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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
(Mark One)
[X]Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange
Act of 1934.
For the Fiscal Year Ended: December 31, 1998
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
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ACT Manufacturing, Inc.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Massachusetts 04-2777507
<S> <C>
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
<TABLE>
<CAPTION>
2 Cabot Road 01749
<S> <C>
Hudson, Massachusetts (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (978) 568-0105
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of March 23, 1999 (based on the closing sale price as quoted by
the Nasdaq National Market as of such date) was $52,868,484.
As of March 23, 1999, 9,087,700 shares of the registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's definitive proxy statement for the annual meeting
of stockholders to be held on or about May 18, 1999 to be filed pursuant to
Regulation 14A are incorporated by reference into Part III of this Form 10-K.
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PART I
Except for the historical information contained herein, the matters
discussed in this Annual Report on Form 10-K are forward-looking statements
that involve risks and uncertainties. ACT Manufacturing, Inc. makes such
forward-looking statements under the provision of the "Safe Harbor" section of
the Private Securities Litigation Reform Act of 1995. Any forward-looking
statements should be considered in light of the factors described below in
Item 7 under "Year 2000 Readiness Disclosure Statements" and "Cautionary
Statements." Actual results may vary materially from those projected,
anticipated or indicated in any forward-looking statements. In this Annual
Report on Form 10-K, the words "anticipates," "believes," "expects,"
"intends," "future," "could," "may," and similar words or expressions (as well
as other words or expressions referencing future events, conditions or
circumstances) identify forward-looking statements.
ITEM 1. BUSINESS
ACT Manufacturing, Inc. ("ACT" or the "Company") 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.
Services Provided by the Company
The Company utilizes a business unit or "cell" approach to provide value-
added services to its customers. Within this environment, dedicated equipment,
personnel and systems are assigned to specific customers. Throughout the
manufacturing organization, state-of-the-art production performance,
statistical process control and quality reporting systems are utilized to
provide accurate, timely and relevant management and customer information.
Manufacturing of Electronic Assemblies
ACT offers manufacturing capabilities for PCB assembly, cable and harness
assembly, electro-mechanical sub-assembly and total system assembly and
integration.
Printed Circuit Board Assembly
The Company's PCB assembly operations are primarily oriented toward a full
range of advanced SMT applications, including ball grid array. The Company
also continues to support pin-through-hole technology and related semi-
automated and manual placement processes for existing and new applications
that require these technologies. ACT's manufacturing process is supported by
state-of-the-art, high-speed placement systems, screen printers, epoxy
dispensers, wave solderers, reflow and cleaning systems and a highly-trained
and experienced engineering and manufacturing workforce. In addition, the
Company has made significant investments in computer-aided manufacturing and
test equipment, process technology, and information processing technology. ACT
utilizes environmentally clean, water-soluble and no-clean process technology
that the Company believes meets or exceeds all applicable environmental
regulations.
ACT also provides in-circuit, functional and stress environmental testing
services for substantially all completed PCB assemblies in connection with the
manufacturing process. In-circuit tests verify that the components have been
inserted properly and meet certain functional standards and that the
electrical circuits have
2
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been completed properly. These tests are performed on industry standard
testing equipment using proprietary software developed either by the customer
or the Company's test engineers. In addition, using specialized testing
equipment designed and provided by the customer, the Company performs
customized functional tests designed to ensure that the PCB assembly will
perform its intended functions. Since defective components normally fail after
a relatively short period of use, normal process parameters require that
certain PCB assemblies be subjected to controlled environmental stresses,
typically thermal or electrical stresses.
Cable and Harness Assembly
ACT offers a wide range of cable and harness assembly services for molded
and mechanical applications. The Company provides custom manufactured ribbon,
multiconductor, co-axial and fiber optic cable assemblies and discrete wire
harness assemblies. The Company uses advanced and diverse manufacturing
processes, in-line inspection and test and dedicated work cells to minimize
work in process time and focus on process efficiencies and quality. The cable
and harness assembly process is accomplished using both automated and semi-
automated preparation and insertion equipment and manual assembly techniques.
ACT tests substantially all of its cable and harness assemblies using
automated test equipment.
Electro-Mechanical Sub-Assembly and Total System Assembly and Integration
ACT integrates components, including its PCB and cable and harness
assemblies, into higher level sub-assemblies and system assemblies. ACT
provides custom configuration, documentation, packaging and order fulfillment
services as customers seek to streamline and integrate manufacturing and
distribution activities.
ACT provides the following value-added services across the full range of its
electronics manufacturing services:
Advanced Manufacturing and Test Engineering
The Company's advanced manufacturing engineers work closely with an OEM's
product designers at the early design stage in order to optimize product
manufacturability, testability, and reliability. The Company's advanced
manufacturing engineers also participate in the OEM's parts selection and
materials utilization decisions at the design stage in order to mitigate
component availability issues which might arise during the manufacturing
cycle. The Company's engineers evaluate the ongoing manufacturing process and
recommend improvements to reduce manufacturing costs or lead times, or to
increase the quality of finished assemblies. The Company's engineering
services are designed to ensure that OEM products are rapidly brought to
market, meet the market's expectation for quality and take advantage of
advances in manufacturing and testing technology and processes.
Materials Management
The Company directly sources all or a substantial portion of the components
necessary for its product assemblies. The Company procures components from
vendors which meet ACT's standards for timely delivery, high quality, cost
effectiveness and in accordance with customer specifications. To help control
inventory investment, components are generally ordered when the Company has a
customer forecast, purchase order or commitment from a customer to purchase
the completed assemblies. Material planning and procurement is accomplished by
the use of a Materials Requirements Planning (MRP) system. Communication with
certain vendors is enhanced with the use of Electronic Data Interchange (EDI)
systems, through which a majority of the active components purchased by the
Company are acquired. Additionally, ACT uses just-in-time inventory management
techniques and manages its material pipelines and vendor base in order to
enable the Company's customers to increase or decrease volume requirements
within established frameworks.
Product Diagnostics and Repair
The Company offers product diagnostic and repair services for assemblies
manufactured by the Company and, in some instances, other products of its
customers. Utilizing its engineering and test capabilities, the
3
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Company provides product diagnostic, repair and product upgrade services. The
Company provides revision control, lot tracking and materials management
services for product revisions, upgrades and repairs.
Order Fulfillment and Distribution
To more rapidly respond to market demands of its OEM customers, the Company
offers delivery programs and capabilities designed with the flexibility to
ship products directly to their customers. Under these programs, the Company
packages products to the customer's specification with appropriate product
documentation and manages the logistics of delivery. The Company works closely
with its customers to identify and offer additional services in anticipation
of future customer needs.
Customers and Markets
The Company serves a wide range of customers from emerging growth companies
to established, multinational corporations in a variety of markets including
networking and telecommunications, computer, industrial and medical equipment.
In many cases, the Company's OEM customers utilize more than one electronic
manufacturing services provider across their product lines. The Company's goal
is to be the primary electronics manufacturing services provider for its OEM
customers, and to attract the OEMs' high-value, leading-edge products. The
Company believes that its close interaction with the design engineering
personnel of its customers at the product development stage, together with the
Company's established materials pipeline and prototype production experience,
advantageously positions the Company to be selected to provide manufacturing
and value-added services for its customers' new product offerings. The Company
assigns each customer a program manager whose responsibilities, as the primary
contact into the Company, include the development of the manufacturing
relationship and the assignment of Company resources to meet customer
requirements.
The Company continues to focus on expanding and diversifying its customer
base to reduce dependence on any individual customer or market. Electronics
manufacturing services providers generally face a long sales cycle and must
perform satisfactorily on a trial basis prior to capturing significant orders
from that OEM.
Ascend Communications, Inc. (as successor to Cascade Communications Corp.,
"Ascend"), EMC Corporation ("EMC") and Bay Networks, Inc. ("Bay Networks"),
respectively, accounted for 19%, 18%, and 16%, of the Company's net sales for
1998. Bay Networks, Ascend and EMC accounted for 31%, 13% and 13%,
respectively, of the Company's net sales for 1997. The Company's five largest
customers accounted for 68% and 70% of the Company's net sales for 1998 and
1997, respectively.
The Company generally warrants that its products will be free from defects
in workmanship for twelve months, and passes on to the customer any warranties
provided by component manufacturers and material suppliers to the extent
permitted. During the warranty period, the Company's warranty provides that
the Company will take action to repair or replace failed products. The Company
tests substantially all of its assemblies prior to shipment. In addition, the
Company's OEM customers generally test or have tested final products on a
sample basis prior to deployment in the field. The Company's warranty costs
have not been material to date.
Sales and Marketing
The Company focuses its sales efforts on developing close relationships with
customers primarily during product design and development. The Company's
services are marketed primarily through a direct sales force, and to a lesser
extent, through independent manufacturer's representatives in the United
States, Canada and Europe. In addition, the Company supports its existing
customer relationships through a comprehensive staff of program managers
dedicated to individual customer accounts.
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As the Company has grown, it has increasingly relied on and developed its
direct selling organization as opposed to utilizing independent manufacturer
representatives. The Company expects to continue to expand its direct sales
organization and marketing efforts in response to increased customer
opportunities in new geographic markets.
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.
Governmental Regulation
The Company's operations are subject to certain federal, state and local
regulatory requirements relating to environmental, waste management and health
and safety matters. The Company believes that it complies with applicable
regulations promulgated by the Occupational Safety and Health Administration
and the Environmental Protection Agency and corresponding state agencies
pertaining to health and safety in the workplace and the use, storage,
discharge and disposal of hazardous chemicals used in its manufacturing
processes. The current costs of compliance are not material to the Company.
Nevertheless, no assurances can be given that additional or modified
requirements will not be imposed in the future and, if so imposed, will not
involve substantial additional expenditures by the Company.
Employees
At December 31, 1998, the Company had 1,042 permanent employees, compared
with 985 permanent employees at December 31, 1997. The employees of the
Company are not represented by a union and the Company has experienced no
labor stoppages. The Company considers its relations with its employees to be
good. See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations--Cautionary Statements--Management of Growth," "--
Dependence Upon Key Personnel and Skilled Employees," and "--Acquisitions and
Geographic Expansion."
5
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ITEM 2. PROPERTIES
The Company's principal manufacturing facilities are located in six leased
facilities containing an aggregate of 358,000 square feet. The Company's
significant facilities are as follows:
<TABLE>
<CAPTION>
Location Square Feet
-------- -----------
<S> <C>
Hudson, MA...................................................... 147,000
Hudson, MA...................................................... 32,000
Hudson, MA...................................................... 28,000
Mansfield, MA................................................... 44,000
Lawrenceville, GA............................................... 62,000
Dublin, Ireland................................................. 45,000
-------
Total......................................................... 358,000
=======
</TABLE>
The Company's Hudson, Massachusetts headquarters include a state-of-the-art
manufacturing facility which houses PCB and systems assembly businesses, and
two other facilities which contain manufacturing capabilities for mechanical
and molded cable and harness assembly and electro-mechanical sub-assembly
operations. The Company occupies the Hudson facilities under leases scheduled
to expire in 2007, 2003 and 2003, respectively. The Company leases two of the
Hudson facilities from Re-Act Realty Trust, a Massachusetts nominee trust,
which is controlled by John A. Pino, the President and Chief Executive Officer
of the Company, and the beneficial interest of which is principally owned by
Mr. Pino.
In February 1996, the Company entered into a five year lease for a facility
in Mansfield, Massachusetts to expand its manufacturing operations. The lease
expires in January 2001 and the Company has an option to renew the lease for
an additional five years. The Company believes that its Massachusetts
facilities will be sufficient for the Company's activities in the Northeastern
United States for the foreseeable future.
In the second quarter of 1998, the Company occupied and 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.
The lease expires in the first quarter of 2005.
In the fourth quarter of 1998, the Company began manufacturing in a new
62,000 square foot leased facility in Lawrenceville, Georgia and consolidated
operations from the existing Norcross, Georgia facility into this plant. This
lease expires in the fourth quarter of 2005.
All of the Company's manufacturing facilities have been certified to the ISO
9002 international quality standard.
At December 31, 1998, the Company's Massachusetts facilities contained nine
SMT lines. The Company operates two SMT lines at its Lawrenceville, Georgia
facility and has implemented one SMT line in the Dublin, Ireland facility. See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations."
ITEM 3. LEGAL PROCEEDINGS
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
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argument is scheduled for April 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.
From time to time, the Company is also subject to claims or litigation
incidental to its business. The Company does not believe that any such
incidental claims or litigation will have a material adverse effect on the
operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year ended
December 31, 1998 to a vote of security holders of the Company, through the
solicitation of proxies or otherwise.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the Nasdaq National Market under the
symbol "ACTM". Public trading of the Common Stock commenced on March 30, 1995.
Prior to that time, there was no public market for the Company's Common Stock.
The following table sets forth the high and low bid information for the Common
Stock as reported by Nasdaq for the periods indicated. Such information
reflects inter-dealer prices, without retail mark-up, markdown or commission
and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
---- ----
<S> <C> <C>
1998:
First quarter................................................. $17 7/8 $ 9 7/8
Second quarter................................................ 12 3/4 6 5/8
Third quarter................................................. 12 6
Fourth quarter................................................ 14 1/2 5 1/4
<CAPTION>
High Low
---- ----
<S> <C> <C>
1997:
First quarter................................................. $ 29 $19 1/4
Second quarter................................................ 41 3/4 19 1/2
Third quarter................................................. 47 1/4 32 3/8
Fourth quarter................................................ 33 13 1/4
</TABLE>
On March 23, 1999, the last reported sale price of the Common Stock on the
Nasdaq National Market was $14.063 per share. As of March 23, 1999, there were
approximately 45 holders of record of the Common Stock. This number does not
include stockholders for whom shares were held in a "nominee" or "street
name."
The Company does not presently intend to declare cash dividends on the
Common Stock in the foreseeable future and expects to retain any future
earnings to fund future operations. Additionally, the Company's bank senior
secured credit agreement prohibits the payment of cash dividends on the
Company's capital stock. See Note 5 of Notes to the Company's Consolidated
Financial Statements.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data should be read in conjunction with,
and are qualified in their entirety by, the Company's consolidated financial
statements, related notes and other financial information included herein.
SUMMARY CONSOLIDATED FINANCIAL DATA
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net sales................... $290,529 $264,654 $225,900 $115,658 $85,848
Cost of goods sold.......... 271,311 253,122 197,530 101,449 72,574
-------- -------- -------- -------- -------
Gross profit................ 19,218 11,532 28,370 14,209 13,274
Selling, general and
administrative expenses.... 14,686 15,062 10,016 6,682 5,434
-------- -------- -------- -------- -------
Operating income (loss)..... 4,532 (3,530) 18,354 7,527 7,840
-------- -------- -------- -------- -------
Interest and other expense,
net........................ (2,241) (2,706) (1,424) (62) (534)
-------- -------- -------- -------- -------
Income (loss) before
provision for income
taxes...................... 2,291 (6,236) 16,930 7,465 7,306
Benefit (provision) for
income taxes (1)........... (1,009) 2,229 (6,773) (2,999) (2,953)
-------- -------- -------- -------- -------
Net income (loss)........... $ 1,282 $ (4,007) $ 10,157 $ 4,466 $ 4,353
======== ======== ======== ======== =======
Basic net income (loss) per
common share (2)(3)........ $ 0.14 $ (0.45) $ 1.16 $ 0.55 $ 0.70
======== ======== ======== ======== =======
Diluted net income (loss)
per common share (2)(3).... $ 0.14 $ (0.45) $ 1.13 $ 0.54 $ 0.65
======== ======== ======== ======== =======
Weighted average shares
outstanding--basic (3)..... 9,063 8,952 8,762 8,057 6,250
======== ======== ======== ======== =======
Weighted average shares
outstanding--diluted (3)... 9,199 8,952 9,012 8,334 6,748
======== ======== ======== ======== =======
<CAPTION>
December 31,
-----------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Consolidated Balance Sheet
Data:
Working capital............. $ 70,175 $ 35,048 $ 71,091 $ 35,070 $14,646
Total assets................ 145,369 113,539 107,595 61,095 33,618
Long-term liabilities, less
current portion............ 40,475 730 29,055 2,638 10,255
Total stockholders'
equity..................... 50,234 49,259 47,132 35,688 7,355
</TABLE>
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(1) The Company had operated as an S Corporation for income tax purposes from
November 1, 1987 to March 28, 1995, and accordingly during that period had
not been subject to federal income taxes and had been subject to certain
state income taxes at a reduced rate. Accordingly, net income for the
years ended December 31, 1995 and 1994 is presented on a pro forma basis
as if the Company had been a C corporation for the period presented.
(2) Pro forma net income per common share for the years ended December 31,
1994 and 1995 reflects the assumed issuance of 650,000 shares that the
Company would have needed to issue at the initial public offering price of
the Company's Common Stock ($12.00 per share) to fund the distribution of
all previously taxed but undistributed S Corporation earnings to the
Company's stockholders through March 28, 1995 (approximately $7,800,000).
(3) Pro forma basic net income per common share and diluted net income per
common share for 1995 reflect the impact on the calculation of weighted
average shares outstanding of the issuance of Common Stock from the
Company's 1995 initial public offering, which shares of Common Stock were
outstanding April through December 1995 and were weighted as if they had
been outstanding over the full year.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act of 1995 contains certain safe
harbors regarding forward-looking statements. Any statements in this Annual
Report on Form 10-K that are not statements of historical fact are forward-
looking statements (including, but not limited to, statements concerning the
Company's Year 2000 readiness and compliance, the characteristics and growth
of the Company's market and customers, the Company's expectations, objectives
and plans for future operations, and the Company's expected liquidity and
capital resources). Such forward-looking statements are based on a number of
assumptions and involve a number of risks and uncertainties, and accordingly
the Company's actual results could differ materially. Factors that may cause
such differences include those set forth below under "Year 2000 Readiness
Disclosure Statements" and "Cautionary Statements" and elsewhere in this
Annual Report on Form 10-K. The following discussion should be read in
conjunction with the Consolidated Financial Statements and Notes thereto,
appearing elsewhere in this Annual Report on Form 10-K.
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.
The Company was founded in 1982 as a contract manufacturer of cable and
harness assemblies. In 1986, the founder of the Company organized a separate
corporation to serve as a contract manufacturer of PCB assemblies. Each of
these companies was acquired by the current principal stockholder of the
Company effective January 1, 1993 pursuant to two option agreements, one of
which was entered into in July 1989 and the other of which was entered into in
June 1991. The predecessor PCB assembly company was merged with and into the
Company in December 1994, at which time the Company changed its name to ACT
Manufacturing, Inc.
From November 1, 1987 to March 28, 1995, the Company was treated as an S
Corporation for federal and certain state income tax purposes. As a result,
during that period the Company had not been subject to federal income taxes
and had been subject to certain state income taxes at a reduced rate.
Accordingly, net income for periods prior to 1996 is presented on a pro forma
basis as if the Company had been a C Corporation for such periods.
The Company expanded the geographic scope of its operations through two
strategic acquisitions in June 1997. The Company acquired substantially all of
the assets and liabilities of Electronic Systems International, located in
Norcross, Georgia. Electronic Systems International provides electronics
manufacturing services to OEMs based primarily in the Southeastern United
States consisting of PCB assembly, electro-mechanical subassembly and total
system assembly. The Company also acquired Advanced Component Technologies
Limited (f.k.a. SignMax Limited), located in Dublin, Ireland. Advanced
Component Technologies Limited (f.k.a. SignMax Limited) provides electronics
manufacturing services primarily consisting of cable and harness assembly and
production has been expanded to include a PCB operation utilizing SMT
technology. The operating results of the acquired businesses are included from
the date of purchase in the Company's Consolidated Statement of Operations for
the year ended December 31, 1997. The Consolidated Statement of Operations for
the year ended December 31, 1998 includes a full year of operations of the
acquired businesses. See Note 2 of Notes to the Company's Consolidated
Financial Statements.
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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 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 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
The following table sets forth certain consolidated statement of operations
data as a percentage of net sales for each fiscal year indicated. The table
and the discussion below should be read in conjunction with the Company's
Consolidated Financial Statements and the Notes thereto appearing elsewhere in
this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Year Ended
December 31,
--------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Net sales................................................. 100.0% 100.0% 100.0%
Cost of goods sold........................................ 93.3 95.6 87.4
----- ----- -----
Gross profit.............................................. 6.7 4.4 12.6
Selling, general and administrative expenses.............. 5.1 5.7 4.5
----- ----- -----
Operating income (loss)................................... 1.6 (1.3) 8.1
Interest and other expense, net........................... (0.9) (1.0) (0.6)
----- ----- -----
Income (loss) before provision for income taxes........... 0.7 (2.4) 7.5
Benefit (provision) for income taxes...................... (0.3) 0.9 (3.0)
----- ----- -----
Net income (loss)......................................... 0.4% (1.5)% 4.5%
===== ===== =====
</TABLE>
For the year ended December 31, 1997, the Company experienced significant
changes and events that adversely affected its 1997 results of operations. In
the third and fourth quarters of 1997, the Company experienced a decrease in
net sales on both a sequential and comparable period basis. The decline in net
sales was principally due to a softness in demand from several major customers
resulting in the conversion of fewer forecasted orders than anticipated as
well as, in the case of the third quarter, orders and commitments anticipated
to ship prior to the end of the quarter that were received too late for
configuration and completion in the quarter.
The Company identified a significant inventory shortfall as a result of its
1997 year-end physical inventory. As a result of the shortfall, the Company
recorded a charge of approximately $13.1 million that was included in cost of
goods sold for 1997. The shortfall was investigated by Company personnel and,
under the direction of the Audit Committee of the Board of Directors, by
independent external accounting specialists. The ultimate cause of the
shortfall could not be finally determined, and accordingly the associated
charge was reported in the fourth quarter of 1997. As a result of this
shortfall, 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. The Company expects to continue to
conduct quarterly inventories until it can assess the effectiveness of these
measures.
In addition, in 1997 the Company included in its accounts receivable reserve
approximately $1.7 million in connection with amounts due from discontinued
customers and accrued an expense of $600,000 for professional fees related to
the investigation of the inventory shortfall.
10
<PAGE>
The Company provides electronics manufacturing services to customers in the
networking and telecommunications, computer, industrial and medical equipment
markets. The percentage of net sales by market for the years ended 1998, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
Market Percentage of Net Sales
------ ---------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Networking/Telecommunications................. 58% 65% 73%
Computer...................................... 22 15 13
Industrial.................................... 17 17 12
Medical....................................... 3 3 2
------- ------- -------
100% 100% 100%
======= ======= =======
</TABLE>
1998 Compared to 1997
The Company's net sales increased $25.8 million or 9.8% to $290.5 million in
1998 from $264.7 million in 1997. The increase was attributed principally to
an expansion of business from existing customers and sales to new customers in
the PCB assembly markets. The increase was also due to the effect of a full
year of operations of the acquisitions made in 1997. As a percentage of net
sales, the Company's largest customers in 1998 included Ascend (19%), EMC
(18%) and Bay Networks (16%) as compared to Bay Networks (31%), EMC (13%) and
Ascend (13%) in 1997. In each of the second, third and fourth quarters of 1998
the Company experienced increased net sales compared to the respective
comparable quarters in 1997.
Net sales in the PCB assembly division (including system integration and
test operations), as a percentage of net sales was 87.6% in 1998 compared to
89.5% in 1997. Net sales in the cable and harness assembly division accounted
for 12.4% of 1998 net sales compared to 10.5% of 1997 net sales.
Gross profit increased $7.7 million or 66.6% to $19.2 million compared to
$11.5 million in 1997. Gross profit as a percentage of net sales ("gross
margin") increased to 6.7% in 1998 from 4.4% in 1997. Within 1998 gross margin
was 3.2%, 5.4%, 7.4% and 9.7% in the first, second, third and fourth quarters,
respectively. This sequential improvement is due primarily to higher
absorption of manufacturing overhead, the positive impact of the Company's
cost management programs and a favorable product mix. In addition, 1997
expenses were impacted by a charge relating to the inventory shortfall of
approximately $13.1 million which was included in cost of goods sold.
Selling, general and administrative ("SG&A") expenses decreased $0.4 million
or 2.5% to $14.7 million in 1998, from $15.1 million in 1997. SG&A expenses as
a percentage of net sales decreased to 5.1% in 1998 from 5.7% in 1997. The
decrease in SG&A expenses as a percentage of net sales in 1998 compared to
1997 is primarily the result of a reduction in SG&A in 1998 due to cost
management programs at the Company while net sales increased in 1998.
Operating income increased $8.1 million to $4.5 million in 1998, compared
with an operating loss of $3.5 million for 1997 as a result of the previously
discussed factors.
Interest and other expense, net decreased $0.5 million to $2.2 million for
1998 from $2.7 million for 1997. The decrease in interest and other expenses
resulted principally from reduced average borrowings on the Company's Credit
Facility.
The Company recorded a provision for income taxes of $1.0 million in 1998
compared to a benefit for income taxes of $2.2 million in 1997. The effective
income tax rate was 44.0% in 1998. The Company expects that the effective
income tax rate for the year ended December 31, 1999 will approximate 42%.
11
<PAGE>
1997 Compared to 1996
The Company's net sales increased $38.8 million or 17.2% to $264.7 million
in 1997 from $225.9 million in 1996. This increase was attributed principally
to an expansion of business from existing customers and sales to new customers
in the PCB assembly markets. The increase was also due to the effect of
acquisitions made by the Company during 1997. Without the acquisitions, the
increase in net sales would have been approximately 11%. As a percentage of
net sales, the Company's largest customers in 1997 included Bay Networks
(31%), EMC (13%) and Ascend (13%). As a percentage of net sales in 1996,
Ascend was the largest customer with 20% of net sales. During 1997, the
Company experienced a reduction in, and then a termination of, business with
3Com. Sales to 3Com were less than 10% of net sales in 1997 compared to 17% of
Company net sales in 1996.
Net sales in the PCB assembly division (including system integration and
test operations) increased as a percentage of net sales to 89.5% in 1997
compared to 87.2% in 1996. Net sales in the cable and harness assembly
division accounted for 10.5% of 1997 net sales compared to 12.8% of 1996 net
sales.
Gross profit decreased by $16.8 million or 59% to $11.5 million in 1997
compared to $28.4 million in 1996. Gross margin decreased to 4.4% in 1997 from
12.6% in 1996. This change is attributable primarily to the following: the
$13.1 million inventory shortfall, changes in product mix with shipments of
lower margin products higher than anticipated, lower than anticipated
shipments resulting in lower manufacturing absorption, and the incidence of
higher than normal manufacturing efficiency variances. These occurrences
primarily affected business operating results in the second half of 1997.
Gross profit as a percentage of net sales in the first and second quarters of
1997 was relatively consistent with 1996 business operating results. Without
the effect of the inventory shortfall charge, gross margin would have
decreased to 9.3% in 1997 due to the aforementioned reasons.
SG&A expenses increased $5.1 million or 50.0% to $15.1 million in 1997 from
$10.0 million in 1996. SG&A expenses as a percentage of net sales increased to
5.7% in 1997 from 4.5% in 1996. The increase in SG&A expenses as a percentage
of net sales for 1997 compared to 1996 reflects the charges associated with
accounts receivable provisions, provision for professional fees related to the
investigation of the inventory shortfall, acquisitions made in Ireland and
Norcross, Georgia, the continued investment in sales and marketing programs at
the Company, and the effects of lower third and fourth quarter 1997 net sales
levels affecting full year comparative results. Without the effect of these
provisions for accounts receivable and non-recurring professional services,
SG&A as a percentage of net sales would have been 4.8% in 1997 compared to
4.5% of net sales in 1996.
Operating income was a loss of $3.5 million for 1997 compared with operating
income of $18.4 million for 1996 as a result of the previously discussed
factors.
Interest and other income, net increased to $2.7 million for 1997 compared
with $1.4 million for 1996. The increase in interest and other expense
resulted principally from additional borrowings on the Company's line of
credit to support working capital requirements.
The Company recorded a benefit for income taxes of $2.2 million in 1997
compared to a provision for income taxes of $6.8 million in 1996.
Financial Condition, Liquidity and Capital Resources
The Company had working capital of $70.2 million at December 31, 1998
compared with $35.0 million at December 31, 1997. The $35.2 million increase
is primarily due to the classification of the outstanding amount under the
Credit Facility as a long-term liability at December 31, 1998. Operating
activities provided $9.4 million of cash in 1998 compared with the use of $3.4
million of cash in 1997. Cash was generated by operations in 1998 primarily as
a result of the refund of income taxes, the increase in accounts payable
balances, and the positive impact of a profitable operation in 1998, offset by
the impact of higher trade receivables and inventories
12
<PAGE>
at December 31, 1998. Cash provided by operations was used primarily for the
acquisition of property and equipment in 1998 of $7.9 million compared with
$2.4 million for 1997.
Accounts receivable increased $28.2 million to $70.5 million as of December
31, 1998 from $42.4 million as of December 31, 1997. The increase reflects
higher net sales in the fourth quarter of 1998 as compared to the fourth
quarter of 1997, as well as a shift in the requirements of the Company's
customers to having a higher proportion of shipments occur nearer to the end
of the quarter in 1998 than in 1997. As of December 31, 1998, the Company's
accounts receivable days sales outstanding for product shipments measured from
date of shipment was approximately 31 days.
Inventory increased $5.4 million to $45.3 million as of December 31, 1998
from $40.0 million as of December 31, 1997. The increase reflects higher net
sales activity levels anticipated in the first quarter of 1999 as compared to
net sales activity levels in the first quarter of 1998. Increases for
anticipated higher net sales activity levels were offset slightly by inventory
management initiatives such as the implementation of in-house stores programs
with key distributors, whereby certain distributors of the Company maintain
inventory stockrooms on the Company's premises which provide just-in-time
purchases of certain components upon issuance to the Company's manufacturing
process. It is expected that distributor in-house stores programs will reduce
Company owned raw materials requirements during 1999.
