<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
__________
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1997
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From __________ To __________
Commission File Number: 0-25560
ACT Manufacturing, Inc.
-----------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2777507
(State or other jurisdiction of (IRS Employer ID NO.)
incorporation or organization)
108 Forest Avenue 01749
Hudson, Massachusetts -----
--------------------- (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (508) 562-1200
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 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.
Common Stock 9,049,746 Shares
-------------- ------------------------------
(Class) (Outstanding on August 8, 1997)
<PAGE>
ACT Manufacturing, Inc.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements:
- ----------------------------------------
Condensed Consolidated Statements of Income for the three and six months ended
June 30, 1997 and 1996.
Condensed Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996.
Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 1997 and 1996.
Notes to Financial Statements.
ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
- -------------
PART II. OTHER INFORMATION
ITEM 2 - Changes in Securities
- ------------------------------
ITEM 4 - Submission of Matters to a Vote of Security-Holders
- ------------------------------------------------------------
ITEM 6 - Exhibits and Reports on Form 8-K
- ------------------------------------------
Signatures
Exhibit Index
Exhibit 3
Exhibit 10
Exhibit 11
Exhibit 27
<PAGE>
PART I. FINANCIAL INFORMATION
ACT MANUFACTURING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited - in thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
Net sales $ 72,364 $ 52,155
Cost of goods sold 62,868 45,627
---------- ----------
Gross profit 9,496 6,528
Selling, general and administrative
expenses 2,922 2,396
---------- ----------
Operating income 6,574 4,132
Interest and other expense, net 522 377
---------- ----------
Income before provision for income taxes 6,052 3,755
Provision for income taxes 2,421 1,502
---------- ----------
Net income $ 3,631 $ 2,253
========== ==========
Net income per common share (Note 4) $.39 $.25
Weighted average shares outstanding 9,349,251 9,010,984
SIX MONTHS ENDED JUNE 30,
-------------------------
1997 1996
---------- ----------
Net sales $ 142,613 $ 92,671
Cost of goods sold 124,076 81,375
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Gross profit 18,537 11,296
Selling, general and administrative
expenses 5,813 4,466
---------- ----------
Operating income 12,724 6,830
Interest and other expense, net 1,070 372
---------- ----------
Income before provision for income taxes 11,654 6,458
Provision for income taxes 4,661 2,583
---------- ----------
Net income $ 6,993 $ 3,875
========== ==========
Net income per common share (Note 4) $.75 $.43
Weighted average shares outstanding 9,317,872 8,967,163
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ACT MANUFACTURING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30, 1997 DECEMBER 31, 1996
------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 5,231 $ 5,054
Accounts receivable trade, net 49,732 41,475
Inventories (Note 3) 49,303 53,994
Deferred taxes 1,409 1,487
Prepaid expenses and other assets 883 489
-------- --------
Total current assets 106,558 102,499
PROPERTY AND EQUIPMENT-Net 7,543 4,635
OTHER ASSETS (Note 2) 6,601 461
-------- --------
TOTAL $120,702 $107,595
======== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable - bank $ 1,937 $ -
Current portion of long-term debt 438 38
Accounts payable 30,099 26,154
Accrued expenses 4,793 5,216
-------- --------
Total current liabilities 37,267 31,408
-------- --------
LONG-TERM DEBT - Less current portion 23,646 29,055
(Note 5) -------- --------
STOCKHOLDERS' EQUITY:
Common stock (Note 6) 90 88
Additional paid-in capital 38,862 33,201
Retained earnings 20,837 13,843
-------- --------
Total stockholders' equity 59,789 47,132
-------- --------
TOTAL $120,702 $107,595
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ACT MANUFACTURING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------
1997 1996
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 6,993 $ 3,875
--------- --------
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Deferred taxes...................................... 78 -
Depreciation and amortization....................... 730 487
Increase (decrease) in cash from:
Accounts receivable - trade....................... (5,439) (17,322)
Inventory......................................... 6,515 (18,432)
Prepaid expenses and other assets................. (90) (130)
Accounts payable.................................. 1,886 10,499
Accrued expenses.................................. (1,804) 886
--------- --------
Total adjustments......................................... 1,876 (24,012)
--------- --------
Net cash provided by (used for) operating activities...... 8,869 (20,137)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................... (901) (1,278)
Purchases of businesses, net of cash acquired (Note 2).. (1,150) -
Increase in other assets................................ (228) (107)
--------- --------
Net cash used for investing activities.................... (2,279) (1,385)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line-of-credit agreements.............. 118,351 44,167
Repayments under line-of-credit agreements.............. (125,136) (25,817)
Repayments of long-term debt............................ (42) (58)
Net proceeds from sale of stock......................... 414 238
--------- --------
Net cash provided by (used for) financing activities...... (6,413) 18,530
--------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.......................................... 177 (2,992)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.............. 5,054 7,097
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................. $ 5,231 $ 4,105
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
ACT MANUFACTURING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
- -----------------------------------
The unaudited interim condensed consolidated financial statements furnished
herein reflect all adjustments, which in the opinion of management are of a
normal recurring nature, necessary to fairly state the Company's financial
position, cash flows and the results of operations for the periods presented and
have been prepared on a basis substantially consistent with the audited
financial statements.
The results of operations for the interim periods are not necessarily indicative
of the results of operations to be expected for the fiscal year. These interim
condensed consolidated financial statements should be read in conjunction with
the Company's Annual Report on Form 10-K for the period ending December 31, 1996
filed with the Securities and Exchange Commission.
2. ACQUISITIONS
- ----------------
Effective June 9, 1997, the Company acquired substantially all of the assets and
liabilities of Electronic Systems International ("ESI") located in Norcross,
Georgia. ESI is a leading contract electronics manufacturer to customers
throughout the southeastern United States. Under the terms of the agreement, the
Company acquired assets and liabilities of ESI in exchange for 190,546 shares of
the Company's common stock plus acquisition costs. The per share market value of
the Company's common stock on the date of the purchase was $27.50.
Effective June 10, 1997, the Company acquired all of the outstanding stock of
SignMax Limited ("SignMax"), a cable and harness manufacturing company based in
Dublin, Ireland. Under the terms of the purchase agreement, substantially all of
the outstanding common shares of SignMax were acquired for cash of $1,000,000
plus acquisition costs.
The transactions were accounted for as purchases in accordance with APB Opinion
No.16 "Business Combinations." The preliminary allocation of purchase price
for these transactions has resulted in goodwill of approximately $5,945,000
including $5,070,000 attributed to the excess of purchase price over net assets
and $875,000 ($725,000 accrued) of acquisition costs, including costs of
consolidation of operations and professional fees. The Company attributes
the goodwill to the expected ability to expand sales in these new geographic
markets, utilizing the acquired existing business infrastructure, and geographic
market presence as a basis for expansion. Goodwill will be amortized over a
period of fifteen years using the straight-line method of amortization. The
operating results of the acquired businesses from the dates of purchase are
included in and had an insignificant effect on the Company's Consolidated
Statements of Income for the three and six month periods ended June 30, 1997.
Pro forma information has not been provided as the operations of the acquired
businesses are not material to the consolidated results of operations or
financial position of the Company.
<PAGE>
3. INVENTORIES
-----------
Inventories consisted of the following at:
<TABLE>
<CAPTION>
(in thousands) June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
Raw material $31,605 $37,698
Work in process 16,914 15,853
Finished goods 784 443
------- -------
Total $49,303 $53,994
======= =======
</TABLE>
4. EARNINGS PER SHARE
- ----------------------
Net income per common share is based on the weighted average number of common
and common equivalent shares outstanding during the period. Common equivalent
shares are attributable to stock options and are calculated using the treasury
stock method.
