<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MAY 1, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 0-12102
HADCO CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MASSACHUSETTS 04-2393279
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
12A MANOR PARKWAY, SALEM, NEW HAMPSHIRE 03079
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (603) 898-8000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Registrant has 13,560,379 shares of Common Stock, $0.05 Par Value, outstanding
at June 3, 1999.
<PAGE> 2
HADCO CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
May 1, 1999 (unaudited) and October 31, 1998.......................................... 3
Consolidated Condensed Statements of Operations
for the Three Months and Six Months ended May 1, 1999 and
May 2, 1998 (unaudited)............................................................... 4
Consolidated Condensed Statements of Cash Flows
for the Six Months ended May 1, 1999 and
May 2, 1998 (unaudited).............................................................. 5
Notes to Consolidated Condensed Financial
Statements............................................................................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................... 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk............................. 19
PART II - OTHER INFORMATION
Item 2. Changes in Securities.................................................................. 20
Item 4. Submission of Matters to a Vote of Security Holders ................................... 20
Item 6. Exhibits and Reports on Form 8-K....................................................... 21
SIGNATURE........................................................................................... 22
</TABLE>
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HADCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except per share data)
<TABLE>
<CAPTION>
May 1, October 31,
1999 1998
--------- ---------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .............................. $ 1,983 $ 7,169
Accounts receivable, net of allowance for
doubtful accounts of $1,677 in 1999 and
$2,129 in 1998 ......................................... 124,778 111,094
Inventories ............................................ 68,492 67,017
Deferred tax asset ..................................... 17,156 17,156
Prepaid and other current assets ....................... 5,721 18,666
--------- ---------
Total Current Assets .............................. 218,130 221,102
Property, Plant and Equipment, net ........................... 318,818 322,887
Acquired Intangible Assets, net .............................. 185,419 191,421
Other Assets ................................................. 9,220 8,415
--------- ---------
$ 731,587 $ 743,825
========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Short-term debt and current portion of long-term debt .. $ 2,781 $ 4,377
Accounts payable ....................................... 82,141 79,350
Accrued payroll and other employee benefits ............ 27,058 26,529
Other accrued expenses ................................. 19,901 19,016
--------- ---------
Total Current Liabilities ......................... 131,881 129,272
--------- ---------
Long-Term Debt, net of current portion ....................... 329,428 354,291
--------- ---------
Deferred Tax Liability ....................................... 59,521 59,521
--------- ---------
Other Long-Term Liabilities .................................. 9,192 9,192
--------- ---------
Stockholders' Investment:
Common stock, $.05 par value -
Authorized - 50,000 shares
Issued and outstanding - 13,559 in 1999
and 13,366 in 1998 ................................ 679 669
Paid-in capital ........................................ 177,486 173,906
Deferred compensation .................................. (254) (44)
Retained earnings ...................................... 23,654 17,018
--------- ---------
Total Stockholders' Investment .................... 201,565 191,549
--------- ---------
$ 731,587 $ 743,825
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
3
<PAGE> 4
HADCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- --------------------------
May 1, May 2, May 1, May 2,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales ................................................ $ 255,586 $ 209,587 $ 491,565 $ 407,863
Cost of Sales ............................................ 217,209 172,857 420,755 332,065
--------- --------- --------- ---------
Gross Profit ........................................ 38,377 36,730 70,810 75,798
Operating Expenses ....................................... 23,109 21,526 44,104 39,310
Restructuring and Other Non-Recurring Charges ............ - 5,947 - 5,947
Write-off of Acquired In-Process Research and
Development ......................................... - 63,050 - 63,050
--------- --------- --------- ---------
Income (Loss) from Operations ....................... 15,268 (53,793) 26,706 (32,509)
Interest and Other Income, net ........................... 186 844 787 1,377
Interest Expense ......................................... (7,783) (4,195) (16,479) (6,294)
--------- --------- --------- ---------
Income (Loss) Before Provision for Income Taxes .. 7,671 (57,144) 11,014 (37,426)
Provision for Income Taxes ............................... 3,049 2,595 4,378 10,186
--------- --------- --------- ---------
Net Income (Loss) ................................... $ 4,622 $ (59,739) $ 6,636 $ (47,612)
========= ========= ========= =========
Income (Loss) per Common and Common Equivalent
Shares (Note 1)
Basic .................................... $ 0.34 $ (4.54) $ 0.49 $ (3.63)
========= ========= ========= =========
Diluted .................................. $ 0.34 $ (4.54) $ 0.49 $ (3.63)
========= ========= ========= =========
Weighted Average Common and Common Equivalent
Shares Outstanding (Note 1)
Basic .................................... 13,522 13,161 13,470 13,130
========= ========= ========= =========
Diluted .................................. 13,713 13,161 13,678 13,130
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
4
<PAGE> 5
HADCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
May 1, May 2,
1999 1998
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) ....................................................... $ 6,636 $ (47,612)
Adjustments to reconcile net income (loss) to net cash provided by
Operating Activities:
Depreciation, amortization, deferred compensation and deferred
taxes .............................................................. 38,743 30,425
Director and officer stock grants .................................. 164 -
Write-off of acquired in-process research and development .......... - 63,050
Gain on sale of fixed assets ....................................... 29 1,749
Changes in assets and liabilities -
Increase in accounts receivable .................................... (11,700) (5,664)
Increase in inventories ............................................ (1,626) (17,665)
Decrease (Increase) in prepaid expenses and other current assets ... 184 (3,984)
Decrease in refundable taxes ....................................... 12,717 1,000
Decrease (Increase) in other assets ................................ (794) 166
(Decrease) Increase in accounts payable and accrued expenses ....... 4,206 (8,848)
Decrease in long-term liabilities .................................. - (22)
--------- ---------
Net Cash Provided by Operating Activities .................................... 48,559 12,595
--------- ---------
Cash Flows From Investing Activities:
Purchases of property, plant and equipment .............................. (29,130) (48,186)
Acquisition of Continental Circuits Corp. ............................... - (190,032)
Increase in other assets ................................................ (1,305) -
--------- ---------
Net Cash Used in Investing Activities ........................................ (30,435) (238,218)
--------- ---------
Cash Flows From Financing Activities:
Principal payments of long-term debt .................................... (46,460) (43,218)
Net proceeds from issuance of long-term debt ............................ 20,000 256,878
Proceeds from exercise of stock options ................................. 531 477
Proceeds from employee stock purchase plan .............................. 1,574 -
Proceeds from the sale of common stock .................................. - 1,480
Tax benefit from exercise of stock options .............................. 1,045 1,270
--------- ---------
Net Cash (Used in) Provided by Financing Activities .......................... (23,310) 216,887
--------- ---------
Net Decrease in Cash, Cash Equivalents and Short-Term Investments ............ (5,186) (8,736)
--------- ---------
Cash, Cash Equivalents and Short-Term Investments, Beginning of Period ....... 7,169 13,733
--------- ---------
Cash, Cash Equivalents and Short-Term Investments, End of Period ............. $ 1,983 $ 4,997
========= =========
Supplemental Disclosure of Cash Flow Information:
Cash paid during period for:
Interest ........................................................... $ 15,908 $ 4,689
========= =========
Income taxes (net of refunds) ...................................... $ 421 $ 10,906
========= =========
Acquisition of Continental Circuits Corp. in 1998:
Fair value of assets acquired ............................................ $ - $ 137,623
Liabilities assumed ...................................................... - (66,381)
Cash paid ................................................................ - (186,083)
Acquisition costs incurred ............................................... - (3,949)
Write-off of acquired in-process research and development ................ - 63,050
--------- ---------
Goodwill ................................................................. $ - $ (55,740)
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
5
<PAGE> 6
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated condensed financial statements reflect the application
of certain accounting policies as described in the accompanying notes
to the consolidated condensed financial statements, as well as the
Company's Annual Report on Form 10-K for the fiscal year ended October
31, 1998 and the Quarterly Report on Form 10-Q for the fiscal quarter
ended January 30, 1999. These financial statements should be read in
conjunction with the financial statements and related disclosures
included in the above-referenced SEC filings.
INTERIM FINANCIAL STATEMENTS
The accompanying consolidated condensed balance sheet as of May 1,
1999, and the consolidated condensed statements of operations for the
three and six months ended May 1, 1999 and May 2, 1998 and the
consolidated condensed statements of cash flows for the six month
periods ended May 1, 1999 and May 2, 1998 are unaudited, but in the
opinion of management, include all adjustments (consisting only of
normal, recurring adjustments) necessary for a fair presentation of
results for these interim periods. Results of operations for the
interim periods are not necessarily indicative of results to be
expected for the entire year or any future period.
INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
A reconciliation of basic and diluted weighted average shares
outstanding is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------- -------------------
May 1, May 2, May 1, May 2,
1999 1998 1999 1998
------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Basic weighted average shares outstanding ... 13,522 13,161 13,470 13,130
Weighted average common equivalent shares ... 191 - 208 -
------ ------ ------ ------
Diluted weighted average shares outstanding . 13,713 13,161 13,678 13,130
====== ====== ====== ======
</TABLE>
Diluted weighted average shares outstanding for the three month periods
ended May 1, 1999 and May 2, 1998 do not include 1,088,855 and
1,426,395 common equivalent shares, respectively, as their effect would
be anti-dilutive. Diluted weighted average shares outstanding for the
six month periods ended May 1, 1999 and May 2, 1998 do not include
878,293 and 1,426,395 common equivalent shares, respectively, as their
effect would be anti-dilutive.
6
<PAGE> 7
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
2. ACQUISITION
On March 20, 1998, the Company acquired all of the outstanding common
stock of Continental Circuits Corp. ("Continental"). Unaudited pro
forma operating results for the Company for the three and six month
periods ended May 2, 1998, assuming the Continental Acquisition
occurred on October 26, 1997, are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
May 1, May 2, May 1, May 2,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(in thousands, except per share data)
Actual Pro forma Actual Pro forma
<S> <C> <C> <C> <C>
Net Sales .............................. $ 255,586 $ 226,196 $ 491,565 $ 459,814
Net Income (Loss) ..................... $ 4,622 $ (262) $ 6,636 $ 8,019
Basic Net Income (Loss) Per Share ...... $ 0.34 $ (0.02) $ 0.49 $ 0.61
Diluted Net Income (Loss) Per Share .... $ 0.34 $ (0.02) $ 0.49 $ 0.59
</TABLE>
For purposes of these pro forma operating results, the acquired
in-process R&D was assumed to have been written-off prior to October
26, 1997, so that the operating results presented include only
recurring costs.
3. INVENTORIES
Inventories are stated at the lower of cost, first-in, first-out
(FIFO), or market and consist of the following (in thousands):
<TABLE>
<CAPTION>
May 1, October 31,
1999 1998
------- -----------
<S> <C> <C>
Raw Materials ...... $21,650 $25,856
Work-in-process .... 46,842 41,161
------- -------
$68,492 $67,017
======= =======
</TABLE>
4. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
May 1, October 31,
1999 1998
--------- -----------
<S> <C> <C>
Variable Rate Mortgages ............................................. $ 686 $ 732
Revolving credit facility ........................................... 125,125 150,000
9 1/2% Senior Subordinated Notes due 2008 ........................... 199,388 199,354
Obligations under capital leases with interest
rates ranging from 7% to 7.75% ..................................... 7,010 8,582
--------- ---------
332,209 358,668
Less - Current portion .............................................. (2,781) (4,377)
--------- ---------
$ 329,428 $ 354,291
========= =========
</TABLE>
7
<PAGE> 8
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
4. LONG-TERM DEBT (CONTINUED)
The Company reduced the commitment under its Revolving Credit Facility from $300
million to $198.75 million effective May 14, 1999. Based on the amount
outstanding under the Revolving Credit Facility as of May 1, 1999, the reduced
commitment would still provide the Company with approximately $73 million of
available borrowings.
5. SALE OF ASSETS
On April 30, 1999, the Company sold substantially all of the assets of its
Dynaflex division for approximately $2.5 million. Dynaflex's assets, liabilities
and operations were not significant to the Company. Accordingly, pro forma
information has not been presented. Proceeds from the sale were received on May
3, 1999.
6. SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
Basis of presentation. In connection with the acquisition of Continental
Circuits Corp., which was initially financed with approximately $184 million of
borrowings from the Company's line of credit, the Company sold on May 18, 1998
$200,000,000 of Senior Subordinated Notes due in 2008 bearing interest at 9 1/2
% (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 consolidating condensed financial statements of the
Guarantors are presented below and should be read in connection with the
Consolidated Condensed Financial Statements of the Company. Separate financial
statements of the Guarantors 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
consolidating condensed 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.
