evaluating possible acquisition candidates, the Company
considers, among other things, the opportunity for synergistic product
offerings, complementarity of client base, new technological capabilities and
potential for increased geographic reach.
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<PAGE> 54
Increase Geographic Reach. Hadco has pursued a strategy of expanding the
capacity and geographic scope of its manufacturing facilities to better serve
high growth segments of the electronics industry in key geographic markets.
Hadco believes it is the only independent North American printed circuit
manufacturer with a full service offering of design, quick-turn prototype and
volume printed circuit manufacturing and backplane assembly on both the East and
West Coasts. In addition, its volume production facility in Malaysia, which
commenced operations in fiscal 1997, is intended to provide the Company with
access to U.S. customers expanding into Asian markets. The Company also intends
to broaden its presence in Europe and other international markets.
PRODUCTS AND SERVICES
The Company's products and services are designed to meet its customers'
electronic interconnect needs for complex multilayer printed circuits and
backplane assemblies. Hadco offers complementary processes and capabilities that
begin with product conception and continue through delivery of volume products.
The Company's products and services include the following:
Development. Through development groups located at various facilities,
Hadco identifies, develops and markets new technologies that benefit its
customers. These development groups work closely with customers during all
stages of product life-cycles. For instance, process design changes and
refinements required for volume production are identified and implemented prior
to production. The development groups also focus on the special requirements of
the Company's customers, including increasing printed circuit densities,
electronic packaging and advanced materials and products. When appropriate, the
development groups have coordinated the acquisition of technology licenses,
filed patent disclosures and applications, and registered trademarks on behalf
of the Company.
Design. The Company provides design and engineering assistance in the
early stages of product development which assures both mechanical and electrical
considerations are integrated to achieve a high quality and cost effective
product. The Company also evaluates customer designs for manufacturability and,
when appropriate, recommends design changes to reduce manufacturing costs or
lead times or to increase manufacturing yields or the quality of finished
printed circuits. The Company believes that this long-term view of manufacturing
and customer relationships distinguishes the Company from many manufacturers
which compete primarily in the quick-turn market. By working closely with its
customers, the Company also gains a better understanding of the future
requirements of OEMs. This cooperative process shortens the time in transition
from the development of the prototype design to volume manufacturing and
facilitates the delivery of high quality products to customer premises in a
timely fashion. The Company's recent acquisition of Continental added
Continental's PCA Design division, which provides circuit design and engineering
services.
Quick-Turn Prototype. Prototypes typically require lead times of three to
seven days, and as short as 24 hours. The Company provides quick-turn prototype
services to the product development groups of customers that require small test
quantities. Hadco offers these services through its Tech Centers in New
Hampshire, California, Massachusetts and Texas. Prototype development at these
Centers has included multilayer printed circuits of up to 48 layers, embedded
discrete components, Multichip Modules (MCM), Single Chip Carriers (SCC), planar
magnetics, advanced surface finishes, and various high performance substrates
for the high frequency microwave market. The Tech Centers also support advanced
attachment technologies such as Tape Automated Bonding (TAB), Direct Chip Attach
(DCA) and High Density Interposers (HDI). In combining the design of a printed
circuit with the manufacture of the prototype, Hadco can reduce the length of
the design/manufacture cycle. By working closely with customers at the design
and prototype stage, the Company believes it strengthens long-term relationships
with its customers and gains an advantage in securing a preferred vendor status
when customers begin volume production.
Pre-Production. Pre-production is the manufacture of limited quantities of
electronic interconnects during the transition period from prototype to volume
production. Pre-production generally requires quick-turn delivery to accommodate
time-to-volume pressures or as a temporary solution for unforeseen customer
demands. Pre-production is done in the Tech Centers and in volume production
facilities.
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<PAGE> 55
Volume Production. Volume production is characterized by longer lead times
and increased emphasis on lower cost as the product moves to full-scale
commercial production. As customers increasingly demand a quick transition from
prototype to volume production, few independent manufacturers can provide
complex printed circuits of 18 or more layers in the volume provided by Hadco's
larger facilities. During 1996, the Tech Centers transitioned chip attachment
technologies such as Ball Grid Array (BGA), Tape Automated Bonding (TAB), Direct
Chip Attach (DCA), High Density Interposers (HDI), and other technologies
including Multichip Module (MCM) and Single Chip Carriers (SCC) to volume
production. The Company operates six facilities located in Arizona, California,
New York, New Hampshire and Malaysia for medium and high-volume printed circuit
production.
Backplane Assembly. Backplane assemblies are generally larger and thicker
printed circuits on which connectors are mounted to interconnect printed
circuits, integrated circuits and other electronic components. Hadco
incorporates its own printed circuits in backplane assemblies to provide
customers with a high level of printed circuit technology on a quick-turn and
volume basis. Net sales of backplane assemblies accounted for approximately 7%,
17% and 11% of total Company net sales during fiscal 1995, 1996 and 1997,
respectively, and for approximately 8% on a pro forma basis including
Continental during fiscal 1997. With its backplane assembly operations, Hadco is
one of a few companies that provides its customers with the advantage of an
integrated offering to meet their needs from development and design through
volume production and backplane assembly.
The Company's advanced process capabilities enhance each of the above
services and include:
Manufacture of High Performance Printed Circuits. The Company produces
technologically advanced printed circuits primarily for the high performance
market at the Tech Centers and its volume production facilities. These printed
circuits, used principally in the data communications and telecommunications
industries, are designed to function in high temperature environments and at
higher frequencies. Materials used by the Company for these products include
Teflon(R), cyanate ester, GETEK(R), liquid crystal polymers, polymides, and
bismaleimide triazine epoxies.
Development of Emerging Technologies. The Company undertakes projects to
develop advanced or improved processes, materials and product lines. Buried
Capacitance(TM) and buried resistance are advanced materials being developed by
the Company to provide improved electrical performance and greater interconnect
densities. Sales of Buried Capacitance(TM) products by the Company in fiscal
1997 totaled $31.7 million. In addition, the Company is developing the
microPath(TM) family of micro via processes, which include liquid imaging, dry
film imaging, plasma etching, and laser drilling. Micro vias provide a
significant increase in printed circuit density. The Continental Acquisition
also added PCA Design's micro via design methodology. During fiscal 1996, the
Company also began to produce rigid flex printed circuit products utilizing
licensed HVRFlex(TM) technology. These products enable customers to fold a
printed circuit and reduce the need for cable connectors in the portable
computer and telecommunications markets. See "--Manufacturing and Facilities."
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MARKETS AND CUSTOMERS
Hadco's customers are a diverse group of 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. The
following table shows, for the periods indicated, the Company's net sales and
percentage of its net sales to the principal end-user markets it serves. The pro
forma information in the table includes Continental.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED,
-----------------------------------------------------------------
OCTOBER 25,
OCTOBER 28, OCTOBER 26, OCTOBER 25, 1997
MARKETS 1995 1996 1997 PRO FORMA
------- ------------- ------------- ------------- --------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Computing............................. $ 84.9 32% $119.2 34% $205.0 32% $291.6 35%
Contract Assembly..................... 69.0 26 112.2 32 289.2 44 339.7 41
Data Communications/
Telecommunications.................. 90.2 34 94.7 27 119.1 18 139.5 17
Industrial Automation................. 15.9 6 17.5 5 24.8 4 44.0 5
Other................................. 5.2 2 7.1 2 10.5 2 15.7 2
------ --- ------ --- ------ --- ------ ---
Total Net Sales.............. $265.2 100% $350.7 100% $648.6 100% $830.5 100%
====== === ====== === ====== === ====== ===
</TABLE>
The Company supplied its products and services to a diverse base of
approximately 560 customers in fiscal 1997 (approximately 590 customers pro
forma for the Continental Acquisition), including approximately 77 customers
with purchases in excess of $1 million (approximately 85 customers pro forma for
the Continental Acquisition). The Company attempts to market its products to
customers who currently have, or have the potential to achieve, significant
market share in their respective industries. The following lists the Company's
largest customers during fiscal 1997:
Cabletron Systems
Celestica
Cisco Systems
Compaq Computer
Hewlett-Packard
Jabil Circuits
Lucent Technologies
Northern Telecom
RSP Manufacturing
SCI Systems
Solectron
Sun Microsystems
During fiscal 1995, 1996 and 1997, no customer accounted for more than
approximately 7%, 15% and 15%, respectively, of Hadco's net sales. In fiscal
1997, one customer, Solectron, accounted for approximately 15% of the net sales
of the Company (approximately 13% pro forma for the Continental Acquisition).
The Company's ten largest customers together accounted for approximately 46%,
48% and 47%, respectively, during the same periods.
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. However, many of the Company's customers have
maintained long-term purchasing relationships with the Company. See "Risk
Factors -- Risks Relating to Variability of Orders from Customers; Backlog."
Pro forma for the Acquisitions, approximately 17% of the Company's net
sales in fiscal 1997 were attributable to sales outside of the United States,
principally in Canada and Europe. The Company currently intends to expand its
sales efforts outside of the United States.
SALES AND MARKETING
The Company markets its products through its own sales and marketing
organization and independent manufacturers' representatives. As of August 1,
1998, the Company employed 152 sales and marketing employees, of which 87 are
direct sales representatives. The Company is also represented by 18 independent
manufacturers' representatives in North America, South America, Europe, Mexico,
Africa, Asia, Australia, New Zealand and the Middle East. Regional direct sales
offices are located in Arizona, California, Colorado,
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<PAGE> 57
Georgia, Minnesota, New Hampshire, North Carolina, Oregon, Pennsylvania, Texas
and Canada. The Company's sales organization is divided into four territories,
and each direct sales representative and each manufacturer's representative
works within one of the four territories. Each territory also has a support
staff of sales engineers and technical service personnel responsible for
technical liaison and problem solving, development of product and market
opportunities, market research and marketing communications.
The Company focuses on developing close relationships with customers
beginning at the earliest development and design phases and continuing
throughout all stages of product production. The Company's Advanced Packaging
Development Group identifies, develops and markets new technologies that benefit
its customers and is intended to position the Company as an important source for
these solutions. This group also assists marketing efforts by hosting the
Regional Technology Symposiums at which the Company's technical capabilities are
presented to, and industry technical trends are discussed with, customers of the
Company.
MANUFACTURING AND FACILITIES
The need for high volume production of dense multilayer printed circuits
has transformed the electronic interconnect industry into one that increasingly
requires complex manufacturing processes and necessitates high levels of
investment in facilities, advanced materials, production processes and product
design capabilities. The Company has invested in production technology to
manufacture large volumes of dense multilayer printed circuits utilizing
advanced attachment strategies such as Surface Mount Technology (SMT), Tape
Automated Bonding (TAB), High Density Interposers (HDI) and Ball Grid Array
(BGA). The Company employs numerous advanced manufacturing techniques and
systems, including Computer Aided Manufacturing (CAM) systems, Computer
Integrated Manufacturing (CIM) systems, computer controlled drilling and
routing, dry-film imaging, multi-purpose metals plating, high-volume surface
coating, dual-access electrical testing, automated optical inspection,
high-volume photoimageable solder mask processing, and computer controlled
high-volume lamination systems. These techniques enable the Company to
manufacture complex printed circuits of consistent quality, in high-volume and
on a timely basis. All of the Company's North American production facilities are
ISO9002 certified. See "--Products and Services."
Hadco has pursued a strategy of expanding the capacity and geographic scope
of its manufacturing facilities to better serve high growth segments of the
electronics industry in key geographic markets. With the acquisition of
Continental in March 1998, the Company added a volume manufacturing facility
totaling 229,000 square feet in Arizona, a 30,000 square foot quick-turn
prototype facility in Texas, and a 16,000 square foot flexible printed circuit
manufacturing facility in California. With the acquisition of Zycon in January
1997, the Company added a 310,000 square foot volume production facility in
California, a 180,000 square foot volume production facility in Malaysia, a
71,000 square foot quick-turn prototype facility in Massachusetts and a 29,000
square foot backplane assembly facility in California.
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In total, the Company currently leases or owns approximately 1.5 million
square feet of manufacturing space. The Company's facilities are as follows:
<TABLE>
<CAPTION>
FUNCTION LOCATION SQUARE FEET
-------- ---------------------------- -----------
<S> <C> <C>
Volume Production.................................. Santa Clara and San Jose, CA 310,000*
Owego, NY 292,000
Phoenix, AZ 229,000
Derry, NH 200,000
Kuching, Malaysia 180,000
Hudson, NH 54,000
Quick-Turn Prototype............................... Haverhill, MA 71,000
Watsonville, CA 35,000
Austin, TX 30,000
Backplane Assembly................................. Salem, NH 60,000
Santa Clara, CA 29,000
Administrative..................................... Salem, NH 35,000**
Santa Clara, CA 29,000
Phoenix, AZ 21,000
</TABLE>
- ---------------
* Does not include the 16,000 square foot flexible printed circuit facility in
San Jose, CA.
** Under renovation.
The Company owns its volume production facilities in Owego, New York,
Derry, New Hampshire, Hudson, New Hampshire and Phoenix, Arizona. The Company
leases its volume production and backplane assembly facilities in Santa Clara
and San Jose, California, which are located in four adjacent buildings; the
leases for these four buildings expire in March 2009, and contain options to
extend for up to two additional periods of five years each. Construction of the
volume production facility in Kuching, Malaysia was completed in calendar 1996;
the Company leases the land on which this facility is located for a period of 60
years, expiring in November 2055. The Hudson, New Hampshire operations are
located in two separate buildings, one of which, containing 41,300 square feet,
is owned by the Company, and the second of which, containing 12,700 square feet,
is leased with the lease expiring in December 2000, with options to extend
through December 2009.
Leases for the Company's quick-turn prototype facility in Haverhill,
Massachusetts expire in December 2003, with options on two of the leases to
extend for an additional five years and options on the third lease to extend for
an additional ten years. The lease for the Watsonville, California quick-turn
prototype facility expires in December 1999, with options to extend until
December 2011. The lease for the quick-turn prototype facility in Austin, Texas
expires in March 2004, with options to extend until March 2014.
The lease for the backplane assembly facility in Salem, New Hampshire
expires in May 2005, with options to extend until May 2011. The leases for the
Santa Clara, California buildings include the 29,000 square feet of backplane
assembly operations.
As a result of the Continental Acquisition, the Company also leases a
flexible printed circuit manufacturing facility in San Jose, California and a
circuit design and engineering services facility in Saratoga, California. The
San Jose lease expires in December 2000, and the Saratoga lease expires in
November 2001, with an option to extend until November 2006.
The administrative and corporate offices in Salem, New Hampshire are
located in three separate buildings, one of which is covered by a lease expiring
in May 2003 with options to extend until May 2008, the second of which is
covered by a lease expiring in May 2008, and the third of which is a sublease
expiring in July 2003, with options to extend until July 2009. The leases for
the Santa Clara, California buildings include the 29,000 square feet of
administrative space. The Phoenix, Arizona facilities include 21,000 square feet
of administrative and office space.
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Additionally, the Company owns approximately six acres of land in Salem,
New Hampshire, approximately five acres of land in Derry, New Hampshire,
approximately 29 acres of land in Owego, New York, and approximately four acres
of land in Phoenix, Arizona.
The Company believes its facilities are adequate for its operating needs.
In fiscal 1997, the Company's capital expenditures relating to its
environmental control facilities and equipment totaled approximately $841,000.
The Company estimates that it will make capital expenditures with respect to its
environmental control facilities and equipment of approximately $6.6 million and
$6.5 million in fiscal 1998 and 1999, respectively.
SUPPLIER RELATIONSHIPS
Historically, the majority of raw materials used in the Company's
manufacture of printed circuits and components used in backplane assemblies have
been readily available. However, 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. Zycon has experienced shortages of
certain types of raw materials in the past. The Company believes that the
potential exists for a shortage of materials in the printed circuit and
electronic assembly 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 will be sufficient to protect the Company against any shortages of
materials. Further, there can be no assurances that shortages of certain types
of raw materials or components will not occur in the future. To date, material
shortages or price fluctuations have not had a materially adverse effect on the
Company, but there can be no assurance that material shortages or price
fluctuations will not have a material adverse effect on the Company in the
future. See "Risk Factors -- Risks of Inability to Obtain Raw Materials and
Components."
The Company works with its suppliers to develop just-in-time supply systems
which reduce inventory carrying costs. The Company also maintains a Supplier
Certification Program which evaluates potential vendors on the basis of such
factors as quality, on-time delivery, cost, technical capability, and potential
technical advancement. Certification is based on both actual performance and
audits of vendors' manufacturing sites. Key suppliers are reviewed quarterly to
preserve strong relationships with these suppliers and maintain regular dialogue
on quality, cost and technical advancement issues. Many suppliers attend the
Company's Supplier Symposium, where the Company's goals and objectives are
discussed with vendors. See "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 as a result of economic turmoil, currency devaluations or financial
market instability that many Asian countries are currently experiencing. The
Company's basic interconnect technol-
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ogy 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.
Hadco competes on the basis of product quality, timeliness of delivery,
price, customer technical support and its integrated offering, from development
and design through volume production and backplane assembly.
PRODUCT PROTECTION
The Company has obtained eleven United States patents and 21 foreign
patents directed to printed circuit boards and methods of manufacturing printed
circuit boards which expire between the years 2001 through 2014. Although Hadco
seeks to protect certain proprietary technology and other intangible assets
through patents and trademark filings, it has relatively few patents and relies
primarily on trade secret protection. 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. The future success of the
Company will depend on the continued development of processes and capabilities.
The Company believes that its accumulated experience with respect to materials
and process technology is also important to its operations. See
"Business -- Legal Proceedings and Claims."
RELEASED BACKLOG
The Company's released backlog as of August 1, 1998 was $128.7 million,
compared with $125.6 million as of May 2, 1998 and $144.4 million as of April
26, 1997. The Company anticipates delivering approximately 83% of this released
backlog during its fourth quarter of fiscal 1998. Released backlog consists of
orders for which artwork has been received, a delivery date has been scheduled
and the Company anticipates it will manufacture and deliver the order.
Cancellation and postponement charges, to the extent they exist with respect to
released backlog, generally vary depending upon the time of cancellation or
postponement, and a significant portion of the Company's released backlog at any
time may be subject to cancellation or postponement without penalty. Variations
in the size, timing and delivery schedules of purchase orders received by the
Company, as well as changes in customers' delivery requirements, may result in
substantial fluctuations in released backlog from period to period. Accordingly,
the Company believes that released backlog is not a meaningful indicator of
future quarterly or annual financial results.
EMPLOYEES
As of August 1, 1998, the Company had 7,433 employees, compared to 5,905
employees as of July 26, 1997. The employees are not represented by a union, and
the Company has never experienced any labor problems resulting in a work
stoppage. See Note 14 of Notes to the Company's Consolidated Financial
Statements.
ENVIRONMENTAL MATTERS
The Company is required to comply with all federal, state, county and
municipal regulations regarding protection of the environment. There can be no
assurance that more stringent environmental laws will not be
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adopted in the future and, if adopted, the costs of compliance with more
stringent environmental laws could be substantial. Waste treatment and disposal
are major considerations for printed circuit manufacturers. The Company uses
chemicals in the manufacture of its products that are classified by the
Environmental Protection Agency (EPA) as hazardous substances. The Company is
aware of certain chemicals that exist in the ground at certain of its
facilities. The Company has notified various governmental agencies and continues
to work with them to monitor and resolve these matters. During March 1995, the
Company received a Record Of Decision (ROD) from the New York State Department
of Environmental Conservation (NYSDEC), regarding soil and groundwater
contamination at its Owego, New York facility. Based on a Remedial Investigation
and Feasibility Study (RIFS) for apparent on-site contamination at that facility
and a Focused Feasibility Study (FFS), each prepared by environmental
consultants of the Company, the NYSDEC has approved a remediation program of
groundwater withdrawal and treatment and iterative soil flushing. The Company
has executed a Modification of the Order on Consent to implement the approved
ROD. The cost, based upon the FFS, to implement this remediation is estimated to
be $4.6 million, and is expected to be expended as follows: $260,000 for capital
equipment and $4.3 million for operation and maintenance costs which will be
incurred and expended over the estimated life of the program of 30 years. NYSDEC
has notified the Company that it will take additional samples from a wetland
area near the Company's Owego facility. Analytical reports of earlier sediment
samples indicated the presence of certain inorganics. There can be no assurance
that the Company and/or other third parties will not be required to conduct
additional investigations and remediation at that location, the costs of which
are currently indeterminable due to the numerous variables described in the
fifth paragraph of this "-- Environmental Matters" section.
From 1974 to 1980, the Company operated a printed circuit manufacturing
facility in Florida as a lessee of property that is now the subject of a pending
lawsuit (the "Florida Lawsuit") and investigation by the Florida Department of
Environmental Protection (FDEP). Hadco and others are participating in
alternative dispute resolution regarding the site with an independent mediator.
In connection with the mediation, in February 1992 the FDEP presented
computer-generated estimates of remedial costs, for activities expected to be
spread over a number of years, that ranged from approximately $3.3 million to
$9.7 million. Mediation sessions were conducted in March 1992 but were then
suspended during ongoing assessment and feasibility activities. On June 9, 1992,
the Company entered into a Cooperating Parties Agreement in which it and Gould,
Inc., another prior lessee of the site, agreed to fund certain assessment and
feasibility study activities at the site. The cost of such activities is not
expected to be material to the Company. Management believes it is likely that it
will participate in implementing a continuing remedial program for the site, the
costs of which are currently unknown. In June 1995, Hadco was named a
third-party defendant in the Florida Lawsuit. See "-- Legal Proceedings and
Claims."
The Company has commenced the operation of a groundwater extraction system
at its Derry, New Hampshire facility to address certain groundwater
contamination and groundwater migration control issues. Further investigation is
underway to determine the areal extent of the groundwater contaminant plume.
Because of the uncertainty regarding both the quantity of contaminants beneath
the building at the site and the long-term effectiveness of the groundwater
migration control system the Company has installed, it is not possible to make a
reliable estimate of the length of time remedial activity will have to be
performed. However, it is anticipated that the groundwater extraction system
will be operated for at least 30 years. There can be no assurance that the
Company will not be required to conduct additional investigations and
remediation relating to the Derry facility. The total costs of such groundwater
extraction system and of conducting any additional investigations and
remediation relating to the Derry facility are not fully determinable due to the
numerous variables described in the fifth paragraph of this "-- Environmental
Matters" section.
The City of Santa Clara adopted an ordinance that, as of April 1, 1997,
reduced the amount of waste, including copper and nickel, that companies such as
the Company may discharge into the city sanitary sewer. The ordinance provides
for substantial penalties for intentional or negligent violations. These
penalties include fines ranging from $10,000 to $50,000 per day, revocation of
required business permits, the issuance of a cease and desist order and, under
certain circumstances, up to nine months' imprisonment. Under the ordinance, the
Company is subject to stringent requirements on the amount of water it can
discharge. The concentration limit
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for Hadco's copper discharge was reduced from 2.70 milligrams per liter to 1.02
milligrams per liter, and the concentration limit for Hadco's nickel discharge
was reduced from 2.60 milligrams per liter to 0.15 milligrams per liter. The
Company believes it is currently in compliance with the new discharge limits.
The Company accrues estimated costs associated with known environmental
matters, when such costs can be reasonably estimated. The cost estimates
relating to future environmental clean-up are subject to numerous variables, the
effects of which can be difficult to measure, including the stage of the
environmental investigations, the nature of potential remedies, possible joint
and several liability, the magnitude of possible contamination, the difficulty
of determining future liability, the time over which remediation might occur,
and the possible effects of changing laws and regulations.
Management believes the ultimate disposition of above known environmental
matters described in this "-- Environmental Matters" section 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. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and Note 9 of Notes to the Company's Consolidated Financial
Statements.
The Company plans additional capital expenditures during fiscal 1998 to
further reduce air emissions and reduce waste generation. See discussion under
"-- Manufacturing and Facilities" concerning the Company's capital expenditures
relating to environmental control facilities and equipment, and under "-- Legal
Proceedings and Claims" relating to lawsuits regarding environmental matters.
LEGAL PROCEEDINGS AND CLAIMS
The Company is one of 33 entities which have been named as potentially
responsible parties in a lawsuit pending in the federal district court of New
Hampshire concerning environmental conditions at the Auburn Road, Londonderry,
New Hampshire landfill site. Local, state and federal entities and certain other
parties to the litigation seek contribution for past costs, totaling
approximately $20 million, allegedly incurred to assess and remediate the Auburn
Road site. In December 1996, following publication and comment period, the EPA
amended the ROD to change the remedy at the Auburn Road site from active
groundwater remediation to future monitoring. Other parties to the lawsuit also
allege that future monitoring will be required. The Company is contesting
liability, but is participating in mediation with 27 other parties in an effort
to resolve the lawsuit.
In connection with the Florida Lawsuit pending in the Circuit Court for
Broward County, Florida (described above under "-- Environmental Matters"), each
of Hadco and Gould, Inc., another prior lessee of the site of the printed
circuit manufacturing facility in Florida, was served with a third-party
complaint in June 1995, as third-party defendants in such pending Florida
Lawsuit by a party who had previously been named as a defendant when the Florida
Lawsuit was commenced in 1993 by the FDEP. The Florida Lawsuit seeks damages
relating to environmental pollution and FDEP costs and expenses, civil
penalties, and declaratory and injunctive relief to require the parties to
complete assessment and remediation of soil and groundwater contamination. The
other parties include alleged owners of the property and Fleet Credit
Corporation, a secured lender to a prior lessee of the property. "See
Business -- Environmental Matters."
In March 1993, the EPA notified Hadco Santa Clara (formerly Zycon) of its
potential liability for maintenance and remediation costs in connection with a
hazardous waste disposal facility operated by Casmalia Resources, a California
Limited Partnership, in Santa Barbara County, California. The EPA identified
Hadco Santa Clara as one of the 65 generators which had disposed the greatest
amounts of materials at the site. Based on the total tonnage contributed by all
generators, Hadco Santa Clara's share is estimated at approximately 0.2% of the
total weight.
The Casmalia site was regulated by the EPA during the period when the
material was accepted. There is no allegation that Hadco Santa Clara violated
any law in the disposal of material at the site, rather the EPA's actions
stemmed from the fact that Casmalia Resources may not have the financial means
to implement a closure plan for the site and because of Hadco Santa Clara's
status as a generator of hazardous waste.
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In June 1997, the United States District Court in Los Angeles, California
approved and entered a Consent Decree among the EPA and 49 entities (including
Hadco Santa Clara) acting through the Casmalia Steering Committee (CSC). The
Consent Decree sets forth the terms and conditions under which the CSC will
carry out work aimed at final closure of the site. Certain closure activities
will be performed by the CSC. Later work will be performed by the CSC, if funded
by other parties. Under the Consent Decree, the settling parties will work with
the EPA to pursue the non-settling parties to ensure they participate in
contributing to the closure and long-term operation and maintenance of the
facility.
The EPA will continue as the lead regulatory agency during the final
closure work. Because long-term maintenance plans for the site will not be
determined for a number of years, it has not yet been decided which regulatory
agency will oversee this phase of the work plan or how the long-term costs will
be funded. However, the agreement provides a mechanism for ensuring that an
appropriate federal, state or local agency will assume regulatory responsibility
for long-term maintenance.
The future costs in connection with the lawsuits described in the preceding
paragraphs, which arise under state and federal laws that impose legal liability
that may be joint and several, are currently indeterminable due to such factors
as the unknown timing and extent of any future remedial actions which may be
required, the extent of any liability of the Company and of other potentially
responsible parties, and the financial resources of the other potentially
responsible parties. See Note 9 of Notes to the Company's Consolidated Financial
Statements.
On March 27, 1998, the Company received written notice from legal counsel
for the Lemelson Medical, Education & Research Foundation Limited Partnership
(the "Lemelson Partnership"), alleging that the Company is infringing certain
patents held by the Lemelson Partnership and offering to license such patents to
the Company. The ultimate outcome of this matter is not currently determinable,
and there can be no assurance that the outcome of this matter will not have a
material adverse effect upon the Company's business, financial condition and
results of operations. Litigation with respect to patents and other intellectual
property matters can result in substantial damages, require the cessation of the
manufacture, use and sale of infringing products and the use of certain
processes, or require the infringing party to obtain a license to the relevant
intellectual property.
On January 12, 1998, Hadco Santa Clara (formerly Zycon) received notice of
the filing of a lawsuit, before the Superior Court (County of Santa Clara,
California), against it by Jackie Riley, Keith Riley and Richard Riley for
damages (including punitive damages) for alleged injuries suffered, including
Richard Riley's cancer, as a result of the alleged emission at a Zycon facility
of effluent from allegedly toxic and hazardous chemical substances. Because this
matter is at an early stage, the Company believes it cannot assess the potential
range of damages that might be awarded should the plaintiffs prevail.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Horace H. Irvine II(1).................... 61 Chairman of the Board of Directors
Andrew E. Lietz........................... 59 President, Chief Executive Officer and
Director
Timothy P. Losik.......................... 39 Senior Vice President, Chief Financial
Officer and Treasurer
John D. Caruso, Jr........................ 50 Senior Vice President
Christopher T. Mastrogiacomo.............. 40 Senior Vice President
Frederick G. McNamee, III................. 41 Senior Vice President
Michael K. Sheehy......................... 50 Senior Vice President
Robert E. Snyder.......................... 58 Senior Vice President
James C. Hamilton......................... 61 Clerk
Oliver O. Ward(2)......................... 63 Director
Patrick Sweeney........................... 63 Director
Lawrence Coolidge(1)...................... 62 Director
John F. Smith(1)(2)(3).................... 62 Director
John E. Pomeroy(3)........................ 57 Director
James C. Taylor(2)(3)..................... 60 Director
Mauro J. Walker........................... 62 Director
</TABLE>
- ---------------
(1) Member of Nominating Committee.
(2) Member of Audit Committee.
(3) Member of Compensation Committee.
Mr. Irvine is a founder of the Company and has been its Chairman of the
Board since the Company was incorporated in 1966, and its Chief Executive
Officer from 1966 until 1986. He was President of the Company from 1966 until
1980 and Treasurer of the Company from 1966 until 1984. He is Chairman of the
Executive and Long-Term Planning and Strategy Committees of the Board of
Directors.
Mr. Lietz joined the Company in 1984 and has been President and Chief
Executive Officer of the Company since October 1995. From July 1991 to October
1995 Mr. Lietz was the Chief Operating Officer and a Vice President of the
Company. He has been a director of the Company since February 1993. Prior to
joining the Company, Mr. Lietz spent 20 years employed by IBM where he held
various sales, marketing and management positions. Mr. Lietz is also a director
of Energy North Natural Gas, Inc. and Wyman-Gordon Company.
Mr. Losik joined the Company in 1986 and has been Senior Vice President in
charge of Eastern Operations since June 1998, a Senior Vice President since
September 1997 and the Chief Financial Officer and Treasurer of the Company
since March 1994. He currently serves as Senior Vice President, Chief Financial
Officer and Treasurer of the Company. He was a Vice President from March 1994 to
September 1997, Controller of the Company from June 1992 to March 1994 and a
Corporate Accounting Manager from March 1988 to June 1992. Mr. Losik is a
certified public accountant. From 1979 to 1986, Mr. Losik held various
positions, including partner, in public accounting firms.
Mr. Caruso joined the Company in September 1997 as a Senior Vice President
in charge of Eastern Operations. In June 1998, Mr. Caruso was appointed Senior
Vice President in charge of Corporate Services and Chief Information Officer.
Prior to joining Hadco, Mr. Caruso was the Managing Director of Worldwide
Manufacturing at Cabletron Systems, a computer company, from 1990 to September
1997.
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Mr. Mastrogiacomo joined the Company in March 1988 and has been the Senior
Vice President in charge of the Santa Clara volume operations as well as all
North American value added manufacturing operations (backplane assembly) since
September 1997. He was a Vice President from January 1997 to September 1997, and
the Business Unit Manager in charge of the Derry volume printed circuit business
unit from January 1994 to January 1997. From March 1988 to January 1994, Mr.
Mastrogiacomo was Manufacturing Manager at the Company's Owego, New York
facility.
Mr. McNamee joined the Company in March 1998 as Senior Vice President in
charge of Hadco Phoenix. Prior to joining the Company, Mr. McNamee was Chairman,
President and Chief Executive Officer of Continental from December 1994 to March
1998. Mr. McNamee joined Continental as President and Chief Executive Officer in
September 1994, and was elected a director of Continental in November 1994.
Prior to joining Continental, Mr. McNamee worked for 15 years at IBM in Austin,
Texas, in a variety of circuit board manufacturing positions, including as
manager of the IBM circuit board facility in Austin from November 1992 to
September 1994.
Mr. Sheehy joined the Company in 1994 and has been the Senior Vice
President of worldwide sales and marketing since September 1997. He was the Vice
President in charge of the value added manufacturing business unit (backplane
assembly) from March 1995 to September 1997. Prior to joining the Company, Mr.
Sheehy was the Vice President of Logistic Operations and then Operations at
Kendall Square Research Corp. from January 1991 to November 1994. Prior to that,
Mr. Sheehy held various management positions at Wang Computer from 1981 to 1991.
Mr. Snyder joined the Company in January 1997 and has been a Senior Vice
President since September 1997. Prior to joining the Company, Mr. Snyder was
Managing Director of Asian Operations of Zycon from January 1996 to January
1997. He was a vice president of Zycon from February 1990 to January 1996.
Mr. Hamilton has been the Clerk of the Company since 1966. He is a partner
in the law firm of Hamilton & Dahmen, LLP, general counsel to the Company.
Mr. Ward has been a director of the Company since 1987. He is Chairman of
the Audit and Finance Committees of the Board of Directors. He was a founder and
has served as chairman of the board, chief executive officer and president of
Germanium Power Devices Corp., a manufacturer and marketer of germanium
semiconductors, since 1973.
Mr. Sweeney has been a director of the Company since 1991. He was President
and Chief Executive Officer of the Company from 1991 until October 1995, and
Chief Operating Officer from July 1990 to July 1991. He is currently a private
business consultant.
Mr. Coolidge has been a director of the Company since 1995. He has been the
president and a private trustee of Loring, Wolcott & Coolidge Office, a
fiduciary services provider, since 1962. In August 1994, Mr. Coolidge became an
associate of Loring, Wolcott & Coolidge Fiduciary Advisors, a registered
investment advisor.
Mr. Smith has been a director of the Company since 1995. He is Chairman of
the Nominating Committee of the Board of Directors. He has been the president of
MYCOS International, Inc., a property development corporation, since April 1993,
and president of PerSeptive Biosystems, Inc., a biotechnology company, July 1996
to January 1998 and currently serves as a consultant. In April 1993, Mr. Smith
retired as Senior Vice President and Chief Operating Officer of Digital
Equipment Corporation, a computer company, in which capacities he had served
since 1991. He began his career at Digital Equipment Corporation in 1958 and
served in various other senior management positions from 1976 to 1991. Mr. Smith
is also a director of Ansys Corporation, Instron Corporation, and Sequoia
Systems, Inc.
Mr. Pomeroy has been a director of the Company since September 1996. He has
been president and chief executive officer of Dover Technologies, a group of
manufacturing companies and a subsidiary of Dover Corporation, since 1987. Mr.
Pomeroy is also a director of Adept Technologies, Inc.
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Mr. Taylor has been a director of the Company since December 1996. He is
Chairman of the Compensation Committee of the Board of Directors. He has been an
advisory director at Downer and Company, an investment banking firm, since 1995.
He was a managing director of Burns Fry Limited, an investment banking firm,
from 1988 to 1994.
Mr. Walker has been a director of the Company since June 1998. Mr. Walker
is the former Senior Vice President and Motorola Director of Manufacturing for
Motorola Corporation, a position he held from 1989 to 1997. Mr. Walker is a past
chair of the Motorola Corporate Advanced Manufacturing Technology Council and
served as a member of Motorola's Science Advisory Board. Mr. Walker is an
ex-officio member and past Industry Chairman of the National Electronics
Manufacturing Initiative, an electronics manufacturing industry organization.
Directors are elected annually and hold office until the next annual
meeting of stockholders and until their successors are duly elected and
qualified, or until their earlier removal or resignation. Executive officers are
elected to serve at the pleasure of the Board of Directors. There are no family
relationships among any of the directors and executive officers of the Company.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain material terms of certain
indebtedness of the Company. The summary is qualified in its entirety by
reference to the Credit Facility and other agreements to which such summary
relates, copies of which are available upon request to the Company.
CREDIT FACILITY
In December 1997, the Company negotiated a $400 million unsecured senior
revolving credit facility with a group of banks that amended and restated the
Company's then existing credit facility. Approximately $220 million of loans
were incurred under the Credit Facility to finance the Continental Acquisition
in March 1998, to repay outstanding indebtedness of Continental and to pay
certain costs relating to the Continental Acquisition. The Credit Facility was
amended in March 1998 to add certain representations, warranties, conditions and
covenants in connection with the Continental Acquisition. The Credit Facility
was further amended in May 1998 to add certain conditions and covenants with
respect to the Original Notes Offering. The net proceeds of the Original Notes
Offering were used to repay borrowings under the Credit Facility incurred in
connection with the Acquisitions. As of August 1, 1998, the amount outstanding
under the Credit Facility was approximately $160 million.