In March 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," which the
Company will adopt in the fourth quarter of 1997. Had SFAS No. 128 been
effective for the periods ended June 30, 1997 and 1996, reported earnings per
share on a pro forma basis would have been as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic $ .41 $ .26 $ .79 $ .44
Diluted .39 .25 .75 .43
</TABLE>
5. LONG-TERM DEBT
- ------------------
During the second quarter of 1997 the Company amended its line of credit
agreement, effective March 31, 1997, increasing the limit on borrowings up to
$50.0 million and extending the termination date until April, 2000. Including a
$2.3 million line-of credit facility added through acquisition during the
quarter, on a consolidated basis the Company had secured revolving credit
facilities of $52.3 million at June 30, 1997, of which $23.7 million was
utilized and $20.3 million was available for use.
6. COMMON STOCK
- ----------------
On May 20, 1997 the Company's stockholders approved an increase in the number of
authorized shares of common stock from 20 million to 30 million.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the accompanying financial
statements for the periods specified and the associated notes. Further
reference should be made to the Company's Annual Report on Form 10-K for the
period ending December 31, 1996.
OVERVIEW
- --------
The Company provides value-added, electronic manufacturing services for original
equipment manufacturers ("OEM'S") in the networking, computer,
telecommunications, medical and industrial equipment markets. The Company
targets high-mix, moderate volume production of the complex, leading-edge
commercial market applications of emerging and established OEM customers, which
generally require technologically-advanced and flexible manufacturing as well as
a higher degree of value-added services. The Company supplies OEMs with complex
printed circuit board ("PCB") assemblies primarily utilizing advanced surface
mount technology ("SMT"), mechanical and molded cable and harness assemblies,
electro-mechanical sub-assemblies, total system assembly and integration. As an
integral part of its service to OEM customers, the Company provides advanced
manufacturing and test engineering, flexible materials management, and
comprehensive test services, as well as product repair, packaging, order
fulfillment and distribution services.
During the second quarter of 1997 the Company acquired businesses operating in
Norcross, Georgia and Dublin, Ireland, as described in Note 2 to the Financial
Statements. The operating results of the acquired businesses from the dates of
purchase are included in and had an insignificant effect on the Company's
Consolidated Statements of Income for the three and six month periods ended June
30, 1997.
The Company manufactures at six leased facilities having an aggregate of 257,000
square feet. Four of the facilities are located in Massachusetts. In
the fourth quarter of 1997 the Company expects to occupy and begin manufacturing
in a 45,000 square foot addition to its Hudson, Massachusetts facilities. In the
second quarter of 1997 the Company acquired operations with leased facilities in
Norcross, Georgia and Dublin, Ireland. In early 1998 the Company expects to
occupy and begin manufacturing in a new 45,000 square foot leased facility in
Dublin, Ireland and consolidate operations from the existing Dublin facility
into the new plant.
As of June 30, 1997 the Company had 1,042 employees, up from 799 employees at
December 31, 1996 and including 215 added in the second quarter of 1997 through
acquisitions.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1997 AND 1996
- ------------------------------------------------------------------
Net sales increased 39% to $72.4 million for the three month period ended June
30, 1997 from $52.2 million for the same period in 1996. The increase was
attributable principally to increased volume in PCB assembly sales to new and
existing customers.
<PAGE>
Gross profit increased 45% to $9.5 million for the three months ended June 30,
1997 compared with $6.5 million for the same period in 1996. Gross margin
increased to 13.1% for the three months ended June 30, 1997 from 12.5% for the
same period in 1996, as the Company's product mix remained stable and the
benefits of manufacturing efficiency improvements were realized.
Selling, general and administrative (SG&A) expenses increased 22% to $2.9
million, or 4.0% of net sales, for the three months ended June 30, 1997 compared
with $2.4 million, or 4.6% of net sales, for the three months ended June 30,
1996. The decrease in SG&A expenses as a percentage of net sales for the second
quarter of 1997 compared with the same period in 1996 reflects the effects of
continued growth in the Company's business which has allowed for higher
utilization of fixed costs, as well as an increased proportion of sales being
made directly by the Company.
Operating income increased 59% to $6.6 million, or 9.1% of net sales, for the
three months ended June 30, 1997 compared with $4.1 million, or 7.9% of net
sales, for the same period in 1996 as a result of the above factors.
Interest and other expense was $0.5 million for the three months ended June 30,
1997 compared with $0.4 million for the same period in 1996. Interest and other
expense consisted principally of interest charges on debt.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1997 AND 1996
- ----------------------------------------------------------------
Net sales increased 54% to $142.6 million for the six month period ended
June 30, 1997 from $92.7 million for the same period in 1996. The increase was
attributable principally to increased volume in PCB assembly sales to new and
existing customers, offset by lower sales to 3Com Corporation. Sales to 3Com
Corporation are expected to be insignificant for the remainder of 1997.
Gross profit increased 64% to $18.5 million for the six months ended June 30,
1997 compared with $11.3 million for the same period in 1996. Gross margin
increased to 13.0% for the six months ended June 30, 1997 from 12.2% for the
same period in 1996, as the Company's product mix remained stable and the
benefits of manufacturing efficiency improvements were realized.
Selling, general and administrative (SG&A) expenses increased 30% to $5.8
million, or 4.1% of net sales, for the six months ended June 30, 1997 compared
with $4.5 million, or 4.8% of net sales, for the six months ended June 30, 1996.
The decrease in SG&A expenses as a percentage of net sales for the first half of
1997 compared with the same period in 1996 reflects the effects of continued
growth in the Company's business which has allowed for higher utilization of
fixed costs, as well as an increased proportion of sales being made directly by
the Company.
Operating income increased 86% to $12.7 million, or 8.9% of net sales, for the
six months ended June 30, 1997 compared with $6.8 million, or 7.4% of net sales,
for the same period in 1996 as a result of the above factors.
Interest and other expense was $1.1 million for the six months ended June 30,
1997 compared with $0.4 million for the same period in 1996. The increase in
net expense resulted principally from additional borrowings on the Company's
line of credit to support working capital requirements.
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
- ----------------------------------------------------
The Company had working capital of $69.3 million at June 30, 1997 compared with
$71.1 million at December 31, 1996. Operating activities generated $8.9 million
of cash for the first six months of 1997 compared with $20.1 million of cash
usage for the same period in 1996. Use of cash in the first six months of 1996
supported the Company's high level of growth in 1996. Cash used for property,
equipment and acquisition related investing activities was $2.3 million for the
first six months of 1997 compared with $1.4 million for the same period in 1996.
While the Company assumed approximately $3.3 million in debt obligations through
acquisitions during the second quarter of 1997, the Company's total debt and
notes payable have decreased by approximately $3.1 million since December 31,
1996 as a result of net repayments on the Company's line of credit.
During the second quarter of 1997 the Company amended its line of credit
agreement, effective March 31, 1997, increasing the limit on borrowings up to
$50.0 million, subject to availability, and extending the termination date to
April, 2000. Including a $2.3 million line of credit facility added through
acquisition during the second quarter of 1997, on a consolidated basis the
Company had secured revolving credit facilities of $52.3 million at June 30,
1997, of which $23.7 million was utilized and $20.3 million was available for
use. In addition, at June 30, 1997 the Company's equipment lease line of $20.0
million had $9.2 million available for use and $10.8 million utilized for
outstanding commitments.