Capital expenditures amounted to $7.9 million in 1998. Of such capital
expenditures, $3.0 million related to leasehold improvements for facility
expansion at the Company's Hudson, Massachusetts printed circuit board
facility, and $2.3 million related to leasehold improvements in the Company's
new facility in Ireland. The remaining $2.6 million related primarily to the
purchase of various manufacturing equipment, furniture and computer equipment.
Capital expenditures are expected to be approximately $3.0 million in 1999.
In the fourth quarter of 1998, the Company executed a new $55 million Senior
Secured Credit Facility ("Credit Facility") to replace the Company's $50
million loan and security agreement then outstanding. This new Credit Facility
provides for borrowings up to an aggregate amount of $55 million, limited to a
certain percentage of qualified accounts receivable and qualified inventory,
of which $39.5 million was utilized at December 31, 1998. An additional $7.8
million was available for use at December 31, 1998 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. The Company exceeded the limit of capital expenditures for 1998
provided in the Credit Facility. A waiver with regard to the excess has been
received from the banks. At December 31, 1998 the interest rate on the Credit
Facility was 8.0%.
The Company entered into a $17 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 of a fixed rate of
interest of 6.76% and matures on October 19, 2001. The fair value of the
interest rate swap at December 31, 1998 was approximately $(770,000) since the
fixed rate of interest of 6.76% was higher than the floating rate.
The Company was in default as of December 31, 1997 with certain financial
covenants under its former loan and security agreement. The Company's banks
waived compliance with such covenants as of December 31, 1997. Due to the
nature of the financial covenants under such former agreements, in 1997 the
Company reclassified all its long-term bank debt of $40.2 million at December
31, 1997 to a current liability.
13
<PAGE>
The Company has equipment lease lines of approximately $11.3 million
available for purchases of manufacturing equipment, computer hardware and
software and furniture. In May 1998, the Company entered into a $5.0 million
operating lease line agreement for the purchase of certain equipment in the
Dublin, Ireland facility. At December 31, 1998 substantially all of this
available lease line had been utilized for outstanding commitments.
The Company's need for, cost of and access to funds are dependent in the
long-term on future operating results as well as conditions external to the
Company. The Company believes that its current sources of and access to future
capital are adequate to support operations for the next twelve months. Because
the Company's capital requirements cannot be predicted with certainty,
however, there is no assurance that the Company will not require additional
financing during this period. There is no assurance that any additional
financing will be available on terms satisfactory to the Company.
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 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 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 is 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 substantially completed the assessment stage of the project
and has commenced the remediation stage. The Company has also begun
discussions regarding 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 are likely to 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 $0.3 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
14
<PAGE>
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 project 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, Atlanta 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 Atlanta 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 Atlanta 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 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.
Newly Issued Accounting Standard
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
effective for 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 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 Annual Report on Form 10-K 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
15
<PAGE>
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 Annual Report on Form
10-K 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 1998, the Company's five largest customers accounted for approximately
68% of net sales. Three customers accounted for in excess of 10% of net sales
individually in 1998. Sales to Ascend, EMC and Bay Networks were approximately
19%, 18%, and 16%, respectively, of the Company's net sales for 1998. In 1997,
the Company's five largest customers accounted for approximately 70% of the
Company's net sales. Sales to Bay Networks, Ascend and EMC were approximately
31%, 13%, and 13%, respectively, of the Company's net sales for 1997. 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 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 1996, 1997 and 1998. 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
16
<PAGE>
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 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 cost effectively manage its 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
17
<PAGE>
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 the
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 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 7. 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
In June 1997, the Company acquired substantially all of the assets and
liabilities of Electronic Systems International, located in Norcross, Georgia.
The acquired company provides electronics manufacturing services, primarily
consisting of PCB assembly, electro-mechanical subassembly and total systems
assembly to customers based primarily in the Southeastern United States. Also
in June 1997, the Company completed the acquisition of Advanced Component
Technologies Limited (f.k.a. SignMax Limited) located in Dublin, Ireland.
Advanced Component Technologies Limited (f.k.a. SignMax Limited) provides
electronics manufacturing services primarily consisting of cable and harness
assembly. 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
in the Southeastern United States or internationally. Therefore, there can be
no assurance that the Company will operate the acquired businesses profitably
in the future.
The Company may expand into other geographical areas within the United
States and internationally by acquiring additional electronics manufacturing
services providers or by establishing new manufacturing operations in such
areas. The Company may compete for acquisition and expansion opportunities
with entities having significantly greater resources than the Company. Any
such transactions may result in the potentially dilutive issuance of equity
securities, the incurrence of debt and amortization expenses related to
goodwill and
18
<PAGE>
other intangible assets, and other costs and expenses, all of which could
materially and adversely affect the Company's business, financial condition
and results of operations following such a transaction. Such transactions also
involve numerous business risks, including difficulties in the assimilation of
the operations, technologies and products of the acquired companies, the
diversion of management's attention from other business concerns and the
potential loss of key employees from the combined company. Therefore, there
can be no assurance that the key employees and businesses of acquired
companies will be successfully integrated with the Company, that any acquired
business will contribute significantly to the Company's sales or earnings, or
that sales and earnings of the Company will not be adversely effected by the
integration process or other factors.
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.
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. See "Item 2. Properties."
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 that 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 7. 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
19
<PAGE>
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 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 is
scheduled for April 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.
20
<PAGE>
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 7A. 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. A discussion of the Company's accounting policies for
derivative financial instruments is included in the Summary of Significant
Accounting Policies in Note 1 of Notes to the Company's Consolidated Financial
Statements. Additional information relating to financial instruments and debt
is included in Note 5--Note Payable Bank.
The Company has a $55 million Senior Secured Credit Facility ("Credit
Facility") which bears interest at a variable interest rate. The Company has
also entered into a $17 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 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 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 December 31, 1998, $17 million of the outstanding balance of $39.5 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
$225,000 on an annual basis.
The foreign currency to which the Company has exchange rate exposure is the
Irish punt. International operations do not 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 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.
21
<PAGE>
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
The Company's Consolidated Financial Statements and the Independent Auditors'
Report thereon are presented in the following pages. The Consolidated Financial
Statements filed in Item 8 are as follows:
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996
Consolidated Statements of Comprehensive Income (Loss) for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
Notes to Consolidated Financial Statements
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
ACT Manufacturing, Inc.:
We have audited the accompanying consolidated balance sheets of ACT
Manufacturing, Inc. and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, comprehensive income (loss),
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. Our audits also included the consolidated financial
statement schedule listed in the index at Item 14. These consolidated
financial statements and consolidated financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and consolidated
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December
31, 1998 and 1997, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles. Also, in our opinion, such
consolidated financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 26, 1999
23
<PAGE>
ACT MANUFACTURING, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents......................... $ 5,388,537 $ 5,165,197
Accounts receivable trade (less allowance for
doubtful accounts of $1,151,000 in 1998 and
$2,030,000 in 1997) 70,546,435 42,361,878
Inventory......................................... 45,336,768 39,950,859
Prepaid expenses and other assets................. 2,204,173 1,194,731
Income taxes refundable........................... -- 8,417,111
Deferred tax asset................................ 1,359,626 1,509,000
------------ ------------
Total current assets............................ 124,835,539 98,598,776
Property and Equipment--Net......................... 13,489,424 8,005,742
Goodwill--Net....................................... 5,505,964 6,129,527
Other Assets--Net................................... 1,538,050 805,443
------------ ------------
Total........................................... $145,368,977 $113,539,488
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable bank................................. $ -- $ 40,206,410
Accounts payable.................................. 50,592,094 18,556,645
Accrued compensation and related taxes............ 1,463,526 1,657,610
Income tax payable................................ 504,755 --
Accrued expenses and other........................ 2,099,950 3,130,562
------------ ------------
Total current liabilities....................... 54,660,325 63,551,227
------------ ------------
Other Long-Term Liabilities......................... 976,990 729,668
------------ ------------
Note Payable Bank................................... 39,497,836 --
------------ ------------
Commitments and Contingencies (Notes 12 and 14)
Stockholders' Equity:
Preferred stock--$.01 par value; authorized,
5,000,000 shares; issued and outstanding, none... -- --
Common stock--$.01 par value; authorized,
20,000,000 shares; issued and
outstanding, 9,058,500 shares in 1998 and
9,062,946 shares in 1997......................... 90,585 90,629
Additional paid-in capital........................ 39,204,973 39,327,194
Accumulated other comprehensive income (loss)..... (179,750) 4,307
Retained earnings................................. 11,118,018 9,836,463
------------ ------------
Total stockholders' equity...................... 50,233,826 49,258,593
------------ ------------
Total......................................... $145,368,977 $113,539,488
============ ============
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
ACT MANUFACTURING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales........................... $290,529,091 $264,654,208 $225,900,182
Cost of goods sold.................. 271,310,626 253,122,066 197,529,503
------------ ------------ ------------
Gross profit........................ 19,218,465 11,532,142 28,370,679
Selling, general and administrative
expenses........................... 14,686,751 15,061,975 10,016,851
------------ ------------ ------------
Operating income (loss)............. 4,531,714 (3,529,833) 18,353,828
------------ ------------ ------------
Other income (expense):
Interest expense.................. (2,334,350) (2,659,323) (1,555,697)
Other, net........................ 92,794 (46,593) 131,783
------------ ------------ ------------
Total........................... (2,241,556) (2,705,916) (1,423,914)
------------ ------------ ------------
Income (loss) before provision for
income taxes....................... 2,290,158 (6,235,749) 16,929,914
Benefit (provision) for income
taxes.............................. (1,008,603) 2,229,000 (6,773,000)
------------ ------------ ------------
Net income (loss)................... $ 1,281,555 $ (4,006,749) $ 10,156,914
============ ============ ============
Basic net income (loss) per common
share.............................. $ 0.14 $ (0.45) $ 1.16
------------ ------------ ------------
Diluted net income (loss) per common
share.............................. $ 0.14 $ (0.45) $ 1.13
------------ ------------ ------------
Weighted average shares
outstanding--basic................. 9,062,576 8,951,688 8,762,233
------------ ------------ ------------
Weighted average shares
outstanding--diluted............... 9,199,184 8,951,688 9,012,495
============ ============ ============
</TABLE>
- --------------------------------------------------------------------------------
ACT MANUFACTURING, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------- ------------
<S> <C> <C> <C>
Net income (loss)..................... $ 1,281,555 $ (4,006,749) $ 10,156,914
Other comprehensive income (loss):
Foreign currency translation
adjustment......................... (184,057) 4,307 --
------------ ------------- ------------
Comprehensive income (loss)........... $ 1,097,498 $ (4,002,442) $ 10,156,914
============ ============= ============
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
ACT MANUFACTURING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
$.01 Par Accumulated
Value Additional Other Total
Common Paid-in Comprehensive Retained Stockholders'
Stock Capital Income (Loss) Earnings Equity
-------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1,
1996................... $87,132 $31,914,331 $ -- $ 3,686,298 $35,687,761
Net income............ -- -- -- 10,156,914 10,156,914
Net proceeds from sale
of stock............. 1,040 522,721 -- -- 523,761
Income tax benefit
from employees'
exercise of stock
options.............. -- 763,625 -- -- 763,625
------- ----------- --------- ----------- -----------
Balance, December 31,
1996................... 88,172 33,200,677 -- 13,843,212 47,132,061
Net loss.............. -- -- -- (4,006,749) (4,006,749)
Net proceeds from sale
of stock............. 552 503,438 -- -- 503,990
Issuance of stock for
acquisition ......... 1,905 5,248,095 -- -- 5,250,000
Cumulative foreign
currency Translation
adjustments.......... -- -- 4,307 -- 4,307
Income tax benefit
from employees'
exercise of stock
options.............. -- 374,984 -- -- 374,984
------- ----------- --------- ----------- -----------
Balance, December 31,
1997................... 90,629 39,327,194 4,307 9,836,463 49,258,593
Net income............ -- -- -- 1,281,555 1,281,555
Cumulative foreign
currency translation
adjustments.......... -- -- (184,057) -- (184,057)
Cancellation of common
stock from
acquisition escrow... (44) (122,221) -- -- (122,265)
------- ----------- --------- ----------- -----------
Balance, December 31,
1998................... $90,585 $39,204,973 $(179,750) $11,118,018 $50,233,826
======= =========== ========= =========== ===========
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
ACT MANUFACTURING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................... $ 1,281,555 $ (4,006,749) $ 10,156,914
Adjustment to reconcile net income
(loss) to net cash provided by
(used for) operating activities:
Depreciation and amortization...... 2,649,250 1,781,667 1,117,966
Deferred income taxes.............. 149,374 (22,000) (982,000)
Provision for doubtful accounts.... 1,925,000 1,805,000 20,169
Loss on disposal of fixed assets... 140,625 -- --
Increase (decrease) in cash from:
Accounts receivable--trade........ (30,109,557) 155,175 (21,909,379)
Inventory......................... (5,385,909) 16,365,565 (23,606,811)
Prepaid expenses and other
assets........................... (1,009,442) (1,573,433) (254,881)
Accounts payable.................. 32,035,449 (9,655,635) 5,666,094
Accrued compensation and related
taxes............................ (194,084) 130,026 693,453
Income tax refundable (payable)... 8,921,866 (9,976,944) 2,048,589
Accrued expenses and other........ (978,767) 1,579,289 1,026,905
------------ ------------ ------------
Net cash provided by (used for)
operating activities............ 9,425,360 (3,418,039) (26,022,981)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and
equipment.......................... (7,945,817) (2,432,380) (3,026,585)
(Increase) decrease in other
noncurrent assets.................. (632,012) (152,661) 98,303
Proceeds from the sale of property
and equipment...................... 72,963 -- --
Acquisitions, net of cash acquired.. -- (2,387,938) --
------------ ------------ ------------
Net cash used for investing
activities...................... (8,504,866) (4,972,979) (2,928,282)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under line-of-credit
agreements......................... 255,404,553 243,631,547 167,079,696
Repayments under line-of-credit
agreements......................... (256,113,127) (233,885,125) (140,624,721)
Repayments of other long-term
liabilities........................ (287,863) (1,790,386) (70,258)
Receipt of deferred revenue......... 483,340 -- --
Net proceeds from sale of stock..... -- 503,990 523,761
------------ ------------ ------------
Net cash (used for) provided by
financing activities............ (513,097) 8,460,026 26,908,478
------------ ------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND EQUIVALENTS................ (184,057) 41,823 --
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS.................... 223,340 110,831 (2,042,785)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR............................. 5,165,197 5,054,366 7,097,151
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF
YEAR................................ $ 5,388,537 $ 5,165,197 $ 5,054,366
============ ============ ============
</TABLE>
See notes to consolidated financial statements
27
<PAGE>
ACT MANUFACTURING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Summary of Significant Accounting Policies
Nature of Business--ACT Manufacturing, Inc. and Subsidiaries (the "Company")
provide value-added electronics manufacturing services for original equipment
manufacturers in the networking and telecommunications, computer, industrial
and medical equipment markets. The Company provides OEMs with complex printed
circuit board assembly primarily utilizing advanced surface mount technology,
mechanical and molded cable and harness assembly, electro-mechanical
subassembly, and total system assembly and integration.
Principles of Consolidation--The consolidated financial statements include
the accounts of ACT Manufacturing, Inc. and its wholly owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
Translation of Foreign Currency--The Company translates financial statements
denominated in foreign currency by translating balance sheet accounts at the
end of period exchange rate and statement of operations accounts at the
average exchange rate for the period. Translation gains and losses are
recorded as a separate component of stockholders' equity in accumulated other
comprehensive income (loss) and transaction gains and losses are reflected in
other income (loss).
Use of Estimates--The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting principles
necessarily requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the balance sheet dates. Estimates include such
items as reserves for accounts receivable and inventory, useful lives of other
assets, goodwill, property and equipment, and accrued liabilities.
Fair Value of Financial Instruments--Statement of Financial Accounting
Standards ("SFAS") No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of the fair value of certain financial
instruments. The carrying amounts of cash, cash equivalents, accounts
receivable, accounts payable and accrued expenses approximate fair value
because of their short-term nature. The Company's bank debt, because it
carries a variable interest rate, is also stated at its approximate fair
market value.
Derivatives--The Company has entered into an interest rate swap that
qualifies as a matched swap that is linked by designation with a balance sheet
liability and has opposite interest rate characteristics of such balance sheet
item. Matched interest rate swaps qualify for settlement accounting. Under
settlement accounting, periodic net cash settlements under the swap agreement
are recognized in income on an accrual basis. These settlements are offset
against interest expense in the consolidated statements of operations.
Revenue Recognition--Revenue is recognized upon shipment of the product.
Cash and Cash Equivalents--For the purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments purchased with a
remaining maturity of three months or less to be cash equivalents.
Inventory--Inventory is valued at the lower of cost or market using the
first-in, first-out ("FIFO") method.
Property and Equipment--Purchased property and equipment is recorded at
cost. Capital lease property and equipment is recorded at the lesser of cost
or the present value of the minimum lease payments required. Depreciation and
amortization are provided using the straight-line method over the estimated
useful lives of the related assets (five to seven years) and over the terms of
the related leases (five years).
Goodwill--Goodwill is being amortized on a straight-line basis over fifteen
years.
Other Assets--Other assets include cash surrender value of officer's life
insurance and noncompete agreements. The noncompete agreements are being
amortized over three to ten years.
28
<PAGE>
ACT MANUFACTURING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Warranty--The Company generally warrants that its hardware assemblies will
be free from defects in workmanship for 12 months and passes on to the
customer any warranties provided by component manufacturers and material
suppliers to the extent permitted. Warranty costs have not been material to
date, and accordingly, no reserves have been provided for.
Income Taxes--The Company accounts for income taxes under Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." This Statement requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the Company's consolidated financial statements or tax returns.
Deferred tax liabilities and assets are determined based on the difference
between the financial statement carrying amounts and tax bases of existing
assets and liabilities, using enacted tax rates in effect in the years in
which the differences are expected to reverse.
Stock Based Compensation--As permitted by SFAS No. 123, "Accounting for
Stock-Based Compensation," the Company accounts for stock option grants using
the intrinsic value method in accordance with Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees."
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 if common equivalent shares
outstanding (common stock options) were exercised or converted into common
stock unless the effects of such equivalent shares were antidilutive.
A reconciliation of shares used in the earnings per share ("EPS")
calculation is as follows:
<TABLE>
<CAPTION>
Income (loss) Shares Per Share
(Numerator) (Denominator) Amount
------------- ------------- ---------
(000s) (000s)
<S> <C> <C> <C>
1998
Basic EPS................................. $ 1,282 9,063 $ 0.14
======== ======
Stock options............................. 136
-----
Diluted EPS............................... $ 1,282 9,199 $ 0.14
======== ===== ======
1997
Basic and diluted EPS..................... $ (4,007) 8,952 $ (.45)
======== ===== ======
1996
Basic EPS................................. $ 10,157 8,762 $ 1.16
======== ======
Stock options............................. 250
-----
Diluted EPS............................... $ 10,157 9,012 $ 1.13
======== ===== ======
</TABLE>
Options to purchase 557,200 and 892,364 shares of common stock were
outstanding during 1998 and 1997, respectively, but were not included in the
computation of diluted EPS because of either the net loss in 1997 or because
the option's exercise price was greater than the average market price of the
common stock and, therefore, their effect would be antidilutive.
29
<PAGE>
ACT MANUFACTURING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Supplemental Cash Flow Information--Selected cash payments and noncash
activities were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash paid for interest....................... $2,518,781 $2,435,000 $1,446,000
Cash refunded from (paid for) income taxes... 8,314,000 (7,935,000) (5,713,000)
Noncash investing and financing activities:
Reduction in income taxes payable for
disqualifying common stock dispositions... -- 374,984 736,625
Assets acquired in exchange for common
stock..................................... -- 5,250,000 --
Reduction of goodwill upon cancellation of
common stock from acquisition escrow...... 122,265 -- --
</TABLE>
Comprehensive Income--The Company adopted SFAS No. 130, "Reporting
Comprehensive Income" in 1998. SFAS No. 130 requires the reporting of
comprehensive income, which in the case of the Company, is the combination of
reported net income and the change in the cumulative translation adjustment,
which is a component of stockholders' equity.
Segments--Effective January 1, 1998 the Company adopted provisions of SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." The standard requires the reporting of certain information about
operating segments including the basis for the presentation and segment profit
or loss. The disclosures relating to this statement are included in Note 13.
Reclassifications--Certain reclassifications have been made to the 1997
consolidated financial statements to conform with 1998 presentation.
Recently Issued Financial Accounting Standard--In June 1998, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," effective for 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.
2. Acquisitions
Effective June 9, 1997, the Company acquired substantially all of the assets
and liabilities of Electronics Systems International ("ESI") located in
Norcross, Georgia. ESI is a contract manufacturer to customers throughout the
southeastern United States. Under the terms of the purchase agreement, the
Company acquired assets and liabilities of ESI in exchange for 190,546 shares
of the Company's common stock plus acquisition costs. In 1998 the Company
cancelled 4,446 shares previously issued and held in escrow. The per share
market value of the Company's common stock on the date of the purchase was
$27.50.
Effective June 10, 1997, the Company acquired substantially all of the
outstanding stock of Advanced Component Technologies Limited (f.k.a. SignMax
Limited), a cable and harness manufacturing company based in Dublin, Ireland.
Under the terms of the purchase agreement, approximately 82% of the
outstanding common shares of Advanced Component Technologies Limited (f.k.a.
SignMax Limited) were acquired for cash of $1,000,000 plus acquisition costs.
Effective June 27, 1997, the Company acquired all of the outstanding stock
of SignMax America, LLC, which owned the remaining 18% of Advanced Component
Technologies Limited (f.k.a. SignMax Limited). Under the terms of the purchase
agreement, 100% of the outstanding common shares were acquired for cash of
$460,000 and the assumption of $575,000 in notes payable.
30
<PAGE>
ACT MANUFACTURING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The transactions were accounted for as purchases in accordance with APB
Opinion No. 16 "Business Combinations" as follows:
<TABLE>
<S> <C>
Details of Acquisitions:
Cash paid, net of cash acquired.................................. $ 1,454,480
Acquisition expenses............................................. 939,025
-----------
Total cash paid................................................ 2,393,505
Common stock issued.............................................. 5,250,000
-----------
Total cash paid and common stock issued........................ 7,643,505
Liabilities assumed.............................................. 4,334,315
-----------
Total purchase price of acquisitions........................... 11,977,820
Fair value of assets acquired.................................... 5,609,230
-----------
Excess of purchase price over net assets....................... $ 6,368,590
===========
</TABLE>
The Company attributes the goodwill to the expected ability to expand sales
in these new geographic markets, utilizing the acquired existing business
infrastructure, and geographic market presence as a basis for expansion.
Accumulated amortization amounted to approximately $640,000 and $239,000 at
December 31, 1998 and 1997, respectively. The operating results of the
acquired businesses from the dates of purchases are included in the Company's
Consolidated Statement of Operations for the year ended December 31, 1997. The
Consolidated Statement of Operations for the year ended December 31, 1998
includes a full year of operations of the acquired businesses. Pro forma
information has not been provided, as the operations of the acquired
businesses were not material to the consolidated results of operations or
financial position of the Company in 1997 and 1996.
3. Inventory
Inventory consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Raw materials......................................... $ 32,486,190 $ 27,903,435
Work in process....................................... 10,873,591 11,370,378
Finished goods........................................ 1,976,987 677,046
------------ ------------
Total............................................... $ 45,336,768 $ 39,950,859
============ ============
</TABLE>
4. Property And Equipment
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Leasehold improvements................................ $ 6,043,003 $ 2,869,522
Equipment............................................. 7,349,340 6,181,792
Office furniture and equipment........................ 4,923,249 3,467,301
Vehicles.............................................. 143,536 143,536
Construction-in-progress.............................. 2,687,139 1,059,703
----------- -----------
Total property and equipment........................ 21,146,267 13,721,854
Less accumulated depreciation and amortization........ (7,656,843) (5,716,112)
----------- -----------
Property and equipment--net......................... $13,489,424 $ 8,005,742
=========== ===========
</TABLE>
Included in property and equipment is equipment held under capital leases
with a net carrying value of $580,950 and $821,638 at December 31, 1998 and
1997, respectively.
The Company has capitalized interest in the amount of $171,000 in 1998
related to the construction-in-progress.
31
<PAGE>
ACT MANUFACTURING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
5. Note Payable Bank
In the fourth quarter of 1998, the Company executed a new $55 million Senior
Secured Credit Facility ("Credit Facility") to replace the Company's $50
million loan and security agreement then outstanding. This new Credit Facility
provides for borrowings up to an aggregate amount of $55 million, limited to a
certain percentage of qualified accounts receivable and qualified inventory,
of which $39.5 million was utilized at December 31, 1998. An additional $7.8
million was available for use at December 31, 1998 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 December 31, 1998 the interest rate on the Credit Facility
was 8.0%.
At December 31, 1998 the Company was not in compliance with the capital
expenditure covenant of its Credit Facility. The Company has received a waiver
from the bank relating to this covenant.
The Company was in default as of December 31, 1997 with certain financial
covenants under its former loan and security agreement. The Company's banks
waived compliance with such covenants as of December 31, 1997. Due to the
nature of the financial covenants, the Company reclassified all its long-term
bank debt of $40.2 million at December 31, 1997 to a current liability.
The Company entered into a $17 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. The fair value of the
interest rate swap at December 31, 1998 was approximately $(770,000) since the
fixed rate of interest of 6.76% was higher than the floating rate.
6. Other Long-Term Liabilities
Other long-term liabilities consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Noncompete covenant...................................... $ 302,779 $ 349,954
Deferred revenue......................................... 483,340 --
Capital leases--equipment................................ 580,950 821,638
---------- ----------
Total.................................................. 1,367,069 1,171,592
Less current portion..................................... 390,079 441,924
---------- ----------
Other long-term liabilities............................ $ 976,990 $ 729,668
========== ==========
</TABLE>
Noncompete Covenant--In 1993, the Company entered into an agreement with its
former sole stockholder, which provides for monthly payments over a ten-year
period, in return for a promise not to compete. The liability is recorded at
the present value of the required future payments at an interest rate of 8%.
Deferred Revenue--The Company received a $483,340 grant in the fourth
quarter of 1998 under an agreement with the Ireland Industrial Development
Agency. The $483,340 payment has been recorded as
32
<PAGE>
ACT MANUFACTURING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
deferred revenue at December 31, 1998 since the Company will be required to
return the grant if certain conditions such as employment level are not met by
December 31, 2002.
Equipment Leases--The Company leases certain equipment used in its
manufacturing operations under capital lease agreements that expire through
2003.
Other long-term liabilities at December 31, 1998 are due as follows:
<TABLE>
<CAPTION>
Noncompete Capital Deferred
Covenant Leases Revenue Total
---------- --------- -------- ----------
<S> <C> <C> <C> <C>
1999.................................. $ 79,345 $ 363,282 $ -- $ 442,627
2000.................................. 85,691 171,728 -- 257,419
2001.................................. 92,547 84,927 -- 177,474
2002.................................. 99,950 13,735 483,340 597,025
2003.................................. -- 7,523 -- 7,523
--------- --------- -------- ----------
Total............................... 357,533 641,195 483,340 1,482,068
Less amount representing interest..... 54,754 60,245 -- 114,999
--------- --------- -------- ----------
Present value of minimum payments..... 302,779 580,950 483,340 1,367,069
Less current portion.................. 57,188 332,891 -- 390,079
--------- --------- -------- ----------
Other long-term liabilities......... $ 245,591 $ 248,059 $483,340 $ 976,990
========= ========= ======== ==========
</TABLE>
7. Income Taxes
The (provisions) benefit for income taxes are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ------------
<S> <C> <C> <C>
Current taxes:
Federal............................ $ (729,000) $ 2,289,000 $ (5,922,000)
State.............................. (130,229) (82,000) (1,833,000)
----------- ----------- ------------
(859,229) 2,207,000 (7,755,000)
Deferred taxes....................... (149,374) 22,000 982,000
----------- ----------- ------------
Total.............................. $(1,008,603) $ 2,229,000 $ (6,773,000)
=========== =========== ============
</TABLE>
Deferred income tax assets are attributable to the following at December 31:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Accounts receivable.................................. $ 460,000 $ 800,000
Inventory............................................ 435,000 270,000
Depreciation......................................... (289,000) (211,000)
Accrued expenses..................................... 386,626 263,000
State operating loss, net............................ 367,000 387,000
---------- ----------
Net deferred tax asset............................... $1,359,626 $1,509,000
========== ==========
</TABLE>
No valuation allowance is required as the net deferred tax asset is expected
to be fully realized.
33
<PAGE>
ACT MANUFACTURING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation of the expected tax rate at the U.S. statutory rate to the
effective tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate..................................... 34% (34)% 34%
State income taxes, net of federal benefit................. 6 (4) 6
Adjustments to prior year tax liability.................... 3 -- --
Other...................................................... 1 2 --
--- --- ---
Effective rate............................................. 44% (36)% 40%
=== === ===
</TABLE>
For income tax purposes, the Company incurred in 1997 a federal net
operating loss of approximately $7,947,000, which the Company has elected to
carryback and recover federal income taxes paid in prior years. The amount of
federal income taxes related to the net operating loss carryback was
approximately $2,700,000. For state income tax purposes the Company has a net
operating loss carryforward in 1998 of approximately $6,219,000 which is
available to offset future state taxable income. The carryforward will expire
in 2002. A deferred tax asset of $367,000 and $387,000 for 1998 and 1997,
respectively, has been recorded to reflect the net future benefit of this
asset.