On September 15, 1998, the Credit Facility was further amended with the
Third Amendment and Modification Agreement dated as of September 14, 1998. This
most recent amendment to the Credit Facility, among other things, amended and
added certain financial covenants, changed the available borrowing capacity
under the Credit Facility from $400 million to the lesser of $300 million and
the Borrowing Base and granted the banks a first priority mortgage and security
interest in substantially all of the assets of the Company and each of the
subsidiaries which are guarantors of the Credit Facility. The Borrowing Base is
an amount, determined monthly (or more frequently in certain circumstances) by
the Agent, equal to the sum of specified percentages of Eligible Accounts
Receivable (domestic and foreign), domestic Eligible Inventory, Eligible Fixed
Assets and a percentage, determined in the Agent's sole discretion, of Eligible
Foreign Inventory, less certain Reserves. Under this most recent amendment, the
Company is also required to pay a quarterly usage fee based on an Applicable
Base Rate Usage Fee Margin and an Applicable Eurodollar Rate Usage Fee Margin.
The Credit Facility expires and all outstanding loans thereunder mature on
January 8, 2002 (the "Credit Facility Maturity Date").
Subject to the satisfaction of customary conditions, the Company may obtain
loans or letters of credit under the Credit Facility at any time prior to the
Credit Facility Maturity Date. Such loans may be used for acquisitions permitted
under the Credit Facility and for working capital and general corporate
purposes. Such letters of credit may be used solely for general corporate
purposes.
The Company is required to pay a quarterly commitment fee ranging from 0.2%
to 0.375% per annum, based on the Company's ratio of Consolidated Funded Debt to
EBITDA (as defined in the Credit Facility), of
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<PAGE> 67
the unused commitment under the Credit Facility. At the Company's election,
loans under the Credit Facility bear interest at either (i) the Base Rate or
(ii) the Eurodollar Rate plus the Applicable Eurodollar Rate Margin. The "Base
Rate" is equal to the higher of (a) the annual rate of interest announced from
time to time by the Agent as its base rate, and (b) one-half of one percent
(0.5%) above the Federal Funds Effective Rate, in each case as in effect from
time to time (the Federal Funds Effective Rate being, for any day, either the
rate per annum equal to the weighted average of the rates on overnight federal
funds transactions with members of the Federal Reserve System arranged by
federal funds brokers, or if such rate is not published, the average of the
quotations for such day on such transactions received by the Agent from three
funds brokers selected by it). For any applicable interest period, the
"Eurodollar Rate" is equal to (i) the arithmetic average of the annual rates
(rounded upwards to the nearest 1/16 of 1%) of the rate at which BankBoston,
N.A. is offered dollar deposits in the interbank eurodollar market, divided by
(ii) a number equal to 1.00 minus the maximum rate at which reserves may be
required to be maintained under Regulation D of the Board of Governors of the
Federal Reserve System. The Applicable Eurodollar Rate Margin in effect at any
time ranges from 0.5% to 1.375%, based on the Company's ratio of Consolidated
Funded Debt to EBITDA. Interest on loans which bear interest based upon the Base
Rate is payable quarterly in arrears and on the Credit Facility Maturity Date,
and interest on loans which bear interest based upon the Eurodollar Rate is
payable on the last day of each relevant interest period (or if such period
exceeds three months, on each three month anniversary of the first day of such
interest period and the last day of such interest period) and on the Credit
Facility Maturity Date. As of August 1, 1998, the weighted average interest rate
on loans outstanding under the Credit Facility was 6.75%.
The Credit Facility contains customary representations and warranties. The
Credit Facility also contains extensive affirmative and negative covenants,
including, among others, certain limits on the ability of the Company and its
subsidiaries to incur indebtedness, create liens, make investments, pay
dividends or other distributions, engage in mergers, consolidations,
acquisitions or dispositions, enter into sale and leaseback transactions, enter
into guarantees, prepay subordinated indebtedness, make capital expenditures or
create any new series of capital stock or amend the terms of existing capital
stock. The Credit Facility also requires the Company to maintain certain
financial covenants, including maximum ratio of Consolidated Funded Debt to
EBITDA, minimum interest coverage, minimum consolidated net worth and minimum
fixed charge coverage. Certain financial covenants have been modified and others
added under the most recent amendment to the Credit Facility, including an
additional covenant with respect to a minimum ratio of EBITDA to Consolidated
Total Interest Expense, which covenant terminates at the end of the Company's
fiscal first quarter 1999, and a covenant limiting the amount of Capital
Expenditures the Company and its subsidiaries may make, which covenant
terminates at the end of the Company's fiscal fourth quarter 1999. The Credit
Facility also contains customary events of default. The Company was in default
as of the four quarter period ended August 1, 1998 with respect to two of its
financial covenants, which defaults have been waived by the Company's banks.
MALAYSIAN CREDIT FACILITY
The Company has a line of credit arrangement with a Malaysian bank
denominated in Malaysian ringgits and U.S. dollars for aggregate borrowings of
$3.4 million for the purpose of acquiring land, facilities and equipment for the
Company's Malaysian subsidiary. The arrangement is renewable annually. At August
1, 1998, there were no amounts outstanding under this arrangement.
OTHER INDEBTEDNESS
As of August 1, 1998, the Company had approximately $10.6 million in
outstanding capitalized leases and lease line of credit obligations, and a $0.8
million industrial development bond.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
General
In connection with the sale of Original Notes to the Initial Purchasers
pursuant to the Placement Agreement, dated May 13, 1998 (the "Placement
Agreement"), among the Company, the Guarantors and Morgan Stanley & Co.
Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BancAmerica
Robertson Stephens and BT Alex. Brown Incorporated, the holders of the Original
Notes became entitled to the benefits of the Registration Rights Agreement.
Under the Registration Rights Agreement, the Company became obligated to
file a registration statement in connection with a registered exchange offer and
consummate such exchange offer within six months of the date the Original Notes
were issued (the "Issue Date"). The Exchange Offer being made hereby, if
consummated within the required time period, will satisfy the Company's
obligations under the Registration Rights Agreement. The Company understands
that there are approximately 29 beneficial owners of such Original Notes. This
Prospectus, together with the Letter of Transmittal, is being sent to all such
beneficial holders known to the Company.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all
Original Notes properly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. Subject to the terms and conditions set forth
in this Prospectus and the Letter of Transmittal, the Company will issue $1,000
principal amount of Exchange Notes in exchange for each $1,000 principal amount
of outstanding Original Notes accepted in the Exchange Offer. Holders may tender
some or all of their Original Notes pursuant to the Exchange Offer.
Based on an interpretation by the staff of the Commission set forth in the
Morgan Stanley Letter, the Exxon Capital Letter and similar letters, the Company
believes that Exchange Notes issued pursuant to the Exchange Offer in exchange
for Original Notes may be offered for resale, resold and otherwise transferred
by any person who received such Exchange Notes, whether or not such person is
the holder (other than Restricted Holders) without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the ordinary course of such holder's or
other person's business, neither such holder nor such other person is engaged in
or intends to engage in any distribution of the Exchange Notes and such holders
or other persons have no arrangement or understanding with any person to
participate in the distribution of such Exchange Notes. See Morgan Stanley & Co.
Incorporated, SEC No-Action Letter (available June 5, 1991) and Exxon Capital
Holdings Corporation, SEC No-Action Letter (available May 13, 1988).
If any person were to be participating in the Exchange Offer for the
purposes of participating in a distribution of the Exchange Notes in a manner
not permitted by the Commission's interpretation, such person (a) could not rely
on the Morgan Stanley Letter, the Exxon Capital Letter or similar letters and
(b) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Original Notes, where such Original Notes were acquired by such
broker-dealer as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Original Notes where such Original Notes were acquired by such
broker-dealer as result of market-making or other trading activities; however,
this Prospectus may not be used for resales of Notes acquired directly from the
Company. The Company has agreed that, for a period ending on the earlier to
occur of 180 days after the Expiration Date or the time when all persons subject
to the prospectus delivery requirements of the Securities Act have sold all
Exchange Notes
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held by them, it will make this Prospectus, as it may be amended or supplemented
from time to time, available to any broker-dealer for use in connection with any
such resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. See "Use
of Proceeds." The Company has agreed to bear the expenses of the Exchange Offer
pursuant to the Registration Rights Agreement. No underwriter is being used in
connection with the Exchange Offer.
The Company shall be deemed to have accepted validly tendered Original
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders of Original Notes for the purposes of receiving the Exchange Notes from
the Company and delivering Exchange Notes to such holders.
If any tendered Original Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain conditions set forth herein under
"-- Conditions" without waiver by the Company, certificates for any such
unaccepted Original Notes will be returned, without expense, to the tendering
holder thereof as promptly as practicable after the Expiration Date.
Holders of Original Notes who tender in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of
Original Notes pursuant to the Exchange Offer. The Company will pay all charges
and expenses, other than certain applicable taxes in connection with the
Exchange Offer. See "-- Fees and Expenses."
In the event the Exchange Offer is consummated, the Company will not be
required to register the Original Notes. The Original Notes that are not
exchanged pursuant to the Exchange Offer will remain restricted securities.
Accordingly, such Original Notes may be resold only (i) to the Company, (ii)
pursuant to Rule 144A or Rule 144 under the Securities Act or pursuant to
another exemption under the Securities Act, (iii) outside the United States to a
foreign person pursuant to the requirements of Rule 904 under the Securities
Act, or (iv) pursuant to an effective registration statement under the
Securities Act. See "Risk Factors -- Consequences of Failure to Exchange."
Expiration Date; Extensions; Amendment
The term "Expiration Date" shall mean the expiration date set forth on the
cover page of this Prospectus, unless the Company, in its sole discretion,
extends the Exchange Offer, in which case the term "Expiration Date" shall mean
the latest date to which the Exchange Offer is extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Original Notes an announcement thereof, each prior to 9:00
a.m., New York City time, on the next business day after the previously
scheduled Expiration Date. Such announcement may state that the Company is
extending the Exchange Offer for a specified period of time.
The Company reserves the right (a) to delay accepting any Original Notes,
to extend the Exchange Offer or to terminate the Exchange Offer and not accept
Original Notes not previously accepted if any of the conditions set forth herein
under "-- Conditions" shall have occurred and shall not have been waived by the
Company (if permitted to be waived by the Company), by giving oral or written
notice of such delay, extension or termination to the Exchange Agent, or (b) to
amend the terms of the Exchange Offer in any manner deemed by it to be
advantageous to the holders of the Original Notes. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof. If the Exchange Offer is amended in a manner
determined by the Company to constitute a material change, the Company will
promptly disclose such amendment in a manner reasonably calculated to inform the
holders of the Original Notes of such amendment and the Company may extend the
Exchange Offer for a period of up to ten business days, depending upon the
significance of the amendment and the manner of disclosure to holders of the
Original Notes, if the Exchange Offer would otherwise expire during such
extension period.
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Without limiting the manner in which the Company may choose to make public
announcements of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
Interest on each Exchange Note will accrue from the last date on which
interest was paid on the Original Note surrendered in exchange therefor or, if
no interest has been paid on the Original Note, from the date of original
issuance of such Original Note. Interest on the Exchange Notes will be payable
semiannually on June 15 and December 15 of each year, commencing December 15,
1998, at the rate of 9 1/2% per annum. Holders of Original Notes whose Original
Notes are accepted for exchange will be deemed to have waived the right to
receive any payment in respect of interest on the Original Notes accrued up
until the date of the issuance of the Exchange Notes. No interest will be paid
on the Original Notes accepted for exchange. Holders of Original Notes that are
not exchanged will receive the accrued interest payable on December 15, 1998 in
accordance with the Indenture.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by instruction 3 of the Letter of Transmittal, and mail
or otherwise deliver such Letter of Transmittal or such facsimile, together with
the Original Notes and any other required documents. To be validly tendered,
such documents must reach the Exchange Agent on or before 5:00 p.m., New York
City time, on the Expiration Date.
Timely confirmation of a book-entry transfer of any Original Note, if such
procedure is available, into the Exchange Agent's account at The Depository
Trust Company ("DTC" or the "Depository") pursuant to the procedure for
book-entry transfer described in the following paragraphs, which confirmation is
received by the Exchange Agent prior to the Expiration Date, shall satisfy the
requirement of delivery of such Original Note to the Exchange Agent.
Any financial institution that is a participant in the Depository's
Book-Entry Transfer Facility system may make book-entry delivery of the Original
Notes by causing the Depository to transfer such Original Notes into the
Exchange Agent's account at the Depository in accordance with the Depository's
procedure for such transfer. Although delivery of Original Notes may be effected
through book-entry transfer into the Exchange Agent's account at the Depository,
the Letter of Transmittal (or facsimile thereof), with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received or confirmed by the Exchange Agent at its address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date, in
accordance with the guaranteed delivery procedures described in this Prospectus.
The Exchange Agent and the Depository have confirmed that any financial
institution that is a participant in the Depository's system may utilize the
Depository's Automated Tender Offer Program to tender Original Notes.
The tender by a holder of Original Notes will constitute an agreement
between such holder and the Company in accordance with the terms and subject to
the conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address
set forth below. Holders may also request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect such tender for such
holders.
THE METHOD OF DELIVERY OF ORIGINAL NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDERS. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE 5:00 P.M.,
NEW YORK CITY TIME, ON THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR ORIGINAL
NOTES SHOULD BE SENT TO THE COMPANY.
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Only a holder of Original Notes may tender such Original Notes in the
Exchange Offer. The term "holder" with respect to the Exchange Offer means any
person in whose name Original Notes are registered on the books of the Company
or any other person who has obtained a properly completed bond power from the
registered holder.
Any beneficial holder whose Original Notes are registered in the name of
his broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on his behalf. If such beneficial holder wishes
to tender on his own behalf, such registered holder must, prior to completing
and executing the Letter of Transmittal and delivering his Original Notes,
either make appropriate arrangements to register ownership of the Original Notes
in such holder's name or obtain a properly completed bond power from the
registered holder. The transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.
or a commercial bank or trust company having an office or correspondent in the
United States (an "Eligible Institution") unless the Original Notes tendered
pursuant thereto are tendered (a) by a registered holder who has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal or (b) for the account of an Eligible
Institution. In the event that signatures on a Letter of Transmittal or a notice
of withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by an Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Original Notes listed therein (which term includes any
participants in DTC whose name appears on a security position listing as the
owner of the Original Notes), such Original Notes must be endorsed or
accompanied by appropriate bond powers and a proxy which authorizes such person
to tender the Original Notes on behalf of the registered holder, in each case
signed as the name of the registered holder or holders appears on the Original
Notes.
If the Letter of Transmittal or any Original Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority so to act must
be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), and withdrawal of the tendered Original Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Original
Notes not properly tendered or any Original Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any irregularities or conditions of tender as
to particular Original Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Original Notes must be
cured within such time as the Company shall determine. Neither the Company, the
Exchange Agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of Original Notes, nor
shall any of them incur any liability for failure to give such notification.
Tenders of Original Notes will not be deemed to have been made until such
irregularities have been cured or waived. Any Original Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost to
such holder by the Exchange Agent to the tendering holders of Original Notes,
unless otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any Original Notes that remain outstanding
subsequent to the Expiration Date or, as set forth under "-- Conditions," to
terminate the Exchange Offer in accordance with the terms of the Registration
Rights Agreement and (b) to the extent permitted by applicable law, purchase
Original Notes in the open market, in privately
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<PAGE> 72
negotiated transactions or otherwise. The terms of any such purchases or offers
will differ from the terms of the Exchange Offer.
By tendering, each holder will represent to the Company that, among other
things, (a) the Exchange Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of such holder or other person, (b)
neither such holder no such other person is engaged in or intends to engage in a
distribution of the Exchange Notes, (c) neither such holder nor other person has
any arrangement or understanding with any person to participate in the
distribution of such Exchange Notes, and (d) such holder or other person is not
an "affiliate," as defined under Rule 405 of the Securities Act, of the Company
or any Guarantor or, if such holder or other person is such an affiliate, will
comply with the registration and prospectus delivery requirements of the
Securities Act to the extent applicable.
Each broker-dealer that receives Exchange Notes for its own account
exchange for Original Notes, where such Original Notes were acquired by such
broker-dealer as a result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Original Notes where such Original Notes were acquired by such
broker-dealer as a result of market-making or other trading activities; however,
this Prospectus may not be used for resales of Notes acquired directly from the
Company. The Company has agreed that, for a period ending on the earlier to
occur of 180 days after the Expiration Date or the time when all persons subject
to the prospectus delivery requirements of the Securities Act have sold all
Exchange Notes held by them, it will make this Prospectus, as it may be amended
or supplemented from time to time, available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer. See "Use
of Proceeds." The Company has agreed to bear the expenses of the Exchange Offer
pursuant to the Registration Rights Agreement. No underwriter is being used in
connection with the Exchange Offer.
The Original Notes were issued on May 18, 1998 and there is no public
market for them at present. To the extent Original Notes are tendered and
accepted in the Exchange Offer, the principal amount of outstanding Original
Notes will decrease with a resulting decrease in the liquidity in the market
therefor. Following the consummation of the Exchange Offer, holders of Original
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the Original Notes could be
adversely affected.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Original Notes at the Depository for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depository's system may make book-entry
delivery of Original Notes by causing the Depository to transfer such Original
Notes into the Exchange Agent's account at the Depository in accordance with the
Depository's procedure for such transfer. Although delivery of Original Notes
may be effected through book-entry transfer into the Exchange Agent's account at
the Depository, the Letter of Transmittal (or facsimile thereof), with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received or confirmed by the Exchange Agent at its
addresses set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date, in accordance with the guaranteed delivery procedures described
in this Prospectus.
Where Original Notes were tendered by book-entry transfer and such Original
Notes are to be returned to the holder thereof for any reason, such Original
Notes will be credited to the account of such holder maintained at the
Depository, and such procedure shall satisfy the Company's obligation to return
Original Notes in the event such return is required by the terms described
herein.
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GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Original Notes and (a) whose Original
Notes are not immediately available or (b) who cannot deliver their Original
Notes (or complete the procedures for book-entry transfer), the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if:
(i) the tender is made through an Eligible Institution;
(ii) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Original Notes, the
certificate number or numbers of such Original Notes and the principal
amount of Original Notes tendered, stating that the tender is being made
thereby, and guaranteeing that, within three business days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof) together
with the certificate(s) representing the Original Notes to be tendered in
proper form for transfer (or a confirmation of a book-entry transfer into
the Exchange Agent's account at the Depository of Original Notes delivered
electronically) and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the Exchange
Agent; and
(iii) such properly completed and executed Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing all
tendered Original Notes in proper form for transfer (or a confirmation of a
book-entry transfer into the Exchange Agent's account at the Depository of
Original Notes delivered electronically) and all other documents required
by the Letter of Transmittal are received by the Exchange Agent within
three business days after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date, unless previously accepted for exchange.
To withdraw a tender of Original Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (a) specify the name of
the person having deposited the Original Notes to be withdrawn (the
"Depositor"), (b) identify the Original Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Original Notes), (c)
be signed by the Depositor in the same manner as the original signature on the
Letter of Transmittal by which such Original Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Original Notes register the
transfer of such Original Notes into the name of the Depositor withdrawing the
tender and (d) specify the name in which any such Original Notes are to be
registered, if different from that of the Depositor. If Original Notes have been
tendered pursuant to the procedures for book-entry transfer, the notice of
withdrawal must specify the name and number of the account at DTC to be credited
with the withdrawal of the Original Notes. All questions as to the validity,
form and eligibility (including time of receipt) of such withdrawal notices will
be determined by the Company, whose determination shall be final and binding on
all parties. Any Original Notes so withdrawn will be deemed not to have been
validly tendered for purposes of the Exchange Offer and no Exchange Notes will
be issued with respect thereto unless the Original Notes so withdrawn are
validly retendered. Any Original Notes which have been tendered but which are
not accepted for exchange will be returned to the holder thereof without cost to
such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Original Notes may be
retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
Where Original Notes were tendered by book-entry transfer and such Original
Notes are to be returned to the holder thereof for any reason, such Original
Notes will be credited to the account of such holder
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<PAGE> 74
maintained at the Depository, and such procedure shall satisfy the Company's
obligation to return Original Notes in the event such return is required by the
terms described herein.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or exchange Exchange Notes for, any Original
Notes not theretofore accepted for exchange, and may terminate or amend the
Exchange Offer as provided herein before the acceptance of such Original Notes,
if the Company determines in its reasonable discretion that any of the following
conditions exist: the Exchange Offer would, or would reasonably be likely to,
violate applicable law or applicable interpretations of the staff of the
Commission or a stop order, injunction or similar Commission or court order or
ruling has been instituted against the Exchange Offer. If the Company determines
in its reasonable discretion that any of these conditions are not satisfied, the
Company may (i) refuse to accept any Original Notes and return all tendered
Original Notes to the tendering holder, (ii) extend the Exchange Offer and
retain all Original Notes tendered prior to the expiration of the Exchange
Offer, subject, however, to the rights of holders to withdraw such Original
Notes (see "-- Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Original Notes which have not been withdrawn. If such waiver constitutes a
material change to the Exchange Offer, the Company will promptly disclose such
waiver by means of a prospectus supplement that will be distributed to the
registered holders of the Original Notes, and the Company will extend the
Exchange Offer for a period of ten business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
holders, if the Exchange Offer would otherwise expire during such ten business
day period.
Holders may have certain rights and remedies against the Company under the
Registration Rights Agreement should the Company fail to consummate the Exchange
Offer, notwithstanding a failure of the conditions stated above. Such conditions
are not intended to modify those rights or remedies in any respect. The
foregoing conditions are for the sole benefit of the Company and may be asserted
by the Company regardless of the circumstances giving rise to such condition or
may be waived by the Company in whole or in part at any time and from time to
time in the Company's discretion. The failure by the Company at any time to
exercise the foregoing rights shall not be deemed a waiver of any such right and
each such right shall be deemed an ongoing right which may be asserted at any
time and from time to time.
Pursuant to the Registration Rights Agreement, in the event that (i) the
Company and the Guarantors determine that the Exchange Offer is not available or
may not be consummated as soon as practicable after the Expiration Date because
it would violate applicable law or the applicable interpretations of the Staff
of the Commission, (ii) the Exchange Offer is not for any other reason
consummated by November 18, 1998, or (iii) the Exchange Offer has been completed
and in the opinion of counsel for the Initial Purchasers a registration
statement must be filed and a prospectus must be delivered by the Initial
Purchasers in connection with any offering or sale of Original Notes, each of
the Company and the Guarantors have agreed to use its best efforts to cause to
be filed as soon as practicable after such determination, date or notice of such
opinion of counsel is given to the Company and the Guarantors, as the case may
be, a shelf registration statement (the "Shelf Registration Statement") with
respect to the Original Notes and to use its best efforts to have such Shelf
Registration Statement declared effective by the Commission.
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EXCHANGE AGENT AND INFORMATION AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent
for the Exchange Offer. Questions and requests for assistance and requests for
additional copies of this Prospectus or of the Letter of Transmittal and
deliveries of completed Letters of Transmittal with tendered Original Notes
should be directed to the Exchange Agent addressed as follows:
<TABLE>
<CAPTION>
By Mail By Hand/ Overnight Delivery By Facsimile
------- --------------------------- ------------
<S> <C> <C>
State Street Bank and Trust Company State Street Bank and Trust Company (Eligible Institutions only)
P.O. Box 778, 4th Floor Two International Place, 4th Floor (617) 664-5290
Boston, MA 02102-0078 Boston, MA 02110
Attention: Corporate Trust Attention: Corporate Trust
Division/ Kellie Mullen Division/ Kellie Mullen
Tel. (617) 664-5587
</TABLE>
The Company will indemnify the Exchange Agent and its agents for any loss,
liability or expense incurred by them, including reasonable costs and expenses
of their defense, except for any such loss, liability or expense caused by
negligence, misconduct or bad faith.
Questions and requests for assistance and requests for additional copies of
this Prospectus or of the Letter of Transmittal may also be directed to
MacKenzie Partners, Inc. (the "Information Agent") addressed as follows:
MacKenzie Partners, Inc.
156 Fifth Avenue
New York, New York 10010
(212) 929-5000 (collect)
(800) 322-2885 (toll-free)
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates and by the
Information Agent in person, by telephone or facsimile.
The Company will not make any payments to brokers, dealers, or other
persons soliciting acceptances of the Exchange Offer. The Company, however, will
pay the Exchange Agent and the Information Agent reasonable and customary fees
for their services and will reimburse the Exchange Agent for its reasonable out-
of-pocket expenses in connection therewith. The Company may also pay brokerage
houses and other custodians, nominees and fiduciaries the reasonable
out-of-pocket expenses incurred by them in forwarding copies of this Prospectus,
Letters of Transmittal and related documents to the beneficial owners of the
Original Notes, and in handling or forwarding tenders for exchange.
The expenses to be incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent, the Information Agent and
Trustee and accounting and legal fees and expenses and printing costs, will be
paid by the Company and are estimated in the aggregate to be approximately
$275,000.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Original Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes (or Original Notes for principal amounts not
tendered or accepted for exchange) are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered holder
of the Original Notes tendered, or if tendered Original Notes are registered in
the name of any person other than the person signing the Letter of Transmittal,
or if a transfer tax is imposed for any reason other than the exchange of
Original Notes pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered holder or any other persons)
will be payable by the tendering holder. If satisfactory evidence of payment of
such taxes or
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exemption therefrom is not submitted with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The Company will not recognize any gain or loss for accounting purposes
upon the consummation of the Exchange Offer. The expense of the Exchange Offer
will be amortized by the Company over the term of the Exchange Notes under
generally accepted accounting principles.
CONSEQUENCE OF FAILURE TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Original
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take. The Original Notes which are not exchanged for
the Exchange Notes pursuant to the Exchange Offer will remain restricted
securities. Accordingly, such Original Notes may be resold only (i) to a person
whom the seller reasonably believes is a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) in a transaction meeting the
requirements of Rule 144A, (ii) in a transaction meeting the requirements of
Rule 144 under the Securities Act, (iii) outside the United States to a foreign
person in a transaction meeting the requirements of Rule 904 under the
Securities Act, (iv) in accordance with another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel if the
Company so requests), (v) to the Company or (vi) pursuant to an effective
registration statement and, in each case, in accordance with any applicable
securities laws of any state of the United States or any other applicable
jurisdiction. See "Risk Factors -- Consequences of Failure to Exchange."
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DESCRIPTION OF THE NOTES
The Original Notes were, and the Exchange Notes will be, issued under the
Indenture dated as of May 18, 1998, among the Company, as issuer, all of the
Company's Restricted Subsidiaries other than Foreign Subsidiaries, as guarantors
(collectively, the "Guarantors") and State Street Bank and Trust Company, as
trustee (the "Trustee"). The form of the Exchange Notes and the Original Notes
will be identical in all material respects except that the Exchange Notes will
have been registered under the Securities Act and therefore will not bear
legends restricting their transfer. In the event the Notes are listed on the
Luxembourg Stock Exchange, the proposed Luxembourg paying agent and transfer
agent (the "Luxembourg Paying Agent" and the "Luxembourg Transfer Agent") will
be appointed in accordance with the Indenture. Information concerning the
Luxembourg Paying Agent and the Luxembourg Transfer Agent is set forth in the
Indenture. A copy of the Indenture is available upon request from the Company.
The following summary of certain provisions of the Indenture does not purport to
be complete and is subject to, and is qualified in its entirety by reference to,
all the provisions of the Indenture, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act of 1939,
as amended. Whenever particular defined terms of the Indenture not otherwise
defined herein are referred to, such defined terms are incorporated herein by
reference. For definitions of certain capitalized terms used in the following
summary, see "--Certain Definitions." As used in this "Description of the
Notes," the term "Company," unless otherwise indicated or the context otherwise
requires, refers only to Hadco Corporation and does not include any of its
subsidiaries, including Zycon or Continental. For the purposes of the following
description, the Exchange Notes and the Original Notes are at times collectively
referred to as the "Notes." The Exchange Notes and any Original Notes that
remain outstanding after consummation of the Exchange Offer will be treated as a
single class of securities under the Indenture. The term "Holders" shall refer,
collectively, to holders of Notes.
GENERAL
The Notes are unsecured senior subordinated obligations of the Company,
initially limited to $200 million aggregate principal amount, and will mature on
June 15, 2008. Each Note initially bears interest at 9 1/2% per annum from the
date of original issuance or from the most recent Interest Payment Date to which
interest has been paid or provided for, payable semiannually (to Holders of
record at the close of business on the June 1 or December 1 immediately
preceding the Interest Payment Date) on June 15 and December 15 of each year,
commencing December 15, 1998.
If by the date that is six months after the Closing Date, the Company and
the Guarantors have not consummated a registered exchange offer for the Original
Notes or caused a shelf registration statement with respect to resales of the
Original Notes to be declared effective (a "Registration Default"), the annual
interest rate on the Notes will increase by .5%, effective until the
consummation of a registered exchange offer or the effectiveness of a shelf
registration statement and such additional interest shall be payable to Holders
of the Notes on the Interest Payment Dates, commencing with the first such date
occurring after any such increased interest commences to accrue. After the date
on which such Registration Default is cured, the interest rate on the Notes will
revert to the interest rate originally borne by the Notes (as shown on the cover
of this Prospectus). See "-- Registration Rights."
Interest is computed on the basis of a 360 day year comprised of twelve 30
day months. Principal of, premium, if any, and interest on the Notes will be
payable, and the Notes may be exchanged or transferred, at the office or agency
of the Company in Boston, Massachusetts (which initially will be the corporate
trust office of the Trustee at Two International Place, Boston, Massachusetts
02110 and, to the extent applicable, the offices of the Luxembourg Paying Agent
and the Luxembourg Transfer Agent, respectively); provided that, at the option
of the Company, payment of interest may be made by check mailed to the Holders
at their addresses as they appear in the Security Register. In the event the
Notes are listed on the Luxembourg Stock Exchange, for so long as the Notes are
so listed and the rules of such stock exchange so require, the Company will
maintain a paying agent and transfer agent in Luxembourg.
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The Notes are issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount and any integral multiple thereof.
See "-- Book-Entry; Delivery and Form." No service charge will be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
Subject to the covenants described below under "Covenants" and applicable
law, the Company may issue additional Notes under the Indenture. The Notes, the
Exchange Notes offered hereby and any additional Notes subsequently issued would
be treated as a single class for all purposes under the Indenture.
NOTE GUARANTEES
The Company's obligations under the Notes are fully and unconditionally
guaranteed (the "Note Guarantees"), on a senior subordinated basis, jointly and
severally, by the Guarantors; provided that no Note Guarantee shall be
enforceable against any Guarantor in an amount that would cause such Note
Guarantee to be a fraudulent conveyance under applicable law. See "Risk
Factors -- Fraudulent Conveyance."
The Note Guarantees are subordinated to all Senior Indebtedness of the
Guarantors on the same basis as the Notes are subordinated to the Senior
Indebtedness of the Company, pari passu with any senior subordinated
indebtedness of the Guarantors and senior to any indebtedness of the Guarantors
subordinated to the Note Guarantees. The Foreign Subsidiaries and the Company's
Subsidiaries which are not Restricted Subsidiaries will not guarantee the Notes.
Therefore, the Notes and the Note Guarantees are effectively subordinated to all
existing and future liabilities of such Non-Guarantor Subsidiaries.
Each Guarantor may consolidate with or merge into or sell its assets to the
Company or another Guarantor without limitation, or with other Persons upon the
terms and conditions set forth in the Indenture. See "Certain
Covenants -- Consolidation, Merger and Sale of Assets." In the event all or
substantially all of the assets or the Capital Stock of a Guarantor is sold by
the Company or one of its Subsidiaries and the sale complies with the provisions
set forth in "Certain Covenants -- Limitation on Asset Sales," the Guarantor's
Note Guarantee will be automatically discharged and released.
The Company will cause any Person (other than a Foreign Subsidiary) that
becomes a Restricted Subsidiary on or after the Closing Date to execute the
Indenture as a Guarantor.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time or from time to time, on or after June 15, 2003 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders of record on the relevant Regular Record
Date that is on or prior to the Redemption Date to receive interest due on an
Interest Payment Date), if redeemed during the 12-month period commencing June
15, of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---- ----------------
<S> <C>
2003......................................... 104.750%
2004......................................... 103.167
2005......................................... 101.583
2006 and thereafter.......................... 100.000
</TABLE>
In addition, at any time and from time to time prior to June 15, 2001, the
Company may redeem up to 35% of the aggregate principal amount of the Notes with
the proceeds of one or more Equity Offerings, at a Redemption Price of 109.50%,
plus accrued and unpaid interest to the Redemption Date (subject to the rights
of Holders of record on the relevant Regular Record Date that is prior to the
Redemption Date to receive interest due on an Interest Payment Date); provided
that (i) Notes representing 65% of the principal amount
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<PAGE> 79
of Notes initially issued remain outstanding after each such redemption and (ii)
notice of such redemption is mailed within 60 days of the related Equity
Offering.
Prior to June 15, 2003, the Notes will be redeemable at the Company's
option, in whole or in part, at any time or from time to time, upon not less
than 30 nor more than 60 days' prior notice mailed by first class mail to each
Holder's registered address, at a redemption price (expressed as a percentage of
principal amount) equal to the sum of the principal amount of such Notes plus
the Applicable Premium thereon at the time of redemption (an "Early Redemption
Date") (subject to the right of holders of record on the relevant record date to
receive interest due on the relevant interest payment date).
The following definitions are used to determine the redemption price:
"Applicable Premium" means, with respect to a Note at any Early Redemption
Date, the greater of (i) 1.0% of the principal amount of such Note and (ii) the
excess of (A) the present value at such time of (1) the redemption price of such
Note at June 15, 2003 (such redemption price being set forth on the table above)
plus (2) all semiannual payments of interest through, June 15, 2003 computed
using a discount rate equal to the Treasury Rate plus 50 basis points over (B)
the principal amount of such Note.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519) which
has become publicly available at least two business days prior to the date fixed
for repayment (or, if such Statistical Release is no longer published, any
publicly available source of similar market data)) most nearly equal to the then
remaining Average Life to Stated Maturity of the Notes, provided, however, that
if the average life to Stated Maturity of the Notes is not equal to the constant
maturity of a United States Treasury security for which a weekly average yield
is given, the Treasury Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of a year) from the weekly average yields
of United States Treasury securities for which such yields are given.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange, if any, on which the Notes are
listed or, if the Notes are not listed on a national securities exchange, by
lot, pro rata or by such other method as the Trustee in its sole discretion
shall deem to be fair and appropriate; provided that no Note of $1,000 in
principal amount or less shall be redeemed in part. If any Note is to be
redeemed in part only, the notice of redemption relating to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note.
SINKING FUND
There will be no sinking fund payments for the Notes.
REGISTRATION RIGHTS
The Exchange Offer is intended to satisfy certain of the obligations of the
Company and the Guarantors under the Registration Rights Agreement, as described
in this "-- Registration Rights" section.
The Company and the Guarantors have agreed with the Initial Purchasers, for
the benefit of the Holders, that they will use their best efforts, at their
cost, to file and cause to become effective a registration statement with
respect to a registered offer (the "Exchange Offer") to exchange the Original
Notes for an issue of senior subordinated notes of the Company being offered
hereby (the "Exchange Notes") with terms identical to the Original Notes and the
Note Guarantees (except that the Exchange Notes will not bear legends
restricting the transfer thereof). Upon such registration statement being
declared effective, the Company and the Guarantors shall offer the Exchange
Notes in return for surrender of the Original Notes. Such offer shall remain
open for not less than 20 business days after the date notice of the Exchange
Offer is mailed to Holders. For each Original Note surrendered to the Company
under the Exchange Offer, the Holder will receive an Exchange Note of equal
principal amount. Interest on each Exchange Note shall accrue from the last
Interest Payment Date on which interest was paid on the Original Notes so
surrendered or, if no interest has been paid on such
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Original Notes, from the Closing Date. In the event that applicable
interpretations of the staff of the Securities and Exchange Commission (the
"Commission") do not permit the Company to effect the Exchange Offer, or under
certain other circumstances, the Company and the Guarantors shall, at their
cost, use their best efforts to cause to become effective a shelf registration
statement (the "Shelf Registration Statement") with respect to resales of the
Notes and to keep such Shelf Registration Statement effective until the
expiration of the time period referred to in Rule 144(k) under the Securities
Act after the Closing Date, or such shorter period that will terminate when all
Original Notes covered by the Shelf Registration Statement have been sold
pursuant to the Shelf Registration Statement or are eligible for resale under
Rule 144(k) or any similar provision then in force under the Securities Act. The
Company shall, in the event of such a shelf registration, provide to each Holder
copies of the prospectus, notify each Holder when the Shelf Registration
Statement for the Original Notes has become effective and take certain other
actions as are required to permit resales of the Notes. A Holder that sells its
Original Notes pursuant to the Shelf Registration Statement generally will be
required to be named as a selling security holder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement that are
applicable to such a Holder (including certain indemnification obligations).