8
<PAGE> 9
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
(continued)
CONSOLIDATING CONDENSED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
As of May 1, 1999
-------------------------------------------------------------------
Guarantor Non-Guarantor Parent Eliminating Consolidated
Subsidiaries Subsidiaries Corporation Entries Total
------------ ------------- ----------- ----------- ------------
(In thousands, except per share data)
ASSETS
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents ...................... $ 57 $ 1,603 $ 323 $ - $ 1,983
Accounts receivable, net ....................... 56,114 7,140 61,524 - 124,778
Inventories .................................... 28,587 6,432 33,473 - 68,492
Deferred tax asset ............................. - - 17,156 - 17,156
Prepaid and other current assets ............... 1,352 177 4,192 - 5,721
--------- --------- --------- --------- ---------
Total current assets ........................ 86,110 15,352 116,668 - 218,130
Property, Plant and Equipment, net ................. 135,199 49,907 133,712 - 318,818
Intercompany Receivable ............................ 4,605 - 80,977 (85,582) -
Investments in Subsidiaries ........................ 14,791 - 269,704 (284,495) -
Acquired Intangible Assets, net .................... 185,419 - - - 185,419
Other Assets ....................................... 65 - 9,155 - 9,220
--------- --------- --------- --------- ---------
$ 426,189 $ 65,259 $ 610,216 $(370,077) $ 731,587
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt .............. $ 2,069 $ 78 $ 634 $ - $ 2,781
Accounts payable ............................... 35,760 5,027 41,354 - 82,141
Intercompany payable ........................... 41,264 44,318 - (85,582) -
Accrued payroll and other
employee benefits ........................... 1,635 191 25,232 - 27,058
Other accrued expenses ......................... 27,500 137 (7,736) - 19,901
--------- --------- --------- --------- ---------
Total current liabilities ................... 108,228 49,751 59,484 (85,582) 131,881
--------- --------- --------- --------- ---------
Long-Term Debt, net of current portion ............. 4,213 85 325,130 - 329,428
--------- --------- --------- --------- ---------
Deferred Tax Liability ............................. 44,676 - 14,845 - 59,521
--------- --------- --------- --------- ---------
Other Long-Term Liabilities ........................ - - 9,192 - 9,192
--------- --------- --------- --------- ---------
Stockholders' Investment:
Common stock, $.05 par value;
Authorized - 50,000 shares
Issued and outstanding - 13,559 in 1999 ..... 11 29,655 679 (29,666) 679
Paid-in capital ................................ 400,616 - 177,486 (400,616) 177,486
Deferred compensation .......................... - - (254) - (254)
Retained earnings .............................. (131,555) (14,232) 23,654 145,787 23,654
--------- --------- --------- --------- ---------
Total stockholders' investment .............. 269,072 15,423 201,565 (284,495) 201,565
--------- --------- --------- --------- ---------
$ 426,189 $ 65,259 $ 610,216 $(370,077) $ 731,587
========= ========= ========= ========= =========
</TABLE>
9
<PAGE> 10
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
(Continued)
CONSOLIDATING CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
As of October 31, 1998
-------------------------------------------------------------------
Guarantor Non-Guarantor Parent Elimination Consolidated
Subsidiaries Subsidiaries Corporation Entries Total
------------ ------------- ----------- ----------- ------------
(In thousands, except per share data)
ASSETS
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents ................... $ 836 $ 2 $ 6,331 $ - $ 7,169
Accounts receivable, net .................... 54,092 6,382 50,620 - 111,094
Inventories ................................. 24,984 5,560 36,473 - 67,017
Deferred tax asset .......................... - - 17,156 - 17,156
Prepaid and other current assets ............ 999 227 17,440 - 18,666
--------- --------- --------- --------- ---------
Total current assets ..................... 80,911 12,171 128,020 - 221,102
Property, Plant and Equipment, net ............ 138,912 49,029 134,946 - 322,887
Intercompany Receivable ....................... - 160 91,463 (91,623) -
Investments in Subsidiaries ................... 17,895 - 267,882 (285,777) -
Acquired Intangible Assets, net ............... 191,421 - - - 191,421
Other Assets .................................. 686 - 7,729 - 8,415
--------- --------- --------- --------- ---------
$ 429,825 $ 61,360 $ 630,040 $(377,400) $ 743,825
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt ........... $ 3,417 $ 158 $ 802 $ - $ 4,377
Accounts payable ............................ 34,249 4,941 40,160 - 79,350
Intercompany payable ........................ 54,523 37,100 - (91,623) -
Accrued payroll and other
employee benefits ........................ 3,465 160 22,904 - 26,529
Other accrued expenses ...................... 18,427 265 324 - 19,016
--------- --------- --------- --------- ---------
Total current liabilities ................ 114,081 42,624 64,190 (91,623) 129,272
--------- --------- --------- --------- ---------
Long-Term Debt, net of current portion ........ 3,796 230 350,265 - 354,291
--------- --------- --------- --------- ---------
Deferred Tax Liability ........................ 44,677 - 14,844 - 59,521
--------- --------- --------- --------- ---------
Other Long-Term Liabilities ................... - - 9,192 - 9,192
--------- --------- --------- --------- ---------
Stockholders' Investment:
Common stock, $.05 par value;
Authorized - 50,000 shares
Issued and outstanding - 13,366 in 1998 .. 11 29,654 669 (29,665) 669
Paid-in capital ............................. 400,616 - 173,906 (400,616) 173,906
Deferred compensation ....................... - - (44) - (44)
Retained earnings ........................... (133,356) (11,148) 17,018 144,504 17,018
--------- --------- --------- --------- ---------
Total stockholders' investment ........... 267,271 18,506 191,549 (285,777) 191,549
--------- --------- --------- --------- ---------
$ 429,825 $ 61,360 $ 630,040 $(377,400) $ 743,825
========= ========= ========= ========= =========
</TABLE>
10
<PAGE> 11
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
(Continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended May 1, 1999
-------------------------------------------------------------------
Guarantor Non-Guarantor Parent Elimination Consolidated
Subsidiaries Subsidiaries Corporation Entries Total
------------ ------------- ----------- ----------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net Sales ...................................... $ 115,042 $ 11,716 $ 128,828 $ - $ 255,586
Cost of Sales .................................. 101,206 11,557 104,446 - 217,209
--------- --------- --------- --------- ---------
Gross Profit .............................. 13,836 159 24,382 - 38,377
Operating Expenses ............................. 5,305 884 16,920 - 23,109
--------- --------- --------- --------- ---------
Income (Loss) From Operations ............. 8,531 (725) 7,462 - 15,268
Interest and Other Income ...................... (480) 217 (368) 817 186
Interest Expense ............................... (17) 1 (7,767) - (7,783)
--------- --------- --------- --------- ---------
Income (Loss) Before Provision for Income
Taxes ..................................... 8,034 (507) (673) 817 7,671
Provision for Income Taxes ..................... 4,406 112 (1,469) - 3,049
Equity in Income (Loss) of Subsidiary .......... (1,436) - 3,009 (1,573) -
--------- --------- --------- --------- ---------
Net Income (Loss) ......................... $ 2,192 $ (619) $ 3,805 $ (756) $ 4,622
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended May 1, 1999
-------------------------------------------------------------------
Guarantor Non-Guarantor Parent Elimination Consolidated
Subsidiaries Subsidiaries Corporation Entries Total
------------ ------------- ----------- ----------- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Net Sales ...................................... $ 229,996 $ 22,224 $ 239,345 $ - $ 491,565
Cost of Sales .................................. 206,415 22,417 191,923 - 420,755
--------- --------- --------- --------- ---------
Gross Profit .............................. 23,581 (193) 47,422 - 70,810
Operating Expenses ............................. 10,552 1,563 31,989 - 44,104
--------- --------- --------- --------- ---------
Income (Loss) From Operations ............. 13,029 (1,756) 15,433 - 26,706
Interest and Other Income ...................... (630) (408) 1,002 823 787
Interest Expense ............................... (215) (5) (16,259) - (16,479)
--------- --------- --------- --------- ---------
Income (Loss) Before Provision for Income
Taxes ..................................... 12,184 (2,169) 176 823 11,014
Provision for Income Taxes ..................... 7,279 112 (3,013) - 4,378
Equity in Income (Loss) of Subsidiary .......... (3,104) - 2,624 480 -
--------- --------- --------- --------- ---------
Net Income (Loss) ......................... $ 1,801 $ (2,281) $ 5,813 $ 1,303 $ 6,636
========= ========= ========= ========= =========
</TABLE>
11
<PAGE> 12
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
(Continued)
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended May 2, 1998
----------------------------------------------------------------------------
Guarantor Non-Guarantor Parent Elimination Consolidated
Subsidiaries Subsidiaries Corporation Entries Total
--------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net Sales $ 76,559 $ 8,251 $ 124,777 $ -- $ 209,587
Cost of Sales 65,334 7,815 99,708 -- 172,857
--------- --------- --------- --------- ---------
Gross Profit 11,225 436 25,069 -- 36,730
Operating Expenses 4,737 1,004 15,785 -- 21,526
Restructuring and Other Non-Recurring Charges -- -- 5,947 -- 5,947
Write-off of Acquired In-Process Research and
Development 63,050 -- -- -- 63,050
--------- --------- --------- --------- ---------
Income (Loss) From Operations (56,562) (568) 3,337 -- (53,793)
Interest and Other Income 441 613 (210) -- 844
Interest Expense (220) (118) (3,857) -- (4,195)
--------- --------- --------- --------- ---------
Income (Loss) Before Provision for Income
Taxes (56,341) (73) (730) -- (57,144)
Provision for Income Taxes 3,571 98 (1,074) -- 2,595
Equity in Income (Loss) of Subsidiary (874) -- (60,083) 60,957 --
--------- --------- --------- --------- ---------
Net Income (Loss) $ (60,786) $ (171) $ (59,739) $ 60,957 $ (59,739)
========= ========= ========= ========= =========
<CAPTION>
For the Six Months Ended May 2, 1998
----------------------------------------------------------------------------
Guarantor Non-Guarantor Parent Elimination Consolidated
Subsidiaries Subsidiaries Corporation Entries Total
--------- --------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Net Sales $ 144,838 $ 17,278 $ 245,747 $ -- $ 407,863
Cost of Sales 122,759 16,112 193,194 -- 332,065
--------- --------- --------- --------- ---------
Gross Profit 22,079 1,166 52,553 -- 75,798
Operating Expenses 7,444 1,836 30,030 -- 39,310
Restructuring and Other Non-Recurring Charges -- -- 5,947 -- 5,947
Write-off of Acquired In-Process Research and
Development 63,050 -- -- -- 63,050
--------- --------- --------- --------- ---------
Income (Loss) From Operations (48,415) (670) 16,576 -- (32,509)
Interest and Other Income 822 612 (57) -- 1,377
Interest Expense (390) (390) (5,514) -- (6,294)
--------- --------- --------- --------- ---------
Income (Loss) Before Provision for Income
Taxes (47,983) (448) 11,005 -- (37,426)
Provision for Income Taxes 7,438 98 2,650 -- 10,186
Equity in Income (Loss) of Subsidiary (1,249) -- (55,967) 57,216 --
--------- --------- --------- --------- ---------
Net Income (Loss) $ (56,670) $ (546) $ (47,612) $ 57,216 $ (47,612)
========= ========= ========= ========= =========
</TABLE>
12
<PAGE> 13
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
(Continued)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended May 1, 1999
------------------------------------------------------------------------
Guarantor Non-Guarantor Parent Elimination Consolidated
Subsidiaries Subsidiaries Corporation Entries Total
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net Cash Provided by Operating Activities $ 10,496 $ 5,752 $ 31,488 $ 823 $ 48,559
-------- -------- -------- -------- --------
Cash Flows from Investing Activities:
Foreign Sales Corp. dividend -- (823) 823 -- --
Purchase of property, plant and equipment (9,308) (3,926) (15,896) -- (29,130)
Investments in subsidiaries (1,035) 823 (270) (823) (1,305)
-------- -------- -------- -------- --------
Net cash used in investing activities (10,343) (3,926) (15,343) (823) (30,435)
-------- -------- -------- -------- --------
Cash Flows from Financing Activities:
Principal payments of long-term debt (932) (225) (45,303) -- (46,460)
Proceeds from issuance of long-term debt -- -- 20,000 -- 20,000
Proceeds from exercise of stock options -- -- 531 -- 531
Proceeds from the Employee Stock Purchase Plan -- -- 1,574 -- 1,574
Tax benefit from exercise of stock options -- -- 1,045 -- 1,045
-------- -------- -------- -------- --------
Net cash used in financing
activities (932) (225) (22,153) -- (23,310)
-------- -------- -------- -------- --------
Net Increase (Decrease) in Cash, Cash
Equivalents and Short-Term Investments (779) 1,601 (6,008) -- (5,186)
Cash, Cash Equivalents and Short-Term Investments,
Beginning of Period 836 2 6,331 -- 7,169
-------- -------- -------- -------- --------
Cash, Cash Equivalents and Short-Term Investments,
End of Period $ 57 $ 1,603 $ 323 $ -- $ 1,983
======== ======== ======== ======== ========
</TABLE>
13
<PAGE> 14
HADCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
SUPPLEMENTAL GUARANTOR CONSOLIDATING CONDENSED FINANCIAL STATEMENTS
(Continued)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended May 2, 1998
------------------------------------------------------------------------
Guarantor Non-Guarantor Parent Elimination Consolidated
Subsidiaries Subsidiaries Corporation Entries Total
--------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net Cash Provided by Operating Activities $ 40,277 $ 11,501 $ (39,183) $ -- $ 12,595
--------- --------- --------- --------- ---------
Cash Flows from Investing Activities:
Foreign Sales Corp. dividend -- (703) 703 -- --
Purchase of property, plant and equipment (11,735) (11,491) (24,960) -- (48,186)
Investments in subsidiaries 5,691 -- (5,691) -- --
Acquisition of Continental Circuits Corp.,
net of cash acquired -- -- (190,032) -- (190,032)
--------- --------- --------- --------- ---------
Net cash used in investing activities (6,044) (12,194) (219,980) -- (238,218)
--------- --------- --------- --------- ---------
Cash Flows from Financing Activities:
Principal payments of long-term debt (42,433) (22) (763) -- (43,218)
Proceeds from issuance of long-term debt 10,730 -- 246,148 -- 256,878
Proceeds from exercise of stock options -- -- 477 -- 477
Proceeds from the sale of common stock -- -- 1,480 -- 1,480
Tax benefit from exercise of stock options -- -- 1,270 -- 1,270
--------- --------- --------- --- ---------
Net cash (used in) provided by financing
activities (31,703) (22) 248,612 -- 216,887
--------- --------- --------- --------- ---------
Net Increase (Decrease) in Cash, Cash
Equivalents and Short-Term Investments 2,530 (715) (10,551) -- (8,736)
Cash, Cash Equivalents and Short-Term
Investments, Beginning of Period (1,603) 2,249 13,087 -- 13,733
--------- --------- --------- --------- ---------
Cash, Cash Equivalents and Short-Term
Investments, End of Period $ 927 $ 1,534 $ 2,536 $ -- $ 4,997
========= ========= ========= ========= =========
</TABLE>
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained in this Quarterly Report
on Form 10-Q, the matters discussed below or elsewhere in this Quarterly
Report on Form 10-Q are forward-looking statements that involve risks and
uncertainties. Hadco Corporation makes such forward-looking statements
under the provisions of the "Safe Harbor" section of the Private
Securities Litigation Reform Act of 1995. Any forward-looking statements
should be considered in light of the factors described below in this Item
2 and under "Year 2000 Readiness Disclosure Statement" and "Factors That
May Affect Future Results" below. Actual results may vary materially from
those projected, anticipated or indicated in any forward-looking
statements. In this Quarterly Report on Form 10-Q, the words
"anticipates," "believes," "expects," "intends," "future," "could," "may,"
and similar words or expressions (as well as other words or expressions
referencing future events, conditions or circumstances) identify
forward-looking statements.