8. Stock Options
The Company has a 1995 Stock Plan, which provides for the grant of incentive
and nonqualified stock options to purchase up to an aggregate 1,250,000
shares. The Company has a 1995 Non-Employee Director Stock Option Plan that
provides for the grant of options to purchase a maximum of 100,000 shares to
nonemployee directors of the Company. The Company also has a 1993 Incentive
Stock Option Plan under which options for up to 690,664 shares of common stock
may be granted at an exercise price not less than fair market value at the
date of grant. Stock option activity was as follows:
<TABLE>
<CAPTION>
Number of Weighted Average
Options Exercise Price Fair Value
--------- -------------- ----------
<S> <C> <C> <C>
Outstanding at January 1, 1996............. 484,664 $ 5.90
Granted.................................... 268,000 12.79 $ 3.12
Exercised.................................. (104,000) 5.04
Forfeited.................................. (160,000) 10.91
---------
Outstanding at December 31, 1996........... 488,664 8.22
Granted.................................... 598,500 25.50 13.49
Exercised.................................. (55,200) 9.13
Forfeited.................................. (139,600) 21.45
---------
Outstanding at December 31, 1997........... 892,364 17.55
Granted.................................... 888,500 11.04 3.56
Exercised.................................. -- --
Forfeited.................................. (539,300) 24.07
---------
Outstanding at December 31, 1998........... 1,241,564 10.11
=========
</TABLE>
34
<PAGE>
ACT MANUFACTURING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------------------------
Range Of Weighted Average
Number Of Exercise Remaining Life Weighted Average Number Currently
Options Price (in Years) Exercise Price Exercisable
--------- ------------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
33,600 $ 0.48 4 $ 0.48 33,600
63,932 3.70-3.96 4 3.84 53,666
435,832 5.45-7.88 7 7.48 121,666
235,400 8.75-12.25 8 9.66 28,400
466,800 13.64-20.38 7 14.12 102,400
6,000 27.13 8 27.13 1,200
</TABLE>
The options vest over three to five-year periods.
The Company has reserved shares for future grants of common stock for
issuance pursuant to the 1993 Incentive Stock Option Plan, 1995 Non-Employee
Director Stock Option Plan and the 1995 Stock Plan for 450,800, 62,000 and
286,300 shares, respectively.
In January 1998 the Board of Directors approved a vote to reprice 516,500
employee stock options. The options were originally issued between March 1997
through October 1997 and had original grant prices ranging between $14.44 and
$39.25. The grant price for these options was lowered to $13.94, which
reflects the market value of the stock as of the reprice date. The repriced
options continue to vest according to the original grant date. No compensation
expense was required to be recorded in the consolidated statements of
operations.
As described in Note 1, the Company uses the intrinsic value method to
measure compensation expense associated with grants of stock options to
employees. Had the Company used the fair value method to measure compensation
for grants made after December 31, 1994, (including the repricing described
above) pro forma net income and net income per share would have been as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- ----------- ----------
<S> <C> <C> <C>
Net income (loss)........................... $(666,943) $(6,030,779) $9,727,914
========= =========== ==========
Diluted earnings (loss) per common share.... $ (0.07) $ (0.67) $ 1.08
========= =========== ==========
</TABLE>
The fair value of options on their grant date was measured using the
Black/Scholes option-pricing model. Key assumptions used to apply this pricing
model are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate........................ 5.5% 6.0% 6.4%
Expected life of option grants................. 3-5 years 3-5 years 3-5 years
Expected volatility of underlying stock........ 102% 82% 63%
</TABLE>
It should be noted that the option-pricing model used was designed to value
readily tradable stock options with relatively short lives. The options
granted to employees are not tradable and have contractual lives of up to ten
years. However, management believes that the assumptions used to value the
options and the model applied yield a reasonable estimate of the fair value of
the grants made under the circumstances.
9. Employee Benefits Plan
During 1994, the Company adopted a savings plan for its employees pursuant
to Section 401(k) of the
Internal Revenue Code. Substantially all employees are eligible to
participate, and the plan allows a deferral
35
<PAGE>
ACT MANUFACTURING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ranging from a minimum 1% to the maximum percentage of compensation permitted
by law. Company contributions to the plan are at the discretion of the Board
of Directors. Contributions to the Plan were $0, $50,000 and $0, in 1998, 1997
and 1996, respectively.
10. Major Customers
The three largest customers accounted for 19%, 18% and 16%, respectively, of
the Company's net sales for 1998. The three largest customers accounted for
31%, 13% and 13%, respectively, of the Company's net sales for 1997. In 1996,
the Company's four largest customers accounted for 20%, 17%, 13% and 13%,
respectively, of net sales.
11. Transactions With Related Parties
The Company leases certain facilities and equipment from a realty trust
controlled by its principal stockholder under leases that expire in 2003.
These commitments are included in Note 12. The Company pays all operating
costs of the building. Total payments to the realty trust were approximately
$388,000 in 1998 and $364,000 in 1997 and 1996, respectively.
In 1993, the Company entered into a ten-year agreement with one of its
directors for future consulting services. Payments under the agreement were
approximately $280,000 in 1998, $259,000 in 1997 and $240,000 in 1996. Future
commitments under this agreement are approximately $302,000 in 1999, $326,000
in 2000, $352,000 in 2001, $380,000 in 2002 and $233,000 in 2003. The
agreement expires in 2003. A noncompete agreement was also entered into with
the same individual (see Notes 1 and 6). Payments under this agreement were
$73,000 in 1998, $68,000 in 1997, and $63,000 in 1996 with future payments
totaling $358,000.
12. Operating Lease Commitments
The Company leases various plant and office equipment under noncancelable
operating leases expiring through 2007. Rent expense in 1998, 1997 and 1996
was approximately $8,848,000, $5,911,000, and $2,700,000, respectively. The
future minimum rental payments under these leases over the next five years are
approximately as follows:
<TABLE>
<CAPTION>
Related-
party Other
Commitments Commitments Total
----------- ----------- -----------
<S> <C> <C> <C>
1999........................................ $ 364,000 $ 8,193,261 $ 8,557,261
2000........................................ 364,000 7,470,787 7,834,787
2001........................................ 364,000 5,770,319 6,134,319
2002........................................ 364,000 3,893,487 4,257,487
2003........................................ 196,083 2,127,411 2,323,494
---------- ----------- -----------
Total....................................... $1,652,083 $27,455,265 $29,107,348
========== =========== ===========
</TABLE>
The Company has equipment lease lines of approximately $11.3 million
available for purchases of manufacturing equipment, computer hardware and
software and furniture. In May 1998, the Company entered into a $5.0 million
operating lease line agreement for the purchase of certain equipment in the
Dublin, Ireland facility. At December 31, 1998 substantially all of this
available lease line had been utilized for outstanding commitments.
36
<PAGE>
ACT MANUFACTURING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
13. 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 SFAS No. 131 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.
Evaluations of each segment are done on the basis of revenue, material and
direct labor expenses and direct gross profit. The Company's reportable
segments are strategic business units that are each managed separately,
because they provide different services with different operating processes and
marketing strategies. The Company accounts for intersegment sales and
transactions as if they were to third parties and attempts to set fees
consistent with those that would apply in an arm's length transaction with a
non-affiliate.
The PCB operations provide OEM's with complex printed circuit board assembly
primarily utilizing advanced surface mount technology, electromechanical sub-
assembly and total system assembly. The Cable operations provide custom-
manufactured ribbon, multiconductor, co-axial and fiber optic cable assemblies
and discrete harness assemblies. The accounting policies of each segment are
in accordance with those described in Note 1.
A summary of information about the Company's operations by segment for the
years ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
PCB Cable Intercompany Corporate Total
------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
1998
Revenue................. $258,134,002 $42,671,928 $(10,276,839) $ -- $290,529,091
Material and direct
labor expense.......... 208,131,202 32,042,318 -- -- 240,173,520
Direct gross profit..... 50,002,800 10,629,610 (10,276,839) -- 50,355,571
Indirect labor and
overhead............... -- -- -- 31,137,107 31,137,107
Total gross profit...... -- -- -- -- 19,218,465
1997
Revenue................. $236,886,054 $31,692,605 $ (3,924,451) $ -- $264,654,208
Material and direct
labor expense.......... 205,449,206 22,580,981 -- -- 228,030,187
Direct gross profit..... 31,436,848 9,111,624 (3,924,451) -- 36,624,021
Indirect labor and
overhead............... -- -- -- 25,091,879 25,091,879
Total gross profit...... -- -- -- -- 11,532,142
1996
Revenue................. $198,158,791 $31,192,456 $ (3,451,065) $ -- $225,900,182
Material and direct
labor expense.......... 159,445,638 20,489,363 -- -- 179,935,001
Direct gross profit..... 38,713,153 10,703,093 (3,451,065) -- 45,965,181
Indirect labor and
overhead............... -- -- -- 17,594,502 17,594,502
Total gross profit...... -- -- -- -- 28,370,679
</TABLE>
37
<PAGE>
ACT MANUFACTURING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
14. 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 is
scheduled for April 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 consolidated financial
statements.
15. Selected Quarterly Financial Data (unaudited):
Summarized quarterly financial data are as follows (in thousands except per
share amounts):
<TABLE>
<CAPTION>
1998 Quarters
----------------------------------
First Second Third Fourth
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net sales.................................. $60,943 $74,173 $78,887 $ 76,526
Gross profit............................... 1,972 3,986 5,821 7,439
Net income (loss).......................... (1,126) 86 796 1,526
Earnings (loss) per share:
Basic.................................... (0.12) 0.01 0.09 0.17
Diluted.................................. (0.12) 0.01 0.09 0.17
<CAPTION>
1997 Quarters
----------------------------------
First Second Third Fourth
------- ------- ------- --------
<S> <C> <C> <C> <C>
Net sales.................................. $70,250 $72,364 $62,306 $ 59,734
Gross profit............................... 9,042 9,496 3,390 (10,396)
Net income (loss).......................... 3,361 3,631 (620) (10,379)
Earnings (loss) per share:
Basic.................................... 0.38 0.41 (0.07) (1.15)
Diluted.................................. 0.37 0.39 (0.07) (1.15)
</TABLE>
The Company's 1997 loss (before taxes) includes certain significant
adjustments and non-recurring charges recorded during the fourth quarter:
<TABLE>
<S> <C>
Physical inventory adjustments..................................... $13,113,000
Allowance for doubtful accounts.................................... 1,740,000
Non-recurring professional fees.................................... 600,000
-----------
$15,453,000
===========
</TABLE>
38
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Anything herein to the contrary notwithstanding, in no event are the
sections entitled "Stock Performance Graph" and "Compensation Committee and
Stock Option Committee Report on Executive Compensation" to be incorporated by
reference herein from the Company's definitive proxy statement for the
Company's 1999 Annual Meeting of Stockholders which will be filed with the
Commission within 120 days after the close of the fiscal year (the "Definitive
Proxy Statement").
Item 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
Certain information concerning the directors of the Company is incorporated
by reference herein from the information contained under the heading "Election
of Directors" in the Company's Definitive Proxy Statement.
Certain information concerning directors and executive officers of the
Company is incorporated by reference herein from the information contained
under the heading "Occupations of Directors and Executive Officers" in the
Company's Definitive Proxy Statement.
The information concerning compliance with Section 16(a) of the Exchange Act
required under this item is incorporated herein by reference from the
information contained under the heading "Section 16 Reporting" in the
Company's Definitive Proxy Statement.
Item 11. EXECUTIVE COMPENSATION
Certain information concerning executive compensation is incorporated by
reference herein from the information contained under the heading
"Compensation and Other Information Concerning Directors and Executive
Officers" in the Company's Definitive Proxy Statement.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Certain information concerning security ownership of certain beneficial
owners and management is incorporated by reference herein from the information
contained under the heading "Securities Ownership of Certain Beneficial Owners
and Management" in the Company's Definitive Proxy Statement.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain information concerning certain relationships and related
transactions is incorporated by reference herein from the information
contained under the heading "Certain Relationships and Related Transactions"
in the Company's Definitive Proxy Statement.
39
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Index To Consolidated Financial Statements
The following Consolidated Financial Statements of the Registrant are filed
as part of this report:
Independent Auditors' Report.
Consolidated Balance Sheets as of December 31, 1998 and 1997.
Consolidated Statements of Operations for the years ended December 31,
1998, 1997 and 1996.
Consolidated Statements of Comprehensive Income (Loss) for the years
ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
(a)(2) Index to Consolidated Financial Statement Schedules
The following Consolidated Financial Statement Schedule of the Registrant is
filed as part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Schedule II -- Valuation and Qualifying Accounts and Reserves S-1
</TABLE>
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
accompanying consolidated financial statements or Notes thereto.
(a)(3) Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
3.1(1) --Second Restated Articles of Organization of the Company.
3.2(2) --Amended and Restated By-Laws of the Company.
3.3(5) --Articles of Amendment to the Second Restated Articles of
Organization of the Company.
4.1(2) --Specimen certificate representing the Common Stock.
4.2 --Second Restated Articles of Organization of the Company (see
Exhibit 3.1).
4.3 --Amended and Restated By-Laws of the Company (see Exhibit 3.2).
4.4 --Articles of Amendment to the Second Restated Articles of
Organization of the Company (see Exhibit 3.3).
10.1(2)# --1995 Stock Plan.
10.2(2)# --1995 Non-Employee Director Stock Option Plan.
10.3(2)# --Stock Option Plan dated April 15, 1993.
10.4(2)# --Stock Option Plan of Automated Component Technologies, Inc.
dated April 15, 1993.
10.5(2) --Registration Rights Agreement dated February 8, 1995 by and
among the Company, John A. Pino and certain other stockholders
named therein.
10.6(2) --Lease dated April 1, 1985 between Re-Act Realty Trust and the
Company, as amended by the First Amendment thereto dated
October 25, 1988, the Second Amendment thereto dated August 4,
1993 and the Third Amendment thereto dated February 7, 1995.
10.7(2) --Lease dated October 1, 1988 between Re-Act Realty Trust, as
amended by the First Amendment thereto dated August 4, 1993 and
the Second Amendment thereto dated February 7, 1995.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.8(2) --Lease dated July 16, 1993 between Kane Industrial Trust and
Automated Component Technologies, Inc.
10.9(2) --Master Lease Agreement dated October 27, 1992 between
BancBoston Leasing Inc. and the Company, Rider No. 1 to Master
Lease Agreement between BancBoston Leasing Inc. and the Company
and Rider No. 2 to Master Lease Agreement dated December 16,
1994 between BancBoston Leasing Inc. and the Company.
10.10(2) --Master Lease Agreement dated October 27, 1992 between
BancBoston Leasing Inc. and Automated Component Technologies,
Inc., Rider No. 1 to Master Lease Agreement between BancBoston
Leasing Inc. and Automated Component Technologies, Inc., Rider
Agreement dated December 16, 1994 between BancBoston Leasing
Inc. and the Company, and Assumption Agreement dated December
15, 1994 between BancBoston Leasing Inc., the Company and
Automated Component Technologies, Inc.
10.11(2) --Notice and Acknowledgment of Assignment for Automated
Component Technologies, Inc. Lease Schedules Nos. 1-6 dated
June 20, 1994 between BancBoston Leasing Inc., ICON Cash Flow
Partners L.P., Series E and Automated Component Technologies,
Inc.
10.12(2) --Notice and Acknowledgment of Assignment for Automated
Component Technologies, Inc. Lease Schedules Nos. 7-9, 11 and
12 dated December 30, 1994 between BancBoston Leasing Inc.,
Citizens Leasing Corporation and the Company.
10.13(2) --Subordinated Security Agreement dated January 12, 1995 between
BancBoston Leasing Inc. and the Company.
10.14(2) --Stock Purchase Agreement dated as of January 1, 1993 between
Donald G. Polich, John A. Pino, the Company and Automated
Component Technologies, Inc., as amended by the First Amendment
dated February 8, 1995.
10.15(2) --Consulting Agreement dated as of August 4, 1993 between the
Company and Re-Act Consulting as amended by the First Amendment
thereto dated February 8, 1995.
10.16(2) --Consulting Agreement dated as of August 4, 1993 between
Automated Component Technologies, Inc. and Re-Act Consulting as
amended by the First Amendment thereto dated February 8, 1995.
10.17(2) --Noncompetition Agreement dated as of January 1, 1993 between
the Company, John A. Pino and Donald G. Polich.
10.18(2) --Noncompetition Agreement dated as of January 1, 1993 between
Automated Component Technologies, Inc., John A. Pino and Donald
G. Polich as amended by the First Amendment thereto dated
February 8, 1995.
10.19(2) --Letter Agreement dated as of January 1, 1993 from the Company
and Automated Component Technologies, Inc. to Donald G. Polich,
as amended by the First Amendment thereto dated February 8,
1995.
10.20(3) --Lease dated January 31, 1996 between Mansfield/Forbes Ltd.
Partnership and the Company.
10.21(4) --Split-Dollar Life Insurance Agreement Dated September 5, 1996
by and between the John A. Pino and Janet M. Pino Family
Maintenance Trust and the Company.
10.22(6) --Lease Agreement dated May 26, 1998 between Highwoods/Forsyth
Limited Partnership and ACT Manufacturing, Inc.
10.23(7) --Credit Agreement dated October 14, 1998 between the Company,
ACT Manufacturing Securities Corporation and The Chase
Manhattan Bank, as agent.
10.24(7) --Revolving Credit Note from the Company in favor of The Chase
Manhattan Bank.
10.25(7) --Revolving Credit Note from the Company in favor of National
Bank of Canada.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.26(7) --Security Agreement dated October 14, 1998 between the Company,
ACT Manufacturing Securities Corporation and The Chase
Manhattan Bank, as agent.
10.27(7) --Pledge Agreement dated October 14, 1998 between the Company
and The Chase Manhattan Bank, as agent.
10.28(7) --Share Pledge Agreement dated October 14, 1998 between the
Company and The Chase Manhattan Bank, as agent.
10.29(7) --ISDA Master Agreement dated October 14, 1998 between the
Company and The Chase Manhattan Bank.
10.30(7) --Stock Purchase Agreement dated October 13, 1998 between the
Company and Advanced Component Technologies Limited.
10.31(7) --Subordinated Loan Agreement dated October 13, 1998 between the
Company and Advanced Component Technologies Limited.
10.32(7) --Restated Second Amendment to Agreement of Lease dated November
6, 1998 between the Company and John A. Pino, Trustee of Re-Act
Realty Trust.
10.33(7) --Restated Lease Amendment and Third Amendment to Agreement of
Lease dated November 6, 1998 between the Company and John A.
Pino, Trustee of Re-Act Realty Trust.
10.34(7) --Letter Agreement dated October 14, 1998 between the Company
and BancBoston Leasing.
10.35(7) --Letter Agreement dated October 14, 1998 between the Company
and Citizens Leasing.
10.36* --Development Agreement dated August 18, 1997 between Citiwest
Limited, SignMax Limited and ACT Manufacturing, Inc.
10.37* --Option Agreement dated August 18, 1997 between Citiwest
Limited, SignMax Limited and ACT Manufacturing, Inc.
10.38* --Lease Agreement dated August 18, 1997 between Irish Life
Assurance PLC, SignMax Limited and ACT Manufacturing, Inc.
10.39* --Agreement dated May 25, 1998 between Industrial Development
Agency (Ireland) and Advanced Component Technologies Limited.
10.40* --Master Lease Agreement dated February 22, 1999 between Heller
Financial Leasing, Inc. and the Company.
10.41* --Lease Agreement dated February 26, 1999 between Amplicon, Inc.
and the Company.
11.1* --Statement re: computation of earnings per share.
21.1* --Subsidiaries of Registrant.
23.1* --Consent of Deloitte & Touche LLP.
24.1 --Power of Attorney (see Page 44 of this Form 10-K).
27.1* --Financial Data Schedule--Fiscal Year 1998.
</TABLE>
- --------
(1) Incorporated herein by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(2) Incorporated herein by reference to the exhibits to the Company's
Registration Statement on Form S-1 (File No. 33-89532), as amended.
(3) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1996.
(4) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1996.
(5) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1997.
42
<PAGE>
(6) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1998.
(7) Incorporated herein by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1998.
* Filed herewith.
(#) Indicates a management contract or any compensatory plan, contract or
arrangement.
(b) REPORTS ON FORM 8-K
Not applicable.
(c) EXHIBITS
The Company hereby files as part of this Annual Report on Form 10-K the
exhibits listed in Item 14(a)(3) above. Exhibits which are incorporated herein
by reference can be inspected and copied at the public reference facilities
maintained by the Commission, 450 Fifth Street, NW, Room 1024, Washington,
D.C. and at the Commission's regional offices at 219 South Dearborn Street,
Room 1204, Chicago, Illinois; 26 Federal Plaza, Room 1102, New York, New York
and 5757 Wilshire Boulevard, Suite 1710, Los Angeles, California. Copies of
such material can also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, NW, Washington, D.C. 20549, at prescribed rates.
(d) FINANCIAL STATEMENT SCHEDULES
The Company hereby files as part of this Annual Report on Form 10-K the
consolidated financial statement schedules listed in Item 14(a)(2) above.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ACT Manufacturing, Inc.
Date: March 30, 1999 /s/ John A. Pino
By: _________________________________
John A. Pino
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John A. Pino and Jeffrey B. Lavin, jointly and
severally, his attorney-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this Annual Report on
Form 10-K and to file same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John A. Pino President, Chief Executive March 30, 1999
_____________________________________ Officer and Director
John A. Pino (Principal Executive
Officer)
/s/ Jeffrey B. Lavin Vice President of Finance March 30, 1999
_____________________________________ and Chief Financial
Jeffrey B. Lavin Officer (Principal
Financial and Accounting
Officer)
/s/ Edward T. Cuddy Director March 30, 1999
_____________________________________
Edward T. Cuddy
/s/ Bruce R. Gardner Director March 30, 1999
_____________________________________
Bruce R. Gardner
/s/ Donald G. Polich Director March 30, 1999
_____________________________________
Donald G. Polich
</TABLE>
44
<PAGE>
SCHEDULE II
ACT MANUFACTURING, INC.
Valuation and Qualifying Accounts
For the years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Additions
Balance Charged to Balance
at Beginning Costs and at End
of Period Expenses Deductions of Period
------------ ---------- ---------- ---------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
For the year ended December 31,
1996............................ $ 225,000 $ 23,169 $ 23,169 $ 225,000
For the year ended December 31,
1997............................ 225,000 1,805,000 -- 2,030,000
For the year ended December 31,
1998............................ 2,030,000 1,925,000 2,804,000 1,151,000
INVENTORY RESERVE:
For the year ended December 31,
1996............................ 581,320 2,648,541 325,744 2,904,117
For the year ended December 31,
1997............................ 2,904,117 685,000 2,904,117 685,000
For the year ended December 31,
1998............................ 685,000 -- 223,000 462,000
</TABLE>
1
<PAGE>
Exhibit 10.36
-------------
CITYWEST LIMITED
----------------
First Part
SIGNMAX LIMITED
---------------
Second Part
ACT MANUFACTURING, INC
----------------------
Third Part
AGREEMENT FOR LEASE
Re: Unit 2008,
Citywest Business Campus,
Naas Road,
Dublin
Arthur Cox,
41/45 St. Stephen's Green,
DUBLIN, 2.
August 18, 1997
<PAGE>
-1-
AGREEMENT made the day of 1997 BETWEEN
- ------------------ -------
CITYWEST LIMITED having its registered office at 49 Dawson Street, Dublin 2
- ----------------
(hereinafter called "the Developer" which expression shall where the context so
admits or requires include its successors and assigns) of the First Part
SIGNMAX LIMITED having its registered office at Grand Canal Quay, Dublin 2
- ---------------
(hereinafter called "the Tenant" which expression shall where the context so
admits or requires include its successors and permitted assigns) of Second
Part AND
ACT MANUFACTURING, INC of 108 Forest Avenue, Hudson, MA 01749-2893 U.S.A.
- ----------------------
(hereinafter called "the Surety") of the Third Part.
WHEREAS:
A. The Developer is in the course of procuring the construction of the premises
known as Unit 2008 ("the Demised Unit") Citywest Business Campus, Naas Road,
Dublin.
B. The Unit will extend to approximately 45,000 sq. ft. of gross floor area
inclusive of office accommodation as more particularly described in
the Plans and Specification referred to in the Cover Sheet annexed
hereto as Appendix 1 ("the Plans").
C. Subject to the terms hereinafter appearing the Developer has agreed to
procure that Irish Life Assurance Plc. ("the Lessor") shall grant and the
Tenant shall take a Lease of the Demised Unit subject to the terms and
conditions hereinafter appearing such Lease to be in the form of the Lease
annexed hereto as Appendix 2 ("the Lease").
D. The Developer has engaged the following parties to procure the construction
of the Demised Unit:-
(i) Cleary & Doyle Contracting Limited as Contractor ("the
Contractor");
(ii) Brian O'Halloran & Associates as Architects ("the Developer's
Architect's");
<PAGE>
-2-
(iii) Roughan & O'Donovan as Consulting Engineers;
(iv) James Hargin Associates as Mechanical and Electrical Engineers.
NOW IT IS HEREBY AGREED as follows:-
1. CONSTRUCTION
------------
1.1. The Developer will use all reasonable endeavours to procure that the
Contractor will complete the construction of the Demised Unit
substantially in accordance with the Plans.
1.2. The Developer shall use all reasonable endeavours to procure that the
Contractor proceeds diligently with the construction of the Demised
Unit with a view to completion of the Demised Unit at an early date
but so that neither the Developer nor the Lessor shall have any
liability to the Tenant for delay for any reason in the completion of
the Demised Unit.
2. COLLATERAL WARRANTIES
---------------------
The Developer shall procure that the Contractor, the Developer's
Architects and the other parties specified at Recital D hereof shall
furnish to the Tenant on the grant of the Lease pursuant to this
Agreement Collateral Warranties from such parties in the forms of the
Collateral Warranties annexed hereto as Appendix 3 ("the Warranties")
and also Collateral Warranties from the sub-contractors engaged for
the cladding and roofing of the Demised Unit in the form of the Sub-
Contractors Collateral Warranties annexed hereto as Appendix 3.
The Developer shall exercise due skill and care reasonably expected of
an experienced property developer in procuring the construction and
completion of the Demised Unit. Subject to compliance by the Developer
of its obligations herein contained it is agreed that the Developer
shall not otherwise have any liability to the Tenant in relation to
the construction and completion of the Demised Unit.
<PAGE>
-3-
3. PLANNING VARIATION
------------------
3.1. The Developer has procured the grant of Planning Permission
Register Reference No. S96A/0590 from South Dublin County Council
("the Grant") in relation to the construction of inter alia the
Demised Unit save and except the items listed in Appendix 4 ("the
Variations") hereto. In addition, the Developer has procured a
Grant of a Fire Safety Certificate Register Reference
S96A/0590/C2 from South Dublin County Council ("the Basic Fire
Certificate") in respect of the construction of approximately
30,000 sq. ft. of manufacturing and office accommodation within
the Demised Unit.
3.2. The Developer shall procure that the Developer's Architects shall
use all reasonable endeavours to lodge a Planning Application
("the Application") in respect of the Variations with South
Dublin County Council as soon as is reasonably practicable
following the execution of this Agreement and to lodge either (i)
an Application for a Fire Safety Certificate in respect of that
part of the Demised Unit which is not already covered by the
Basic Fire Safety Certificate or (ii) a revised Fire Safety
Certificate in respect of the Demised Unit as shown on the Plans
("the Revised Fire Safety Certificate").
3.3. The Developer shall use all reasonable endeavours to procure that
the Application and that the Application in respect of the
revised Fire Safety Certificate are processed without undue
delay.
3.4. This Agreement is conditional upon:-
3.4.1. The Developer procuring an acceptable (as hereinafter
described) Grant of Planning Permission in respect of the
Variations ("the Grant") on or before the lst day of
April l998. The Grant shall be deemed acceptable in
circumstances where the Grant does not (subject as
hereinafter appears) contain any conditions precluding
the carrying out of any of the Variations or the use of
the Demised Unit as intended provided always that any
condition prohibiting the incorporation of the revised
<PAGE>
-4-
elevation to the front of the Demised Unit as
contemplated by the Plans shall be deemed an acceptable
condition. In this regard the Developer confirms that the
ground floor and the first floor of the Demised Unit
shall be level.
3.4.2. The Developer procuring the Revised Fire Safety
Certificate in respect of the entire of the Demised Unit
substantially in the form of the Basic Fire Safety
Certificate or (at the Developer's election) a further
Fire Safety Certificate in respect of that part of the
Demised Unit not covered by the Basic Fire Safety
Certificate substantially in the form of the Basic Fire
Safety Certificate on or before the lst day of April
l997.
3.5. The Developer shall furnish to the Tenant the Notification of
Decision to Grant Planning Permission (or any refusal thereof)
("the Notification") within five working days of receipt thereof.
The Developer shall forthwith lodge an Appeal against any refusal
in respect thereof. The Developer shall also appeal the
Notification where the same is not acceptable as hereinbefore
described. Notwithstanding the provisions of Clause 3.4.1. hereof
the Notification shall be deemed to be acceptable in
circumstances where the Tenant does not notify the Developer in
writing that the Notification is unacceptable within ten working
days of receipt by the Tenant of a copy of the Notification.
Nothing herein contained shall prohibit the Tenant from lodging
an Appeal against any of the Conditions in the Notification where
any of the Conditions preclude the carrying out of the Variation
specified at 1 of Appendix 4 or preclude the use of the Demised
Unit as intended.
3.6. Where any Appeal in respect of the Notification is lodged to An
Bord Pleanala the Developer shall furnish a copy of the Decision
of An Bord Pleanala ("the Decision") to the Tenant within ten
working days of receipt thereof and the Tenant shall notify the
Developer in writing within ten working days if in the Tenant's
view the Decision is not acceptable in the manner hereinbefore
<PAGE>
-5-
described at Clause 3.4.1. Notwithstanding the provisions of
Clause 3.4.1. hereof the Decision shall be deemed to be
acceptable in circumstances where the Tenant does not notify the
Developer in writing that the Decision is unacceptable within ten
working days of receipt by the Tenant of a copy of the Decision.
3.7. The Developer shall furnish to the Tenant within five working
days of receipt of same a copy of the Revised Fire Safety
Certificate.
