<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 March 31, 1999
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)
2 Cabot Road
Hudson, Massachusetts 01749
--------------------- ----------
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code: (978) 567-4000
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.
Common Stock 9,093,646 Shares
------------ ----------------
(Class) (Outstanding on May 9, 1999)
<PAGE>
ACT MANUFACTURING, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1--Financial Statements:
<S> <C>
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1999 and 1998........................................ 3
Consolidated Statements of Comprehensive Income (Loss) for the three
months ended March 31, 1999 and 1998................................. 3
Condensed Consolidated Balance Sheets as of March 31, 1999 and
December 31, 1998.................................................... 4
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998........................................ 5
Notes to Condensed Consolidated Financial Statements ................. 6
ITEM 2--Management's Discussion and Analysis of Financial Condition
and Results of Operations ..................................... 8
ITEM 3--Quantitative and Qualitative Disclosures About Market Risk ... 17
PART II. OTHER INFORMATION
ITEM 6--Exhibits and Reports on Form 8-K............................... 18
Signatures............................................................. 19
Exhibit Index.......................................................... 20
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ACT MANUFACTURING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited--in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---------- -----------
<S> <C> <C>
Net sales........................................ $ 81,190 $ 60,943
Cost of goods sold............................... 73,681 58,971
---------- ----------
Gross profit..................................... 7,509 1,972
Selling, general and administrative expenses..... 3,681 3,017
---------- ----------
Operating income (loss).......................... 3,828 (1,045)
Interest expense, net............................ 704 740
Other, net...................................... 13 92
---------- ----------
Total........................................ 717 832
---------- ----------
Income (loss) before provision for income taxes.. 3,111 (1,877)
.
Provision (benefit) for income taxes............. 1,245 (751)
---------- ----------
Net income (loss)................................ $ 1,866 $ (1,126)
========== ==========
Basic net income (loss) per common share......... $0.21 $(0.12)
========== ==========
Diluted net income (loss) per common share....... $0.20 $(0.12)
========== ==========
Weighted average shares outstanding--basic....... 9,067,883 9,062,946
========== ==========
Weighted average shares outstanding--diluted..... 9,510,799 9,062,946
========== ==========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
ACT MANUFACTURING, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(unaudited--in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---------- -----------
<S> <C> <C>
Net income (loss)............................... $ 1,866 $ (1,126)
Other comprehensive income (loss):
Foreign currency translation adjustment....... 43 (184)
------ -------
Comprehensive income (loss)..................... $1,909 $(1,310)
====== =======
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
<PAGE>
ACT MANUFACTURING, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................ $ 1,741 $ 5,389
Accounts receivable, net................. 91,832 70,546
Inventory................................ 41,573 45,337
Prepaid expenses and other assets........ 1,201 2,204
Deferred taxes........................... 1,360 1,360
-------- --------
Total current assets.................. 137,707 124,836
PROPERTY AND EQUIPMENT--Net................ 16,289 13,489
GOODWILL--Net.............................. 5,395 5,506
OTHER ASSETS --Net......................... 1,275 1,538
-------- --------
TOTAL...................................... $160,666 $145,369
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................... $ 60,528 $ 50,592
Accrued compensation and
related taxes.......................... 1,071 1,463
Income tax payable....................... 824 505
Accrued expenses and other............... 2,350 2,100
-------- --------
Total current liabilities............. 64,773 54,660
-------- --------
OTHER LONG-TERM LIABILITIES................ 2,102 977
-------- --------
NOTE PAYABLE BANK.......................... 41,255 39,498
-------- --------
CONTINGENCIES.............................. - -
-------- --------
STOCKHOLDERS' EQUITY:
Common stock............................. 91 91
Additional paid-in capital............... 39,598 39,205
Accumulated other comprehensive loss..... (137) (180)
Retained earnings........................ 12,984 11,118
-------- --------
Total stockholders' equity............ 52,536 50,234
-------- --------
TOTAL...................................... $160,666 $145,369
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
<PAGE>
ACT MANUFACTURING, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Three Months
---------------------
Ended March 31,
---------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................. $ 1,866 $ (1,126)
-------- --------
Adjustments to reconcile net income to net cash
(used for) provided by operating activities:
Deferred taxes.................................. -- (751)
Depreciation and amortization................... 1,056 600
(Decrease) increase in cash from:
Accounts receivable--trade................... (21,286) (2,489)
Inventory.................................... 3,764 (4,315)
Prepaid expenses and other assets............ 1,003 (137)
Accounts payable............................. 9,936 18,464
Accrued expenses............................. (813) 283
Income tax payable (refundable).............. 319 (239)
-------- --------
Total adjustments............................ (6,021) 11,416
-------- --------
Net cash (used for) provided by operating
activities........................................ (4,155) 10,290
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment............. (1,549) (2,486)
Decrease (increase) in other assets............... 263 (44)
-------- --------
Net cash used for investing activities............ (1,286) (2,530)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line-of-credit agreements........ 67,812 43,883
Repayments under line-of-credit agreements........ (66,055) (55,092)
Repayments of other long-term liabilities......... (400) (117)
Net proceeds from sale of stock................... 393 --
-------- --------
Net cash provided by (used for) financing
activities....................................... 1,750 (11,326)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
EQUIVALENTS....................................... 43 7
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS........... (3,648) (3,559)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR........ 5,389 5,165
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD............ $ 1,741 $ 1,606
======== ========
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
<PAGE>
ACT MANUFACTURING, INC.
NOTES TO CONDENSED 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, 1998 filed with the Securities and Exchange Commission.
2. INVENTORY
Inventory consisted of the following at:
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
-------------- -----------------
(in thousands)
<S> <C> <C>
Raw material......... $32,995 $32,486
Work in process...... 8,470 10,874
Finished goods....... 108 1,977
------- -------
Total............. $41,573 $45,337
======= =======
</TABLE>
3. NET INCOME (LOSS) PER COMMON SHARE
Basic net income per common share is computed by dividing income available
to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted net income per common share reflects the
potential dilution as if common equivalent shares outstanding (common stock
options) were exercised and converted into common stock unless the effects of
such equivalent shares were antidilutive.
4. SEGMENT INFORMATION
The Company has identified two distinct and reportable segments: the
Printed Circuit Board ("PCB") and Cable and Harness ("Cable") segments. The
Company considers these two segments reportable under Statements of Financial
Accounting Standards ("SFAS") No. 131, "Disclosures About Segments of an
Enterprise and Related Information," criteria as they are managed separately
and the operating results of each segment are regularly reviewed and evaluated
separately by the Company's chief decision maker.
<PAGE>
A summary of information about the Company's operations by segment for the
three months ended March 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
PCB Cable Intercompany Corporate Total
-------- ------- ------------- --------- --------
<S> <C> <C> <C> <C> <C>
1999
Revenue $73,341 $8,568 $ (719) $ -- $81,190
Material and direct labor expense 59,405 5,709 -- -- 65,114
Direct gross profit 13,936 2,859 (719) -- 16,076
Indirect labor and overhead -- -- -- 8,567 8,567
Total gross profit -- -- -- -- 7,509
1998
Revenue $53,217 $9,217 $(1,491) $ -- $60,943
Material and direct labor expense 44,685 6,709 -- -- 51,394
Direct gross profit 8,532 2,508 (1,491) -- 9,549
Indirect labor and overhead -- -- -- 7,577 7,577
Total gross profit -- -- -- -- 1,972
</TABLE>
5. NEW FINANCIAL ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
effective for the fiscal years beginning after June 15, 1999. The new
standard requires that all companies record derivatives on the balance sheet
as assets or liabilities, measured at fair value. Gains or losses resulting
from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. Management is currently assessing the impact of SFAS No. 133 on
the consolidated financial statements of the Company. The Company will adopt
this accounting standard on January 1, 2000, as required.
6. EQUIPMENT LEASES
The Company leases certain equipment used in its manufacturing operations
under capital lease agreements that expire through 2003. During the first
quarter of 1999 the Company refinanced approximately $2.6 million of its then
existing operating leases and classified these leases as capital leases in the
accompanying Condensed Consolidated Balance Sheet for the three month period
ending March 31, 1999. The effect of this refinancing on the Company's
results of operations will not differ materially from the previous lease
financing arrangements.
7. CONTINGENCIES
On February 27, 1998, the Company and certain of the Company's officers and
directors were named as defendants in a purported securities class action
lawsuit filed in the United States District Court for the District of
Massachusetts. The complaint was then amended on October 16, 1998. The
plaintiffs purport to represent a class of all persons who purchased or
otherwise acquired the Company's Common Stock in the period from April 17,
1997 through March 31, 1998. The amended complaint alleges, among other
things, that the defendants knowingly made misstatements to the investing
public about the value of the Company's inventory and the nature of its
accounting practices. On December 15, 1998, the Company filed a motion to
dismiss the case in its entirety based on the pleadings. The Company's motion
to dismiss has been fully briefed by both sides, and oral argument was heard
on April 28, 1999. The Company believes the claims asserted in the amended
complaint are without merit and intends to continue to defend itself
vigorously in this action. The Company further believes that this litigation
will not have a material adverse effect on the Company's business and results
of operations, although there can be no assurance as to the ultimate outcome
of these matters. No provision for any liability that may result from this
litigation has been made in the accompanying condensed consolidated financial
statements.