As used herein, the terms "Company" and "Hadco," unless otherwise
indicated or the context otherwise requires, refer to Hadco Corporation
and its subsidiaries. On March 20, 1998, the Company acquired all of the
outstanding capital stock of Continental Circuits Corp. (the "Continental
Acquisition"). 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.
RESULTS OF OPERATIONS
SECOND QUARTER
Net sales for the second quarter of 1999 increased 21.9% over the same
period in 1998. The increase resulted from several factors including the
Continental Acquisition, which added $21.2 million to the net sales of
printed circuits and an increase in printed circuit net sales (excluding
the Continental Acquisition) of $9.7 million. Net sales of printed
circuits increased due to higher unit shipments, partially offset by a
7.6% decrease in average pricing for the second quarter of 1999 over the
same period in 1998. The shift in mix towards higher priced printed
circuits with more layers and greater densities partially offset the
reduction in price. Backplane and system assembly net sales increased
$15.1 million to $47.8 million. Backplane and system assembly net sales
increased due to higher production volume and shipments.
The gross profit margin decreased to 15.0% of net sales in the second
quarter of 1999 from 17.5% in the comparable period in fiscal 1998. Lower
pricing on printed circuits caused gross margins to decrease by 3.8
percentage points. The decrease was partially offset by lower unit costs
through improved production efficiencies and improved capacity
utilization, resulting in an overall decrease in the gross margin of 2.5
percentage points.
Operating expenses increased by $1.6 million in the second quarter of
fiscal 1999 over the same period in 1998. The increase was due to
increased expense for the amortization of goodwill and purchased
intangibles from the Continental Acquisition, and higher selling expenses
due to higher net sales. Operating expenses as a percent of net sales
decreased to 9.0% for the second quarter of fiscal 1999 versus 10.3% for
the same period in 1998 due to increased net sales and the relatively
fixed nature of the Company's operating expenses.
The Company includes in operating expenses actual expenditures and
accruals, based on estimates, for environmental matters. To the extent
Hadco believes circumstances warrant, it will continue to accrue amounts
and charge to operations cost estimates relating to environmental matters.
Interest income decreased in the second quarter of 1999 as compared to the
second quarter of 1998 due to lower average cash balances available for
investing. Interest expense increased in the second quarter of 1999 as
compared to the second quarter of 1998 due to higher average outstanding
debt balances during the second quarter of 1999 as compared to the second
quarter of 1998. Higher debt levels are due to the Continental
Acquisition.
15
<PAGE> 16
YEAR TO DATE
Net sales for the six months ended May 1, 1999 increased 20.5% over the
comparable prior year period. The increase resulted from several factors
including the Continental Acquisition, which added $56.4 million to
printed circuit net sales in the six month period. This increase was
partially offset by a decrease in printed circuit net sales (excluding the
Continental Acquisition) of $7.9 million caused by slightly lower unit
shipments and an 8.0% decrease in average pricing. The shift in mix
towards higher priced printed circuits with more layers and greater
densities partially offset the reductions in unit volume and price.
Backplane and system assembly net sales increased $35.2 million to $93.1
million. Backplane and system assembly net sales increased due to higher
production volume and shipments.
The gross profit margin decreased to 14.4% in the six months ended May 1,
1999 from 18.6% in the comparable period in fiscal 1998. Lower pricing on
printed circuits caused gross margins to decrease by 5.9 percentage
points. Lower capacity utilization from printed circuit operations caused
gross margins to decrease by 1.3 percentage points. These decreases were
partially offset by lower unit costs through improved production
efficiencies resulting in an overall decrease in the gross margin of 4.2
percentage points.
Operating expenses increased by $4.8 million in the second quarter of
fiscal 1999 over the same period in 1998. The increase was due to
increased expense for the amortization of goodwill and purchased
intangibles from the Continental Acquisition, and higher selling expenses
due to higher net sales. Operating expenses as a percent of net sales
decreased to 9.0% for the first six months of fiscal 1999 versus 9.6% for
the same period in 1998 due to increased net sales and the relatively
fixed nature of the Company's operating expenses.
Income from operations for the six months ended May 2, 1998 was reduced by
$63 million due to the non-recurring write-off of acquired in-process
research and development recorded in connection with the Continental
Acquisition. The remaining goodwill and purchased intangibles will be
amortized over 12 to 30 years, with an average amortization life of 17
years. In addition, income from operations for the six months ended May 2,
1998, was reduced by approximately $5.9 million for restructuring and
other non-recurring charges related to the consolidation of the Company's
East Coast Tech Center operations.
Excluding the non-recurring write-off and restructuring charges, income
from operations decreased as a percent of net sales to 5.4% for the six
months ended May 1, 1999 from 8.9% in the comparable period in fiscal
1998. The decrease results primarily from the same factors affecting gross
profit margins and from increased expenses for the amortization of
goodwill and purchased intangibles from the Continental Acquisition.
Interest income decreased for the six months ended May 1, 1999 as compared
to the six months ended May 2, 1998 due to lower average cash balances
available for investing. Interest expense increased in the six months
ended May 1, 1999 as compared to the six months ended May 2, 1998 due to
an increase in outstanding debt to finance the Continental Acquisition.
INCOME TAXES
The Company provides for income taxes on an interim basis using its
anticipated effective annual income tax rate. The Company anticipates an
effective annual income tax rate for fiscal 1999 of 39.75%, which is
slightly less than the combined federal and state statutory rates. The
anticipated effective rate was increased by amortization of goodwill
(which is not tax deductible), offset by the benefit of the Company's
foreign sales corporation and various state investment tax credits. The
effective tax rate for fiscal 1999 is based on current tax laws.
16
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
Net cash flow from operations increased $36.0 million in the first six
months of fiscal 1999 versus the comparable prior year period. The
increase is a result of improved working capital management and a refund
of estimated tax payments.
Cash used in investing activities decreased by $207.8 million in the first
six months of fiscal 1999 versus the comparable prior year period. This
decrease is a result of reduced capital expenditures for capacity
expansion and the lack of acquisition investments in the current period.
The increase in net cash flow from operations, combined with the decrease
in investing activities, provided cash used to reduce debt. During the
first six months of fiscal 1999, debt was reduced by $26.5 million.
The Company expects to reduce future reliance on debt financing and reduce
the costs associated with maintaining the Revolving Credit Facility. The
Revolving Credit Facility commitment was reduced from $288.75 million to
$198.75 million on May 14, 1999. The reduced commitment provides the
Company with approximately $73 million of available borrowings.
The Company believes that cash generated from operations will be
sufficient to fund anticipated working capital, capital expenditure and
debt payment requirements through calendar year 1999. Because the
Company's capital requirements cannot be predicted with certainty, there
is no assurance that the Company will not require additional financing
during this period. There is no assurance that any additional financing
will be available on terms satisfactory to the Company or not
disadvantageous to the Company's security holders.
The Company 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.
YEAR 2000 READINESS DISCLOSURE STATEMENT
The Company has completed an internal assessment of its operations to
determine the extent to which the Company may be adversely affected by
Year 2000 issues. This internal assessment has included both Information
Technology (IT) systems and non-IT systems.
The critical software systems used by the Company to run its business
include MFG/PRO, PeopleSoft, Oracle, and Corsair. The Company believes
that none of these applications have date related processing issues. The
Company has experienced and may continue to experience interfacing
problems when upgrades are received from the vendors of these software
programs.
The Company has completed limited testing of its various IT systems,
running programs with dates including and after the Year 2000. During
these tests the Company has not experienced problems processing data or
effecting transactions. The Company intends to perform further testing of
its IT systems during the summer of calendar year 1999. There can be no
assurance, however, that additional testing of its IT systems will not
uncover Year 2000 issues, which could have a material adverse effect on
the Company's business, results of operations, and financial condition.
The Company's internal assessment of manufacturing equipment for Year 2000
compliance was done on a plant-by-plant basis and was completed in May,
1999. The Company has identified three operating systems and software that
are important to the Company's operations and will require software
upgrades to achieve Year 2000 compliance. Two of these operating systems
are utilized in multiple departments and locations, including the
tooling/engineering phase of the fabrication business. The Company
believes that Year 2000 compliant upgrades for each of the two engineering
systems have been developed and tested, and the Company plans to complete
installation of such upgrades on or before July 1, 1999.
17
<PAGE> 18
YEAR 2000 READINESS DISCLOSURE STATEMENT (CONTINUED)
There can be no assurance that these upgrades will be Year 2000 compliant
or that they will be installed on a timely basis. Testing of the Company's
manufacturing systems for Year 2000 compliance is in process. With some
exceptions, the Company expects to complete testing by June 30, 1999.
The Company has also determined that software in certain of its
manufacturing systems is not Year 2000 compliant. The Company believes
that no upgrades currently exist to address the Year 2000 issue in this
software. The vendor has told the Company that it will complete the
software upgrade by the end of June, 1999 and will deliver and install it
at the Company not later than September 30, 1999. There can be no
assurance, however, that the vendor will be able to deliver a Year 2000
compliant software upgrade or that it will be installed at the Company
prior to January 1, 2000.
The Company is surveying its suppliers' Year 2000 compliance status and,
thus far, has received responses from approximately 70% of all suppliers
surveyed and more than 85% of key suppliers. Corporate purchasing is
responsible for obtaining data from those suppliers who have not yet
responded to the Company's inquiries, and for obtaining updated
information from the Company's more critical suppliers and those who
indicated they were not Year 2000 compliant. The Company intends to
conduct detailed exchanges with the key suppliers to assess the Company's
need for contingency plans and to develop contingency plans, if required,
on a supplier-by-supplier basis. The Company intends to develop such
plans, both with respect to its suppliers and with respect to its own
internal operations, by August 31, 1999.
The Company has determined the resources (employees, consultants, and
contractors) necessary to address and resolve the Year 2000 issues at each
of its manufacturing facilities. During the first fiscal quarter of 1999,
the Company retained the services of a consulting company and added two
full-time consultants to assist it in guiding assessment, test,
remediation, and related efforts.
To date, approximately 23,000 hours of time have been devoted to Year 2000
and approximately $5 million has been expended in systems upgrades
directly relating to Year 2000. The source of these funds is the working
capital of the Company. Present estimates for further expenditures of both
time and expenses to address Year 2000 are between 16,000 and 20,000 hours
and between $1.5 million and $2.0 million. There can be no assurance that
the Company's costs relating to its Year 2000 compliance will not be
greater than that currently expected.
A software or system Year 2000 compliance failure, with respect to the
Company's internal systems and software or that of third party service
providers or major customers, could prevent the Company from fulfilling
customer orders. Any such failure, if not quickly remedied, would have a
material adverse effect on the Company's business, results of operations,
and financial condition. The lost revenues that would result from the
Company's inability to operate even one of its major volume manufacturing
plants for any significant period of time would have a material adverse
effect on the Company.
The Company could face an even greater risk of significant damages if the
Company were found responsible for the shutdown of one of its customers'
facilities. This could occur if the Company was unable to supply parts
integral to the end products manufactured by the Company's customers. In
such circumstances, the legal liability of the Company could have a
material adverse effect on the Company's business, results of operations,
and financial condition.