In the event of a registration default, the annual interest rate borne by
the Original Notes will be increased by .5%, effective until the Exchange Offer
or the Shelf Registration Statement is declared effective and such additional
interest shall be payable to Holders of the Original Notes on each Interest
Payment Date, commencing with the first such date occurring after any such
increased interest commences to accrue. After the date on which such
registration default is cured, the interest rate on the Notes will revert to the
interest rate originally borne by the Notes (as shown on the cover of this
Prospectus).
If the Company and the Guarantors effect the Exchange Offer, they will be
entitled to close the Exchange Offer 20 business days after the commencement
thereof, provided that they have accepted all Original Notes theretofore validly
surrendered in accordance with the terms of the Exchange Offer. Original Notes
not tendered in the Exchange Offer shall bear interest at the rate set forth on
the cover page of this Prospectus and be subject to all of the terms and
conditions specified in the Indenture and to the transfer restrictions described
in "Transfer Restrictions."
This summary of certain provisions of the Registration Rights Agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available from the Company upon request.
RANKING; SUBORDINATION
The Notes are unsecured senior subordinated Indebtedness of the Company and
the Guarantors. The payment of the Senior Subordinated Obligations is, to the
extent set forth in the Indenture, subordinated in right of payment to the prior
payment in full, in cash or cash equivalents, of all Senior Indebtedness. At
August 1, 1998, the Company and the Guarantors had approximately $172 million of
Senior Indebtedness outstanding and as of August 1, 1998, pro forma to give
effect to the most recent amendment to the Credit Facility, the Company would
have had approximately $55 million available to it under the Credit Facility,
which, if borrowed, would constitute Senior Indebtedness. At August 1, 1998, the
Guarantors had Senior Indebtedness of approximately $9 million (in addition to
approximately $160 million representing guarantees of the Company's borrowings
under the Credit Facility). Although the Indenture contains limitations on the
amount of additional indebtedness that the Company or any of its Restricted
Subsidiaries may incur, under certain circumstances the amount of such
indebtedness could be substantial and, in any case, such indebtedness may be
Senior Indebtedness. See "-- Covenants -- Limitation on Indebtedness."
Notwithstanding the foregoing, payment from the money or the proceeds of
Government Securities held in any defeasance trust described under
"-- Defeasance" below, will not be contractually subordinated in right of
payment to any Senior Indebtedness or subject to the restrictions described
herein, provided such defeasance trust is established pursuant to the terms of
the Indenture on the Closing Date and not in violation of the terms of any
Senior Indebtedness.
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Except with respect to the money and/or Government Securities held under
any defeasance trust, established pursuant to the terms of the Indenture on the
Closing Date and not in violation of the terms of any Senior Indebtedness, upon
any payment or distribution of assets or securities of the Company or any
Guarantor of any kind or character, whether in cash, property or securities,
upon any dissolution or winding up or total or partial liquidation or
reorganization of the Company or any Guarantor, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other proceedings,
all amounts due or to become due upon all Senior Indebtedness shall first be
paid in full, in cash or cash equivalents, before the Holders of the Notes or
the Trustee on behalf of the Holders of the Notes shall be entitled to receive
any payment by the Company or such Guarantor on account of Senior Subordinated
Obligations or any payment to acquire any of the Notes for cash, property or
securities, or any distribution with respect to the Notes of any cash, property
or securities (other than a payment or distribution in the form of Permitted
Junior Securities). Before any payment may be made by, or on behalf of, the
Company or such Guarantor on any Senior Subordinated Obligations (other than
with the money and/or Government Securities held under any defeasance trust
established pursuant to the terms of the Indenture on the Closing Date and not
in violation of the terms of any Senior Indebtedness), upon any such
dissolution, winding up, liquidation or reorganization, any payment or
distribution of assets or securities of the Company or such Guarantor of any
kind or character, whether in cash, property or securities (other than a payment
or distribution in the form of Permitted Junior Securities), to which the
Holders of the Notes or the Trustee on behalf of the Holders of the Notes would
be entitled, but for the subordination provisions of the Indenture, shall be
made by the Company or such Guarantor or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person making such payment or
distribution or by the Holders of the Notes or the Trustee if received by them
or it, directly to the holders of the Senior Indebtedness or their
representatives or to any trustee or trustees under any indenture pursuant to
which any such Senior Indebtedness may have been issued, as their respective
interests appear, to the extent necessary to pay all such Senior Indebtedness in
full, in cash or cash equivalents after giving effect to any concurrent payment,
distribution or provision therefor to or for the holders of such Senior
Indebtedness. If a payment or distribution is made to Holders of the Notes that,
due to the subordination provisions, should not have been made to them, such
Holders shall be required to hold such payment(s) or distribution(s) in trust
for the holders of Senior Indebtedness and pay it over to them as their
respective interests may appear.
No direct or indirect payment (other than a payment or distribution in the
form of Permitted Junior Securities) by or on behalf of the Company or any
Guarantor of Senior Subordinated Obligations (other than with the money and/or
Government Securities held under any defeasance trust established pursuant to
the terms of the Indenture on the Closing Date and not in violation of the terms
of any Senior Indebtedness), whether pursuant to the terms of the Notes or the
Note Guarantees or upon acceleration or otherwise shall be made if, at the time
of such payment, there exists a default in the payment of all or any portion of
the obligations on any Senior Indebtedness of the Company or such Guarantor and
such default shall not have been cured or waived or the benefits of this
sentence waived by or on behalf of the holders of such Senior Indebtedness. In
addition, during the continuance of any other event of default with respect to
any Designated Senior Indebtedness pursuant to which the maturity thereof may be
accelerated, upon receipt by the Trustee of written notice from the trustee or
other representative for the holders of such Designated Senior Indebtedness (or
the holders of at least a majority in principal amount of such Designated Senior
Indebtedness then outstanding), no payment (other than a payment or distribution
in the form of Permitted Junior Securities) of Senior Subordinated Obligations
(other than with the money and/or Government Securities held under any
defeasance trust established pursuant to the terms of the Indenture on the
Closing Date and not in violation of the terms of any Senior Indebtedness) may
be made by or on behalf of the Company or such Guarantor upon or in respect of
the Notes or the Note Guarantees for a period (a "Payment Blockage Period")
commencing on the date of receipt of such notice and ending 179 days thereafter
(unless, in each case, such Payment Blockage Period shall be terminated by
written notice to the Trustee from such trustee of, or other representatives
for, such holders or by payment in full in cash or cash equivalents of such
Designated Senior Indebtedness or at such time as such defaults cease to exist
or have been cured or waived). Not more than one Payment Blockage Period may be
commenced with respect to the Notes (with respect to the Company or any
particular Guarantor) during any period of 360 consecutive days. Notwithstanding
anything in the Indenture to the contrary, (with respect to the Company and each
Guarantor) there must be
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180 consecutive days in any 360-day period in which no Payment Blockage Period
is in effect. No event of default that existed or was continuing (it being
acknowledged that any subsequent action that would give rise to an event of
default pursuant to any provision under which an event of default previously
existed or was continuing shall constitute a new event of default for this
purpose) on the date of the commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period shall be, or shall be made, the basis for the commencement of a second
Payment Blockage Period by the representative for, or the holders of, such
Designated Senior Indebtedness, whether or not within a period of 360
consecutive days, unless such event of default shall have been cured or waived
for a period of not less than 60 consecutive days.
To the extent any payment of Senior Indebtedness (whether by or on behalf
of the Company or any Guarantor, as proceeds of security or enforcement of any
right of setoff or otherwise) is declared to be fraudulent or preferential, set
aside or required to be paid to any receiver, trustee in bankruptcy, liquidating
trustee, agent or other similar Person under any bankruptcy, insolvency,
receivership, fraudulent conveyance or similar law, then if such payment is
recovered by, or paid over to, such receiver, trustee in bankruptcy, liquidating
trustee, agent or other similar Person, the Senior Indebtedness or part thereof
originally intended to be satisfied shall be deemed to be reinstated and
outstanding as if such payment had not occurred. To the extent the obligation to
repay any Senior Indebtedness is declared to be fraudulent, invalid, or
otherwise set aside under any bankruptcy, insolvency, receivership, fraudulent
conveyance or similar law, then the obligation so declared fraudulent, invalid
or otherwise set aside (and all other amounts that would come due with respect
thereto had such obligation not been so affected) shall be deemed to be
reinstated and outstanding as Senior Indebtedness for all purposes hereof as if
such declaration, invalidity or setting aside had not occurred.
If the Company and the Guarantors fail to make any payment on the Notes
when due or within any applicable grace period, whether or not on account of
payment blockage provisions, such failure would constitute an Event of Default
under the Indenture and would enable the holders of the Notes to accelerate the
maturity thereof; provided, however, that so long as the Credit Facility is in
effect, such declaration shall not become effective until the earlier of (A)
five Business Days after delivery of such notice to the representative of the
Credit Facility and (B) the acceleration of any Indebtedness under the Credit
Facility. See "-- Events of Default."
By reason of the subordination provisions described above, in the event of
the Company's or any Guarantor's liquidation or dissolution, holders of Senior
Indebtedness may receive more, ratably, and holders of the Notes may receive
less, ratably, than the other creditors of the Company or any Guarantor.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
term used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person (including an Unrestricted Subsidiary) becomes a Restricted
Subsidiary or assumed in connection with an Asset Acquisition by a Restricted
Subsidiary and not Incurred in connection with such Person becoming a Restricted
Subsidiary or such Asset Acquisition; provided that Indebtedness of such Person
which is redeemed, defeased, retired or otherwise repaid at the time of or
immediately upon consummation of the transactions by which such Person becomes a
Restricted Subsidiary or such Asset Acquisition shall not be Acquired
Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income of any Person that is not a Restricted Subsidiary, except to
the extent of the amount of dividends or other distributions actually paid to
the Company or any of its Restricted Subsidiaries by such Person during such
period; (ii) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments' covenant described below (and in such case,
except to the extent includable pursuant to clause (i) above), the
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net income (or loss) of any Person accrued prior to the date it becomes a
Restricted Subsidiary or is merged into or consolidated with the Company or any
of its Restricted Subsidiaries or all or substantially all of the property and
assets of such Person are acquired by the Company or any of its Restricted
Subsidiaries; (iii) the net income of any Restricted Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by the
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary; (iv) any gains or losses (on an after-tax basis)
attributable to Asset Sales; (v) except for purposes of calculating the amount
of Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of the "Limitation on Restricted Payments" covenant described below,
any amount paid or accrued as dividends on Preferred Stock of the Company or any
Restricted Subsidiary owned by Persons other than the Company and any of its
Restricted Subsidiaries; (vi) all extraordinary gains and extraordinary losses;
(vii) gains or losses on the repurchase or redemption of any securities
(including in connection with the retirement or defeasance of any Indebtedness);
and (viii) non-cash expenses arising from the write-off of goodwill, in-process
research and development costs and inventory and fixed asset charges, in each
case associated with Asset Acquisitions.
"Adjusted Consolidated Net Tangible Assets" means, as of any date of
determination, the total amount of assets of the Company and its Restricted
Subsidiaries (less applicable depreciation, amortization and other valuation
reserves), except to the extent resulting from write-ups of capital assets
(excluding write-ups in connection with accounting for acquisitions in
conformity with GAAP and excluding the effects of foreign currency exchange
adjustments under Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 52), after deducting therefrom (i) all current
liabilities of the Company and its Restricted Subsidiaries (excluding
intercompany items) and (ii) all goodwill, trade names, trademarks, patents,
unamortized debt discount and expense, deferred financing costs and other like
intangibles, all as set forth on the most recent quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
prepared in conformity with GAAP and filed with the Commission or provided to
the Trustee pursuant to the "Commission Reports and Reports to Holders"
covenant.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries or (ii) an acquisition by the
Company or any of its Restricted Subsidiaries of the property and assets of any
Person other than the Company or any of its Restricted Subsidiaries that
constitute substantially all of a division or line of business of such Person.
"Asset Disposition" means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of the Company or any of its
Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets (other than the Capital Stock or other
Investment in an Unrestricted Subsidiary) of the Company or any of its
Restricted Subsidiaries outside the ordinary course of business of the Company
or such Restricted Subsidiary and, in each case, that is not governed by the
provisions of the Indenture applicable to mergers, consolidations and sales of
assets of the Company; provided that "Asset Sale" shall not include (a) sales or
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other dispositions of inventory, receivables and other current assets
(including, without limitation, Temporary Cash Investments), (b) sales,
transfers or other dispositions of assets constituting a Restricted Payment
permitted to be made under the "Limitation on Restricted Payments" covenant, (c)
sales or other dispositions of assets for consideration at least equal to the
fair market value of the assets sold or disposed of, to the extent that the
consideration received would satisfy clause (B) of the "Limitation on Asset
Sales" covenant, (d) dispositions of equipment that is no longer useful in the
conduct of the business of the Company or any of its Restricted Subsidiaries,
and (e) sales, leases, conveyances, transfers, or other dispositions to the
Company or to a Restricted Subsidiary or to any other Person if after giving
effect to such sale, lease, conveyance, transfer or other disposition such other
Person is or becomes a Restricted Subsidiary.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, rights to purchase, warrants, options, participations or other
equivalents (however designated, whether voting or non-voting) in equity of such
Person, whether outstanding on the Closing Date or issued thereafter including,
without limitation, all Common Stock and Preferred Stock.
"Capitalized Lease Obligations" means indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
"Change of Control" means such time as (i) a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes the
ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of
more than 50% of the total voting power of the Voting Stock of the Company on a
fully diluted basis; or (ii) individuals who on the Closing Date constitute the
Board of Directors (together with any new directors whose election by the Board
of Directors or whose nomination by the Board of Directors for election by the
Company's stockholders was approved by a vote of at least a majority of the
members (A) of the Board of Directors then in office who either were members of
the Board of Directors on the Closing Date or whose election or nomination for
election was previously so approved or (B) the nominating committee of the Board
of Directors whose members were elected pursuant to the foregoing clause (A))
cease for any reason to constitute a majority of the members of the Board of
Directors then in office.
"Closing Date" means the date on which the Original Notes were originally
issued under the Indenture.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus the following (to the extent deducted in calculating
such Adjusted Consolidated Net Income), (i) Consolidated Interest Expense, (ii)
income taxes (other than income taxes (either positive or negative) attributable
to extraordinary and non-recurring gains or losses or sales of assets), (iii)
depreciation expense, (iv) amortization expense and (v) all other non-cash
items, including, without limitation, any non-cash charge reflecting
compensation expense relating to employee stock option or similar plans,
reducing Adjusted Consolidated Net Income (other than items that will require
cash payments and for which an accrual or reserve is, or is required by GAAP to
be, made), less all non-cash items increasing Adjusted Consolidated Net Income,
all as determined on a consolidated basis for the Company and its Restricted
Subsidiaries in conformity with GAAP; provided that, if any Restricted
Subsidiary is not a Wholly Owned Restricted Subsidiary, Consolidated EBITDA
shall be reduced (to the extent not otherwise reduced in accordance with GAAP)
by an amount equal to (A) the amount of the Adjusted Consolidated Net Income
attributable to such Restricted Subsidiary multiplied by (B) the percentage
ownership interest in the income of such Restricted Subsidiary not owned on the
last day of such period by the Company or any of its Restricted Subsidiaries.
"Consolidated Interest Expense" means, without duplication, for any period,
the aggregate amount of interest which, in conformity with GAAP, would be set
forth opposite the caption "interest expense" or any
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like caption on a statement of operations (including, without limitation,
amortization of debt discount and debt issuance cost; the interest portion of
any deferred payment obligation; all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; amortization
of other financing fees and expenses; interest on Indebtedness that is
Guaranteed or secured by the Company or any of its Restricted Subsidiaries;
capitalized interest and accrued interest; dividends in respect of all
Disqualified Stock of the Company and all Preferred Stock of Subsidiaries; and
all other non-cash interest expense) and all but the principal component of
rentals in respect of Capitalized Lease Obligations paid, accrued or scheduled
to be paid or to be accrued by the Company and its Restricted Subsidiaries
during such period; excluding, however, (i) any amount of such interest of any
Restricted Subsidiary if the net income of such Restricted Subsidiary is
excluded in the calculation of Adjusted Consolidated Net Income pursuant to
clause (iii) of the definition thereof (but only in the same proportion as the
net income of such Restricted Subsidiary is excluded from the calculation of
Adjusted Consolidated Net Income pursuant to clause (iii) of the definition
thereof) and (ii) any premiums, fees and expenses (and any amortization thereof)
payable in connection with the offering of the Notes, all as determined on a
consolidated basis (without taking into account Unrestricted Subsidiaries) in
conformity with GAAP.
"Credit Facility" means the Amended and Restated Revolving Credit Agreement
dated as of December 8, 1997 among the Company, the lending institutions listed
on Schedule 1 thereto, and BankBoston, N.A., as Agent, as guaranteed by the
Guarantors, as amended, as such agreement, facility or credit, in whole or in
part, may be amended, renewed, extended, substituted, refinanced, restructured,
replaced, supplemented or otherwise modified from time to time and whether by
the same or another agent, lender or group of lenders (including, without
limitation, any successive renewals, extensions, substitutions, refinancings,
restructurings, replacements, supplementations or other modifications of the
foregoing) for the Company or any Restricted Subsidiary.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means Indebtedness under the Credit
Facility and any Indebtedness constituting Senior Indebtedness that, at the date
of determination, has an aggregate principal amount outstanding of at least $25
million owed by the Company or the Guarantors and that is specifically
designated by the Company or any Guarantor, in the instrument creating or
evidencing such Senior Indebtedness as "Designated Senior Indebtedness."
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control' provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the provisions contained in "Limitation on Asset Sales" and
"Repurchase of Notes upon a Change of Control" covenants described below and
such Capital Stock specifically provides that such Person will not repurchase or
redeem any such stock pursuant to such provision prior to the Company's
repurchase of such Notes as are required to be repurchased pursuant to the
"Limitation on Asset Sales" and "Repurchase of Notes upon a Change of Control"
covenants described below.
"Equity Offering" means (i) a public offering by the Company of its Capital
Stock (other than Disqualified Stock) or (ii) the issuance and sale of Capital
Stock of the Company to a person engaged
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primarily in a business that is related, ancillary or complementary to the
businesses of the Company and its Restricted Subsidiaries on the date of such
issuance or sale, provided that such person has a market capitalization of at
least $50 million.
"fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution.
"Foreign Subsidiary" means any Subsidiary of the Company organized under
laws other than the laws of the United States of America or any jurisdiction
thereof.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
the Indenture shall be computed in conformity with GAAP applied on a consistent
basis, except that calculations made for purposes of determining compliance with
the terms of the covenants and with other provisions of the Indenture shall be
made without giving effect to (i) the amortization of any expenses incurred in
connection with the offering of the Notes and (ii) except as otherwise provided,
the amortization or write-off of any amounts required or permitted (as of the
Closing Date) by Accounting Principles Board Opinion Nos. 16 and 17.
"Government Securities" means direct obligations of, obligations fully
guaranteed by, or participations in pools consisting solely of obligations of or
obligations guaranteed by, the United States of America for the payment of which
guarantee or obligations the full faith and credit of the United States of
America is pledged and which are not callable or redeemable at the option of the
issuer thereof.
"Guarantee" means an obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep-well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to incur, create, issue, assume, Guarantee or otherwise become liable
for or with respect to, or become responsible for, the payment of, contingently
or otherwise, such Indebtedness or other obligation or the recording, as
required pursuant to GAAP or otherwise, of any such Indebtedness or other
obligation on the balance sheet of such Person, including an "Incurrence" of
Acquired Indebtedness; provided that neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi)
or (vii) below) entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand
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for reimbursement), (iv) all obligations of such Person to pay the deferred and
unpaid purchase price of property or services, which purchase price is due more
than six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except Trade
Payables, (v) all Capitalized Lease Obligations, (vi) all Indebtedness of other
Persons secured by a Lien on any asset of such Person, whether or not such
Indebtedness is assumed by such Person; provided that the amount of such
Indebtedness shall be the lesser of (A) the fair market value of such asset at
such date of determination and (B) the amount of such Indebtedness, (vii) all
Indebtedness of other Persons Guaranteed by such Person to the extent such
Indebtedness is Guaranteed by such Person and (viii) to the extent not otherwise
included in this definition, obligations under Currency Agreements and Interest
Rate Agreements. The amount of Indebtedness of any Person at any date shall be
the outstanding balance at such date of all unconditional obligations as
described above and, with respect to contingent obligations, the maximum
liability upon the occurrence of the contingency giving rise to the obligation,
provided (A) that the amount outstanding at any time of any Indebtedness issued
with original issue discount is the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at the time of its issuance as determined in conformity with GAAP,
(B) that money borrowed and set aside at the time of the Incurrence of any
Indebtedness in order to prefund the payment of the interest on such
Indebtedness shall not be deemed to be "Indebtedness" and (C) that Indebtedness
shall not include (i) any liability for federal, state, local or other taxes;
(ii) any Trade Payables and other accrued liabilities arising in the ordinary
course of business; or (iii) any indemnification obligation, purchase price
adjustment, earnout or other similar obligation of the Person to third parties
if such indemnification obligation would not appear as a liability upon a
balance sheet of the Person prepared in accordance with GAAP.
"Interest Coverage Ratio" means, on any Transaction Date, the ratio of (i)
the aggregate amount of Consolidated EBITDA for the then most recent four fiscal
quarters prior to such Transaction Date for which reports have been filed with
the Commission pursuant to the "Commission Reports and Reports to Holders"
covenant (the "Four Quarter Period") to (ii) the aggregate Consolidated Interest
Expense during such Four Quarter Period. In making the foregoing calculation,
(A) pro forma effect shall be given to any Indebtedness Incurred or repaid
during the period (the "Reference Period") commencing on the first day of the
Four Quarter Period and ending on the Transaction Date (other than Indebtedness
Incurred or repaid under a revolving credit or similar arrangement to the extent
of the commitment thereunder (or under any predecessor revolving credit or
similar arrangement) in effect on the last day of such Four Quarter Period
unless any portion of such Indebtedness is projected, in the reasonable judgment
of the senior management of the Company, to remain outstanding for a period in
excess of 12 months from the date of the Incurrence thereof), in each case as if
such Indebtedness had been Incurred or repaid on the first day of such Reference
Period; (B) Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being Incurred) computed on a pro forma basis
and bearing a floating interest rate shall be computed as if the rate in effect
on the Transaction Date (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months or, if shorter, at least equal to the remaining term
of such Indebtedness) had been the applicable rate for the entire period; (C)
pro forma effect shall be given to Asset Dispositions and Asset Acquisitions
(including giving pro forma effect to the application of proceeds of any Asset
Disposition) that occur during such Reference Period as if they had occurred and
such proceeds had been applied on the first day of such Reference Period; and
(D) pro forma effect shall be given to asset dispositions and asset acquisitions
(including giving pro forma effect to the application of proceeds of any asset
disposition) that have been made by any Person that has become a Restricted
Subsidiary or has been merged with or into the Company or any Restricted
Subsidiary during such Reference Period and that would have constituted Asset
Dispositions or Asset Acquisitions had such transactions occurred when such
Person was a Restricted Subsidiary as if such asset dispositions or asset
acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the
first day of such Reference Period; provided that to the extent that clause (C)
or (D) of this sentence requires that pro forma effect be given to an Asset
Acquisition or Asset Disposition, such pro forma calculation shall be based upon
the four full fiscal quarters immediately preceding the Transaction Date of the
Person, or division or line of business of the Person, that is acquired or
disposed for which financial information is available.
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"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding payment obligations of customers in the
ordinary course of business that are, in conformity with GAAP, recorded as
accounts receivable on the balance sheet of the Company or its Restricted
Subsidiaries) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the account
or use of others), or any purchase or acquisition of Capital Stock, bonds,
notes, debentures or other similar instruments issued by, such Person and shall
include (i) the designation or redesignation of a Restricted Subsidiary as an
Unrestricted Subsidiary and (ii) the fair market value of the Capital Stock (or
any other Investment), held by the Company or any of its Restricted
Subsidiaries, of (or in) any Person that has ceased to be a Restricted
Subsidiary, including without limitation, by reason of any transaction permitted
by clause (iii) of the "Limitation on the Issuance and Sale of Capital Stock of
Restricted Subsidiaries" covenant; provided that the fair market value of the
Investment remaining in any Person that has ceased to be a Restricted Subsidiary
shall not exceed the aggregate amount of Investments previously made in such
Person valued at the time such Investments were made less the net reduction of
such Investments. For purposes of the definition of "Unrestricted Subsidiary"
and the "Limitation on Restricted Payments" covenant described below, (i)
"Investment" shall include the fair market value of the assets (net of
liabilities (other than liabilities to the Company or any of its Restricted
Subsidiaries)) of any Restricted Subsidiary at the time that such Restricted
Subsidiary is designated an Unrestricted Subsidiary, (ii) the fair market value
of the assets (net of liabilities (other than liabilities to the Company or any
of its Restricted Subsidiaries)) of any Unrestricted Subsidiary at the time that
such Unrestricted Subsidiary is designated a Restricted Subsidiary shall be
considered a reduction in outstanding Investments and (iii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary) and proceeds
from the conversion of other property received when converted to cash or cash
equivalents, net of (i) brokerage commissions and other fees and expenses
(including fees and expenses of counsel and investment bankers) related to such
Asset Sale, (ii) provisions for all taxes (whether or not such taxes will
actually be paid or are payable) as a result of such Asset Sale without regard
to the consolidated results of operations of the Company and its Restricted
Subsidiaries, taken as a whole, (iii) payments made to repay Indebtedness or any
other obligation outstanding at the time of such Asset Sale that either (A) is
secured by a Lien on the property or assets sold or (B) is required to be paid
as a result of such sale and (iv) appropriate amounts to be provided by the
Company or any Restricted Subsidiary as a reserve against any liabilities
associated with such Asset Sale, including, without limitation, pension and
other post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale, all as determined in conformity with GAAP and (b) with respect
to any issuance or sale of Capital Stock, the direct or indirect proceeds of
such issuance or sale in the form of cash or cash equivalents, net of attorney's
fees, accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees incurred in connection with
such issuance or sale and net of taxes paid or payable as a result thereof.
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"Offer to Purchase" means an offer to purchase Notes by the Company from
the Holders commenced by mailing a notice to the Trustee and each Holder
stating: (i) the covenant pursuant to which the offer is being made and that all
Notes validly tendered will be accepted for payment on a pro rata basis; (ii)
the purchase price and the date of purchase (which shall be a Business Day no
earlier than 30 days nor later than 60 days from the date such notice is mailed)
(the "Payment Date"); (iii) that any Note not tendered will continue to accrue
interest pursuant to its terms; (iv) that, unless the Company defaults in the
payment of the purchase price, any Note accepted for payment pursuant to the
Offer to Purchase shall cease to accrue interest on and after the Payment Date;
(v) that Holders electing to have a Note purchased pursuant to the Offer to
Purchase will be required to surrender the Note, together with the form entitled
"Option of the Holder to Elect Purchase" on the reverse side of the Note
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the Business Day immediately preceding the Payment
Date; (vi) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, a telegram, facsimile
transmission or letter setting forth the name of such Holder, the principal
amount of Notes delivered for purchase and a statement that such Holder is
withdrawing his election to have such Notes purchased; and (vii) that Holders
whose Notes are being purchased only in part will be issued new Notes equal in
principal amount to the unpurchased portion of the Notes surrendered; provided
that each Note purchased and each new Note issued shall be in a principal amount
of $1,000 or integral multiples thereof. On the Payment Date, the Company shall
(i) accept for payment on a pro rata basis Notes or portions thereof tendered
pursuant to an Offer to Purchase; (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Notes or portions thereof so
accepted; and (iii) deliver, or cause to be delivered, to the Trustee all Notes
or portions thereof so accepted together with an Officers' Certificate
specifying the Notes or portions thereof accepted for payment by the Company.
The Paying Agent shall promptly mail to the Holders of Notes so accepted payment
in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. The Company will publicly announce the results of an
Offer to Purchase as soon as practicable after the Payment Date. The Trustee
shall act as the Paying Agent for an Offer to Purchase. The Company will comply
with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations thereunder to the extent such laws and regulations are applicable,
in the event that the Company is required to repurchase Notes pursuant to an
Offer to Purchase.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; (ii) cash and Temporary Cash Investments; (iii)
payroll, travel, relocation and similar loans or advances; (iv) stock,
obligations or securities received in the settlement of debts incurred in the
ordinary course of business and in satisfaction of judgments; (v) an Investment
in an Unrestricted Subsidiary consisting solely of an Investment in another
Unrestricted Subsidiary; (vi) Interest Rate Agreements and Currency Agreements
designed solely to protect the Company or its Restricted Subsidiaries against
fluctuations in interest rates or foreign currency exchange rates; (vii)
Investments in the Notes (or the notes issued upon the exchange of the Notes);
and (viii) Investments in an aggregate amount outstanding at any time not to
exceed $100 million.
"Permitted Junior Securities" means any securities of the Company, any
Guarantor or any other business entity that are equity securities or are
subordinated in right of payment to all Senior Indebtedness, that may at the
time be outstanding, to substantially the same extent as, or to a greater extent
than, the Notes and the Note Guarantees are so subordinated as provided in the
Indenture; provided that Permitted Junior Securities may not have terms less
favorable in any material respect to the Company or the holders of the Senior
Indebtedness than the terms of the Indenture and the Notes.
"Preferred Stock" of any Person means any Capital Sock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemption or upon liquidation.
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"Purchase Money Indebtedness" means any Indebtedness Incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Senior Indebtedness" means the following obligations of the Company or any
Guarantor, whether outstanding on the Closing Date or thereafter Incurred: (i)
all Indebtedness and all other monetary obligations (including principal,
interest, expenses, fees, costs, enforcement expenses (including legal fees and
disbursements) reimbursement or indemnity obligations and other monetary
obligations) of the Company or any Guarantor under or in respect of the Credit
Facility, any and all interest accruing or out of pocket costs incurred after
the date of any filing by or against the Company or any Guarantor of any
petition or under any bankruptcy, insolvency or reorganization act, regardless
of whether the claim of the holders of such Senior Indebtedness is allowed or
allowable in the case or proceeding relating thereto, (ii) all obligations of
the Company or any Guarantor with respect to any Interest Rate Agreement or
Currency Agreement, (iii) all obligations of the Company or any Guarantor to
reimburse any bank or other Person in respect of amounts paid under letters of
credit, acceptances or other similar instruments, (iv) all Indebtedness and all
expenses, fees and other monetary obligations of the Company or any Guarantor
(other than the Notes and the Note Guarantees), including principal and interest
on such Indebtedness, unless such Indebtedness, by its terms or by the terms of
any agreement or instrument pursuant to which such Indebtedness is issued, is
pari passu with, or subordinated in right of payment to, the Notes and (v) in
addition to and without limiting the foregoing clauses (i) through (iv), all
deferrals, renewals, extensions, replacements, substitutions and refundings of,
and amendments, modifications and supplements to, with or without the same
parties, any of the Senior Indebtedness described above; provided that the term
"Senior Indebtedness" shall not include (a) any Indebtedness of the Company or
any Guarantor that, when Incurred, was without recourse to the Company or such
Guarantor, (b) any Indebtedness of the Company or any Guarantor to a Subsidiary
of the Company, or to a joint venture in which the Company or such Guarantor has
an interest, (c) any Indebtedness of the Company or any Guarantor, to the extent
not permitted by the "Limitation on Indebtedness" covenant or the "Limitation on
Senior Subordinated Indebtedness' covenant described below, (d) any repurchase,
redemption or other obligation in respect of Disqualified Stock, (e) any
Indebtedness to any employee of the Company or any of its Subsidiaries, (f) any
liability for taxes owed or owing by the Company or any Guarantor or (g) any
Trade Payables. Senior Indebtedness will also include interest accruing
subsequent to events of bankruptcy of the Company or any Guarantor at the rate
provided for in the document governing such Senior Indebtedness, whether or not
such interest is an allowed claim enforceable against the debtor in a bankruptcy
case under bankruptcy law.
"Senior Subordinated Obligations" means any (i) principal of, premium, if
any, or interest on the Notes, (ii) the Note Guarantees and (iii) other amounts
(including fees and indemnity rights) payable pursuant to the terms of the Notes
or the Note Guarantees or the Indenture or upon acceleration, including any
amounts received upon the exercise of rights of rescission or other rights of
action (including claims for damages) or otherwise, to the extent relating to
the purchase price or the acquisition, repurchase or redemption of the Notes or
amounts corresponding to such principal, premium, if any, or interest or other
amounts on the Notes.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year.
"S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill
Companies, and its successors.
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"Stated Maturity" means, (i) with respect to any security, the date
specified in such security as the fixed date on which the final installment of
principal of such debt security is due and payable, including pursuant to any
mandatory redemption provision.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits issued by a bank or trust company (including the Trustee) which
is organized under the laws of the United States of America, any state thereof
or any foreign country recognized by the United States of America, and which
bank or trust company has capital, surplus and undivided profits aggregating in
excess of $50 million (or the foreign currency equivalent thereof) and, with
respect to any such entity organized under the laws of any foreign country has
outstanding debt which is rated "A" (or such similar equivalent rating) or
higher by at least one nationally recognized statistical rating organization (as
defined in Rule 436 under the Securities Act) or any money-market fund sponsored
by a registered broker dealer or mutual fund distributor, (iii) repurchase
obligations with a term of not more than 30 days for underlying securities of
the types described in clause (i) above entered into with a bank or trust
company (including the Trustee) meeting the qualifications described in clause
(ii) above, (iv) commercial paper issued by a corporation (other than an
Affiliate of the Company) organized and in existence under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America with a rating at the time as of which any
investment therein is made of "P-1" (or higher) according to Moody's or "A-1"
(or higher) according to S&P, and (v) securities with maturities of five years
or less from the date of acquisition issued or fully and unconditionally
guaranteed by any state, commonwealth or territory of the United States of
America, or by any political subdivision or taxing authority thereof, and rated
at least investment grade by S&P or Moody's.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) Hadco Foreign Sales Corporation, CCIR
International, Inc., Zycon Corporation and Continental Circuits Corp.; (ii) any
Subsidiary of the Company that at the time of determination shall be designated
an Unrestricted Subsidiary by the Board of Directors in the manner provided
below; and (iii) any Subsidiary of an Unrestricted Subsidiary. The Board of
Directors may designate any Restricted Subsidiary (including any newly acquired
or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary
unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on
any property of, the Company or any Restricted Subsidiary; provided that either
(I) the Subsidiary to be so designated has total assets of $20,000 or less or
(II) if such Subsidiary has assets greater than $20,000, such designation would
be permitted under the "Limitation on Restricted Payments" covenant described
below. The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that immediately after giving effect to such
designation (i) no Default or Event of Default shall have occurred and be
continuing at the time of or after giving effect to such designation and (ii)
all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately after such designation would, if Incurred at such time, have been
permitted to be Incurred (and shall be deemed to have been Incurred) for all
purposes of the Indenture. Any such designation by the Board of Directors shall
be evidenced to the Trustee by promptly filing with the Trustee a copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
Notwithstanding anything herein contained to the contrary, no Guarantor may be
designated an Unrestricted Subsidiary unless all or
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substantially all of the assets of such Guarantor are transferred to another
Guarantor or a Person who upon such transfer becomes a Guarantor.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
COVENANTS
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes and Indebtedness
existing on the Closing Date (whether or not any such Indebtedness existing on
the Closing Date is repaid or reborrowed)); provided that the Company and any
Guarantor may Incur Indebtedness if, after giving effect to the Incurrence of
such Indebtedness and the receipt and application of the proceeds therefrom, the
Interest Coverage Ratio would be greater than 3:1.