3.8. In the event that a dispute arises between the Developer and the
Tenant as to whether or not the Notification or the Decision is
acceptable within the terms hereinbefore described or as to
whether or not the Revised Fire Safety Certificate is in
accordance with the provisions of clause 3.4.2. of this
Agreement, either party may refer the determination of such
dispute to David Keane of Keane Murphy Duff or if he shall be
unwilling or unable to act to such other Architect as may be
appointed upon the Application of either party by the President
for the time being of the Royal Institute of the Architects of
Ireland ("the Independent Architect"). The Independent Architect
shall act as an expert and not as an Arbitrator and his fees
shall be borne by the party against whom he holds. The
Independent Architect shall give his decision within ten working
days of being requested to act and shall be entitled to receive
written or oral submissions from or on behalf of the Developer
and the Tenant.
4. PRACTICAL COMPLETION
--------------------
4.1. For the purposes of this Agreement, the date of practical
completion of the Demised Unit ("the Date of Practical Completion
") shall be date on which the Developer's Architect certifies as
being the date on which in his opinion the Demised Unit has been
practically completed in accordance with the plans ("Practical
Completion"). The Tenant shall within two months from the date
hereof nominate a party who shall act as the Tenant's Architect
("the Tenant's Architect") for the purposes of this Agreement. In
default of such Notification reference to the Tenant's Architect
herein
<PAGE>
-6-
shall be deemed to mean the Tenant. The Developer's Architect
shall notify the Tenant's Architect not less than 14 days before
the date on which the Developer's Architect anticipates that he
should issue the certificate of Practical Completion ("the
Certificate of Practical Completion") in relation to the Demised
Unit and shall invite the Tenant's Architect to arrange a joint
inspection with the Developer's Architect of the Demised Unit not
less than two weeks prior to the date that it is anticipated the
Certificate of Practical Completion will issue. The Tenant's
Architect shall notify the Developer's Architect in writing within
five working days of such inspection of any matters which in the
view of the Tenant's Architect should have attention prior to the
issue of the Certificate of Practical Completion and the
Developer's Architect shall take due regard of same but nothing
herein shall limit the right of the Developer's Architect to issue
the Certificate of Practical Completion.
4.2. If the Tenant's Architect shall object to the issue of the
Certificate of Practical Completion he shall do so in writing to
the Developer's Architect such notice to be received by the
Developer's Architect within five days of the date of the issue of
the Certificate of Practical Completion specifying his objections
which shall not include (i) items which are normally dealt with in
a snagging list (which term shall have the meaning understood by
custom in the building trade) and (ii) any items of landscaping
which may reasonably be deferred due to Practical Completion being
achieved outside the recognised planting seasons.
4.3. In the event of a dispute between the Developer's Architect and
the Tenant's Architect as to whether the Certificate of Practical
Completion should have issued having regard to the objections of
the Tenant's Architect then the items in dispute shall be referred
forthwith to the Independent Architect who shall be required to
give a decision within ten days of being requested to resolve such
dispute. The Independent Architect shall act as an expert and not
as an Arbitrator and his fees shall be borne by the party against
whom he holds. Where the Independent Architect finds in favour of
the Tenant and that the Certificate of Practical Completion should
not have issued, the Developer shall procure that the items of
works identified by the Independent Architect required to be
completed to achieve Practical Completion shall be remedied
<PAGE>
-7-
forthwith and the provisions of clauses 4.1, 4.2 and 4.3 hereof
shall be repeated mutatis mutandis with the substitution of "ten
working days" with "five working days".
5. RENT CALCULATION
----------------
5.1. The rent to be reserved by the Lease (for the first five years
thereof) shall be ?6.20 per annum per sq. ft. of the Gross
External Area of the Demised Unit calculated in accordance with
the Code of Measuring Practice issued by the Society of Chartered
Surveyors with others. The Gross External Area of the Demised
Unit shall be measured and ascertained by the Developer and the
Tenant on such date as the Developer shall notify to the Tenant
and in the event of there being a dispute as to the Gross
External Area the matter shall be determined by an Independent
Chartered Surveyor as set out hereunder:-
5.1.1. The Developer and the Tenant shall endeavour to agree the
Gross External Area of the Demised Unit;
5.1.2. If they cannot do so the Gross External Area shall be
determined by such Independent Chartered Surveyor as the
parties may agree or in default of agreement by such
Chartered Surveyor as may be nominated upon the
application of either party by the President (or other
acting senior officer) of the Society of Chartered
Surveyors;
5.1.3. The Independent Surveyor so appointed shall act as an
Expert and shall afford to the Developer and the Tenant a
reasonable opportunity of stating (whether in writing or
otherwise as may decided by him and within time as he may
stipulate in that behalf) reasons in support of such
contentions as each party may wish to make relative to
the matter or matters under consideration.
5.2. The determination of the Independent Surveyor shall be binding on
the parties and his costs shall be borne by the party against
whom he holds.
<PAGE>
-8-
5.3. In the event of the Gross External Area not having been agreed by
the Lease Commencement Date the Tenant shall pay to the Developer
rent based on a deemed Gross External Area of 45,000 sq ft and
within fourteen days of agreement on or determination of the
Gross External Area there shall be paid by the Developer to the
Tenant (or vice versa) any excess or underpayment (as the case
may be) in respect of the period for which rent has been paid. If
the rent in the Lease is calculated by reference to the deemed
Gross External Area as aforesaid then the parties shall enter
into a memorandum supplemental to the Lease recording the
adjusted yearly rent calculated with reference to the Gross
External Area agreed or determined in accordance with the
provisions of this Agreement.
6. GRANT OF LEASE
--------------
6.1. At the time of the execution of this Agreement, the Tenant and
the Surety shall execute the Lease in duplicate and both shall be
held by the Developer's Solicitors in escrow pending satisfaction
of Clauses 3.4 -3.8. hereof and the completion of the
construction of the Demised Unit to a stage of Practical
Completion as certified in accordance with clause 4 hereof.
6.2. The Tenant shall become liable to comply with all the covenants
on the part of the Tenant and conditions contained in the Lease
from the Date of Practical Completion so certified or (if
applicable) such later date as the Independent Architect
certifies as being the date on which Practical Completion of the
Demised Unit has been achieved.
6.3. The Developer shall subject to receipt of the relevant stamp duty
stamp the original and counterpart of the Lease and shall return
the original thereof to the Tenant as soon as practicable duly
executed by the Lessor.
6.4. The Tenant shall also deliver to the Lessor on the signing hereof
an Opinion addressed to the Lessor and its successors and assigns
from the Surety's lawyers, Messrs. Testa, Hurwitz & Thibeault,
LLP in the form annexed hereto
<PAGE>
-9-
as Appendix 5. In addition, the Tenant shall procure that the
Surety shall furnish an updated Opinion in similar form to the
Lessor immediately prior to the grant thereof to the Tenant.
6.5. The term of the Lease held in escrow shall commence upon the Date
of Practical Completion as certified by the Developer's Architect
(or as determined by the Independent Architect if appointed) and
the Tenant with the consent of the Surety hereby irrevocably
authorises the Developer to insert this date in the Lease and
counterpart thereof and also to insert the annual rent as agreed
pursuant to clause 5.1. or as calculated pursuant to clause 5.3.
(as the case may be).
7. PAYMENT FOR VARIATIONS/FIT-OUT
7.1. The parties acknowledge that the rental figure of ?6.20 per annum
per foot of the Gross External Area referred to a clause 5.1. is
agreed in respect of the completed Demised Unit as shown in
accordance with the Plans and Specification referred to in the
cover sheet annexed hereto as Appendix 10 ("the Basic Plans").
7.2. The Tenant agrees that it shall be responsible for and shall pay
to the Developer the reasonable and proper additional costs and
expenses together with Value Added Tax thereon ("the Additional
Costs") incurred by the Developer as certified by the Developer's
Architect in procuring the modification and variation of the
Demised Unit from that as shown in the Basic Plans to that as
shown in the Plans and also in respect of any further changes
from the Basic Plans which the Developer agrees to procure such
agreement not to be unreasonably withheld or delayed provided any
such changes do not adversely affect the value of the Demised
Unit and that any such further changes do not materially delay
Practical Completion.
<PAGE>
-10-
For the avoidance of doubt where any items or part thereof shown
on the Basic Plans are omitted prior to installation the Tenant
shall be allowed a credit in respect of such savings against the
cost of the other modifications and variations.
7.3. Payment of the Additional Costs (less the sum of ?50,000 which
the Developer will bear as a contribution towards such costs)
shall be made by the Tenant to the Developer within ten working
days after the issue of the Developer's Architects Certificate of
same and in this respect the Developer shall furnish to the
Tenant on request full details and backup in relation to the
computation and calculation of the Additional Costs.
8. PAYMENTS
--------
Upon the Date of Practical Completion as certified or (as the case may
be) determined in accordance with Clause 4 hereof, the Tenant shall pay
to the Developer (1) an amount equal to one quarter of the annual rent
(or deemed initial annual rent pursuant to clause 5.3) payable in respect
of the Demised Unit (2) Value Added Tax payable on the granting of the
Lease PROVIDED ALWAYS that the Landlord shall co-operate with the Tenant
---------------
in order to assist the Tenant to avail of the VAT Form 4A procedure on
the grant of the Lease, (3) Stamp Duty payable on foot of the Lease and
Counterpart (4) one quarter's estimated Service Charge being the Advance
Payment of Service Charge specified in the Lease and (5) a payment on
account the first year's insurance premium payable by the Tenant under
the Lease as notified by the Developer to the Tenant.
9. FITTING-OUT
-----------
9.1. The Tenant shall be solely responsible at its own expense for the
fitting out and furnishing of the Demised Unit so as to enable the
Tenant to occupy and trade from the Demised Unit in accordance
with the fitting out details to be approved in writing by the
Lessor pursuant to sub-clause (2) hereof.
<PAGE>
-11-
9.2 Prior to undertaking any fitting-out of the Demised Unit, the
Tenant shall submit to the Developer's Architect for approval by
the Lessor all details, specifications, drawings and other
information (hereinafter called "the fitting out details") in
relation to the fitting out of the Demised Unit.
9.3. Before carrying out any fitting out of the Demised Unit the
Tenant shall obtain all necessary Planning Permissions, Fire
Safety Certificate, Licences or consents whether statutory or
otherwise and the Tenant shall further ensure that all such
fitting out works shall comply therewith.
9.4. Upon completion of the fitting out works, the Tenant shall
forthwith notify the Lessor, and the Lessor's Architect shall be
at liberty to inspect the same if the work has been carried out to
the satisfaction of the Lessor or its Architect, the Tenant's
Architect shall forthwith issue to the Lessor a certificate that
the Tenant has executed the works in accordance with the fitting
out details and pursuant to the necessary statutory consents.
10. POSSESSION
----------
Upon becoming entitled to take possession of the Demised Unit the Tenant
shall be deemed to take possession of the Demised Unit with full
knowledge of the actual state and condition of the Demised Unit as to
repair, finishes, means of access, enjoyment of light and air, party
walls and otherwise, and shall take the same as it stands.
11. NO ASSIGNMENT
-------------
The Tenant shall not assign, underlet, mortgage, charge, share, part with
or otherwise in any way whatsoever (either directly or indirectly) deal
with its/his interest under this Agreement or any part thereof.
12. TITLE
-----
The title to be shown by the Lessor shall consist of the copy documents
referred to in the Schedule contained at Appendix 6 hereto.
<PAGE>
-12-
13. PLANNING
--------
The Developer shall furnish to the Tenant the copy Planning Permission
and Fire Safety Certificate listed in Appendix 7 hereto. The Developer
will furnish to the Tenant at the time of delivery of the Lease to the
Tenant Opinions on Compliance with Planning Permission and Building
Regulations from the Developer's Architects in the forms annexed hereto
as Appendix 8 and copies of the documentation lodged with the Building
Control Authority on foot of the Application for the said Fire Safety
Certificate together with the Drawings of the Demised Unit in CAD form, a
copy of the Commencement Notice, receipts for financial contributions due
on foot of the Planning Permission in relation to the Demised Unit,
insurance details and a waiver of subrogation rights.
14. OPTION LANDS
------------
The Developer, the Tenant and the Surety shall enter into an Option
Agreement in respect of the Option Lands on the grant of the Lease in the
form annexed hereto at Appendix 7. The Tenant and the Surety shall
execute the said Option Agreement in duplicate prior to the grant of the
Lease and shall deliver same to the Developer in sufficient time to
enable same to be delivered to the Tenant duly executed by the Developer
at the time of the grant of the Lease to the Tenant.
15. NOTICES
-------
15.1 Any notice under this Agreement shall be effectively given if
sent by post or delivered to the intended recipient or its
Solicitors at its, his or their last known address. Where sent by
post the notice shall be deemed to be served on the second day
after posting.
15.2 Where the last day for taking any step would but for this
provision be Christmas Day, Good Friday, a Saturday or Sunday or a
Public Holiday such last day shall be the next following working
day instead.
16. SURETY
------
The Surety jointly and severally covenants with the Developer that
the Tenant shall perform and observe the covenants and conditions on the
part of the Tenant herein contained and that the Surety shall be a party
to the Lease in the manner therein provided.
17. JURISDICTION
------------
This Agreement shall be construed in accordance with the Laws of
Ireland.
<PAGE>
-13-
APPENDIX 1
----------
See Cover Sheet of Plans and Specification Annexed
<PAGE>
-14-
APPENDIX 2
----------
See Occupational Lease Annexed
<PAGE>
-15-
APPENDIX 3
----------
See forms of Collateral Warranties Annexed
<PAGE>
-16-
APPENDIX 4
----------
Variations
1. Provision of dock leveller to rere of the Demised Unit as shown on the
Plans.
2. Variations of front facade of additional bay from that as shown on the
Basic Plans to that as shown on the Plans.
<PAGE>
-17-
APPENDIX 5
----------
See form of U.S. Attorney's Opinion Annexed.
<PAGE>
-18-
APPENDIX 6
----------
Title to be furnished by Lessor
1. Certified copy Superior Lease dated 25th January l996 made between
Citywest Limited of the one part and Irish Life Assurance Plc. of the
other part.
<PAGE>
-19-
APPENDIX 7
----------
Planning Permission and Fire Safety Certificates
1. Notification of Grant of Planning Permission Register Reference No.
S96A/0590 issued by South Dublin County Council.
2. Fire Safety Certificate Register No. S96A/0590/C2 issued by South Dublin
County Council.
<PAGE>
-20-
APPENDIX 8
-----------
See Opinions on Compliance Annexed
<PAGE>
-21-
APPENDIX 9
----------
See Option Agreement Annexed.
<PAGE>
-22-
APPENDIX 10
-----------
The Basic Plans
See Cover Sheet Annexed hereto.
<PAGE>
-23-
APPENDIX 11
-----------
Brief Details of Modification/Variations
See List Annexed
<PAGE>
-24-
IN WITNESS whereof the parties hereto have either caused their Common Seals to
- ----------
be affixed hereto or have signed or caused to have signed on this Agreement on
their behalf the day and year first herein written.
PRESENT when the Common Seal
- -------
of THE DEVELOPER was affixed
-------------
hereto:-
PRESENT when the Common Seal
- -------
of THE TENANT was affixed
----------
hereto:-
SIGNED by [ ]
- -------
on behalf of THE SURETY
----------
duly authorised:-
<PAGE>
Exhibit 10.37
-------------
Dated the day of l997
CITYWEST LIMITED
----------------
First Part
SIGNMAX LIMITED
---------------
Second Part
ACT MANUFACTURING INC,
----------------------
Third Part
OPTION AGREEMENT
----------------
Re: Expansion Lands
Unit 2008,
Citywest Business Campus,
Naas Road,
Dublin.
Arthur Cox,
41 - 45 St. Stephen's Green,
Dublin 2
JSW.4873/aod 18/8/97
<PAGE>
THIS AGREEMENT is made the day of l997
- --------------
BETWEEN
- -------
CITYWEST LIMITED having its registered office at 49 Dawson Street, Dublin 2
- ----------------
(hereinafter called "the Developer") of the first part
SIGNMAX LIMITED having its registered office at Grand Canal Quay, Dublin 2
- ---------------
(hereinafter called "the Tenant" which expression shall where the context so
admits or requires include its successors and permitted assigns) of the second
part AND ACT MANUFACTURING, INC of 108 Forest Avenue, Hudson MA 01749-2893,
--------------------------
U.S.A. (hereinafter called "the Surety") of the third part
W H E R E A S:-
- -------------
A. This Agreement is supplemental to the Primary Lease of even date made
between Irish Life of the first part, the Tenant of the second part and the
Surety of the third part.
B. The Developer has agreed with the Tenant to grant to the Tenant an option
for the development of the Additional Lands subject to and in accordance
with the terms of this Agreement.
IN THIS AGREEMENT THE FOLLOWING EXPRESSIONS SHALL HAVE THE MEANINGS ASSIGNED TO
- -------------------------------------------------------------------------------
THEM HEREUNDER:-
- --------------
"Additional Lands" means the lands extending to approximately 1.87 acres more
particularly shown on a map annexed hereto and thereon edged red.
"Additional Accommodation" means an extension to the Demised Unit comprising not
less than 15,000 sq. ft. of Gross External Area and not more than 45,000 sq. ft.
of Gross External Area.
"Demised Unit" means the premises known as Unit 2008 Citywest Business Campus
demised by the Primary Lease.
<PAGE>
"Primary Lease" means the Indenture of Lease of even date herewith made between
the Landlord of the first part, the Tenant of the second part and the Surety of
the third part in respect of the Demised Premises.
"Primary Agreement for Lease" means the Agreement the Lease of even date
herewith and made between the Developer of the first part, the Tenant of the
second part and the Surety of the third part.
"Further Lease" means the Indenture of Lease substantially in the form of the
Primary Lease (mutatis mutandis) and varied according to this Agreement to be
entered into between Irish Life, the Tenant and the Surety in respect of the
Additional Accommodation and where the context so requires shall include any
further Lease so entered into pursuant to the provisions of this Agreement.
"Further Agreement for Lease" means an Agreement for Lease substantially in the
form of the Primary Agreement for Lease (mutatis mutandis) and containing also
such further amendments thereto as may be reasonably required by virtue of the
provisions of this Agreement.
"Irish Life" means Irish Life Assurance Plc. its successors and assigns.
"Option Sum" means the sum of ,7,500 per acre per annum.
"Option Payment Dates" means the date hereof and the date which is the first
anniversary from the date hereof.
"Option Period" means the period of two calendar years from the date hereof.
"Index" means the Consumer Price Index as published by The Central Statistics
Office.
"Indexed Rent" means a rent of ,6.20 per sq. ft. of Gross External Area
increased in accordance with the proportionate increase in the Index from (i)
(where the first option is
<PAGE>
exercised) the date hereof to the date upon which the Tenant exercises its first
option as hereinafter provided in respect of the Additional Accommodation or
part thereof and (ii) (where the second option is exercised) the date hereof tot
he date upon which the Tenant exercises its second option as hereinafter
provided in respect of a further part of the Additional Accommodation.
"Specification" means a standard and specification comparable to that applying
to the Existing Facility in accordance with the Primary Agreement for Lease and
containing a ratio of office accommodation equal to that of the Existing
Facility.
"Existing Facility" means Unit 2008 Citywest Business Campus being the property
the subject matter of the Primary Lease.
"Minimum Expansion" means a development comprising not less than 15,000 sq. ft.
of Gross External Area.
"Gross External Area" means such area as is calculated in accordance with that
term described in the Measurement Practice Guidance Notes issued jointly with
others by the Society of Chartered Surveyors.
"Plans" means the Plans, Drawings and Specification in respect of the Additional
Accommodation which shall be substantially in accordance with the Specification.
"Tenant's Proportion" means the sum of 18.7 per centum in respect of the
Additional Lands.
Reference to clause, schedule or paragraph are references where the context so
admits to a clause, schedule or paragraph of a schedule or appendix in this
Agreement.
The clause and paragraph headings in this Agreement offer ease of reference only
and shall not
<PAGE>
be taken into account in the construction or interpretation of the clause or
paragraph to which they refer.
Words importing the singular meaning where the context so admits include the
plural meaning and vice versa.
Words of the masculine gender include the feminine and neuter genders and words
denoting natural persons include corporations and firms and all such works shall
be construed inter changeably in that manner.
Words denoting an obligation on a party to do any act matter or thing include an
obligation to procure that it be done and words placing a party under a
restriction include an obligation not to permit or allow infringement of the
restriction.
NOW IT HEREBY AGREED by and between the Developer, the Tenant and the Surety
- --------------------
that in consideration of the payment by the Tenant to the Developer of the
Option Price at the times and in the manner herein provided the parties agree as
follows:-
1 NO DISPOSAL
-----------
The Develop covenants with the Tenant that it shall procure that Irish Life
will not during the Option Period dispose of, alienate or otherwise deal
with the Additional Lands save in accordance with this Agreement.
2 OPTION PRICE
------------
The Tenant undertakes to make payment of the Option Price on the Option
Payment Dates and acknowledges that failure to do so gives the Developer the
right to determine this Agreement.
3 CONDITIONS PRECEDENT
--------------------
The following shall be deemed to be conditions precedent to the exercise of
the Option hereinafter referred to:-
<PAGE>
3.1 A Grant of Full Planning Permission has been obtained for the
Additional Accommodation (in respect of which the Tenant which is to
exercise its Option) on terms and conditions which are deemed
satisfactory to the Developer, Irish Life and the Tenant (at each of
their respective absolute discretion) and the Fire Safety Certificate
obtained in respect thereof all during the Option Period.
3.2 The Developer, Tenant and the Surety agreeing in writing on the form
of the Further Agreement for Lease and the form of the Further Lease
during the Option Period.
3.3 The Plans in respect of the Additional Accommodation in respect of
which the Tenant proposes to exercise its Option having been first
approved in writing by the Tenant, the Developer and Irish Life during
the Option Period. For the avoidance of doubt it is agreed that the
Additional Accommodation to be included in any Further Leases to be
granted shall be designed so as to be capable of separate lettability
of same and that the Additional Accommodation to be constructed
pursuant to the Plans must (subject to installation at the expiry or
sooner determination of the Term of the necessary divisions from the
remainder of the Demised Unit and any other part of the Additional
Accommodation constructed) once constructed comprise an
institutionally acceptable independent property investment and in this
respect the Tenant shall not be obliged to instal dividing walls
between the Demised Unit and the Additional Accommodation or between
separate parts of the Additional Accommodation separately demised by
any of the Further Leases until termination of a surrender of the
Primary Lease and the Further Leases.
3.4 The parties agreeing in writing during the Option Period upon the
Indexed Rent to apply in respect of the Additional Accommodation in
respect of which the Tenant proposes to exercise its Option.
<PAGE>
3.5 The parties agreeing in writing during the Option Period upon (i) the
extent of the Additional Lands (on a site coverage of not less than
31%) to be included in the demise of the Additional Accommodation in
respect of which the Tenant proposes to exercise its Option and (ii)
the figure to be inserted as the Due Proportion in the Further Lease.
4 OPTION
------
Subject to the conditions precedent hereinbefore specified having been
satisfied during the Option Period and subject to the Tenant having complied
in all material respects with its obligations under the Primary Lease and the
Primary Agreement for Lease the Developer agrees that the Tenant shall have
the right to require the Developer in writing to procure the construction of
the Additional Accommodation or part thereof (but in any event not less than
an area equal to the Minimum Expansion) in accordance with the terms of the
Further Agreement for Lease as varied by this Agreement and without prejudice
to the generality of the foregoing including the following variations:-
4.1 The Plans shall be deemed to be the Plans approved in writing pursuant
to clause 3.3 hereof.
4.2 The Contractor and the Design Team described at Recital D of the
Primary Agreement for Lease shall be those selected by the Developer
following consultation with the Tenant.
4.3 The rent per square foot of Gross External Area shall be the Indexed
Rent applicable to that part of the Additional Accommodation in
respect of which the Tenant exercises its option hereunder.
4.4 The Warranties to be provided pursuant to the Agreement for Lease may
be varied in such a manner as the Developer deems reasonable having
regard to the circumstances prevailing.
<PAGE>
Any notice to be served by the Tenant on the Developer pursuant to the
provisions of this Agreement shall specify the portion of the Additional
Accommodation in respect of which the Tenant requires the Developer to
proceed with construction and shall also specify the Tenant's calculation
of the Indexed Rent to apply to such part of the Additional Accommodation
and the option to apply in relation to break clauses as set out at Clause
5.3. or Clause 5.4. (as appropriate).
5 FURTHER LEASE
-------------
The Further Lease shall be agreed as part of the Further Agreement for
Lease and without prejudice to the foregoing shall incorporate the
following variations:-
5.1 The figure to be inserted as the Due Proportion.
5.2 Such reasonable amendments and alterations thereto as the Developer
reasonably requires having regard to the provisions of this Agreement.
5.3. The Tenant shall have the right to select a break clause in the first
Further Lease to be granted as follows:-
5.3.1. A break clause as set out clause 6.8 of the Primary Lease
with effect from the commencement of the Term of the first
Further Lease in which event the Tenant must on the delivery
of the first Further Lease enter into a Deed of Variation
with the Landlord whereby reference to "the end of the tenth
year of the Term" in clause 6.8 of the Primary Lease shall be
substituted with the date which is the end of the tenth year
of the term of the first Further Lease;
or
5.3.2. A provision whereby the break clause contained at clause 6.8.
of the first Further Lease may be exercised at the date on
which the Tenant has the right to exercise the break clause
contained at clause 6.8 of the
<PAGE>
Primary Lease in which event in addition to the Indexed Rent
to be paid by the Tenant on foot of the first Further Lease a
secondary rent equal to 11% of the Indexed Rent shall be paid
by the Tenant for the first five years of the term of the
first Further Lease .
Where the Tenant does not expressly select any of the above options in
the notice served under Clause 4 hereof clause 5.3.1. shall apply.
The break clause to be included at clause 6.8 of the first Further
Lease shall provide that where the Tenant exercises such break clause
it shall be deemed to have also exercised the break clause in the
Primary Lease and in the second Further Lease. In addition, the
Tenant shall on the grant of the first Further Lease enter into a Deed
supplemental to the Primary Lease to provide that where the Tenant
exercises the break clause at clause 6.8. of the Primary Lease the
Tenant shall also be deemed to have simultaneously exercised the break
clause at clause 6.8. of the first Further Lease and (if granted) the
second Further Lease.
5.4. If a second Further Lease is granted the Tenant shall have the right
to select a break clause in the second Further Lease as set out at
clause 6.8 of the Primary Lease with effect from the commencement of
the Term of the said second Further Lease in which event the Tenant
must on delivery of the second Further Lease enter into a Deed of
Variation in respect of the Primary Lease and the first Further Lease
so as to make the dates for exercise of the said break clauses (and
determination of the Primary Lease and of the first Further Lease)
identical to the equivalent dates contained in clause 6.8. of the
second Further Lease.
The break clause to be included at clause 6.8. of the second Further
Lease shall provide that where the Tenant exercises such break clause
it shall be deemed to have also exercised the break clauses in the
Primary Lease and in the first Further Lease respectively.
<PAGE>
5.5. The term commencement date of any of the Further Leases shall in each
case be the date of practical completion of the Additional
Accommodation thereby demised. The first date for review of the rent
in any of the Further Leases shall be five years from the
commencement of the Term thereof.
5.6. Where the Tenant exercises its rights under clause 6.8 of any of the
Primary Lease or of the first Further Lease (if granted) or of the
Second Further Lease (if granted) the Tenant shall ensure that where
the reversionary interest in the Demised Unit and the Additional
Accommodation is not in the ownership of a single entity the premises
shall be delivered up fully secured with all walls constructed
necessary to divide and secure the premises in respect of which the
reversionary interest differs from the balance of the premises. The
Primary Lease and the first Further Lease (if granted) and the second
Further Lease (if granted) shall include such provision.
5.7. The Rent Review Clause to be included in any of the Further Leases
shall be on the basis of the rent which a willing tenant would pay
and a willing landlord would accept for a separate and self contained
unit on Citywest Business Campus comprising the same square footage
and same land area as comprised in the relevant Further Leases and
furnished to the same standard as buildings comprised in any such
Further Lease.
6 SECOND OPTION
-------------
Where the Tenant duly exercises its option to require the construction and
leasing of part of the Additional Accommodation (being not less than the
Minimum Expansion) within two years from the date hereof the Tenant shall
have a further Option (subject to the Tenant having complied in all
material respects with its obligations under the Primary Lease and the
Primary Agreement for Lease and the first Further Lease to require the
Developer to construct and procure the leasing of such further part of the
Additional Accommodation (comprising a floor area of not less than the
Minimum Expansion) at any time within three years from the date hereof and
in such event so
<PAGE>
much of the provisions of this Agreement as are applicable thereto shall
apply in respect of such second option mutatis mutandis.
7 OPTION PAYMENT CREDIT
---------------------
Where the Tenant exercises any of the within option during the Option
Period the Developer shall refund to the Tenant that portion of the Option
Price paid based on the ratio which the site area of that part of the
Additional Lands (to be included in the demise of the Additional
Accommodation) bears to the entire site area of the Additional Lands. On
completion with Citywest the credit under this heading may be dealt with by
way of a rent abatement in respect of the Further Lease or alternatively
shall be by means of a refund of the proportion of the Option Price paid.
8 DISPUTES
--------
8.1 In the event of a dispute arising between the Landlord and the Tenant
concerning the Plans to apply in respect of the Additional
Accommodation either party may refer the determination of such dispute
to David Keane of Keane Murphy Duff Architect or in the event of him
being unwilling or unable to act to such Architect as may be appointed
upon the application of either the Developer or the Tenant by the
President for the time being of the Royal Institute of the Architects
of Ireland and any such Architect so appointed shall act as an expert
and not as an Arbitrator and his or her fees shall be borne by the
party against whom he or she holds. The Architect so appointed shall
give his or her decision within twenty-one days of the referral of the
matter in dispute to him or her and shall be entitled to receive
written or oral submissions from the parties.