18
<PAGE> 19
FACTORS THAT MAY AFFECT FUTURE RESULTS
This Quarterly Report on Form 10-Q contains various "forward-looking"
statements within the meaning of the Securities Litigation Reform Act of
1995, including, but not limited to, those concerning gross and operating
margins, Year 2000 readiness and compliance, the sufficiency of the
Company's working capital, and environmental matters. In this Form 10-Q,
the words "anticipates," "believes," "expects," "intends," "future,"
"could," "may," and similar words and expressions (as well as other words
or expressions referencing future events, conditions or circumstances)
identify forward-looking statements. Such forward-looking statements
involve risks and uncertainties that could cause actual results to differ
materially from those projected, anticipated or indicated in the
forward-looking statements. Potential risks and uncertainties include, but
are not limited to, such factors as: the Company's dependence on the
electronics industry; fluctuations in quarterly operating results; the
variability of customer orders; significant portions of released backlog
may be subject to cancellation or postponement without penalty; the effect
of unforeseen problems in the Company's computer systems and those of
third parties with which the Company deals, specifically those related to
"Year 2000" issues; the effect of acquisitions on the Company; the ability
of the Company to compete successfully in the future; the rapid
technological change and continuing process development that characterizes
the Company's markets; manufacturing process disruptions; the operation of
the Company's Malaysia facility; the effect of economic turmoil, currency
devaluations and financial market instability in Asia on the Company; the
Company's significant customer concentration; the Company's ability to
obtain, integrate, manage and utilize manufacturing capacity; the
Company's ability to manage its growth; environmental matters; the
availability of raw materials and components and price fluctuations in
such materials and components; the Company's dependence on key personnel;
the Company's ability to protect its intellectual property; and certain
anti-takeover provisions applicable to the Company. Further information on
factors that could cause actual results to differ from those anticipated
is detailed in various publicly available documents filed by the Company
from time to time with the Securities and Exchange Commission. Such
information includes, but is not limited to, those factors appearing under
the caption "Factors That May Affect Future Results" and elsewhere in the
Company's Annual Report on Form 10-K for the year ended October 31, 1998.
Any forward-looking statement should be considered in light of these
factors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DERIVATIVE FINANCIAL INSTRUMENTS, OTHER FINANCIAL INSTRUMENTS, AND
DERIVATIVE COMMODITY INSTRUMENTS
At May 1, 1999, the Company did not participate in any derivative
financial instruments, or other financial and commodity instruments for
which fair value disclosure would be required under SFAS No. 107. The
Company holds no investment securities which would require disclosure of
market risk.
PRIMARY MARKET RISK EXPOSURES
The Company's primary market risk exposures are in the areas of interest
rate risk and foreign currency exchange rate risk. The Company incurs
interest expense on loans made under the Credit Facility at interest rates
which are fixed for a maximum of six months. At May 1, 1999, the Company's
outstanding borrowings on the Credit Facility were $125.1 million, at a
weighted average interest rate of 6.3125%. This interest rate is a
combination of two Eurodollar rate loans of $28.9 million and $96.2
million at 6.3125% each. The Eurodollar rates are fixed until May 24, 1999
and July 26, 1999, respectively, at which time the Company can again fix
these rates for periods of one, two, three or six months. The Eurodollar
Rate is subject to market risks and will fluctuate.
Substantially all of the Company's business outside the United States is
conducted in U.S. dollar denominated transactions. The Company does
operate a volume manufacturing facility in Malaysia. Some of the expenses
of this facility are denominated in Malaysian ringgits. Expenses
denominated in ringgits include local salaries and wages, utilities and
some operating supplies. The Company also funds a small sales office in
Ireland where expenses are incurred in British Pounds, Irish Punts and
Euros. However, the Company believes that the operating expenses currently
incurred in foreign currencies are immaterial, and therefore any
associated market risk is unlikely to have a material adverse effect on
the Company's business, results of operations or financial condition.
19
<PAGE> 20
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Under the Company's Outside Directors' Compensation Plan of 1998 (the
"Outside Directors' Plan"), non-employee directors of the Company receive
payment of an annual fee in the form of restricted Common Stock of the
Company. Non-employee directors may elect to defer receipt of any such
payment. On March 3, 1999, the non-employee directors received an
aggregate of 2,289 shares of Common Stock pursuant to the Outside
Directors' Plan. Of such shares, receipt of 654 shares was deferred in
accordance with the Outside Directors' Plan. The aggregate value of all
such shares issued on March 3, 1999 to non-employee directors was $69,952
(based on a fair market value on that date of $30.56 per share).
Each of the shares of Common Stock of the Company referenced above was
issued by the Company in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act for an offering to a small
number of knowledgeable investors.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders of Hadco Corporation was
held on March 3, 1999.
(b) No information provided due to inapplicability of item.
(c) A vote was proposed to (1) fix the number of directors at nine
(9) and to elect a Board of Directors to serve for the ensuing
year or until their respective successors are duly elected and
qualified; (2) approve the Hadco Corporation 1998 Stock Plan;
and (3) ratify the selection of Arthur Andersen LLP as
auditors for the fiscal year ending October 30, 1999.
The voting results are as follows:
<TABLE>
<CAPTION>
Votes Votes Votes Broker
Votes For Against Withheld Abstained Non-Votes
--------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
(1) Horace H. Irvine II 12,518,747 N/A 66,351 N/A N/A
Andrew E. Lietz 12,518,747 N/A 66,351 N/A N/A
Patrick Sweeney 12,518,747 N/A 66,351 N/A N/A
Oliver O. Ward 12,518,747 N/A 66,351 N/A N/A
John F. Smith 12,518,747 N/A 66,351 N/A N/A
John E. Pomeroy 12,518,747 N/A 66,351 N/A N/A
James C. Taylor 12,518,747 N/A 66,351 N/A N/A
Mauro J. Walker 12,518,747 N/A 66,351 N/A N/A
Gilbert M. Roddy, Jr. 12,518,747 N/A 66,351 N/A N/A
(2) Hadco Corporation
1998 Stock Plan 7,040,638 3,745,484 N/A 26,605 N/A
(3) Arthur Andersen,LLP
Ratification 12,575,108 15,974 N/A 11,588 N/A
</TABLE>
20
<PAGE> 21
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
*10.1 Amendment to Hadco Corporation's Retirement Plan dated as of
March 3, 1999.
*10.2 Form of Option Agreement under Registrant's 1998 Stock Plan.
10.3 Fourth Amendment and Modification Agreement to the
Registrant's Amended and Restated Revolving Credit Agreement
dated as of December 8, 1997 with BankBoston, N.A.,
individually and as Agent, and certain other lending
institutions.
*10.4 Executive Agreement dated May 11, 1999 between the Registrant
and William M. Beckenbaugh.
27. Financial Data Schedule
* Indicates a management contract or any compensatory plan, contract
or arrangement required to be filed as an exhibit pursuant to Item
14(c).
(b) Reports on Form 8-K None
21
<PAGE> 22
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Hadco Corporation
Date: June 4, 1999 By: /s/ F. Gordon Bitter
-------------------------------------
F. Gordon Bitter
Senior Vice President and Chief
Financial Officer (principal financial
officer and principal accounting officer)
22
<PAGE> 1
EXHIBIT 10.1
HADCO CORPORATION
CLERK'S CERTIFICATE
The undersigned, JAMES C. HAMILTON, hereby certifies that he is the
duly elected Clerk of HADCO CORPORATION, a Massachusetts corporation, that the
following resolution was duly adopted by the Board of Directors of the
Corporation at a meeting held on March 3, 1999, and that Exhibit A attached
hereto is a true and complete copy of the amendments referred to in said
resolution:
VOTED: That the proposed amendment to the Hadco Corporation
Retirement Plan, in the form presented to the directors and
attached to these minutes as Exhibit "A", be, and they hereby
are, approved and adopted.
IN WITNESS WHEREOF, I have set my hand and the seal of the Corporation
this 26th day of May 1999.
Attest:
/s/ James C. Hamilton
-----------------------------------
JAMES C. HAMILTON, Clerk
<PAGE> 2
EXHIBIT "A"
PROPOSED AMENDMENT TO HADCO CORPORATION RETIREMENT PLAN 1/7/99
3.07 FORFEITURES
Any Forfeitures from Profit Sharing Accounts which have become
available for distribution during a Plan Year shall be credited to the
Profit Sharing Accounts of those Participants who are entitled to share
in the Employer's Profit Sharing Contribution for the Fiscal Year
ending with or within such Plan Year (regardless of whether a Profit
Sharing Contribution has been made) and such amounts shall be allocated
in the same manner as the Employer's Profit Sharing Contribution under
Section 3.01.
Any Forfeitures from Matching Contributions Accounts which have arisen
during a Plan Year shall be used to reduce the amount of Matching
Contributions required to be made by the Employer under Section 3.03
for the Plan Year. In the event that the amount of such Forfeitures
exceeds the amount of Matching Contributions so required, the excess
shall be held in a suspense account to be used to reduce the amount of
Matching Contributions required for any subsequent Plan Year. In the
event that upon the termination of the Plan there is any amount then
held in such suspense account, such amount shall be allocated among
those Participants who have a balance in their Matching Contributions
Accounts according to the ratio that the aggregate of each such
Participant's Matching Contributions Account and 401(k) Account bears
to the aggregate of all Participants' Matching Contributions Accounts
and 401(k) Accounts, and such amounts shall be credited to such
Matching Contributions Accounts, subject to Sections 3.09 and 3.10.
<PAGE> 1
EXHIBIT 10.2
OPTION AGREEMENT
AGREEMENT made this ___ day of ______ , 1999, by and between Hadco
Corporation, a Massachusetts corporation with a usual place of business in
Salem, New Hampshire (hereinafter the "Company"), and _________________ , of
___________ (hereinafter the "Optionee"). This Agreement and the option granted
hereunder are pursuant to and subject to the terms and conditions of the Hadco
Corporation 1998 Stock Plan, as it may be amended from time to time, (the
"Plan"), a copy of which has been made available to the Optionee. Unless the
context otherwise requires, terms used herein shall have the same meaning as in
the Plan.
SECTION 1. GRANT OF OPTION: The Company grants to the Optionee an
option to purchase, on the terms and conditions hereinafter set forth, _________
(___) shares (the "Option Shares") of the Company's Common Stock, $0.05 par
value, at the exercise price of ____________ and ___/100 ($_________) Dollars
per share. This option is not intended to qualify as an incentive stock option
under Section 422(b) of the Internal Revenue Code of 1986, as amended (the
"Code"). This option is in addition to any other options heretofore or hereafter
granted to the Optionee by the Company or any Related Corporation (as defined in
the Plan), but a duplicate original of this instrument shall not effect the
grant of another option.
SECTION 2. PERIOD OF OPTION:
(a) VESTING. The right to exercise this option and purchase the
Option Shares shall vest in installments as set forth below, unless earlier
terminated in accordance with the provisions of Section 2(c) hereof.
<PAGE> 2
CUMULATIVE PERCENT
OF OPTION SHARES THAT MAY BE PURCHASED
PERCENTAGE DATE OF VESTING
- ---------- ---------------
50% Two Year Anniversary of Date of Grant
75% Three Year Anniversary of Date of Grant
100% Four Year Anniversary of Date of Grant
(b) EXPIRATION. The option granted hereunder shall expire on the
ten year anniversary of the date of grant of the option.
(c) TERMINATION. (1) Any vested but unexercised option granted
hereunder shall terminate and become void at midnight on the thirtieth (30th)
day after the Optionee's employment or business relationship, as the case may
be, with the Company or any Related Corporation is terminated for any reason
other than disability, death, or retirement from the Company or any Related
Corporation on or after normal retirement age as described in the Hadco
Corporation Retirement Plan, as it may be amended from time to time, or any
successor Plan, but in no event may the option be exercised later than the
specified expiration date of the option. Any options unvested at the date of
termination of Optionee employment or business relationship shall terminate and
become void on said date of termination of employment or business relationship.
(2) In the event the employment or business relationship
with the Company or any Related Corporation of the Optionee terminates by reason
of his disability or death, the vesting of the option granted hereunder to such
Optionee shall be immediately and automatically accelerated and to the extent
such option is unexercised, it shall vest and be exercisable (by the Optionee's
personal representative, heir, or legatee, in the event of death or disability)
during the period ending one hundred eighty (180) days after the date of
termination of employment or business relationship, but in no event later than
the specified
2
<PAGE> 3
expiration date of the option.
For purposes of this Agreement, the Optionee's employment or
business relationship shall always be deemed to have been terminated due to
disability if all of the following requirements are satisfied: (a) the
Optionee's employment or business relationship is terminated by either the
Company or the Optionee; (b) at the time of such termination, the Optionee is
unable to work due to sickness or injury and is disabled, either physically or
mentally; (c) the Optionee is unable to substantially perform any gainful
employment for a period of five (5) consecutive months, including the time of
termination; and (d) the Optionee applies for and is approved for disability
payments by the Social Security Administration of the United States government.
The date of any such disability shall be the first day of such consecutive
period during which the Optionee was unable, due to his physical or mental
condition, to substantially perform any gainful employment.
(3) In the event the employment or business relationship of the
Optionee terminates by reason of his/her retirement from the Company or any
Related Corporation on or after normal retirement age as described in the Hadco
Corporation Retirement Plan, as it may be amended from time to time, or any
successor Plan, any option granted hereunder which had vested as of the date of
retirement may be exercised during the period ending ninety (90) days after the
date of retirement, but in no event later than the specified expiration date of
the option. Any options unvested at the date of retirement shall terminate and
become void on said date of retirement.
(4) For purposes of this Agreement, a transfer of the Employee
between the Company and a Related Corporation, or between Related Corporations,
shall not be deemed a termination of employment.
(5) At the expiration of the respective periods set forth in this
Section
3
<PAGE> 4
2(c) or the scheduled expiration date, whichever is the earlier, this option
shall terminate (and shall no longer be exercisable) and the only rights
hereunder shall be those as to which the option was properly exercised.