The Company's need for, cost of and access to funds are dependent in the long-
term on future operating results as well as conditions external to the Company.
The Company believes that its current sources of and access to capital are
adequate to support operations for the next twelve months.
NEWLY ISSUED ACCOUNTING STANDARDS
- ---------------------------------
In March 1997, the Financial Accounting Standards Board released Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share," which will
be effective during the fourth quarter of 1997. SFAS No. 128 will require the
Company to restate all previously reported earnings per share information to
conform with the new pronouncement's requirements. See Notes to Consolidated
Financial Statements for pro forma information.
CAUTIONARY STATEMENTS
- ---------------------
The Private Securities Litigation Reform Act of 1995 (the "Act") contains
certain safe harbors regarding forward-looking statements. From time to time,
information provided by the Company or statements made by its employees may
contain "forward-looking" information which involve risks and uncertainties. Any
statements in this report that are not statements of historical fact are
forward-looking statements (including, but not limited to, statements concerning
the characteristics and growth of the Company's
<PAGE>
market and customers, the Company's objectives and plans for future operations,
and the Company's expected liquidity and capital resources). The following
cautionary statements should be considered carefully in evaluating the Company
and its business. The factors discussed in these cautionary statements, among
other factors, could cause actual results to differ materially from those
contained in the forward-looking statements made in this Report and presented
elsewhere by management from time to time. These cautionary statements are being
made pursuant to the provisions of the Act and with the intention of obtaining
the benefits of the safe harbor provisions of the Act.
Customer and Market Concentration and Dependence on Electronics Industry
For the six months ended June 30, 1997, the Company's five largest customers
accounted for approximately 77% of the Company's net sales. Sales to Bay
Networks, Inc. at 27% of total net sales compared with 13% for 1996, Ascend
Communications, Inc. (as successor to Cascade Communications, Inc.) at 15% of
total net sales compared with 20% for 1996, EMC Corporation at 12% of total net
sales compared with 7% for 1996, Motorola Corporation at 12% of total net sales
compared with 13% for 1996 and 3Com Corporation at 12% of total net sales
compared with 17% for 1996. Sales to 3Com Corporation are expected to be
insignificant for the remainder of 1997. As sales to individual customers
fluctuate from period to period the Company's results will depend on the extent
to which these fluctuations are offsetting. Also, the Company's results will
depend to a significant extent on the success achieved by its OEM customers in
marketing their products and the Company's ability to diversify its customer
base in order to reduce its reliance on its major customers. There can be no
assurance that the Company's principal customers will continue to purchase
products and services from the Company at current levels, if at all. The loss of
one or more major customers, a significant reduction in purchases from such
customers, discontinuance of products manufactured by the Company, or
developments adverse to the Company's customers or their products could
have a material adverse effect on the Company's financial condition and results
of operations. For example, the Company experienced a reduction in net sales
from the second to the third quarters of 1995 as a result of a significant
reduction in orders from its then principal customer, Chipcom Corporation, which
was subsequently acquired by 3Com Corporation. While 3Com Corporation remained
an active customer of the Company through the second quarter of 1997, 3Com
Corporation has altered its outsourcing strategy and net sales to 3Com
Corporation by the Company are expected to be insignificant for the remainder of
1997. In addition, while the Company has not experienced any difficulty in being
paid by its major customers in recent years, the Company could be adversely
affected if a major customer were unable or unwilling to pay for products and
services on a timely basis or at all.
The Company's customer base has historically been concentrated in a limited
number of segments within the electronics industry. These industry segments, and
the electronics industry as a whole, are subject to high competition, rapid
technological changes, significant fluctuation in product demand, relatively
short product life-cycles, and consequent product obsolescence. Developments
adverse to such industry segments could have a negative effect on the Company.
The industry segments served by the Company are also subject to economic cycles
and have in the past experienced, and are likely in the future to experience,
recessionary periods. A recessionary period or other event leading to excess
capacity or downturn affecting the electronics industry generally or one or more
of the industry segments served by the Company would likely result in
intensified price competition, reduced gross margins and a decrease in net sales
versus the Company's operating expectations, all of which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Variability of Customer Requirements; Nature and Extent of Customer Commitments
on Orders
The level and timing of orders placed by the Company's OEM customers vary due to
customer attempts to manage inventory, changes in the OEM's manufacturing
strategy and variation in demand for customer products due to, among other
things, introduction of new products, product life cycles, competitive
conditions or industry or general economic conditions. The Company generally
does not obtain long-term purchase orders or commitments but instead works with
its customers to anticipate the future volume of orders. Based on such
anticipated future volumes, the Company makes significant commitments regarding
the levels of business that it will seek and accept, the timing of production
schedules and the levels and utilization of personnel and other resources. From
time to time, the Company will purchase components without a customer commitment
to pay for them. A variety of conditions, both specific to the individual
customer and generally affecting the customer's industry, may cause customers to
cancel, reduce or delay orders that were either previously made or anticipated.
Generally, customers may cancel, reduce or delay purchase orders and commitments
without penalty. Significant or numerous cancellations, reductions or delays in
orders by a customer or group of customers could have a material adverse effect
on the Company's business, financial condition and results of operations.
<PAGE>
Fluctuations in Operating Results
The Company's quarterly operating results have varied and may continue to
fluctuate significantly from period to period, including on a quarterly basis.
The variability of the level and timing of orders from, and shipments to, major
customers may result in significant periodic and quarterly fluctuations in the
Company's results of operations. A substantial portion of net sales in a given
quarter may depend on obtaining and fulfilling orders for assemblies to be
manufactured and shipped in the same quarter in which those orders are
received. In addition to the variability resulting from the short-term nature of
its customers' commitments, other factors have contributed, and may in the
future contribute, to such fluctuations. These factors include, among other
things, customers' announcement and introduction of new products or new
generations of products, evolutions in the life cycles of customers' products,
timing of expenditures in anticipation of future orders, effectiveness in
managing manufacturing processes, changes in cost and availability of labor and
components, efficiencies achieved by the Company in managing inventory and fixed
assets, a shift in the Company's product and service mix which results in
fluctuating margins, capacity utilization, inventory obsolescence, currency
exchange rate movements, acquisitions and related charges and expenses,
competition in the electronic manufacturing services market, trends in the
electronic industry and changes or anticipated changes in economic conditions.
An interruption in manufacturing resulting from shortages of parts or equipment,
fire, earthquake or other natural disaster, equipment failure or otherwise
could have a material adverse effect on the Company's business, financial
condition and results of operations. Because the Company's operating expenses
are based on anticipated revenue levels and a high percentage of the Company's
operating expenses are relatively fixed, any unanticipated shortfall in revenue
in a quarter may have an adverse impact on the Company's business, financial
condition and results of operations for that quarter. Results of operations in
any period should not be considered indicative of the results to be expected for
any future period.
As a result of the foregoing or other factors, it is possible that in some
future period the Company's results of operations may fail to meet the
expectations of securities analysts or investors, and the price of the Company's
Common Stock would then be materially adversely affected.