<PAGE>
8. SUBSEQUENT EVENT
On May 10, 1999, the Company entered into a definitive merger agreement
with CMC Industries, Inc. ("CMC"), a provider of electronics manufacturing
services to original equipment manufacturers in the telecommunications, computer
and electronics industries. The closing of the merger with CMC (the "Merger") is
subject to the approval of the shareholders of CMC and the Company, various
regulatory approvals and other customary closing conditions. Under the terms of
the agreement, each share of CMC Industries common stock will be exchanged for
0.5 shares of ACT Manufacturing common stock. The Merger is expected to be
accounted for as a pooling of interests. The Merger would add approximately
550,000 square feet of capacity at operations located in Corinth, Mississippi,
Santa Clara, California and Hermosillo, Mexico.
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 condensed
consolidated 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, 1998.
Overview
ACT Manufacturing, Inc. provides value-added electronics manufacturing
services for original equipment manufacturers ("OEMs") in the networking and
telecommunications, computer, industrial and medical equipment markets. The
Company provides OEMs with complex printed circuit board ("PCB") assembly
primarily utilizing advanced surface mount technology ("SMT"), mechanical and
molded cable and harness assembly, electro-mechanical sub-assembly, and total
system assembly and integration. The Company targets moderate-volume production
runs of the complex, leading-edge commercial market applications of emerging and
established OEMs, which generally require technologically-advanced and flexible
manufacturing as well as a higher degree of value-added services. These
applications are generally characterized by multiple configurations and high PCB
densities. 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.
On May 10, 1999, the Company entered into a definitive merger agreement
with CMC Industries, Inc. ("CMC"), a provider of electronics manufacturing
services to original equipment manufacturers in the telecommunications, computer
and electronics industries. The closing of the merger with CMC (the "Merger") is
subject to the approval of the shareholders of CMC and the Company, various
regulatory approvals and other customary closing conditions. Under the terms of
the agreement, each share of CMC Industries common stock will be exchanged for
0.5 shares of ACT Manufacturing common stock. The Merger is expected to be
accounted for as a pooling of interests. The Merger would add approximately
550,000 square feet of capacity at operations located in Corinth, Mississippi,
Santa Clara, California and Hermosillo, Mexico.
The Company currently manufactures at six leased facilities having an
aggregate of 358,000 square feet. Four of the facilities are located in
Massachusetts. In the second quarter of 1998, the Company began manufacturing in
a new 45,000 square foot leased facility in Dublin, Ireland and consolidated
operations from the existing Dublin facility into the new plant. In the fourth
quarter of 1998, the Company occupied and began manufacturing in a new 62,000
square foot leased facility in Lawrenceville, Georgia, and consolidated
operations from the existing Norcross, Georgia facility into the new plant. All
of the Company's manufacturing facilities have been certified to the ISO 9002
international quality standard.
<PAGE>
As of March 31, 1999, the Company had 1,019 employees, down from 1,042
employees at December 31, 1998.
The Company typically recognizes revenue upon shipment to customers. The
Company generally does not obtain long-term purchase orders or commitments from
its customers, and, accordingly, works with its customers to anticipate delivery
dates and future volume of orders based on customer forecasts. 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
variations 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 may source components for
product assemblies based on customer forecasts. However, the Company's policy is
that customers are responsible for materials and associated acquisition costs in
the event of a significant reduction, delay or cancellation of orders from the
forecasted amounts.
Results of Operations--Three Months Ended March 31, 1999 and 1998
Net sales increased $20.2 million or 33.2% to $81.2 million for the three
month period ended March 31, 1999 compared with $60.9 million for the same
period in 1998. The increase was attributed principally to an expansion of
business from existing customers, as well as sales to new customers in the
printed circuit board assembly markets. In addition, in the three months ended
March 31, 1998, sales were unfavorably impacted by softness in demand from
existing customers and weakness in the development of new business
opportunities. Net sales in the printed circuit board segment as a percentage of
net sales was approximately 90% for the three month period ended March 31, 1999
compared to approximately 86% for the same period in 1998. Net sales in the
cable and harness segment accounted for approximately 10% of net sales for the
three month period ended March 31, 1999 compared to approximately 14% of net
sales for the same period in 1998.
Gross profit increased $5.5 million or 280.8% to $7.5 million for the three
months ended March 31, 1999 compared with $2.0 million for the same period in
1998. Gross profit as a percentage of net sales ("gross margin") increased to
9.2% for the three months ended March 31, 1999 from 3.2% for the same period in
1998. This increase was attributable to a higher absorption of manufacturing
overhead, the positive impact of the Company's cost management programs and a
favorable product mix.
Selling, general and administrative ("SG&A") expenses increased $0.7
million or 22.0% to $3.7 million for the three months ended March 31, 1999
compared with $3.0 million, for the three months ended March 31, 1998. SG&A
increased primarily due to costs related to additional facilities and the
additional investment in the sales and marketing programs at the Company. SG & A
expenses as a percentage of net sales decreased to 4.5% for the three months
ended March 31, 1999 from 5.0% for the same period in 1998. SG&A as a percentage
of net sales for the three months ended March 31, 1999 was lower than the
corresponding period in 1998 reflecting growth in net sales in the three months
ended March 31, 1999 and the positive effects of the Company's cost management
programs.
Operating income increased $4.9 million to $3.8 million for the three
months ended March 31, 1999 compared with an operating loss of $1.0 million for
the same period in 1998 as a result of the above factors.
Interest expense for the three months ended March 31, 1999 remained
essentially unchanged when compared to the interest expense for the three months
ended March 31, 1998.
Financial Condition, Liquidity and Capital Resources
The Company had working capital of $72.9 million at March 31, 1999 compared
with $70.2 million at December 31, 1998. Operating activities used $4.2 million
of cash for the first three months of 1999 compared
<PAGE>
with cash provided by operations of $10.3 million for the comparable period in
1998. Net cash used by operating activities for the first three months of 1999
consisted principally of the increase in accounts receivable, offset by the
increase in accounts payable, a decrease in inventory, as well as the positive
impact of net income for the period.
Accounts receivable increased $21.3 million to $91.8 million as of
March 31, 1999 from $70.5 million as of December 31, 1998. The increase reflects
higher net sales in the first quarter of 1999 as compared to the fourth quarter
of 1998. In addition, the Company's customers required a higher proportion of
shipments in the last month of the first quarter of 1999 as compared to the last
month of the fourth quarter of 1998. As of March 31, 1999 the Company's accounts
receivable days sales outstanding for product shipments measured from the date
of shipment was approximately 35 days. Inventory decreased $3.8 million to $41.6
as of March 31, 1998 from $45.3 million as of December 31, 1998. This decrease
reflects the Company's continued inventory management initiatives.
In the fourth quarter of 1998, the Company executed a new $55.0 million
Senior Secured Credit Facility ("Credit Facility") to replace the Company's
$50.0 million loan and security agreement then outstanding. This new Credit
Facility provides for borrowings up to an aggregate amount of $55.0 million,
limited to a certain percentage of qualified accounts receivable and qualified
inventory, of which $41.3 million was utilized and an additional $13.7 million
was available for use as of March 31, 1999 based upon the applicable borrowing
base. Interest is payable monthly and the Credit Facility matures in 2001.
Through November 30, 1999, the Company may choose an interest rate of either (i)
0% to .75% above the prime rate as announced by the bank, or (ii) 1.75% to 2.75%
above the prevailing Eurodollar rate depending upon the average borrowing base
availability of the Company. Commencing December 1, 1999, the Company may choose
an interest rate of either (i) 0% to .50% above the prime rate as announced by
the bank, or (ii) 1.50% to 2.50% above the prevailing Eurodollar rate depending
upon the calculated leverage rates of the Company. The Credit Facility requires
the Company to maintain certain levels of minimum availability and maximum
leverage ratios. In addition to certain other prohibited actions, the Credit
Facility also limits capital expenditures by the Company and prohibits the
payment of cash dividends on the Company's capital stock. At March 31, 1999 the
interest rate on the Credit Facility was 8.00%.
The Company leases certain equipment used in its manufacturing operations
under capital lease agreements that expire through 2003. During the first
quarter of 1999 the Company refinanced approximately $2.6 million of its then
existing operating leases and classified these leases as capital leases in the
accompanying Condensed Consolidated Balance Sheet for the three months ending
March 31, 1999. The effect of this refinancing on the Company's results of
operations will not differ materially from the previous lease financing
arrangements.
The Company entered into a $17.0 million interest rate swap agreement in
the fourth quarter of 1998 simultaneous with the execution of the Credit
Facility. The swap agreement provides for payments by the Company at a fixed
rate of interest of 6.76% and matures on October 19, 2001.