Notwithstanding the foregoing, in addition to Indebtedness permitted by the
foregoing paragraph the Company and any Restricted Subsidiary (except as
specified below) may Incur each and all of the following: (i) Indebtedness of
the Company and the Guarantors outstanding at any time in an aggregate principal
amount not to exceed the commitments under the Credit Facility on the Closing
Date; (ii) Indebtedness owed (A) to the Company evidenced by an unsubordinated
promissory note or (B) to any Restricted Subsidiary; provided that any event
which results in any such Restricted Subsidiary ceasing to be a Restricted
Subsidiary or any subsequent transfer of such Indebtedness (other than to the
Company or another Restricted Subsidiary) shall be deemed, in each case, to
constitute an Incurrence of such Indebtedness not permitted by this clause (ii);
(iii) Indebtedness issued in exchange for, or the net proceeds of which are used
to refinance or refund, then outstanding Indebtedness (other than Indebtedness
Incurred under clause (i), (ii), (iv), (vi) or (vii) of this paragraph; it being
understood that Indebtedness Incurred under such clauses can be refinanced
thereunder) and any refinancings thereof in an amount not to exceed the amount
so refinanced or refunded (plus premiums, accrued interest, fees and expenses);
provided that Indebtedness the proceeds of which are used to refinance or refund
the Notes or Indebtedness that is pari passu with, or subordinated in right of
payment to, the Notes shall only be permitted under this clause (iii) if (A) in
case the Notes are refinanced in part or the Indebtedness to be refinanced is
pari passu with the Notes, such new Indebtedness, by its terms or by the terms
of any agreement or instrument pursuant to which such new Indebtedness is
outstanding, is expressly made pari passu with, or subordinate in right of
payment to, the remaining Notes, (B) in case the Indebtedness to be refinanced
is subordinated in right of payment to the Notes, such new Indebtedness, by its
terms or by the terms of any agreement or instrument pursuant to which such new
Indebtedness is issued or remains outstanding, is expressly made subordinate in
right of payment to the Notes at least to the extent that the Indebtedness to be
refinanced is subordinated to the Notes and (C) such new Indebtedness,
determined as of the date of Incurrence of such new Indebtedness, does not
mature prior to the Stated Maturity of the Indebtedness to be refinanced or
refunded, and the Average Life of such new Indebtedness is at least equal to the
remaining Average Life of the Indebtedness to be refinanced or refunded; and
provided further that in no event may Indebtedness of the Company be refinanced
by means of any Indebtedness of any Restricted Subsidiary pursuant to this
clause (iii); (iv) Indebtedness (A) in respect of performance, surety or appeal
bonds provided in the ordinary course of business, (B) under Currency Agreements
and Interest Rate Agreements; provided that such agreements (a) are designed
solely to protect the Company or its Restricted Subsidiaries against
fluctuations in foreign currency exchange rates or interest rates and (b) do not
increase the Indebtedness of the obligor outstanding at any time other than as a
result of fluctuations in foreign currency exchange rates or interest rates or
by reason of fees, indemnities and compensation payable thereunder; and (C)
arising from agreements providing for indemnification, adjustment of purchase
price,
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earnouts or similar obligations, or from Guarantees or letters of credit, surety
bonds or performance bonds securing any obligations of the Company or any of its
Restricted Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted Subsidiary
(other than Guarantees of Indebtedness Incurred by any Person acquiring all or
any portion of such business, assets or Restricted Subsidiary for the purpose of
financing such acquisition), in a principal amount not to exceed the gross
proceeds actually received by the Company or any Restricted Subsidiary in
connection with such disposition; (v) Indebtedness of the Company and any
Guarantor, to the extent the net proceeds thereof are promptly (A) used to
purchase Notes tendered in an Offer to Purchase made as a result of a Change in
Control or (B) deposited to defease the Notes as described below under
"Defeasance"; (vi) Guarantees of the Notes and Guarantees of Indebtedness of the
Company by any Restricted Subsidiary provided the Guarantee of such Indebtedness
is permitted by and made in accordance with the "Limitation on Issuance of
Guarantees by Restricted Subsidiaries" covenant described below; (vii)
Indebtedness under the Notes and the Note Guarantees (as well as the notes
issued upon the exchange of the Notes); (viii) Indebtedness of the Company or
any Guarantor constituting Purchase Money Indebtedness or Capitalized Lease
Obligations that do not, at any one time outstanding, exceed 10% of the Adjusted
Consolidated Net Tangible Assets of the Company and the Guarantors; (ix)
Indebtedness of the Company, the Guarantors and the Foreign Subsidiaries
outstanding at any time in the aggregate principal amount not to exceed $100
million; and (x) Indebtedness of the Company and the Guarantors (in addition to
Indebtedness permitted under clauses (i) through (ix) above) in an aggregate
principal amount outstanding at any time not to exceed $50 million.
(b) With respect to any particular Indebtedness, notwithstanding any other
provision of this "Limitation on Indebtedness" covenant, the maximum amount of
Indebtedness that the Company or a Restricted Subsidiary may Incur pursuant to
this "Limitation on Indebtedness" covenant shall not be deemed to be exceeded
due solely to the result of fluctuations in the exchange rates of currencies.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (1) Guarantees, Liens or obligations
with respect to letters of credit supporting Indebtedness otherwise included in
the determination of such particular amount shall not be included and (2) any
Liens granted pursuant to the equal and ratable provisions referred to in the
"Limitation on Liens" covenant described below shall not be treated as
Indebtedness. For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness described in the above
clauses, the Company, in its sole discretion, shall classify, and from time to
time may reclassify, such item of Indebtedness and only be required to include
the amount and type of such Indebtedness in one of such clauses. No Indebtedness
incurred pursuant to the first paragraph of Section (a) of this "Limitation on
Indebtedness" covenant shall be included in calculating any limitation set forth
in clauses (i) through (x), of such Section (a).
Limitation on Senior Subordinated Indebtedness
The Company and the Guarantors shall not Incur any Indebtedness that is
subordinate in right of payment to any Senior Indebtedness unless such
Indebtedness is pari passu with, or subordinated in right of payment to, the
Notes or the Note Guarantee of such Guarantor, as the case may be; provided that
the foregoing limitation shall not apply to distinctions between categories of
Senior Indebtedness that exist by reason of any Liens or Guarantees arising or
created in respect of some but not all Senior Indebtedness.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any distribution
on or with respect to its Capital Stock (other than (x) dividends or
distributions payable solely in shares of its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to acquire shares of
such Capital Stock and (y) pro rata dividends or distributions on Common Stock
of Restricted Subsidiaries held by minority stockholders) held by Persons other
than the Company or any of its Restricted Subsidiaries, (ii) purchase, redeem,
retire or otherwise acquire for value any shares of Capital Stock of (A) the
Company or an Unrestricted Subsidiary (including options, warrants or other
rights to acquire such shares of Capital Stock) held by any Person or (B) a
Restricted Subsidiary
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(including options, warrants or other rights to acquire such shares of Capital
Stock) held by any Affiliate of the Company (other than a Wholly Owned
Restricted Subsidiary) or any holder (or any Affiliate of such holder) of 5% or
more of the Capital Stock of the Company, (iii) make any voluntary or optional
principal payment, or voluntary or optional redemption, repurchase, defeasance,
or other acquisition or retirement for value, of Indebtedness of the Company
that is subordinated in right of payment to the Notes or (iv) make any
Investment, other than a Permitted Investment, in any Person (such payments or
any other actions described in clauses (i) through (iv) above being collectively
"Restricted Payments") if, at the time of, and after giving effect to, the
proposed Restricted Payment: (A) a Default or Event of Default shall have
occurred and be continuing, (B) the Company could not Incur at least $1.00 of
Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant or (C) the aggregate amount of all Restricted Payments (the amount, if
other than in cash, to be determined in good faith by the Board of Directors,
whose determination shall be conclusive and evidenced by a Board Resolution)
made after the Closing Date shall exceed the sum of (1) 50% of the aggregate
amount of the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated
Net Income is a loss, minus 100% of the amount of such loss) (determined by
excluding income resulting from transfers of assets by the Company or a
Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a cumulative
basis during the period (taken as one accounting period) beginning on the first
day of the fiscal quarter immediately following the Closing Date and ending on
the last day of the last fiscal quarter preceding the Transaction Date for which
reports have been filed with the Commission or provided to the Trustee pursuant
to the "Commission Reports and Reports to Holders" covenant plus (2) the
aggregate Net Cash Proceeds received by the Company after the Closing Date from
the issuance and sale permitted by the Indenture of its Capital Stock (other
than Disqualified Stock) to a Person who is not a Subsidiary of the Company,
including an issuance or sale permitted by the Indenture of Indebtedness of the
Company for cash subsequent to the Closing Date upon the conversion of such
Indebtedness into Capital Stock (other than Disqualified Stock) of the Company,
or from the issuance to a Person who is not a Subsidiary of the Company of any
options, warrants or other rights to acquire Capital Stock of the Company (in
each case, exclusive of any Disqualified Stock or any options, warrants or other
rights that are redeemable at the option of the holder, or are required to be
redeemed, prior to the Stated Maturity of the Notes) plus (3) an amount equal to
the net reduction in Investments (other than reductions in Permitted Investments
or Investments made pursuant to the following paragraph) in any Person resulting
from payments of interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to the Company or any
Restricted Subsidiary or from the Net Cash Proceeds from the sale of any such
Investment (except, in each case, to the extent any such payment or proceeds are
included in the calculation of Adjusted Consolidated Net Income), or from
redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued
in each case as provided in the definition of "Investments"), not to exceed, in
each case, the amount of Investments previously made by the Company or any
Restricted Subsidiary in such Person or Unrestricted Subsidiary plus (4) $5
million.
The foregoing provision shall not be violated by reason of: (i) the payment
of any dividend or distribution within 60 days after the date of declaration
thereof if, at said date of declaration, such payment would comply with the
foregoing paragraph; (ii) the redemption, repurchase, defeasance or other
acquisition or retirement for value of Indebtedness that is subordinated in
right of payment to the Notes including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred under
clause (iii) of the second paragraph of part (a) of the "Limitation on
Indebtedness" covenant; (iii) the repurchase, redemption or other acquisition of
Capital Stock of the Company or an Unrestricted Subsidiary (or options, warrants
or other rights to acquire such Capital Stock) in exchange for, or out of the
proceeds of a substantially concurrent offering of, shares of Capital Stock
(other than Disqualified Stock) of the Company (or options, warrants or other
rights to acquire such Capital Stock); (iv) the making of any principal payment
or the repurchase, redemption, retirement, defeasance or other acquisition for
value of Indebtedness of the Company which is subordinated in right of payment
to the Notes in exchange for, or out of the proceeds of, a substantially
concurrent offering of, shares of the Capital Stock (other than Disqualified
Stock) of the Company (or options, warrants or other rights to acquire such
Capital Stock); (v) payments or distributions, to dissenting stockholders
pursuant to applicable law, pursuant to or in connection with a consolidation,
merger or transfer of assets that complies with the provisions of the Indenture
applicable to mergers, consolidations and transfers of all or substantially all
of the property and assets of the Company;
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(vi) Restricted Payments not to exceed $30 million (provided that to the extent
such Restricted Payment is an Investment, Investments not to exceed $30 million
at any one time outstanding); or (vii) Investments acquired in exchange for
Capital Stock (other than Disqualified Stock) of the Company (or options,
warrants or other rights to acquire such Capital Stock) or financed or
refinanced out of the proceeds of a substantially concurrent offering of shares
of Capital Stock of the Company (or options, warrants or other rights to acquire
such Capital Stock); provided that, except in the case of clauses (i) and (iii),
no Default or Event of Default shall have occurred and be continuing or occur as
a consequence of the actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph
(other than the Restricted Payment referred to in clause (ii) thereof, an
exchange of Capital Stock for Capital Stock or Indebtedness referred to in
clause (iii) or (iv) thereof and an Investment referred to in clause (vi)
thereof), and the Net Cash Proceeds from any issuance of Capital Stock referred
to in clauses (iii) and (iv), shall be included in calculating whether the
conditions of clause (C) of the first paragraph of this "Limitation on
Restricted Payments" covenant have been met with respect to any subsequent
Restricted Payments. In the event the proceeds of an issuance of Capital Stock
of the Company are used for the redemption, repurchase or other acquisition of
the Notes, or Indebtedness that is pari passu with the Notes, then the Net Cash
Proceeds of such issuance shall be included in clause (C) of the first paragraph
of this "Limitation on Restricted Payments" covenant only to the extent such
proceeds are not used for such redemption, repurchase or other acquisition of
Indebtedness.
The amount of any Investment "outstanding" at any time shall be deemed to
be equal to the amount of such Investment on the date made, less the return on
capital to the Company and its Restricted Subsidiaries with respect to such
Investment by distribution, sale or otherwise (up to the amount of such
Investment on the date made).
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by the
Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to
the Company or any other Restricted Subsidiary, (iii) make loans or advances to
the Company or any other Restricted Subsidiary or (iv) transfer any of its
property or assets to the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Credit Facility, the
Indenture or any other agreements in effect on the Closing Date, and any
amendments, modifications, supplements, extensions, refinancings, renewals or
replacements of such agreements; provided that the encumbrances and restrictions
in any such amendments, modifications, supplements, extensions, refinancings,
renewals or replacements are no less favorable in any material respect to the
Holders than those encumbrances or restrictions that are then in effect and that
are being amended, modified, supplemented, extended, refinanced, renewed or
replaced; (ii) existing under or by reason of applicable law; (iii) under any
instrument governing Acquired Indebtedness incurred in accordance with the
Indenture; provided that such encumbrances or restrictions are not adopted in
contemplation of the related acquisition; (iv) in the case of clause (iv) of the
first paragraph of this "Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenant, (A) that restrict in a customary
manner the subletting, assignment or transfer of any property or asset that is a
lease, license, conveyance or contract or similar property or asset, (B)
existing by virtue of any transfer of, agreement to transfer, option or right
with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by the Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary; (v) with
respect to a Restricted Subsidiary and imposed pursuant to an agreement that has
been entered into for the sale or disposition of all or substantially all of the
Capital Stock of, or property and assets of, such Restricted Subsidiary; and
(vi) with respect to any Foreign Subsidiary; provided that (A) the
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Investments of the Company and its Subsidiaries in such Foreign Subsidiary are,
as determined by the Board of Directors, not made for the purpose of removing
assets from the Company and the Guarantors which removal, in the judgment of the
Board of Directors, would be likely to have a material adverse impact on the
Company's ability to make payments on the Notes and (B) such encumbrances or
restrictions are not, in the judgment of the Board of Directors of the Company,
likely to have a material adverse impact on the Company's ability to make
payments on the Notes. Nothing contained in this "Limitation on Dividend and
Other Payment Restrictions Affecting Restricted Subsidiaries" covenant shall
prevent the Company or any Restricted Subsidiary from (1) creating, incurring,
assuming or suffering to exist any Liens otherwise permitted in the "Limitation
on Liens" covenant or (2) restricting the sale or other disposition of property
or assets of the Company or any of its Restricted Subsidiaries that secure
Indebtedness of the Company or any of its Restricted Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Company or a Wholly Owned
Restricted Subsidiary; (ii) issuances of director's qualifying shares or sales
to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect to such issuance or sale would have been permitted
to be made under the "Limitation on Restricted Payments" covenant if made on the
date of such issuance or sale; or (iv) issuances or sales of Common Stock of a
Restricted Subsidiary, provided that the Company or such Restricted Subsidiary
applies the Net Cash Proceeds, if any, of any such sale in accordance with
clause (A) or (B) of the "Limitation on Asset Sales" covenant described below.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company which is pari passu
with or subordinate in right of payment to the Notes ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to the Indenture providing for a Guarantee
(a "Subsidiary Guarantee") of payment of the Notes by such Restricted Subsidiary
and (ii) such Restricted Subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against the Company or any other
Restricted Subsidiary as a result of any payment by such Restricted Subsidiary
under its Subsidiary Guarantee; provided that this paragraph shall not be
applicable to any Guarantee of any Restricted Subsidiary that existed at the
time such Person became a Restricted Subsidiary and was not Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary. If the Guaranteed Indebtedness is (A) pari passu with the Notes,
then the Guarantee of such Guaranteed Indebtedness shall be pari passu with, or
subordinated to, the Subsidiary Guarantee or (B) subordinated to the Notes, then
the Guarantee of such Guaranteed Indebtedness shall be subordinated to the
Subsidiary Guarantee at least to the extent that the Guaranteed Indebtedness is
subordinated to the Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or transfer,
to any Person not an Affiliate of the Company, of all of the Company's and each
Restricted Subsidiary's Capital Stock in, or all or substantially all the assets
of, such Restricted Subsidiary (which sale, exchange or transfer is not
prohibited by the Indenture) or (ii) the release or discharge of the Guarantee
which resulted in the creation of such Subsidiary Guarantee, except a discharge
or release by or as a result of payment under such Guarantee.
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Limitation on Transactions with Shareholders and Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any holder (or any Affiliate of such
holder) of 10% or more of any class of Capital Stock of the Company (calculated
on a fully diluted basis) or with any Affiliate of the Company or any Restricted
Subsidiary, except upon fair and reasonable terms no less favorable to the
Company or such Restricted Subsidiary than could be obtained, at the time of
such transaction or, if such transaction is pursuant to a written agreement, at
the time of the execution of the agreement providing therefor, in a comparable
arm's-length transaction with a Person that is not such a holder or an
Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized investment
banking firm stating that the transaction is fair to the Company or such
Restricted Subsidiary from a financial point of view; (ii) any transaction
solely between the Company and any of its Wholly Owned Restricted Subsidiaries
or solely between Wholly Owned Restricted Subsidiaries; (iii) the payment in
cash or securities of reasonable and customary regular fees to directors of the
Company who are not employees of the Company; (iv) any payments or other
transactions pursuant to any tax-sharing agreement between the Company and any
other Person with which the Company files a consolidated tax return or with
which the Company is part of a consolidated group for tax purposes; or (v) any
Restricted Payments not prohibited by the "Limitation on Restricted Payments"
covenant. Notwithstanding the foregoing, any transaction or series of related
transactions covered by the first paragraph of this "Limitation on Transactions
with Shareholders and Affiliates" covenant and not covered by clauses (ii)
through (v) of this paragraph, the aggregate amount of which exceeds $2 million
in value, must be approved or determined to be fair in the manner provided for
in clause (i)(A) or (B) above.
Limitation on Liens
The Company and the Guarantors shall not Incur any Indebtedness secured by
a Lien ("Secured Indebtedness") which is not Senior Indebtedness unless
contemporaneously therewith effective provision is made to secure the Notes or
the Note Guarantee of such Guarantor, as the case may be, equally and ratably
with (or, if the Secured Indebtedness is subordinated in right of payment to the
Notes, prior to) such Secured Indebtedness for so long as such Secured
Indebtedness is secured by such Lien.
The foregoing shall not apply to Liens (including extensions and renewals
thereof) upon real or personal property acquired after the Closing Date,
provided that (a) such Lien is created solely for the purpose of securing
Indebtedness Incurred, in accordance with the "Limitation on Indebtedness'
covenant described below, to finance the cost (including the cost of design,
development, acquisition, construction, installation, improvement,
transportation or integration) of the item of property or assets subject thereto
and such Lien is created prior to, at the time of or within six months after the
later of the acquisition, the completion of construction or the commencement of
full operation of such property, (b) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of such cost and (c) any such Lien
shall not extend to or cover any property or assets other than such item of
property or assets and any improvements on such item.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (i) the consideration received by the Company
or such Restricted Subsidiary is at least equal to the fair market value of the
assets sold or disposed of and (ii) at least 75% of the consideration received
consists of cash or Temporary Cash Investments; provided, however, that the
amount of any note or other securities received by the Company or any such
Restricted Subsidiary which are converted into cash within 180 days of such
Asset Sale shall be deemed to be cash for purposes of this provision. In the
event and to the extent that the Net Cash Proceeds received by the Company or
any of its Restricted Subsidiaries from one or more Asset
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Sales occurring on or after the Closing Date in any period of 12 consecutive
months exceed 10% of Adjusted Consolidated Net Tangible Assets (determined as of
the date closest to the commencement of such 12-month period for which a
consolidated balance sheet of the Company and its Subsidiaries has been filed
with the Commission pursuant to the "Commission Reports and Reports to Holders"
covenant), then the Company shall or shall cause the relevant Restricted
Subsidiary to (i) within twelve months after the date Net Cash Proceeds so
received exceed 10% of Adjusted Consolidated Net Tangible Assets (A) apply an
amount equal to such excess Net Cash Proceeds to permanently repay Senior
Indebtedness of the Company, or any Restricted Subsidiary providing a Subsidiary
Guarantee pursuant to the "Limitation on Issuances of Guarantees by Restricted
Subsidiaries" covenant described above or Indebtedness of any other Restricted
Subsidiary, in each case owing to a Person other than the Company or any of its
Restricted Subsidiaries or (B) invest an equal amount, or the amount not so
applied pursuant to clause (A) (or enter into a definitive agreement committing
to so invest within 12 months after the date of such agreement), in property or
assets (other than current assets) of a nature or type or that are used in a
business (or in a company having property and assets of a nature or type, or
engaged in a business) similar or related to the nature or type of the property
and assets of, or the business of, the Company and its Restricted Subsidiaries
existing on the date of such investment and (ii) apply (no later than the end of
the 12-month period referred to in clause (i)) such excess Net Cash Proceeds (to
the extent not applied pursuant to clause (i)) as provided in the following
paragraph of this "Limitation on Asset Sales" covenant. The amount of such
excess Net Cash Proceeds required to be applied (or to be committed to be
applied) during such 12-month period as set forth in clause (i) of the preceding
sentence and not applied as so required by the end of such period shall
constitute "Excess Proceeds."
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $10 million, the Company
must commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate principal amount of Notes equal to the Excess Proceeds on such date,
at a purchase price equal to 100% of the principal amount of the Notes, plus, in
each case, accrued interest (if any) to the Payment Date.
Upon the consummation of any Offer to Purchase pursuant to this "Limitation
on Asset Sales" covenant, the amount of Excess Proceeds shall be reset to zero.
Any transaction permitted under the covenant described under
"Consolidation, Merger and Sale of Assets" shall not be deemed an Asset Sale for
purposes of this covenant.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
The Company must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Notes then outstanding, at
a purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the Payment Date (subject to the right of Holders of
record on the relevant Regular Record Date that is prior to the Change of
Control to receive interest due on an Interest Payment Date).
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Company which might be outstanding
at the time). The above covenant requiring the Company to repurchase the Notes
will, unless consents are obtained, require the Company to repay all
indebtedness then outstanding which by its terms would prohibit such Note
repurchase, either prior to or concurrently with such Note repurchase.
COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not the Company is then required to file reports with the
Commission, the Company shall file with the Commission (if permitted) all such
reports and other information as it would be required to file with the
Commission by Sections 13(a) or 15(d) under the Securities Exchange Act of 1934
if it were subject thereto. The Company shall supply the Trustee and each Holder
or shall supply to the Trustee for forwarding
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to each such Holder, without cost to such Holder, copies of such reports and
other information (whether or not so filed).
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at Stated Maturity, upon
acceleration, redemption or otherwise; (b) default in the payment of interest on
any Note when the same becomes due and payable, and such default continues for a
period of 30 days whether or not such payment is prohibited by the provisions
described above under "--Ranking; Subordination"; (c) default in the performance
or breach of the provisions of the Indenture applicable to mergers,
consolidations and transfers of all or substantially all of the assets of the
Company or the failure to comply for 30 days after notice of its obligation to
make an Offer to Purchase in accordance with the "Limitation on Asset Sales" or
"Repurchase of Notes upon a Change of Control" covenant; (d) the Company
defaults in the performance of or breaches any other covenant or agreement of
the Company in the Indenture or under the Notes (other than a default specified
in clause (a), (b) or (c) above) and such default or breach continues for a
period of 60 consecutive days after written notice by the Trustee or the Holders
of 25% or more in aggregate principal amount of the Notes; (e) there occurs with
respect to any issue or issues of Indebtedness of the Company or any Significant
Subsidiary having an outstanding principal amount of $10 million or more in the
aggregate for all such issues of all such Persons, whether such Indebtedness now
exists or shall hereafter be created, (I) an event of default that has caused
the holder thereof to declare such Indebtedness to be due and payable prior to
its Stated Maturity and such Indebtedness has not been discharged in full or
such acceleration has not been rescinded or annulled within 60 days of such
acceleration and/or (II) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not have
been made, waived or extended within the applicable grace period related to any
such payment default; (f) any final judgment or order (not covered by insurance)
for the payment of money in excess of $10 million in the aggregate for all such
final judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered against the
Company or any Significant Subsidiary and shall not be paid or discharged, and
there shall be any period of 60 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final judgments
or orders outstanding and not paid or discharged against all such Persons to
exceed $10 million during which a stay of enforcement of such final judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect; (g) a
court having jurisdiction in the premises enters a decree or order for (A)
relief in respect of the Company or any Guarantor that would be a Significant
Subsidiary if the references to 10% in the definition of Significant Subsidiary
were 20% instead of 10% (a "Significant Guarantor") or any Significant
Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or
other similar law now or hereafter in effect, (B) appointment of a receiver,
liquidation, assignee, custodian, trustee, sequestrator or similar official of
the Company or any Significant Guarantor or any Significant Subsidiary or for
all or substantially all of the property and assets of the Company or any
Significant Guarantor or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Company or any Significant Guarantor or any
Significant Subsidiary and, in each case, such decree or order shall remain
unstayed and in effect for a period of 60 consecutive days; (h) the Company or
any Significant Guarantor or any Significant Subsidiary (A) commences a
voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or consents to the entry of an order for relief in
an involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidation, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Guarantor or
any Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) effects any general
assignment for the benefit of creditors or (i) the Company or any Guarantor
disclaims any Note Guarantee or asserts that any Note Guarantee is not binding
on any Guarantor.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to the Company or any Significant
Guarantor or any Significant Subsidiary) occurs and is continuing under the
Indenture, the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes, then outstanding, by written notice to the Company (and to
the Trustee if such notice is given by
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the Holders), may, and the Trustee at the request of such Holders shall, declare
the principal of, premium, if any, and accrued interest on the Notes to be
immediately due and payable. Upon a declaration of acceleration, such principal
of, premium, if any, and accrued interest shall be immediately due and payable;
provided, however, that so long as the Credit Facility is in effect, such
declaration shall not become effective until the earlier of (A) five Business
Days after delivery of such notice to the representative of the Credit Facility
and (B) the acceleration of any Indebtedness under the Credit Facility. In the
event of a declaration of acceleration because an Event of Default set forth in
clause (e) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to clause (e) shall be
remedied or cured by the Company or the relevant Significant Guarantor or the
relevant Significant Subsidiary or waived by the holders of the relevant
Indebtedness within 60 days after the declaration of acceleration with respect
thereto. If an Event of Default specified in clause (g) or (h) above occurs with
respect to the Company or any Significant Guarantor or any Significant
Subsidiary, the principal of, premium, if any, and accrued interest on the Notes
then outstanding shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
The Holders of at least a majority in principal amount of the outstanding Notes
by written notice to the Company and to the Trustee, may waive all past defaults
and rescind and annul a declaration of acceleration and its consequences if (i)
all existing Events of Default, other than the nonpayment of the principal of,
premium, if any, and interest on the Notes that have become due solely by such
declaration of acceleration, have been cured or waived and (ii) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction. For information as to the waiver of defaults, see "--Modification
and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture or the Notes unless: (i)
the Holder gives the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of outstanding
Notes make a written request to the Trustee to pursue the remedy; (iii) such
Holder or Holders offer the Trustee indemnity satisfactory to the Trustee
against any costs, liability or expense; (iv) the Trustee does not comply with
the request within 60 days after receipt of the request and the offer of
indemnity; and (v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such limitations do
not apply to the right of any Holder of an Note to receive payment of the
principal of, premium, if any, or interest on, such Note or to bring suit for
the enforcement of any such payment, on or after the due date expressed in the
Notes, which right shall not be impaired or affected without the consent of the
Holder.
The Indenture will require certain officers of the Company to certify, on
or before a date not more than 120 days after the end of each fiscal year, that
a review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the Company's and its Restricted Subsidiaries' performance
under the Indenture and that the Company has fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. The
Company will also be obligated to notify the Trustee of any default or defaults
in the performance of any covenants or agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its property
and assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions) to, any Person or permit any Person to merge
with or into the Company unless: (i) the Company shall be the continuing Person,
or the Person (if other than the Company)
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formed by such consolidation or into which the Company is merged or that
acquired or leased such property and assets of the Company shall be a
corporation organized and validly existing under the laws of the United States
of America or any jurisdiction thereof and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, all of the
obligations of the Company on all of the Notes and under the Indenture; (ii)
immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing; (iii) immediately after giving
effect to such transaction on a pro forma basis the Company, or any Person
becoming the successor obligor of the Notes, as the case may be, could Incur at
least $1.00 of Indebtedness under the first paragraph of the "Limitation on
Indebtedness" covenant; provided that this clause (iii) shall not apply to a
consolidation, merger or sale of assets of the Company if all Liens and
Indebtedness of the Company or any Person becoming the successor obligor on the
Notes, as the case may be, and its Restricted Subsidiaries outstanding
immediately after such transaction would, if Incurred at such time, have been
permitted to be Incurred (and all such Liens and Indebtedness, other than Liens
and Indebtedness of the Company and its Restricted Subsidiaries outstanding
immediately prior to the transaction, shall be deemed to have been Incurred) for
all purposes of the Indenture; and (iv) the Company delivers to the Trustee an
Officers' Certificate (attaching the arithmetic computations to demonstrate
compliance with clause (iii)) and an Opinion of Counsel, in each case stating
that such consolidation, merger or transfer and such supplemental indenture
complies with this provision and that all conditions precedent provided for
herein relating to such transaction have been complied with; provided, however,
that clauses (iii) and (iv) above do not apply if, in the good faith
determination of the Board of Directors of the Company, whose determination
shall be evidenced by a Board Resolution, the principal purpose of such
transaction is to change the state of incorporation of the Company; and provided
further that any such transaction shall not have as one of its purposes the
evasion of the foregoing limitations.
Notwithstanding the foregoing, (i) any Restricted Subsidiary of the Company
may consolidate with, merge into or transfer all or part of its properties and
assets to the Company and (ii) the Company may merge with an Affiliate
incorporated solely for the purpose of reincorporating the Company in another
jurisdiction to realize tax or other similar benefits.
Each Guarantor will not consolidate with, merge with or into, or sell,
convey, transfer, lease or otherwise dispose of all or substantially all of its
property and assets (as an entirety or substantially an entirety in one
transaction or a series of related transactions) to, any Person (other than the
Company or another Guarantor) or permit any Person to merge with or into it
unless: (i) such Guarantor shall be the continuing Person or (ii) the Person (if
other than such Guarantor) formed by such consolidation or into which such
Guarantor is merged or that acquired or leased such property and assets of such
Guarantor shall be a corporation organized and validly existing under the laws
of the United States of America or any jurisdiction thereof and shall expressly
assume, by a supplemental indenture, executed and delivered to the Trustee, all
of the obligations of such Guarantor's Note Guarantee. Notwithstanding the
foregoing sentence, a Guarantor shall be discharged and released from all of its
obligations under its Note Guarantee if all or substantially all of its assets
are sold, or all of its Capital Stock is sold, in each case in a transaction in
compliance with the "Limitation on Asset Sales" covenant.
DEFEASANCE
Defeasance and Discharge. The Indenture will provide that the Company will
be deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to the
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) the Company has deposited with the Trustee, in trust, money
and/or Government Securities that through the payment of interest and principal
in respect thereof in accordance with their terms will provide money in an
amount sufficient to pay the principal of, premium, if any, and accrued interest
on the Notes on the Stated Maturity of such payments in accordance with the
terms of the Indenture and the Notes, (B) the Company has delivered to the
Trustee (i) either (x) an Opinion of Counsel to the effect that Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
the Company's exercise of
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its option under this "Defeasance" provision and will be subject to federal
income tax on the same amount and in the same manner and at the same times as
would have been the case if such deposit, defeasance and discharge had not
occurred, which Opinion of Counsel must be based upon (and accompanied by a copy
of) a ruling of the Internal Revenue Service to the same effect unless there has
been a change in applicable federal income tax law after the Closing Date such
that a ruling is no longer required or (y) a ruling directed to the Trustee
received from the Internal Revenue Service to the same effect as the
aforementioned Opinion of Counsel and (ii) an Opinion of Counsel to the effect
that the creation of the defeasance trust does not violate the Investment
Company Act of 1940 and after the passage of 123 days following the deposit, the
trust fund will not be subject to the effect of Section 547 of the United States
Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law, (C)
immediately after giving effect to such deposit on a pro forma basis, no Event
of Default, or event that after the giving of notice or lapse of time or both
would become an Event of Default, shall have occurred and be continuing on the
date of such deposit or during the period ending on the 123rd day after the date
of such deposit, and such deposit shall not result in a breach or violation of,
or constitute a default under, any other agreement or instrument to which the
Company or any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries is bound and (D) if at such time the Notes are listed on a
national securities exchange, the Company has delivered to the Trustee an
Opinion of Counsel to the effect that the Notes will not be delisted as a result
of such deposit, defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further will provide that the provisions of the Indenture will no
longer be in effect with respect to clauses (iii) and (iv) under "Consolidation,
Merger and Sale of Assets" and all the covenants described herein under
"Covenants," clause (c) under "Events of Default" with respect to such clauses
(iii) and (iv) under "Consolidation, Merger and Sale of Assets," clause (d)
under "Events of Default" with respect to such other covenants and clauses (e)
and (f) under "Events of Default" shall be deemed not to be Events of Default
upon, among other things, the deposit with the Trustee, in trust, of money
and/or Government Securities that through the payment of interest and principal
in respect thereof in accordance with their terms will provide money in an
amount sufficient to pay the principal of, premium, if any, and accrued interest
on the Notes on the Stated Maturity of such payments in accordance with the
terms of the Indenture and the Notes, the satisfaction of the provisions
described in clauses (B)(ii), (C) and (D) of the preceding paragraph and the
delivery by the Company to the Trustee of an Opinion of Counsel to the effect
that, among other things, the Holders will not recognize income, gain or loss
for federal income tax purposes as a result of such deposit and defeasance of
certain covenants and Events of Default and will be subject to federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or Government Securities on deposit with the Trustee will be sufficient to
pay amounts due on the Notes at the time of their Stated Maturity but may not be
sufficient to pay amounts due on the Notes at the time of the acceleration
resulting from such Event of Default. However, the Company will remain liable
for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company,
the Guarantors and the Trustee with the consent of the Holders of not less than
a majority in aggregate principal amount of the outstanding Notes and any
provisions may be waived with the consent of the Holders of not less than a
majority in aggregate principal amount of the outstanding Notes; provided,
however, that no such modification or amendment may, without the consent of each
Holder affected thereby, (i) change the Stated Maturity of the principal of, or
any installment of interest on, any Note, (ii) reduce the principal amount of,
or premium, if any, or interest on, any Note, (iii) change the currency of
payment of principal of, or premium, if any, or interest on, any Note, (iv)
impair the right to institute suit for the enforcement of any payment on or
after the Stated Maturity (or, in the case of a redemption, on or after the
Redemption Date) of any Note, (v) reduce
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the above-stated percentage of outstanding Notes the consent of whose Holders is
necessary to modify or amend the Indenture, (vi) waive a default in the payment
of principal of, premium, if any, or interest on the Notes, (vii) reduce the
percentage or aggregate principal amount of outstanding Notes the consent of
whose Holders is necessary for waiver of compliance with certain provisions of
the Indenture or for waiver of certain defaults or (viii) remove the Note
Guarantee of any Guarantor.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, stockholder, officer, director, employee
or controlling person of the Company or of any successor Person thereof. Each
Holder, by accepting the Notes, waives and releases all such liability.
NOTICES
All notices regarding the Notes will be deemed to have been duly given upon
(i) the mailing by first-class mail, postage prepaid, of such notices to each
holder at the address of such holder as it appears in the Security Register, in
each case not earlier than the earliest date and not later than the latest date
prescribed in the Indenture for the giving of such notice. In addition, so long
as the Notes are listed on the Luxembourg Stock Exchange and it is required by
the rules of the Luxembourg Stock Exchange, such notices shall be published in
English in a leading newspaper having general circulation in Luxembourg (which
is expected to be the Luxembourger Wort) or if in any such case this is not
practicable, in one other leading English language daily newspaper with general
circulation in Europe, such newspaper being published on each Business Day in
morning editions, whether or not it shall be published in Saturday, Sunday or
holiday editions. Notice so mailed shall be deemed to have been given on the
date of such mailing.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise of the rights and powers vested in it under the Indenture as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
AGENTS
For so long as the Notes are listed on the Luxembourg Stock Exchange and
the rules of such exchange shall so require, the Company shall maintain a paying
agent and a transfer agent in Luxembourg.
BOOK-ENTRY; DELIVERY AND FORM
Exchange Notes will be issued in the form of one or more registered notes
in global form, without interest coupons (collectively, the "Global Notes"). The
Global Notes will be deposited on the date of the closing of the Exchange Offer
with, or on behalf of, The Depository Trust Company ("DTC") and will remain in
the custody of the Trustee as custodian for DTC. The Global Notes will be
registered in the name of a nominee of DTC.
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Except as set forth below, the Global Notes may be transferred, in whole
and not in part, solely to another nominee of DTC or to a successor of DTC or
its nominee. Beneficial interests in the Global Notes may not be exchanged for
Notes in physical, certificated form ("Certificated Notes") except in the
limited circumstances described below.
All interests in the Global Notes may be subject to the procedures and
requirements of DTC.
Ownership of beneficial interests in a Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in the Global
Notes will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants). Holders of Notes may hold their interests in
the Global Notes directly through DTC if they are participants in such system,
or indirectly through organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Global Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Notes represented by the Global Notes for all
purposes under the Indenture and the Notes. No beneficial owner of an interest
in the Global Notes will be able to transfer that interest except in accordance
with DTC's applicable procedures, in addition to those provided for under the
Indenture and, if applicable, those of Euroclear and Cedel Bank.