Competition
The electronics manufacturing services industry is a highly competitive
industry. The Company competes against numerous U.S. and foreign contract
manufacturers. The Company also faces competition from a number of local and
regional contract manufacturers. In addition, current and prospective customers
continually evaluate the merits of manufacturing products internally. Certain of
the Company's competitors have substantially greater manufacturing, financial,
systems and marketing resources than the Company. In addition, these competitors
may have the ability to respond more quickly to new or emerging technologies,
may adapt more quickly to changes in customer requirements and may devote
greater resources to the development, promotion and sale of their services than
the Company. The Company may be operating at a cost disadvantage compared to
manufacturers who have greater direct buying power from component suppliers or
who have lower cost structures. The Company's basic technology is generally not
resources or international operations may enter the market. Increased
competition could result in price reductions, reduced margins or loss of market
share, any of which could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company believes
that the principal competitive factors in the segments of the contract
manufacturing industry in which it operates are technology, service,
manufacturing capability, quality, geographic location, price, reliability,
timeliness in delivering finished products and flexibility in adapting to
customers needs. There can be no assurance that competition from existing or
potential competitors will not have a material adverse effect on the Company's
results of operations.
<PAGE>
Management of Growth
The Company has grown rapidly in recent years and continues to expand its
operations, all of which has placed, and will continue to place, a significant
strain on the Company's management, operations, technical, financial, systems
and other resources. The Company's ability to manage its growth will require it
to continue to invest in its operational, financial and management information
systems, as well as to develop further the management skills of its managers and
supervisors and to retain, motivate and effectively manage its employees. If the
Company's management is unable to manage growth effectively, the quality of the
Company's services and products, its ability to retain key personnel and its
results of operations could be materially and adversely affected. Competition
for personnel is intense, and there can be no assurance that the Company will be
able to attract, assimilate or retain additional highly qualified employees in
the future, especially engineering personnel. The failure to hire and retain
such personnel could have a material adverse effect on the Company's business,
financial condition and results of operations.
Dependence Upon Key Personnel and Skilled Employees
The Company's continued success has been largely dependent upon the skills and
efforts of John A. Pino, its President and Chief Executive Officer, and other
key executive and managerial, sales and technical employees. None of the senior
management or other key employees of the Company is subject to any employment
contract and the Company does not maintain any key-man life insurance on any of
its key executives. The loss of services of any of its officers or other key
personnel could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, continued growth and
development of the Company will require that, despite significant competition,
it attract, motivate and retain additional skilled and experienced managerial,
sales and technical personnel. There can be no assurance that the Company will
be able to attract, motivate and retain personnel with the skills and experience
needed to successfully manage the Company's business and operations.
Availability of Key Components
The Company and many of its customers rely on a single or limited number of
third-party suppliers for many components used in the assembly process.
Shortages of certain electronic components have occurred from time to time. In
addition, due to the Company's utilization of just-in-time inventory techniques,
the timely availability of many components to the Company is dependent on the
Company's ability to continuously develop accurate forecasts of customer volume
requirements. Component shortages could result in manufacturing and shipping
delays or increased component prices which could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company has historically been able to enter into advantageous arrangements from
time to time for the supply of certain limited availability components. To the
extent that the Company is unable to source key components for the reasons cited
above or otherwise, the Company's results of operations could be materially
adversely affected.
Technological Change and Process Development
The market for the Company's manufacturing services is characterized by rapidly
changing technology and continuing process development. The continued success of
the Company's business will depend in large part upon its ability to maintain
and enhance its technological capabilities, develop and market manufacturing
services which meet changing customer needs and successfully anticipate or
respond to technological changes in manufacturing processes on a cost-effective
and timely basis. Although management believes that the Company's operations
utilize the assembly and testing technologies and equipment currently required
by the Company's customers, there can be no assurance that the Company's process
development efforts will be successful or that the emergence of new
technologies, industry standards or customer requirements will not render the
Company's technology, equipment or processes obsolete or uncompetitive. In
addition, to the extent that the Company determines that new assembly and
testing technologies and equipment are required to remain competitive, the
acquisition and implementation of such technologies and equipment may require
significant expense or capital investment by the Company.
Risks of International Operations
The Company has recently acquired operations in Dublin, Ireland and is currently
expanding its Dublin operations. In addition, the Company may expand into other
geographic regions. The Company is affected by economic and political conditions
in the countries in which it does business, including fluctuations in the value
of currency, duties, possible employee turnover, labor unrest, less developed
infrastructure, longer payment cycles, greater difficulty in collecting accounts
receivable and the burdens and costs of compliance with a variety of foreign
laws. Changes in policy by the U.S. or foreign governments resulting in, among
other things, increased duties, increased regulatory requirements, higher
taxation, currency conversion limitations, restrictions on the transfer of funds
or limitations on imports or exports could also have a material adverse effect
on the Company. The Company could also be adversely affected if the current
policies encouraging foreign investment or foreign trade by its host countries
were to be reversed.
<PAGE>
Expanding Facilities and Manufacturing Capacity
The Company believes its long-term competitive position depends in part on
its ability to increase manufacturing capacity. The Company may obtain such
additional capacity through acquisitions or expansion of its current facilities.
The Company is currently expanding its Hudson, Massachusetts facilities by
45,000 square feet and expects to relocate its Dublin, Ireland operations to a
new 45,000 square foot facility currently under construction. The acquisition
and expansion of facilities will require substantial additional capital, and
there can be no assurance that such capital will be available from cash
generated by current operations. Further, there can be no assurance that the
Company will be able to acquire sufficient capacity or successfully integrate
and manage such additional facilities. In addition, the Company's expansion of
its manufacturing capacity has significantly increased and will continue to
significantly increase its fixed costs, and the future profitability of the
Company will depend on its ability to utilize its manufacturing capacity in an
effective manner. The failure to obtain sufficient capacity or to successfully
integrate and manage additional manufacturing facilities could adversely impact
the Company's relationships with its customers and materially adversely affect
the Company's business, financial condition and results of operations.
Acquisitions and Geographical Expansion
In June 1997, the Company acquired substantially all of the assets of Electronic
Systems International located in Norcross, Georgia. The acquired company
provides electronics manufacturing services, primarily consisting of PCB
assemblies and systems assemblies to customers based primarily in the
southeastern United States. In addition, also in June 1997, the Company
completed the acquisition of SignMax Limited, located in Dublin, Ireland.
SignMax Limited is a contract manufacturer of cable and harness assemblies. The
Company has limited experience in integrating acquired companies into its
operations, in expanding the scope of operations of acquired businesses, and in
operating in the southeastern United States or overseas. Therefore, there can be
no assurance that the Company will operate the acquired businesses profitably
during the next year or in the future.
The Company may expand into other geographical areas within the United States
and internationally by acquiring contract manufacturing businesses or by
establishing new manufacturing operations in such areas. The Company may compete
for acquisition and expansion opportunities with entities having significantly
greater resources than the Company. Any such transactions may result in
potentially dilutive issuance of equity securities, the incurrence of debt and
amortization expenses related to goodwill and other intangible assets, and other
costs and expenses, all of which could materially adversely affect the Company's
financial results following such a transaction. Such transactions also involve
numerous business risks, including difficulties in the assimilation of the
operations, technologies and products of the acquired companies, the diversion
of management's attention from other business concerns and the potential loss of
key employees from the combined company. Therefore, there can be no assurance
that the key employees and businesses of acquired companies will be successfully
integrated with the Company, that any acquired business will contribute
significantly to the Company's sales or earnings, or that sales and earnings of
the Company will not be adversely affected by the integration process or
other factors.