Year 2000 Readiness Disclosure Statements
The Company and the companies with which it does business utilize computer
software programs and operating systems and embedded technology in the conduct
of their operations. Many computer software programs and operating systems and
much technology in use today are unable to distinguish between the year 2000 and
the year 1900 because they use a two-digit shorthand to define the applicable
year. This is commonly known as the Year 2000 problem or issue. If the Company
does not properly identify and correct its Year 2000 issues prior to January 1,
2000, the operations of the Company could be materially disrupted, due to, among
other things, an inability to process transactions, send invoices, receive and
record inventory or payments, or engage in similar normal business activities.
In addition, the Company's operations could also be significantly disrupted if
the companies with which it does business are not Year 2000 compliant on a
timely basis, and such failure adversely
<PAGE>
affects their ability to do business with the Company. Any of these Year 2000
failures or disruptions could have a material adverse effect on the Company's
business, financial condition or results of operations.
To address these issues the Company has undertaken an extensive project to
assess and remedy the areas within its business and operations which could be
adversely affected by Year 2000 issues, including its information technology
("IT") and non-IT systems and processes. The first phase of the project is
(i) to determine the extent of the Company's Year 2000 problem by reviewing all
of the Company's hardware, software, equipment and embedded technology to
determine if any of this software and technology is not Year 2000 compliant and
(ii) to determine whether companies with which it does significant business will
be Year 2000 compliant on a timely basis. The next stage in the project will be
to correct or replace and test all such hardware, software, equipment and
embedded technology of the Company and to address the Year 2000 issues
identified at the Company's vendors and customers, as appropriate. The project
is being conducted by the Company using internal and external resources.
Finally, the Company will determine the need to formulate and revise contingency
plans based on the results of its assessment and remediation efforts with regard
to its own Year 2000 issues as well as those of its customers and suppliers.
The Company has completed the assessment stage of the project and has
commenced the remediation stage. The Company has discussed Year 2000 compliance
with its vendors and customers, and has not been informed by any vendor or
customer of material Year 2000 compliance problems which could cause a material
disruption in the Company's operations. The Company will continue to work with
its vendors and customers to identify any possible issues, including testing
interfaces and site audits.
Based on its review to date, the Company expects the total cost of its
Year 2000 assessment and remediation project to be approximately $1.7 million,
of which approximately $.4 million has been expensed to date. The Company's
current expectations regarding the total cost of its Year 2000 project are
subject to change as the project progresses and more detailed information is
developed regarding the remediation efforts necessary to make the Company
Year 2000 compliant on a timely basis. The sources of the funds for the
Company's Year 2000 project are operating cash flow and available equipment
lease-lines. No other material Company IT projects has been deferred as a result
of the Year 2000 project. The Company currently does not believe that internal
Year 2000 issues will have a material adverse effect on the Company's business.
The Company has identified its significant systems which could be adversely
affected by Year 2000 issues to be: (i) manufacturing equipment (including SMT
lines) and testing equipment, (ii) integrated enterprise resource planning
("ERP") systems and networking software and equipment used in its Massachusetts,
Georgia and Ireland facilities, and (iii) electronic commerce capabilities. The
Company has obtained certifications from its equipment vendors indicating that
its critical manufacturing and testing equipment is Year 2000 compliant. The
Company plans to test its critical equipment by June 30, 1999. The Company has
installed a vendor-certified Year 2000 compliant version of ERP software in its
Massachusetts facilities. The Company plans to test such ERP software by June
30, 1999. The version of the ERP software used by the Company's Georgia facility
is certified as Year 2000 compliant by the vendor and was installed and tested
by the Company in February 1999. The ERP systems used in the Company's Ireland
facility is not Year 2000 compliant and cannot be upgraded. The Company has
purchased the version of the vendor-certified Year 2000 compliant software
utilized in the Georgia facility and has engaged the software vendor to assist
in implementing the new ERP system in its Ireland facility. The project plan
provides for a completion date of June 14, 1999. All network software and
electronic commerce capabilities are in the remediation phase with completion of
testing and contingency planning scheduled for June 30, 1999. For the above
identified applications, the Company is developing manual process procedures as
a contingency plan.
There can be no assurance, however, that the Company's plans and programs to
become Year 2000 compliant will succeed in their entirety, or be completed on a
timely basis or that the use of the Company's internal resources to complete the
project will not adversely effect other aspects of the Company's business. The
Company's ability to implement its Year 2000 compliance plan and to make the
necessary modifications or replacements may be adversely affected by a number of
factors outside the control of the Company, including the availability and cost
of trained personnel and the ability of such personnel to acquire Year 2000
compliant systems and otherwise to locate
<PAGE>
and correct all relevant computer codes. In addition, there can be no assurance
that one or more of the Company's vendors or customers won't have material Year
2000 compliance problems. If either the Company or any of its customers or
suppliers fail to become Year 2000 compliant on a timely basis, or if the costs
to the Company are significantly greater than currently anticipated, the result
could be a significant disruption in the Company's business due to a failure in
the systems designed to allow the Company to process transactions, invoice and
receive payments, receive inventory from suppliers or engage in similar business
practices. Such failure would result in a material adverse effect on the
Company's business, financial condition or results of operations.
New Financial Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," effective for the fiscal years beginning
after June 15, 1999. The new standard requires that all companies record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of derivative and
whether it qualifies for hedge accounting. Management is currently assessing
the impact of SFAS No. 133 on the consolidated financial statements of the
Company. The Company will adopt this accounting standard on January 1, 2000, as
required.
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 risk and uncertainties.
Any statements in this Quarterly Report on Form 10-Q that are not statements of
historical fact are forward-looking statements (including, but not limited to,
statements concerning the Company's Year 2000 plans, expectations, compliance
and cost, the characteristics and growth of the Company's market and customers,
the Company's expectations, objectives and plans for future operations, the
Company's ability to effectively manage the costs of the manufacturing
processes, and the Company's expected results of operations, financial
condition, 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 Quarterly Report on Form 10-Q 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; Dependence on Electronics Industry
For the three months ended March 31, 1999, the Company's four largest
customers accounted for approximately 67% of the Company's net sales. Sales to
Ascend, Bay Networks, EMC, and Northern Telecom were approximately 23%, 16%,
15%, and 13%, respectively, of the Company's net sales for such period in 1999.
For the first three months of 1998, the Company's four largest customers
accounted for approximately 64% of the Company's net sales. Sales to EMC, Bay
Networks, Ascend, and Prominent (acquired by Lucent Technologies) were
approximately 19%, 18%, 14%, and 13%, respectively, of the Company's net sales
for such period in 1998. 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 particular 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, or that the Company will be able to
consistently expand its customer base to make up any sales shortfalls from such
major customers and increase overall revenue. The loss of one or more major
customers, a significant reduction in purchases from such customers,
discontinuance by any major customer of products manufactured by the Company,
the failure to expand its customer base or developments adverse to the Company's
customers or their products could have a material adverse effect on the
<PAGE>
Company's business, financial condition and results of operations. In addition,
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. Net sales to customers
within the networking and telecommunications segment accounted for over 50% of
the Company's net sales in each of 1997, 1998 and the first three months of
1999. These industry segments, and the electronics industry as a whole, are
subject to intense competition, consolidation, rapid technological changes,
significant fluctuations in product demand, relatively short product life-
cycles, and consequent product obsolescence. Developments adverse to such
industry segments could have a material 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. In addition, the Company cannot predict whether Year 2000
concerns will adversely affect demands or spending patterns for its customers'
products, thereby adversely affecting demand for the Company's services.
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, 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 from its customers and,
accordingly, works with its customers to anticipate delivery dates and future
volume of orders based on customer forecasts. The Company relies on its
estimates of anticipated future volumes when making commitments regarding the
levels of business that it will seek and accept, the timing of production
schedules, the purchase of inventory and the levels and utilization of personnel
and other resources. From time to time, the Company will purchase certain
components without a customer commitment to pay for them. The Company may source
components for product assemblies based on customer forecasts. However, the
Company's policy is that customers are responsible for materials and associated
acquisition costs in the event of a significant reduction, delay or cancellation
of orders from the forecasted amounts. In the event a customer is unwilling or
unable or not obligated to reimburse the Company for materials costs in the case
of a significant variance from forecast, the Company's business, financial
condition and results of operations could be materially and adversely affected.
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. 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.
Fluctuations in Operating Results
The Company's 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.
Further, a significant portion of net sales in a given quarter may depend on
assemblies configured, completed, packaged and shipped in the final weeks of
such quarter. 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' announcements and introductions of new products or new
generations of products, evolutions in the life cycles of customers' products,
timing of expenditures in anticipation of future orders, cost effectiveness in
managing manufacturing processes, changes in costs and availability of labor
<PAGE>
and components, efficiencies achieved by the Company in managing inventory and
fixed assets, a shift in the Company's product assembly mix which results in
fluctuating margins, capacity utilization, inventory obsolescence, currency
exchange rate movements, acquisitions and related charges and expenses,
competition in the electronics manufacturing services market, trends in the
electronics 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 a material adverse impact on the Company's business, financial
condition and results of operations for that quarter. Management's failure to
effectively manage the costs of the manufacturing processes and manage inventory
levels also could have a material adverse effect on the Company's business,
financial condition and results of operations. 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 will fail to meet the
expectations of securities analysts or investors, and the price of the Common
Stock would then be materially and adversely affected.