Payments of the principal of, and interest on, the Global Notes will be
made to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of the Global Notes, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the Global Notes as shown on the records of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in the Global Notes held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in the names of nominees for such customers. Such payments will be the
responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. If
applicable, transfers between participants in Euroclear and Cedel Bank will be
effected in the ordinary way in accordance with their respective rules and
operating procedures.
The Company expects that DTC will take any action permitted to be taken by
a holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interests in the Global Notes is credited and only in respect of such
portion of the aggregate principal amount of Notes as to which such participant
or participants has or have given such direction. However, if there is an Event
of Default under the Notes, DTC will exchange the Global Notes for Certificated
Notes, which it will distribute to its participants.
The Company understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization'
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
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Although DTC, Euroclear and Cedel Bank are expected to follow the foregoing
procedures in order to facilitate transfers of interests in the Global Notes
among participants of DTC, Euroclear and Cedel Bank, they are under no
obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the Trustee
will have any responsibility for the performance by DTC, Euroclear or Cedel Bank
or their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by the Company
within 90 days, the Company will issue Certificated Notes in exchange for the
Global Notes. Holders of an interest in the Global Notes may receive
Certificated Notes in accordance with the DTC's rules and procedures in addition
to those provided for under the Indenture.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Exchange Notes received in
exchange for Original Notes where such Original Notes were acquired as a result
of market-making or other trading activities; however, this Prospectus may not
be used for resales of Notes acquired directly from the Company. The Company has
agreed that, for a period ending on the earlier to occur of 180 days after the
Expiration Date or the time when all persons subject to the prospectus delivery
requirements of the Securities Act have sold all Exchange Notes held by them, it
will make this Prospectus, as it may be amended or supplemented form time to
time, available to any broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit of any
such resale of Exchange Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
For a period ending on the earlier to occur of 180 days after the
Expiration Date or the time when all persons subject to the prospectus delivery
requirements of the Securities Act have sold all Exchange Notes held by them,
the Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents. The Company has agreed to pay all expenses incident to the
Exchange Offer and to the Company's performance of, or compliance with, the
Registration Rights Agreement (other than commissions or concessions of any
brokers or dealers) and will indemnify the holders of the Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
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UNITED STATES FEDERAL TAX CONSEQUENCES
The following is a summary of material United States federal tax
consequences to initial purchasers of the Original Notes of (i) the exchange of
the Original Notes for the Exchange Notes and (ii) the ownership and disposition
of the Exchange Notes by a Non-United States Holder (as defined below). Except
where noted, the summary deals only with Exchange Notes held as capital assets
within the meaning of Section 1221 of the Internal Revenue Code of 1986, as
amended (the "Code"). As used herein, the term "Non-United States Holder" means
an owner of an Exchange Note that is, for United States federal income tax
purposes, (i) a nonresident alien individual, (ii) a foreign corporation, (iii)
a nonresident alien fiduciary of a foreign estate or trust or (iv) a foreign
partnership one or more of the members of which is, for United States federal
income tax purposes, a nonresident alien individual, a foreign corporation or a
nonresident alien fiduciary of a foreign estate or trust.
The following summary is based upon the provisions of the Code, and on
regulations, rulings and judicial decisions thereunder as of the date hereof,
and does not address any state, local or foreign tax consequences. This summary
does not discuss all aspects of United States federal taxation which may be
important to particular holders in light of their individual investment
circumstances, such as Exchange Notes held by investors subject to special tax
rules (e.g. financial institutions, insurance companies, broker-dealers, tax-
exempt organizations and private foundations) or to persons that will hold the
Exchange Notes as part of a straddle, hedge, or synthetic security transaction
for United States federal income tax purposes, all of whom may be subject to tax
rules that differ significantly from those summarized below. Special rules may
also apply to certain Non-United States Holders, such as "controlled foreign
corporations," "passive foreign investment companies" and "foreign personal
holding companies." Finally, prospective holders of Exchange Notes should be
aware that tax laws frequently change. When these changes occur, the statutes,
regulations, rulings and judicial decisions giving rise to such changes may have
a retroactive effect. Accordingly, there can be no assurance that future changes
in such tax laws will not cause the consequences of the exchange of the Original
Notes for the Exchange Notes or the ownership and disposition of the Exchange
Notes to differ significantly from the consequences summarized below. HOLDERS OF
EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE UNITED
STATES FEDERAL TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL
AS ANY CONSEQUENCES ARISING UNDER ANY STATE, LOCAL, FOREIGN OR OTHER LAWS OR ANY
APPLICABLE TAX TREATIES, WHICH MAY PROVIDE FOR A LOWER RATE OF WITHHOLDING TAX,
EXEMPTION FROM OR REDUCTION OF BRANCH PROFITS TAX, OR OTHER RULES DIFFERENT FROM
THOSE DESCRIBED BELOW.
EXCHANGE OFFER
The exchange of Original Notes for Exchange Notes pursuant to the Exchange
Offer should be treated as a continuation of the corresponding Original Notes
because the terms of the Exchange Notes are not materially different from the
terms of the Original Notes. Accordingly, such exchange should not constitute a
taxable event and, therefore, (i) no gain or loss should be realized upon
receipt of an Exchange Note, (ii) the holding period of the Exchange Note should
include the holding period of the Original Note exchanged therefor and (iii) the
adjusted tax basis of the Exchange Note should be the same as the adjusted tax
basis of the Original Note exchanged therefor immediately before the exchange.
NON-UNITED STATES HOLDERS
United States Withholding Tax
Under present United States federal income and estate tax law, and subject
to the discussion below concerning backup withholding:
(a) no United States federal withholding tax will be imposed with
respect to the payment by the Company or its paying agent of principal,
premium, if any, or interest on an Exchange Note owned by a Non-United
States Holder (the "Portfolio Interest Exception"), provided that (i) such
Non-United States Holder does not actually or constructively own 10% or
more of the total combined voting power of
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all classes of stock of the Company entitled to vote within the meaning of
section 871(h)(3) of the Code and the regulations thereunder, (ii) such
Non-United States Holder is not a controlled foreign corporation that is
related, directly or indirectly, to the Company through stock ownership,
(iii) such Non-United States Holder is not a bank whose receipt of interest
on an Exchange Note is described in section 881(c)(3)(A) of the Code and
(iv) such Non-United States Holder satisfies the statement requirement
(described generally below) set forth in section 871(h) and section 881(c)
of the Code and the regulations thereunder.
(b) no United States federal withholding tax will be imposed generally
with respect to any gain or income realized by a Non-United States Holder
upon the sale, exchange, redemption, retirement or other disposition of an
Exchange Note; and
(c) an Exchange Note beneficially owned by an individual who at the
time of death is a Non-United States Holder will not be subject to United
States federal estate tax as a result of such individual's death, provided
that such individual does not actually or constructively own 10% or more of
the total combined voting power of all classes of stock of the Company
entitled to vote within the meaning of Section 871(h)(3) of the Code and
provided that the interest payments with respect to such Exchange Note
would not have been, if received at the time of such individual's death,
effectively connected with the conduct of a United States trade or business
by such individual.
To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such Exchange Note, or a financial institution holding the Exchange
Note on behalf of such owner, must provide, in accordance with specified
procedures, a paying agent of the Company with a statement to the effect that
the beneficial owner is not a United States person (as defined in the Code).
These requirements will be met if (1) the beneficial owner provides his name and
address, and certifies, under penalties of perjury, that he is not a United
States person (which certification may be made on an Internal Revenue Service
("IRS") Form W-8 (or substitute form)) or (2) a financial institution holding
the Exchange Note on behalf of the beneficial owner certifies, under penalties
of perjury, that such statement has been received by it and furnishes the
Company or its paying agent, as the case may be, with a copy thereof.
With respect to Exchange Notes held by a foreign partnership, under current
law, the Form W-8 may be provided by the foreign partnership. However, for
interest and disposition proceeds paid with respect to a Note after December 31,
1999, unless the foreign partnership has entered into a withholding agreement
with the IRS, a foreign partnership will be required, in addition to providing
an intermediary Form W-8, to attach an appropriate certification by each
partner. Prospective investors, including foreign partnerships and their
partners, should consult their tax advisors regarding possible additional
reporting requirements.
If a Non-United States Holder cannot satisfy the requirements of the
Portfolio Interest Exception described in (a) above, payments on an Exchange
Note made to such Non-United States Holder will be subject to a 30% withholding
tax unless the beneficial owner of the Exchange Note provides the Company or its
paying agent, as the case may be, with a properly executed (1) IRS Form 1001 (or
substitute form) claiming an exemption from or reduction of withholding tax
under the benefit of a tax treaty or (2) IRS Form 4224 (or substitute form)
stating that interest paid on the Exchange Note is not subject to withholding
tax because it is effectively connected with the beneficial owner's conduct of a
trade or business in the United States.
Treasury Regulations ("New Regulations") were recently issued that modify
the requirements imposed on a Non-United States Holder and certain
intermediaries for establishing the recipient's status as a Non-United States
Holder eligible for exemption from or reduction in United States withholding tax
and backup withholding (described below). In general, the New Regulations do not
significantly alter the substantive withholding and information reporting
requirements but rather unify current certification procedures and forms and
clarify reliance standards. The New Regulations are generally effective for
payments made after December 31, 1999, subject to certain transition rules. In
addition, the New Regulations impose different conditions on the ability of
financial intermediaries acting for a Non-United States Holder to provide
certifications on behalf of the Non-United States Holder, which may include
entering into an agreement with the IRS to audit certain documentation with
respect to such certifications. The Company or its paying agent may request new
withholding tax exemption forms from Non-United States Holders in order to
qualify for
101
<PAGE> 109
continued exemption from withholding tax under the New Regulations when they
become effective. Non-United States Holders should consult their own tax
advisors to determine the effects of the application of the New Regulations to
their particular circumstances.
If a Non-United States Holder is engaged in a trade or business in the
United States and if interest on an Exchange Note is effectively connected with
the conduct of such trade or business, the Non-United States Holder, although
generally exempt from United States federal withholding tax if certain
procedures are followed as discussed above, will be subject to United States
federal income tax on such interest on a net income basis in the same manner as
if the holder were a United States holder. In addition, if such holder is a
foreign corporation, it may be subject to a branch profits tax equal to 30% or
applicable lower tax treaty rate on its effectively connected earnings and
profits for the taxable year, subject to adjustments. For this purpose, interest
on an Exchange Note will be included in such foreign corporation's effectively
connected earnings and profits.
Any gain or income realized upon the sale, exchange, retirement or other
disposition of an Exchange Note by a Non-United States Holder generally will not
be subject to United States federal income tax unless (i) such gain or income is
effectively connected with a trade or business in the United States of the Non-
United States Holder, (ii) in the case of a Non-United States Holder who is an
individual, such individual is present in the United States for 183 days or more
in the taxable year of such sale, exchange, retirement or other disposition, and
certain other conditions are met, or (iii) the Non-United States Holder is
subject to tax pursuant to the provisions of United States tax law applicable to
certain United States expatriates.
Information Reporting and Backup Withholding
No information reporting or backup withholding will be required with
respect to payments made by the Company or its paying agent to Non-United States
Holders if a statement described in (a)(iv) above has been received and the
payor does not have actual knowledge that the beneficial owner is a United
States person.
In addition, backup withholding and information reporting will not apply if
payments on an Exchange Note are paid or collected by a foreign office of a
custodian, nominee or other foreign agent on behalf of the beneficial owner of
such Exchange Note, or if a foreign office of a broker (as defined in applicable
United States Treasury regulations) pays the proceeds of the sale of an Exchange
Note to the owner thereof. If, however, such nominee, custodian, agent or broker
is, for United States federal income tax purposes, a United States person, a
controlled foreign corporation or a foreign person that derives 50% or more of
its gross income for certain periods from the conduct of a trade or business in
the United States, such payments will be subject to information reporting (but
not backup withholding), unless (1) such custodian, nominee, agent or broker has
documentary evidence in its records that the beneficial owner is not a United
States person and certain other conditions are met or (2) the beneficial owner
otherwise establishes an exemption.
Payments on an Exchange Note paid to the beneficial owner of an Exchange
Note by a United States office of a custodian nominee or agent, or the payment
by the United States office of a broker of the proceeds of sale of an Exchange
Note, will be subject to both backup withholding at a rate of 31% and
information reporting unless the beneficial owner provides the statement
referred to in (a)(iv) above and the payor does not have actual knowledge that
the beneficial owner is a United States person or otherwise establishes an
exemption.
Recently issued Treasury regulations modify certain of the certification
and other requirements for backup withholding. These modifications will become
generally effective beginning January 1, 2000. It is possible that the Company
or its paying agent may request new withholding exemption forms from holders in
order to qualify for continued exemption from backup withholding under Treasury
regulations when they become effective.
Any amounts withheld under the backup withholding rules will be credited
toward such Non-United States Holder's United States federal income tax
liability, if any. To the extent that the amounts withheld exceed the Non-United
States Holder's tax liability, the excess may be refunded to the Non-United
States Holder provided the required information is furnished to the IRS. In
addition to providing the necessary information, the Non-United States Holder
must file a United States tax return in order to obtain a refund of the excess
backup withholding.
102
<PAGE> 110
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
the Company by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts, special
counsel to the Company. Certain partners and associates of Testa, Hurwitz &
Thibeault, LLP, are the beneficial owners, in the aggregate, of 700 shares of
Common Stock of the Company. James C. Hamilton, a partner at Hamilton & Dahmen,
LLP, which is general counsel to the Company, is the Company's Clerk. He is the
beneficial owner of 8,910 shares of Common Stock of the Company. He is also the
co-trustee of certain irrevocable trusts for the benefit of members of the
family of Horace H. Irvine II, Chairman of the Board of the Company.
EXPERTS
The Company's audited consolidated financial statements and schedule
included in this Prospectus and elsewhere in this Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in its reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
The consolidated financial statements of Continental Circuits Corp. as of
July 31, 1997 and 1996 and for each of the three years in the period ended July
31, 1997, included in this Prospectus, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report appearing elsewhere herein,
and are included in reliance upon such report given upon the authority of such
firm as experts in accounting and auditing.
The consolidated financial statements of Zycon Corporation and subsidiary
as of December 31, 1995, and for the year then ended, have been incorporated by
reference herein and in the Registration Statement in reliance upon the report
of KPMG Peat Marwick LLP, independent auditors, incorporated by reference
herein, and upon the authority of said firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company and the Guarantors have filed with the Commission a
Registration Statement on Form S-4 (together with all amendments, exhibits and
schedules thereto, the "Registration Statement") under the Securities Act with
respect to the Exchange Notes offered hereby. This Prospectus, which constitutes
part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and the exhibit and schedules thereto,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission, and to which reference is hereby made. Statements contained
in this Prospectus as to the contents of the any contract or any other document
referred to are not necessarily complete. Reference is made to such contract or
other document filed, or incorporated by reference, as an exhibit to the
Registration Statement, and each such statement is qualified in all respects by
such reference.
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Commission. The Registration Statement and all such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
following regional offices of the Commission: 7 World Trade Center, 13th Floor,
New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such materials may also be
obtained from the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
public reference facilities at New York, New York and Chicago, Illinois at
prescribed rates. The Company's common stock is listed on the Nasdaq National
Market Exchange, under the symbol "HDCO." In addition, the aforementioned
materials may also be inspected at the offices of the Nasdaq National Market at
1735 K Street, N.W., Washington, D.C. 20006. The Commission maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The address
of the Commission's Web site is http://www.sec.gov.
103
<PAGE> 111
The Indenture pursuant to which the Original Notes were, and the Exchange
Notes will be, issued requires the Company, whether or not it is then required
to file reports with the Commission, to so file such reports and other
information as it would be required to file by Sections 13(a) or 15(d) under the
Securities Exchange Act of 1934, as amended, if it were subject thereto. In
addition, the Company has agreed to supply the Trustee and each holder of Notes
with copies of such reports and other information including annual reports
containing audited consolidated financial statements of the Company, audited by
its independent public accountants, and quarterly reports containing unaudited
condensed consolidated financial data for the first three quarters of each
fiscal year.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") are hereby incorporated by
reference into this Prospectus: (i) Annual Report on Form 10-K for the fiscal
year ended October 25, 1997; (ii) Quarterly Reports on Form 10-Q for the fiscal
quarters ended January 31, 1998, May 2, 1998 and August 1, 1998 and on Form
10-Q/A for the fiscal quarter ended May 2, 1998; (iii) Current Reports on Form
8-K dated February 17, 1998, February 20, 1998, May 1, 1998 and May 14, 1998;
(iv) Current Report on Form 8-K/A dated January 10, 1997; and (v) Current Report
on Form 8-K dated March 20, 1998, as amended by Current Report on Form 8-K/A
dated May 1, 1998.
All documents subsequently filed by Hadco pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act after the date of this Prospectus and
prior to the termination of the Exchange Offer shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
such documents. Any statement contained herein or in a document incorporated by
reference or deemed to be incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that such
statement is modified or superseded by any other subsequently filed document
which is incorporated or is deemed to be incorporated by reference herein. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. Hadco hereby undertakes to provide without charge
to each person, including any beneficial owner, to whom this Prospectus has been
delivered, on the written or oral request of such person, a copy of any or all
of the documents referred to above which have been or may be incorporated into
this Prospectus and deemed to be part hereof, other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference in
such documents. These documents are available upon request from Timothy P.
Losik, Senior Vice President, Chief Financial Officer and Treasurer, Hadco
Corporation, 12A Manor Parkway, Salem, New Hampshire 03079, (603) 898-8000.
LISTING AND GENERAL INFORMATION
The Original Notes have been accepted for clearance through the Euroclear
and Cedel Bank clearance systems. Application will be made to list the Notes on
the Luxembourg Stock Exchange. The Original Notes have been designated eligible
for trading in the PORTAL market.
In connection with the application to list the Notes on the Luxembourg
Stock Exchange, a legal notice relating to the issuance of the Notes and copies
of the Restated Articles of Organization, as amended, of the Company will be
deposited with the Registrar of the District Court of Luxembourg (Greffier en
Chef du Tribunal d'Arrondissement de et a Luxembourg) where such documents may
be examined and copies obtained.
Copies of the Restated Articles of Organization, as amended, of the
Company, the Registration Rights Agreement and the Indenture (including the
forms of Notes) will, so long as the Notes are listed on the Luxembourg Stock
Exchange, be available for inspection in the City of Luxembourg at the office of
the Luxembourg Paying Agent. In addition, so long as the Notes are listed on the
Luxembourg Stock Exchange,
104
<PAGE> 112
copies of the most recent audited annual and interim unaudited financial
statements of the Company may be obtained at that office.
In addition to being mailed to holders, copies of all notices to holders of
the Notes will be published in the Luxemburger Wort, so long as the Notes are
listed on the Luxembourg Stock Exchange and the rules of that exchange so
require.
Trades on the Luxembourg Stock Exchange must be capable of being settled
through Cedel Bank or Euroclear.
105
<PAGE> 113
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
HADCO CORPORATION:
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of October 26, 1996 and
October 25, 1997 and August 1, 1998 (Unaudited)........... F-3
Consolidated Statements of Operations for the Years Ended
October 28, 1995, October 26, 1996 and October 25, 1997
and for the Nine Months Ended July 26, 1997 (Unaudited)
and August 1, 1998 (Unaudited)............................ F-4
Consolidated Statements of Stockholders' Investment for the
Years Ended October 28, 1995, October 26, 1996 and October
25, 1997 and for the Nine Months Ended August 1, 1998
(Unaudited)............................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
October 28, 1995, October 26, 1996 and October 25, 1997
and for the Nine Months Ended July 26, 1997 (Unaudited)
and August 1, 1998 (Unaudited)............................ F-6
Notes to Consolidated Financial Statements.................. F-7
CONTINENTAL CIRCUITS CORP.:
Report of Independent Auditors.............................. F-33
Consolidated Balance Sheets as of July 31, 1996 and 1997 and
January 31, 1998 (Unaudited).............................. F-34
Consolidated Statements of Income for the Years Ended July
31, 1995, 1996 and 1997 and the Six Months Ended February
2, 1997 (Unaudited) and January 31, 1998 (Unaudited)...... F-35
Consolidated Statements of Cash Flows for the Years Ended
July 31, 1995, 1996 and 1997 and the Six Months Ended
February 2, 1997 (Unaudited) and January 31, 1998
(Unaudited)............................................... F-36
Consolidated Statements of Shareholders' Equity for the
Years Ended July 31, 1995, 1996 and 1997 and the Six
Months Ended January 31, 1998 (Unaudited)................. F-37
Notes to Consolidated Financial Statements.................. F-38
</TABLE>
F-1
<PAGE> 114
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Hadco Corporation:
We have audited the accompanying consolidated balance sheets of Hadco
Corporation (a Massachusetts corporation) and subsidiaries as of October 26,
1996 and October 25, 1997, and the related consolidated statements of
operations, stockholders' investment and cash flows for each of the three years
in the period ended October 25, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hadco Corporation and
subsidiaries as of October 26, 1996 and October 25, 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended October 25, 1997, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 14, 1997
F-2
<PAGE> 115
HADCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
OCTOBER 26, OCTOBER 25, AUGUST 1,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................... $ 32,786 $ 12,171 $ 4,933
Short-term investments.................................. 9,401 1,562 --
Accounts receivable, net of allowance for doubtful
accounts of $1,100 in 1996, $1,700 in 1997, and
$2,404 in 1998, respectively......................... 40,622 92,222 104,357
Inventories............................................. 21,786 46,000 65,862
Deferred tax asset...................................... 7,483 10,483 15,456
Prepaid expenses and other current assets............... 1,483 4,245 16,068
-------- -------- --------
Total current assets............................ 113,561 166,683 206,676
Property, Plant and Equipment, net........................ 103,735 231,490 323,084
Deferred Tax Asset........................................ 2,117 -- --
Acquired Intangible Assets, net........................... -- 101,131 194,442
Other Assets.............................................. 88 3,213 9,600
-------- -------- --------
$219,501 $502,517 $733,802
======== ======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt....................... $ 1,907 $ 5,064 $ 4,484
Accounts payable........................................ 42,265 68,594 65,173
Accrued payroll and other employee benefits............. 17,592 28,279 25,947
Accrued taxes........................................... -- 1,775 1,619
Other accrued expenses.................................. 8,236 9,278 18,240
-------- -------- --------
Total current liabilities....................... 70,000 112,990 115,463
-------- -------- --------
Long-term Debt, net of current portion.................... 1,515 109,716 366,898
-------- -------- --------
Deferred Tax Liability.................................... -- 30,685 51,668
-------- -------- --------
Other Long-term Liabilities............................... 9,145 9,214 9,192
-------- -------- --------
Commitments and Contingencies (Note 9)
Stockholders' Investment:
Common stock, $.05 par value;
Authorized -- 25,000 shares in 1996 and 1997 and
50,000 shares in 1998
Issued and outstanding -- 10,382 shares in 1996,
13,086 shares in 1997 and 13,321 shares in 1998.... 521 655 667
Paid-in Capital......................................... 30,939 168,246 173,338
Deferred Compensation................................... (240) (117) (59)
Retained Earnings....................................... 107,621 71,128 16,635
-------- -------- --------
Total stockholders' investment.................. 138,841 239,912 190,581
-------- -------- --------
$219,501 $502,517 $733,802
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 116
HADCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED ENDED
----------------------------------------- ---------------------
OCTOBER 28, OCTOBER 26, OCTOBER 25, JULY 26, AUGUST 1,
1995 1996 1997 1997 1998
----------- ----------- ----------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales.......................... $265,168 $350,685 $648,705 $475,472 $609,255
Cost of Sales...................... 197,728 260,230 507,313 371,378 514,877
-------- -------- -------- -------- --------
Gross Profit..................... 67,440 90,455 141,392 104,094 94,378
Operating Expenses................. 33,534 38,923 64,586 47,143 60,635
Restructuring and Other
Non-Recurring Charges............ -- -- -- -- 7,052
Write-off of Acquired In-Process
Research and Development......... -- -- 78,000 78,000 63,050
-------- -------- -------- -------- --------
Income (Loss) From Operations.... 33,906 51,532 (1,194) (21,049) (36,359)
Interest and Other Income.......... 1,669 1,287 3,296 1,989 1,841
Interest Expense................... (537) (338) (10,923) (8,679) (14,329)
-------- -------- -------- -------- --------
Income (Loss) Before Provision
for Income Taxes.............. 35,038 52,481 (8,821) (27,739) (48,847)
Provision for Income Taxes......... 13,664 20,467 27,672 20,104 5,646
-------- -------- -------- -------- --------
Net Income (Loss)................ $ 21,374 $ 32,014 $(36,493) $(47,843) $(54,493)
======== ======== ======== ======== ========
Net Income (Loss) Per Share:
Basic............................ $ 2.18 $ 3.12 $ (3.18) $ (4.36) $ (4.14)
======== ======== ======== ======== ========
Diluted.......................... $ 1.98 $ 2.89 $ (3.18) $ (4.36) $ (4.14)
======== ======== ======== ======== ========
Weighted Average Shares
Outstanding:
Basic............................ 9,805 10,245 11,458 10,970 13,172
======== ======== ======== ======== ========
Diluted.......................... 10,806 11,084 11,458 10,970 13,172
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 117
HADCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------------
NUMBER $.05 PAR PAID-IN DEFERRED RETAINED
OF SHARES VALUE CAPITAL COMPENSATION EARNINGS
--------- -------- -------- ------------ --------
<S> <C> <C> <C> <C> <C>
Balance, October 29, 1994............ 9,738 $487 $ 22,763 $(731) $ 54,921
Terminated stock options........... -- -- (37) 37 --
Exercise of stock options.......... 529 16 1,079 -- --
Tax benefit of exercise of
non-qualified stock options..... -- -- 1,597 -- --
Compensation expense associated
with granting non-qualified
stock options................... -- -- -- 287 --
Purchase and retirement of common
stock........................... (328) (6) (325) -- (688)
Net income......................... -- -- -- -- 21,374
------ ---- -------- ----- --------
Balance, October 28, 1995............ 9,939 497 25,077 (407) 75,607
Terminated stock options........... -- -- (13) 13 --
Exercise of stock options.......... 443 24 1,714 -- --
Tax benefit of exercise of
non-qualified stock options..... -- -- 4,161 -- --
Compensation expense associated
with granting non-qualified
stock options................... -- -- -- 154 --
Net income......................... -- -- -- -- 32,014
------ ---- -------- ----- --------
Balance, October 26, 1996............ 10,382 521 30,939 (240) 107,621
Terminated stock options........... -- -- (2) 2 --
Exercise of stock options.......... 263 12 1,291 -- --
Tax benefit of exercise of
non-qualified stock options..... -- -- 5,052 -- --
Compensation expense associated
with granting non-qualified
stock options................... -- -- -- 121 --
Sale of common shares in stock
offering, net of offering costs
of $1,033....................... 2,442 122 130,966 -- --
Net loss........................... -- -- -- -- (36,493)
------ ---- -------- ----- --------
Balance, October 25, 1997............ 13,087 655 168,246 (117) 71,128
Exercise of stock options
(unaudited)..................... 137 7 763 -- --
Compensation expense associated
with granting non-qualified
stock options (unaudited)....... -- -- -- 58 --
Tax benefit of exercise of
non-qualified stock options
(unaudited)..................... -- -- 1,742 -- --
Sale of Common Stock (unaudited)... 97 5 2,587 -- --
Net loss (unaudited)............... -- -- -- -- (54,493)
------ ---- -------- ----- --------
Balance, August 1, 1998
(Unaudited)........................ 13,321 $667 $173,338 $ (59) $ 16,635
====== ==== ======== ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 118
HADCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED ENDED
--------------------------------------- ---------------------
OCTOBER 28, OCTOBER 26, OCTOBER 25, JULY 26, AUGUST 1,
1995 1996 1997 1997 1998
----------- ----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss)........................................ $ 21,374 $ 32,014 $ (36,493) $ (47,843) $ (54,493)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Write off of acquired in-process research and
development.......................................... -- -- 78,000 78,000 63,050
Depreciation, amortization, deferred compensation and
deferred taxes....................................... 11,218 17,330 40,972 29,956 50,806
Gain on sale of fixed assets............................... (415) (205) (1,862) -- 1,977
Changes in assets and liabilities, net of acquisition of
Zycon Corporation in 1997 and Continental Circuits Corp.
in 1998 -- 1,890
Decrease (Increase) in accounts receivable............... (10,485) (4,825) (26,762) (30,785) 4,332
Increase in inventories.................................. (3,009) (8,482) (12,824) (1,339) (8,334)
Decrease (Increase) in prepaid expenses and other
expenses............................................... (364) 213 308 1,038 (9,605)
Decrease (Increase) in other assets...................... 25 33 385 (1,893) 1,177
(Decrease) Increase in accounts payable and accrued
expenses............................................... 15,291 17,720 8,873 (289) (17,229)
(Decrease) Increase in long-term liabilities............. 2,714 1,831 70 70 (22)
-------- -------- --------- --------- ---------
Net cash provided by operating activities.............. 36,349 55,629 50,667 26,915 33,549
-------- -------- --------- --------- ---------
Cash Flows from Investing Activities:
Purchases of short-term investments...................... (15,464) (8,402) (19,862) -- (2,020)
Maturities of short-term investments..................... 12,796 14,168 27,701 9,401 3,582
Purchases of property, plant and equipment............... (28,865) (53,966) (69,851) (47,810) (68,873)
Proceeds from sale of property, plant and equipment...... 429 290 2,760 -- --
Acquisition of Zycon Corporation in 1997 and Continental
Circuits Corp. in 1998, net of cash acquired........... -- -- (209,661) (209,661) (192,532)
-------- -------- --------- --------- ---------
Net cash used in investing activities.................. (31,104) (47,910) (268,913) (248,070) (259,843)
-------- -------- --------- --------- ---------
Cash Flows from Financing Activities:
Principal payments of long-term debt..................... (4,675) (2,139) (164,766) (149,044) (245,713)
Proceeds from issuance of long-term debt................. -- -- 224,954 224,954 459,665
Proceeds from exercise of stock options.................. 1,095 1,738 1,303 1,178 770
Sale of Common Stock, net of issuance costs.............. -- -- 131,088 131,106 2,592
Tax benefit from exercise of stock options............... 1,597 4,161 5,052 5,041 1,742
Purchase and retirement of common stock.................. (1,019) -- -- -- --
-------- -------- --------- --------- ---------
Net cash (used in) provided by financing activities.... (3,002) 3,760 197,631 213,235 219,056
-------- -------- --------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents....... 2,243 11,479 (20,615) (7,920) (7,238)
Cash and Cash Equivalents, Beginning of Period............. 19,064 21,307 32,786 32,786 12,171
-------- -------- --------- --------- ---------
Cash and Cash Equivalents, End of Period................... $ 21,307 $ 32,786 $ 12,171 $ 24,866 $ 4,933
======== ======== ========= ========= =========
Supplemental Schedule of Noncash Investing and Financing
Activities:
Machinery and equipment acquired under capital lease
obligations............................................ $ -- $ 1,032 $ -- $ -- $ --
======== ======== ========= ========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for --
Interest................................................. $ 576 $ 279 $ 10,270 $ 7,065 $ 4,689
======== ======== ========= ========= =========
Income taxes (net of refunds)............................ $ 13,609 $ 16,794 $ 21,099 $ 15,663 $ 11,636
======== ======== ========= ========= =========
Acquisition of Zycon Corporation in 1997 and Continental
Circuits Corp. in 1998:
Fair value of assets acquired............................ -- -- $ 206,009 $ 212,509 $ 137,623
Liabilities assumed...................................... -- -- (112,393) (114,993) (66,381)
Cash paid................................................ -- -- (204,885) (204,885) (186,083)
Acquisition costs incurred............................... -- -- (7,600) (7,600) (3,949)
Write-off of acquired in-process research and
development............................................ -- -- 78,000 78,000 63,050
-------- -------- --------- --------- ---------
Goodwill................................................. $ -- $ -- $ (40,869) $ (36,969) $ (55,740)
======== ======== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 119
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Hadco Corporation's (the "Company" or "Hadco") principal products are
complex multilayer rigid printed circuits and backplane assemblies. The
consolidated financial statements reflect the application of certain accounting
policies as described in this Note and elsewhere in the accompanying notes to
consolidated financial statements.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents and Short-Term Investments
The Company accounts for investments in accordance with Statement of
Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The Company considers all highly
liquid investment instruments purchased with a maturity of three months or less
to be cash equivalents. Short-term investments are carried at cost, which
approximates market, and have maturities of less than one year. Cash equivalents
consist primarily of money market funds and are approximately $29,696,000,
$9,850,000 and $1,400,000 as of October 1996 and 1997 and August 1, 1998,
respectively.
The Company classifies its investments in corporate and government debt
securities as held-to-maturity given the Company's intent and ability to hold
the securities to maturity. In accordance with SFAS No. 115, held-to-maturity
securities are carried at amortized cost.
The Company's investments in held-to-maturity securities are as follows:
<TABLE>
<CAPTION>
OCTOBER 26, 1996 OCTOBER 25, 1997 AUGUST 1, 1998
---------------- ------------------------ --------------
FAIR FAIR FAIR
MARKET MARKET MARKET
COST VALUE COST VALUE COST VALUE MATURITY
------ ------ ------ -------------- ---- ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
US Government Securities..... $1,000 $ 999 $ -- $ -- $-- $-- Within 1 year
State and Local Securities... 5,270 5,271 -- -- -- -- Within 1 year
Corporate Debt Securities.... 3,131 3,069 -- -- -- -- Within 1 year
Certificate of Deposit....... -- -- 1,562 1,562 -- -- Within 1 year
------ ------ ------ -------------- -- --
$9,401 $9,339 $1,562 $ 1,562 $-- $--
====== ====== ====== ============== == ==
</TABLE>
The Company has no financial instruments requiring disclosure under
Financial Accounting Standards Board issued SFAS No. 119, Disclosure About
Derivative Financial Instruments and Fair Value of the Financial Instruments.
F-7
<PAGE> 120
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. As of October 25, 1997, the Company has no significant
off-balance-sheet concentrations of credit risk such as foreign currency
exchange contracts or other hedging arrangements. Financial instruments that
subject the Company to credit risk consist of cash and cash equivalents,
short-term investments and trade accounts receivable. The Company maintains the
majority of its cash and investment balances with financial institutions. The
Company has not experienced any losses on these investments to date.
Substantially all of the Company's accounts receivable are concentrated in the
high technology and electronics industry. The Company has not experienced
significant losses related to receivables from individual customers or groups of
customers in the high technology and electronics industry or by geographic
region. Due to these factors, no additional credit risk beyond amounts provided
for collection losses is believed by management to be inherent in the Company's
accounts receivable.
Depreciation and Amortization of Property, Plant and Equipment
The Company provides for depreciation and amortization by charges to
operations in amounts that allocate the cost of property, plant and equipment on
a straight-line basis over the following estimated useful lives:
<TABLE>
<CAPTION>
ESTIMATED
ASSET CLASSIFICATION USEFUL LIFE
- -------------------- -----------
<S> <C>
Land betterments............................................ 10-18 Years
Buildings and improvements.................................. 10-40 Years
Machinery and equipment..................................... 3-10 Years
Furniture and fixtures...................................... 5-7 Years
Computer software........................................... 3 Years
Vehicles.................................................... 3-5 Years
Capital leases.............................................. Lease term
</TABLE>
Net Income (Loss) per Share
The Company adopted SFAS No. 128, Earnings per share, effective for the
quarter ended January 31, 1998 which replaces the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Prior period amounts have been restated to conform to the current period
presentation. Under SFAS No. 128, basic net income (loss) per common share is
computed based on income (loss) available to common stockholders and the
weighted average number of common shares outstanding during the period. The
dilutive net income (loss) per share is computed based on including the number
of additional common shares that would have been outstanding if the dilutive
potential of common shares had been issued.
F-8
<PAGE> 121
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Basic and diluted income (loss) per share, as required by SFAS No. 128, are
as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
FOR THE YEARS ENDED ENDED
----------------------------------------- ----------------------
OCTOBER 28, OCTOBER 26, OCTOBER 25, JULY 26, AUGUST 1,
1995 1996 1997 1997 1998
----------- ----------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net income (loss).................. $21,374 $32,014 $(36,493) $(47,843) $ (54,493)
======= ======= ======== ======== =========
Basic weighted average shares
outstanding...................... 9,805 10,245 11,458 10,970 13,172
Weighted average common equivalent
shares........................... 1,001 839 -- -- --
------- ------- -------- -------- ---------
Diluted weighted average shares
outstanding...................... 10,806 11,084 11,458 10,970 13,172
======= ======= ======== ======== =========
Basic net income (loss) per
share............................ $ 2.18 $ 3.12 $ (3.18) $ (4.36) $ (4.14)
======= ======= ======== ======== =========
Diluted net income (loss) per
share............................ $ 1.98 $ 2.89 $ (3.18) $ (4.36) $ (4.14)
======= ======= ======== ======== =========
</TABLE>
Diluted weighted average shares outstanding does not include 1,161,485,
1,189,084 and 1,308,420 common equivalent shares at October 25, 1997, July 26,
1997 and August 1, 1998, respectively, as their effect would be anti-dilutive.