Environmental Compliance
The Company is subject to a variety of environmental regulations relating to the
use, storage, discharge and disposal of hazardous chemicals used during its
manufacturing process. A failure by the Company to comply with present and
future regulations could subject it to future liabilities or the suspension of
production. Such regulations could also restrict the Company's ability to expand
its facilities or could require the Company to acquire costly equipment or to
incur other significant expenses to comply with environmental regulations.
<PAGE>
Possible Volatility of Stock Price
The Company's Common Stock has experienced significant price and volume
volatility historically, and such volatility is expected to occur in the future.
In addition, there has been significant volatility in the market price of
securities of technology companies generally. Factors such as announcements of
significant customer orders, customer additions or subtractions, developments
affecting major customers or their products, announcements or activities of
competitors, changes in securities analysts' recommendations or general
conditions and developments in the electronics manufacturing service industry
and in the electronics industry as a whole, as well as quarterly variations in
the Company's results of operations and market conditions in the industry, may
cause the market price of the Company's Common Stock to fluctuate significantly.
In addition, the public stock markets have historically experienced extreme
price and trading volume volatility. This volatility has significantly affected
the market prices of securities of many technology companies for reasons
frequently unrelated to the operating performance of the specific companies.
These broad market fluctuations may adversely affect the market price of the
Company's Common Stock.
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
---------------------
(c) On June 9, 1997, the Company issued 190,546 shares of its common stock
to ESI Acquisition Corporation in connection with the acquisition of
substantially all of the assets of Electronic Systems International, a
division of ESI Acquisition Corporation. No underwriters were involved in
the foregoing sale which was made in reliance upon an exemption from the
registration provisions of the Securities Act of 1933, as amended, set forth
in Section 4(2) thereof relative to sales by an issuer not involving any
public offering or the rules and regulations thereunder. These shares of
common stock were subsequently registered by ACT pursuant to a Registration
Statement on Form S-3 (Registration No. 333-29479).
ITEM 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
The annual meeting of stockholders was held on May 20, 1997. Four proposals
were submitted to stockholders as described in the Company's proxy statement
dated May 1, 1997. The following is a brief description of the matters voted
upon, the number of votes cast for and against each proposal, and the number of
abstentions.
1. To elect one Class II Director to serve on the Company's Board of Directors
for a three-year term or until his successor has been duly elected and
qualified.
Nominee: John A. Pino
Votes for Nominee: 8,093,017
Votes Withheld From Nominee: 63,976
2. To approve an amendment to the Company's 1995 Stock Plan to increase the
number of shares reserved for issuance thereunder by 750,000 to 1,250,000.
Votes for: 7,199,188
Votes Against: 134,659
Abstain: 9,303
3. To amend the Company's Second Restated Articles of Organization increasing
the number of authorized shares of common stock, $.01 par value, of the
Company, from 20,000,000 to 30,000,000.
Votes for: 7,685,399
Votes Against: 463,655
Abstain: 7,939
4. To ratify the selection of the firm Deloitte & Touche, LLP as independent
auditors for the fiscal year ending December 31, 1997.
Votes for: 8,150,297
Votes Against: 210
Abstain: 6,486
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
3. Articles of Amendment to the Second Restated Articles of Organization
of the Company, dated June 12, 1997.
10. Eighth Amendment dated June 5, 1997 to the Amended and Restated Loan
and Security Agreement by and among BankBoston, N.A., State Street
Bank & Trust Company, Citizens Bank of Massachusetts and ACT
Manufacturing, Inc.
11. Weighted Shares Used in Computation of Earnings per Share
27. Financial Data Schedule
(b) Report on Form 8-K.
The Company filed a current report on Form 8-K dated June 17, 1997
reporting the acquisition of substantially all of the assets of Electronic
Systems International.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACT MANUFACTURING, INC.
/s/ Douglass C. Greenlaw
------------------------------------
August 14, 1997 Douglass C. Greenlaw
Vice President of Finance and
Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No.
- -----------
3. Articles of Amendment to the Second Restated Articles of Organization of
the Company, dated June 12, 1997.
10. Eighth Amendment dated June 5, 1997 to the Amended and Restated Loan and
Security Agreement by and among BankBoston, N.A., State Street Bank & Trust
Company, Citizens Bank of Massachusetts and ACT Manufacturing, Inc.
11. Weighted Shares Used in Computation of Earnings per Share
27. Financial Data Schedule
<PAGE>
FEDERAL IDENTIFICATION
NO. 04-2777507
----------
THE COMMONWEALTH OF MASSACHUSETTS
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
We, John A. Pino , * President
--------------------------------------------------------
and Douglass C. Greenlaw , * Clerk
------------------------------------------------------------
of ACT Manufacturing, Inc. ,
----------------------------------------------------------------------
(Exact name of corporation)
located at: 108 Forest Avenue, Hudson, MA 01749
-------------------------------------------------------------------,
(Street address of corporation in Massachusetts)
certify that these Articles of Amendment affecting articles numbered:
3
- ------------------------------------------------------------------------------
(Number those articles 1, 2, 3, 4, 5, and/or 6 being amended)
of the Articles of Organization were duly adopted at a meeting held on
May 20, 1997, by vote of:
- --- -- --
7,685,399 shares of Common Stock, $.01 par value of 8,818,000
--------- ---------------------------- ---------
(type, class & series, if any)
shares outstanding,
shares of of
--------- ---------------------------- ---------
(type, class & series, if any)
shares outstanding, and
shares of of
--------- ---------------------------- ---------
(type, class & series, if any)
shares outstanding,
/1/**being at least a majority of each type, class or series outstanding and
entitled to vote thereon
*Delete the inapplicable words. ** Delete the inapplicable clause.
/1/For amendments adopted pursuant to Chapter 156B, Section 70.
/2/For amendments adopted pursuant to Chapter 156B, Section 71.
NOTE: IF THE SPACE PROVIDED UNDER ANY ARTICLE OR ITEM ON THIS FORM IS
INSUFFICIENT, ADDITIONS SHALL BE SET FORTH ON ONE SIDE ONLY OF SEPARATE 8 1/2 X
11 SHEETS OF PAPER WITH A LEFT MARGIN OF AT LEAST 1 INCH. ADDITIONS TO MORE
THAN ONE ARTICLE MAY BE MADE ON A SINGLE SHEET SO LONG AS EACH ARTICLE
REQUIRING EACH ADDITION IS CLEARLY INDICATED.
<PAGE>
To change the number of shares and the par value (if any) of any type, class or
series of stock which the corporation is authorized to issue, fill in the
following:
The total presently authorized is:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- -------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- -------------------------------------------------------------------------------
Common: 0 Common: 20,000,000 $.01
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Preferred: 0 Preferred: 5,000,000 $.01
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Change the total authorized to:
WITHOUT PAR VALUE STOCKS WITH PAR VALUE STOCKS
- -------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- -------------------------------------------------------------------------------
Common: 0 Common: 30,000,000 $.01
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Preferred: 0 Preferred: 5,000,000 $.01
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
The foregoing amendment(s) will become effective when these Articles of
Amendment are filed in accordance with General Laws, Chapter 156B, Section 6
unless these articles specify, in accordance with the vote adopting the
amendment, a later effective date not more than thirty days after such filing,
in which event the amendment will become effective on such later date.
Later effective date:
----------------
SIGNED UNDER THE PENALTIES OF PERJURY, this 20 day of May , 1997 .
------ ------------ ----
/s/ John A. Pino
---------------------------------------------------------------, *President
/s/ Douglass C. Greenlaw
---------------------------------------------------------------, *Clerk
*Delete the inapplicable words.