Competition
The electronics manufacturing services industry is highly competitive.
The Company competes against numerous U.S. and foreign electronics manufacturing
services providers with global operations. The Company also faces competition
from a number of electronics manufacturing services providers who operate on a
local or regional basis. 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, sales and marketing resources than the Company. Also, due to the
consolidation trend within the industry, the Company faces larger and more
geographically diverse competitors who have combined resources with which to
compete against 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 manufacturing processes are generally not subject to
significant proprietary protection, and companies with significant resources or
international operations may enter the market. Increased competition could
result in price reductions, reduced margins or loss of market share, any of
which could 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 electronics manufacturing services
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 business, financial condition
and results of operations.
Management of Growth
The Company has grown rapidly in recent years and expects to continue to
expand its operations. Such growth has placed, and will continue to place,
significant strain on the Company's management, operations, technical,
financial, systems, marketing 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. In addition, as a result of an inventory
shortfall occurring in the fourth quarter of 1997, the Company has reviewed and
continues to review its security procedures and operating and financial controls
and, based upon such review, has implemented enhanced security systems and
inventory work-in-process tracking systems and expects to continue to identify
opportunities to implement enhanced procedures and controls. There
<PAGE>
can be no assurance, however, that the controls implemented by management will
result in the cost savings anticipated by management. 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 senior managers, engineering and sales personnel. The failure
to hire and retain such personnel could have a material adverse effect on the
Company's business, financial condition and results of operations. See "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Cautionary Statements--Acquisitions and Geographic Expansion" and
"--Dependence Upon Key Personnel and Skilled Employees."
Acquisitions and Geographic Expansion
On May 10, 1999, the Company entered into a definitive merger agreement
with CMC Industries, Inc. ("CMC"). The closing of the merger with CMC (the
"Merger") is subject to the approval of the shareholders of CMC and the Company,
various regulatory approvals and other customary closing conditions. Therefore,
there can be no assurance that the Company will be able to successfully complete
the Merger in a timely fashion or at all. Moreover, the Company has limited
experience in managing geographically dispersed operations, in integrating
acquired companies into its operations, in expanding the scope of operations of
acquired businesses, and in operating outside the Northeastern United States.
Therefore, there can be no assurance that the Company will realize any of the
expected synergies from the Merger or operate the acquired CMC business
profitably in the future.
The Merger and any other future acquisitions by the Company of additional
companies, businesses or assets 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, including CMC, will be successfully integrated
with the Company, that CMC or 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 effected by the integration process or other
factors. The Merger as well as any future such transaction may also result in
the assumption of additional liabilities of the acquired company or business,
the potentially dilutive issuance of equity securities, various transaction
costs and expenses and the incurrence of additional debt and amortization
expenses related to goodwill and other intangible assets, all of which could
materially and adversely affect the Company's business, financial condition and
results of operations following such a transaction.
Dependence Upon Key Personnel and Skilled Employees
The Company's future success will be largely dependent upon the skills and
efforts of John A. Pino, its President and Chief Executive Officer, and other
key executives as well as its managerial, sales and technical employees. None of
the senior management or other key employees of the Company is subject to any
employment contract or noncompetition agreement 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 executives 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 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.
<PAGE>
Expansion of 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 through expansion of its current
facilities. The acquisition and expansion of additional facilities from time to
time will require substantial additional capital, and there can be no assurance
that such capital will be available. 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 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, limit the Company's growth opportunities and materially and adversely
affect the Company's business, financial condition and results of 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. The
Company does not have any long-term supply agreements. 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. To the
extent that the Company is unable to timely obtain key components for the
reasons cited above or otherwise, the Company's business, financial condition
and results of operations could be materially and adversely affected. See
"Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations--Cautionary Statements--Risks of International Operations."
Technological Change and Process Development
The market for the Company's manufacturing services is characterized by
rapidly changing technology and evolving 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 equipment, inventory or processes obsolete or noncompetitive. 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. There can be no
assurance that such additional capital will be available on terms satisfactory
to the company or at all.
Risks of International Operations
The Company acquired in 1997 and then expanded operations in Dublin,
Ireland, and may in the future expand into other geographic regions. The Company
also purchases a significant number of components manufactured in foreign
countries. Because of the scope of its international operations, the Company is
subject to numerous risks, including economic or political disruptions and
instability, transportation delays and interruptions, foreign exchange rate
fluctuations, employee turnover and labor unrest, longer payment cycles, greater
difficulty in
<PAGE>
collecting accounts receivable, and less developed infrastructure, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Changes in policies 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, the imposition of tariffs, or limitations
on imports or exports could also have a material adverse effect on the Company's
business, financial condition and results of operations. 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.
Litigation
On February 27, 1998, the Company and certain of the Company's officers and
directors were named as defendants in a purported securities class action
lawsuit filed in the United States District Court for the District of
Massachusetts. The complaint was then amended on October 16, 1998. The
plaintiffs purport to represent a class of all persons who purchased or
otherwise acquired the Company's Common Stock in the period from April 17, 1997
through March 31, 1998. The amended complaint alleges, among other things, that
the defendants knowingly made misstatements to the investing public about the
value of the Company's inventory and the nature of its accounting practices. On
December 15, 1998, the Company filed a motion to dismiss the case in its
entirety based on the pleadings. The Company's motion to dismiss has been fully
briefed by both sides, and oral argument was heard on April 28, 1999. The
Company believes the claims asserted in the amended complaint are without merit
and intends to continue to defend itself vigorously in this action. The Company
further believes that this litigation will not have a material adverse effect on
the Company's business and results of operations, although there can be no
assurance as to the ultimate outcome of these matters.
Significant Influence of Principal Stockholder
John A. Pino, the Company's President and Chief Executive Officer, and
certain trusts for the benefit of members of his family beneficially own
approximately 60% of the outstanding Common Stock. As a result, Mr. Pino will be
able to exert significant influence over the Company through his ability to
influence the election of directors and all other matters that require action by
the Company's stockholders. The voting power of these stockholders under certain
circumstances could have the effect of preventing or delaying a change in
control of the Company.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in interest rates and foreign currency
exchange primarily in its cash, debt and foreign currency transactions. The
Company does not hold derivative financial instruments for trading or
speculative purposes.
The Company has a $55.0 million Senior Secured Credit Facility ("Credit
Facility") which bears interest at a variable interest rate. The Company has
also entered into a $17.0 million interest rate swap agreement which matures in
October 2001 and is classified as held for purposes other than trading, in order
to reduce the impact of fluctuating interest rates on its Credit Facility. Under
this swap agreement, the Company agrees with the
<PAGE>
counterpart to pay fixed rate payments on a monthly basis, based upon an annual
interest rate of 6.76% in exchange for receiving variable rate payments, on a
monthly basis, calculated on an agreed-upon notional amount. Net interest
payments or receipts from interest rate swaps are recorded as adjustments to
interest expense in the Company's Condensed Consolidated Statement of
Operations. The Company's exposure related to adverse movements in interest
rates is primarily derived from the variable rate on the remainder of the
Company's Credit Facility. As of March 31, 1999, $17.0 million of the
outstanding balance of $41.3 million under the Credit Facility was at a rate of
6.76% and the remainder of the Credit Facility was at an 8.0% interest rate.
Based on the portion of this balance in excess of $17 million, an adverse change
of one percent in the interest rate would cause a change in interest expense of
approximately $243,000 on an annual basis.
The foreign currency to which the Company has exchange rate exposure is the
Irish punt. International operations do not currently constitute a significant
portion of the revenues of the Company and therefore this exposure is not
considered material to the Company.
Based on a hypothetical ten percent adverse movement in interest rates and
foreign currency exchange rates, the potential losses in future earnings, fair
value of the risk-sensitive financial instruments and cash flows are immaterial.
However, the actual effects of interest rates and foreign currency exchange
rates may differ materially from the hypothetical analysis.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Description
------- -----------
10. Global Master Rental Agreement dated May 1, 1998
between the Company and Comdisco, Inc.
11. Computation of Net Income (Loss) Per Common Share
27. Financial Data Schedule
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the quarter
ended March 31, 1999.
<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.
May 14, 1999 ACT MANUFACTURING, INC.
/s/ JEFFREY B. LAVIN
--------------------------------------------
Jeffrey B. Lavin
Vice President of Finance
and Chief Financial Officer
(Principal Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
10. Global Master Rental Agreement dated May 1, 1998 between the
Company and Comdisco, Inc.
11. Computation of Net Income (Loss) Per Common Share
27. Financial Data Schedule
<PAGE>
[LOGO APPEARS HERE] GLOBAL MASTER RENTAL AGREEMENT
(ELECTRONICS GROUP)
GLOBAL MASTER RENTAL AGREEMENT (the "Agreement") dated May 1, 1998 by and
between COMDISCO, INC., acting on behalf of itself and its Affiliates
("Comdisco"), and ACT MANUFACTURING, INC., acting on behalf of itself and its
Affiliates ("Customer").