Revenue Recognition
The Company recognizes revenue at the time products are shipped.
Research and Development Expenses
The Company charges research and development expenses to operations as
incurred. For the fiscal years ended October 1995, 1996 and 1997, and the nine
months ended July 26, 1997 and August 1, 1998, research and development expenses
were approximately $2,945,000, $4,307,000, $6,929,000, $5,604,000 and
$4,782,000, respectively, and are included in operating expenses.
Stock Based Compensation
The Company has adopted SFAS No. 123, Accounting for Stock-Based
Compensation, in fiscal 1997. SFAS No. 123 defines a fair-value-based method of
accounting for employee stock options and other stock-based compensation. The
compensation expense arising from this method of accounting can be reflected in
the financial statements or, alternatively, the pro forma net income and
earnings per share effect of the fair-value-based accounting can be disclosed in
the financial footnotes. The Company has adopted the disclosure-only
alternative. (See Note 10).
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 in accordance with SFAS
No. 52, Foreign Currency Translation. To date, the resulting gains and losses
have not been material.
F-9
<PAGE> 122
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
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 August 1, 1998, and the
consolidated statements of operations and cash flows for the nine month periods
ended July 26, 1997 and August 1, 1998 and the statement of stockholders'
investment for the nine months period ended August 1, 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 of interim periods are not necessarily
indicative of results to be expected for the entire year of any future period.
New Accounting Standards
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income.
SFAS No. 130 requires disclosure of all components of comprehensive income on an
annual and interim basis. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. The Company will adopt this
statement for its fiscal year ending October 1999.
In July 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS No. 131 requires certain financial
and supplementary information to be disclosed on an annual and interim basis for
each reportable segment of an enterprise. SFAS No. 131 is effective for fiscal
years beginning after December 15, 1997. Unless impracticable, companies would
be required to restate prior period information upon adoption. The Company will
adopt this statement for its fiscal year ending October 1999.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
This Statement is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 Reporting on the Costs of Start-Up Activities
(SOP 98-5). SOP 98-5 provides guidance on the financial reporting of start-up
activities and organization costs to be expensed as incurred. SOP 98-5 will not
have a material impact on the Company's financial statements.
(2) ACQUISITIONS
On January 10, 1997 the Company acquired (the "Zycon Acquisition") all of
the outstanding common stock of Zycon Corporation ("Zycon"), and on March 20,
1998, the Company acquired (the "Continental Acquisition", and together with the
Zycon Acquisition, the "Acquisitions") all of the outstanding common stock of
Continental Circuit Corp. ("Continental"). These acquisitions were financed by
the $400 million unsecured senior revolving credit facility with a group of
banks, which amended and restated an existing credit facility (the "Amended
Credit Facility"), under which the Company borrowed approximately $215,000,000
upon consummation of the Zycon Acquisition and approximately $220,000,000 upon
consummation of the Continental Acquisition. These acquisitions were accounted
for as purchases in accordance with Accounting Principles Board Opinion No. 16
and accordingly, Zycon's and Continental's operating results since the
F-10
<PAGE> 123
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
respective dates of acquisition are included in the accompanying consolidated
financial statements. In accordance with APB Opinion No. 16, the Company
allocated the purchase price of the Acquisitions based on the fair value of the
assets acquired and liabilities assumed. Significant portions of the purchase
price of both were identified in independent appraisals, using proven valuation
procedures and techniques, as intangible assets. These intangible assets include
approximately $78,000,000 and $63,050,000 for Zycon and Continental,
respectively, for acquired in-process research and development ("in-process
R&D") for projects that did not have future alternative uses. This allocation
represents the estimated fair value based on risk-adjusted cash flows related to
the in-process R&D projects. At the date of each acquisition, the development of
these projects had not yet reached technological feasibility, and the R&D in
progress had no alternative future uses. Accordingly, these costs were expensed
as of the respective acquisition date.
Continental's in-process R&D value is comprised of 8 primary R&D programs.
These projects include the introduction of certain new technologies. At the
acquisition date, Continental's R&D programs ranged in completion from 10% to
80%, and total continuing R&D commitments to complete the projects are currently
expected to be significant. Remaining development efforts for the Continental
programs are complex and include the development and advancement of advanced
chemical, electrical, and engineering solutions.
Expenditures to complete the Continental projects are subject to change,
given the uncertainties of the development process, and no assurance can be
given that deviations from these estimates will not occur. Additionally, these
projects will require maintenance R&D after they have reached a state of
technological and commercial feasibility. In addition to usage of the acquired
companies' internal cash flows, Hadco currently believes it will provide a
substantial amount of funding to complete each acquired company's programs.
There is risk associated with the completion of the projects, and there is
no assurance that each will meet with either technological or commercial
success. The substantial delay or outright failure of the Zycon and Continental
R&D would impact the Company's financial condition.
The value assigned to purchased in-process technology was determined by
estimating the costs to develop the purchased in-process technology into
commercially viable products, estimating the resulting net cash flows from the
projects and discounting the net cash flows to their present value. The revenue
projection used to value the in-process research and development is based on
estimates of relevant market sizes and growth factors, expected trends in
technology and the nature and expected timing of new product introductions by
the Company and its competitors.
The rates utilized to discount the net cash flows to their present value
are based on the cost of Continental's weighted average cost of capital. This
discount rate is commensurate with Continental's corporate maturity and the
uncertainties in the economic estimates described above.
The forecasts used by the Company in valuing in-process R&D were based upon
assumptions the Company believes to be reasonable but which are inherently
uncertain and unpredictable. The Company's assumptions may be incomplete or
inaccurate, and unanticipated events and circumstances are likely to occur. For
these reasons, actual results may vary from the projected results.
Acquired intangibles included developed technology, customer relationships,
assembled workforce, trade names and trademarks. These intangibles are being
amortized over their estimated useful lives of 12 to 30 years.
F-11
<PAGE> 124
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
The aggregate purchase prices of $212,485,000 and $190,032,000, including
acquisition costs, for the Zycon and Continental Acquisitions, respectively,
were allocated as follows:
<TABLE>
<CAPTION>
ZYCON CONTINENTAL
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current assets.............................................. $ 41,790 $ 24,056
Property, plant and equipment............................... 95,193 67,144
Acquired intangibles........................................ 65,500 46,190
In-process R&D.............................................. 78,000 63,050
Other assets................................................ 3,526 233
Goodwill.................................................... 40,869 55,740
Liabilities assumed......................................... (112,393) (66,381)
--------- --------
$ 212,485 $190,032
========= ========
</TABLE>
Unaudited pro forma operating results for the Company, assuming the
acquisition of Zycon occurred on October 28, 1995 and Continental occurred on
October 26, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
-------------------------- ----------------------
OCTOBER 26, OCTOBER 25, JULY 26, AUGUST 1,
1996 1997 1997 1998
----------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales.............................. $570,345 $830,468 $630,112 $ 661,206
Net income............................. 27,222 36,210 26,856 1,139
Basic Net Income per Share............. 2.66 3.16 2.45 .09
Diluted Net Income per Share........... 2.46 3.03 2.34 .08
</TABLE>
For purposes of these pro forma operating results, the in-process research
and development 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:
<TABLE>
<CAPTION>
OCTOBER 26, OCTOBER 25, AUGUST 1,
1996 1997 1998
----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Raw materials...................................... $ 8,008 $16,728 $ 27,861
Work-in-process.................................... 13,778 29,272 38,001
------- ------- ---------
$21,786 $46,000 $ 65,862
======= ======= =========
</TABLE>
The work-in-process consists of materials, labor and manufacturing
overhead.
F-12
<PAGE> 125
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
OCTOBER 26, OCTOBER 25, AUGUST 1,
1996 1997 1998
----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Land betterments................................ $ 1,991 $ 2,174 $ 5,976
Buildings and improvements...................... 52,961 74,172 145,417
Construction-in-progress........................ 22,543 38,716 26,689
Machinery and equipment......................... 126,878 262,113 409,234
Furniture and fixtures.......................... 14,082 18,611 12,517
Computer software............................... 2,662 3,152 6,254
Vehicles........................................ 159 626 661
Capital leases.................................. 14,972 45,154 13,125
--------- --------- ---------
236,248 444,718 619,873
Accumulated depreciation and amortization....... (132,513) (213,228) (296,789)
--------- --------- ---------
$ 103,735 $ 231,490 $ 323,084
========= ========= =========
</TABLE>
(5) INTANGIBLE ASSETS
The Company assesses the realizability of 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. Based on its
most recent analysis, the Company believes that no material impairment of
intangible assets exists as of October 25, 1997. Intangible assets are amortized
on a straight-line basis, based on their estimated lives, as follows:
<TABLE>
<CAPTION>
ESTIMATED LIFE OCTOBER 25, 1997 AUGUST 1, 1998
-------------- ---------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Developed technology..................... 12 years $ 30,000 $ 52,190
Customer relationships................... 20-25 years 19,000 37,000
Assembled workforce...................... 12-15 years 10,000 16,000
Trade names/trademarks................... 30 years 6,500 6,500
Goodwill................................. 20 years 40,869 96,609
-------- --------
106,369 208,299
Less -- Accumulated amortization......... (5,238) (13,857)
-------- --------
$101,131 $194,442
======== ========
</TABLE>
(6) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes.
F-13
<PAGE> 126
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
The provision for income taxes shown in the accompanying consolidated
statements of operations is comprised of the following:
<TABLE>
<CAPTION>
YEARS ENDED OCTOBER
-----------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal
Current............................................. $14,331 $18,341 $24,072
Deferred............................................ (2,954) (1,206) 1,369
------- ------- -------
11,377 17,135 25,441
------- ------- -------
State
Current............................................. 2,928 3,611 2,273
Deferred............................................ (641) (279) (42)
------- ------- -------
2,287 3,332 2,231
------- ------- -------
$13,664 $20,467 $27,672
======= ======= =======
</TABLE>
The tax rate used in the computation of the provision for federal and state
income taxes differs from the statutory federal and state rates due to the
following:
<TABLE>
<CAPTION>
1995 1996 1997(1)
---- ---- -------
<S> <C> <C> <C>
Provision for statutory rate................................ 34.0% 34.0% 35.0%
Increase in tax resulting from --
State income taxes, net of federal tax benefit............ 4.5 4.4 4.3
Tax-exempt interest income................................ (0.5) (0.4) (0.3)
Other, net................................................ 1.0 1.0 1.0
---- ---- ----
Provision for income taxes................................ 39.0% 39.0% 40.0%
==== ==== ====
</TABLE>
- ---------------
(1) Calculated based on pre-tax income, before non-deductible charges for
in-process research and development, of $69.2 million for 1997.
In accordance with generally accepted accounting principles, the Company
provides for income taxes using its effective annual income tax rate. Although
the Company has incurred a loss before income taxes during the year ended
October 25, 1997, the Company has recorded an income tax provision because the
write-off of in-process research and development is not deductible for income
tax purposes. Without taking into consideration the write-off of in-process
research and development, the effective annual income tax rate for fiscal 1997
is 40%, which is approximately equal to the expected combined federal and state
statutory rates. The Company is providing for income taxes in fiscal 1998 at an
effective tax rate of 39.75%, which is lower than the combined federal and state
statutory rates. The effective rate is increased by amortization of goodwill and
acquired intangibles which is not tax deductible, and this item was offset by
the tax benefit of the Company's Foreign Sales Corporation and various state
investment tax credits.
F-14
<PAGE> 127
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
The deferred provision for income taxes results from the following:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Difference between book and tax depreciation........... $ (144) $ (46) $1,939
Deferred compensation.................................. 73 266 146
Amortization of acquired intangible assets............. -- -- (1,210)
Reserves and expenses recognized in different periods
for book and tax purposes............................ (3,506) (1,658) 480
Other, net............................................. (18) (47) (28)
------- ------- ------
$(3,595) $(1,485) $1,327
======= ======= ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the current and long-term deferred tax assets and liabilities at
October 26, 1996 and October 25, 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
------ --------
(IN THOUSANDS)
<S> <C> <C>
Deferred Tax Assets --
Not currently deductible reserves......................... $7,475 $ 11,592
Not currently deductible environmental accruals........... 3,907 4,127
Deferred compensation plans............................... 275 1,140
------ --------
Total gross deferred tax assets........................ 11,657 16,859
Less -- valuation allowance............................... (137) (54)
------ --------
11,520 16,805
Deferred Tax Liability --
Acquisition related intangibles........................... -- (24,096)
Property, plant and equipment, principally due to
differences in depreciation............................ (1,920) (12,911)
------ --------
Net deferred tax asset (liability)..................... $9,600 $(20,202)
====== ========
</TABLE>
Due to the uncertainty relating to the actual value of the favorable tax
benefits of deferred compensation from stock options, the Company has recorded a
valuation allowance of approximately $137,000 and $54,000 as of October 26, 1996
and October 25, 1997, respectively. The decrease of this allowance for the year
ended October 25, 1997 is a result of the decrease in the deferred tax asset
relating to deferred compensation.
(7) LINES OF CREDIT
The Company's $400 million Amended Credit Facility is pursuant to an
Amended and Restated Revolving Credit Agreement, as amended (the "Agreement").
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 in the Agreement). 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.
At October 25, 1997 and August 1, 1998, borrowings of $100,000,000 and
$160,000,000, respectively, were outstanding under the Agreement at weighted
average interest rates of 6.26% and 6.75%, respectively.
F-15
<PAGE> 128
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
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, among other things, minimum levels of
consolidated net worth, a maximum ratio of consolidated funded debt to EBITDA,
maximum capital expenditures and minimum interest coverage, as defined, during
the term of the Agreement. At October 25, 1997, the Company was in compliance
with all loan covenants. The Company received waivers of defaults with respect
to certain of its financial covenants for the four quarter period ended August
1, 1998. (See Note 15)
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 $3,400,000 for the purpose of acquiring land, facilities and
equipment for the Company's Malaysian subsidiary. The arrangement is renewable
annually. At October 25, 1997 and August 1, 1998, there were no amounts
outstanding under this arrangement.
(8) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
OCTOBER
------------------- AUGUST 1,
1996 1997 1998
------- -------- ---------
(IN THOUSANDS)
<S> <C> <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.
Payments of principal and interest are due
quarterly.......................................... $ 916 $ 820 $ 755
Revolving credit agreement (Note 7).................. -- 100,000 160,000
9 1/2 Senior Subordinated Notes due 2008, net of
discount .......................................... -- -- 199,337
Obligations under capital leases..................... 2,506 13,960 11,290
------ -------- --------
3,422 114,780 371,382
Less -- Current portion.............................. 1,907 5,064 4,484
------ -------- --------
$1,515 $109,716 $366,898
====== ======== ========
</TABLE>
On May 18, 1998, the Company sold $200.0 million aggregate principal amount
of its 9 1/2% Senior Subordinated Notes due 2008 (the "Notes") to certain
purchasers. The purchasers subsequently resold the Notes to "qualified
institutional buyers" in reliance upon Rule 144A under the Securities Act of
1933, as amended (the "Securities Act"), and offshore purchasers pursuant to
Rule 904 of Regulation S under the Securities Act. The Notes were sold at a
price equal to 99.66% of their principal amount.
Interest on the Notes is payable semiannually on each June 15 and December
15, commencing December 15, 1998. The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or after June 15, 2003, at 104.75%
of their principal amount, plus accrued interest, with such percentages
declining ratably to 100% of their principal amount, plus accrued interest. At
any time on or prior to June 15, 2001 and subject to certain conditions, up to
35% of the aggregate principal amount of the Notes may be redeemed, at the
option of the Company, with the proceeds of certain equity offerings of the
Company at 109.50% of the principal amount thereof, plus accrued interest. In
addition, at any time prior to June 15, 2003, the Company may redeem the Notes,
at its option, in whole or in part, at a price equal to the principal amount
F-16
<PAGE> 129
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
thereof, together with accrued interest, plus the Applicable Premium (as defined
in the Indenture governing the Notes).
The Notes are guaranteed, on a senior subordinated basis, by each of the
Company's U.S. Restricted Subsidiaries (as defined in the Indenture) (the
"Guarantors"). The net proceeds received by the Company from the issuance and
sale of the Notes, approximately $193.82 million, was used to repay outstanding
indebtedness under the Amended Credit Facility previously incurred to, among
other things, finance the Acquisitions.
The Indenture under that which the Notes were issued (the "Indenture")
imposes certain limitations on the ability of the Company, its subsidiaries and,
in certain circumstances, the Guarantors, to, among other things, incur
indebtedness, pay dividends, prepay subordinated indebtedness, repurchase
capital stock, make investments, create liens, engage in transactions with
stockholders and affiliates, sell assets and engage in mergers and
consolidations.
Maturities of long-term debt and capital lease obligations are as follows
as of October 25, 1997:
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER -- AMOUNT
- ---------------------- --------------
(IN THOUSANDS)
<S> <C>
1998........................................................ $ 5,064
1999........................................................ 4,008
2000........................................................ 2,506
2001........................................................ 2,221
2002........................................................ 100,710
Thereafter.................................................. 271
--------
$114,780
========
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases manufacturing equipment and space under noncancelable
operating leases with terms expiring through 2009. Future minimum lease payments
under these leases as of October 25, 1997 (in thousands) are as follows:
<TABLE>
<CAPTION>
YEAR ENDING OCTOBER -- EQUIPMENT REAL ESTATE TOTAL
- ---------------------- --------- ----------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
1998................................................ $123 $ 5,500 $ 5,623
1999................................................ 9 5,371 5,380
2000................................................ -- 4,894 4,894
2001................................................ -- 4,558 4,558
2002................................................ -- 4,670 4,670
Thereafter.......................................... -- 29,665 29,665
---- ------- -------
Future minimum lease payments....................... $132 $54,658 $54,790
==== ======= =======
</TABLE>
Total rental expense of approximately $1,447,000, $1,434,000, $6,628,000,
$4,545,000 and $7,157,000 was incurred for the fiscal years ended October 1995,
1996, and 1997 and the nine months ended July 26, 1997 and August 1, 1998,
respectively.
These operating leases include office and manufacturing space leased from a
partnership in which the Chairman of the Board had an interest. Two of the
leases are for terms of five years, and expire in
F-17
<PAGE> 130
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
October 2000 with options to extend until October 2006. The remaining lease
expires in March 2000 with options to extend until 2006. For the fiscal years
ended October 1995, 1996 and 1997, and the nine months ended July 26, 1997 and
August 1, 1998 the related rental expense was approximately $479,000, $529,000,
$533,000, 462,000 and 437,000, respectively. On June 10, 1998, the Chairman of
the Board sold his interest in the partnership.
Environmental Matters
During March 1995, the Company received a Record of Decision ("ROD") from
the New York State Department of Environmental Conservation ("NYSDEC"),
regarding soil and groundwater contamination at its Owego, New York facility.
Based on a Remedial Investigation and Feasibility Study ("RIFS") for apparent
on-site contamination at that facility and a Focused Feasibility Study ("FFS"),
each prepared by environmental consultants of the Company, the NYSDEC has
approved a remediation program of groundwater withdrawal and treatment and
iterative soil flushing. The Company has executed a Modification of the Order on
Consent to implement the approved ROD. The cost, based upon the FFS, to
implement this remediation is estimated to be $4.6 million, and is expected to
be expended as follows: $260,000 for capital equipment and $4.3 million for
operation and maintenance costs which will be incurred and expended over the
estimated life of the program of 30 years. NYSDEC has notified the Company that
it will take additional samples from a wetland area near the Company's Owego
facility. Analytical reports of earlier sediment samples indicated the presence
of certain inorganics. There can be no assurance that the Company and/or other
third parties will not be required to conduct additional investigations and
remediation at that location, the costs of which are currently indeterminable
due to the numerous variables described in the fifth paragraph of this
Environmental Matters note.
From 1974 to 1980, the Company operated a printed circuit manufacturing
facility in Florida as a lessee of property that is now the subject of a pending
lawsuit (the "Florida Lawsuit") and investigation by the Florida Department of
Environmental Protection ("FDEP"). Hadco and others are participating in
alternative dispute resolution regarding the site with an independent mediator.
In connection with the mediation, in February 1992 the FDEP presented
computer-generated estimates of remedial costs, for activities expected to be
spread over a number of years, that ranged from approximately $3.3 million to
$9.7 million. Mediation sessions were conducted in March 1992 but have been
suspended during the ongoing assessment and feasibility activities. On June 9,
1992, the Company entered into a Cooperating Parties Agreement in which it and
Gould, Inc., another prior lessee of the site, agreed to fund certain assessment
and feasibility study activities at the site. The cost of such activities is not
expected to be material to the Company. Management believes it is likely that it
will participate in implementing a continuing remedial program for the site, the
costs of which are currently unknown. Also see the seventh paragraph of this
Environmental Matters Note relating to the Company's having been named as a
third-party defendant in the Florida Lawsuit.
The Company has commenced the operation of a groundwater extraction system
at its Derry, New Hampshire facility to address certain groundwater
contamination and migration control issues. Further investigation is underway to
determine the areal extent of the groundwater contaminant plume. Because of the
uncertainty regarding both the quantity of contaminants beneath the building at
the site and the long-term effectiveness of the groundwater migration control
system the Company has installed, it is not possible to make a reliable estimate
of the length of time remedial activity will have to be performed. However, it
is anticipated that the groundwater extraction system will be operated for at
least 30 years. There can be no assurance that the Company will not be required
to conduct additional investigations and remediation relating to the Derry
facility. The total costs of such groundwater extraction system and of
conducting any additional investigations and remediation relating to the Derry
facility are not fully determinable due to the numerous variables described in
the fifth paragraph of this Environmental Matters note.
F-18
<PAGE> 131
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Included in operating expenses are charges for actual expenditures and
accruals, based on estimates, for environmental matters. During fiscal 1995,
1996 and 1997, and the nine months ended July 26, 1997 and August 1, 1998, the
Company made, and charged to operating expenses, actual payments of
approximately $1,111,000, $680,000, $296,000, $241,000 and $48,000,
respectively, for environmental matters. In 1995 and 1996, the Company also
accrued and charged to operating expenses approximately $2,740,000 and
$1,825,000, respectively, as cost estimates for environmental matters.
The Company accrues estimated costs associated with known environmental
matters, when such costs can be reasonably estimated. The cost estimates
relating to future environmental clean-up are subject to numerous variables, the
effects of which can be difficult to measure, including the stage of the
environmental investigations, the nature of potential remedies, possible joint
and several liability, the magnitude of possible contamination, the difficulty
of determining future liability, the time over which remediation might occur,
and the possible effects of changing laws and regulations. The total reserve for
environmental matters currently identified by the Company amounted to $10.0
million at October 26, 1996 and $10.6 million at October 25, 1997 and August 1,
1998. The current portion of these costs amounted to approximately $900,000 as
of October 26, 1996 and $1.4 million as of October 25, 1997 and August 1, 1998,
and is included in other accrued expenses. The long-term portion of these costs
amounted to approximately $9.1 million, as of October 26, 1996, and $9.2 million
as of October 25, 1997 and August 1, 1998, respectively, and is reported under
the caption Other Long-Term Liabilities. Based on its assessment at the current
time, management estimates the cost of ultimate disposition of the above known
environmental matters to range from approximately $7.0 million to $12.0 million,
and is expected to be spread over a number of years. Management believes the
ultimate disposition of the above known environmental matters will not have a
material adverse effect on 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.
The Company is one of 33 entities which have been named as potentially
responsible parties in a lawsuit pending in the federal district court of New
Hampshire concerning environmental conditions at the Auburn Road, Londonderry,
New Hampshire landfill site. Local, state and federal entities and certain other
parties to the litigation seek contribution for past costs, totaling
approximately $20 million, allegedly incurred to assess and remedy the Auburn
Road site. In December 1996, following publication and comment period, the U.S.
Environmental Protection Agency (EPA) amended the ROD to change the remedy at
the Auburn Road site from active groundwater remediation to future monitoring.
Other parties to the lawsuit also allege that future monitoring will be
required. The Company is contesting liability, but is participating in mediation
with 27 other parties in an effort to resolve the lawsuit.
In connection with the Florida Lawsuit (as described in the second
paragraph of this Environmental Matters section), pending in the Circuit Court
of Broward County, Florida, Hadco and Gould, Inc., another prior lessee of the
site of the printed circuit manufacturing facility in Florida, was each served
with a third party complaint in June 1995, as third-party defendants in such
pending Florida Lawsuit by a party who had previously been named as a defendant
when the Florida Lawsuit was commenced in 1993 by the FDEP. The Florida Lawsuit
seeks damages relating to environmental pollution and FDEP costs and expenses,
civil penalties, and declaratory and injunctive relief to require the parties to
complete assessment and remediation of soil and groundwater contamination. The
other parties include alleged owners of the property and Fleet Credit
Corporation, a secured lender to a prior lessee of the property.
In March 1993, the EPA notified Hadco Santa Clara (formerly Zycon) of its
potential liability for maintenance and remediation costs in connection with a
hazardous waste disposal facility operated by Casmalia Resources, a California
Limited Partnership, in Santa Barbara County, California. The EPA identified
Hadco Santa Clara as one of the 65 generators which had disposed the greatest
amounts of materials
F-19
<PAGE> 132
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
at the site. Based on the total tonnage contributed by all generators, Hadco
Santa Clara's share is estimated at approximately 0.2% of the total weight.
The Casmalia site was regulated by the EPA during the period when the
material was accepted. There is no allegation that Hadco Santa Clara violated
any law in the disposal of material at the site, rather the EPA's actions
stemmed from the fact that Casmalia Resources may not have the financial means
to implement a closure plan for the site and because of Hadco Santa Clara's
status as a generator of hazardous waste.
In June 1997, the United States District Court in Los Angeles, California
approved and entered a Consent Decree among the EPA and 49 entities (including
Hadco Santa Clara) acting through the Casmalia Steering Committee ("CSC"). The
Consent Decree sets forth the terms and conditions under which the CSC will
carry out work aimed at final closure of the site. Certain closure activities
will be performed by the CSC. Later work will be performed by the CSC, if funded
by other parties. Under the Consent Decree, the settling parties will work with
the EPA to pursue the non-settling parties to ensure they participate in
contributing to the closure and long-term operation and maintenance of the
facility.
The future costs in connection with the lawsuits described in the above
paragraphs are currently indeterminable due to such factors as the unknown
timing and extent of any future remedial actions which may be required, the
extent of any liability of the Company and of other potentially responsible
parties, and the financial resources of the other potentially responsible
parties. Management currently believes, based on the facts currently known to
it, that it is probable that the ultimate dispositions of the above lawsuits
will not have a material adverse effect on the Company's business and financial
condition; however, there can be no assurance that this will be the case.
Purchase Commitments
The Company had commitments to purchase approximately $16,497,000 of
manufacturing equipment and approximately $1,289,000 of leasehold improvements
as of October 25, 1997. The majority of these commitments is expected to be
completed by the end of fiscal 1998.
F-20
<PAGE> 133
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(10) STOCKHOLDERS' INVESTMENT
Stock Options
The following table summarizes stock option activity with respect to the
non-qualified stock options:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER EXERCISE AVERAGE
OF SHARES PRICE RANGE EXERCISE PRICE
--------- --------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Outstanding, October 29, 1994.............. 1,690 $ 2.00 - $ 9.00 $ 4.78
Options granted............................ 223 8.50 - 25.69 9.39
Options exercised.......................... (320) 2.00 - 11.06 3.61
Options canceled........................... (147) 2.10 - 8.81 7.91
----- --------------- ------
Outstanding, October 28, 1995.............. 1,446 2.00 - 25.69 5.44
Options granted............................ 150 27.00 - 31.50 30.98
Options exercised.......................... (443) 2.00 - 11.06 3.92
Options canceled........................... (45) 2.00 - 31.50 6.75
----- --------------- ------
Outstanding, October 26, 1996.............. 1,108 2.00 - 31.50 9.45
Options granted............................ 265 45.31 - 67.00 48.52
Options exercised.......................... (261) 2.00 - 31.50 4.98
Options canceled........................... (42) 2.00 - 51.88 19.68
----- --------------- ------
Outstanding, October 25, 1997.............. 1,070 2.10 - 67.00 19.87
Options granted............................ 532 31.78 - 63.50 48.45
Options exercised.......................... (137) 2.10 - 11.06 5.64
Options canceled........................... (108) 2.10 - 67.00 38.11
----- --------------- ------
Outstanding, August 1, 1998................ 1,357 $ 2.10 - $67.00 $31.03
===== =============== ======
</TABLE>
F-21
<PAGE> 134
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
The following table summarizes information about stock options outstanding
at October 25, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING WEIGHTED
RANGE OF OPTIONS CONTRACT LIFE AVERAGE
EXERCISE PRICES OUTSTANDING (YEARS) EXERCISE PRICE
--------------- ----------- -------------- --------------
<S> <C> <C> <C>
$ 2.10 - $ 3.15............................... 88,830 1.2 $ 2.60
3.38 - 4.00............................... 97,595 2.6 3.73
4.94 - 6.69............................... 83,120 4.2 5.15
8.00 - 12.00............................... 406,500 6.3 8.79
17.19................................... 1,750 7.6 17.19
27.00 - 31.50............................... 136,975 7.9 30.93
47.44 - 67.00............................... 255,250 8.8 48.56
--------- ------
1,070,020 $19.87
========= ======
</TABLE>
The following table summarizes information about stock options exercisable
at October 25, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF OPTIONS EXERCISE
EXERCISE PRICES EXERCISABLE PRICE
--------------- ----------- --------
<S> <C> <C>
$ 2.10 - $ 3.15............................................. 88,830 $ 2.60
3.38 - 4.00............................................. 82,755 3.68
4.94 - 6.69............................................. 50,520 5.20
8.00 - 12.00............................................. 130,675 8.97
17.19............................................. -- --
27.00 - 31.50............................................. 17,220 29.85
47.44 - 67.00............................................. 9,000 46.02
------- ------
Exercisable October 25, 1997................................ 379,000 $ 7.65
======= ======
Exercisable October 26, 1996................................ 506,885 $ 4.52
======= ======
Exercisable October 28, 1995................................ 830,516 $ 4.71
======= ======
</TABLE>
The Company has reserved as of October 25, 1997, a total of 2,005,270
shares of common stock for issuance under the non-qualified stock option plans
listed in the above charts. During fiscal 1995, 1996 and 1997, approximately
$287,000, $154,000 and $121,000, respectively, were charged against income as
compensation expense associated with the granting of these options. For the
first nine months of each of fiscal 1997 and 1998, $93,000 and $58,000,
respectively were charged against income as compensation with the granting of
those options.
F-22
<PAGE> 135
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
The Company has computed the pro forma disclosures required under SFAS No.
123 using the Black-Scholes option pricing model. The assumptions used, weighted
average information and the pro forma effect of applying SFAS No. 123 for the
years ended October 26, 1996 and October 25, 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Risk-free interest rates............................... 6.20% - 6.73% 6.20% - 6.66%
Expected dividend yield................................ -- --
Expected lives......................................... 6.53 years 6.77 years
Expected volatility.................................... 43.6% 43.6%
Weighted average grant-date fair value of options
granted during the period, net of an estimated
termination rate of 32.70%........................... $ 24.54 $ 26.51
Weighted average exercise price of options granted
during the period, net of an estimated termination
rate of 32.70%....................................... $ 45.26 $ 48.15
Weighted average remaining contractual life of options
outstanding.......................................... 8.92 years 8.66 years
Weighted average exercise price of 506,885 and 379,000
options exercisable at October 26, 1996 and October
25, 1997, respectively............................... $ 4.52 $ 7.65
Pro forma net income (loss)............................ $31,802 $(37,088)
Pro forma -- basic net income (loss) per share......... $ 3.10 $ (3.24)
Pro forma -- diluted net income (loss) per share....... $ 2.87 $ (3.24)
</TABLE>
The Company has the following non-qualified stock option plans:
December 1985 Plan and December 1986 Plan
The options under these plans are exercisable immediately, and have various
vesting periods up to 10 years according to each individual option agreement
with an expiration date no later than 10 years and 90 days from the date of
grant. Upon termination of employment under certain circumstances, the Company
may, at its option, repurchase the exercised but unvested shares at the original
purchase price. The Board of Directors has determined to make no further grants
under these plans.
September 1990 Plan
This plan provides for the granting of options at a price equal to the fair
market value at the date of grant. The options vest over periods of up to seven
years and become exercisable according to each option agreement, and they expire
no later than 10 years from the date of grant. The Board of Directors has
determined to make no further grants under this plan.
December 1991 Director Plan
This plan originally provided for the granting of options to purchase up to
150,000 shares of common stock at a price equal to the fair market value at the
date of grant. These options are exercisable ratably over a five-year period and
expire no later than seven years from the date of grant. This plan has been
amended to (i) increase the number of shares available to 300,000, (ii) provide
that any current non-employee director who had five years of service in such
capacity on February 26, 1997 be automatically granted, on such date and on each
anniversary of service thereafter, a vested option to purchase 3,000 shares and
(iii) provide that any
F-23
<PAGE> 136
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
current non-employee director who did not have five years of service in such
capacity on February 26, 1997 and any future non-employee director each be
automatically granted, on the date such non-employee director achieves five
years of service in such capacity and on each anniversary of service thereafter,
a vested option to purchase 3,000 shares.
November 1995 Plan
This plan provides for the granting of options to purchase up to 1,000,000
shares of common stock at a price equal to fair market value at the date of
grant. The options vest according to each option agreement and they expire no
later than 10 years from the date of grant.
Stockholder Rights Plan
The Company adopted a Stockholder Rights Plan in August 1995 pursuant to
which the Company declared the distribution of one Common Stock Purchase Right
("Right") for each share of outstanding common stock. Under certain conditions,
each Right may be exercised for one share of common stock at an exercise price
of $130, subject to adjustment. Under circumstances defined in the Stockholder
Rights Plan, the Rights entitle holders to purchase stock having a value of
twice the exercise price of the Rights. Until they become exercisable, the
Rights are not transferable apart from the common stock. The Rights may be
redeemed by the Company at any time prior to the occurrence of certain events at
$.01 per Right. The Stockholder Rights Plan will expire on September 11, 2005,
unless the Rights are earlier redeemed by the Company.
(11) RETIREMENT PLAN
The Hadco Corporation Retirement Plan (the "Plan"), as amended, covers all
employees with at least six months of continuous service, as defined. Annual
profit sharing contributions are determined at the discretion of the Board of
Directors but cannot exceed the amount allowable for federal income tax
purposes. The Company made profit sharing contributions of $2,285,000,
$3,335,000 and $4,016,000 to the Plan for the years ended October 1995, 1996 and
1997, respectively.
The Plan permits participants to elect to have contributions made to the
Plan in the form of reductions in salary under Section 401(k) of the Internal
Revenue Code subject to limitations set out in the Plan. Under the Plan, the
Company will match employee contributions up to a set percentage. Employee
contributions become vested when made, and Company contributions become vested
at the rate of 33 1/3 for each year of service with the Company. The Company
matched employee contributions in the amount of approximately $600,000,
$736,000, $834,000 and $2,776,000 during fiscal 1995, 1996, and 1997 and the
nine months ended August 1, 1998, respectively.
(12) QUARTERLY RESULTS (UNAUDITED)
The following summarized unaudited results of operations for the fiscal
quarters in the years ended October 1996 and 1997 and through the first quarter
of fiscal 1998 have been accounted for using generally accepted principles for
interim reporting purposes and include adjustments (consisting of normal
recurring adjustments) that the Company considers necessary for the fair
presentation of results for these interim periods.
F-24
<PAGE> 137
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
<TABLE>
<CAPTION>
1996 1997
--------- ----------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
First Fiscal Quarter --
Net sales................................................. $76,481 $111,536
Gross profit.............................................. 20,463 26,377
Net income (loss)......................................... 7,191 (69,161)
Diluted Net income (loss) per share....................... .65 (6.64)
Diluted Weighted average shares outstanding............... 11,104 10,413
Second Fiscal Quarter --
Net sales................................................. $88,096 $180,662
Gross profit.............................................. 22,951 38,463
Net income................................................ 7,895 9,953
Diluted Net income per share.............................. .71 .91
Diluted Weighted average shares outstanding............... 11,135 10,956
Third Fiscal Quarter --
Net sales................................................. $88,225 $183,274
Gross profit.............................................. 22,419 39,254
Net income................................................ 7,994 11,369
Diluted Net income per share.............................. .72 .93
Diluted Weighted average shares outstanding............... 11,100 12,254
Fourth Fiscal Quarter --
Net sales................................................. $97,883 $173,233
Gross profit.............................................. 24,623 37,298
Net income................................................ 8,934 11,346
Diluted Net income per share.............................. .81 .84
Diluted Weighted average shares outstanding............... 11,008 13,528
</TABLE>
(13) CUSTOMERS
During fiscal year 1995, no customer accounted for more than 7% of
consolidated net sales. During fiscal years 1996 and 1997, one customer
accounted for 15% of consolidated net sales. The Company's five largest
customers accounted for 28%, 34% and 34% of consolidated net sales during fiscal
1995, 1996 and 1997, respectively. For the first nine months of each of fiscal
1997 and 1998 one customer accounted for more than 10% of consolidated sales.