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF AMENDMENT
(GENERAL LAWS, CHAPTER 156B, SECTION 72)
=====================================================================
I hereby approve the within Articles of Amendment, and the filing fee
in the amount of $10,000 having been paid, said article is deemed to
-------
have been filed with me this 12th day of June ,
------ ----------------------
1997.
----
Effective date: 6/12/97
---------------------------------------------------
/s/ William Francis Galvin
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
Joshua N. Sun, Esq.
- --------------------------------------------------------------------------------
Testa, Hurwitz & Thibeault, LLP
- --------------------------------------------------------------------------------
High Street Tower
- --------------------------------------------------------------------------------
125 High Street
- --------------------------------------------------------------------------------
Boston, MA 02110
- --------------------------------------------------------------------------------
<PAGE>
EIGHTH AMENDMENT TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
June 5, 1997
Effective: March 31, 1997
THIS EIGHTH AMENDMENT IS made to the Amended and Restated Loan and Security
Agreement (the "LOAN AGREEMENT"), which Amended and Restated Loan and Security
Agreement took effect on April 6, 1995 as an amendment and restatement of the
December 16, 1994 Loan and Security Agreement made between
BankBoston, N.A. (Formerly known as "The First National Bank of
Boston"), a national banking association with offices at 100 Federal
Street, Boston, Massachusetts, as agent for the ratable benefit of the
"LENDERS" being:
BankBoston, N.A.;
and
State Street Bank and Trust Company, a Massachusetts trust
company with offices at 225 Franklin Street, Boston,
Massachusetts 02110;
and
Citizens Bank of Massachusetts, a Massachusetts savings bank with
offices at 55 Summer Street, Boston, Massachusetts 02110
and
ACT Manufacturing, Inc., a Massachusetts corporation with its
principal executive offices at 108 Forest Avenue, Hudson, Massachusetts
01749
in consideration of the mutual covenants contained herein and benefits to be
derived herefrom,
WITNESSETH:
1. AGREEMENT TO AMEND
------------------
Provided each of those "Conditions to Amendment" set forth in Section 2,
below, is satisfied on or before May 23, 1997, the Loan Agreement shall be
amended, as set forth below, such amendment to take effect as of March 31,
1997.
/May 14, 1997/ /1/
<PAGE>
SECTION 1-1(a) of the Loan Agreement is amended to read as follows:
(a) As used herein, the term "AVAILABILITY" refers at any time to the
lesser of (i) or (ii), below, where:
(i) Is the Loan Cap (defined below).
(ii) Is
(A) 80% of the face amount of each of the Borrower's
Acceptable Accounts (as defined below).
plus
(B) The lesser of
(I) The Inventory Cap (defined below),
or
(II) 45% of the value of the Borrower's Acceptable Raw
Materials Inventory, as defined below (Acceptable
Raw Materials Inventory being valued at the lower
of cost or market after deducting all
transportation, processing, handling charges, and
all other costs and expenses affecting the value
thereof).
Minus
(C) The aggregate Stated Amount (defined below) of any L/C
(defined below).
SECTION 1-1(c) of the Loan Agreement is amended to read as follows:
(c) The proceeds of borrowings under the Revolving Credit shall be
used solely for the following:
(i) Working capital for the Borrower.
(ii) Capital Expenditures otherwise permitted by the within
Agreement.
(iii) Payments otherwise permitted pursuant to any of the
following Sections of the within Agreement:
: Indebtedness
5-18A: Permitted Acquisitions.
: Permitted Distributions
/May 14, 1997/ /2/
<PAGE>
SECTION 1-1(d) of the Loan Agreement is amended to read as follows:
"INVENTORY CAP": Until May 31, 1998 : $7,500,000.00.
Thereafter : 10,000,000.00.
"LOAN CAP": Fifty Million Dollars ($50,000,000.00)
minus,
the then aggregate Stated Amount of all L/C's.
minus
Fifty Percent (50%) of the net proceeds of any issuance, after
April 30, 1997, of capital stock by the Borrower or of
subordinated indebtedness permitted to be incurred pursuant to
the within Agreement.
SECTION 1-13(b) of the Loan Agreement is amended to read as follows:
(b) As compensation for its services rendered as Agent hereunder, the
Agent shall have earned an agency fee, which fee shall be determined as follows:
(i) Until December 31, 1996, at a rate equal to One Eighth of One
Percent per annum of the Loan Cap.
(ii) Commencing with calendar year 1997, at a rate of $6,250.00
per calendar quarter.
The agency fee shall be payable in arrears, with the first payment due on the
first Business Day of January, 1995 and subsequent payments due on the first
Business Day of each calendar quarter thereafter, on the Termination Date, and
on that date on which all Liabilities are paid in full.
ARTICLE 3 is amended so that the following definitions, which appear therein,
read as follows:
/May 14, 1997/ /3/
<PAGE>
"Commitment and Commitment Percentage": the following amounts and
Percentages:
<TABLE>
<CAPTION>
================================================================================
REVOLVING CREDIT:
COMMITMENTS AND PERCENTAGE COMMITMENTS
================================================================================
LENDER
- --------------------------------------------------------------------------------
DOLLAR COMMITMENT TO COMMITMENT PERCENTAGE OF
REVOLVING CREDIT LOANS REVOLVING CREDIT LOANS
($ Millions)
<S> <C> <C>
BANKBOSTON 25.0 50%
- --------------------------------------------------------------------------------
STATE STREET 12.5 25%
- --------------------------------------------------------------------------------
CITIZENS 12.5 25%
- --------------------------------------------------------------------------------
TOTALS.......... $50.0 100%
================================================================================
</TABLE>
"Debt Service Coverage Ratio": The decimal equivalent of the following
fraction, each determined, without duplication, on a rolling Four (4)
quarter basis:
Numerator:
---------
EBITDA
plus
Equipment operating lease expense
plus
Funded Indebtedness, other than
Revolving Credit Loans
minus
Capital expenditures
minus
Distributions
minus
Taxes paid in cash
Denominator:
-----------
Interest expense
plus
Current maturities of long term debt
(including capitalized leases)
plus
Equipment operating lease expense
/May 14, 1997/ /4/
<PAGE>
"Eurodollar Rate": that per annum rate determined as the aggregate of the
Eurodollar Offer Rate Plus the Euro/Libor Margin, except that, in the
event that it is determined that any Lender may be subject to the
Reserve Percentage, the Eurodollar Rate shall mean, with respect to
any Eurodollar Rate Loans then outstanding (from the date on which
that Reserve Percentage first became applicable to such loans), and
with respect to all Eurodollar Rate Loans thereafter made, an interest
rate per annum equal the sum of (a) plus (b), where:
(a) is the decimal equivalent of the following fraction:
Eurodollar Offer Rate
--------------------------
1 minus Reserve Percentage
(b) is the Euro/Libor Margin.
"Interest Payment Date": With reference to:
(a) Any Euro/Libor Rate Loan - the last day of the Interest
Period relating thereto (and if the applicable Interest Period is 6
months, then also on the Business Day which is the last day of the
third month of such Interest Period).
(b) Any Base Rate Loan - the first day of each month and the
Termination Date.
"Interest Period": (a) With respect to each Euro/Libor Rate Loan: Subject
to Subsection (c), below, the period commencing on the date of the
making or continuation of, or conversion to, such Euro/Libor Rate Loan
and ending one, two, three, or six months thereafter, as the Borrower
may elect in the applicable Renewal/Conversion/Borrowing Notice.