Comdisco and its Affiliates are engaged in the rental of equipment in various
countries where Customer and its Affiliates may wish to rent such equipment.
To facilitate the transacting of rental operations between Comdisco or an
Affiliate of Comdisco and Customer or an Affiliate of the Customer on an ongoing
basis, Comdisco and the Customer wish to enter into the present Agreement which,
together with the Schedule under which each individual rental operation is
concluded, will establish the terms and conditions applicable to such rental
operation.
IN CONSIDERATION of the mutual agreements described below, the parties agree as
follows (all capitalized terms not otherwise defined in the body of this
Agreement are defined in Section 15.12):
1. PROPERTY RENDED, CUSTOMER LIABILITY, CONFLICT.
Lessor rents to Lessee all of the Equipment described on each
Schedule, subject to the terms and conditions of this Agreement and such
Schedule. Each such Schedule will be governed by all of the terms and conditions
of this Agreement and such additional terms and conditions as may be set forth
in such Schedule. Customer will, without notice, be jointly and severally liable
for the due performance of the obligations of its Affiliates under all Schedules
executed hereunder, including, without limitation, all terms and conditions
negotiated by its Affiliates. In the event of a conflict, the terms of a
Schedule prevail over this Agreement.
The parties agree that each local transaction will only be validly
concluded if the relevant Schedule is executed by authorized signatories of
Lessor and Lessee involved in such transaction, and that any such Schedule may
also be supplemented or amended by special terms or conditions agreed upon by
Lessor or Lessee for the particular transaction.
2. TERM.
On the Commencement Date Lessee will be deemed to accept the
Equipment, will be bound to its Rent obligations for each item of Equipment and
the term of a Schedule will begin and continue through the Initial Term and
thereafter until terminated by either party upon prior written notice received
during the Notice Period. No termination may be effective prior to the
expiration of the Initial Term.
3. RENT AND PAYMENTS.
Rent is due and payable in advance, in immediately available funds,
in the currency indicated on the Schedule, on the first day of each Rent
Interval to the payee and at the location specified in Lessor's invoice. The
Interim Rent is due and payable when invoiced. If any payment is not made when
due, Lessee will owe and pay interest at the Overdue Rate.
4. SELECTION AND WARRANTY AND DISCLAIMER OF WARRANTIES.
4.1 SELECTION. Lessee acknowledges that it has selected the
Equipment and disclaims any reliance upon statements made by the Lessor.
4.2 WARRANTY AND DISCLAIMER OF WARRANTIES. Lessor warrants to
Lessee that, so long as Lessee is not in default, Lessor will not disturb
Lessee's quiet and peaceful possession, and unrestricted use of the Equipment.
To the extent permitted by the manufacturer, Lessor assigns to Lessee during the
term of the Schedule any manufacturer's warranties for the Equipment. LESSOR
MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE MERCHANTABILITY OF THE EQUIPMENT OR ITS
FITNESS FOR A PARTICULAR PURPOSE. Lessor is not responsible for any liability,
claim, loss, damage or expense of any kind (including strict liability in tort)
caused by the Equipment except for any loss or damage caused by the negligent
acts of Lessor. In no event is Lessor responsible for special, incidental or
consequential damages.
5. TITLE AND ASSIGNMENT.
5.1 TITLE. Lessee holds the Equipment subject and subordinate to
the rights of the Owner, Lessor, any Assignee and any Secured Party. Lessee
authorizes Lessor, as Lessee's agent to the extent relevant, to prepare, execute
and file in Lessee's name precautionary financing statements if applicable in
the relevant jurisdiction showing the interest of the Owner, Lessor, and any
Assignee or Secured Party in the Equipment, and to insert serial numbers in
Schedules as appropriate. Except as provided in Sections 5.2 and 7.2, Lessee
will, at its expense, keep the Equipment free and clear from any liens or
encumbrances of any kind (except any caused by Lessor) and will indemnify and
hold Lessor, Owner, any Assignee and Secured Party harmless from and against any
loss caused by Lessee's failure to do so.
5.2 RELOCATION. Upon Prior written notice, Lessee may relocate
Equipment to any location within the country set forth in the respective
Schedule provided all additional costs arising from such relocation (including
but not limited to any administrative fees, additional duties, taxes and
insurance coverage) are reconciled and promptly paid by Lessee. No relocation
will relieve Lessee from any of its obligations under this Agreement and the
relevant Schedule.
5.3 ASSIGNMENT BY LESSOR. The terms and conditions of each
Schedule have been fixed by Lessor in order to permit Lessor to sell and/or
assign or transfer its interest or grant a security interest in each Schedule
and/or the Equipment to a Secured Party or Assignee. In that event the term
Lessor will include the Assignee and any Secured Party. However, any assignment,
sale, or other transfer by Lessor will not relieve Lessor of its obligations to
Lessee and will not materially change Lessee's duties or materially increase the
burdens or risks imposed on Lessee. The Lessee consents to and will acknowledge
such assignments in a written notice given to Lessee. Lessee also agrees that:
(a) The Secured Party will be entitled to exercise all of Lessor's
rights, but will not be obligated to perform any of the obligations
of Lessor. The Secured Party will not disturb Lessee's quiet and
peaceful possession and unrestricted use of the Equipment so long as
Lessee is not in default and the Secured Party continues to receive
all Rent payable under the Schedule; and
(b) Lessee will pay all Rent and all other amounts payable to the
Secured Party, despite any defense or claim which it has against
Lessor. Lessee reserves its right to have recourse directly against
Lessor for any defense or claim; and
(c) Subject to and without impairment of Lessee's leasehold
rights in the Equipment, Lessee holds the Equipment for the Secured
Party to the extent of the Secured Party's rights in that Equipment.
5.4 ASSIGNMENT OF LIABILITY. Customer hereby agrees that its
representations and obligations under this Agreement may be assigned by
Comdisco, without notice, to Lessor under any Schedule issued hereunder, and
further assigned by Lessor without notice to a Secured Party or Assignee.
6. NET OBLIGATION AND TAXES AND FEES.
6.1 NET OBLIGATION. Each Schedule constitutes the Lessee's
absolute and unconditional obligation to pay Rent and is not subject to any
abatement, reduction, set-off, defense, counterclaim, interruption, deferment or
recoupment for any reason whatsoever. Subject to Section 6.2. if Lessee is
1
<PAGE>
required by law or regulation to make any deduction or withholding, Lessee shall
pay to Lessor an amount sufficient to assure that Lessor receives a net amount
equal to the Rent.
6.2 TAXES AND FEES. Lessee will pay when due or reimburse Lessor for
all taxes, duties or any other charges (together with any related interest or
penalties not arising from the negligence of Lessor) accrued for or arising out
of the term of each Schedule against Lessor, Lessee or the Equipment by any
governmental Authority (except only taxes on the net income of Lessor)
including, but not limited to, any witholding tax on income, value-added,
turnover, stamp or recouping tax ("Additional Costs"). If required, Lessor will
file any property tax returns for the Equipment and pay all property taxes due.
Lessee will reimburse Lessor for property taxes within thirty (30) days of
receipt of an invoice.
Lessee ensures that Lessor will receive a net amount equal to the full
amount of the scheduled Rent (at the times and in the amounts as set forth on
the Schedule) which it expects to receive without regard to any such amounts
being subject to Additional Costs.
Lessor shall cooperate with Lessee in obtaining any clearances which
Lessee shall seek to obtain which will minimize Lessee's burden in regard to
Additional Costs.
7. CARE, USE AND MAINTENANCE, ATTACHMENTS AND RECONFIGURATIONS AND INSPECTION BY
LESSOR.
7.1 CARE, USE AND MAINTENANCE. Lessee will maintain the Equipment in
good operating order and appearance, protect the Equipment from deterioration,
other than normal wear and tear, and will not use the Equipment for any purpose
other than that for which it was designed. If commercially available, Lessee
will maintain in force a standard maintenance contract with the manufacturer of
the Equipment, or another party acceptable to Lessor, and upon request will
provide Lessor with a complete copy of that contract. With Lessor's prior
written consent, Lessee may have the Equipment maintained by a party other than
the manufacturer. Lessee agrees to pay any costs necessary for the manufacturer
to bring the Equipment to the equipment specifications as of the Commencement
Date, and to re-certify the Equipment as eligible for manufacturer's maintenance
by termination of the applicable Schedule whether by expiration or otherwise.
Lessee agrees to accept and install all routine engineering updates made
available by the manufacturer so as to insure the Equipment is at the current
release. The rental term will continue upon the same terms and conditions until
recertification has been obtained.