(14) RESTRUCTURING AND OTHER NON-RECURRING CHARGES
On April 6, 1998, the Company announced the planned consolidation of its
two East Coast quick-turn prototype facilities into the larger of the two
facilities located at Haverhill, MA. The Company incurred and recorded in the
fiscal quarter ended May 2, 1998 non-recurring charges in connection with the
consolidation totaling $5.9 million. The component of this charge classified as
restructuring-related met the criteria set forth in Emerging Issues and Task
Force Issue ("EITF") 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." Non-recurring costs include costs
associated with the abandonment of assets at one of the facilities. On July 31,
1998, the Company announced a limited restructuring of its workforce, which
reduced the Company's workforce by approximately 3%. This restructuring was in
addition to the consolidation of the East Coast Tech Center Facilities. The cost
of this limited restructuring is comprised of severance and related benefits for
the terminated employees. As of August 1, 1998 the Company has recorded a
liability for both restructurings
F-25
<PAGE> 138
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
totaling $2.5 million, which relates to severance and other payroll related
costs, as well as lease termination costs. The components of the restructuring
and other non-recurring costs during the nine months ended August 1, 1998 are as
follows:
<TABLE>
<CAPTION>
EAST COAST
FACILITY COMPANY-WIDE
CONSOLIDATION RESTRUCTURING TOTAL
------------- ------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Loss on abandonment of assets.............. $1,965 $ -- $1,965
Severance benefits and associated legal
costs.................................... 129 1,105 1,234
Lease termination loss..................... 1,336 -- 1,336
------ ------ ------
Total Restructuring Charges................ 3,430 1,105 4,535
Other Non-recurring Charges................ 2,517 -- 2,517
------ ------ ------
Total Restructuring and Other Charges...... $5,947 $1,105 $7,052
====== ====== ======
</TABLE>
Included in the restructuring and other charges is $2.5 million, which
represents the write-down of existing assets to their net realizable value, in
accordance with SFAS 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed Of."
(15) SUBSEQUENT EVENT
On September 15, 1998 the Company amended its Credit Facility with the
Third Amendment and Modification Agreement dated as of September 14, 1998. This
most recent amendment to the Credit Facility, among other things, amended and
added certain covenants, changed the available borrowing capacity under the
Credit Facility from $400 million to the lesser of $300 million and the
Borrowing Base and granted the banks a first priority mortgage and security
interest in substantially all of the assets of the Company and each of the
subsidiaries which are guarantors of the Credit Facility. The Borrowing Base is
an amount, determined monthly (or more frequently in certain circumstances) by
the Agent, equal to the sum of specified percentages of Eligible Accounts
Receivable (domestic and foreign), domestic Eligible Inventory, Eligible Fixed
Assets and a percentage, determined in the Agent's sole discretion, of Eligible
Foreign Inventory, less certain Reserves (all as defined in the Credit
Facility). Under this most recent amendment to the Credit Facility the Company
is also required to pay a quarterly usage fee based on an Applicable Base Rate
Usage Fee Margin and an Applicable Eurodollar Rate Usage Fee Margin (both as
defined in the Credit Facility). The Credit Facility expires and all outstanding
loans thereunder mature on January 8, 2002.
The Credit Facility contains customary representations and warranties. The
Credit Facility also contains extensive affirmative and negative covenants,
including, among others, certain limits on the ability of the Company and its
subsidiaries to incur indebtedness, create liens, make investments, pay
dividends or other distributions, engage in mergers, consolidations,
acquisitions or dispositions, enter into sale and leaseback transactions, enter
into guarantees, prepay subordinated indebtedness, make capital expenditures or
create any new series of capital stock or amend the terms of existing capital
stock. The Credit Facility also requires the Company to maintain certain
financial covenants, including maximum ratio of Consolidated Funded Debt to
EBITDA, minimum interest coverage, minimum consolidated net worth and minimum
fixed charge coverage. Certain financial covenants have been modified and others
added under this most recent amendment to the Credit Facility, including an
additional covenant with respect to a minimum ratio of EBITDA to Consolidated
Total Interest Expense, which covenant terminates at the end of the Company's
fiscal first quarter 1999, and a covenant limiting the amount of Capital
Expenditures the Company and its subsidiaries may make, which covenant
terminates at the end of the Company's fiscal fourth quarter 1999. The Company
was in default as of the four quarter period ended August 1, 1998 with respect
to two of its financial covenants, which defaults have been waived by the
Company's banks. As of August 1, 1998, the Company had $160 million outstanding
under the Credit Facility. See Note 7 to Consolidated Financial Statements.
F-26
<PAGE> 139
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(16) SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
AS OF OCTOBER 25, 1997
------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL
------------ ------------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......... $ (1,603) $ 2,249 $ 11,525 $ -- $ 12,171
Short-term investments............ -- -- 1,562 -- 1,562
Accounts receivable, net.......... 145 56 92,021 -- 92,222
Inventories....................... 11,229 5,116 29,655 -- 46,000
Deferred tax asset................ -- -- 10,483 -- 10,483
Prepaid expenses and other current
assets......................... 2,271 113 1,861 -- 4,245
-------- ------- -------- --------- --------
Total current assets...... 12,042 7,534 147,107 166,683
Property, Plant and Equipment,
net............................... 67,525 33,462 130,503 231,490
Intercompany Receivable............. 12,184 -- 863 (13,047) --
Investments in subsidiaries......... 23,435 -- 142,560 (165,995) --
Acquired Intangible Assets, net..... 101,131 -- -- -- 101,131
Other Assets........................ 619 1,852 742 -- 3,213
-------- ------- -------- --------- --------
$216,936 $42,848 $421,775 $(179,042) $502,517
======== ======= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term
debt........................... $ 4,215 $ 104 $ 745 $ -- $ 5,064
Accounts payable.................. 21,608 4,745 42,241 -- 68,594
Intercompany payable.............. -- 13,047 -- (13,047) --
Accrued payroll and other employee
benefits....................... 5,693 225 22,361 -- 28,279
Accrued taxes..................... 3,880 269 (2,374) -- 1,775
Other accrued expenses............ 1,514 56 7,708 -- 9,278
-------- ------- -------- --------- --------
Total current
liabilities............. 36,910 18,446 70,681 (13,047) 112,990
-------- ------- -------- --------- --------
Long-term Debt, net of current
portion........................... 8,278 353 101,085 -- 109,716
-------- ------- -------- --------- --------
Deferred Tax Liability.............. 29,802 -- 883 -- 30,685
-------- ------- -------- --------- --------
Other Long-term Liabilities......... -- -- 9,214 -- 9,214
-------- ------- -------- --------- --------
Stockholders' Investment:
Common stock, $.05 par value;
Authorized -- 25,000 shares
Issued and outstanding --
13,086 shares in 1997.......... 11 29,654 655 (29,665) 655
Paid-in Capital..................... 212,474 -- 168,246 (212,474) 168,246
Deferred Compensation............... -- -- (117) -- (117)
Retained Earnings................... (70,539) (5,605) 71,128 76,144 71,128
-------- ------- -------- --------- --------
Total stockholders'
investment.............. 141,946 24,049 239,912 (165,995) 239,912
-------- ------- -------- --------- --------
$216,936 $42,848 $421,775 $(179,042) $502,517
======== ======= ======== ========= ========
</TABLE>
F-27
<PAGE> 140
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 25, 1997
---------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL
------------ ------------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Sales..................... $195,411 $26,411 $426,883 $ -- $648,705
Cost of Sales................. 164,069 18,773 324,471 -- 507,313
-------- ------- -------- ------- --------
Gross Profit................ 31,342 7,638 102,412 -- 141,392
Operating Expenses............ 12,821 7,696 44,069 -- 64,586
Write-off of Acquired
In-Process Research and
Development................. 78,000 -- -- -- 78,000
-------- ------- -------- ------- --------
Income (Loss) From
Operations............... (59,479) (58) 58,343 -- (1,194)
Interest and Other Income..... 655 -- 2,641 -- 3,296
Interest Expense.............. (2,003) (557) (8,363) -- (10,923)
-------- ------- -------- ------- --------
Income (Loss) Before
Provision for Income
Taxes.................... (60,827) (615) 52,621 -- (8,821)
Provision for Income Taxes.... 6,860 275 20,537 -- 27,672
Equity in income (loss) of
subsidiary.................. (2,852) -- (68,577) 71,429 --
-------- ------- -------- ------- --------
Net Income (Loss)........... $(70,539) $ (890) $(36,493) $71,429 $(36,493)
======== ======= ======== ======= ========
</TABLE>
F-28
<PAGE> 141
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED OCTOBER 25, 1997
---------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ENTITIES TOTAL
------------ ------------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in)
operating activities................. $44,591 $ 9,978 $ (3,902) $ -- $ 50,667
------- ------- --------- ------- ---------
Cash Flows from Investing Activities:
Purchases of short-term
investments....................... -- -- (19,862) -- (19,862)
Maturities of short-term
investments....................... -- -- 27,701 -- 27,701
Investments in subsidiaries.......... 9,496 726 (10,222) -- --
Purchases of property, plant and
equipment......................... (19,976) (4,092) (45,783) -- (69,851)
Proceeds from sale of property, plant
and equipment..................... -- -- 2,760 -- 2,760
Foreign Sales Corp. dividend......... -- (1,962) 1,962 -- --
Acquisition of Zycon Corporation in
1997, net of cash acquired........ -- -- (209,661) -- (209,661)
------- ------- --------- ------- ---------
Net cash used in investing
activities........................ (10,480) (5,328) (253,105) -- (268,913)
------- ------- --------- ------- ---------
Cash Flows from Financing Activities:
Principal payments of long-term
debt.............................. (35,714) (2,505) (126,547) -- (164,766)
Proceeds from issuance of long-term
debt.............................. -- -- 224,954 -- 224,954
Proceeds from exercise of stock
options........................... -- -- 1,303 -- 1,303
Sale of common stock, net of issuance
costs............................. -- -- 131,088 -- 131,088
Tax benefit from exercise of stock
options........................... -- -- 5,052 -- 5,052
------- ------- --------- ------- ---------
Net cash (used in) provided by
financing activities............ (35,714) (2,505) 235,850 -- 197,631
------- ------- --------- ------- ---------
Net Increase (Decrease) in Cash and
Cash Equivalents..................... (1,603) 2,145 (21,157) -- (20,615)
Cash and Cash Equivalents, Beginning of
Period............................... -- 104 32,682 -- 32,786
------- ------- --------- ------- ---------
Cash and Cash Equivalents, End of
Period............................... $(1,603) $ 2,249 $ 11,525 $ -- $ 12,171
======= ======= ========= ======= =========
</TABLE>
F-29
<PAGE> 142
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
SUPPLEMENTAL GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED)
CONDENSED CONSOLIDATING BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF AUGUST 1, 1998
-----------------------------------------------------------------------
GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL
------------ ------------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................ $ 1,499 $ 1,939 $ 1,495 $ -- $ 4,933
Accounts receivable, net................. 49,848 6,424 48,085 -- 104,357
Inventories.............................. 23,280 6,824 35,758 -- 65,862
Deferred tax asset....................... 3,473 -- 11,983 -- 15,456
Prepaid expenses and other current
assets................................ 9,301 265 6,502 -- 16,068
-------- ------- -------- --------- --------
Total current assets............. 87,401 15,452 103,823 -- 206,676
Property, Plant and Equipment, net......... 139,415 49,956 133,713 -- 323,084
Intercompany Receivable.................... -- 118 105,246 (105,364) --
Investments in subsidiaries................ 19,438 -- 268,231 (287,669) --
Acquired Intangible Assets, net............ 194,442 -- -- -- 194,442
Other Assets............................... 2,205 243 7,152 -- 9,600
-------- ------- -------- --------- --------
$442,901 $65,769 $618,165 $(393,033) $733,802
======== ======= ======== ========= ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt........ $ 3,590 $ 92 $ 802 $ -- $ 4,484
Accounts payable......................... 28,610 5,699 30,864 -- 65,173
Intercompany payable..................... 66,154 39,210 -- (105,364) --
Accrued payroll and other employee
benefits.............................. 3,319 151 22,477 -- 25,947
Accrued taxes............................ 14,317 119 (12,817) -- 1,619
Other accrued expenses................... 2,473 132 15,635 -- 18,240
-------- ------- -------- --------- --------
Total current liabilities........ 118,463 45,403 56,961 (105,364) 115,463
Long-term Debt, net of current portion..... 6,036 315 360,547 -- 366,898
Deferred Tax Liability..................... 50,785 -- 883 -- 51,668
Other Long-term Liabilities................ -- -- 9,192 -- 9,192
Stockholders' Investment:
Common stock, $0.05 par value;
Authorized -- 50,000 shares
Issued and outstanding -- 13,321 in
1998................................ 11 29,654 667 (29,665) 667
Paid-in Capital.......................... 400,616 -- 173,338 (400,616) 173,338
Deferred Compensation.................... -- -- (59) -- (59)
Retained Earnings........................ (133,010) (9,603) 16,636 142,612 16,635
-------- ------- -------- --------- --------
Total stockholders' investment... 267,617 20,051 190,582 (287,669) 190,581
-------- ------- -------- --------- --------
$442,901 $65,769 $618,165 $(393,033) $733,802
======== ======= ======== ========= ========
</TABLE>
F-30
<PAGE> 143
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDING AUGUST 1, 1998
-----------------------------------------------------------------------
GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL
------------ ------------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Sales......................................... $ 239,537 $25,273 $344,445 $ -- $609,255
Cost of Sales..................................... 214,572 25,735 274,570 -- 514,877
--------- ------- -------- ------- --------
Gross Profit.................................... 24,965 (462) 69,875 -- 94,378
Operating Expenses................................ 12,773 2,686 45,176 -- 60,635
Restructuring and Other Non-Recurring Charges..... -- -- 7,052 -- 7,052
Write-off of Acquired In-Process Research and
Development..................................... 63,050 -- -- -- 63,050
--------- ------- -------- ------- --------
Income (Loss) From Operations................... (50,858) (3,148) 17,647 -- (36,359)
Interest and Other Income......................... 483 1,661 (2,155) 1,852 1,841
Interest Expense.................................. (642) (398) (13,289) -- (14,329)
--------- ------- -------- ------- --------
Income (Loss) Before Provision for Income
Taxes......................................... (51,017) (1,885) 2,203 1,852 (48,847)
Provision for (benefit from) Income Taxes......... 7,457 260 (2,331) 260 5,646
Equity in income (loss) of subsidiary............. (3,997) -- (60,619) 64,616 --
--------- ------- -------- ------- --------
Net Income (Loss)............................... $ (62,471) $(2,145) $(56,085) $66,208 $(54,493)
========= ======= ======== ======= ========
</TABLE>
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDING AUGUST 1, 1998
-----------------------------------------------------------------------
GUARANTOR NON-GUARANTOR PARENT ELIMINATION CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES CORPORATION ENTRIES TOTAL
------------ ------------- ----------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities...................................... $(17,329) $(7,383) $ 56,669 $ 1,592 $ 33,549
-------- ------- -------- ------- --------
Cash Flows from Investing Activities:
Purchases of short-term investments............. -- -- (2,020) -- (2,020)
Maturities of short-term investments............ -- -- 3,582 -- 3,582
FSC dividend.................................... -- (1,852) 1,852 -- --
Purchases of property, plant and equipment...... (17,637) (18,940) (32,296) -- (68,873)
Investments in subsidiaries..................... 727 1,852 (987) (1,592) --
Acquisition of Continental Circuits............. -- -- (192,532) -- (192,532)
-------- ------- -------- ------- --------
Net cash used in investing activities......... (16,910) (18,940) (222,401) (1,592) (259,843)
-------- ------- -------- ------- --------
Cash Flows from Financing Activities:
Principal payments of long-term debt............ (38,302) (51) (207,360) -- (245,713)
Net proceeds from issuance of long-term debt.... -- -- 459,665 -- 459,665
Proceeds from exercise of stock options......... -- -- 770 -- 770
Tax benefit from exercise of options............ -- -- 1,742 -- 1,742
Proceeds from the sale of common stock.......... -- -- 2,592 -- 2,592
Intercompany payable............................ 75,643 26,064 (101,707) -- --
-------- ------- -------- ------- --------
Net cash (used in) provided by financing
activities.................................. 37,341 26,013 155,702 -- 219,056
-------- ------- -------- ------- --------
Net Increase (Decrease) in Cash and Cash
Equivalents..................................... 3,102 (310) (10,030) -- (7,238)
Cash and Cash Equivalents, Beginning of Period.... (1,603) 2,249 11,525 -- 12,171
-------- ------- -------- ------- --------
Cash and Cash Equivalents, End of Period.......... $ 1,499 $ 1,939 $ 1,495 $ -- $ 4,933
======== ======= ======== ======= ========
</TABLE>
F-31
<PAGE> 144
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
Basis of presentation. In connection with the acquisition of Continental
Circuits Corp., which was financed with approximately $184 million of borrowings
from the Credit Facility, the Company on May 18, 1998 sold $200,000,000
aggregate principal amount of 9 1/2% Senior Subordinated Notes due in 2008 (the
Notes). The Notes are fully and unconditionally guaranteed on a senior
subordinated basis, jointly and severally, by certain of the Company's direct
wholly-owned domestic subsidiaries (the Guarantors). The Guarantors are Hadco
Santa Clara, Inc., Hadco Phoenix, Inc., CCIR of Texas Corp., and CCIR of
California Corp. The condensed consolidating financial statements of the
Guarantors are presented above and should be read in connection with the
Consolidated Financial Statements of the Company. Separate financial statements
of the Guarantors, except for Hadco Santa Clara, Inc. for which financial
statements are incorporated by reference with respect to its predecessor entity
Zycon Corporation, are not presented because (i) the Guarantors are wholly-owned
and have fully and unconditionally guaranteed the Notes on a joint and several
basis and (ii) the Company's management has determined such separate financial
statements are not material to investors and believes the condensed
consolidating financial statements presented are more meaningful in
understanding the financial position of the Guarantors.
There are no significant restrictions on the ability of the Guarantors to
make distributions to the Company.
Condensed consolidating financial information has not been presented for
1996 and 1995 because the Guarantors were not subsidiaries of the Company in its
1996 and 1995 fiscal years.
F-32
<PAGE> 145
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Continental Circuits Corp.
We have audited the accompanying consolidated balance sheets of Continental
Circuits Corp. and subsidiaries as of July 31, 1996 and 1997, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended July 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Continental
Circuits Corp. and subsidiaries at July 31, 1996 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended July 31, 1997 in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Phoenix, Arizona
August 22, 1997
F-33
<PAGE> 146
CONTINENTAL CIRCUITS CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JULY 31, JULY 31, JANUARY 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,851 $ 85 $ 180
Accounts receivable, less allowance of $167 in 1996 and
$152 in 1997........................................... 15,114 21,431 20,150
Inventories............................................... 4,796 8,805 13,081
Refundable income taxes................................... 240 420 420
Deferred income taxes..................................... 714 125 125
Prepaid expenses and other................................ 259 946 1,109
------- ------- --------
Total current assets.............................. 24,974 31,812 35,065
Property, plant, and equipment:
Land...................................................... 2,899 3,586 3,586
Buildings and improvements................................ 18,353 24,677 30,733
Machinery and equipment................................... 53,065 69,123 80,333
------- ------- --------
74,317 97,386 114,652
Accumulated Depreciation.................................. 40,200 46,422 50,774
------- ------- --------
34,117 50,964 63,878
Other assets................................................ 495 83 3,340
------- ------- --------
Total assets...................................... $59,586 $82,859 $102,283
======= ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 7,193 $14,665 $ 15,774
Accrued vacation expense.................................. 720 688 497
Other accrued expenses.................................... 1,332 2,443 1,965
Current portion of long-term debt......................... 1,000 -- --
------- ------- --------
Total current liabilities......................... 10,245 17,796 18,236
Long-term debt, less current portion...................... 3,333 10,312 29,375
Deferred income taxes..................................... 1,976 2,507 2,507
Commitments and contingencies Shareholders' equity:
Preferred stock, $.01 par value -- Authorized shares
1,000,000.............................................. -- -- --
Issued and outstanding shares none
Common stock, $.01 par value -- Authorized shares
20,000,000
Issued and outstanding shares -- 7,194,000 in 1996,
7,252,000 in 1997, and 7,292,000 1998................ 72 73 73
Additional paid-in capital.................................. 10,077 10,266 10,511
Retained earnings........................................... 33,883 41,905 41,581
------- ------- --------
Total shareholders' equity.................................. 44,032 52,244 52,165
------- ------- --------
Total liabilities and shareholders' equity........ $59,586 $82,859 $102,283
======= ======= ========
</TABLE>
See accompanying notes
F-34
<PAGE> 147
CONTINENTAL CIRCUITS CORP.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JULY 31, JULY 31, JULY 31, FEBRUARY 2, JANUARY 31,
1995 1996 1997 1997 1998
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales........................... $95,372 $108,362 $120,752 $56,685 $69,650
Cost of products sold............... 76,174 89,502 98,698 47,052 58,763
------- -------- -------- ------- -------
Gross profit........................ 19,198 18,860 22,054 9,633 10,887
Selling, general and administrative
expense........................... 7,381 7,991 8,487 3,839 4,616
In-process research and
development....................... -- -- -- -- 4,300
------- -------- -------- ------- -------
11,817 10,869 13,567 5,794 1,971
Other expense:
Interest............................ 878 470 354 123 734
Other............................... 25 123 365 325 15
------- -------- -------- ------- -------
Income before income taxes.......... 10,914 10,276 12,848 5,346 1,222
Income taxes........................ 4,260 3,993 4,826 2,096 1,546
------- -------- -------- ------- -------
Net income (loss)................... $ 6,654 $ 6,283 $ 8,022 $ 3,250 $ (324)
======= ======== ======== ======= =======
Net income (loss) per share
Basic............................... $ 0.93 $ 0.88 $ 1.11 $ 0.45 $ (0.04)
======= ======== ======== ======= =======
Diluted............................. $ 0.90 $ 0.85 $ 1.08 $ 0.44 $ (0.04)
======= ======== ======== ======= =======
Number of shares used in computing
Basic............................... 7,120 7,152 7,213 7,206 7,267
======= ======== ======== ======= =======
Diluted............................. 7,409 7,430 7,432 7,428 7,267
======= ======== ======== ======= =======
</TABLE>
See accompanying notes
F-35
<PAGE> 148
CONTINENTAL CIRCUITS CORP.
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JULY 31, JULY 31, JULY 31, FEBRUARY 2, JANUARY 31,
1995 1996 1997 1997 1998
-------- -------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................ $ 6,654 $ 6,283 $ 8,022 $ 3,250 $ (324)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation............................... 5,612 6,572 6,292 2,838 4,351
In process research and development
write-off............................... -- -- -- -- 4,300
Loss on sale of property, plant, and
equipment............................... 70 139 6 -- --
Deferred income taxes...................... 101 (418) 1,120 -- --
Provision (recovery) for doubtful
accounts................................ 24 424 (15) (133) 16
Changes in operating assets and liabilities:
Accounts receivable........................ (1,327) (1,040) (6,302) (2,971) 2,136
Inventories................................ (1,129) 320 (4,009) (1,919) (3,881)
Refundable income taxes.................... -- (240) (180) -- --
Prepaid expenses and other................. (417) 365 (687) 154 (163)
Other assets............................... 77 (801) 412 291 (1,870)
Accounts payable........................... 1,135 (1,513) 7,472 3,748 535
Accrued expenses........................... 418 (158) 1,079 (72) (1,061)
Income taxes............................... 164 (386) -- 692 --
-------- ------- -------- ------- -------
Net cash provided by operating activities.... 11,382 9,547 13,210 5,878 4,039
INVESTING ACTIVITIES
Purchases of property, plant, and
equipment.................................. (11,676) (8,682) (20,562) (7,589) (16,361)
Proceeds from disposal of property, plant,
and equipment.............................. 31 102 17 -- --
Acquisition of Flexible Circuits
Technology................................. -- -- -- -- (6,891)
Acquisition of a division of Radian
International LLC.......................... -- -- (2,600) -- --
-------- ------- -------- ------- -------
Net cash used in investing activities........ (11,645) (8,580) (23,145) (7,589) (23,252)
FINANCING ACTIVITIES
Borrowings under line of credit agreement.... -- -- 9,312 1,000 19,063
Principal payments on long-term debt......... (11,143) (4,167) (4,333) (500) --
Borrowings under long-term debt.............. -- 5,000 1,000 -- --
Proceeds from issuance of common stock, net
of issuance cost........................... 9,504 13 190 135 245
Payments to repurchase common stock.......... (57) -- -- -- --
-------- ------- -------- ------- -------
Net cash provided by (used in) financing
activities................................. (1,696) 846 6,169 635 19,308
-------- ------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents................................ (1,959) 1,813 (3,766) (1,076) 95
Cash and cash equivalents at beginning of
period..................................... 3,997 2,038 3,851 3,851 85
-------- ------- -------- ------- -------
Cash and cash equivalents at end of period... $ 2,038 $ 3,851 $ 85 $ 2,775 $ 180
======== ======= ======== ======= =======
</TABLE>
See accompanying notes
F-36
<PAGE> 149
CONTINENTAL CIRCUITS CORP.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL RETAINED
SHARES AMOUNT PAID-IN-CAPITAL EARNINGS TOTAL
------ ------ --------------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE AT JULY 31, 1994................ 6,133 $61 $ 581 $20,993 $21,635
Cash proceeds from issuance of common
stock, net of share issuance costs.... 1,000 10 9,396 -- 9,406
Shares issued in connection with options
exercised............................. 10 -- 98 -- 98
Shares repurchased and canceled......... (13) -- (10) (47) (57)
Net income.............................. -- -- -- 6,654 6,654
----- --- ------- ------- -------
BALANCE AT JULY 31, 1995................ 7,130 71 10,065 27,600 37,736
Shares issued in connection with options
exercised............................. 64 1 199 -- 200
Share issuance costs.................... -- -- (187) -- (187)
Net income.............................. -- -- -- 6,283 6,283
----- --- ------- ------- -------
BALANCE AT JULY 31, 1996................ 7,194 72 10,077 33,883 44,032
Shares issued in connection with options
exercised and for employee stock
purchase plan......................... 58 1 189 -- 190
Net income.............................. -- -- -- 8,022 8,022
----- --- ------- ------- -------
BALANCE AT JULY 31, 1997................ 7,252 73 10,266 41,905 52,244
Shares issued in connection with options
exercised and for employee stock
purchase plan (unaudited)............. 40 -- 245 -- 245
Net loss (unaudited).................... -- -- -- (324) (324)
----- --- ------- ------- -------
BALANCE AT JANUARY 31, 1998
(UNAUDITED)........................... 7,292 $73 $10,511 $41,581 $52,165
===== === ======= ======= =======
</TABLE>
See accompanying notes
F-37
<PAGE> 150
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1997
(THE INFORMATION FOR THE SIX MONTHS ENDED FEBRUARY 2, 1997 AND JANUARY 31, 1998
IS UNAUDITED)
1. ACCOUNTING POLICIES
Description Of Business
The Company is in one line of business as a manufacturer of complex
multilayer, surface mount circuit boards used in sophisticated electronic
equipment in the computer, communications, instrumentation and industrial
controls industries. The Company sells its products primarily to leading
original equipment manufacturers and to contract assemblers in the United States
and abroad.
Principles Of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, which are wholly owned. Significant intercompany accounts
and transactions have been eliminated in consolidation.
Cash And Cash Equivalents
Cash and cash equivalents consists of checking accounts and funds invested
in overnight repurchase agreements and is stated at cost, which approximates
market value. The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Inventories
Inventories are carried at the lower of cost or market using the first-in,
first-out (FIFO) method.
Property, Plant, And Equipment
Property, plant, and equipment is stated at cost. Depreciation is computed
using the double declining balance and the straight-line methods based on the
estimated useful lives of the related assets ranging from three to forty years.
Fair Value Of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires that the Company disclose
estimated fair values of financial instruments. Cash and cash equivalents,
accounts receivable, accounts payable and accrued liabilities are carried at
amounts that reasonably approximate their fair values. The carrying amounts of
the Company's borrowings under its line of credit arrangement approximates its
fair value based on the variable nature of its interest rates.
Revenue Recognition
Sales are recorded at the time individual items are shipped.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expense for the
years ended July 31, 1995, 1996, and 1997 and for the six months ended January
31, 1998 were $55,000, $54,000, $47,000 and $64,000, respectively.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes".
F-38
<PAGE> 151
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share" ("SFAS No. 128"), adopted by the Company in the second
quarter of fiscal year 1998. SFAS No. 128 replaced the previously reported
primary or fully diluted pro forma earnings per share with basic and diluted
earnings per share. Unlike primary earnings per share, basic earnings per share
excludes any dilutive effects of options, warrants, and convertible securities.
Diluted earnings per share is very similar to the previously reported primary
earnings per share. All earnings per share amounts for all periods have been
presented, and where necessary, restated to conform to the SFAS No. 128
requirements. The impact of SFAS No. 128 on the calculation of fully diluted
earnings per share for each of the periods presented was not material.
Supplemental Earnings Per Share
Supplemental earnings per share, assuming the proceeds from the issuance of
922,000 common shares at the public offering of $10.50, net of issuance costs,
were used to repay $9.0 million of the Company's indebtedness as of August 1,
1994, would have reduced diluted earnings per share from $0.90 to $0.85 in 1995.
Stock Based Compensation
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants to employees in accordance
with APB Opinion No. 25, "Accounting for Stock Issued to Employees," (APB 25)
and, accordingly, recognizes no compensation expense for the stock option
grants.
Use Of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Interim Financial Information
The consolidated financial statements for the six months ended February 2,
1997 and January 31, 1998 are unaudited but include all adjustments (consisting
only of normal recurring adjustments) that the Company considers necessary for a
fair presentation of financial position and results of operations. Operating
results for the six months ended January 31, 1998 are not necessarily indicative
of the results that may be expected for any future periods.
2. ACQUISITIONS
In April 1997, the Company acquired the assets and assumed certain
liabilities of a division of Radian International LLC (Radian) for $2,600,000.
The acquisition was accounted for as a purchase, and accordingly, the results of
its operations have been included in the consolidated results of operations
since the transaction date. The purchase price has been allocated to the assets
and liabilities acquired based on fair values at acquisition. The results of
operations of Radian were not significant in relation to the Company for periods
prior to the acquisition.
On November 17, 1997, the Company acquired substantially all of the assets
of Flexible Circuits Technology, dba Dynaflex Technology, for approximately $6.9
million in cash. The purchase price has been allocated to the assets acquired
and included an allocation of $4.3 million to in process research and
development since at the date of the acquisition the technological feasibility
of the acquired technology was not established and the technology had no
alternative future use. The results of the acquired business were not
significant in relation to the Company for periods prior to the acquisition.
F-39
<PAGE> 152
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JULY 31, JULY 31, JANUARY 31,
1996 1997 1998
-------- -------- -----------
<S> <C> <C> <C>
Raw material................................... $ 649 $2,117 $ 2,943
Work-in-process................................ 2,487 4,878 8,344
Finished Goods................................. 1,660 1,810 1,794
------ ------ -------
$4,796 $8,805 $13,081
====== ====== =======
</TABLE>
4. LONG-TERM DEBT
On July 25, 1997, the Company entered into a $45,000,000 long-term line of
credit agreement with a bank. Up to $25,000,000 of the line of credit agreement
can be converted into a long-term note payable. At July 31, 1997 there were no
amounts converted to a long-term note. The line of credit bears interest at
LIBOR plus a fixed rate factor, as defined, and/or the prime rate, payable
monthly, and the interest rate can be converted by the Company to a fixed rate
when the Company draws above $2,000,000. The line of credit expires on October
31, 2000 and provides for maximum borrowings of the lessor of $45,000,000 less
any converted long-term note payable amounts. At July 31, 1997, amounts
available under the line of credit were approximately $34,700,000. The weighted
average interest rate under the line of credit was 8.5 percent in 1997. The
above long-term debt agreements are collateralized by substantially all
available assets of the Company.
The line of credit agreement contains covenants which place various
restrictions on financial ratios, transactions with related parties, and
prohibits the payment of dividends. In addition, the line of credit agreement
contains an event of default provision whereby all outstanding amounts would be
due and payable should there be a change in ownership control.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JULY 31, JULY 31, JANUARY 31,
1996 1997 1998
-------- -------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
$45,000,000 long-term line of credit agreement with a
bank, interest payable monthly at LIBOR plus a fixed
rate factor, as defined, and/or the prime rate,
maturing October 31, 2000........................... $ -- $ 9,312 $28,375
$1,000,000 long-term adjustable rate industrial
development revenue bond, interest payable monthly
at a variable rate until September 1, 2011 when all
outstanding interest and principal is due and
payable; secured by $1,000,000 irrevocable letter of
credit; bond is subject to certain optional and
mandatory redemption, as defined.................... -- 1,000 1,000
$5,000,000 long-term note payable to a bank, paid in
full during 1997.................................... 4,333 -- --
------ ------- -------
4,333 10,312 29,375
Less current portion.................................. 1,000 -- --
------ ------- -------
$3,333 $10,312 $29,375
====== ======= =======
</TABLE>
Maturities of long-term debt for the five years succeeding July 31, 1997
are as follows: July 31, 1998 $0, 1999 $0, 2000 $0, 2001 $9,312,000, 2002 $0,
and thereafter $1,000,000. Interest payments approximated interest expense
during the years ended July 31, 1995, 1996, 1997 and for the six months ended
January 31, 1997 and 1998.
F-40
<PAGE> 153
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. STOCK OPTIONS
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under FASB Statement No. 123,
Accounting for Stock-Based Compensation (Statement 123), requires use of option
valuation models that were not developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation is recognized.
During 1987, the Company's stockholders adopted a stock option plan (the
1987 Plan) that provides for the granting of options to employees (including
officers) and non-employee directors at fair value at the date of the grant. The
1987 Plan provides for the issuance of options at fair value to purchase a
maximum of 750,000 shares of common stock. All options under the 1987 Plan are
exercisable cumulatively, beginning on the third anniversary of the date of
grant. Generally, after three years from the date of grant, the optionee may
purchase 40 percent of the shares granted; an additional 20 percent after four
years; an additional 20 percent after five years; and the final 20 percent after
six years. However, with respect to 200,000 options granted on August 25, 1994,
the options become exercisable at the rate of 15 percent a year. All options
expire between seven and ten years after the date of grant. The options granted
under the 1987 Plan become fully exercisable if the Company is dissolved,
liquidated, merged, consolidated, or undergoes a change in control as defined in
the Plan document.
During 1996, the Company's stockholders adopted a second stock option plan
(the 1996 Plan) that provides for the granting of options to employees
(including officers) and non-employee directors at fair value at the date of the
grant. The 1996 plan provides for the issuance of options at fair value at the
date of the grant. The 1996 plan provides for the issuance of options at fair
value to purchase a maximum of 1,000,000 shares of common stock. All options
under the 1996 plan are exercisable cumulatively, beginning on the first
anniversary of the date of grant. Generally, after one year from the date of
grant, the optionee may purchase 20 percent of the shares granted; an additional
20 after two years; an additional 20 percent after three years; an additional 20
percent after four years; and the final 20 percent after five years. All options
expire ten years after the date of grant. The options granted under the 1996
Plan become fully exercisable if the Company is dissolved, liquidated, merged,
consolidated, or undergoes a change in control as defined in the Plan document.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1996: risk-free interest rate of 5.5 percent, dividend
yield of zero percent, volatility factor of the expected market price of the
Company's common stock of .46, and a weighted-average expected life of the
option of 6.26 years and seven years, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
F-41
<PAGE> 154
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Because Statement No. 123 is applicable to options granted subsequent to
December 31, 1994, its pro forma effect will not be fully reflected until
approximately 2003. For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the option's vesting period.
The Company's pro forma information follows (in thousands except for earnings
per share information):
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1996 1997
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net income, as reported.................................... $6,283 $8,022
Pro forma compensation expense for options................. 74 142
------ ------
Pro forma net income....................................... $6,209 $7,880
====== ======
Diluted earnings per share, as reported.................... $ 0.85 $ 1.08
Diluted earnings per share, pro forma...................... $ 0.84 $ 1.06
</TABLE>
Information regarding stock options outstanding under the Plans are as
follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
-------- ----------------
<S> <C> <C>
Outstanding at July 31, 1994.............................. 186,000 $ 3.11
Granted................................................. 225,000 3.27
Exercised............................................... (9,600) 6.72
Forfeited (canceled).................................... (25,000) 3.10
-------- ------
Outstanding at July 31, 1995.............................. 376,400 3.11
Granted................................................. 110,000 15.00
Exercised............................................... (64,040) 3.12
Forfeited (canceled).................................... (24,000) 12.50
-------- ------
Outstanding at July 31, 1996.............................. 398,360 5.69
Granted................................................. 432,000 14.03
Exercised............................................... (40,960) 2.50
Forfeited (canceled).................................... (26,750) 12.85
-------- ------
Outstanding at July 31, 1997.............................. 762,650 $10.48
======== ======
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------ ---------------------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF NUMBER REMAINING AVERAGE NUMBER AVERAGE
EXERCISE PRICE OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- -------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 2.50 - $ 3.25 258,900 6.83 years $ 3.14 15,100 $2.50
4.00 5,000 7.29 years $ 4.00 -- --
10.63 - 15.00 368,750 9.24 years $12.85 -- --
18.00 130,000 9.99 years $18.00 -- --
</TABLE>
Exercise prices for options outstanding at July 31, 1997, range from $2.50
to $18.00. The weighted-average fair value of options granted during 1997 and
1996 was $7.43 and $8.36, respectively.