SECTION 3. LIMITATIONS ON RIGHT TO EXERCISE OPTION: Notwithstanding
anything elsewhere in this Option Agreement to the contrary, except the
provisions of Section 2(c), the right to exercise this option shall be subject
to the following limitations:
(a) This option may not be exercised unless the Optionee, at the
time he exercises this option, is an employee, officer, director, consultant or
advisor, as the case may be, of one or more of the Company or a Related
Corporation and has been such an employee, officer, director, consultant or
advisor, as the case may be, at all times since the date of this Agreement. If
this option shall be assumed or a new option substituted therefor as a result of
a corporate merger, consolidation, acquisition of property or stock, separation,
reorganization, or liquidation, then employment by such assuming or substituting
corporation (hereinafter called the "Successor Corporation") or by a parent
corporation or a subsidiary thereof shall be considered for purposes of this
option to be employment by the Company.
(b) This option may be exercised in part at any time and from time
to time except that this option must be exercised for a minimum of one hundred
(100) shares, or for all of the shares then purchasable hereunder if less than
one hundred (100) shares, and no fractional shares may be purchased under this
option.
SECTION 4. EXERCISE OF OPTION:
(a) METHOD OF EXERCISE OF OPTION. This option may be exercised by
giving written notice to the Company by mail or in person addressed to
Treasurer, Hadco Corporation, 12A Manor Parkway, Salem, New Hampshire 03079,
specifying the number of Option Shares being purchased, accompanied by payment
of the full option price of the shares being purchased. A copy of such notice
shall be provided to Hamilton & Dahmen, LLP, 73
4
<PAGE> 5
Tremont Street, Boston, Massachusetts 02108, or to such other counsel as the
Company may hereafter designate, and to the Bank of Boston, Shareholder Services
Division, Post Office Box 644, Boston, Massachusetts 02102, or to such other
Stock Transfer Agent as the Company may hereafter designate. The price for the
Option Shares shall be payable (a) in U.S. Dollars in cash or by check, or (b)
consistent with applicable law, through the delivery of an assignment to the
Company of a sufficient amount of the proceeds from the sale of the Common Stock
acquired upon exercise of the option and an authorization to the broker or
selling agent to pay that amount to the Company, which sale shall be at the
Optionee's direction at the time of exercise, or (c) by any combination of (a)
and (b) above. The holder of an option shall not have any rights of a
shareholder with respect to the shares covered by the option, except to the
extent that one or more certificates for such shares shall be delivered to him
upon the due exercise of the option.
(b) DELIVERY OF STOCK CERTIFICATES UPON EXERCISE. Upon each
exercise of this option and the satisfaction of all conditions set forth in the
option, the Transfer Agent shall, on behalf of the Company, mail or deliver to
the Optionee, as promptly as practicable, a stock certificate or certificates
representing the Option Shares then being purchased. Such certificate or
certificates shall be registered in the name of the person or persons so
exercising this option (or, if this option shall be exercised by the Optionee
and if the Optionee shall so request in the notice exercising this option, shall
be registered in the name of the Optionee and another person jointly, with right
of survivorship). In the event this option shall be exercised, pursuant to
Section 2(c) hereof, by any person or persons other than the Optionee, such
notice shall be accompanied by appropriate proof of the right of such person to
exercise this option. The Company will pay all stamp taxes due or payable in
connection with the issuance of the certificates. Such certificates may bear
statements relating to the non-registration of such shares under the Securities
Act of 1933, and the rights, privileges and limitations of Common Stock, par
value $0.05, of the Company, as set
5
<PAGE> 6
forth in the Restated Articles of Organization, as amended.
(c) RESTRICTIONS ON ISSUANCE OF SHARES. Notwithstanding the
foregoing, the Company shall not be obligated to deliver any such certificate or
certificates upon exercise of this option until the following applicable
conditions shall be satisfied in the judgment of the Company: (i) the shares
with respect to which the option has been exercised are at the time of the issue
of such shares effectively registered under applicable Federal and State
securities acts as now in force or hereafter amended; (ii) Counsel for the
Company shall have given an opinion that such shares are exempt from
registration under applicable Federal and State securities acts as now in force
or hereafter amended; (iii) all conditions of the option have been met or
removed to the satisfaction of the Company; (iv) the Optionee has executed and
delivered to the Company such representations or agreements as the Company may
consider appropriate to satisfy the requirements of any applicable laws, rules
or regulations; and until the Company is in compliance with all applicable laws
and regulations, including without limitation all regulations required by any
stock exchange upon which the Company's outstanding Common Stock is then listed.
The Company shall use its best efforts to bring about compliance with
the above conditions within a reasonable time, except that the Company shall be
under no obligation to cause a registration statement or a post-effective
amendment to any registration statement to be prepared at its expense solely for
the purpose of covering the issue of shares in respect of which any option may
be exercised.
(d) AGREEMENT TO PURCHASE FOR INVESTMENT. By acceptance of this
option, the Optionee agrees that a purchase of shares under this option will be
made for investment and will not be made with a view to their distribution, as
that term is used in the Securities Act of 1933, as amended, unless in the
opinion of counsel for the Company such distribution is in compliance with or
exempt from registration and prospectus requirements of the Act. The Optionee
agrees, if necessary, to sign a certification to such effect at the time of
exercising
6
<PAGE> 7
the option and agrees that the certificate for the shares so purchased may be
inscribed with a legend to ensure compliance with the Securities Act of 1933 and
with any other applicable securities laws.
SECTION 5. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION:
(a) In the event that the outstanding shares of the Common Stock
of the Company are changed into or exchanged for a different number or kind of
shares or other securities of the Company by reason of any reorganization,
recapitalization, reclassification, stock split-up, combination of shares or
dividends payable in capital stock, appropriate adjustments shall be made in the
number and kind of shares as to which outstanding options or portions thereof
then unexercised shall be exercisable, to the end that the proportionate
interest of the Optionee shall be maintained as before the occurrence of such
event. Such adjustment in outstanding options shall be made without change in
the total price applicable to the unexercised portion of such options and with a
corresponding adjustment in the option price per share.
(b) Upon any sale of all or substantially all of the assets of the
Company, or upon any merger, consolidation or tender offer in respect of which
the stockholders holding all of the Company's outstanding voting securities
immediately prior to the consummation thereof hold less than 50% of all of the
Company's outstanding voting securities immediately after such consummation
(each of the foregoing sale, merger, consolidation or tender offer hereinafter
called an "Acquisition"), then: (i) the date upon which all then outstanding
options granted under this Agreement become fully vested and exercisable shall
be automatically accelerated to occur immediately prior to the consummation of
such Acquisition; provided, however, that any such then outstanding options
which are not thereupon exercised in full immediately prior to the consummation
of such Acquisition shall thereupon terminate.
(c) In the event of a recapitalization or reorganization of the
Company (other than
7
<PAGE> 8
a transaction described in subsections 5(a) and (b) above) pursuant to which
securities of the Company or of another corporation are issued with respect to
the outstanding shares of Common Stock, the Optionee upon exercising this option
shall be entitled to receive for the purchase price paid upon such exercise the
securities as determined under the terms of the recapitalization or
reorganization he or she would have then received if he or she had exercised
such option prior to such recapitalization or reorganization. In the event of
the proposed dissolution or liquidation of the Company, the option will
terminate immediately prior to the consummation of such proposed action (and
shall thereafter not be exercisable to any extent whatsoever), and the only
rights hereunder shall be those as to which this option was properly exercised
before such dissolution or other event. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to the option. No adjustments shall be made for dividends paid in cash
or in property other than securities of the Company. No fractional shares shall
be issued and the Optionee shall receive from the Company cash in lieu of such
fractional shares. The Committee or the Successor Board shall determine the
specific adjustments to be made under this Section 5 and, subject to the Plan,
its determination shall be conclusive and shall be binding on all interested
parties.
SECTION 6. EFFECT UPON EMPLOYMENT: None of the Plan, this Option
Agreement or the grant of this option confers any right upon the Optionee with
respect to the continuation of his employment or business relationship with the
Company or any Related Corporation. Nothing contained herein shall be construed
as interfering with or restricting the right of the Company or any Related
Corporation or of the Optionee to terminate his employment or business
relationship at any time.
SECTION 7. NON-TRANSFERABILITY: This option shall not be assignable or
8
<PAGE> 9
transferable except by will or by the laws of descent and distribution. Except
as set forth in the preceding sentence, during the lifetime of the Optionee,
this option shall be exercisable only by the Optionee or his or her personal
representative in the case of a disability to the Optionee. This option shall be
null and void and without effect, except as set forth in the preceding sentence,
upon any attempted assignment or transfer, including without limitation, any
purported assignment, whether voluntary or by operation of law, pledge,
hypothecation or other disposition, attachment, trustee process or similar
process, whether legal or equitable, upon such option.
SECTION 8. NOTICES: Any notice permitted or required under this Option
Agreement shall be sufficient if made in writing and mailed, postage prepaid, or
delivered in hand to the parties as follows: (a) as to the Company, to its
Treasurer at the principal office of the Company; and (b) as to the Optionee, at
the address listed for the Optionee on the books of the Company or the books of
the Stock Transfer Agent, or (c) as to either party, at such other address as
shall be designated by the addressee in a written notice to the other complying
as to delivery with the terms of this Section 8.
SECTION 9. GOVERNING LAW: This Agreement shall be governed by, and
construed and enforced in accordance with, the substantive laws of the
Commonwealth of Massachusetts without giving effect to the principles of the
conflicts of laws thereof.
SECTION 10. MODIFICATION OF OUTSTANDING OPTIONS: The Stock Option
Committee of the Company's Board of Directors or the Company's Board of
Directors may accelerate the exercisability of any outstanding option and may
authorize changes to any outstanding option with the consent of the Optionee
when and subject to such conditions as are deemed to be in the best interests of
the Company and in accordance with the purposes of the Hadco Corporation 1998
Stock Plan.
SECTION 11. ENTIRE AGREEMENT: This Agreement contains the full and
9
<PAGE> 10
complete understanding and agreement of the parties hereto as to the subject
matter hereof and may not be modified or amended, nor may any provisions hereof
be waived, except by a further written agreement duly signed by each of the
parties. This Agreement supersedes all proposals, written or oral, and all other
communications between the parties relating to the subject matter of this
Agreement.
SECTION 12. BINDING EFFECT: This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective heirs, executors,
administrators, representatives, successors and assigns, subject to the
limitations set forth in Section 7 hereof; provided, however, that as respects
the Optionee, this Agreement is deemed to be personal in nature and may not be
assigned or transferred, except as set forth in Section 7 hereof.
SECTION 13. INTERPRETATION AND CONSTRUCTION: Any interpretation or
construction of this Option Agreement by the Company's Board of Directors, or a
duly authorized committee appointed by the Board, shall be final, conclusive and
binding on all interested parties. The section headings are for convenience of
reference only and shall not be deemed germane to the interpretation or
construction of this Option Agreement.
SECTION 14. SURVIVAL: All representations, warranties and
acknowledgments made in this Agreement shall survive the delivery of the
certificate or certificates representing the shares purchased pursuant to the
exercise of the option granted herein.
SECTION 15. WITHHOLDING TAXES: If the Company or any Related
Corporation in its discretion determines that it is obligated to withhold any
tax in connection with the exercise of this option, or in connection with the
transfer of, or the lapse of restrictions on, any Common Stock or other property
acquired pursuant to this option, the Optionee hereby agrees that the Company or
any Related Corporation may withhold from the Optionee's wages or other
remuneration the appropriate amount of tax. At the discretion of the Company or
any Related Corporation, the amount required to be withheld may be withheld
10
<PAGE> 11
in cash from such wages or other remuneration or in kind from the Common Stock
or other property otherwise deliverable to the Optionee on exercise of this
option. The Optionee further agrees that, if the Company or any Related
Corporation does not withhold an amount from the Optionee's wages or other
remuneration sufficient to satisfy the withholding obligation of the Company or
any Related Corporation, the Optionee will make reimbursement on demand, in
cash, for the amount underwithheld.
SECTION 16. SEVERABILITY: The invalidity, illegality or
unenforceability of any provision of this Agreement shall in no way affect the
validity, legality or enforceability of any other provision.
SECTION 17. PROVISION OF DOCUMENTATION TO OPTIONEE: By signing this
Agreement the Optionee acknowledges receipt of a copy of this Agreement and a
copy of the Plan.
SECTION 18. LOCK-UP AGREEMENT: The Optionee agrees that in connection
with an underwritten public offering of Common Stock, upon the request of the
Company or the principal underwriter managing such public offering, the Option
Shares may not be sold, offered for sale or otherwise disposed of without the
prior written consent of the Company or such underwriter, as the case may be,
for at least 180 days after the effectiveness of the registration statement
filed in connection with such offering, or such longer period of time as the
Board of Directors may determine if all of the Company's directors and officers
agree to be similarly bound. This Section 18 shall cease to apply to any Option
Share sold to the public pursuant to an effective registration statement or an
exemption from the registration requirements of the Securities Act in a
transaction that complied with the terms of this Agreement.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
HADCO CORPORATION
By: ___________________________________
Title: ________________________________
_______________________________________
Optionee
12
<PAGE> 1
EXHIBIT 10.3
FOURTH AMENDMENT AND MODIFICATION AGREEMENT
FOURTH AMENDMENT AND MODIFICATION AGREEMENT dated as of April 30, 1999
(this "Amendment") by and among HADCO CORPORATION, a Massachusetts corporation
(the "Borrower"); the direct and indirect subsidiaries of the Borrower listed on
the signature pages hereto (collectively, the "Guarantors"); BANKBOSTON, N.A.,
AS AGENT (the "Agent") and BANKBOSTON, N.A., individually, and the other lending
institutions (collectively, the "Banks") listed on Schedule 1 to the Amended and
Restated Revolving Credit Agreement dated as of December 8, 1997 (as amended and
in effect from time to time, the "Credit Agreement") among the Borrower, the
Banks and the Agent. Terms not otherwise defined herein which are defined in the
Credit Agreement shall have the respective meanings assigned to such terms in
the Credit Agreement, as amended hereby.