7.2 ATTACHMENTS AND RECONFIGURATIONS. Upon Lessor's prior written
consent, Lessee may reconfigure and install Attachments on the Equipment. In the
event of such a Reconfiguration or Attachment, Lessee shall, upon the return of
the Equipment, at its expense, restore the Equipment to the original
configuration specified on the Schedule in accordance with the manufacturer's
specifications and in the same operating order, repair and appearance as when
installed (normal wear and tear excluded). If any parts are removed from the
Equipment during the Reconfiguration or Attachment, the restoration will
include, at Lessee's option, the installation of either the original removed
parts or Like Parts. Alternatively, with Lessor's prior written consent which
will not be unreasonably withheld, Lessee may return the Equipment with any
Attachment or upgrade.
7.3 INSPECTION BY LESSOR. Upon request, Lessee, during reasonable
business hours and subject to Lessee's security requirements, will make the
Equipment and its related log and maintenance records available to Lessor for
inspection.
8. REPRESENTATIONS AND WARRANTIES OF LESSEE.
Customer and Lessee represent and warrant that for this Agreement and
each Schedule:
(a) The execution, delivery and performance of the Lessee have been
duly authorized by all necessary corporate action;
(b) The individual executing was duly authorized to do so;
(c) This Agreement and each Schedule constitute legal, valid and
binding agreements of the Lessee enforceable in accordance with their
terms; and
(d) The Equipment is personal property and when subjected to use by
the Lessee will not be or become fixtures under applicable law.
9. DELIVERY AND RETURN OF EQUIPMENT.
Lessee assumes the full expense of transportation of the Equipment to
its initial location, installation, deinstallation, and return to a location
(including without limitation the expense of intransit insurance) all pursuant
to Lessor's instructions and manufacturer's specifications. Regarding
deinstallation, Lessee will assure that the Equipment is deinstalled by the
manufacturer in accordance with the manufacturer's recommended procedures and
any Environmental Law, and returned with a Verification of Decontamination in
the same operating order, repair, condition and appearance as when originally
installed (less normal wear and tear and depreciation) meeting all original
equipment manufacturer's specifications for continued manufacturer's
maintenance, and accompanied by all associated documents, manuals, maintenance
records for the duration of the Initial Term or any extension thereof, spare
parts and accessories. In connection with deinstallation, any Contaminant
removed from the Equipment will be removed and transported by a licensed waste
removal transporter. During the period subsequent to receipt of a notice under
Section 2, Lessor may demonstrate the Equipment's operation in place and Lessee
will supply any of its personnel as may reasonably be required to assist in the
demonstrations. With respect to Equipment located outside the continental United
States, Lessee agrees that if returned to United States, the Equipment will meet
all United States engineering specifications, including but not limited to
United States power standards.
10. LABELING.
Upon request, Lessee will mark the Equipment indicating Lessor's
interest. Lessee will keep all Equipment free from any other marking or labeling
which might be interpreted as a claim of ownership.
11. INDEMNITY.
Lessee will indemnify and hold Lessor, any Assignee and any Secured
Party harmless from and against any and all claims, costs, expenses, damages and
liabilities, including reasonable attorney's fees, arising out of the ownership
(for strict liability in tort only), selection, possession, renting, operation,
control, use, maintenance, delivery, return or other disposition of the
Equipment. However, Lessee is not responsible to a party indemnified hereunder
for any claims, costs, expenses, damages and liabilities occasioned by the
negligent acts of such indemnified party. Lessee agrees to carry bodily injury
and property damage liability insurance during the term of the Agreement with
insurance providers acceptable to Lessor, in amounts and against risks
customarily insured against by the Lessee on equipment owned by it. Any amounts
received by Lessor under that insurance will be credited against Lessee's
obligations under this Section.
12. RISK OF LOSS.
Effective upon delivery and until the Equipment is returned, Lessee
relieves Lessor of responsibility for all risks of physical damage to or loss or
destruction of the Equipment. Lessee will carry casualty insurance for each item
of Equipment in an amount not less than the Casualty Value. All policies for
such insurance must be with insurance providers acceptable to Lessor and will
name the Lessor and any Secured Party as additional insured and as loss payee,
and will provide for at least thirty (30) days prior written notice to the
Lessor of cancellation or expiration. The Lessee will furnish appropriate
evidence of such insurance. Lessee shall promptly repair any damaged item of
Equipment unless such Equipment has suffered a Casualty Loss. Within fifteen
(15) days of a Casualty Loss, Lessee will provide written notice of that loss to
Lessor and Lessee will, at Lessor's option, either (a) replace the item of
Equipment with Like Equipment and marketable title to the Like Equipment will
automatically vest in Lessor, or (b) pay the Casualty Value and after that
payment and the payment of all other amounts due and owing, Lessee's obligation
to pay further Rents for the item of Equipment will cease.
13. DEFAULT, REMEDIES AND MITIGATION.
13.1 DEFAULT. The occurrence of any one or more of the following
Events of Default by Customer or by Lessee constitutes a default under this
Agreement or any Schedule entered into hereunder.
(a) Failure to pay Rent or other amounts payable by Customer or
Lessee when due if that failure continues for ten (10) days after
written notice; or
2
<PAGE>
(b) Failure to perform any other term or condition of this Agreement or
the Schedule or the material inaccuracy of any representation or warranty
made by Customer or Lessee in this Agreement or the Schedule or in any
document or certificate furnished to the Lessor hereunder if that failure
or inaccuracy continues for fifteen (15) days after written notice; or
(c) An assignment for the benefit of its creditors, the failure to pay its
debts when due, the insolvency of Lessee, the filing by or the filing
against Customer or Lessee of any petition under any bankruptcy or
insolvency law or for the appointment of a trustee or other officer with
similar powers, the adjudication of Customer or Lessee as insolvent, the
liquidation of Customer or Lessee, or the taking of any action for the
purpose of the foregoing; or
13.2 REMEDIES. Upon the occurrence of any of the above Events of Default,
Lessor, at its option, may, as to Customer or Lessee:
(a) enforce performance of the provisions of the applicable Schedule by
appropriate court action in law or in equity;
(b) recover any damages and or expenses, including Default Costs;
(c) with notice and demand, recover all sums due and accelerate and
recover the present value of the remaining payments stream of all Rent due
under the defaulted Schedule (discounted at the same rate of interest at
which such defaulted Schedule was discounted with a Secured Party plus any
prepayment fees charged to Lessor by the Secured Party or, if there is no
Secured Party, then discounted at the then prevailing interbank offering
rate for the currency specified in the Schedule less 2%) together with all
Rent and other amounts currently due as liquidated damages and not as a
penalty;
(d) with notice and process of law and in compliance with Lessee's
security requirements, Lessor may enter on Lessee's premises to remove and
repossess the Equipment without being liable to Lessee for damages due to
the repossession, except those resulting from Lessor's, its assignees',
agents' or representatives' negligence; and
(e) pursue any other remedy permitted by law or equity.
The above remedies, in Lessor's discretion and to the extent permitted by
law, are cumulative and may be exercised successively or concurrently.
13.3 MITIGATION. Upon return of the Equipment pursuant to the terms of
Section 13.2, Lessor will use its best efforts in accordance with its normal
business procedures (and without obligation to give any priority to such
Equipment) to mitigate Lessor's damages as described below. EXCEPT AS SET FORTH
IN THIS SECTION, LESSEE HEREBY WAIVES ANY RIGHTS NOW OR HEREAFTER CONFERRED BY
STATUTE OR OTHERWISE WHICH MAY REQUIRE LESSOR TO MITIGATE ITS DAMAGES OR MODIFY
ANY OF LESSOR'S RIGHTS OR REMEDIES STATED HEREIN. Lessor may sell, rents or
otherwise dispose of all or any part of the Equipment at a public or private
sale for cash or credit with the privilege of purchasing the Equipment. The
proceeds from any sale, rental or other disposition of the Equipment are defined
as either:
(a) if sold or otherwise disposed of, the cash proceeds less the Fair
Market Value of the Equipment at the expiration of the Initial Term less
the Default Costs, or
(b) if rented, the present value (discounted at three points over the
prevailing interbank offering rate at the time of the mitigation) of the
Rent for a term not to exceed the Initial Term, less the Default Costs.
Any proceeds will be applied against liquidated damages and any other sums
due to Lessor from Lessee. However, Customer and Lessee are liable to Lessor
for, and Lessor may recover, the amount by which the proceeds are less than the
liquidated damages and other sums due to Lessor from Lessee.
14. ENVIRONMENTAL CONDITIONS.
14.1 INDEMNIFICATION. Lessee shall fully and promptly pay, perform,
discharge, defend, indemnify and hold harmless Comdisco, Lessor and its
Affiliates, successors and assigns, directors, officers, employees and agents
from and against any Environmental Claim or Environmental Loss.
14.2 LESSEE COOPERATION. In the event of an Environmental Claim, Lessee
shall, upon request, immediately provide Lessor with copies of all
correspondence reports, notices, orders, findings, declarations and other
materials pertinent to the Lessee's compliance with and requirements of any
Environmental Law.
14.3 LESSEE INSURANCE. The Lessee shall name Lessor as an additional
insured on its environmental liability insurance policy, if carried.