F-42
<PAGE> 155
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
JULY 31
----------------
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation.................................. $1,970 $2,499
Receivables adjustments..................................... -- 493
Other, net.................................................. 52 52
------ ------
Total deferred tax liabilities.................... 2,022 3,044
------ ------
Deferred tax assets:
Receivables allowances...................................... 227 61
Inventory allowances........................................ 116 136
Accrued vacation............................................ 227 220
Accrued expenses............................................ 80 87
Unicap and other............................................ 110 158
------ ------
Total deferred tax assets......................... 760 662
------ ------
Net deferred taxes.......................................... $1,262 $2,382
====== ======
</TABLE>
Significant components of the federal and state income tax expense are:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
--------------------------
1995 1996 1997
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................ $3,287 $3,486 $3,053
State.................................................. 872 925 653
------ ------ ------
Total current.................................. 4,159 4,411 3,706
Deferred:
Federal................................................ 84 (347) 929
State.................................................. 17 (71) 191
------ ------ ------
Total deferred................................. 101 (418) 1,120
------ ------ ------
$4,260 $3,993 $4,826
====== ====== ======
</TABLE>
Total income tax payments, net of any refunds received, during the years
ended July 31, 1995, 1996 and 1997, were approximately $3,962,000, $5,037,000
and $3,997,000, respectively.
F-43
<PAGE> 156
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the Company's effective income tax rate to the federal
statutory rate follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED JULY 31 JANUARY 31
-------------------- ------------
1995 1996 1997 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Federal statutory rate............................ 34% 34% 34% 34% 34%
State tax net of federal benefit.................. 7 7 7 7 5
In process research and development write-offs.... -- -- -- -- 136
Tax credits....................................... -- -- -- -- (48)
Other............................................. (2) (2) (3) (2) --
-- -- -- -- ---
39% 39% 38% 39% 127%
== == == == ===
</TABLE>
The effective income tax rate for the six months ended January 31, 1998
includes a year to date adjustment to reflect one time and ongoing tax credits
available to the Company, which reduced its estimated income tax rate for the
year ending July 31, 1998 to approximately 28% based on estimated earnings for
the year.
7. SIGNIFICANT CUSTOMERS AND EXPORT SALES
The percentages of total sales to significant customers were as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Customer A.............................................. 0% 5% 15%
Customer B.............................................. 15 11 7
Customer C.............................................. 15 21 20
</TABLE>
The amount of total export sales by geographic area was as follows:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
-----------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Canada........................................ $ 3,500 $ 3,800 $ 2,700
Singapore..................................... 10,800 6,900 5,800
United Kingdom and others..................... 10,100 9,600 15,600
------- ------- -------
Total export sales.................. $24,400 $20,300 $24,100
======= ======= =======
</TABLE>
The Company performs ongoing credit risk evaluations of its customers'
financial conditions and generally does not require collateral. The Company's
significant customers are major, well-known businesses in the electronic
equipment industry. Credit losses have been provided for in the financial
statements and have been within management's expectations.
8. COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment and buildings under noncancelable
operating leases that expire in various years through 2004. Total rental expense
for all operating leases was approximately $122,000, $357,000 and $397,000,
during the years ended July 31, 1995, 1996 and 1997, respectively. Future
minimum payments
F-44
<PAGE> 157
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
under noncancelable operating leases with initial terms of one year or more
consisted of the following at July 31, 1997:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1998....................................... $ 672,115
1999....................................... 636,480
2000....................................... 636,480
2001....................................... 636,480
2002....................................... 636,480
Thereafter................................. 1,092,624
----------
$4,310,659
==========
</TABLE>
The Company is a party to certain litigation in the normal course of
business. Management does not anticipate any material adverse impact from the
resolution of such matters.
9. BENEFIT PLANS
The Company has a 401(k) Retirement Plan (Plan) covering all employees who
reside in the United States, have completed six months of service, and have
attained age 21. Under the terms of the Plan, employees may contribute up to 15
percent of their annual compensation, subject to Internal Revenue Service
limitations. The Company matched 25 percent of employee contributions up to 6
percent of the employee's annual compensation. Additional contributions to the
Plan can be made at the discretion of the Board of Directors. Company
contributions to the Plan during the years ended July 31, 1995, 1996, and 1997,
were approximately $164,000, $198,000 and $212,000, respectively.
During 1996, the Company adopted the Continental Circuits Corp. Employee
Stock Purchase Plan. All employees who are regularly scheduled to work at least
20 hours per week and have completed at least six (6) months of continuous
service with the Company are eligible to participate in the plan. Eligible
employees are entitled to purchase shares of common stock through payroll
deductions of up to 10 percent of their compensation. The price paid for the
common stock is equal to 85 percent of the fair market value of the Company's
common stock on the last business day of the quarterly investment period. At the
Company's option, common stock can either be purchased on the open market or
through new shares issued. Total shares reserved for issuance are 200,000, with
17,937 purchased through July 31, 1997 at a market price ranging from $10.75 to
$13.88 per share.
10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
A summary of the quarterly results of operations for the years ended July
31, 1996 and 1997 follows:
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1997:
Net sales............................ $27,123 $29,562 $31,862 $32,205
Gross margin......................... $ 4,463 $ 5,170 $ 6,148 $ 6,273
Net income........................... $ 1,433 $ 1,817 $ 2,379 $ 2,393
Earnings per share................... $ .19 $ .24 $ .32 $ .32
Weighted average common and
equivalent shares outstanding...... 7,424 7,432 7,457 7,497
</TABLE>
F-45
<PAGE> 158
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1996:
Net sales............................ $28,508 $28,860 $26,464 $24,530
Gross margin......................... $ 5,733 $ 6,215 $ 4,406 $ 2,506
Net income........................... $ 2,248 $ 2,305 $ 1,380 $ 350
Earnings per share................... $ .30 $ .31 $ .19 $ .05
Weighted average common and
equivalent shares outstanding...... 7,430 7,431 7,413 7,420
</TABLE>
The 1997 quarterly results for net earnings per share, when totaled, do not
equal the net earnings per share for the year ended July 31, 1997 due to
rounding.
11. SUBSEQUENT EVENT
On February 9, 1998, the Company announced that it had completed the
purchase of substantially all of the assets of a wholly owned subsidiary of CCIR
of California Corp., named PCA Design. PCA Design has annual sales of
approximately $2.0 million.
On February 11, 1998, the Company, through one of its recently acquired
businesses, obtained $6.0 million in tax-exempt revenue bonds.
On March 20, 1998, Hadco Corporation acquired all of the outstanding
capital stock of the Company for approximately $188 million (including costs).
F-46
<PAGE> 159
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSONS HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY HADCO CORPORATION OR ANY OF ITS SUBSIDIARIES. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO
BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Forward-Looking Statements............ v
Prospectus Summary.................... 1
Risk Factors.......................... 14
Use of Proceeds....................... 25
Capitalization........................ 26
Pro Forma Condensed Consolidated
Financial Statements................ 27
Selected Historical Consolidated
Financial Data...................... 30
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 32
Business.............................. 43
Management............................ 57
Description of Certain Indebtedness... 59
The Exchange Offer.................... 61
Description of the Notes.............. 70
Plan of Distribution.................. 99
United States Federal Tax
Consequences........................ 100
Legal Matters......................... 103
Experts............................... 103
Additional Information................ 103
Incorporation of Certain Documents by
Reference........................... 104
Listing and General Information....... 104
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
HADCO CORPORATION
OFFER TO EXCHANGE ITS 9 1/2% SENIOR
SUBORDINATED NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS
AMENDED, FOR ANY AND ALL OF ITS
OUTSTANDING 9 1/2% SENIOR
SUBORDINATED NOTES DUE 2008.
--------------------
PROSPECTUS
--------------------
, 1998
------------------------------------------------------
------------------------------------------------------
<PAGE> 160
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 67 of Chapter 156B of the Massachusetts Business Corporation Law
provides:
"Indemnification of directors, officers, employees and other agents of a
corporation, and persons who serve at its request as directors, officers,
employees or other agents of another organization, or who serve at its request
in any capacity with respect to any employee benefit plan, may be provided by it
to whatever extent shall be specified in or authorized by (i) the articles of
organization or (ii) a by-law adopted by the stockholders or (iii) a vote
adopted by the holders of a majority of the shares of stock entitled to vote on
the election of directors. Except as the articles of organization or by-laws
otherwise require, indemnification of any persons referred to in the preceding
sentence who are not directors of the corporation may be provided by it to the
extent authorized by the directors. Such indemnification may include payment by
the corporation of expenses incurred in defending a civil or criminal action or
proceeding in advance of the final disposition of such action or proceeding,
upon receipt of an undertaking by the person indemnified to repay such payment
if he shall be adjudicated to be not entitled to indemnification under this
section which undertaking may be accepted without reference to the financial
ability of such person to make repayment. Any such indemnification may be
provided although the person to be indemnified is no longer an officer,
director, employee or agent of the corporation or of such other organization or
no longer serves with respect to any such employee benefit plan.
No indemnification shall be provided for any person with respect to any
matter as to which he shall have been adjudicated in any proceeding not to have
acted in good faith in the reasonable belief that his action was in the best
interest of the corporation or to the extent that such matter relates to service
with respect to any employee benefit plan, in the best interests of the
participants or beneficiaries of such employee benefit plan.
The absence of any express provision for indemnification shall not limit
any right of indemnification existing independently of this section.
A corporation shall have power to purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee or other agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or other agent of another organization or with
respect to any employee benefit plan, against any liability incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability."
The Company's Restated Articles of Organization, as amended, provide:
"The Corporation eliminates the personal liability of each director to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director notwithstanding any statutory provision or other law imposing
such liability; provided, that nothing in this paragraph shall eliminate or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or knowing violation of
law, (iii) under Section sixty-one or sixty-two of Chapter 156B of the
Massachusetts General Laws, or (iv) for any transaction from which the director
derived an improper personal benefit."
Article V, Section 2 of the Company's By-Laws provides:
"2. Indemnification. Each Director, officer, employee and other agent of
the corporation, and any person who, at the request of the corporation, serves
as a director, officer, employee or other agent of another organization in which
the corporation directly or indirectly owns shares or of which it is a creditor
shall be indemnified by the corporation against any cost, expense (including
attorney's fees), judgment, liability and/or amount paid in settlement
reasonably incurred by or imposed upon him in connection with any action, suit
or proceeding (including any proceeding before any administrative or legislative
body or agency), to which he may be made a party or otherwise involved or with
which he shall be threatened, by reason of his being, or related to his status
as, a director, officer, employee or other agent of the corporation or of any
other
II-1
<PAGE> 161
organization in which the corporation directly or indirectly owns shares or of
which the corporation is a creditor, which other organization he serves or has
served as director, officer, employee or other agent at the request of the
corporation (whether or not he continues to be an officer, director, employee or
other agent of the corporation or such other organization at the time such
action, suit or proceeding is brought or threatened), unless such
indemnification is prohibited by the Business Corporation Law of the
Commonwealth of Massachusetts. The foregoing right of indemnification shall be
in addition to any rights to which any such person may otherwise be entitled and
shall inure to the benefit of the executors or administrator of each such
person. The corporation may pay the expenses incurred by any such person in
defending a civil or criminal action, suit or proceeding in advance of the final
disposition of such action, suit or proceeding in advance of the final
disposition of such action, suit or proceeding, upon receipt of an undertaking
by such person to repay such payment if it is determined that such person is not
entitled to indemnification hereunder. This section shall be subject to
amendment or repeal only by action of the stockholders."
Hadco Santa Clara, Inc. ("Hadco SC") and Hadco Phoenix, Inc. ("Hadco
Phoenix") are each Delaware corporations.
Section 145 of the Delaware General Corporation Law (the "Delaware Code")
empowers a corporation to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful.
Section 145 also empowers a corporation to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that such person acted in any of the
capacities set forth above, against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted under similar standards, except
that no indemnification may be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the corporation
unless, and only to the extent that, the Court of Chancery or the court in which
such action was brought shall determine that despite the adjudication of
liability such person is fairly and reasonably entitled to indemnify for such
expenses which the court shall deem proper.
Section 145 further provides that to the extent that a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to above or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith; that
indemnification provided for by Section 145 shall not be deemed exclusive of any
other rights to which the indemnified party may be entitled; and that the
corporation is empowered to purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liabilities under Section 145.
Article Seventh of each of Hadco Phoenix's Restated Certificate of
Incorporation and Hadco SC's Amended and Restated Certificate of Incorporation,
as amended, states that such Corporation eliminates the personal liability of
each member of its Board of Directors to such Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, provided,
however, that, to the extent provided by applicable law, the foregoing shall not
eliminate the liability of a director (i) for any breach of such director's duty
of loyalty to such Corporation or its stockholders, (ii) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) under Section 174 of Title 8 of the Delaware Code or (iv) for any
transaction from which such director derived an improper personal benefit.
II-2
<PAGE> 162
Article V of each of Hadco Phoenix's and Hadco SC's By-Laws provides
generally as follows:
The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or contemplated
action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another
entity, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceedings, had no reasonable cause to believe his conduct was unlawful;
provided, however, that with respect to actions by or in the right of the
corporation, no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be
liable unless and only to the extent that the Court of Chancery of the
State of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery of the State of Delaware or such other court shall deem
proper.
CCIR of California Corp. ("CCIR of CA") is a California corporation.
Section 204 of the California Corporations Code (the "CCC") generally
provides that articles of incorporation may set forth provisions eliminating or
limiting the personal liability of a director for monetary damages in an action
brought by or in the right of the corporation for breach of a director's duties
to the corporation and its shareholders as set forth in Section 309 of the CCC,
provided, however, that (A) such provision may not eliminate or limit the
liability of directors (i) for acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law, (ii) for acts or
omissions that a director believes to be contrary to the best interests of the
corporation or its shareholders or that involve the absence of good faith on the
part of the director, (iii) for any transaction from which a director derived an
improper personal benefit, (iv) for acts or omissions that show a reckless
disregard for the director's duty to the corporation or its shareholders in
circumstances in which the director was aware, or should have been aware, in the
ordinary course of performing a director's duties, of a risk of serious injury
to the corporation or its shareholders, (v) for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to the corporation or its shareholders, (vi) under Section
310 of the CCC or (vii) under Section 316 of the CCC; (B) no such provision
shall eliminate or limit the liability of a director for any act or omission
occurring prior to the date when the provision becomes effective; and (C) no
such provision shall eliminate or limit the liability of an officer for any act
or omission as a officer notwithstanding that the officer is also a director or
that his actions, if negligent or improper, have been ratified by the directors.
Articles V and VI of CCIR of CA's articles of incorporation provide that
(i) the liability of the directors of CCIR of CA for monetary damages shall be
eliminated to the fullest extent permissible under California law and (ii) CCIR
of CA is authorized to provide indemnification of directors, officers, and
agents of CCIR of CA through Bylaw provisions, agreements with agents, vote of
shareholders or disinterested directors, or otherwise, to the fullest extent
permissible under California law. In addition, Section 6.1 of the Bylaws of CCIR
of CA provides that CCIR of CA shall to the maximum extent permitted by the CCC,
have the power to indemnify each of its agents against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding arising by reason of the fact any such person is
or was an agent of CCIR of CA and shall have power to advance to each such agent
expenses incurred in defending any such proceeding to the maximum extent
permitted by that law. "Agent" includes any person who is or was a director,
officer, employee or other agent of CCIR of CA (or its predecessor(s)) or is or
was serving at the request of CCIR of CA (or its predecessor(s)) as a director,
officer, employee or agent of another entity.
CCIR of Texas Corp. ("CCIR of TX") is a Texas corporation.
Article 2.02 of the Texas Business Corporation Act (the "TBC") generally
provides that a corporation shall have the power to indemnify directors,
officers, employees, and agents of the corporation and purchase and maintain
liability insurance for such persons. Article 2.02-1 of the TBC generally
provides that a
II-3
<PAGE> 163
corporation may indemnify a person who was, is, or is threatened to be made a
named defendant or respondent in a proceeding because the person (i) is or was a
director, officer, employee or agent of the corporation or (ii) while a director
of the corporation, is or was serving at the request of the corporation as a
director, officer, venturer, proprietor, trustee, employee, agent, or similar
functionary of another corporation or other entity, provided that such person
(1) conducted himself in good faith, (2) reasonably believed (a) in the case of
conduct in his official capacity as a director of the corporation, that his
conduct was in the corporation's best interest and (b) in all other cases, that
his conduct was at least not opposed to the corporation's best interests, and
(3) in the case of any criminal proceeding, had no reasonable cause to believe
his conduct was unlawful. A corporation's ability to indemnify a person as set
forth above is limited in cases where such person is found liable on the basis
that a personal benefit was improperly received by him or in cases in which the
person is found liable to the corporation.
Section 2.02-1 of the TBC further provides that a corporation shall
indemnify a director or officer against reasonable expenses incurred by him in
connection with a proceeding in which such person is a named defendant or
respondent because such person is or was a director or officer if such person
has been wholly successful, on the merits or otherwise, in the defense of the
proceeding; that a corporation may advance expenses to persons entitled to
indemnification under the statute; and the corporation may purchase and maintain
insurance on behalf of any person who is a director, officer, partner, or agent
of the corporation or who is serving at the request of the corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another corporation or entity, against any liability
asserted against him and incurred by him in such capacity or arising out of his
status as such a person, whether or not the corporation would have the power to
indemnify him against that liability under Section 2.02-1 of the TBC.
Article XI of CCIR of TX's Articles of Incorporation provides that the
corporation shall indemnify any person who (i) is or was a director, officer,
employee, or agent of the corporation, or (ii) while a director, officer,
employee, or agent of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, to the fullest extent that a corporation may
or is required to grant indemnification to a director under the Texas Business
Corporation Act as now written or as hereafter amended. In addition, the
corporation may indemnify any person to such further extent as permitted by law.
Article XII of such Articles provides that a director of the corporation shall
not be liable to the corporation or its shareholders for monetary damages for an
act or omission in the director's capacity as director, except that this Article
XII does not eliminate or limit the liability of a director for:
(a) a breach of a director's loyalty to the corporation or its
shareholders;
(b) an act or omission not in good faith or that involves intentional
misconduct or a knowing violation of the law;
(c) a transaction from which a director received an improper benefit,
whether or not the benefit resulted from an action taken within the scope
of the director's office;
(d) an act or omission for which the liability of a director is
expressly provided for by statute; or
(e) an act related to an unlawful stock repurchase or payment of a
dividend.
II-4
<PAGE> 164
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
This Registration Statement includes the following exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
3.1.1+ Restated Articles of Organization of the Company (filed as
Exhibit 3.1 to the Registration Statement No. 333-21977 on
Form S-3 and incorporated herein by reference).
3.1.2+ Articles of Amendment to the Articles of Organization of the
Company (filed as Exhibit 3.1 to Form 10-Q, File No.
0-12102, for fiscal quarter ended January 31, 1998 and
incorporated herein by reference).
3.2+ By-laws of the Company, as amended (filed as Exhibit 3.2 to
the Registration Statement No. 333-21977 on Form S-3 and
incorporated herein by reference).
3.3+ Restated Certificate of Incorporation of Hadco Santa Clara,
Inc.
3.4+ Amended and Restated By-laws of Zycon Corporation (n/k/a
Hadco Santa Clara, Inc.)
3.5+ Restated Certificate of Incorporation of Hadco Phoenix, Inc.
3.6+ By-laws of Hadco Phoenix, Inc.
3.7+ Articles of Incorporation of CCIR of California Corp.
3.8+ By-laws of CCIR of California Corp.
3.9+ Articles of Incorporation of CCIR of Texas Corp.
3.10+ By-laws of CCIR of Texas Corp.
4.1+ Indenture (including Form of Exchange Note) dated as of May
18, 1998 by and among the Company, the Guarantors and State
Street Bank and Trust Company, as trustee.
4.2+ Registration Rights Agreement dated May 13, 1998 among the
Company, the Guarantors, Morgan Stanley & Co. Incorporated,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
BancAmerica Robertson Stephens, and BT Alex. Brown
Incorporated, as initial purchasers.
5.1+ Opinion of Testa, Hurwitz & Thibeault, LLP as to the
legality of the securities to be offered.
10.1+ Placement Agreement dated May 13, 1998 by and among the
Company, the Guarantors, Morgan Stanley & Co. Incorporated,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
BancAmerica Robertson Stephens, and BT Alex. Brown
Incorporated, as initial purchasers.
10.2+ Amended and Restated Revolving Credit Agreement dated as of
December 8, 1997 between the Company and BankBoston, N.A.
(filed as Exhibit 10.1 to Current Report on Form 8-K, File
No. 0-12102, for the reporting date of March 20, 1998 and
incorporated herein by reference).
10.3+ First Amendment and Modification Agreement dated as of March
19, 1998 between the Company and BankBoston, N.A., amending
the Amended and Restated Revolving Credit Agreement (filed
as Exhibit (b)(2) to the Amendment No. 2 to the Schedule
14D-1 filed by the Company on February 20, 1998 and
incorporated herein by reference).
10.4+ Second Amendment and Modification Agreement among the
Company and a group of Banks dated as of May 11, 1998 (filed
as Exhibit 10.5 to Form 10-Q, File No. 0-12102, for the
fiscal quarter ended May 2, 1998 and incorporated herein by
reference).
10.5+ Third Amendment and Modification Agreement dated as of
September 14, 1998 among the Company and a group of Banks.
10.6+ Form of Executive Agreement dated as of July 1, 1998 by and
between the Company and Andrew E. Lietz (filed as Exhibit
10.2 to Form 10-Q, File No. 0-12102, for the fiscal quarter
ended August 1, 1998 and incorporated herein by reference).
10.7+ Form of Executive Agreement dated as of July 1, 1998 by and
between the Company and John D. Caruso (filed as Exhibit
10.3 to Form 10-Q, File No. 0-12102, for the fiscal quarter
ended August 1, 1998 and incorporated herein by reference).
10.8+ Form of Executive Agreement dated as of July 1, 1998 by and
between the Company and Timothy P. Losik (filed as Exhibit
10.4 to Form 10-Q, File No. 0-12102, for the fiscal quarter
ended August 1, 1998 and incorporated herein by reference).
10.9+ Form of Executive Agreement dated as of July 1, 1998 by and
between the Company and Michael K. Sheehy (filed as Exhibit
10.5 to Form 10-Q, File No. 0-12102, for the fiscal quarter
ended August 1, 1998 and incorporated herein by reference).
</TABLE>
II-5
<PAGE> 165
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.10+ Form of Executive Agreement dated as of July 1, 1998 by and
between the Company and Frederick G. McNamee, III (filed as
Exhibit 10.6 to Form 10-Q, File No. 0-12102, for the fiscal
quarter ended August 1, 1998 and incorporated herein by
reference).
10.11+ Form of Executive Agreement dated as of July 1, 1998 by and
between the Company and Robert E. Snyder (filed as Exhibit
10.7 to Form 10-Q, File No. 0-12102, for the fiscal quarter
ended August 1, 1998 and incorporated herein by reference).
11.1+ Statement re: Computation of Per Share Earnings.
12.1+ Statement re: Computation of the Ratio of Earnings to Fixed
Charges.
23.1+ Consent of Testa, Hurwitz & Thibeault, LLP (included as part
of Exhibit 5.1).
23.2* Consent of Arthur Andersen LLP.
23.3* Consent of Ernst & Young, LLP.
23.4* Consent of KPMG Peat Marwick LLP.
24.1+ Powers of Attorney (included on signature pages to
originally filed Registration Statement).
25.1+ Statement of Eligibility of State Street Bank and Trust
Company, as Trustee, on Form T-1.
21.1+ List of Subsidiaries (filed as Exhibit 21.1 to Form 10-Q,
File No. 0-12102, for the fiscal quarter ended August 1,
1998 and incorporated herein by reference).
27.1+ Financial Data Schedule.
99.1+ Form of Letter of Transmittal.
99.2+ Form of Notice of Guaranteed Delivery.
99.3+ Form of Exchange Agency Agreement.
</TABLE>
- ---------------
+ Previously filed.
* Filed herewith.
(b) Financial Statement Schedules:
Report of Independent Public Accountants on Schedule
Schedule II -- Valuation and Qualifying Accounts
(c) Not Applicable.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of any
such registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of any of the
registrants pursuant to provisions described in Item 20 above, or otherwise, the
registrants have been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by any registrant of expenses
incurred or paid by a director, officer or controlling person of any registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-6
<PAGE> 166
(b) The undersigned registrants hereby undertake to respond to requests for
information that are incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE> 167
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 4 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Town of Salem,
State of New Hampshire on October 13, 1998.
HADCO CORPORATION
By: /s/ ANDREW E. LIETZ
--------------------------------------
Andrew E. Lietz
President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ HORACE H. IRVINE II* Chairman of the Board and October 13, 1998
- --------------------------------------------------- Director
(Horace H. Irvine II)
/s/ ANDREW E. LIETZ President, Chief Executive October 13, 1998
- --------------------------------------------------- Officer and Director
(Andrew E. Lietz) (Principal Executive
Officer)
/s/ TIMOTHY P. LOSIK* Senior Vice President, Chief October 13, 1998
- --------------------------------------------------- Financial Officer and
(Timothy P. Losik) Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)
/s/ OLIVER O. WARD* Director October 13, 1998
- ---------------------------------------------------
(Oliver O. Ward)
/s/ PATRICK SWEENEY* Director October 13, 1998
- ---------------------------------------------------
(Patrick Sweeney)
/s/ LAWRENCE COOLIDGE* Director October 13, 1998
- ---------------------------------------------------
(Lawrence Coolidge)
/s/ JOHN F. SMITH* Director October 13, 1998
- ---------------------------------------------------
(John F. Smith)
/s/ JOHN E. POMEROY* Director October 13, 1998
- ---------------------------------------------------
(John E. Pomeroy)
/s/ JAMES C. TAYLOR* Director October 13, 1998
- ---------------------------------------------------
(James C. Taylor)
/s/ MAURO J. WALKER* Director October 13, 1998
- ---------------------------------------------------
(Mauro J. Walker)
*By: /s/ ANDREW E. LIETZ
---------------------------------------------
Andrew E. Lietz
Attorney-in-Fact
</TABLE>
II-8
<PAGE> 168
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 4 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Town of Salem,
State of New Hampshire on October 13, 1998.
HADCO SANTA CLARA, INC.
By: /s/ ANDREW E. LIETZ
--------------------------------------
Andrew E. Lietz
President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ANDREW E. LIETZ President (Principal Executive October 13, 1998
- --------------------------------------------------- Officer)
(Andrew E. Lietz)
/s/ TIMOTHY P. LOSIK* Senior Vice President, Chief October 13, 1998
- --------------------------------------------------- Financial Officer, Treasurer
(Timothy P. Losik) and Director (Principal
Financial Officer and
Principal Accounting
Officer)
*By: /s/ ANDREW E. LIETZ
---------------------------------------------
Andrew E. Lietz
Attorney-in-Fact
</TABLE>
II-9
<PAGE> 169
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 4 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Town of Salem,
State of New Hampshire on October 13, 1998.
HADCO PHOENIX, INC.
By: /s/ ANDREW E. LIETZ
------------------------------------
Andrew E. Lietz
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ANDREW E. LIETZ President and Chief Executive October 13, 1998
- --------------------------------------------------- Officer (Principal Executive
(Andrew E. Lietz) Officer)
/s/ TIMOTHY P. LOSIK* Senior Vice President, October 13, 1998
- --------------------------------------------------- Treasurer and Director
(Timothy P. Losik) (Principal Financial Officer
and Principal Accounting
Officer)
</TABLE>
*By: /s/ ANDREW E. LIETZ
------------------------------
Andrew E. Lietz
Attorney-in-Fact
II-10
<PAGE> 170
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 4 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Town of Salem,
State of New Hampshire on October 13, 1998.
CCIR OF CALIFORNIA CORP.
By: /s/ TIMOTHY P. LOSIK
------------------------------------
Timothy P. Losik
Chief Financial Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ FREDERICK G. MCNAMEE III* President (Principal Executive October 13, 1998
- --------------------------------------------------- Officer)
(Frederick G. McNamee III)
/s/ TIMOTHY P. LOSIK Chief Financial Officer and October 13, 1998
- --------------------------------------------------- Director (Principal
(Timothy P. Losik) Financial Officer and
Principal Accounting
Officer)
*By: /s/ TIMOTHY P. LOSIK
---------------------------------------------
Timothy P. Losik
Attorney-in-Fact
</TABLE>
II-11
<PAGE> 171
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 4 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the Town of Salem,
State of New Hampshire on October 13, 1998.
CCIR OF TEXAS CORP.
By: /s/ TIMOTHY P. LOSIK
------------------------------------
Timothy P. Losik
Chief Financial Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ FREDERICK G. MCNAMEE III* President (Principal Executive October 13, 1998
- --------------------------------------------------- Officer)
(Frederick G. McNamee III)
/s/ TIMOTHY P. LOSIK Chief Financial Officer and October 13, 1998
- --------------------------------------------------- Director (Principal
(Timothy P. Losik) Financial Officer and
Principal Accounting
Officer)
*By: /s/ TIMOTHY P. LOSIK
---------------------------------------------
Timothy P. Losik
Attorney-in-Fact
</TABLE>
II-12
<PAGE> 172
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Hadco Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Hadco Corporation included in this
registration statement and have issued our report thereon dated November 14,
1997. Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 16(b) is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein, in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 14, 1997
S-1
<PAGE> 173
SCHEDULE II
HADCO CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND FROM END OF
OF PERIOD EXPENSES RESERVES(1) PERIOD
---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Allowance for Doubtful Accounts
October 28, 1995............................. $725 277 (152) $ 850
October 26, 1996............................. $850 329 (79) $1,100
October 25, 1997............................. 1,100 922 (322) 1,700
</TABLE>
- ---------------
(1) Amounts deemed uncollectible.
S-2
<PAGE> 174
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
3.1.1+ Restated Articles of Organization of the Company (filed as
Exhibit 3.1 to the Registration Statement No. 333-21977 on
Form S-3 and incorporated herein by reference).
3.1.2+ Articles of Amendment to the Articles of Organization of the
Company (filed as Exhibit 3.1 to Form 10-Q, File No.
0-12102, for fiscal quarter ended January 31, 1998 and
incorporated herein by reference).
3.2+ By-laws of the Company, as amended (filed as Exhibit 3.2 to
the Registration Statement No. 333-21977 on Form S-3 and
incorporated herein by reference).
3.3+ Restated Certificate of Incorporation of Hadco Santa Clara,
Inc.
3.4+ Amended and Restated By-laws of Zycon Corporation (n/k/a
Hadco Santa Clara, Inc.)
3.5+ Restated Certificate of Incorporation of Hadco Phoenix, Inc.
3.6+ By-laws of Hadco Phoenix, Inc.
3.7+ Articles of Incorporation of CCIR of California Corp.
3.8+ By-laws of CCIR of California Corp.
3.9+ Articles of Incorporation of CCIR of Texas Corp.
3.10+ By-laws of CCIR of Texas Corp.
4.1+ Indenture (including Form of Exchange Note) dated as of May
18, 1998 by and among the Company, the Guarantors and State
Street Bank and Trust Company, as trustee.
4.2+ Registration Rights Agreement dated May 13, 1998 among the
Company, the Guarantors, Morgan Stanley & Co. Incorporated,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
BancAmerica Robertson Stephens, and BT Alex. Brown
Incorporated, as initial purchasers.
5.1+ Opinion of Testa, Hurwitz & Thibeault, LLP as to the
legality of the securities to be offered.
10.1+ Placement Agreement dated May 13, 1998 by and among the
Company, the Guarantors, Morgan Stanley & Co. Incorporated,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
BancAmerica Robertson Stephens, and BT Alex. Brown
Incorporated, as initial purchasers.
10.2+ Amended and Restated Revolving Credit Agreement dated as of
December 8, 1997 between the Company and BankBoston, N.A.
(filed as Exhibit 10.1 to Current Report on Form 8-K, File
No. 0-12102, for the reporting date of March 20, 1998 and
incorporated herein by reference).
10.3+ First Amendment and Modification Agreement dated as of March
19, 1998 between the Company and BankBoston, N.A., amending
the Amended and Restated Revolving Credit Agreement (filed
as Exhibit (b)(2) to the Amendment No. 2 to the Schedule
14D-1 filed by the Company on February 20, 1998 and
incorporated herein by reference).
10.4+ Second Amendment and Modification Agreement among the
Company and a group of Banks dated as of May 11, 1998 (filed
as Exhibit 10.5 to Form 10-Q, File No. 0-12102, for the
fiscal quarter ended May 2, 1998 and incorporated herein by
reference).
10.5+ Third Amendment and Modification Agreement dated as of
September 14, 1998 among the Company and a group of Banks.
10.6+ Form of Executive Agreement dated as of July 1, 1998 by and
between the Company and Andrew E. Lietz (filed as Exhibit
10.2 to Form 10-Q, File No. 0-12102, for the fiscal quarter
ended August 1, 1998 and incorporated herein by reference).
10.7+ Form of Executive Agreement dated as of July 1, 1998 by and
between the Company and John D. Caruso (filed as Exhibit
10.3 to Form 10-Q, File No. 0-12102, for the fiscal quarter
ended August 1, 1998 and incorporated herein by reference).
10.8+ Form of Executive Agreement dated as of July 1, 1998 by and
between the Company and Timothy P. Losik (filed as Exhibit
10.4 to Form 10-Q, File No. 0-12102, for the fiscal quarter
ended August 1, 1998 and incorporated herein by reference).
10.9+ Form of Executive Agreement dated as of July 1, 1998 by and
between the Company and Michael K. Sheehy (filed as Exhibit
10.5 to Form 10-Q, File No. 0-12102, for the fiscal quarter
ended August 1, 1998 and incorporated herein by reference).
10.10+ Form of Executive Agreement dated as of July 1, 1998 by and
between the Company and Frederick G. McNamee, III (filed as
Exhibit 10.6 to Form 10-Q, File No. 0-12102, for the fiscal
quarter ended August 1, 1998 and incorporated herein by
reference).
</TABLE>
<PAGE> 175
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.11+ Form of Executive Agreement dated as of July 1, 1998 by and
between the Company and Robert E. Snyder (filed as Exhibit
10.7 to Form 10-Q, File No. 0-12102, for the fiscal quarter
ended August 1, 1998 and incorporated herein by reference).
11.1+ Statement re: Computation of Per Share Earnings.
12.1+ Statement re: Computation of the Ratio of Earnings to Fixed
Charges.
23.1+ Consent of Testa, Hurwitz & Thibeault, LLP (included as part
of Exhibit 5.1).
23.2* Consent of Arthur Andersen LLP.
23.3* Consent of Ernst & Young, LLP.
23.4* Consent of KPMG Peat Marwick LLP.
24.1+ Powers of Attorney (included on signature pages to
originally filed Registration Statement).
25.1+ Statement of Eligibility of State Street Bank and Trust
Company, as Trustee, on Form T-1.
21.1+ List of Subsidiaries (filed as Exhibit 21.1 to Form 10-Q,
File No. 0-12102, for the fiscal quarter ended August 1,
1998 and incorporated herein by reference).
27.1+ Financial Data Schedule.
99.1+ Form of Letter of Transmittal.
99.2+ Form of Notice of Guaranteed Delivery.
99.3+ Form of Exchange Agency Agreement.
</TABLE>
- ------------------------
+ Previously filed.
* Filed herewith.
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
Boston, Massachusetts
October 13, 1998
<PAGE> 1
Exhibit 23.3
Consent of Ernst & Young LLP
We consent to the reference to our firm under the captions "Experts" and to the
use of our report dated August 22, 1997, with respect to the consolidated
financial statements of Continental Circuits Corp. included in the Registration
Statement (Form S-4) and related Prospectus of Hadco Corporation for the
registration of $200,000,000 of Senior Subordinated Notes due 2008.
/s/ ERNST & YOUNG LLP
Phoenix, Arizona
October 13, 1998
<PAGE> 1
Exhibit 23.4
The Board of Directors
Hadco Corporation:
We consent to incorporation by reference in the registration statement (Nos.
333-57467 through 333-57467-04) on Form S-4 of Hadco Corporation of our reports
dated January 19, 1996, relating to the consolidated balance sheets of Zycon
Corporation and subsidiary as of December 31, 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
year ended December 31, 1995, which report appears in the January 10, 1997,
current report on Form 8-K/A of Hadco Corporation.
/s/ KPMG Peat Marwick LLP
Mountain View, California
October 13, 1998