8.2 In the event of a dispute arising between the Developer and the Tenant
in relation to the form of the Further Agreement for Lease or in
relation to the form of the Further Lease either party may refer the
determination of such dispute to Rory O'Donnell of O'Donnell Sweeney
or in the event of him being unwilling or unable to act to such
practising Solicitor having experience in
<PAGE>
commercial property in Dublin as may be appointed upon the
application of either the Developer or the Tenant by the President
for the time being of the Law Society of Ireland. Any such Solicitor
so appointed shall act as an expert and not as an arbitrator and his
or her fees shall be borne by the party against whom he/she holds and
the Solicitor so appointed shall give his/her decision within twenty-
one days of the date of referral of the matter in dispute to him or
her. The said Solicitor so appointed shall be entitled to receive
written or oral submissions from the parties in dispute.
8.3 Save as hereinbefore provided in clauses 8.1. and 8.2 above in the
event of a dispute arising between the Developer and the Tenant same
may be referred by either the Developer or the Tenant to the
arbitration of such party as they may agree in writing or in default
thereof to such person as may be nominated upon the application of
either the Developer or the Tenant by the President for the time
being of the Law Society of Ireland. Any such person so appointed
shall act as an Arbitrator and the Arbitration Acts l954 - 1980 shall
apply.
9 NOTICES
-------
Any notice required to be given pursuant to this Agreement shall be treated
as properly given if served by recorded hand delivery or registered post on
the party to whom it is addressed and shall be deemed to have been received
in the case of personal service on the date of service and in the case of
post three days after the placing of such notice in the postal system.
10 SURETY
------
The Surety covenants with the Developer that the Tenant shall perform and
observe the covenants and conditions on the part of the Tenant herein
contained that the Surety shall be a party to the further Agreement for
Lease and to the further Lease in the manner therein provided.
<PAGE>
11 JURISDICTION
------------
This Agreement shall be construed in accordance with the Laws of Ireland.
IN WITNESS whereof the parties hereto have executed this Agreement in manner
- ----------
hereinafter appearing the day and year first above WRITTEN.
-------
PRESENT when the Common Seal
- -------
of CITYWEST LIMITED
----------------
was affixed hereto:-
PRESENT when the Common Seal
- -------
of SINGMAX LIMITED
---------------
was affixed hereto:-
SIGNED by [ ]
- ------
on behalf of THE SURETY in the
----------
presence of:-
<PAGE>
Exhibit 10.38
-------------
Dated 199
(1) IRISH LIFE ASSURANCE PLC.
(2) SIGNMAX LIMITED
and
(3) ACT MANUFACTURING, INC
==================================
LEASE
relating to Unit 2008, Citywest
Business Campus, Naas Road, Dublin
==================================
ARTHUR COX
Solicitors
41/45 St. Stephen's Green
Dublin 2
JSW4871/aod 18/07/97
<PAGE>
CONTENTS
Clause
1.......................................................... Particulars of Lease
2 Interpretation.............................................................
3.........................................................................Demise
4.............................................................Tenant's Covenants
5...........................................................Landlord's Covenants
6....................................................Agreements and Declarations
7......................................................................Guarantee
8...................................................................Jurisdiction
9...........................................................Land Act Certificate
10 Finance Act Certificate....................................................
11 Land Registry Consent......................................................
Schedule 1 - Exceptions and Reservations........................................
Schedule 2 - Rent Review........................................................
<PAGE>
LAND REGISTRY
COUNTY DUBLIN SUB-LEASEHOLD FOLIO
TO BE OPENED
1 PARTICULARS OF LEASE
1.1 Lease dated:
1.2 THE LANDLORD - IRISH LIFE ASSURANCE PLC having its registered office
at Irish Life Centre, Lower Abbey Street, Dublin 1
THE TENANT - SIGNMAX LIMITED having its registered office at Grand
Canal Quay, Dublin 2
THE SURETY - ACT MANUFACTURING, INC of 108 Forest Avenue, Hudson M.A.
01749-2893, U.S.A..
1.3 THE DEMISED PREMISES - ALL THAT the land and premises known or to be
known as Unit 2008 Citywest Business Campus, Naas Road being that part
of the lands of Browns barn situate in the Barony of Rathdown and
County of Dublin shown edged red on plan "A" annexed hereto being part
of the lands demised by the Superior Lease forming part of the lands
comprised in Folio 107474F of the Register County Dublin together with
the appurtenances thereto belonging (including the rights granted by
the Superior Lease insofar as the same may be reasonably required for
the proper use and enjoyment of the Demised Premises) and all
buildings and erections thereon and all conduits utilities and systems
exclusively serving and within the same and one half of the party
walls thereof and all additions alterations and improvements thereto
which may be carried out during the term of these presents and shall
also include all landlords fixtures and fittings from time to time in
and about the same.
1.4 THE TERM - 25 years from the day of 19
1.5 THE BASIC RENT - IR per annum or such other rent as shall be
payable in consequence of review pursuant to the provisions of the
Second Schedule hereto.
1.6 THE REVIEW DATES - the last day of the fifth year of the term and the
last day of every fifth year thereafter.
1.7 THE INSURANCE RENT - the rent secondly hereby reserved.
1.8 THE PERMITTED USE - light manufacturing with warehousing and offices
ancillary thereto.
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THIS LEASE is made on 199 BETWEEN
(1) LANDLORD as hereinafter defined;
(2) TENANT as hereinafter defined;
(3) SURETY as hereinafter defined;
WITNESSETH as follows:
2 INTERPRETATION
2.1 In this Lease unless the context requires otherwise:
"Base Rate" means the rate per centum per annum which shall equal the
annual rate of interest for the time being chargeable under Section 22
of the Courts Act 1981 (or any other rate of interest payable on
judgments under any statutory modification or re-enactment thereof as
may for the time being be in force) or if there is no such rate a rate
of twelve per centum per annum;
"Basic Rent" means the rent specified at Clause 1.5 of the
Particulars;
"Conduits" means sewers drains pipes cables wires gutters ducts
(including any louvre cowls or other outside covers of such ducts or
other conduits) and all other forms of media used or intended to be
used for conducting or for the passage of water drainage electricity
gas telephone alarm signals air extracted air ventilated air heated or
other services or supplies;
"Demised Premises" means ALL THAT the premises referred to in Clause
1.3 of the Particulars.
"Due Proportion" means 25 per centum;
"Equipment" means all plant equipment machinery and apparatus used in
the Demised Premises;
"Gale Days" means the days fixed for quarterly payment of the Basic
Rent in advance being the 1st day of January 1st day of April, 1st day
of July and 1st day of October in each year;
"Insurance Excess" means the initial amount of any claim which by the
terms of the particular insurance policy will not be borne by the
insurers but only to the extent that the same is commonly required or
accepted as an insurance excess in respect of insurances of the type
of the particular insurance concerned;
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"Insurance Rent" means a sum equal to the amount which the Landlord
expends on insurance in respect of the Demised Premises (but not plate
glass) against loss or damage by or from the Insured Risks and
including the cost of periodically (but no more frequently than once
every 2 years) valuing the Demised Premises for insurance purposes;
"Insured Risks" means loss or damage by fire lightning storm tempest
flood landslip heave subsidence bursting or overflowing of water tanks
apparatus or pipes impact aircraft or other aerial devices or articles
dropped or falling therefrom riots civil commotion malicious damage
property owner's liability and such other risks as a prudent Landlord
would in its discretion from time to time consider necessary (but not
including loss or damage to plate glass or other glass) Subject only
in the case of all such insured risks to the availability from time to
time of insurance cover against such risks at reasonable cost and to
the extent that and subject to such conditions as insurance cover
against such risks is generally available ;
"Landlord" means the person or persons so named in Clause 1 of the
Particulars and includes any other person for the time being entitled
to the reversion immediately expectant on the determination of the
Lease;
"Landlord's Managing Agents" means at the Landlord's discretion the
Surveyors or Managing Agents employed for the time being by the
Landlord or the Landlord's Estate or Property Department;
"Loss or Damage" extends to the full reinstatement or replacement cost
of the building or thing insured as reasonably determined by the
Landlord or the Landlord's Managing Agents and includes areasonable
inflationary factor architects surveyors and other professional fees
demolition expenses and all other fees and payments of whatever nature
necessary or in contemplation of or in respect of the effecting of the
said reinstatement or replacement including Value Added Tax on all or
any part thereof (excluding any Insurance Excess but including all
planning fees payable on any planning or building bye law application
and all stamp duties exigible on any Building or like Contract entered
into relative to such reinstatement or replacement) and three years
loss of the Basic Rent Due Proportion of the Tenant's Proportion of
the Service Charge and the Landscaping Charge attributable to the
Demised Premises (and such loss of Basic Rent shall allow for and
include provision for reasonable and proper anticipated increases in
Basic Rent from the next Review Date):
Provided always that the Tenant shall have the right to require the
Landlord to insure for a greater amount;
"Particulars" means the details of this Lease as set forth at Clause 1
hereof;
"Permitted Use" means the use specified at Clause 1.8 of the
Particulars;
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"Perpetuity Period" means notwithstanding the length of the Term the
period of the lives of all lineal descendants of His Britannic Majesty
George V living at the commencement date of the Term and twenty-one
years after the death of the survivor of such descendants;
"Plans" means the Plan or Plans annexed to this Lease;
"Prescribed Rate" means the monthly rate of interest for the time
being chargeable under Section 550 of the Income Tax Act 1967 (or such
other monthly rate of interest as may from time to time be chargeable
upon arrears of tax) or if there shall be no such rate a rate of
sixteen per centum per annum;
"Review Dates" means the dates referred to at Clause 1.6 of the
Particulars;
"Superior Landlord" means any landlord entitled to any interest in the
Demised Premises or any part thereof which is superior to the interest
of the Landlord herein whether such superior interest be created prior
or subsequent to the grant of this Lease;
"Superior Lease" means lease dated 25th January 1996 made between (1)
Citywest Limited and (2) the Landlord relating to inter alia the
Demised Premises;
"Surety" means the person or persons (if any) so named in Clause 1 of
the Particulars and includes where the context so admits or allows the
respective executors and administrators of such person or persons;
"Surveyor" means an independent Chartered Surveyor experienced in the
field of commercial property appointed in accordance with Clause
6.6(1).
"Tenant" means the person or persons so named in Clause 1 of the
Particulars and includes the successors in title of the Tenant to the
Term and its permitted assigns;
"Term" means the term specified at Clause 1.4 of the Particulars.
2.2 (1) If the Tenant or the Surety for the time being hereunder shall be
more than one person or company or a combination of a
person/persons and a company/companies the Tenant's or the
Surety's covenants as the case may be hereinafter contained shall
be deemed to be made jointly and severally.
(2) Any reference to the masculine gender shall include reference to
the feminine gender and any reference to the neuter gender shall
include the masculine and feminine genders and reference to the
singular shall include reference to the plural.
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(3) Where in this Lease there are covenants or agreements by the
Tenant which restrict or forbid the Tenant from doing some act or
omitting to do some act whether the same are specific or general
such covenants and agreements shall extend also to the permitting
or suffering of the particular act or omission so that the Tenant
in every case where the Tenant so covenants or agrees not to do
or omit some act shall also be taken to covenant/agree not to
permit or suffer the same.
(4) The obligations of the Tenant to repair the Demised Premises and
to yield up the Demised Premises in such state of repair as is
hereinafter contained are limited to the extent only that the
Tenant shall not be responsible for disrepair due to damage or
destruction caused by the Insured Risks (but not where the policy
of insurance has been vitiated or avoided because of acts neglect
or defaults of the Tenant its servants or agents or those whom
the Tenant allows to come onto the Demised Premises).
(5) The full benefit of any rights of access to the Demised Premises
f or the purposes of repairing or inspecting the Demised Premises
or for any other reason given or granted to the Landlord by the
Tenant or reserved hereby shall be deemed to have been given also
to the Superior Landlord and where the consent of the Landlord is
required under the terms of the Lease reference to need for the
Landlord's consent shall be taken to mean (whether or not it is
so stated) that the consent of the Superior Landlord is also
required and it shall only be implied that any superior
landlord's consent shall not be unreasonably withheld when the
superior lease expressly or implicitly says so.
(6) Month shall mean calendar month.
(7) Reference to any Act of Parliament or of the Oireachtas shall
include any Act replaced by it or any Act replacing or amending
it and any order regulation instrument direction scheme or
permission made under it or deriving validity from it.
(8) The Term shall where the context so admits or requires extend to
and include any extension or renewal thereof (statutory or
otherwise) (but so that where this Lease is properly determined
prior to the expiry of the fixed term hereby granted then "The
Term" shall mean the term up to the date of such determination
and expressions such as "the last year of the Term" shall be
construed accordingly).
(9) Reference to "this Lease" shall where the context so admits
include this Lease as modified or varied from time to time.
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(10) The Schedules shall be read and construed as if they formed part
of the body of this Lease and the term "this Lease" shall be
construed as including the Schedules hereto.
(11) Reference to any Society, Institute or other professional body
shall include any other body established from time to time in
succession to or in substitution for or carrying out the function
formerly carried out by such Society, Institute or other
professional body.
(12) Terms defined by the Superior Lease (unless otherwise defined or
used herein) shall have the same meaning where used herein as in
the Superior Lease as if they were so defined in this Lease.
(13) The clause headings appearing in this Lease are for reference
purposes only and shall not affect its construction or
interpretation.
3 DEMISE
In consideration of the rents and covenants on the part of the Tenant and
the Surety hereinafter reserved and contained the Landlord at the request
of the Surety HEREBY GRANTS AND DEMISES unto the Tenant ALL THAT the
Demised Premises AND EXCEPT AND RESERVING unto the Landlord as specified in
the First Schedule hereto TO HOLD the Demised Premises unto the Tenant for
the Term YIELDING AND PAYING therefor unto the Landlord,
FIRST during the first five years of the Term the yearly rent of IR?
and thereafter during each of the successive periods of five years
commencing on the Review Dates a yearly rent equal to (a) the yearly rent
payable hereunder during the preceding period or (b) such revised yearly
rent as may from time to time be ascertained in accordance with the
provisions in that behalf contained in the Second Schedule hereto
(whichever shall be the greater) and the Basic Rent in respect of each year
of the said term is to be paid by bankers standing order by equal quarterly
payments in advance on the Gale Days in every year the first of such
payments to be made on the execution hereof.
AND SECONDLY as further and additional rent the Insurance Rent to be paid
within seven days of demand being made by the Landlord and so that the
first payment thereof will be made on the date hereof.
AND THIRDLY sums equivalent to the Landscaping Charge attributable to the
Demised Premises and the Due Proportion of the Tenant's Proportion of the
Service Charge pursuant to the provisions respecting the Landlords
obligations relating thereto in the Superior Lease within seven days of
demand being made by the Landlord and so that the first payment thereof
will be made on the date hereof
4 TENANT'S COVENANTS
4.1 The Tenant to the intent that the obligations may continue throughout
the
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Term hereby covenants with the Landlord as follows:
4.2 Pay Rent:
To pay the Basic Rent, the Insurance Rent and the sums equivalent to
the Landscaping Charge attributable to the Demised Premises and the
Due Proportion of the Tenants Proportion of the Service Charge payable
under the Superior Lease at the times and in the manner herein
provided.
4.3 Interest on Arrears:
In the event that the Basic Rent is not paid within seven days of the
date on which the same is due or in the event that the Insurance Rent
or the sums equivalent to the Due Proportion of the Tenant's
Proportion of the Service Charge payable under the Superior Lease
and/or the Landscaping Charge attributable to the Demised Premises or
any other payment due hereunder is not paid within seven days of
demand to pay interest on the amount due at the Prescribed Rate from
the said due date (or in the case of payments other than Basic Rent
from the date of demand) to the date when payment is received by the
Landlord with interest being capitalised on the gale days and with any
such payments being due and recoverable as further and additional
rent.
4.4 Pay Outgoings:
Punctually to pay and discharge all rates taxes assessments duties
charges impositions and outgoings whatsoever whether imposed by
statute or otherwise and whether of a national or local character and
whether of the nature of capital or revenue which are now or may
hereafter during the Term be assessed charged or imposed upon the
Demised Premises or upon the Landlord or the occupier thereof in
respect of the Demised Premises except any tax (other than any amounts
payable under Clauses 4.27 and 4.28) which is in respect of:
(1) the rents under this Lease;
(2) the grant of this Lease;
(3) any dealing by the Landlord with the reversion immediately
expectant on the determination of the Term; and
(4) any capital or Landlord's property taxes.
4.5 Repair and Maintain:
(1) To keep clean and to repair maintain put and keep in good and
substantial repair and condition the whole of the Demised
Premises.
(2) At all times during the Term to make good any damage caused to
the Demised Premises by the removal of any Tenant's fixtures and
fittings.
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(3) To bear and pay one half of the cost of the repair and
maintenance of all boundary walls of the Demised Premises which
are party walls.
4.6 Paint Exterior and Interior:
Without prejudice to the generality of the Tenant's obligations under
the preceding Clause 4.5:
(1) to prepare and paint in a proper and workmanlike manner and in
accordance with the existing colour scheme or in colours and
materials first approved in writing by the Landlord all external
parts of the Demised Premises and to treat in an appropriate
manner all materials surfaces and finishes not requiring to be
painted or otherwise decorated as aforesaid as often as shall in
the opinion of the Landlord's Surveyor be necessary in order to
maintain a high standard of finish and attractiveness and at
least once in every period of five years and in the last year of
the Term;
(2) to prepare and paint in a proper and workmanlike manner and when
necessary and appropriate paper or repaper all the parts of the
interior of the Demised Premises usually or proper to be painted
or papered and to treat in an appropriate manner all materials
surfaces and finishes not requiring to be painted or otherwise
decorated as aforesaid as often as shall in the opinion of the
Landlord's Surveyor be necessary in order to maintain a high
standard of finish and attractiveness and at least once in every
period of five years and in the last year of the Term; and
(3) internal painting and papering carried out in the last year of
the Term shall be in accordance with the existing colour scheme
or in colours first approved in writing by the Landlord's
Surveyor which approval shall not be unreasonably withheld or
delayed.
4.7 To Yield Up:
(1) At the expiration of the Term quietly to yield up unto the
Landlord the Demised Premises together with all additions and
improvements made thereto in the meantime and all fixtures and
replacement fixtures (other than tenant's or trade fixtures
affixed by the Tenant) in or upon the Demised Premises or which
during the Term may have been affixed or fastened to or upon the
same and in such state and condition as shall in all respects be
consistent with a full and due performance by the Tenant of the
covenants contained in Clauses 4.5 and 4.6 and clean and tidy.
(2) To remove all tenant's or trade fixtures immediately prior to the
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expiration of the Term (except such as the Landlord and Tenant
agree in writing may remain on the Demised Premises) and after
such removal to make good all damage to the Demised Premises
caused by such removal.
(3) Prior to expiration of the Term to comply with all conditions
that may have been imposed by the Landlord in granting any
consent to any alterations pursuant to Clause 4.10.
(4) If the Tenant shall fail to comply with the obligations on the
Tenant's part contained in Clauses 4.7(1) 4.7(2) and 4.7(3) above
then in such case the Landlord may do or effect all such repairs
renovations decoration removals remedial works and cleaning and
the cost thereof shall be paid by the Tenant on demand and the
Tenant will also pay to the Landlord mesne profits at the rate of
the Basic Rent and Insurance Rent payable immediately prior to
the expiration of the Term during the period reasonably required
by the Landlord for carrying out such works and the amount of
such mesne profits shall be added to the cost said of carrying
out the work recoverable from the Tenant.
4.8 Obstruction of Conduits:
(1) To keep the Conduits which are part of the Demised Premises clear
and unobstructed.
(2) Not to do anything which causes any obstruction in or damage to
any Conduits which serve adjoining premises nor discharge therein
any oil or grease or any deleterious objectionable dangerous
poisonous or explosive matter or substance.
4.9 Permit Entry:
(1) To permit the Landlord and persons authorised by the Landlord on
at least forty eight hours written notice (except in case of
emergency) at all reasonable times to enter the Demised Premises
or any part thereof to examine the state and condition thereof
and take inventories of the fixtures and things to be delivered
up at the expiration of the Term and for ascertaining whether the
Tenants' covenants are being duly observed and performed AND the
Tenant will on written notice being given by the Landlord or the
Landlord's Managing Agents execute any repairs or other works
lawfully required by such notice for which the Tenant is liable
under the provisions hereof commencing so to do within two months
of the date of the service of such notice (or if in the
reasonable opinion of the Landlord or the Landlord's Managing
Agents there is any emergency then within such lesser period as
may be practicable but in such event without any delay
whatsoever) and
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thereafter proceeding with all due diligence to complete the
works and in case the Tenant shall make default in so doing it
shall be lawful for the workmen or others to be employed by the
Landlord to enter upon the Demised Premises and repair and make
good the same and all expenses thereby incurred (including
architects surveyors and legal fees) together with interest
thereon at the Prescribed Rate from the date of expenditure shall
be a debt recoverable from the Tenant by the Landlord and shall
be recoverable as rent payable in arrear.
(2) To permit the Landlord and all persons duly authorised by it upon
giving at least forty eight hours previous notice to enter and
remain on the Demised Premises at all reasonable times and where
practicable outside normal trading or business hours so far as
may be necessary and with all necessary equipment materials and
tools in order to examine repair alter extend strengthen cleanse
maintain or rebuild any part of any adjoining or neighbouring
premises belonging to the Landlord or the Superior Landlord or to
cleanse empty repair or rebuild or construct any Conduits or for
the purpose of exercising the rights reserved to the Landlord in
this Lease the person or persons exercising such rights doing as
little damage as may be to the Demised Premises and causing as
little disruption as practicable to the Tenant's business and
making good any damage thereby occasioned to the Demised Premises
as expeditiously as possible but without compensation for any
unavoidable temporary annoyance nuisance damage noise vibration
or inconvenience caused.
4.10 No Alterations:
(1) Not to erect any new building or structure on the Demised
Premises nor make any alterations or additions whatsoever to the
exterior or the interior of the Demised Premises without the
prior consent in writing of the Landlord such consent not to be
unreasonably withheld BUT so that the Landlord may as a condition
to the giving of such consent require that any such alterations
or additions or any particular part thereof (as the Landlord may
require) are removed and the Demised Premises reinstated to its
former state at the termination of the Term.
(2) In respect of any works to the Demised Premises or any change of
use of the Demised Premises to comply strictly with the
provisions of the Building Control Act 1990 the Building
Regulations 1991 and the Building Control Regulations 1991 and to
furnish to the Landlord within two months of completion of the
said works or change of use:
(a) all application for Fire Safety Certificates;
(b) all Fire Safety Certificates issued;
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(c) a certificate or opinion of compliance by a member of the
Royal Institute of Architects in Ireland or by a duly
qualified engineer that all the works comply substantially
with the Planning Acts and the Building Regulations 1991 and
that all such works and/or change of use have been carried
out in substantial compliance with the plans lodged with the
application for the Fire Safety Certificate as amended by
any conditions imposed by the Building Control Authority.
(3) Not to do or suffer in or upon the Demised Premises any wilful or
voluntary waste or spoil.
(4) Not without the prior written consent of the Landlord to install
or retain on the exterior of the Demised Premises any equipment
or apparatus of any kind whatsoever.
4.11 Alterations and Insurance:
(1) If any alterations or additions to or within the Demised Premises
result in a variation of the reinstatement cost of the Demised
Premises from the cost prior to such alterations or additions
then in that event forthwith to give notice to the Landlord of
the variation in cost so caused to enable the Landlord to alter
the insurance cover in respect of the Demised Premises AND SO
that only notice under this particular sub-paragraph notifying
the variation of the reinstatement cost will be sufficient notice
and the Landlord shall not otherwise be deemed to have received
such notice or to be responsible for varying the insurance cover.
(2) To pay or reimburse to the Landlord any shortfall of insurance
cover caused by a failure to comply with the requirements in
Clause (1) above.
4.12 Not to Invalidate Insurance:
(1) Not by act or omission to do anything which may invalidate any
insurance effected by the Landlord or any other party or any
Superior Landlord in respect of the Demised Premises or the
insurance of any adjoining or neighbouring property or which may
cause any increased or additional premium to become payable in
respect thereof.
(2) To notify the Landlord in writing of any damage caused to the
Demised Premises by the Insured Risks or other event likely to
lead to a claim on the Landlord's or Superior Landlord's
insurance relating to the Demised Premises.
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(3) In the event of the Demised Premises or any part thereof or any
adjoining or neighbouring property being damaged or destroyed by
any Insured Risk at any time during the Term and the insurance
money under any policy of insurance effected thereon by the
Landlord being wholly or partially irrecoverable by reason solely
or in part of any act neglect or default of the Tenant or the
Tenant's servants agents or invitees the Tenant will forthwith
(in addition to the Basic Rent and Insurance Rent) pay to the
Landlord the whole or (as the case may be) a fair proportion of
the cost of rebuilding and reinstating the same.
4.13 Insurance Excess Insure Glass and Third Party Liability:
(1) When damage is caused to the Demised Premises by the Insured
Risks to pay the cost of such works up to the amount of any
Insurance Excess.
(2) To insure and keep insured in the joint names of the Landlord and
the Tenant and such other names as the Landlord may from time to
time reasonably require all the glass windows and glass doors in
the Demised Premises against breakage in a reputable insurance
office to the full replacement cost and to cause all moneys
received by virtue of such insurance to be forthwith laid out in
reinstating the said windows and doors with glass of the same
quality and thickness and to make up any deficiency out of the
Tenant's own moneys.
(3) To maintain in force throughout the Term in insurance in an
amount not less than IR?5,000,000 to be adjusted from time to
time in accordance with market trends as reasonably required by
the Landlord in respect of the Demised Premises against liability
to third parties or injury to or death of any person or damage to
any property and to extend such insurance to cover the Landlord's
liability in relation thereto.
(4) To produce to the Landlord on request reasonable evidence that
the insurances specified in Clauses 4.13 (2) and 4.13 (3) are in
place and confirmation that the current premium has been paid.
(5) To indemnify the Landlord in respect of any loss or damage which
the Tenant is obliged to insure against under Clauses 4.13(2) and
4.13(3).
4.14 Unauthorised User:
(1) Not to use the Demised Premises or any part or parts thereof for
any purpose other than for the Permitted Use and f or no other
purpose or purposes whatsoever without the prior consent in
writing of the Landlord such consent not to be unreasonably
withheld.
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(2) Without prejudice to the generality of Clause 4.14(1) not to use
the whole or any part of the Demised Premises:
(a) for any sale by auction;
(b) for hanging placing depositing or exposing outside the
Demised Premises any automatic vending machine or any goods
articles or things for sale or other disposal or exhibition
or for any display equipment paraphernalia or any other
items or things whatsoever;
(c) for any illegal or immoral purpose;
(d) for any offensive disreputable noisy or dangerous trade
business pursuit or occupation or as an amusement shop or
arcade a betting office or for gambling of any kind whether
permitted by law or not or for residential or sleeping
purposes or as a fish and chip, pet or sex shop; and
(e) for the sale of intoxicating liquor for consumption on the
Demised Premises or as a club where intoxicating liquor is
supplied to members and their guests.
4.15 Nuisance:
(1) Not to do or bring or allow to be brought into or upon any part
of the Demised Premises any act matter or thing or install or use
any machinery or apparatus of any nature which shall be a
nuisance or cause damage to the Landlord or the Superior Landlord
or their respective tenants or lessees or to the owners lessees
or occupiers for the time being of any adjoining or nearby
premises.
(2) To pay to the Landlord all costs charges and expenses which may
be incurred by the Landlord or for which the Landlord shall be
liable for the abating of any nuisance on or arising from the
Demised Premises and executing all such works as may be necessary
for abating such a nuisance in obedience to a notice served by a
Local or Public Authority.
4.16 Clean Windows:
To clean the windows in the Demised Premises and (if applicable) glass
or glazed surfaces as often as occasion shall require.
4.17 No Signs:
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Not to place on the exterior of the Demised Premises or on the windows
or inside the windows of the Demised Premises so as to be visible from
the exterior of the Demised Premises any name writing notice sign
placard sticker or advertisement other than (subject to planning
permission) a suitable sign of a size and kind first approved in
writing by the Landlord (such approval not to be unreasonably withheld
or delayed) showing the Tenant's name.
4.18 Pay for Utilities:
To pay all telephone charges and for all water gas and electricity
consumed on the Demised Premises. and to comply with the requirements
and regulations of the statutory authorities or other supply companies
with regard to any Conduits or Equipment relating to any such services
(including sprinkler systems) within the Demised Premises.
4.19 Not to Overload Structures:
Not to do or load upon or bring in or upon the Demised Premises
anything which may throw on any part of the structure of the Demised
Premises any weight or strain in excess of that which such building or
structure shall be calculated to bear with due margin for safety and
if necessary to seek professional advice at the Tenant's own expense
for the benefit of the Landlord and the Tenant so as to ensure that
there shall not be an infringement of this sub-clause and forthwith
pay to the Landlord the full cost of making good any damage caused to
the Demised Premises by reason of any breach of this sub-clause.
4.20 Comply with Enactments:
To execute works and do all things on or in respect of the Demised
Premises or in respect of the user thereof (whether required to be
done or executed by an owner or by the lessee tenant or occupier) as
under or by virtue of any Act or Acts of Parliament or of the
Oireachtas now or hereafter to be passed or any Bye-laws orders rules
notices and regulations thereunder are or shall be directed or
necessary to be done or executed and in particular without prejudice
to the generality of the foregoing to comply with all obligations
imposed under or by virtue of the Building Control Act 1990, the
Building Control Regulations 1991, Building Regulations 1991, Safety
Health and Welfare at Work Act 1989, the Health and Safety at Work Act
1980, the Office Premises Act 1958, Public Health Acts (if applicable)
and the Fire Services Act 1981 and with all safety and fire
regulations and all provisions relating to conditions of work and
facilities provided for those working in the Demised Premises and at
all times to indemnify the Landlord and the Superior Landlord from and
against all penalties damages compensation costs claims demands
expenses and liability in respect thereof or arising through a failure
to comply with this sub-clause.