15. ADDITIONAL PROVISIONS.
15.1 ENTIRE AGREEMENT. This Agreement and associated Schedules supersede
all other oral or written agreements or understandings between the parties
concerning the Equipment including, for example, purchase orders. ANY AMENDMENT
OF THIS AGREEMENT OR A SCHEDULE, MAY ONLY BE ACCOMPLISHED BY A WRITING SIGNED BY
THE PARTIES.
15.2 NO WAIVER. No action taken by Lessor or Lessee shall be deemed to
constitute a waiver of compliance with any representation, warranty or covenant
contained in this Agreement or a Schedule. The waiver by Lessor or Lessee of a
breach of any provision of this Agreement or a Schedule will not operate or be
construed as a waiver of any subsequent breach.
15.3 BINDING NATURE. Each Schedule is binding upon, and inures to the
benefit of Lessor and its assigns. LESSEE MAY NOT ASSIGN ITS RIGHTS OR
OBLIGATIONS.
15.4 SURVIVAL OF OBLIGATIONS. All agreements, obligations including, but
not limited to those arising under Sections 6.2 and 11, representations and
warranties contained in this Agreement, any Schedule or in any document
delivered in connection with those agreements are for the benefit of Lessor and
any Assignee or Secured Party and survive the execution, delivery, expiration or
termination of this Agreement.
15.5 NOTICES. Any notice, request or other communication to either party by
the other will be given in writing and deemed received upon the earlier of
actual receipt or three days after mailing if mailed postage prepaid by airmail
to Lessor (to the attention of "Agreement Administrator") or Lessee, at the
address set out in the Schedule or, two days after it is sent by courier or
facsimile transmission if receipt is verified by the receiving party.
15.6 APPLICABLE LAW. This Agreement shall be governed and construed for all
purposes in accordance with the law agreed upon in the applicable Schedule by
Lessor and Lessee. Comdisco and Customer hereby consent to such law. Customer
hereby consents to the jurisdiction of the court agreed upon in the applicable
Schedule.
15.7 SEVERABILITY. If any one or more of the provisions of this Agreement
or any Schedule is for any reason held invalid, illegal or unenforceable, the
remaining provisions of this Agreement and any such Schedule will be unimpaired,
and the invalid, illegal or unenforceable provision replaced by a mutually
acceptable valid, legal and enforceable provision that is closest to the
original intention of the parties.
15.8 COUNTERPARTS. This Agreement and any Schedule may be executed in any
number of counterparts, each of which will be deemed an original, but all such
counterparts together constitute one and the same instrument. If Lessor grants a
security interest in all or any part of a Schedule, the Equipment or sums
payable thereunder, only that counterpart Schedule marked "Secured Party's
Original" can transfer Lessor's rights and all other counterparts will be marked
"Duplicate".
15.9 LICENSED PRODUCTS. Lessee shall obtain no title to Licensed Products
which will at all times remain the property of the owner of the Licensed
Products. A license from the owner may be required and it is Lessee's
responsibility to obtain any required license before the use of the Licensed
Products. Lessee agrees to treat the Licensed Products as confidential
information of the owner, to observe all copyright restrictions, and not to
reproduce or sell the Licensed Products.
3
<PAGE>
15.10 ADDITIONAL DOCUMENTS. Customer and Lessee will, upon execution of
this Agreement and as may be requested thereafter, provide Lessor and/or
Comdisco with a secretary's certificate of incumbancy and authority and any
other documents reasonably requested by Lessor and/or Comdisco. Lessee will
furnish, upon request, quarterly and audited financial statements for the most
recent period.
15.11. ELECTRONIC COMMUNICATIONS. Each of the parties may communicate with
the other by electronic means under mutually agreeable terms.
15.12. DEFINITIONS.
ADVANCE ENVIRONMENTAL CONDITION - means (i) the existence or the continuation of
the existence, of an Environmental Emission (including, without limitation, a
sudden or non-sudden accidental or non-accidental Environmental Emission), of or
exposure to, any substance, chemical, material, pollutant, contaminant, odor or
audible noise or other release or emission in, into or onto the environment
(including without limitation, the air, ground, water or any surface) at, in,
by, from or related to any Equipment, (ii) the environmental aspect of the
transportation, storage, treatment or disposal of materials in connection with
the operation of any Equipment, or (iii) the violation, or alleged violation of
any statutes, ordinances, orders, rules, regulations, permits or licenses of, by
or from any governmental authority, agency or court relating to environmental
matters connected with any Equipment.
AFFILIATE - means as to Comdisco or Customer those enterprises which Comdisco or
Customer own or otherwise control directly or indirectly including, without
limitation, those listed on Exhibits A and B.
ASSIGNEE - means an entity to whom Lessor has sold or assigned its rights as
Owner and Lessor of Equipment.
ATTACHMENT - means any accessory, equipment or device and the installation
thereof that does not impair the original function or use of the Equipment and
is capable of being removed without causing material damage to the Equipment and
is not an accession to the Equipment.
CASUALTY LOSS - means the irreparable loss or destruction of Equipment.
CASUALTY VALUE - means an Amount equal to the present value of the aggregate
Rent remaining for the balance of the Initial Term, plus the present value of
the Fair Market Value (determined as of the expiration of the Initial Term) of
Like Equipment discounted at the lesser of (x) the then prevailing interbank
offering rate less 2% or (y) the Secured Party interest rate, if any.
COMMENCEMENT CERTIFICATE - means the Lessor provided certificate which must be
signed by Lessee within ten days of the Commencement Date as requested by
Lessor.
COMMENCEMENT DATE - is defined in each Schedule.
CONTAMINANT - means those substances which are regulated by or from the basis of
liability under any Environmental Law, including without limitation, asbestos,
polychlorinated biphenyls ("PCB"), and radioactive substances, or other material
or substance which has in the past or could in the future constitute a healthy,
safety or environmental hazard to any person, property or natural resources.
CUSTOMER - means the enterprise other than Comdisco executing this Agreement on
behalf of itself and its Affilates.
DEFAULT COSTS - means reasonable attorney's fees and remarketing costs resulting
from a Lessee default or Lessor's enforcement of its remedies.
ENVIRONMENTAL CLAIM - means any accusation, allegation, notice of violation,
claim, demand, abatement or other order or direction (conditional or otherwise)
by a governmental authority or any Person for personal injury (including
sickness, disease, or death), tangible or intangible property damage, damage to
the environment or natural resources, nuisance, pollution, contamination or
other adverse effects on the environment, or for fines, penalties or
restrictions, resulting from or based upon any Adverse Environmental Condition.
ENVIRONMENTAL EMISSION - means any actual or threatened release, spill,
omission, leaking, pumping, injection, deposition, disposal, discharge,
dispersal, leaching or migration into the indoor or outdoor environment, or into
or out of any of the Equipment including, without limitation, the movement of
any Contaminant or other substance through or in the air, soil, surface water,
groundwater or property.
ENVIRONMENTAL LAW - means any federal, foreign, state or local law, rule or
regulation pertaining to the protection of the environment applicable to the
Equipment in the country of installation.
ENVIRONMENTAL LOSS - means any loss, cost, damage, liability, deficiency, fine,
penalty or expense (including, without limitation, reasonable attorney's fees,
engineering and other professional or expert fees), investigation, removal,
cleanup and remedial costs (voluntarily or involuntarily incurred) and damages
to, loss of the use of or decrease in value of the Equipment arising out of or
related to any Adverse Environmental Condition.
EQUIPMENT - means the property described on a Schedule and any replacement for
that property required or permitted by this Agreement or a Schedule but not
including any Attachment.
EVENT OF DEFAULT - means the events described in Subsection 13.1.
FAIR MARKET VALUE - means the aggregate amount which would be obtainable in an
arm's-length transaction between an informed and willing buyer/user purchasing
the Equipment in place for its originally intended use and an informed and
willing seller under no compulsion to sell.
INITIAL TERM - means the period of time beginning on the first day of the first
full Rent Interval following the Commencement Date for all items of Equipment
and continuing for the number of Rent Intervals indicated on a Schedule.
INSTALLATION DATE - means the day on which Equipment is installed and accepted
by Lessee in accordance with Lessee's or Lessor's equipment purchase
documentation.
INTERBANK OFFERING RATES - means short term rates used within a particular
country by banks lending money amongst themselves.
INTERIM RENT - means the pro-rata portion of Rent due for the period from the
Commencement Date through but not including the first day of the first full Rent
Interval included in the Initial Term.
LESSEE - means with respect to any Schedule, the enterprise executing the
Schedule as Lessee, either Customer or an Affiliate of Customer.
LESSOR - means with respect to any Schedule, the enterprise executing the
Schedule as Lessor, either Comdisco, Inc. or an Affiliate of Comdisco, Inc.
LICENSED PRODUCTS - means any software or other licensed products attached to
the Equipment.
LIKE EQUIPMENT - means replacement Equipment which is lien free and of the same
model, type, configuration and manufacture as Equipment.
LIKE PART - means a substituted part which is lien free and of the same
manufacturer and part number as the removed part, and which when installed on
the Equipment will be eligible for maintenance coverage with the manufacturer of
the Equipment.