WHEREAS, the Borrower has requested that the Agent and the Banks amend
certain provisions of the Credit Agreement; and
WHEREAS, upon the terms and subject to the conditions contained herein,
the Agent and the Banks are willing to amend such provisions of the Credit
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements contained in
the Credit Agreement, the other Loan Documents and this Amendment and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. AMENDMENT OF SECTION 1.1 OF THE CREDIT AGREEMENT. Section
1.1 of the Credit Agreement is hereby amended by:
(a) deleting the definition of "Dynaflex" in its
entirety.
(b) inserting the following new definitions in the places
required by alphabetical order:
"DYNAFLEX ASSETS. The "Assets", as defined in the Dynaflex
Purchase Agreement."
"DYNAFLEX PURCHASE AGREEMENT. The Asset Purchase Agreement
between Parlex Dynaflex Corporation, a California corporation, and CCIR
of California, in the form attached hereto as EXHIBIT G."
<PAGE> 2
-2-
"FOURTH AMENDMENT EFFECTIVE DATE. The "Effective Date", as
defined in the Fourth Amendment and Modification Agreement dated as of
April 30, 1999 among the Borrower, the Guarantors, the Agent and the
Banks."
(c) deleting the definition of "Guarantors" in its entirety
and substituting in lieu thereof the following new definition:
"GUARANTORS. (i) Hadco Santa Clara, Hadco Phoenix, CCIR of
Texas, and, until the completion of the Restructuring Transaction, CCIR
of California; and (ii) any other direct or indirect Subsidiary of the
Borrower (other than Hadco FSC, New Zycon, Hadco Scotland, Hadco
Ireland, Hadco Malaysia, Hadco Singapore, New Continental or CCIR
International)."
(d) inserting the following new definition in the order
required by alphabetical order:
"PARLEX. Parlex Corporation, a Massachusetts corporation."
(e) deleting the definition of "Restructuring
Transaction" in its entirety and substituting in lieu thereof the
following new definition:
"RESTRUCTURING TRANSACTION. The restructuring transactions
pursuant to which (a) the Dynaflex Assets are transferred to a wholly
owned Subsidiary of Parlex pursuant to the Dynaflex Purchase Agreement,
(b) the shares of capital stock of CCIR of California are subsequently
contributed by Hadco Phoenix to the Borrower as a dividend (with such
shares continuing to be subject to the lien of the Agent thereon); and
(c) CCIR of California is merged with and into the Borrower, with the
Borrower as the surviving entity and with the assets of CCIR of
California not transferred to a wholly owned Subsidiary of Parlex
pursuant to the Dynaflex Purchase Agreement being simultaneously
transferred to the Borrower and continuing to be subject to the lien of
the Agent thereon."
SECTION 2. AMENDMENT OF SECTION 7.18 OF THE CREDIT AGREEMENT.
Section 7.18 of the Credit Agreement is hereby deleted in its entirety and the
following new ss.7.18 is hereby substituted in lieu thereof:
"7.18. SUBSIDIARIES, ETC. Hadco Santa Clara, New Zycon, Hadco
FSC, Hadco Scotland, Hadco Phoenix, New Continental and Hadco Ireland
are the only direct Subsidiaries of the Borrower, and the Borrower owns
one hundred percent (100%) of the capital stock of each such entity;
Provided, However, that following the completion of the transactions
described in subsections (a) and (b) of the definition of Restructuring
Transaction but prior to the completion of the transaction described in
subsection (c) of the definition of Restructuring Transaction, CCIR of
California will be a direct
<PAGE> 3
-3-
Subsidiary of the Borrower, and the Borrower will own one hundred
percent (100%) of the capital stock of CCIR of California. (As of the
Fourth Amendment Effective Date, it is not known whether Hadco
Singapore, following the incorporation thereof, will be a direct or
indirect subsidiary of the Borrower). Hadco Malaysia is the only
Subsidiary of Hadco Santa Clara, and Hadco Santa Clara owns one hundred
percent (100%) of the capital stock of Hadco Malaysia. CCIR of Texas,
CCIR International and (until the completion of the transactions
described in subsections (a) and (b) of the definition of Restructuring
Transaction) CCIR of California are the only Subsidiaries of Hadco
Phoenix, and Hadco Phoenix owns one hundred percent (100%) of the
capital stock of CCIR of Texas and CCIR International and will own,
until the completion of the transactions described in subsections (a)
and (b) of the definition of Restructuring Transaction, one hundred
percent (100%) of the capital stock of CCIR of California. None of New
Zycon, New Continental, Hadco FSC, Hadco Scotland, CCIR of California,
CCIR of Texas, Hadco Malaysia, Hadco Ireland or CCIR International has
any Subsidiaries, and following the incorporation thereof, Hadco
Singapore will not have any Subsidiaries. Except as set forth on
Schedule 7.18 hereto, none of the Transaction Parties is engaged in any
joint venture or partnership with any other Person."
Section 3. AMENDMENT OF SECTION 9.1 OF THE CREDIT AGREEMENT. Section
9.1 of the Credit Agreement is hereby amended by:
(a) deleting the text "and" from the end of subsection
(k) thereof;
(b) deleting subsection (l) thereof in its entirety and
substituting in lieu thereof the following new subsections (l) and (m):
"(l) Indebtedness of the Borrower consisting of its
guaranty of the obligations of CCIR of California under the Dynaflex
Purchase Agreement; and
(m) Indebtedness not otherwise set forth in clauses
(a)-(l) of this ss.9.1 in an amount not to exceed $2,000,000 in the
aggregate."
SECTION 4. AMENDMENT OF SECTION 9.2(f) OF THE CREDIT AGREEMENT. Section
9.2(f) of the Credit Agreement is hereby amended by deleting the text
"encumbrances on Mortgaged Properties to the extent agreed upon by the Agent and
set forth as exceptions in the title policies delivered by the Borrower or any
Guarantor to the Agent with respect to such Mortgaged Properties and in
compliance with the terms and conditions of this Credit Agreement" and
substituting in lieu thereof the following text:
"encumbrances on Mortgaged Properties to the extent agreed
upon by the Agent and (i) set forth as exceptions in the title policies
delivered by the Borrower or any Guarantor to the Agent with respect
<PAGE> 4
-4-
to such Mortgaged Properties and in compliance with the terms and
conditions of this Credit Agreement or (ii) constituting easements or
rights of way granted to public utilities and reasonably necessary to
enable them to provide utility services to any such Mortgaged
Property".
SECTION 5. AMENDMENT OF SECTION 9.5.3 OF THE CREDIT AGREEMENT. Section
9.5.3 of the Credit Agreement is hereby amended by inserting, immediately after
the text "consistent with past practices," and immediately before the text "and
dispositions of Margin Stock for fair market value in cash", the text
"disposition of the Dynaflex Assets pursuant to and solely on the terms and
conditions set forth in the Dynaflex Purchase Agreement (including a purchase
price for the Dynaflex Assets of not less than $2,500,000 unless otherwise
approved in writing by the Majority Banks), with the Agent being hereby
expressly authorized by the Banks to execute and deliver to the Borrower and/or
CCIR of California such UCC partial releases and other release documents as may
be necessary or appropriate to evidence the release of the lien of the Agent,
for the benefit of the Banks, on the Dynaflex Assets".
SECTION 6. AMENDMENT OF SECTION 9.9 OF THE CREDIT AGREEMENT. Section
9.9 of the Credit Agreement is hereby amended by deleting the parenthetical
phrase "(other than a change to increase the amount of authorized common stock
of such Person)" contained therein and substituting in lieu thereof the
following text: "(other than a change to increase the amount of authorized
common stock of such Person or as otherwise requested by the Agent, in its
capacity as Agent for the Banks)".
SECTION 7. AMENDMENT OF SECTION 9.12 OF THE CREDIT AGREEMENT. Section
9.12 of the Credit Agreement is hereby amended by inserting, at the end of
subsection (i) thereof, immediately after the text "without the Agent's prior
written consent," the text "with SCHEDULE 7.22 being automatically deemed to be
amended to include any bank accounts to which the Agent so consents,".
SECTION 8. ADDITION OF EXHIBIT G. The Credit Agreement is hereby
amended by inserting, at the end thereof aS EXHIBiT G, the form of Dynaflex
Purchase Agreement (as defined in the Credit Agreement, as amended by this
Amendment) attached hereto as EXHIBIT G.
SECTION 9. CONDITIONS TO EFFECTIVENESS. This Amendment shall be deemed
to be effective as of the date first written above (the "Effective Date") upon
the Agent's receipt of the following, each in form and substance satisfactory to
the Agent:
(a) facsimile copies of original counterparts (to be
followed promptly by original counterparts) or original counterparts of
this Amendment, duly executed by each of the Borrower, the Guarantors,
the Agent and the Banks;
<PAGE> 5
-5-
(b) a duly executed Clerk's or Secretary's certificate of
the Clerk or Assistant Clerk of the Borrower and the Secretary or
Assistant Secretary of CCIR of California certifying (and where
applicable, attaching copies of) the Borrower's and CCIR of
California's (i) charter documents; (ii) by-laws; (iii) resolutions of
its Board of Directors authorizing the transactions contemplated hereby
and by the Dynaflex Purchase Agreement; and (iv) the incumbency of
officers entitled to sign this Amendment and the Dynaflex Purchase
Agreement on behalf of the Borrower or CCIR of California, as the case
may be; and
(c) copies, duly certified by the Clerk or Assistant
Clerk of the Borrower, of the Dynaflex Purchase Agreement (which shall
be in the form attached hereto as EXHIBIT G) and the guaranties
executed or to be executed by each of the Borrower and Parlex
Corporation in connection therewith, each duly executed by each of the
parties thereto;
(d) such UCC financing statements, each duly executed by
the Borrower, as the Agent shall request in order to ensure the
perfection of the security interest of the Agent, for the benefit of
the Banks, in the assets of CCIR of California which are not Dynaflex
Assets; and
(e) such other documents, agreements and items as the
Agent may require.
SECTION 10. REPRESENTATIONS AND WARRANTIES; NO DEFAULT; AUTHORIZATION.
Each of the Borrower and the Guarantors hereby represents and warrants to each
of the Agent and the Banks as follows:
(a) Each of the representations and warranties of the
Borrower and the Guarantors contained in the Credit Agreement, the
other Loan Documents or in any document or instrument delivered
pursuant to or in connection with the Credit Agreement, the other Loan
Documents or this Amendment was true as of the date as of which it was
made and is true as of the Effective Date (except to the extent of
changes resulting from transactions contemplated or permitted by the
Credit Agreement, as amended hereby, and the other Loan Documents and
changes occurring in the ordinary course of business that singly or in
the aggregate are not materially adverse and to the extent that such
representations and warranties relate expressly to an earlier date),
and no Default or Event of Default has occurred and is continuing as of
the date of this Amendment or would occur after giving effect to the
transactions contemplated by this Amendment; and
(b) This Amendment has been duly authorized, executed and
delivered by the Borrower and each of the Guarantors, and shall be in
full force and effect upon the satisfaction of the conditions set
<PAGE> 6
-6-
forth in Section 9 hereof, and the agreements of the Borrower and each
of the Guarantors contained herein, in the Credit Agreement as herein
amended, or in the other Loan Documents respectively, constitute the
legal, valid and binding obligations of the Borrower and each of the
Guarantors party hereto or thereto, enforceable against the Borrower or
such Guarantor, in accordance with their respective terms, except as
enforceability is limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or affecting generally the
enforcement of creditors' rights and except to the extent that
availability of the remedy of specific performance or injunctive relief
is subject to the discretion of the court before which any proceeding
therefor may be brought.
SECTION 11. RATIFICATION, ETC. Except as expressly amended hereby, the
Credit Agreement, the other Loan Documents and all documents, instruments and
agreements related thereto are hereby ratified and confirmed in all respects and
shall continue in full force and effect. All references in the Credit Agreement
or such other Loan Documents or in any related agreement or instrument to the
Credit Agreement or such other Loan Documents shall hereafter refer to such
agreements as amended hereby, pursuant to the provisions of the Credit
Agreement.
SECTION 12. NO PRESENT CLAIMS. In order to eliminate any possibility
that any past conditions, acts, omissions, events, circumstances or matters
would impair or otherwise adversely affect any of the rights, interests,
contracts, collateral security or remedies of the Agent or any of the Banks,
each of the Borrower and the Guarantors hereby acknowledges and agrees that: (i)
neither it nor any of the other Transaction Parties has any claim or cause of
action against the Agent, any of the Banks or any of their directors, officers,
employees or agents; (ii) neither it nor any of the other Transaction Parties
has any offset right, counterclaim or defense of any kind against any of its
obligations, indebtedness or liabilities to the Agent and/or the Banks,
including, without limitation, the Obligations; and (iii) each of the Agent and
the Banks has heretofore properly performed and satisfied in a timely manner all
of its obligations to each of the Borrower and the other Transaction Parties.