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4.21 The Planning Acts:
(1) To comply with all requirements under the Planning Acts (here
meaning the Local Government (Planning and Development) Acts 1963
to 1993) which affect or relate to the Demised Premises or the
user thereof.
(2) Not without the Landlord's written consent (which consent is not
to be unreasonably withheld or delayed in respect of any internal
development of the Demised Premises) to make any application for
planning permission affecting the Demised Premises nor to
implement any such permission AND if the Landlord shall consent
to an application being made to give notice to the Landlord of
the granting or refusal (as the case may be) of planning
permission forthwith on the receipt thereof.
(3) If and when called upon so to do to produce to the Landlord all
such plans documents and other evidence as the Landlord may
reasonably require in order to satisfy itself that the provisions
of this Clause 4.21 have been complied with in all respects;
(4) Forthwith to notify the Landlord of any notice order or proposal
for a notice or order served on the Tenant under the Planning
Acts and if so required by the Landlord to produce the same and
at the request of the Landlord to make or join in making such
objections or representations in respect of any notice order or
proposal as the Landlord may require.
(5) Unless the Landlord shall otherwise direct to carry out before
the expiration or sooner determination of the Term any works
stipulated to be carried out to the Demised Premises by a date
subsequent to such expiration or sooner determination as a
condition of any planning permission that may have been granted
during the Term to the Tenant and availed of in whole or in part
by the Tenant.
(6) If the Tenant shall receive any compensation paid in respect of
the Tenant's interest hereunder in consequence of any restriction
placed upon the user of the Demised Premises then if and when the
Tenant's interest hereunder shall be determined under the power
of re-entry herein contained (otherwise than by effluxion of
time) the Tenant shall forthwith-make such provision as is just
and equitable for the Landlord to receive its due benefit from
such compensation which sum shall in default of agreement be
determined by the Surveyor.
4.22 Not to Assign, Underlet or Part with Possession:
(1) Not to assign, transfer, underlet, charge, mortgage, encumber,
hold on trust for another or part with the possession or
occupation of the Demised Premises or any part thereof or suffer
any person to occupy the Demised Premises or any part thereof as
a licensee or as concessionaire BUT SO THAT NOTWITHSTANDING the
foregoing the Landlord shall (subject to compliance with the
provisions of Clause 4.22(2) or such of them as may be
appropriate) not unreasonably withhold its consent to:
<PAGE>
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(a) an assignment transfer charging mortgaging or encumbering of
the entire of the Demised Premises; and
(b) an underletting of the entire of the Demised Premises.
(2) In the following Clauses (a), (b), (c) and (d) the word
"assignment" shall include any assignment, transfer, under-
letting, mortgaging, charging, encumbering, parting with the
possession or occupation or the suffering of any person to occupy
the Demised Premises or any part thereof as a licensee or
concessionaire and the word "assignee,, shall be construed
accordingly:
(a) the Landlord and the Tenant agree that in the case of an
assignment to a limited liability company the Landlord may
require that either a parent or associate company or two
directors or two sureties of sufficient standing shall join
in such consent as aforesaid as surety or sureties for such
company in order to covenant (if more than one jointly and
severally) with the Landlord as surety or sureties that such
company will pay the Basic Rent and the Insurance Rent and
perform and observe the said covenants and indemnify and
save harmless the Landlord against all loss damage costs and
expenses arising by reason of any default by the company and
such covenant shall further provide in the usual form that
any neglect or forbearance of the Landlord shall not release
or exonerate the Surety or Sureties and shall further
provide that if there should be a disclaimer of these
presents by the company or on its behalf or a dissolution of
the company then if so required by the Landlord within three
months of such disclaimer or dissolution the surety or
sureties shall accept a new Lease of the Demised Premises
for the residue then unexpired of the Term hereby granted
and at the Basic Rent payable and subject to the same
tenant's covenants and to the same provisos and conditions
as those in force immediately before such disclaimer or
dissolution and such guarantee to be granted at the cost of
the surety or sureties in exchange for a counterpart duly
executed by the surety or sureties as the case may be;
(b) the Tenant shall prior to any assignment apply in writing to
the Landlord for consent thereto and give all reasonable
information concerning the proposed assignee as the Landlord
may require;
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(c) the Landlord's consent to any such assignment shall be given
in writing either under the hand of an officer of the
Landlord or under its seal;
(d) in the case of an under-lease of the entire of the Demised
Premises such under-lease shall reserve the full rack rent
then payable (not being less than the Basic Rent then
payable under this Lease) of the Demised Premises and if
required by the Landlord the under-lessee shall enter into a
direct covenant with the Landlord to perform and observe all
the covenants (other than that for payment of the rent
hereby reserved) and conditions herein contained and every
such under-lease shall also be subject to the following
conditions, that is to say that it shall contain:
(i) an unqualified covenant on the part of the under-lessee
not to assign underlease or part with or share the
possession of part only of the premises thereby
demised;
(ii) a covenant on the part of the under-lessee not to
assign under-let or part with or share the possession
of the whole of the premises thereby demised without
obtaining the previous consent in writing of the
Landlord;
(iii)a covenant condition or proviso under which the rent
reserved by the under-lease shall be reviewed at the
same times and in the same manner as provided in this
Lease;
(iv) a covenant condition or proviso under which the rent
from time to time payable under such underlease shall
not be less than the Basic Rent from time to time
payable hereunder;
(v) a covenant that any under-leases granted out of such
under-lease whether immediately or mediately shall
contain provisions similar to those hereinbefore in
this sub-clause 4.22(2)(d) contained; and
(vi) covenants and conditions in the same terms as nearly as
circumstances admit as those contained in this Lease,
AND it is hereby declared that in this sub-clause 4.22(2)
(d) the expression "under-lease" shall include an under-
letting as well (in an appropriate case) as a sufferance of
any person to occupy the Demised Premises or any part
thereof as licensee or as concessionaire and the expression
"under-lessee" shall be construed accordingly;
(e) within fourteen days of every such assignment or
underletting the Tenant shall give notice thereof in writing
with particulars to the Landlord's Solicitors or Managing
Agents and shall furnish them with a certified copy of such
instrument or other evidence of devolution of title and
shall pay to the Landlord's Solicitors their reasonable
costs in connection with such assignment;
(3) PROVIDED ALWAYS AND IT IS HEREBY EXPRESSLY AGREED AND DECLARED
that without prejudice to any other grounds on which the Landlord
may or might be entitled to refuse its consent hereunder this
Clause 4.22 shall be subject to the over-riding condition that
the Landlord shall be entitled and it shall be reasonable for the
Landlord to refuse its consent to any such proposed assignment
transfer under-letting or parting with the Demised Premises or
the sufferance of any person to occupy the Demised Premises or
any part thereof as a licensee or concessionaire if:
(a) the proposed assignee or other person as aforesaid intends
to alter the user of the Demised Premises or any part
thereof in a manner which would be prohibited under the
provisions of Clause 4.14 as to permitted user of the
Demised Premises;
(b) in the case of a proposed under-lease or under-letting the
Tenant fails to satisfy the Landlord that the provisions of
sub-clause 4.22(2)(d) have been fully complied with; and
(c) there is a failure to perform or observe any of the
foregoing provisions of this Clause 4.22.
4.23 Re-letting Sign:
During the last six months of the Term to allow a letting-board or
notice to be fixed by the Landlord and retained without interference
on any suitable part or parts of the Demised Premises and to allow
prospective tenants or purchasers to view the Demised Premises at all
reasonable times on reasonable notice.
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4.24 Reversionary Interest:
At all reasonable times during the Term and upon prior appointment to
permit all prospective purchasers of or dealers in the Landlord's or
Superior Landlord's reversionary interests to view the Demised
Premises without interruption and at all times during the Term to
allow a sale notice in relation to its reversionary interest to be
fixed by the Landlord or the Superior Landlord or both without
interference on any suitable part or parts of the exterior of the
Demised Premises.
4.25 Preserve Easements:
(1) Not to block-up darken obstruct or obscure any doorway passage
window light ventilator grating or opening belonging to the
Demised Premises.
(2) (So far as the Tenant is able) not to permit any new window light
ventilator passage drainage or other encroachment or easement to
be made into against or over the Demised Premises or any part
thereof AND in case any encroachment or easement whatsoever shall
be attempted to be made or acquired by any other person to give
notice thereof in writing to the Landlord and the Superior
Landlord immediately the same comes to the Tenant's notice and at
all times to afford to the Landlord such facilities and
assistance as may enable the Landlord to prevent the acquisition
of any right of light or other easement over the Demised
Premises.
4.26 Indemnity:
Where the Tenant has failed to comply with the obligations on its part
herein contained to indemnify the Landlord from and against all
actions liabilities claims costs and expenses incurred by the Landlord
and which result as a consequence of such failure and where the
Landlord has suffered loss or damage as such a consequence to pay
reimburse and make good the same.
4.27 To Pay Landlord's Costs and Expenses:
To pay to the Landlord and the Superior Landlord (as the case may
require) all reasonable costs charges and expenses (including legal
costs and fees payable to any surveyor) which may be incurred by the
Landlord or Superior Landlord:
(1) upon or incidental to every application made by the Tenant for a
consent approval or licence hereinbefore required or made
necessary whether the same be granted or refused or proffered
subject to any lawful qualifications or conditions or whether -
the application be withdrawn;
(2) in or in contemplation of any proceedings under Section 14 of the
Conveyancing and Law of Property Act 1881 (whether or not any
right of re-entry or forfeiture has been waived by the Landlord
or the Tenant has been relieved under the provisions of the said
Act); and
(3) of and incidental to the preparation and service of all notices
and schedules relating to any breach of the Tenant's covenants
herein contained whether as to repair and decoration of the
Demised Premises or otherwise and whether served during or after
the expiry of the Term.
4.28 To Pay VAT:
In addition to the rents fees and other sums payable by the Tenant
under this Lease to pay any Value Added Tax (or any substituted or
similar tax) which is now or may become payable in respect of any such
rents fees and other sums and to pay to the Landlord all Value Added
Tax payable on the grant of this Lease or on any rents payable
hereunder and to keep the Landlord indemnified against same subject in
all cases to the issue by the Landlord to the Tenant of a valid VAT
invoice.
4.29 To Pay Stamp Duty:
To pay to the Landlord the stamp duty on this Lease and its
counterpart.
4.30 Superior Lease:
To comply with the covenants conditions and agreements on the part of
the Tenant in the Superior Lease insofar as such covenants conditions
and agreements do not already fall to be performed observed or
complied with by the Tenant under this lease (save the Rent and the
Tenant's Proportion of the Service Charge and the Landscaping Charge
payable by the Landlord under the Superior Lease) and insofar as the
same relate to the Demised Premises.
5 LANDLORD'S COVENANTS
The Landlord hereby covenants with the Tenant as follows:
5.1 Quiet Enjoyment:
That so long as the Tenant pays the Basic Rent and Insurance Rent
hereby reserved and made payable and observes and performs the
Tenant's covenants and the conditions of this Lease the Tenant may
hold and enjoy the Demised Premises and the rights hereby granted
peaceably during the Term without any interruption by the Landlord or
any person lawfully claiming under or in trust for the Landlord;
5.2 Insurance:
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(1) to maintain or cause to be maintained insurance in respect of the
Demised Premises including fixtures (other than tenant's and
trade fixtures and plate glass) in an insurance office of repute
against Loss or Damage by the Insured Risks;
(2) Reinstate: in case of Loss or Damage to the Demised Premises by
or from any of the Insured Risks to cause all insurance money
(other than for loss of rent or in respect of property owner's
liability) received by the Landlord or the Superior Landlord to
be applied in reinstating the Demised Premises as quickly as
reasonably practicable in substantially the same form and/or with
such variations as the Landlord may reasonably require;
Provided however that the Landlord shall not be obliged to
reinstate the Demised Premises under this sub-clause if the
policy or policies of insurance has or have been vitiated or
avoided or where the insurance monies have been withheld in part
or in whole because of acts neglect or defaults of the Tenant its
servants or agents or those whom the Tenant allows to come on to
the Demised Premises:
Provided further that:
(a) in the event of the Landlord being unable to so reinstate
the Demised Premises due to refusal of planning or other
approvals consents or licences the Tenant agrees to
surrender this Lease when called upon by the Landlord so to
do; and
(b) To Procure Services and Landscaping: To use its best
endeavours to procure that the Superior Landlord shall
provide and maintain the services set forth in the Fifth
Schedule to the Superior Lease and the Landscaping Services
to the Open Lands forming part of the Demised Premises
specified at 1.1.12 of the Superior Lease.
(3) To Produce Insurance Particulars: To produce to the Tenant on
request (but not more than once in any year) relevant particulars
or an insurance certificate in respect of the policy relating to
any insurance effected under Clause 5(b) and a copy of the
receipt or other evidence of payment for the current premium.
6 AGREEMENTS AND DECLARATIONS
6.1 PROVIDED ALWAYS AND IT IS HEREBY AGREED AND DECLARED as follows:
6.2 Suspension of Rent:
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If the Demised Premises or any-part thereof shall at any time be
destroyed or damaged by any of the Insured Risks so as to render the
Demised Premises or part thereof unfit for occupation or use and the
relative policy or policies of insurance effected by the Landlord or
the Superior Landlord shall not have been vitiated or payment of the
policy monies refused in whole or in part in consequence of any act
neglect or default on the part of or suffered by the Tenant then the
Basic Rent or a fair and just proportion thereof according to the
nature and extent of the damage sustained shall be suspended and cease
to be payable until a date three years after the date any damage was
first sustained or until such time as appropriate reinstatement shall
have taken place (whichever is the earlier) and in case of dispute as
to the proportion or period of such abatement the same shall be
referred to arbitration by the Surveyor and the arbitration shall be
conducted in accordance with the Arbitration Acts 1954 to 1980 and
such reference shall be deemed to be a reference to arbitration within
the meaning of the said Acts.
6.3 Section 40 Deasy's Act 1860:
In case the Demised Premises or any part thereof shall be destroyed or
become ruinous and uninhabitable or incapable of beneficial occupation
or enjoyment by or from any of the Insured Risks the Tenant hereby
absolutely waives and abandons its rights (if any) to surrender this
Lease under the provisions of Section 40 of the Landlord and Tenant
Law Amendment Act (Ireland) 1860 or otherwise.
6.4 Re-entry and Determination:
Notwithstanding and without prejudice to any other remedies and powers
herein contained or otherwise available to the Landlord if the rent
hereby reserved or any part thereof shall be unpaid for seven days
after becoming payable (whether formally demanded or not) or if any
covenant on the Tenant's part herein contained shall not be performed
or observed or if the Tenant being a Company shall be dissolved or
enter into liquidation whether compulsory or voluntary (save for the
purpose of reconstruction or amalgamation) or being an individual or
more than one individual any one of them shall become bankrupt or
shall enter into composition with his or their creditors or if the
Tenant shall suffer any distress or execution to be levied on its
goods then and in any of the said cases it shall be lawful for the
Landlord at any time thereafter to re-enter the Demised Premises or
any part thereof in the name of the whole and thereupon this demise
shall absolutely determine but without prejudice to any right of
action or remedy of either party in respect of any breach of the other
party's covenants herein contained.
6.5 Notices:
In addition to any other prescribed mode of service any notices
requiring to be
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served hereunder shall be validly served if in the case of the Tenant
they are left addressed or sent by post to the Tenant (or if there
shall be more than one of them to any one or more of them) at the
Demised Premises or sent to the Tenant by post or left at the Tenant's
last known address or addresses in the Republic of Ireland and in the
case of the Landlord being a comp any they are left at or posted to
the registered office of the Landlord and otherwise to be sent to the
Landlord by post or left at the Landlord's last known address in the
Republic of Ireland.
6.6 Appointment of the Surveyor:
(1) Where this Lease provides for the determination of any matter by
the Surveyor then he shall be nominated by agreement between the
Landlord and the Tenant as soon as is reasonably practicable or
in default of agreement within fourteen days of one party first
giving to the other notice of its nomination he shall be
appointed on the written application of either party by the
Chairman for the time being of the Society of Chartered Surveyors
in the Republic of Ireland.
(2) If the Surveyor shall tail or refuse to accept his appointment or
shall fail to give notice in writing of his decision within four
months of his appointment or shall die or otherwise become
incapable of acting or if it shall become apparent that for any
reason he will be unable to complete his duties the Landlord or
the Tenant if they fail to agree on a substitute appointment
within four weeks of attempting so to do may apply to the
Chairman f or the time being of the Society of Chartered
Surveyors in the Republic of Ireland for such a substitute to be
appointed AND such procedure may be repeated as many times as
necessary (but subject in the case of any arbitrator to the
provisions of the said Arbitration Acts).
(3) Where the appointment of the Surveyor is (or is in the event of a
dispute between the parties) to be by the Chairman for the time
being of the Society of Chartered Surveyors in the Republic of
Ireland THEN if the said Chairman shall for any reason not be
available or be unable to make such appointment at the time of
application therefor the appointment may be made by his duly
appointed deputy or any person authorised by him to make
appointments on his behalf and if no such person shall be
available then the appointment shall be made by the Vice Chairman
or next senior officer of the said Society then available and
able to make such appointment AND if no such officer of the
Society shall be so available and able to make such appointment
then the appointment will be made by the President for the time
being of the Incorporated Law Society of Ireland.
(4) Either party shall be at liberty to pay the entire of the fees
and expenses
<PAGE>
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of the Surveyor in which event the party so paying shall be
entitled to be reimbursed by and to recover from the other on
demand the proportion so paid on behalf of the other.
6.7 No Warranty:
It is hereby acknowledged that the Landlord does not give any warranty
or confirmation that the Permitted Use is a user which is permitted to
be carried on in the Demised Premises or any part thereof by the
Planning Acts or under any other statutory or local authority
requirements.
6.8 Option to Terminate:
The Tenant shall have the option once only at the end of the tenth
year of the Term to terminate this Lease by surrender on giving not
less than 12 months prior notice in writing to the Landlord and
subject to the payment by the Tenant to the Landlord upon the expiry
of the said tenth year a sum equal to 12 months of the Basic Rent and
provided that at the time of service of such notice the Tenant shall
have substantially complied with all of its obligations under this
Lease including and without prejudice to the generality of the
foregoing its obligations under Tenant's covenant 4.7 hereof.
PROVIDED ALWAYS THAT on expiry of the tenth year and delivery up of
possession to the Landlord if any of the said sums which are made due
and payable by this clause have not been paid to the Landlord then
notice of the exercise of the said option to terminate shall be deemed
to be invalid and the option shall lapse and this Lease shall continue
in full force and effect.
7 GUARANTEE
7.1 The Surety in consideration of this Lease being granted by the
Landlord at the instance and request of the Surety HEREBY COVENANTS
with and guarantees to the Landlord:
7.2 That the Tenant will at all times during the Term pay the Basic Rent
and Insurance Rent and all other sums and payments covenanted to be
paid by the Tenant at the respective times and in the manner
hereinbefore appointed for payment thereof and also will duly perform
and observe and keep the several covenants stipulations and conditions
on the part of the Tenant herein contained and that the Surety will
pay and make good to the Landlord all losses damages costs and
expenses sustained by the Landlord through the default of the Tenant
in respect of any of the before mentioned matters:
Provided always that:
(1) any neglect or forbearance of the Landlord in endeavouring to
obtain payment of the Basic Rent and Insurance Rent and the said
payments as and when the same shall become due; and/or
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(2) any delay on the part of the Landlord to take any steps to
enforce performance or observance of the said several covenants
stipulations and conditions; and/or
(3) any time which may be given by the Landlord to the Tenant; and/or
(4) any variation of this Lease with or without the consent of the
Surety, shall not release or in any way lessen or effect the
liability of the Surety under the guarantee on the part of the
Surety hereinbefore contained.
7.3 That if the Tenant for the time being is an individual and shall
become bankrupt or if the Tenant for the time being is a Company and
shall enter into liquidation and the Tenant's assignee in bankruptcy
or the liquidator of the Tenant shall disclaim or surrender this Lease
or any extension or renewal thereof or if the Tenant for the time
being hereof is a Company and shall be dissolved and if the Landlord
shall by notice in writing within three months after such disclaimer
or surrender or within three months of such dissolution coming to its
actual attention require the Surety to accept a lease of the Demised
Premises for a term commensurate with the residue which if there had
been no disclaimer surrender or dissolution would have remained of the
Term at the same rent and under the like covenants and conditions as
are reserved by and contained in this Lease (the said new Lease to
take effect from the date of the said disclaimer surrender or
dissolution) then and in such case the Surety shall accept such Lease
accordingly and execute a counterpart thereof and pay to the
Landlord's solicitors any Stamp Duty payable on the original and
counterpart thereof and any Value Added Tax payable on the grant
thereof.
7.4 That if the Landlord shall not require the Surety to take a lease of
the Demised Premises pursuant to Clause 7.3 above the Surety shall
nevertheless upon demand pay to the Landlord a sum equal to the Basic
Rent and the Insurance Rent and all other sums that would have been
payable by the Tenant under this Lease but for the disclaimer
surrender or dissolution in respect of the period from the date of
such disclaimer surrender or dissolution until the expiration of six
months therefrom or until the Demised Premises shall have been re-let
by the Landlord whichever shall first occur.
7.5 The obligations of the Surety hereunder shall automatically lapse
where the Tenant assigns this Lease with the Landlords prior written
consent or where the Court holds that the Landlord has unreasonably
withheld it's consent to a proposed assignment.
7.6 The Landlord shall at the request of the Surety release the Surety
from its obligations under the Lease once the audited pre-tax profits
of the Tenant is at least three times the annual rent and other
outgoings payable by the Tenant
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under this Lease in the next succeeding year.
8 JURISDICTION
8.1 This Lease shall be governed by and construed according to the laws of
the Republic of Ireland applicable to contracts made wholly to be
performed in the Republic of Ireland.
8.2 The Tenant and the Surety submit to the jurisdiction of the Courts of
the Republic of Ireland for all the purposes of this Lease and the
Tenant and the Surety acknowledge that this agreement as to
jurisdiction is incorporated at the request of the Landlord and for
the benefit only of the Landlord.
8.3 The Tenant and the Surety consent to the service of any legal
proceedings on it or them at the Demised Premises.
9 LAND ACT CERTIFICATE
IT IS HEREBY CERTIFIED by the parties hereto that the premises hereby
demised by this Lease are situate in the Administrative County of South
Dublin.
10 FINANCE ACT CERTIFICATE
IT IS HEREBY CERTIFIED for the purposes of stamping this instrument that
this is an instrument to which the provisions of Section 112 of the Finance
Act 1990 do not apply for the reason that it is a Lease of an existing
building in respect of which there was no building agreement entered into
between the parties.
11 LAND REGISTRY ASSENT
The Landlord hereby assents to the registration of this Lease as a burden
on Leasehold Folio to be opened in the name of the Landlord to be
registered as a burden on Folio 107474F of the Register County of Dublin
insofar as the demised premises affects the same.
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SCHEDULE 1
Exceptions and Reservations
1. The free and uninterrupted use of all Conduits which are within the Demised
Premises and serve other premises or which shall at any time during the
Perpetuity Period serve or be capable of serving such other premises.
2. Full rights to subjacent and lateral support and protection for any
adjoining or nearby premises from the Demised Premises and the right for
any adjoining or nearby premises to be constructed during the Perpetuity
Period which obtain support or protection from the Demised Premises or any
part thereof and to have obtain and retain such support and protection.
3. Full right and liberty at any time hereafter to execute works and make
erections upon or to erect rebuild or alter any buildings or erections on
the Landlord's adjoining or neighbouring lands and buildings in such manner
as the Landlord may think fit notwithstanding that the access of light and
air to the Demised Premises or any part thereof may thereby be interfered
with in a material fashion.
4. All such rights of entry to the Demised Premises in the manner and for the
purposes for which the Tenant covenants in Clause 4.9 to permit such entry.
5. The airspace over the Demised Premises.
6. All mines and minerals in or under the Demised Premises with full power to
work extract and take away
7. All rights of access to the Demised Premises granted to the Superior
Landlord and persons authorised by him or reserved in any Superior Lease.
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SCHEDULE 2
(Provisions for Rent Review) - Arbitrator
1. The Basic Rent reserved by the Lease in respect of any of the five year
periods commencing on a Review Date may be agreed at any time between the
Landlord and the Tenant or (in the absence of agreement) be determined not
earlier than the Review Date by an Arbitrator to be nominated (in the
absence of agreement between the parties) upon the application (made not
more than two calendar months before or at any time after the Review Date)
of either the Landlord or the Tenant by the Chairman (or other officer
endowed with the functions of such Chairman) of the Society of Chartered
Surveyors in the Republic of Ireland or (in the event of his being
unwilling or unable to make the nomination) by the next senior officer of
the last mentioned Society who is willing and able to do so
AND
the revised rent so to be determined by the Arbitrator shall be such as in
his opinion represents at the Review Date the best yearly rent for the
Demised Premises let as a whole without fine or premium:-
(A) ON THE BASIS of a letting with vacant possession thereof by a willing
Landlord to a willing Tenant for a term (commencing on the Review
Date) equal to the residue then unexpired of the term granted by this
Lease and subject to the provisions therein set forth (other than as
to the amount of the initial rent thereby reserved but including such
of said provisions as pertain to the review of rent)
(B) ON THE ASSUMPTIONS that:-
(i) at and until the Review Date all the covenants and conditions
contained in the Lease have been fully performed and observed
(ii) in the event of the Demised Premises having been damaged or
destroyed and not having been fully repaired reinstated or
rebuilt (as the case may be) such damage or destruction had not
occurred
(iii)the Tenant and the Landlord are in the market as willing tenant
and landlord for the Demised Premises
and
(C) HAVING REGARD to other open market rental values current at the Review
Date insofar as the Arbitrator may deem same to be pertinent to the
determination
BUT DISREGARDING any effect on letting value of:-
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(a) the fact that the Tenant is or has been in occupation of the Demised
Premises or any part thereof
(b) the goodwill which shall have attached to the Demised Premises by
reason of the business carried on thereat
(c) any works executed by and at the expense of the Tenant in on to or in
respect of the Demised Premises other than required works PROVIDED
that in the interpretation of this sub-paragraph (c) the expression
"the Tenant" shall extend to include the Tenant or any predecessor in
title of the Tenant or any party lawfully occupying the Demised
Premises or any part thereof under the Tenant or any such predecessor
and whether that lawful occupation shall have been on foot of this
Lease or any Lease of which the within is a renewal or any Agreement
therefor
and
the expression "required works" shall mean works executed by the
Tenant in pursuance of an obligation imposed on the Tenant (i) by the
within Lease or by any Lease of which the within is a renewal OR (ii)
by an Agreement for the granting of the within Lease or of any Lease
of which the within is a renewal or by virtue of any Licence or Deed
of Variation relating to the Demised Premises save any Licence issued
pursuant to clause 4.10 hereof.
2. All arbitrations hereunder shall be conducted in accordance with the
provisions set forth in the Arbitration Acts, 1954 to 1980 or in any Act or
Statutory Rule or order extending amending modifying or replacing the same
and for the time being in force.
3. If the Arbitrator shall relinquish his appointment or die or if it shall
become apparent that for any reason he shall be unable or shall have become
unfit or unsuited (whether because of bias or otherwise) to complete his
duties or if he shall be removed from office by Court Order a substitute
may be nominated in his place and in relation to any such nomination the
procedures hereinbefore set forth shall be deemed to apply as though the
substitution were a nomination de novo which said procedures may be
repeated as many times as may be necessary.
4. If the revised rent in respect of any period ("the Current Period") shall
not have been ascertained on or before the Review Date referable thereto
rent shall continue to be payable up to the gale day next succeeding the
ascertainment of the revised rent at the rate payable during the preceding
period AND on such gale day the Tenant shall pay to the Landlord the
appropriate instalment of the revised rent together with any shortfall
between (i) the aggregate of rents (including such instalment if payable in
arrear) actually paid for any part of the Current Period and (ii) rent at
the rate of the revised rent attributable to the interval between that
Review Date and such gale day and together further with interest on said
shortfall such interest to be computed on a day to day basis and to be
assessed at the Base Rate. For the purpose of this paragraph the revised
rent shall be deemed to have been ascertained on the date when the same
shall have been agreed between the parties or as the case may be on the
date of the notification to the Tenant of the award of the Arbitrator.
5. If there should be in force at the commencement or during the currency of
any particular relevant period any Statute or Order (directly or
indirectly) prohibiting or restricting an increase of rent in respect of
the Demised Premises the provisions of this Schedule and of the within
Lease may nevertheless be invoked or reinvoked to determine the rent which
would but for the said prohibition or restriction be payable during such
relevant period but (if appropriate) the further implementation thereof
shall be suspended in effect for such periods as may be required by Law.
6. When and so often as the revised rent shall have been ascertained pursuant
to the provisions herein set forth memoranda thereof shall thereupon be
signed by or on behalf of the Landlord and the Tenant and shall be annexed
to the Lease and its Counterpart and the parties shall bear their own costs
in relation to the preparation and completion of such memoranda.
IN WITNESS whereof the parties have executed this Lease on the date written
above.
PRESENT when the Common Seal of
THE LANDLORD was affixed to this Lease:
PRESENT when the Common Seal
of THE TENANT was affixed to this Lease:
PRESENT when the Common Seal
of THE SURETY was affixed to this Lease:
<PAGE>
EXHIBIT 10.39
AGREEMENT made the 25th day of May 1998 BETWEEN the INDUSTRIAL DEVELOPMENT
- --------- -------
AGENCY (IRELAND) having its principal office at Wilton Park House, Wilton Place,
Dublin 2 ("IDA") of the first part, ADVANCED COMPONENT TECHNOLOGIES LIMITED
having its registered office at ______________________________________________
______________ ("the Company") of the second part and ACT MANUFACTURING, INC.
having its registered office at ______________________________________________
("the Promoters") of the third part.
WHEREAS:
- -------
A. The Company which is controlled by the Promoters has been carrying on at
Grand Canal Quay, Dublin an industrial undertaking for the production of
moulded case assemblies employing 72 persons.