NOTICE PERIOD - means the time period described in a Schedule during which
Lessee may give Lessor notice of the termination of the term of that Schedule.
OVERDUE RATE - means the lessor of 3% per year above the then prevailing
interbank offering rate or the maximum rate permitted by the law of the country
where the Equipment is located.
OWNER - means the legal owner of the Equipment.
PERSON - means any individual, partnership, corporation, trust, unincorprated
organization, government or department or agency thereof and any other entity.
RECONFIGURATION - means any change to Equipment that would upgrade or downgrade
the performance capabilities of the Equipment in any way.
RENT - means the rent, including Interim Rent, Lessee will pay for each item of
Equipment expressed in a Schedule either as a specific amount or an amount equal
to the amount which Lessor pays for an item of Equipment
4
<PAGE>
multiplied by a rental rate factor plus all other amounts due to Lessor under
this Agreement or a Schedule.
RENTAL INTERVAL - means a full calendar month or quarter as indicated on a
Schedule.
SCHEDULE - means an Equipment Schedule, substantially in the form attached to
Exhibit C hereto or as may be added by agreement of Comdisco and Customer from
time to time, which incorporates all of the terms and conditions of this
Agreement and, for purposes of Section 15.8, its associated Commencement
Certificate(s).
SECURED PARTY - means an entity to whom Lessor has granted a security interest
in a Schedule and related Equipment for the purpose of securing a loan.
VERIFICATION OF DECONTAMINATION - means a letter from the party performing the
decontamination, stating that such party is licensed by OSHA or the appropriate
officials and that the actual decontamination was completed both in accordance
with manufacturer's specifications and procedures, and any governmental permit
required for the operation of the equipment and the disposal of any hazardous
material in connection therewith.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
or as of the day and year first above written.
ACT MANUFACTURING, INC. COMDISCO, INC.,
as Customer as Lessor
By: /s/ ^^[SIGNATURE ILLEGIBLE]^^ By: __________________________
-------------------------------
Title: CEO PRESIDENT Title: _______________________
----------------------------
By: /s/ ^^[SIGNATURE ILLEGIBLE]^^
-------------------------------
Title: CFO/VP FINANCE
----------------------------
5
<PAGE>
EXHIBIT A
---------
To the Global Master Rental Agreement dated as of May 1, 1998 between
Comdisco, Inc. ("Comdisco") and ACT Manufacturing, Inc. ("Customer")
AFFILIATES OF CONDISCO, INC.
Comdisco Asia Pte Ltd Comdisco Ireland Limited
No. 2 Handy Road 30 Herbert Street
#14-05 Dublin 2
Cathay Building (Ireland)
Singapore 229233
Comdisco Japan, a branch of Comdisco
Comdisco Australia Pty Ltd GmbH & Co. Leasing and Finance KG
(ACN 002 997-453) Nomura Fudosan Building 11F
Level 18, 111 Pacific Highway 1-8-15 Azuchi-Machi
North Sydney J-Chuo-Ku, Osaka 541-0052
NSW-Australia 2060 (Japan)
Comdisco Handelsgesellschaft M.B.H. Comdisco de Mexico, S.A. de C.V.
Mahlerstrasse 7/22 c/o Gardere & Wynne, Arena, Arce,
A-1010 Wien Robles, Yarza, S.C.
(Austria) Rio Panuco No. 7
Col. Cuauhtemoc
06500 Mexico, D.F.
Comdisco Belgium S.P.R.L (Mexico)
c/o KPMG
Rue Neerveld 101 - 103 Boite 3 Comdisco Nederland B.V.
St Lambrechts - Woluwe Planetenbaan 15, Postbus 1681
B-1200 Bruxelles NL-3606 AK Maarssen
(Belgium) (The Netherlands)
Comdisco Canada Ltd. Comdisco New Zealand
Royal Bank Plaza, North Tower Level 20, ASB Bank Centre
200 Bay Street, Suite 2075 Cnr Albert and Wellesley Streets
P.O. Box 131 Auckland
CDN-Toronto, Ontario M5J 2J3 (New Zealand)
(Canada)
Computer Discount Corporation, S.L.
Comdisco France S.A. c/o KPMG Estudio Juridico y Tributario
176, avenue Charles de Gaulle Torre Europa
92552 Neuilly sur Seine Paseo de la Castellana, 95 (Planta 24)
(France) E-28045 Madrid
(Spain)
Promodata S.N.C.
176, avenue Charles de Gaulle Comdisco Swedan AB
92522 Neuilly sur Seine c/o Advokatfirman Vinge
(France) Smalandsgatan 20, Box 1703
S-11187 Stockholm
Comdisco Deutschland GmbH (Sweden)
Oskar-Messter-Strasse 24
D-85737 Ismaning/Munchen Comdisco (Switzerland) SA
(Germany) Postfach 4136
Baarestrasse 20
Comdisco Gmbh & Co. Leasing and CH-6304 ZUG
Finance KG (Switzerland)
Oskar-Messter-Strasse 24
D-85737 Ismaning/Munchen
(Germany) Comdisco Trade, Inc. (Taiwan Branch)
14F-06 Empire Commercial Building
Comdisco Global Inc. No. 295 Kuang-Fu Road Section 2
c/o Truman Bodden & Company Hsinchu, Taiwan
P.O. Box 866 (Republic of China)
Anderson Square Building
Grand Cayman Comdisco United Kingdom Limited
(British West Indies) 1 Centaurs Business Park
Grant Way
GB-Isleworth, Middlesex Tw7 5QD
(Great Britian)
<PAGE>
EXHIBIT B
---------
To the Global Master Rental Agreement dated
as of May 1, 1998 between
Comdisco, Inc. ("Comdisco")
and ACT Manufacturing, Inc. ("Customer")
AFFILIATES OF CUSTOMER
ACT MANUFACTURING, INC.
108 Forest Avenue
Hudson, MA 01749
ADVANCED COMPONENT TECHNOLOGY LIMITED
DBA ACT MANUFACTURING EUROPE
Unit 2008 City West Business Campus
Nass Road
Dublin 24
Ireland
<PAGE>
EXHIBIT C
---------
To the Global Master Rental Agreement dated as of May 1, 1998 between
Comdisco, Inc. ("Comdisco") and ACT Manufacturing, Inc. ("Customer")
Effective as of the date of the Agreement, Comdisco and Customer hereby
agree, pursuant to Subsection 1.2, "Equipment Schedules" of the Agreement that
Equipment Schedules substantially in the forms attached hereto and identified
by country name shall be used in the countries listed below which match the
country name on the attached Equipment Schedules.
Australia Mexico
Austria Netherlands
Belgium New Zealand
Canada **Norway
**Denmark **Portugal
**Finland Singapore
France Spain
Germany Sweden
Hong Kong Switzerland
Ireland Taiwan
***Italy United Kingdom
Japan United States
Initialzed: Comdisco _____
Customer _____
**Leases will be written with Comdisco Nederland B.V., as Lessor
***Leases will be written with Comdisco Handelegssellschaft M.B.H., as Lessor
In certain instances leases for Equipment in Denmark, Finland, Ireland and/or
Portugal may be written by Comdisco GmbH & Co. Leasing and Finance KG.
8
<PAGE>
EXHIBIT 11
ACT MANUFACTURING, INC.
Computation of Net Income (Loss) Per Common Share
Three Months Ended March 31, 1999 and 1998
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
---- ----
BASIC NET INCOME (LOSS) PER COMMON SHARE:
<S> <C> <C>
Net income (loss) as reported.......................... $1,866 $(1,126)
Weighted average number of common shares outstanding:
Common Stock........................................ 9,068 9,063
------ -------
Basic net income (loss) per common share............ $ .21 $ (.12)
====== =======
DILUTED NET INCOME (LOSS) PER COMMON SHARE:
Net income (loss) as reported.......................... $1,866 $(1,126)
Weighted average number of common shares outstanding:
Common Stock........................................ 9,068 9,063
Effect of stock options............................. 443 --
------ -------
Total............................................ 9,511 9,063
------ -------
Diluted net income (loss) per common share.......... $ .20 $ (.12)
====== =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,741
<SECURITIES> 0
<RECEIVABLES> 93,247
<ALLOWANCES> 1,415
<INVENTORY> 41,573
<CURRENT-ASSETS> 137,707
<PP&E> 25,939
<DEPRECIATION> 9,650
<TOTAL-ASSETS> 160,666
<CURRENT-LIABILITIES> 64,773
<BONDS> 43,357
0
0
<COMMON> 91
<OTHER-SE> 52,445
<TOTAL-LIABILITY-AND-EQUITY> 160,666
<SALES> 81,190
<TOTAL-REVENUES> 81,190
<CGS> 73,681
<TOTAL-COSTS> 77,362
<OTHER-EXPENSES> 13
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 704
<INCOME-PRETAX> 3,111
<INCOME-TAX> 1,245
<INCOME-CONTINUING> 1,866
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,866
<EPS-PRIMARY> .21
<EPS-DILUTED> .20
</TABLE>