SECTION 13. EXPENSES. Without limiting the expense reimbursement
requirements set forth in ss.16 of the Credit Agreement, the Borrower agrees to
pay on demand all costs and expenses, including reasonable attorneys' fees, of
the Agent incurred in connection with this Amendment.
SECTION 14. NO IMPLIED WAIVER, ETC. Except as expressly provided
herein, nothing contained herein shall constitute a waiver of, impair or
otherwise affect any of the Obligations, any other obligations of the Borrower
or any of the Transaction Parties or any right of the Agent or the Banks
consequent thereon. The waivers and consents provided herein are limited
strictly to their terms. Neither the Agent nor any of the Banks shall have any
<PAGE> 7
-7-
obligation to issue any further waiver or consent with respect to the subject
matter hereof or any other matter.
SECTION 15. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
SECTION 16. GOVERNING LAW. THIS AMENDMENT SHALL FOR ALL PURPOSES BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF
MASSACHUSETTS (WITHOUT REFERENCE TO CHOICE OR CONFLICTS OF LAWS).
<PAGE> 8
-8-
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
a document under seal as of the date first above written.
HADCO CORPORATION
By: /s/ F. Gordon Bitter
------------------------------
Name: F. Gordon Bitter
Title: Senior Vice President,
Treasurer, and Chief
Financial Officer
BANKBOSTON, N.A., individually and
as Agent
By: /s/ Sharon A. Stone
------------------------------
Name: Sharon A. Stone
Title: Director
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Michael J. McCutchin
------------------------------
Name: Michael J. McCutchin
Title: Managing Director
ABN AMRO BANK N.V.
By: /s/ Bruce W. Swords
------------------------------
Name: Bruce W. Swords
Title: Vice President
By: /s/ Kevin F. Malone
------------------------------
Name: Kevin F. Malone
Title: Group Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Robert McMillan
------------------------------
Name: Robert McMillan
Title: Corporate Banking Officer
<PAGE> 9
-9-
KEYBANK NATIONAL ASSOCIATION.
By: /s/ Lawrence A. Mack
------------------------------
Name: Lawrence A. Mack
Title: Senior Vice President
THE BANK OF NOVA SCOTIA
By: /s/ M.R. Bradley
------------------------------
Name: M.R. Bradley
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By: /s/ Marie Stewart
------------------------------
Name: Marie Stewart
Title: Vice President
SUNTRUST BANK, ATLANTA
By: /s/ W. David Wisdom
------------------------------
Name: W. David Wisdom
Title: Vice President
STATE STREET BANK AND TRUST COMPANY
By: /s/ Sonja K. Farmer
------------------------------
Name: Sonja K. Farmer
Title: Assistant Vice President
USTRUST
By: /s/ Daniel G. Eastman
------------------------------
Name: Daniel G. Eastman
Title: Vice President
<PAGE> 10
-10-
FLEET BANK-NH
By: /s/ David Canedy
------------------------------
Name: David Canedy
Title: Vice President
FIRST UNION NATIONAL BANK,
successor by merger to CORESTATES
BANK, N.A.
By: /s/ Susan T. Vitale
------------------------------
Name: Susan T. Vitale
Title: Assistant Vice President
MELLON BANK, N.A.
By: /s/ R. Jane Westrich
------------------------------
Name: R. Jane Westrich
Title: Vice President
CITIZENS BANK NEW HAMPSHIRE
By: /s/ Lori A. Chandonnais
------------------------------
Name: Lori A. Chandonnais
Title: Vice President
<PAGE> 11
-11-
Each of the undersigned hereby acknowledges the foregoing Amendment as of the
Effective Date and agrees that its obligations under the Guaranty to which it is
a party will extend to the Agreement, as so amended, and the other Loan
Documents, as so amended.
HADCO SANTA CLARA, INC.
By: /s/ F. Gordon Bitter
------------------------------
Title:
HADCO PHOENIX, INC.
By: /s/ F. Gordon Bitter
------------------------------
Title:
CCIR OF CALIFORNIA CORP.
By: /s/ F. Gordon Bitter
------------------------------
Title:
CCIR OF TEXAS CORP.
By: /s/ F. Gordon Bitter
------------------------------
Title:
<PAGE> 1
EXHIBIT 10.4
EXECUTIVE AGREEMENT
Executive Agreement made as of this 1st day of July 1998, by and
between Hadco Corporation, a Massachusetts corporation with a principal place of
business at 12A Manor Parkway, Salem, New Hampshire 03079 (the "Company")
William M. Bechenbaugh, an individual residing at 42 Ancient Highway, Hampton,
New Hampshire 03842 (the "Executive").
WHEREAS, the Company desires to employ the Executive upon the terms and
conditions hereinafter set forth; and
WHEREAS, the Executive desires to be employed upon the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. EMPLOYMENT. The Company agrees to employ the Executive on a
full-time basis, subject to the terms and conditions set forth herein, and the
Executive agrees to accept such full time employment upon said terms and
conditions. The Executive's employment shall be subject to the standard terms
and conditions and policies applicable to all employees of the Company, as such
terms and policies may exist from time to time.
2. TERM. The term of employment under this Agreement ("the Term")
shall commence on the date hereof and shall continue for an indefinite term,
subject to mutual agreement between the Executive and the Company.
3. DUTIES. The Executive shall serve the Company in such senior
executive capacity or capacities, and with such duties, as shall be designated
by the Company from time to time, subject to and under the supervision of the
Company's Board of Directors.
4. COMPENSATION. The Company shall pay the Executive a Base
Salary at the same rate as currently paid such Executive, provided that such
rate may be increased from time to time by the Company in its discretion. The
Executive shall be accorded such benefits as are customarily enjoyed by
executives of the Company, and shall be entitled to participate in any executive
incentive compensation or bonus plan approved by the Board of Directors or the
Compensation Committee thereof. The Company may, from time to time, in its
discretion, grant stock options or other equity compensation to the Executive.
5. NON-COMPETITION; NON-SOLICITATION.
a. NON-COMPETE. The Executive acknowledges that he/she has gained
or will gain extensive and valuable experience and knowledge in the business
conducted by the Company and has had or will have extensive contacts with the
customers, suppliers, investors, and/or consultants of the Company. The
Executive recognizes that it is critical to the ongoing success
1
<PAGE> 2
of the Company that it preserve its goodwill and protect its proprietary rights
and its other important business interests.
Accordingly, the Executive agrees that he/she will not, while employed
by the Company during the Term hereof and for a period of one year thereafter
(or, in the event of the Company's termination of the Executive without cause or
if the Executive's employment is terminated by him/her for Good Reason (as
defined herein) or by the Company within six months before or within twenty-four
(24) months after a Change of Control (as defined herein), for such longer
period during which the Executive is receiving compensation pursuant to the
provisions of Section 8 hereof), directly or indirectly, engage in (whether as
an officer, employee, consultant, director, proprietor, agent, partner or
otherwise) or have an ownership interest in, or participate in the financing,
operation, management or control of, any person, firm, corporation or business
engaged in competition with the Company, any of its affiliates, its parent or
subsidiaries in the business of manufacture or sale of printed circuit boards,
backpanels, backplanes and/or box build assembly products, or in the development
of technology for such businesses; provided, however, that these restrictions
shall only apply to the Executive's activities post-termination of employment
with persons, firms, corporations or businesses with annual gross revenues in a
competing business, as defined herein, (in the aggregate with its affiliated
entities) in excess of one hundred million United States dollars. It is agreed
that ownership of no more than 4.9% of the outstanding voting stock of a
publicly traded corporation shall not constitute a violation of this provision.
In recognition of the fact that the Company's business is global, the territory
to which the restrictions contained in this Section 5(a) shall apply shall be
worldwide.
The Company may waive the foregoing restrictions or their application
in any particular circumstance and may condition any such waiver upon receipt of
assurances satisfactory to the Company, from the Executive and/or others, that
the Executive's proposed activity will not adversely affect the Company's
goodwill, proprietary rights or other important business interests.
b. NON-SOLICITATION. While actively employed by the Company
during the Term hereof and for a period of one year thereafter (or, in the event
of the Company's termination of the Executive without cause or if the
Executive's employment is terminated by him/her for Good Reason (as defined
herein) or by the Company within six (6) months before or within twenty-four
(24) months after a Change of Control (as defined herein), for such longer
period during which the Executive is receiving compensation pursuant to the
provisions of Section 8 hereof), the Executive agrees that he/she shall not
solicit any persons or companies who were customers, suppliers or business
patronage of the Company or its affiliates, parent or subsidiaries during the
Term or prior thereto, if such solicitation is for the purpose of, or results
in, competition with the Company, any of its affiliates, its parent or
subsidiaries; nor will he/she solicit for any purpose the employment of any
employees of the Company, any of its affiliates, its parent or subsidiaries
while actively employed by the Company during the Term hereof and for a period
of one year thereafter.
c. CONFIDENTIAL INFORMATION. The Executive acknowledges that
he/she may receive, or contribute to the production of, Confidential
Information. For purposes of this Agreement, the Executive agrees that
"Confidential Information" shall mean information or material proprietary to the
Company, its affiliates, its parent, or any of its direct or indirect
subsidiaries, or designated
2
<PAGE> 3
as Confidential Information by such entities and not generally known by
personnel not employed by or affiliated with one or more of such entities, which
the Executive develops or of or to which the Executive may obtain knowledge or
access through or as a result of the relationship with the Company, its
affiliates, its parent or any of its direct or indirect subsidiaries (including
information conceived, originated, discovered or developed in whole or in part
by the Executive). Confidential Information also includes but is not limited to,
the following types of information and other information of a similar nature
(whether or not reduced to writing) related to the Company's business, or that
of its affiliates, its parent or any of its direct or indirect subsidiaries:
discoveries, inventions, ideas, concepts, research, development, processes,
procedures, "know-how", formulae, marketing techniques and materials, marketing
and development plans, business methods of operation, financial information,
employee compensation, and computer programs and systems. Confidential
Information also includes any information described above which the Company, its
affiliates, its parent, or any of its direct or indirect subsidiaries obtained
from another party and which the Company, its affiliates, its parent, or any of
its direct and indirect subsidiaries treats as proprietary or confidential, or
designates as Confidential Information, whether or not owned by or developed by
the Company, its affiliates, its parent, or any of its direct or indirect
subsidiaries. The Executive acknowledges that the Confidential Information
derives independent economic value, actual or potential, from not being
generally known to, and not being readily accessible by proper means by, other
persons who can obtain economic value from its disclosure or use. Information
publicly known without breach of this Agreement that is generally employed by
the trade at or after the time the Executive first learns of such information,
or generic information or knowledge which the Executive would have learned in
the course of similar employment or work elsewhere in the trade, shall not be
deemed part of the Confidential Information. The Executive further agrees:
(1) To furnish the Company on demand, and at any time during or
within one year after termination of employment, a complete list of the names
and addresses of all present, former and potential suppliers, customers and
other contacts gained while an Executive of the Company in the Executive's
possession, whether or not in the possession or within the knowledge of the
Company.
(2) That all notes, memoranda, electronic storage, documentation
and records in any way incorporating or reflecting any Confidential Information
shall belong exclusively to the Company, and the Executive agrees to turn over
all copies of such materials in the Executive's control to the Company upon
request and upon termination of the Executive's employment with the Company.
(3) That while employed by the Company and indefinitely after
termination of employment for any reason, the Executive will hold in confidence
and not directly or indirectly reveal, report, publish, disclose or transfer any
of the Confidential Information to any person or entity, or utilize any of the
Confidential Information for any purpose, except in the course of the
Executive's work for the Company.
(4) That any idea in whole or in part conceived of or made by the
Executive during the Term of his/her employment with the Company which relates
directly or indirectly to the Company's current or planned line of business and
is made through the use of any of the Confidential Information or any of the
Company's equipment, facilities, trade secrets or time, or which results from
any work performed by the Executive for the Company, shall belong exclusively to
the Company and shall be deemed a part of the Confidential Information for
purposes of this Agreement. The Executive hereby assigns and agrees to assign to
the Company
3
<PAGE> 4
all rights in and to such Confidential Information whether for purposes of
obtaining patent or copyright protection or otherwise. The Executive shall
acknowledge and deliver to the Company, without charge to the Company (but at
its expense) such written instruments and do such other acts, including giving
testimony in support of the Executive's authorship or inventorship, as the case
may be, necessary in the opinion of the Company to obtain patents or copyrights
or to otherwise protect or vest in the Company the entire right and title in and
to the Confidential Information. If disclosure of any Confidential Information
is requested or required by judicial or governmental order, the Executive shall
promptly notify the Company of receipt of the judicial or governmental order and
shall take reasonable steps to assist the Company in contesting such order
and/or in protecting the Company's rights prior to disclosure.
d. INJUNCTIONS. It is agreed that the restrictions contained in
this Section 5 are reasonable, but it is recognized that damages in the event of
the breach of any of the restrictions will be difficult or impossible to
ascertain; and, therefore, the Executive agrees that, in addition to, and
without limiting any other right or remedy the Company may have, the Company
shall have the right to an injunction against the Executive issued by a court of
competent jurisdiction enjoining any such breach.
e. PART OF CONSIDERATION. The Executive also agrees,
acknowledges, covenants, represents and warrants that he/she is fully and
completely aware that, and further understands that, the foregoing restrictive
covenants are an essential part of the consideration for the Company entering
into this Agreement and that the Company is entering into this Agreement in full
reliance on these acknowledgments, covenants, representations and warranties.
f. TIME AND TERRITORY REDUCTION. If the period of time or
territory described above are held to be in any respect an unreasonable
restriction, it is agreed that the court so holding may reduce the territory to
which the restriction pertains or the period of time in which it operates or may
reduce both such territory and such period, to the minimum extent necessary to
render such provision enforceable.
g. SURVIVAL. The obligations described in this Section 5 shall
survive any termination of this Agreement, or any termination of the employment
relationship created hereunder.