B. In accordance with Proposals furnished to IDA the Company has applied to
IDA for financial assistance towards the cost of expanding its operations
into City West Business Park, which is intended to increase employment from
72 to 430 persons (198 persons in PCB's and systems level assembly and 160
in moulded cable assemblies of the additional 358 persons) ("the
Undertaking");
C. The Company and the Promoters having made the necessary enquiries are
satisfied and represent to IDA that to the best of their belief there will
be available to the Undertaking the relevant resources required for its
proper commercial establishment and efficient operation;
D. The promoters have represented to IDA that the Undertaking will contribute
to the development of the Irish economy.
NOW IT IS HEREBY WITNESSED that in consideration of the Company implementing the
- --------------------------
said proposals and carrying on the Undertaking in accordance with this
Agreement, IDA agrees to grant to the Company:
(i) the sum of 1,920,750 Irish Pounds being:
-1-
<PAGE>
(a) the sum of 1,758,250 Irish Pounds or 32.5% of the actual expenditure
on the provision of new machinery and equipment used for the
production of PCBA's for the Undertaking whichever is the lesser; and
(b) the sum of 162,500 Irish Pounds or 32.5% of the actual expenditure on
the provision of building modifications for the Undertaking ("the
eligible assets") whichever is the lesser
("the Capital Grant"), the said building modifications and new machinery
and equipment are hereinafter called "the eligible assets"; and
(ii) the sum of 421,875 Irish Pounds or 75% of the annual rent payable for the
first two years for the premises rented for the Undertaking, whichever is
the lesser ("the Rent Subsidy Grant");
(iii) the sum of 342,375 Irish Pounds or 100% of actual training costs of
approximately 198 people (over a base level of 72) in the manufacture of
PCBA's whichever is the lesser ("the Training Grant").
The Capital Grant, the Training Grant and the Rent Subsidy Grant are hereinafter
collectively referred to as "the grants" and are subject to the following terms
and conditions including those contained in the Schedules hereto:
-2-
<PAGE>
1. DEVELOPMENT OF THE UNDERTAKING:
------------------------------
The development of the Undertaking and in particular the provision of employment
shall be substantially in accordance with the particulars given in the said
proposals.
2. CONTROL OF THE COMPANY:
----------------------
The controlling interest in the Company shall be held directly or indirectly by
the Promoters unless otherwise agreed to in writing by IDA.
3. PROVISION OF ELIGIBLE ASSETS:
----------------------------
The expenditure eligible for the Capital Grant and the provisions of the
eligible assets shall be as set forth in the First Schedule.
4. PROMOTERS INVESTMENT:
--------------------
The Company shall procure or provide for the purposes of the Undertaking:
4.1 Additional Equity Equivalents of IR(Pounds)2,342,625:
For the purposes of this Agreement "Equity Equivalent" shall mean the total
monies obtained by the Company as follows:
4.1.1 cash received by the Company from the Promoters in consideration for
the issue at par of fully paid-up Ordinary Shares in the Company;
and/or
4.1.2 retained earnings of the Company capitalised at par as fully paid-up
Ordinary Shares in the Company, and/or
4.1.3 retained earnings of the company transferred to a special non-
distributable reserve account which shall be maintained at the
appropriate level for the duration of this Agreement; and/or
4.1.4 loans from the Promoters on, the following terms and conditions
("Subordinated Loans"):
-3-
<PAGE>
4.1.4.1 that no interest on such loans shall be paid by the Company
except out of profits which would otherwise be available for
dividend;
4.14.2 that no such loans shall be repaid except out of profits of
the Company which would otherwise be available for dividend or
out of a new loan obtained on the same terms for this purpose,
or out of the proceeds of a new issue at par of fully paid-up
Ordinary Shares of the Company made for this purpose;
4.1.4.3 that where any such loans are repaid out of profits, there
shall be transferred out of profits which would otherwise
have been available for dividend to a special non-
distributable reserve account a sum equal to the amount of
the loan repaid, and that there shall be no reduction in the
amount of such special non-distributable reserve account
during the term of this Agreement;
4.1.4.4 that where any such loans are repaid out of a new loan
obtained for this purpose, the new loan shall be subject to
these conditions as if it were the original loan;
4.1.4.5 that in the event of the winding up of the Company the amount
of any such loans still outstanding shall be subordinated to
the claims of the unsecured creditors of the Company;
PROVIDED ALWAYS that not less than 25% of the Equity Equivalent shall be
---------------
Ordinary Shares in the Company as specified at Clauses 4.1.1 and/or 4.1.2
above and PROVIDED FURTHER that retained earnings utilised as Equity
----------------
Equivalent as aforesaid shall not include any sum received in respect of
the grants or derived from a revaluation of the fixed assets of the
Company.
4.2 Such further sums, including working capital, as may be required for the
Undertaking.
-4-
<PAGE>
4.3 The total amount paid from the grants or deemed to have been paid from the
grants as herein specified shall at no time exceed the total amount of
Equity Equivalent of which at all times not less than 25% shall comprise an
amount for issued Ordinary Shares in the Company as aforesaid.
5. PLANNING PERMISSION AND PREVENTION OF POLLUTION.
-----------------------------------------------
The Company shall:
5.1 obtain all relevant permissions proscribed by Local and/or National
Authorities and shall comply with all requirements of such permissions and
with all Building Regulations and Statutory requirements (if any) required
for the Undertaking.
5.2 comply with all statutory requirements and other requirements which IDA
reasonably considers to be necessary in relation to environmental controls
and the prevention of pollution.
6. GUARANTEES:
----------
The Company shall not give a guarantee in respect of any borrowings other than
borrowings for the purposes of the Undertaking.
7. INSURANCE:
---------
The Company shall:
7.1 keep all the assets insured to their full cost of reinstatement against
loss or damage by fire and explosion;
7.2 obtain on commencement of production and in accordance with good commercial
practice Consequential Loss Insurance to adequately indemnify the Company
against losses and costs resulting from fire and explosion, and
7.3 make arrangements to ensure that IDA will be notified of any failure to
renew the insurance specified at Clauses 7.1 and 7.2 hereof and also of any
change in such insurance.
-5-
<PAGE>
8. RESTORATION OF ELIGIBLE ASSETS.
------------------------------
If there should be damage to or loss of eligible assets including buildings
under construction through fire or explosion or any other cause the insurance or
other compensation received by the Company shall be used forthwith to restore to
the reasonable satisfaction of IDA the property so damaged or lost and in the
event of such compensation being insufficient for that purpose the Company shall
make good the deficiency out of its own funds.
9. NON-DISTRIBUTION OF THE GRANTS:
------------------------------
The Company shall not distribute by way of dividend on the share capital of the
Company or otherwise any sum received in respect of the grants.
10. ROYALTIES OR SIMILAR PAYMENTS:
-----------------------------
The Company may only make royalty or similar payments on the following terms and
conditions:
10.1 that to the extent that the said royalty and/or similar payments exceed 5%
of the Company's net annual sales, such excess shall not be payable except
out of the Company which would otherwise be available for dividend; and
10.2 that in the event of the winding up of the Company the amount of any such
excess accrued or accruing for payment but unpaid shall be subordinated to
the claims of the unsecured creditors, including IDA, of the Company;
PROVIDED ALWAYS that the provisions of this Clause shall not apply to bona fide
- ---------------
third party arms length transactions.
11. PAYMENT OF THE GRANTS:
---------------------
11.1 The grants shall be paid subject to the following terms and conditions and
the Company shall provide evidence satisfactory to IDA:
-6-
<PAGE>
11.1.1 that the Company has been properly incorporated and that its
Memorandum and Articles of Association empower the Company to
implement this Agreement,
11.1.2 that the Company has obtained suitable premises for the Undertaking
and has title acceptable to IDA to all land and buildings required
for the Undertaking;
11.1.3 that the Company is in compliance with all the terms and conditions
of its property agreements, if any. with IDA;
11.1.4 that the necessary arrangements have been made for the provision of
all capital required for the Undertaking as specified at Clause 4
hereof;
11.1.5 that all Planning Permissions as aforesaid have been obtained and
complied with;
11.1.6 that all requirements for the control of the environment and
prevention of pollution as aforesaid have been complied with;
11.1.7 that insurance arrangements as aforesaid have been made;
11.1.8 that the Company has obtain a tax number in the relevant tax
district, that it is up to date in its tax affairs; with
the Revenue Commissioners and prior to payment from the grants
it shall submit an up-to-date tax clearance certificate
from the Revenue Commissioners;
11.1.9 that all expenditure on the eligible assets has been necessarily
incurred and paid and that value has been obtained therefor;
11.1.10 that the Company has complied up-to-date with all the provisions
of this Agreement;
-7-
<PAGE>
11.2 Before any part of the grants are paid the Company shall have accepted the
terms and conditions of IDA's letter dated 16 December 1997 and the
Promoters shall have entered into the guarantee attached to the aforesaid
letter.
11.3 Subject to compliance with all the relevant terms of this Agreement the
grants shall be paid to the Company in accordance with the arrangements
set forth in the Schedule applicable to the particular grant from which
payment is sought.
12. ACHIEVEMENT OF PROJECTED PERFORMANCE:
------------------------------------
Schedule of Capital Grant and Rent Subsidy Grant Drawdown for the
-----------------------------------------------------------------
Undertaking
-----------
<TABLE>
<CAPTION>
End of Base
Year End of Year End of Year End of Year End of Year End of Year
Period 31.12.1997 1 31.12.1998 2 31.12.1999 3 31.12.2000 4 31.12.2001 5 31.12.2002
- ------ ------------ ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Cumulative Jobs to be created 72 121 192 308 4165 430
Maximum Cumulative Grant -- 796,000 1,430,000 1,846,000 2,112,000 2,342,625
Drawdown IR(Pounds)
</TABLE>
Unless otherwise agreed to by IDA and notwithstanding any other provision in
this Agreement.
12.1 The aggregate amount payable from the grant in each period set out above
shall not exceed the maximum amount specified for
that period.
12.2 The maximum grant drawdown in the period to the end of Year 1 shall be
available subject to compliance with the provisions of this Agreement.
12.3 Subject to compliance as aforesaid, payment from the maximum cumulative
grant drawdowns in the periods to the end of Years 2 and 3 respectively,
shall be conditional upon the cumulative number of Jobs (as set out above)
being created by the immediately preceding end of year; in the event of
such number of Jobs not have been created by the relevant date no part of
the grant drawdown for the following year will be paid to the Company
until such number of Relevant Jobs has been created.
-8-
<PAGE>
12.4 On or after 31 December 2002 the Company and IDA shall review the
development of the Undertaking to that date with particular reference to
the creation of Jobs in the Company. Should the total number of jobs
existing in the Company at the date of review be less than 430, unless
otherwise agreed to by IDA and notwithstanding any other provision in this
Agreement, all monies paid from the grant on foot of this Agreement in
excess of IR(Pounds)6,544 per Job multiplied by the number of Jobs (in
excess of 72 Jobs) existing in the Company at the date of review shall be
repayable on demand to IDA by the Company (and in the event of default by
the Company in making repayment shall be repayable on demand by the
Promoters) within one month from date of demand.
For the purposes of this Clause "Jobs" shall mean full-time permanent Jobs
existing in the Company at the relevant date and "grant" shall mean the
Capital Grant and the Rent Subsidy Grant.
13. FURNISHING OF INFORMATION:
-------------------------
13.1 The Company shall permit the officers and agents of IDA to inspect the
eligible assets at all reasonable times during the term of this Agreement
and shall furnish to IDA promptly whenever required to do so by IDA all
such information and documentary evidence as IDA may from time to time
reasonably require to vouch compliance by the Company with any of the
terms and conditions of this Agreement.
13.2 The Company acknowledges the right of IDA to consult with relevant third
parties to obtain any information it may reasonably require relating to
the affairs of the Company and/or the Promoters prior to any payment from
the grants and to withhold grant payments in the event of such being
unsatisfactory to IDA. The Company and/or the Promoters hereby undertake
to instruct such third parties to furnish any such information to IDA on
request.
13.3 The Company and/or the Promoters shall submit Annual Audited Accounts
satisfactory to IDA for the duration of this Agreement within six months
from the end of the relevant financial year.
-9-
<PAGE>
14. NOTICES:
-------
14.1 The Certificate, of an Officer of IDA certifying any decision of IDA taken
or made hereunder shall save in the case of manifest error be conclusive
evidence of any such decision.
14.2 Any notice by IDA to the Company or the Promoters or vice-versa under this
Agreement shall be sent by registered post to the Registered Office of the
party for whom it is intended.
14.3 IDA shall use its best endeavor to send copies of all notices issued by it
on foot of this Agreement to the Promoters at their address herein
specified but failure to do shall not constitute a breach of this
Agreement on its part.
15. CONSENTS:
--------
15.1 Circumstances requiring the consent, approval or permission of any party
hereto shall be interpreted to mean that such consents, approvals or
permissions shall not be unreasonably withheld. This provision shall not
apply to the provisions of Clause 2 hereof and Paragraph 2 of the Second
Schedule hereto.
15.2 Any variation or modification of any of the terms or conditions herein
made at the request of or with the agreement of the Company and with the
consent of IDA shall not in any way determine or prejudice the Promoters'
liability hereunder PROVIDED that the financial amount of the Promoters'
said liability shall not be increased without its express agreement in
writing.
16. TERMINATION OF AGREEMENT:
------------------------
This Agreement shall terminate five years from the date of the last payment from
the grants.
-10-
<PAGE>
17. CANCELLATION AND REVOCATION OF THE GRANTS:
-----------------------------------------
IDA may stop payment of the grants and/or revoke and cancel or reduce the grants
or so much thereof as shall not then have been actually paid to the Company if
any one or more of the following events occur:
17.1 if there be any breach of the terms or conditions of Clause 2 hereof
and/or Paragraph 2 of the Second Schedule hereto;
17.2 if the Company should to a material extent be in breach of any of the
terms and conditions of this Agreement other than those specified in
Clause 17.1 and having failed to establish to the reasonable satisfaction
of IDA that such breach was due to force majeure shall not have rectified
such breach within 45 days after written notice thereof has been served on
the Company;
17.3 if an order is made or an effective resolution is passed for the winding
up of the Company except for the purposes of bona fide amalgamation or
reconstruction;
17.4 if a Receiver or an Examiner is appointed over any of the property of the
Company or if a distress or execution is levied or served upon any of the
property of the Company and is not paid off within 45 days;
17.5 if the Company should cease to carry on the Undertaking.
If the grants be revoked the Company and/or the Promoters shall repay to IDA on
demand all sums received in respect of the grants including all sums deemed to
have been received by the Company as herein provided in respect of the grants,
and if the grants be reduced the Company and/or the Promoters shall repay to IDA
on demand all sums received and deemed to have been received as aforesaid in
excess of the amount of the reduced grants and in either case in default of such
repayment such sums shall be recoverable by IDA from the Company and/or the
Promoters as a joint and several simple contract debt.
-11-
<PAGE>
18. GOVERNING LAW:
-------------
This Agreement shall be governed by and be construed in accordance with the Laws
of Ireland and the parties hereto expressly and irrevocably subject to the
jurisdiction of the Irish Courts and the Promoters hereby irrevocably appoint
the Company to be its attorney for the purpose of accepting service on its
behalf of any notice, document or legal process with respect to the Promoters'
obligations pursuant to the provisions of Clause 17 and/or Clause 12 hereof and
service of any such document on such attorney shall be deemed for all purposes
to be good service.
-12-
<PAGE>
FIRST SCHEDULE
--------------
PROVISION OF ELIGIBLE ASSETS FOR THE UNDERTAKING
------------------------------------------------
<TABLE>
<S> <C>
1. ELIGIBLE ASSETS ESTIMATED COSTS
- -----------------------------------------------------------------------
IR(Pounds)
- -----------------------------------------------------------------------
1.1 Factory Building Modifications 500,000
- -----------------------------------------------------------------------
1.2 New Machinery and Equipment (Printed 5,410,000
Circuit Board Assembly only)
- -----------------------------------------------------------------------
Total 6,910,000
- -----------------------------------------------------------------------
</TABLE>
2. The Company shall:
2.1 have the construction of the said proposed factory building modifications
for the Undertakings commenced to the satisfaction of IDA not later than 30
June 1998 and completed in a proper and satisfactory manner not later than
31 December 1998;
2.2 Purchase and have installed in a proper and workmanlike manner ready for
operation in the said buildings all machinery and equipment suitable in all
respects required for the Undertaking by 31 December 2002;
2.3 have commenced production in the Undertaking by 31 December 1998.
-13-
<PAGE>
SECOND SCHEDULE
---------------
ADDITIONAL TERMS AND CONDITIONS ATTACHING TO THE CAPITAL GRANT
--------------------------------------------------------------
1. PLACING OF CONTRACTS:
--------------------
1.1 Subject to the specialised requirements of the Undertaking which shall have
been notified to and approved in writing by IDA, the Company shall ensure
in relation to the placing of contracts for the eligible assets that:
1.1.1 prior to appointment of Architects and/or Consultants, the Company
will obtain the approval of IDA on the proposed composition of the
Design Team for the implementation of the Undertaking;
1.1.2 before tenders are invited on building works and services the
Company will consult with the Construction Advisory Unit of IDA;
1.1.3 a minimum of three competitive quotations is sought and that none
but the lowest is accepted without the prior written consent of IDA,
1.1.4 no arrangements are made for the direct hire of labour in the
construction of the said factory buildings, building services and
facilities except with the prior written consent of IDA.
1.2 In the placing of contracts for the modification of the said factory
buildings, building services and facilities any contractors appointed by
the Company in the aforesaid construction shall at the date of such
appointment possess an up-to-date tax clearance certificate or a current C2
certificate from the Revenue Commissioners. The Company shall retain
copies of such certificates for inspection by IDA as evidence of compliance
with this sub-paragraph.
-14-
<PAGE>
2. ALIENATION OF ASSETS:
--------------------
The Company shall not alienate, assign, part with the possession of or otherwise
dispose of or remove (save for purpose of normal repair, renewal, replacement or
substitution) or mortgage or charge (except for the purpose of securing finance
for the Undertaking) the eligible assets or any part thereof without the prior
written consent of IDA. The provision of this Agreement shall apply also to
assets which are substituted for eligible assets.
3. USE OF ELIGIBLE ASSETS:
----------------------
The Company shall not without the prior written consent of IDA use or permit the
use of the eligible assets or any part thereof except for the purposes of the
Undertaking.
4. PAYMENT OF CAPITAL GRANT:
------------------------
Subject to compliance by the Company with the terms and conditions of this
Agreement the Capital Grant shall be paid to the Company in installments of
32.5% of each sum of IR(Pounds)500,000 or more expended by the Company on the
provision of eligible assets when installed and commissioned in the premises as
aforesaid PROVIDED ALWAYS that all such expenditure shall be vouched and
examined in such manner as IDA may reasonably require.
-15-
<PAGE>
THIRD SCHEDULE
--------------
ADDITIONAL TERMS AND CONDITIONS ATTACHED TO THE RENT SUBSIDY GRANT
------------------------------------------------------------------
1. The Company shall furnish to IDA a copy, certified by the Lessor to be a
true copy, of the Lease of any premises in respect of which payment is
sought from the Rent Subsidy Grant.
2. The terms and conditions of any such Lease shall be satisfactory to IDA.
3. The Rent Subsidy Grant shall be payable in installments related to the rent
installments paid by the Company in accordance with the Lease and which
have been vouched in such manner as IDA may require.
4. The Company shall notify and verify in such manner as IDA may require any
changes made from time to time in the terms of any such Lease.
5. Any premises in respect of which a payment is made from the Rent Subsidy
Grant shall be used solely for the purposes of the Undertaking unless
otherwise agreed to in writing by IDA.
6. The Company shall procure that the said premises are kept insured against
the insured risks as defined in the Lease and shall furnish to IDA before
any part of the Rent Subsidy Grant is paid and whenever required to do so
thereafter evidence in writing that the said insurance has been so
arranged.
7. The Company will procure that in the event of the premises being destroyed
or damaged by any of the insured risks as defined in the said Lease the
insurance monies or any other compensation monies received by the Lessee or
Lessor of the said premises shall be used forthwith to restore in full and
to the satisfaction of IDA the property so damaged or lost or alternatively
will arrange to occupy suitable equivalent accommodation for the remaining
period of this Agreement.
-16-
<PAGE>
8. The Company shall not alienate, assign, sub-let or part with the possession
of any premises in respect of which a payment is made from the Rent Subsidy
Grant or any part thereof or grant any rights in respect thereof without
the prior consent in writing of IDA and will continue to occupy premises
suitable for the Undertaking.
-17-
<PAGE>
FOURTH SCHEDULE
---------------
Additional Terms and Conditions Relating to the Training Grant
--------------------------------------------------------------
1. Before payments from the Training Grant commence an agreed detailed
Training Programme shall be agreed and signed by the Company, FAS and IDA
("the Training Programme").
2. The training shall be carried out and the grant shall be paid in accordance
with the Training Programme.
3. The Company shall permit FAS at all reasonable times to inspect the
progress of the training and to have access to the Company's records of the
training and will have due regard to the recommendation of FAS concerning
the training.
4. IDA shall be satisfied upon the advice of FAS that the training has been
satisfactory.
5. All claims for payment out of the Training Grant shall be made on a
quarterly basis and in respect of expenditure on the training incurred in
any particular calendar year shall be furnished to IDA not later than 31
January of the following year. In the event of any claim not being
received by IDA within the aforesaid time limit, IDA shall be entitled to
cancel that portion of the grant otherwise payable in respect of such claim
by an amount up to 75%. The Training Grant shall be reduced by the amount
of such reductions and/or cancellations.
6. The Company shall notify IDA before 30 September in any year of the amount
it will be seeking by way of payment from the Training Grant in the
following and subsequent calendar years.
7. All claims for payment of an installment from the Training Grant shall be
certified by the Company's Auditors and the certificate shall be supported
with the details of the trainees and the actual training carried out such
details to be specified in the claim Form specified by IDA in relation to
the period for which the claim is being made.
-18-
<PAGE>
8. Upon 80% of the approved grant being paid, the Company and FAS shall review
the progress of the Training Programme and payment of the balance of the
training grant shall be subject to FAS being satisfied that the Training
Programme has been undertaken satisfactorily and will be completed in a
satisfactory manner.
9. The Training Grant shall not be repayable in the event of revocation of the
grants in accordance with Clause 17 of the Agreement.
-19-
<PAGE>
IN WITNESS WHEREOF the parties hereto have affixed their respective seals the
day and year first herein written.
PRESENT when the Seal of the
INDUSTRIAL DEVELOPMENT AGENCY (IRELAND)
was affixed hereto:
---------------------------------
MEMBER/AUTHORISED OFFICER
---------------------------------
MEMBER/AUTHORISED OFFICER
PRESENT when the Seal of
ADVANCED COMPONENT TECHNOLOGIES LIMITED
was affixed hereto:
---------------------------------
Director
---------------------------------
Director
PRESENT when the Seal of
ACT MANUFACTURING, INC.
was affixed hereto:
---------------------------------
Director
---------------------------------
Director
-20-
<PAGE>
Dated the day of 1998
-------------------------------------------
INDUSTRIAL DEVELOPMENT AGENCY (IRELAND)
First Part
ADVANCED COMPONENT TECHNOLOGIES LIMITED
Second Part
-and-
ACT MANUFACTURING, INC.
Third Part
GRANT AGREEMENT
Industrial Development Agency (Ireland)
Wilton Park House
Wilton Place
DUBLIN 2
-21-
<PAGE>
EXHIBIT 10.40
MASTER LEASE AGREEMENT
----------------------
THIS MASTER LEASE AGREEMENT (this "Lease") is between HELLER FINANCIAL LEASING,
INC., a Delaware corporation ("Lessor"), with an office address at 500 West
Monroe Street, Chicago, Illinois 60661, and ACT Manufacturing, Inc. ("Lessee"),
a Massachusetts corporation, with its address and principal place of business at
2 Cabot Road, Hudson, MA 01749, which parties hereby agree as follows:
1. LEASING OF EQUIPMENT: Subject to the terms and conditions set forth
below, Lessor agrees to lease to Lessee and Lessee agrees to hire from Lessor
the equipment (the "Equipment;" a unit or part thereof being sometimes
hereinafter referred to as an "Item") described in any Master Lease Schedule
hereto, now or hereafter executed by the parties (each, a "Schedule"). Nothing
contained herein shall obligate either party to execute any Schedule subsequent
to the date hereof. The Equipment shall be delivered and installed at the
location specified or referred to in the applicable Schedule. The Equipment
shall be deemed to have been accepted by Lessee for all purposes under this
Lease as of the Acceptance Date (defined below) shown on the executed Delivery
and Acceptance Certificate (an "Acceptance Certificate") with respect to such
Equipment. Any modifications to this Lease contained in any Schedule shall be
controlling, but only with respect to the Equipment described in such Schedule.
Until and unless a Schedule is sold, assigned or otherwise transferred by
Lessor, or Lessor and Lessee expressly agree otherwise in writing, this Lease,
all Riders hereto or to any Schedule, now or hereafter executed by the parties
(each, a "Rider"), and all Schedules shall constitute one lease, and references
to this Lease shall include all such Riders and Schedules. In the event that a
Schedule is sold, assigned or otherwise transferred by Lessor, such Schedule and
all Riders thereto shall be deemed to be a separate lease, which shall include
and incorporate each term and condition in this Lease and all Riders hereto. As
used herein, "Equipment Cost" shall have the same meaning and value as set forth
in each applicable Schedule.
2. TERM, RENT AND PAYMENT: (a) The term of this Lease for each respective
Item (the "Term") shall commence on the date set forth in the Acceptance
Certificate therefor (the "Acceptance Date") and, unless sooner terminated
pursuant to Section 9 or 17, shall continue for the period specified as the
"Term" in the applicable Schedule. If any Term shall be extended or this Lease
is renewed pursuant to an extension or renewal option, the work "Term" shall
include all such extensions and renewals, and all provisions of this Lease shall
apply during all extension and renewal periods, except as may be specifically
provided otherwise in any Rider, Schedule or other written agreement applicable
thereto.
(b) Lessee agrees to pay to Lessor's order basic rent for each Item
in the amount therefor set forth in the applicable Schedule ("Basic Rent"), plus
a per diem, pro-rata portion of the periodic Basic Rent for any interim period
("Interim Rent") from the Acceptance Date through the day immediately preceding
the "Commencement Date" set forth in the applicable Schedule. (Unless otherwise
stated in the applicable Schedule, the "Commencement Date" shall be the first
day on the first calendar month immediately following the Acceptance Date.)
Interim Rent for Items covered by a particular Schedule shall be due on the
Commencement Date. The first Basic Rent payment for Items covered by a
particular Schedule
<PAGE>
-2-
shall be due on the day of the period specified in such Schedule. Subsequent
Basic Rent payments for the Items described in the applicable Schedule shall be
due on the same day of each applicable period thereafter. Any payment due on a
day which is not a business day shall be made on the following business day.
(c) Basic Rent, Interim Rent and all other amounts payable to Lessor
under any provision of this Lease (collectively, "Rent") shall, unless Lessor
otherwise directs, be paid to Lessor at its office address set forth above and
shall be deemed received when good funds are received by Lessor. Lessee agrees
to pay Lessor on demand an administrative and late charge on all Rent not paid
within 10 days of the date due hereunder equal to the lesser of: (i) 5% of the
amount not timely paid or (ii) the maximum rate permitted by applicable law.
3. DISCLAIMER: LESSOR IS NEITHER THE MANUFACTURER NOR SELLER OF THE
----------------------------------------------------
EQUIPMENT, AND MAKES NO REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS OR
- --------------------------------------------------------------------------
IMPLIED, WITH RESPECT TO THE EQUIPMENT, ALL OF WHICH ARE HEREBY EXPRESSLY
- -------------------------------------------------------------------------
DISCLAIMED. LESSEE UNDERSTANDS AND AGREES THAT NO WARRANTY IS TO BE IMPLIED
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WITH RESPECT TO THE CONDITION OF THE EQUIPMENT, ITS MERCHANTABILITY, THE FITNESS
- --------------------------------------------------------------------------------
OF THE EQUIPMENT FOR A PARTICULAR PURPOSE, THE ACCURACY OF THE DESCRIPTION OF
- -----------------------------------------------------------------------------
THE EQUIPMENT, OR WITH RESPECT TO INFRINGEMENT, INTERFERENCE OR THE LIKE, LESSOR
- --------------------------------------------------------------------------------
SHALL NOT BE LIABLE IF, FOR WHATEVER REASON, THE EQUIPMENT IS DELAYED OR NOT
- ----------------------------------------------------------------------------
DELIVERED TO LESSEE.
- --------------------
4. QUIET ENJOYMENT: So long as no Event of Default (as defined below)
exists, Lessor will not interfere with Lessee's quiet enjoyment and use of the
Equipment during the Term therefor.
5. NET LEASE; NO SET-OFF: This Lease is a net lease and Lessee shall not
be entitled to any abatement or reduction of, or set-off against, any Rent by
reason of any (i) past, present or future claim against Lessor or any successor
or assignee of Lessor or any supplier of any Item or any other person, (ii)
defect in or damage to, or loss, prohibition, restriction on use, damage or
destruction of, any Item (except as expressly provided otherwise in Section 9)
from whatever cause, or (iii) other cause whatsoever, whether similar or
dissimilar to the foregoing, it being the intention of the parties that all Rent
shall continue to be payable in all events in the manner and at the times
specified in this Lease and that Lessee's obligation to pay Rent shall be
absolute and unconditional unless the obligation to pay the same shall be
terminated pursuant to the express provisions of this Lease.
6. USE, LOCATION AND POSSESSION; LIENS: (a) Lessee shall use each Item
in a careful and proper manner and for the use contemplated by the manufacturer
thereof and in compliance with all applicable laws, rules, and regulations and
the provisions of the insurance required to be maintained hereunder and the
terms of any manufacturer's warranty. Each Item shall at all times be kept at
the location specified in the applicable Schedule unless Lessor has given prior
written consent to a change in location. Lessee shall at all times keep each
Item in its possession and control.