(b) With respect to each Base Rate Loan: Subject to Subsection
(c), below, the period commencing on the date of the making or
continuation of or conversion to such Base Rate Loan and ending on
that date as of which the subject Base Rate Loan is converted to a
Euro/Libor Rate Loan, as the Borrower may elect in the applicable
Conversion/Renewal/Borrowing Notice.
(c) The setting of Interest Periods is in all instances subject
to the following:
/May 14, 1997/ /5/
<PAGE>
(i) Any Interest Period for a Base Rate Loan that would
otherwise end on a day that is not a Business Day shall be
extended to the next succeeding Business Day.
(ii) Any Interest Period for a Euro/Libor Rate Loan that
would otherwise end on a day that is not a Business Day shall be
extended to the next succeeding Business Day, unless that
succeeding Business Day is in the next calendar month, in which
event such Interest Period shall end on the last Business Day of
the month during which the Interest Period ends.
(iii) Subject to Subsection (iv), below, any Interest
Period applicable to a Euro/Libor Rate Loan, which Interest
Period begins on a day for which there is no numerically
corresponding day in the calendar month during which such
Interest Period ends shall end on the last Business Day of the
month during which that Interest Period ends (By way of example,
if a One Month Interest Period were to begin on March 31, 1995,
the last day of that Interest Period would be April 28, 1995 (a
Friday).
(iv) Subject to Subsection (v), any Interest Period which
would otherwise end after the Termination Date shall end on the
Termination Date.
(v) The Borrower shall not submit any
Renewal/Conversion/Borrowing Notice which, if made effective,
would result in a Euro/Libor Rate Loan with an Interest Period of
less than one (1) month.
"Libor Rate": that per annum rate determined as the aggregate of the Libor
Offer Rate Plus the Euro/Libor Margin, except that, in the event that
it is determined that any Lender may be subject to the Reserve
Percentage, the Libor Rate shall mean, with respect to any Libor Rate
Loans then outstanding (from the date on which that Reserve Percentage
first became applicable to such loans), and with respect to all Libor
Rate Loans thereafter made, an interest rate per annum equal the sum
of (a) plus (b), where:
/May 14, 1997/ /6/
<PAGE>
(a) is the decimal equivalent of the following fraction:
Libor Offer Rate
---------------------
1 minus Reserve Percentage
(b) is the Euro/Libor Margin.
"Termination Date": The earliest of (a) April 30, 2000, (b) the entry of an
order for relief, with respect to the Borrower, under the Bankruptcy Code,
or (c) the Agent's giving of notice to the Borrower of the termination of
the Revolving Credit on account of the occurrence of an Event of Default.
ARTICLE 3 of the Loan Agreement is amended by the addition of the following
definition in alphabetical order
therein:
"EBITDA": The Borrower's earnings from continuing operations, before
interest, taxes, depreciation, and amortization, each as determined in
accordance with GAAP.
"Euro/Libor Margin": The "Margin" referenced below, based upon the ratio of
the Borrower's Total Debt to the Borrower's EBITDA on the last day of the
fiscal quarter immediately preceding the fiscal quarter during which the
subject Euro/Libor Margin is to be effective. Any change in such "Margin"
will become effective on that date which is the sooner of (a) not more than
Three (3) Business Days after the date on which the Agent shall have
received a compliance certificate for the fiscal quarter in respect of
whose ratio the Margin is to be set or (b) that date on which the Agent
determines, based upon financial information then available to the Agent,
that the Margin is to be increased or decreased from that which is then in
effect:
<TABLE>
<CAPTION>
==============================================================================
LEVEL TOTAL DEBT / EBITDA MARGIN (% Per annum)
- -------------------------------------------------------------------------------
<S> <C> <C>
I Less than 2.0 1.25
- -------------------------------------------------------------------------------
II 2.0 to less than 2.5 1.75
- -------------------------------------------------------------------------------
III 2.5 to less than 3.0 2.00
- -------------------------------------------------------------------------------
IV 3.0 or greater 2.25
==============================================================================
</TABLE>
"Tangible Net Worth": The result, on the day on which compliance with any
financial performance covenant applicable to Tangible Net Worth is being
determined, of (a) the difference between the Borrower's assets and its
liabilities, respectively as would be reflected on a balance sheet prepared
in accordance
/May 14, 1997/ /7/
<PAGE>
with the requirements of Section 9-1, , below, minus (b) the aggregate of
those of the Borrower's assets as may be deemed intangible in accordance
with GAAP.
SECTION 5-6 of the Loan Agreement is amended to read as follows:
5-6. Indebtedness. The Borrower does not and shall not hereafter have any
------------
Indebtedness with the exceptions of:
(a) Any Indebtedness to the Lenders under the Revolving Credit.
(b) The Indebtedness (if any) listed on EXHIBIT, annexed hereto.
(c) Ordinary trade indebtedness incurred in the normal course of the
Borrower's business and consistent with the Borrower's prior practices.
(d) Indebtedness on account of equipment leases and/or secured by
purchase money security interests in Equipment, the acquisition of which is
permitted within the limitations on Capital Expenditures included herein
(Section 9-11 ).
(e) Indebtedness subordinated to the Liabilities pursuant to such
documentation as is acceptable to the Agent and each Lender.
(f) Indebtedness not otherwise described in this Section and not in
excess of $5,000,000.00 outstanding at any one time.
SECTION 5-18 of the Loan Agreement is amended to read as follows:
5-18. Dividends or Investments. The Borrower shall not
------------------------
(a) Pay any dividend or make any other distributions of cash and/or
property with respect to any class of the Borrower's capital stock, other than a
common stock dividend of the Borrower's own capital stock.
(b) Own, redeem, retire, purchase, or acquire any of the Borrower's
capital stock.
(c) Except as otherwise permitted pursuant to Section 5-18A, below:
(i) Invest in or purchase any stock or securities or rights to
purchase any such stock or securities, of any corporation or other entity.
(ii) Merge or consolidate or be merged or consolidated with or
into any other corporation or other entity.
(iii) Consolidate any of the Borrower's operations with those of
any other corporation or other entity.
(iv) Organize or create any Related Entity.
/May 14, 1997/ /8/
<PAGE>
(d) Subordinate any debts or obligations owed to the Borrower by any
third party to any other debts owed by such third party to any other Person.
SECTION 5-18A, to read as follows, is added to the Loan Agreement:
5-18A. Permitted Acquisitions. Subject to the satisfaction of each of the
-----------------------
following conditions, the Borrower may acquire a Person which is engaged solely
in the same business as that of the Borrower, or in a business reasonably allied
thereto, which acquisition may be in such form or structure as the Borrower
determines as being advantageous to the Borrower's business interests:
(a) The Borrower shall have given the Agent and each Lender written
notice, with reasonable details, of the proposed acquisition not less than the
earliest of (i) the date on which the Borrower would have been required, under
applicable securities law, to have made disclosure of such proposed acquisition;
(ii) the date on which the Borrower effects a filing seeking any required
consent, no action letter, or the like with respect to such proposed
acquisition; (iii) the date on which the Borrower first became legally obligated
in respect of such proposed acquisition (such as by its execution of a
nondisclosure agreement); or (iv) Thirty (30) days prior to the date of such
acquisition's closing. The Borrower shall promptly respond to reasonable
inquiries from the Agent or any Lender concerning the financial condition,
operations, and properties of the proposed target of such acquisition and the
terms and conditions by which the proposed acquisition will be effected.