6. TERMINATION. Notwithstanding any other provision of this
Agreement, the Company shall have the right to terminate the Executive's
employment, with or without cause, at any time. For purposes of this Agreement,
the Company shall have "cause" to terminate the Executive in the event of: (a)
the willful and continued failure by the Executive to substantially perform
his/her duties, after demand for substantial performance is delivered by the
Company to the Executive identifying with specificity the grounds for the
Company's' belief that the Executive has not substantially performed his/her
duties; (b) the permanent physical or mental incapacity of the Executive; (c)
the commission by the Executive of any act of fraud or embezzlement relating to
the property of the Company and/or the services to be provided by the Executive;
or (d) the Executive's unauthorized disclosure or use of proprietary
confidential information of the Company or the Executive's engaging in
competition with the Company.
4
<PAGE> 5
7. CHANGE OF CONTROL. In the event the Executive's employment
with the Company is terminated by the Company within six (6) months prior to or
within twenty-four (24) months after a Change of Control (as defined herein) or
in the event the Executive terminates his/her employment for Good Reason (as
defined herein) within twenty-four (24) months after a Change of Control (as
defined herein), the Executive shall be treated as if his/her employment were
terminated by the Company without cause. Without limiting the generality of the
foregoing, in such circumstances, the Executive shall receive from the Company
all compensation described in Section 8 hereof, for the period of time and
subject to the limitations provided in such Section. Once the Executive becomes
entitled to receive benefits under this Section 7, then such benefits shall
continue until paid in full, subject to the terms and conditions stated herein,
notwithstanding the Executive's subsequent death, in which case payments shall
be made to the Executive's estate. A Change of Control, as used herein, shall
mean any sale of all or substantially all of the assets of the Company, or any
merger, consolidation or tender offer in respect of which the stockholders
holding all of the Company's outstanding voting securities immediately prior to
the consummation thereof hold less than 50% of all of the Company's outstanding
voting securities immediately after such consummation. The Executive shall have
Good Reason to terminate his/her employment with the Company within twenty-four
(24) months after a Change of Control if, without his/her prior written consent,
he/she suffers (a) any significant diminution in position, duties,
responsibilities, authority, title or office as in effect immediately prior to
the Change of Control; (b) any reduction in his/her Base Salary as in effect on
the date hereof or as the same may be increased prior to the Change of Control;
(c) the failure by the Company to continue in effect, at a coverage or benefit
level of at least 90% of that in effect immediately prior to the Change of
Control of the Company, any benefit or compensation plan; (d) any requirement by
the Company that the Executive perform his/her principal duties for the Company
at a location more than 30 miles radius from the location at which the Executive
performed such duties immediately prior to the Change in Control; or (e) any
requirement by the Company that the Executive engage in business travel to a
significantly greater extent than immediately prior to the Change of Control;
provided, however, that the Executive shall not be entitled to benefits under
this provision unless he/she gives notice to the Company within 180 days of when
the Executive first becomes aware of such diminution, reduction, failure, or
requirement, as the case may be.
8. THE COMPANY'S OBLIGATIONS AFTER TERMINATION. In the event of
the Company's termination of the Executive's employment without cause, or in the
event of the Executive's termination of his/her employment for Good Reason (as
defined herein) or by the Company within six months before or within twenty-four
(24) months after a Change of Control (as defined herein), and so long as the
Executive has not breached any obligation of the Executive under Section 5
hereof, the Company shall continue to pay to the Executive and provide for the
benefit of the Executive certain items of compensation, as set forth below, for
a period equal to one (1) year plus one (1) month for each full year of
consecutive service completed by the Executive prior to the date of termination
(including service prior to the date of execution of this Agreement); provided,
however, that the Executive shall be entitled to a maximum of twenty-four (24)
months of compensation. Once the Executive becomes entitled to receive benefits
under this Section 8, then such benefits shall continue until paid in full,
subject to the terms and conditions stated herein, notwithstanding the
Executive's subsequent death, in which case payments shall be made to the
Executive's estate. For purposes of this Agreement, the Executive's starting
date of service to the Company is May 10, 1999.
5
<PAGE> 6
The compensation to be provided to the Executive pursuant to the terms
of this Section are as follows:
(a) Base salary at the rate in effect as of the date of
termination;
(b) Health insurance, life insurance, disability insurance and
reimbursement of the cost of tax or financial planning
assistance up to a maximum of $1200 per year; and
(c) Outplacement services.
In addition, the Executive shall be paid (i) a pro-rated incentive
amount based on the portion of the then current fiscal year completed at the
time of termination compared to the Executive's expected incentive compensation
for such year at the target level of such incentive compensation program for the
Executive, and (ii) all deferred compensation then maintained in the Executive's
account, including without limitation all restricted stock, all in accordance
with the options for payment which may then be available for payment of such
deferred compensation to eligible employees. The payments described in clauses
(i) and (ii) of this Section 8 shall be paid promptly after termination of
employment. The payments to be made by the Company to the Executive pursuant to
the provisions of paragraph (a) of this Section 8 shall be made on whatever the
then customary payment schedule is for compensation of executive employees of
the Company (i.e. monthly, bi-weekly, or the like). However, the payments under
paragraphs (a) and (b) shall be not be considered employee compensation or be
subject to tax withholding by the Company; rather they shall be made in exchange
for the Executive's covenant not to compete, as set forth in Section 5(a)
hereof. If, at any time, the payments made under paragraphs (a) and (b) are
determined by any state or federal taxing authority to be employee compensation,
then the Company agrees to pay its share of FICA and Medicare tax on such
payments, plus any interest or penalty that may be due as a result of the taxing
authority's determination and that relates to the Company's unpaid tax. In the
event the Executive secures a new employment position during the period of the
Company's continuing payment of compensation to him/her, the Executive shall
promptly notify the Company of the commencement of the new employment position
and shall inform the Company of the extent to which benefits to be provided by
the Company hereunder are duplicative of benefits then available to the
Executive through his/her new employment position. To the extent that the
benefits to be provided by the Company hereunder are duplicative, the Company
shall be entitled to cease provision of such benefits. Nothing contained herein
shall, however, be construed as reducing the obligation of the Company to
continue to make Base Salary payments or to pay the incentive compensation and
deferred compensation amounts due to the Executive as provided herein.
If the payments provided for in this Agreement, together with any other
payments or benefits which the Executive has the right to receive from the
Company (or its affiliates, its parent or subsidiaries), would constitute an
"excess parachute payment" (as defined in Section 280G of the Internal Revenue
Code), the Executive shall receive either: (x) all compensation and benefits
provided for him or her under this Agreement, or (y) the maximum of compensation
and benefits that will avoid an excess parachute payment under Section 280G;
whichever would provide the greater after-tax benefit to the Executive. In the
event that clause (y) provides the greater after-tax benefit, the Executive
shall be entitled to select the items to be abated. If the
6
<PAGE> 7
Executive is to receive the clause (y) benefits and through error or otherwise
the Executive receives payments, together with other payments the Executive has
the right to receive from the Company (or its affiliates, its parents or
subsidiaries) in excess of 2.99 times the Executive's base amount, the Executive
agrees to immediately repay the excess to the Company upon notification that an
overpayment has been made. If the Company has previously issued a W-2 statement
to the Executive and the taxing authorities with respect to these payments
and/or withheld taxes from the Executive based on these payments, then the
Company agrees to promptly issue a corrected W-2 to the Executive and the taxing
authorities and/or to refund the excess withheld taxes to the Executive, as the
case may be.
9. FUNDING OF COMPANY'S OBLIGATIONS. In the event of a Change of
Control, the Company agrees, prior to consummation of the transaction
constituting the Change of Control, to create a so-called Rabbi Trust and to
fund said Rabbi Trust with an amount equal to all amounts which may become due
to the Executive under this Agreement as a result of the Change of Control.
Without limiting the generality of the foregoing, the funding shall include all
amounts which may become due to the Executive in the event of his/her subsequent
termination of employment within twenty-four (24) months of the Change of
Control, including without limitation, all deferred compensation amounts then
deferred for the Executive.
10. GOVERNING LAW AND VENUE. This Agreement shall be construed and
enforced in accordance with the substantive law of the Commonwealth of
Massachusetts, without giving effect to its conflicts of law principles. The
parties agree that any litigation pertaining to this Agreement shall be
maintained exclusively in the courts of general jurisdiction located in
Massachusetts, and each party agrees to submit to the jurisdiction and venue of
any such court. Notwithstanding the foregoing, the Company shall be entitled to
file litigation against the Executive in any jurisdiction where the Company
deems it necessary or advisable to do so in order to enforce the provisions of
Section 5 hereof.
11. CONSTRUCTION. The language in all parts of the Agreement shall
in all cases be construed as a whole according to its fair meaning and not
strictly for or against either party. The section headings contained in this
Agreement are for reference purposes only and will not affect in any way the
meaning or interpretation of this Agreement. All terms used in one number or
gender shall be construed to include any other number or gender as the context
may require. The parties agree that each party has reviewed this Agreement and
has had the opportunity to have counsel review the same and that any rule of
construction to the effect that ambiguities are to be resolved against the
drafting party shall not apply to the interpretation of this Agreement or any
amendment thereof.
12. NONDELEGABILITY OF THE EXECUTIVE'S RIGHTS AND ASSIGNMENT
RIGHTS OF THE COMPANY. The obligations, rights and benefits of the Executive
hereunder are personal and may not be delegated, assigned or transferred in any
manner whatsoever, nor are such obligations, rights or benefits subject to
involuntary alienation, assignment or transfer. This Agreement may be assigned
by the Company to its parent or any subsidiary or affiliate, and shall be
assigned automatically to any entity merging with or acquiring the Company or
its parent or business of the Company. Without limiting the generality of the
foregoing, the Company agrees to require any purchaser of all or substantially
all its assets to agree to perform the Company's obligations under this
Agreement.
7
<PAGE> 8
Any successor to the Company, whether by assignment or otherwise, shall be
considered the Company for purposes of this Agreement.
13. SEVERABILITY. If any term or provision of this Agreement is
declared by a court of competent jurisdiction to be invalid or unenforceable for
any reason, this Agreement shall remain in full force and effect, and the
parties will request the court to (a) modify the invalid or unenforceable
provision to the minimum extent necessary to make it valid and enforceable, or
(b) if the court determines that such a modification is not possible, interpret
this Agreement as if such invalid or unenforceable provisions were not a part
hereof.
14. NOTICES. All notices required or permitted hereunder shall be
in writing and shall be deemed duly given, upon receipt, if either personally
delivered, sent by certified mail, return receipt requested, or sent by a
nationally recognized overnight courier service, addressed to the parties as
follows:
If to the Company: Hadco Corporation
12A Manor Parkway
Salem, NH 03079
Attn: General Counsel
With a copy to: Hamilton & Dahmen, LLP
73 Tremont Street
Boston, MA 02108
If to the Executive: William M. Bechenbaugh
42 Ancient Highway
Hampton, NH 03842
or to such other addresses either party may provide to the other in accordance
with this Section.
15. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof (i.e.
the Executive's employment by the Company) and supercedes all prior or
contemporaneous employment agreements and understandings or agreements in regard
to the Executive's employment. No modification or addition to this Agreement
shall be valid unless in writing, specifically referring to this Agreement and
signed by both parties hereto. No waiver of any rights under this Agreement
shall be valid unless in writing and signed by the party to be charged with such
waiver. No waiver of any term or condition contained in this Agreement shall be
deemed or construed as a further or continuing waiver of such term or condition,
unless the waiver specifically provides otherwise.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have set their hands as the day and
year first above written.
HADCO Corporation
/s/ Patricia Randall /s/ Andrew E. Lietz
- ---------------------------- -------------------------------
Witness Its
Duly Authorized
Executive
/s/ Patricia Randall /s/ William M. Bechenbaugh
- ----------------------------- -------------------------------
Witness William M. Bechenbaugh
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-30-1999
<PERIOD-START> JAN-31-1999
<PERIOD-END> MAY-02-1999
<EXCHANGE-RATE> 1
<CASH> 1,983
<SECURITIES> 0
<RECEIVABLES> 126,455
<ALLOWANCES> 1,677
<INVENTORY> 68,492
<CURRENT-ASSETS> 218,130
<PP&E> 661,618
<DEPRECIATION> 342,800
<TOTAL-ASSETS> 731,587
<CURRENT-LIABILITIES> 131,881
<BONDS> 329,428
0
0
<COMMON> 679
<OTHER-SE> 200,886
<TOTAL-LIABILITY-AND-EQUITY> 731,587
<SALES> 491,565
<TOTAL-REVENUES> 492,352
<CGS> 420,755
<TOTAL-COSTS> 464,859
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,479
<INCOME-PRETAX> 11,014
<INCOME-TAX> 4,378
<INCOME-CONTINUING> 6,636
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,636
<EPS-BASIC> 0.49
<EPS-DILUTED> 0.49
</TABLE>