(b) In the event that the consideration to be paid by the Borrower on
account of such acquisition (which, for such purposes shall include the
aggregate present value of all cash consideration to be paid and all
indebtedness and obligations to be assumed in connection with such acquisition)
is equal to or greater than Ten Million Dollars ($10,000,000.00), then
(i) With the written notice required pursuant to Subsection (a),
above, the Borrower shall provide the Agent and each Lender with a pro
forma forecast of the operations of the Borrower for the Twenty Four (24)
months following such acquisition, which forecast shall reflect that the
Borrower shall not breach any financial performance covenant included
herein; and
(ii) The subject acquisition shall be subject to the prior
written consent of the Lenders.
(c) No Event of Default is extant immediately prior to such
acquisition and none will occur in consequence of such acquisition.
/May 14, 1997/ /9/
<PAGE>
(d) The subject acquisition is to be effected with the consent of the
target thereof.
(e) The Borrower and the target of such proposed acquisition shall
have executed such instruments and documents as required by Section 5-24 below
(additional assurances) as the Agent may request.
SECTION 5-24 of the Loan Agreement is amended to read as follows:
5-24. Additional Assurances.
----------------------
(a) The Borrower is not the owner of, nor has it any interest in, any
property or asset which, immediately upon the satisfaction of the conditions
precedent to the effectiveness of the loan arrangement contemplated hereby
(Article 4), will be not be subject to a perfected security interest in favor of
the Agent (subject only to those Encumbrances (if any) described on EXHIBIT 5-5,
annexed hereto) to secure the Liabilities.
(b) Neither the Borrower, nor any target which is acquired by the
Borrower (as to which, see Section 5-18A, above) will acquire any asset or any
interest in property which is not, immediately upon such acquisition, subject to
a perfected security interest in favor of the Agent to secure the Liabilities
(subject only to Encumbrances (if any) permitted pursuant to Section 5-5,
above).
(c) The Borrower shall, and shall cause any such target to, execute
and deliver to the Agent such instruments, documents, and papers, and shall do
all such things, and shall cause such target to do all such things, from time
to time hereafter as the Agent reasonably may request to carry into effect the
provisions and intent of this Agreement; to protect and perfect the Agent's and
the Lenders' security interest in the Collateral (and in any collateral granted
by such target); and to comply with all applicable statutes and laws; and
facilitate the collection of the Receivables Collateral (and the collection of
like assets of any such target). The Borrower shall, and shall cause any such
target to, execute all such instruments as reasonably may be required by the
Agent with respect to the recordation and/or perfection of the security
interests created herein. A carbon, photographic, or other reproduction of this
Agreement or of any financing statement or other instrument executed pursuant to
this Section shall be sufficient for filing to perfect the security interests
granted herein.
(d) The Borrower shall, and shall cause any such target to, maintain
all of its principal operating accounts with one or more of the Lenders.
SECTION 9-3 of the Loan Agreement is amended by the addition of the following
subsection:
/May 14, 1997/ /10/
<PAGE>
(g) The issuance by the Borrower's accountants of an "auditor's
management letter" or similar communication, which notice shall be accompanied
by a copy of such materials.
SECTION 10-3 of the Loan Agreement is amended to read as follows:
10-3. Failure to Perform Covenant or Liability (No Grace Period). The
----------------------------------------------------------
failure by the Borrower to promptly, punctually, faithfully and timely perform,
discharge, or comply with any covenant or Liability not otherwise described in
Sections or , above, and included in any of the following provisions hereof:
Section Entitled..............:
---------------------------------------------------
5-4 Locations
5-5 Title to Assets
5-6 Indebtedness
5-7 Insurance Policies
5-13 Pay taxes
5-16 Hazardous Materials
5-18 Dividends or Investments
5-18A Permitted Acquisitions
5-19 Permitted Distributions
5-22 Line Of Business
5-23 Affiliate Transactions
ARTICLE 7 Receivables
9-11 Financial Performance Covenants
EXHIBIT 9-11 of the Loan Agreement is replaced by EXHIBIT 9-11 annexed to this
Eighth Amendment.
2. CONDITIONS TO EFFECTIVENESS OF AMENDMENT
----------------------------------------
The within Amendment shall be effective if each of the following conditions
is satisfied on or before May 23, 1997 and on the date on which such amendment
is to take effect, no Suspension Event (as defined in the Loan Agreement) is
extant:
(a) Receipt by the Agent of a Certificate setting forth the text of the
resolutions adopted by the Directors of the Borrower authorizing the Borrower's
execution of the within Amendment, and attesting to the authority of the persons
who executed the within Amendment on behalf of the Borrower.
(b) Receipt by the Agent of a Certificate, executed by the Borrower's
President and its Chief Financial Officer, respectively confirming that no
Suspension Event is then extant.
/May 14, 1997/ /11/
<PAGE>
(c) Receipt by the Agent of an opinion of counsel to the Borrower as to the
due execution and effectiveness of the within Amendment (which opinion is
subject only to the same qualifications as had been included in the opinion
delivered by that counsel at the initial execution of the Loan Agreement).
(d) Receipt by the Agent of an Amendment Fee of $25,000.00.
The Borrower hereby represents that, at the execution of the within
Agreement, no Suspension Event has occurred.
Except as amended hereby, or by the First, Second, Third, Fourth,
Fifth, Sixth, and Seventh Amendments to the Loan Agreement, all terms and
conditions of the Loan Agreement shall remain in full force and effect.
ACT MANUFACTURING, INC.
(The "BORROWER")
By: /s/ Douglass C. Greenlaw
Its: CFO/VP Finance
BANKBOSTON, N.A.
("AGENT")
By: /s/ George M. Mandt
Its: Director/V.P.
The "LENDERS"
BANKBOSTON, N.A. STATE STREET BANK
AND TRUST COMPANY
By: /s/ George M. Mandt By: /s/ F. Andrew Beise
Its: Director/V.P. Its: Vice President
CITIZENS BANK/OF MASSACHUSETTS
By: /s/ Anne Forbes Van Nest
Its: Vice President
/May 14, 1997/ /12/
<PAGE>
EXHIBIT 11
ACT MANUFACTURING, INC.
Weighted Shares Used in Computation of Earnings per Share
Shares used in the net income per common share computation are the weighted
average number of common shares outstanding plus common share equivalents (in
thousands):
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
---------------------- -------------------------
1997 1996 1997 1996
---- ----- ---- -----
<S> <C> <C> <C> <C>
Weighted average number of
common shares outstanding 8,881 8,757 8,850 8,735
Common share equivalents 468 254 468 232
----- ----- ----- -----
TOTAL 9,349 9,011 9,318 8,967
===== ===== ===== =====
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,231
<SECURITIES> 0
<RECEIVABLES> 49,732
<ALLOWANCES> 325
<INVENTORY> 49,303
<CURRENT-ASSETS> 106,558
<PP&E> 12,295
<DEPRECIATION> 4,752
<TOTAL-ASSETS> 120,702
<CURRENT-LIABILITIES> 37,267
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 59,699
<TOTAL-LIABILITY-AND-EQUITY> 120,702
<SALES> 142,613
<TOTAL-REVENUES> 142,613
<CGS> 124,076
<TOTAL-COSTS> 129,889
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,070
<INCOME-PRETAX> 11,654
<INCOME-TAX> 4,661
<INCOME-CONTINUING> 6,993
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,993
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
</TABLE>