<PAGE>
-3-
(b) Lessee shall keep each Item free and clear of all claims, liens,
pledges, rights of others or other encumbrances, and shall not create, incur,
assume or suffer to exist any thereof in, on , of or to any Item (collectively
"Liens"), other than those arising by, through or under Lessor ("Lessor Liens").
(c) Lessor shall have the right as owner, but not the obligation, at
all reasonable times to enter upon the premises where the Equipment is located
or used to inspect the Equipment. Such inspections shall be for, among other
things, determining whether Lessee is properly complying with its obligations
hereunder. Neither Lessee nor any third party may rely upon any such inspections
by Lessor and Lessor shall not be obligated to inform Lessee or any third party
of the result of any such inspection. Any inspection that is not followed by a
notice of an Event of Default shall not constitute a waiver of any Event of
Default then existing and Lessor's failure to inspect the Equipment or to
discover any information regarding the Equipment shall not constitute a waiver
of any of Lessor's rights hereunder.
7. MAINTENANCE AND SERVICE; IMPROVEMENTS: (a) Lessee shall, at its
expense, at all times maintain, service and repair each Item as would a prudent
owner of such Item, and in any event so as to keep each Item in good operating
condition, ordinary wear and tear excepted, in compliance with all applicable
laws, rules, regulations, and manufacturer's recommended basic warranty,
extended warranty and/or maintenance program requirements, and as otherwise may
be required to enforce warranty claims against each vendor and manufacturer of
each Item. To the extent that Lessee's maintenance, repair or servicing
standards exceed the foregoing, then Lessee shall keep each Item in at least as
good condition as other comparable equipment owned or used by Lessee. In
addition, Lessee shall, at its expense, comply with all maintenance requirements
set forth by Lessor in any applicable Rider now or hereafter executed by the
parties. Lessee shall, if at any time requested to do so by Lessor, affix in a
prominent position on each Item plates, tags or other identifying labels showing
ownership thereof by Lessor.
(b) Any alterations or modifications with respect to any Item that
may be required at any time during the Term therefor to comply with any
applicable law or any governmental or other rule or regulation shall be made by
Lessee, at its expense, and shall thereupon become the property of Lessor.
(c) Unless required pursuant to Subsection (b), Lessee shall not,
without Lessor's prior consent, affix or install any accessory, equipment or
device on, or modify, any Item if such addition or modification will impair the
original function or use thereof or cannot be readily removed without causing
damage to such Item. Further, Lessee shall not, without Lessor's prior written
consent, affix or install any Item to or in any other personal property, or to
or in any real property so that such Item shall constitute a fixture. Upon
Lessor's request, Lessee shall obtain and deliver to Lessor disclaimers or
waivers from all owners and/or mortgagees of real estate in which any Item is
located in form and content acceptable to Lessor.
8. NO AGENCY: Lessee acknowledges that it alone has selected the
Equipment and the supplier(s) thereof; that it has reviewed and approved each
written supply contract and purchase order covering the Equipment, or has been
advised by Lessor in writing of the identity of
<PAGE>
-4-
each supplier; that is may have rights under each such supply contract and
purchase order; and that it may contact each supplier for a description of any
such rights and/or supplier's warranty. Nothing herein contained shall be
construed to deprive Lessee of whatever rights Lessee may have against parties
other than Lessor or Lessor's assignee, such as the supplier or manufacturer of
any Item, and Lessee agrees to look solely to such third parties with respect to
any and all claims concerning the Equipment. So long as no Event of Default
exists, Lessee may pursue such claims for the mutual benefit of Lessor and
Lessee in accordance with their interests in the Equipment. Without in any way
limiting any other provision in this Lease, Lessor shall not in any event be
liable for any consequential damages hereunder or with respect to any Item. No
supplier is the agent of Lessor and no employee of any supplier is authorized to
waive, supplement or otherwise alter any provision of this Lease. Lessee and
Lessor hereby agree that they intend this Lease to be a "Finance Lease" as
defined by Article 2A of the Uniform Commercial Code (the "UCC"). Lessee
acknowledges that Lessee has reviewed and approved any written "Supply Contract"
covering the Equipment from any "Supplier (as those terms are defined in Article
2A of the UCC).
9. RISK OF DAMAGE AND LOSS: Lessee assumes and shall be solely
responsible for the entire risk of any Item being lost, destroyed, damaged,
stolen, confiscated or condemned, from whatever source, until the date such Item
is returned and accepted by Lessor (the "Return Date") in accordance with
Section 12. In the event of damage to any Item, Lessee, at its expense, shall
promptly repair the same, restoring it to the condition required to be
maintained hereunder. If any Item is lost, destroyed, stolen, damaged in such a
way that it is not commercially reasonable to repair it (or such repairs are not
completed within 60 days of the damage or by the end of the Term with respect
thereto, whichever is shorter), confiscated or condemned (each, an "Event of
Loss"), then Lessee shall pay to Lessor the Stipulated Loss Value (as defined
below) of such Item and all other Rent owing with respect to such Item, which
such payment shall be due on the first to occur of (i) the end of the Term with
respect thereto or (ii) the sooner of (A) 60 days after such Event of Loss or
(B) the second Basic Rent payment date with respect to such Item following such
Event of Loss. Lessor and Lessee shall execute a Stipulated Loss Value Rider
applicable to each Item and the Stipulated Loss Value for each Item shall be as
set forth therein (the "Stipulated Loss Value").
Upon due payment by Lessee of all such amounts, this Lease shall
terminate with respect to such Item and Lessor shall transfer title thereto to
Lessee, without representation or warranty other than as to Lessor Liens. So
long as no Event of Default exists, any proceeds of insurance required hereunder
received by Lessor with respect to any damage or Event of Loss respecting any
Equipment shall be paid to Lessee to the extent necessary to reimburse Lessee
for costs incurred and paid by Lessee in repairing the same or shall be credited
against amounts payable by Lessee with respect to the Equipment involved.
10. INSURANCE: Lessee shall, at its expense at all times through the
Return Date (i) keep the Equipment insured against all risks of loss or damage
from every cause whatsoever in an amount not less than the greater of fair
market value or Stipulated Loss Value thereof, and (ii) obtain liability
insurance, including automobile coverage if the Equipment includes motor
vehicles, respecting the Equipment covering liability for bodily injury,
including death, and property damage, in an amount of at least $3 million per
occurrence or such greater amount as may comply
<PAGE>
-5-
with general industry standards, or such greater amount as Lessee may maintain,
or in such other amounts as Lessor may from time to time require.
Lessor shall be the sole named loss-payee with respect to damage or
loss to the Equipment with no provision for co-insurance and shall be named as
an additional insured on the liability insurance. All insurance shall be with
insurers and in form satisfactory to Lessor, have a deductible not to exceed
$50,000 per occurrence, or such other amount as Lessor may from time to time
require; shall provide for at least 30 days' prior written notice to Lessor
before any cancellation or material modification thereof; shall waive any claim
for premium against Lessor; and shall provide that Lessor will be insured
regardless of any breach by Lessee of any representation, warranty or covenant
in any such policy or any application therefor. Lessee shall deliver to Lessor
certificates of insurance and other evidence satisfactory to Lessor evidencing
the insurance required hereby, and at Lessor's request Lessee will furnish
copies of such policies to Lessor. In the case of renewals, evidence of renewal
shall be delivered to Lessor at least 5 days prior to expiration of the current
policy.
In the event Lessee fails to provide Lessor with evidence of the
insurance coverage required by this Lease, Lessor may purchase insurance at
Lessee's expense to protect Lessor's interests in the Equipment. This insurance
may, but need not, protect Lessee's interests. The coverage purchased by Lessor
may not pay any claim made by Lessee or any claim that is made against Lessee in
connection with the Equipment. Lessee may later cancel any insurance purchased
by Lessor, but only after providing Lessor with evidence that Lessee has
obtained insurance as required by this Lease. If Lessor purchases insurance for
the Equipment, Lessee will be responsible for the costs of that insurance,
including interest and other charges imposed by Lessor in connection with the
placement of the insurance, until the effective date of the cancellation or
expiration of the insurance. The costs of the insurance may be added to the
Rent. The costs of the insurance may be more than the cost of insurance Lessee
is able to obtain on its own.
11. ACCEPTANCE: By its execution of any Acceptance Certificate, Lessee
warrants and agrees that the Equipment covered thereby conforms to the
specifications and requirements of Lessee and that, as between Lessee and
Lessor, it was delivered in good repair and that Lessee has unconditionally
accepted it hereunder "AS IS" and "WITH ALL FAULTS" as of the Acceptance Date.
12. RETURN OF EQUIPMENT: Upon the expiration or earlier termination or
cancellation of this Lease with respect to any Item, except in the case of
retention by Lessee upon purchase of the Equipment in accordance with any
applicable Rider now or hereafter executed by the parties, Lessee shall, at its
own cost and expense, promptly return such Item to Lessor to such location as
Lessor may specify, for acceptance by Lessor in the condition required to be
maintained hereunder or in the condition specified in any applicable Rider now
or hereafter executed by the parties. Lessee shall pay for any repairs required
to place the Equipment in such condition. In the event Lessee shall not
surrender up and redeliver any Item to Lessor as herein required or shall not
timely pay the purchase price for any Item under any applicable Rider now or
hereafter executed by the parties, then Lessee shall pay to Lessor Basic Rent
for such Item (at the highest rate payable during the Term) until the Item is
duly returned, restored to the proper
<PAGE>
-6-
condition and accepted by Lessor or the purchase price is paid in accordance
with the applicable Rider.
13. GENERAL TAX INDEMNITY: Lessee agrees to pay and indemnify, on an
after-tax basis, Lessor against all income, sales, use, personal property, ad
valorem, value added, leasing, stamp or other taxes, levies, imposts, fees,
duties, charges or withholdings of any nature, including all license and
registration fees, together with any penalties, fines or interest thereon
(collectively, "Impositions") arising out of the transactions contemplated by
this Lease (including the acquisition of any Item prior to the Acceptance Date)
and imposed against Lessor, Lessee, this Lease (including any Rent) or the
Equipment or any Item by the United States or any state or political subdivision
thereof or any foreign government or taxing authority, excluding, however, any
Impositions based on or measured by the net income of Lessor imposed by the
United States or any state or political subdivision thereof. Lessee will notify
Lessor of the need to file any reports and returns relating to any Imposition at
least 60 days before the due date thereof and will remit any amounts payable in
connection therewith to Lessor 10 days before payment is due. Lessor shall
prepare and file all returns, and pay all Impositions, unless Lessor directs
Lessee otherwise. In the event that Lessor pays any such Impositions, Lessee
will on demand reimburse Lessor for the full amount paid by Lessor therefor.
Lessor shall have no obligation to contest or refuse to pay any Imposition.
Lessee acknowledges that in some jurisdictions Impositions may not be billed,
audited, assessed or due until after this Lease has terminated and agrees that
in such event Lessee will remain liable for such Impositions notwithstanding
such termination. Lessor makes no warranty, express or implied, regarding
Lessee's tax or accounting treatment of this Lease.
14. INCOME TAX INDEMNIFICATION: (a) Lessee acknowledges that Lessor is
the owner of the Equipment for state law and Federal income tax purposes and
that the most accelerated depreciation or cost recovery deductions on the full
amount of the Equipment cost will be available to Lessor. Lessee acknowledges
that Lessor intends to claim and take the depreciation deductions ("Depreciation
Deductions") with respect to the Equipment in accordance with Section 168 of the
Internal Revenue Code of 1986, as amended (the "Code").
(b) Lessee represents, warrants and covenants as follows:
(i) Lessor will not be required to include any amount in its income in
connection with any Item for any taxable year or part thereof during the Term
respecting such Item other than (A) Interim Rent and Basic Rent, as such Rent
accrues in accordance with the terms hereof, (B) any amount constituting gain
recognized with respect to or by reason of the sale or other disposition of such
Item upon the termination of this Lease with respect thereto, (C) any amount
payable to Lessor to the extent such amount is required to be determined by
reference to the income tax effect to Lessor of the receipt thereof, (D) any
amount specifically identified as interest, and (E) any other amount with
respect to which Lessor shall be entitled to a contemporaneous and equal
offsetting deduction (any amount so includable in Lessor's income other than as
contemplated in clauses (A) through (E) above being referred to herein as an
"Inclusion"); and
(ii) Each Item will constitute the Classification of Property specified in
the applicable Schedule within the meaning of Section 168(e) of the Code and
Lessor will be entitled to
<PAGE>
-7-
Depreciation Deductions with respect to its basis in the Equipment (which basis
shall equal 100% of the Equipment Cost for each Item) in accordance with such
Classification of Property.
(c) If, as the result of any act or omission of Lessee or the
inaccuracy of any representation or warranty of Lessee herein or in connection
with the transactions contemplated hereby:
(i) Lessor shall lose or lose the right the claim, or be advised or
determines that it would be imprudent, improper or inadvisable to claim, or
there shall be disallowed or recaptured, all or any portion of the anticipated
Depreciation Deductions,
(ii) Lessor shall suffer an Inclusion, or
(iii) Any foreign tax credit of Lessor shall be reduced, disallowed or
recaptured (any such loss, disallowance, reduction, recapture or Inclusion being
hereinafter called a "Tax Loss"), then 30 days after written notice to Lessee by
Lessor that any Tax Loss has occurred, Lessee shall pay Lessor, as an indemnity
payment, a lump sum amount which, after deduction of all Federal, state and
local taxes required to be paid by Lessor in respect of the receipt of such
payment, shall provide Lessor with not less than the same net after-tax return
that Lessor would have realized if such Tax Loss had not occurred, including any
interest and penalties payable by Lessor attributable to such Tax Loss. In
computing Lessee's liability under this Section, the Federal, state and local
taxes payable by Lessor shall be based upon the highest marginal corporate tax
rate in effect for the taxable year in which the Tax Loss occurred.
(d) Lessee shall not be liable for indemnification respecting a Tax
Loss occurring solely as a result of: (i) Lessor being subject to the
application of the mid-quarter convention of Section 168(d)(3) of the Code, (ii)
Lessor making any election to claim the Depreciation Deductions in a manner less
rapid than contemplated by the definition thereof, (iii) Lessor failing to have
a sufficient taxable income to utilize the Depreciation Deductions, (iv) Lessor
being subject to the "alternative minimum tax" of Section 55 of the Code, or (v)
A voluntary transfer of other voluntary disposition by the Lessor of any
interest in any Equipment or this Lease when no Event of Default exists.
(e) For the purpose of this Section the term "Lessor" shall include
any affiliated group within the meaning of Section 1504 of the Code of which
Lessor is a member, if consolidated returns are filed for such affiliated group
for Federal tax purposes, and a Tax Loss shall be deemed to have occurred upon
the earliest of:
(i) The happening of any event which may cause such Tax Loss,
(ii) The payment by Lessor to the taxing authority of the tax increase
resulting from such Tax Loss, or
(iii) The adjustment of the tax return of Lessor to reflect such Tax Loss.
<PAGE>
-8-
15. GENERAL INDEMNIFICATION: Lessee hereby agrees to indemnify, save,
protect, defend and keep harmless Lessor, and its agents, directors, employees,
successors and assigns from and against any and all losses, damages (including
indirect, special or consequential damage), harm, expenses, including legal fees
(and a reasonable allocation of the compensation, costs and expenses of internal
counsel, based upon time spent), penalties, injuries, claims, actions and suits,
of whatsoever kind and nature, in contract, tort or otherwise, whether caused by
the active or passive negligence of Lessor (excluding, however, Lessor's gross
negligence or willful misconduct) or otherwise and including Lessor's strict
liability in tort, in any way arising out of, related to or in connection with
the selection, modification, purchase, acceptance, rejection, ownership,
delivery, lease, possession, maintenance, use, condition (including latent or
other defects, whether or not discoverable by Lessor or Lessee, and any claim
for patent, trademark or copyright infringement), return of, or operation of any
Item prior to its Return Date or relating to any default by Lessee or Event of
Default.
16. DEFAULT: Each of the following shall constitute an event of default
(an "Event of Default") hereunder:
(a) Lessee shall fail to make any payment of Rent within ten (10)
calendar days after the same shall become due and payable;
(b) Lessee shall fail to perform, as and when due, any of its
obligations under Sections 6,7,9, and 10 hereof;
(c) Lessee or any guarantor of all or any part of Lessee's
obligations under this Lease (a "Guarantor") shall fail to pay or perform, as
and when due, any obligations to Lessor or any of its affiliates arising under
or in connection with this Lease and not covered by any other subsection of this
Section 16, and the failure is not cured to the satisfaction of Lessor within
thirty (30) days following Lessor's notice thereof to Lessee;
(d) Lessee or any Guarantor shall fail to pay or perform, as and when
due (including any applicable grace or cure period) any obligations to Lessor or
any of its affiliates arising under any other document or instrument including,
but not limited to, any document or instrument executed in connection with any
other presently existing or future loans, leases or other credit arrangements
from Lessor or any of its affiliates in favor of Lessee, or otherwise;
(e) Lessee or any Guarantor shall make any representation or
warranty, respectively, in this Lease or in any certificate or statement
furnished at any time hereunder or in connection with this Lease which proves to
have been untrue or misleading in any material respect when made or furnished;
(f) Lessee or any Guarantor shall file a voluntary petition in
bankruptcy or a voluntary petition or answer seeking liquidation,
administration, reorganization, arrangement, readjustment of its debts, or for
any other relief under the Bankruptcy Code, or under any other act or law
pertaining to insolvency or debtor relief, whether state, federal, or foreign,
now or hereafter existing; or Lessee or any Guarantor shall enter into any
agreement indicating its consent to, approval of, or acquiescence in, any such
petition or proceeding, or Lessee or any Guarantor
<PAGE>
-9-
shall apply for or permit the appointment by consent or acquiescence of a
receiver, custodian administrator, or trustee for all or a substantial part of
its property; or Lessee or any Guarantor shall make an assignment for the
benefit of creditors; or Lessee or any Guarantor shall be unable or shall fail
to pay its debts generally as such debts become due; or Lessee or any Guarantor
shall admit, in writing its inability or failure to pay its debts generally as
such debts become due;
(g) There shall have been filed against Lessee or any Guarantor an
involuntary petition in bankruptcy or seeking liquidation, administration,
reorganization, arrangement, readjustment of its debts or for any other relief
under the Bankruptcy Code, or under any other act or law pertaining to
insolvency or debtor relief, whether state, federal or foreign, now or hereafter
existing or Lessee or any Guarantor shall suffer or permit the involuntary
appointment of a receiver, custodian, administrator, or trustee for all or a
substantial part of its property; or Lessee or any Guarantor shall suffer or
permit the issuance of a warrant of attachment, diligence, execution or similar
process against all or any substantial part of its property; unless, in each
other case, such petition, appointment or process is fully bonded against,
vacated or dismissed within forty-five (45) days from its effective date, but
not later than ten (10) days prior to any proposed disposition of any assets
pursuant to any such proceeding;
(h) The occurrence of any default in the payment or performance, and
the subsequent acceleration, of any debt or other obligations (including, but
not limited to, capital lease obligations or any corporate guaranty) owed by
Lessee to any other persons or entity unaffiliated with Lessor with an
outstanding principal balance in excess of $1,000,000.00, whether now or
hereafter existing;
(i) There shall be a change in the beneficial ownership and control,
directly or indirectly, of the majority of the outstanding voting securities or
other interests entitled (without regard to the occurrence of any contingency)
to elect or appoint members of the board of directors or other managing body of
Lessee or Guarantor (a "change of control"), or there is any merger,
consolidation, dissolution, liquidation, winding up or sale or other transfer of
all or substantially all of the assets of Lessee or Guarantor pursuant to which
there is a change of control or cessation of Lessee or Guarantor or their
businesses.
(j) The occurrence of any event described as a Default or an Event of
Default in any applicable Rider now or hereafter executed by the parties;
(k) There is a material adverse change in Lessee's or any Guarantor's
financial condition since the first Acceptance Date.
17. REMEDIES: (a) Upon the occurrence of any Event of Default, then, to
the extent permitted by applicable law, Lessor shall have the right to exercise
any one or more of the following remedies:
(i) To proceed by appropriate court action to enforce performance by
Lessee of its obligations hereunder or to recover damages for breach thereof;
<PAGE>
-10-
(ii) To take possession of any Item, wherever located, without notice,
legal process, prior judicial hearing, or liability for trespass or other damage
(WHICH RIGHTS LESSEE HEREBY VOLUNTARILY, INTELLIGENTLY AND KNOWINGLY WAIVES) and
thereafter hold, sell, operate or lease such Item free of claims of Lessee,
except as set forth below;
(iii) By notice to Lessee, to terminate or cancel this Lease and declare
all Rent then owning to Lessor hereunder immediately due and payable (whereupon
Lessee shall promptly pay the same);
(iv) To demand immediate payment of the Stipulated Loss Value of the
Equipment as liquidated damages for the remaining term (whereupon Lessee shall
promptly pay the same); and
(v) To pursue any other remedy available to Lessor at law or in equity.
(b) Lessor and Lessee agree that an amount equal to the Stipulated
Loss Value of the Equipment represents a reasonable return for the use of the
Equipment and for the depreciation thereof, and shall be the basis for
liquidated damages for the remaining term for which Lessee shall be liable to
Lessor upon the occurrence of an Event of Default. Any amounts realized by
Lessor on account of the Equipment subsequent to Lessor's taking possession
thereof pursuant to Section 17(a)(ii) shall, after reimbursement to Lessor of
all its expenses incurred in connection therewith, including legal fees (and a
reasonable allocation of the compensation, costs and expenses of internal
counsel, based upon time spent), be credited to amounts of Stipulated Loss Value
and all other Rent owing by Lessee hereunder or, if such Stipulated Loss Value
and all other Rent has been paid, paid to Lessee.
(c) If Lessor elects not to sell, re-lease, or otherwise dispose of
all or any part of the Equipment, and holds such Equipment for Lessee for the
remaining Term Lessor may recover, in addition to all Rent accrued and unpaid as
of the date of Lessor's recovery of possession of the Equipment, the present
value, as of such date, of the Rent for the remainder of the Term respecting
such Equipment (which Term shall include, for this purpose, to the extent
applicable, any agreed upon extensions and renewals which would, in the absence
of an Event of Default, automatically extend the Term upon Lessee's failure to
exercise any option to purchase contained in any addenda or Rider hereto).
Present value shall be computed using a discount rate equal to the Prime Rate in
effect on the Acceptance Date.
(d) If Lessor sells, leases, or otherwise disposes of all or any part
of the Equipment, Lessor may recover from Lessee, in addition to any Rent
accrued and unpaid as of the date of Lessor's recovery of possession of the
Equipment, the present value computed by using a discount rate equal to the
Prime Rate in effect on the Acceptance Date, of the difference between (i) the
Rent for the remainder of the Term respecting such Equipment (which Term shall
include, for this purpose, to the extent applicable, any agreed upon extensions
and renewals which would, in the absence of an Event of Default, automatically
extend the Term upon Lessee's failure to exercise any option to purchase
contained in any addenda or Rider hereto) and (ii) except in the case of a
substantially similar lease, the market rent for such period of time determined
by Lessor in is sole discretion, or (iii) in the case of a lease of Equipment
which is substantially similar to this Lease, the total rent for the lease term
of such substantially similar lease.
<PAGE>
-11-
(e) Time of performance of Lessee's obligations hereunder is of the
essence. All remedies of Lessor hereunder are cumulative, and may, to the extent
permitted by law, be exercised concurrently or separately, and the exercise of
any one remedy shall not be deemed to be an election of such remedy to the
exclusion of any other remedy or to preclude the exercise of any other remedy at
any other time. However, Lessor is entitled to only one satisfaction. Failure on
the part of Lessor to exercise, or delay in exercising, any right or remedy
hereunder or Lessor's failure at any time to require performance by Lessee of
any of the provisions hereof shall not operate as a waiver thereof; nor shall
any single or partial exercise by Lessor of any right or remedy hereunder
preclude any other further exercise thereof or the exercise of any other right
or remedy. Lessee shall be liable for all charges, costs, expenses and
attorneys' fees incurred by Lessor (including a reasonable allocation of the
compensation, costs and expenses of internal counsel, based upon time spent):
(i) in defending or protecting its interests in the Equipment, or any Item or
part thereof; (ii) in the negotiation, execution, delivery, administration,
amendment or enforcement of this Lease or the collection of any Rent hereunder;
(iii) in any lawsuit or other legal proceeding in any way connected with this
Lease, including, but not limited to, any contract or tort or other actions, any
arbitration or other alternative dispute resolution proceeding, all appeals and
judgment enforcement actions an any bankruptcy proceeding (including, but not
limited to, any relief from stay and/or adequate protection motions, cash
collateral disputes, assumption/rejection motions and disputes or objections to
any proposed disclosure statement or reorganization plan). Lessee acknowledges
and agrees that the preceding sentence shall survive and not be merged with any
judgment in connection with any exercise of any remedy by Lessor provided
hereunder. Lessee shall pay to Lessor interest on any overdue payments under
Section 13, 14 or 15 or amounts due under this Section 17 after demand therefor
and until paid at a rate per annum equal to the lesser of five percent (5%)
above the Prime Rate then in effect or the maximum amount permitted to be
charged by Lessor by applicable law.
18. ASSIGNMENT: (a) Lessor may, upon written notice thereof to Lessee,
sell, assign or otherwise transfer all or any part of its right, title and
interest in and to the Equipment and/or this Lease or in any Schedule executed
in connection herewith, to a third-party assignee, subject to the terms and
conditions of this Lease including, but not limited to, the right to the quiet
enjoyment by Lessee as set forth in Section 4 above. Any such assignee may
assume all of the rights and obligations of Lessor in connection with the
Equipment or any Schedules sold, assigned or otherwise transferred, in which
case Lessor shall be relieved therefrom. To the extent of any such assumption of
obligations, all references to Lessor herein shall thereafter mean such
assignee.
(b) Lessor may also pledge, mortgage or grant a security interest in
the Equipment and assign this Lease as collateral. Each such pledgee, mortgagee,
lien holder or assignee shall have any and all rights as may be assigned by
Lessor but none of the obligations of Lessor hereunder. Any pledge, mortgage or
grant of security interest in the Equipment or collateral assignment of this
Lease shall be subject to the terms and conditions hereof including, but not
limited to, the right to the quiet enjoyment of the Equipment by Lessee as set
forth in Section 4 above. If Lessor grants a security interest in all or any
part of any Schedule, any Equipment covered thereby and/or any sums payable
thereunder, only the original of the Schedule held by Lessor shall be effective
to transfer Lessor's rights therein.
<PAGE>
-12-
(c) Lessee shall not be relieved of any of its obligations hereunder
by reason of any such sale, assignment, or other transfer referred to in
Subsection (a) above, or any pledge, mortgage, grant of security interest or
collateral assignment referred to in Subsection (b) above, all of which such
obligations shall remain absolute and unconditional, including, but not limited
to, Lessee's obligations to pay Rent as set forth in Section 5 above. Lessee
agrees that it will not assert against any purchaser, pledgee, mortgagee,
lienholder or assignee (collectively, an "Assignee") any defense, counterclaim
or offset that Lessee may have against Lessor and Lessee acknowledges that any
such assignment or other transfer by Lessor, or any such pledge, mortgage, grant
of security interest or collateral assignment by Lessor, shall not materially
change Lessee's duties or obligations under this Lease nor materially increase
the burdens or risks imposed on Lessee. Upon the written request of Lessor,
Lessee shall acknowledge all such obligations to the Assignee, which such
acknowledgment shall be in such form and substance as Lessor or any such
Assignee may require, consistent with their normal business practices.
(d) LESSEE SHALL NOT SELL, TRANSFER, ASSIGN, SUBLEASE, CONVEY OR
------------------------------------------------------------
PLEDGE ANY OF ITS INTEREST IN THIS LEASE OR ANY OF THE EQUIPMENT, WITHOUT THE
- -----------------------------------------------------------------------------
PRIOR WRITTEN CONSENT OF LESSOR. ANY SUCH SALE, TRANSFER, ASSIGNMENT, SUBLEASE,
- --------------------------------------------------------------------------------
CONVEYANCE, OR PLEDGE, WHETHER BY OPERATION OF LAW OR OTHERWISE, WITHOUT THE
- ----------------------------------------------------------------------------
PRIOR WRITTEN CONSENT OF LESSOR, SHALL BE VOID.
- -----------------------------------------------
19. REPORTS: (a) Lessee will immediately notify Lessor of:
(i) Each Event of Loss or accident involving or allegedly involving any
Item;
(ii) Any Lien (other than a Lessor Lien) which shall have attached to any
Item; or
(iii) The occurrence of any Event of Default of event which, with the lapse
of time or giving of notice or both could become an Event of Default.
(b) Lessee and each Guarantor shall, as soon as practicable, and in
any event within sixty (60) days after the end of each fiscal quarter, furnish
to Lessor its unaudited financial statements including in each instance, balance
sheets, income statements, and statements of cash flow, on a consolidated and
consolidating basis, as appropriate, and separate profit and loss statements as
of and for the quarterly period then ended and for its fiscal year to date,
prepared in accordance with generally accepted accounting principles,
consistently applied, and Lessee and any Guarantor hereunder shall, as soon as
practicable, and in any event within ninety (90) days after the end of each
fiscal year, furnish to Lessor its annual audited financial statements,
including balance sheets, income statements and statements of cash flow for the
fiscal year then ended, on a consolidated and consolidating basis, as
appropriate, which have been prepared by its independent accountants. Such
audited financial statements shall be accompanied by the independent
accountant's opinion, which opinion shall be in form generally recognized as
"unqualified".
(c) Lessee will permit Lessor to inspect and examine the Equipment
and any Item and Lessee's records relating thereto at such times and from time
to time as Lessor may wish upon reasonable notice.
<PAGE>
-13-
20. REPRESENTATIONS AND WARRANTIES OF LESSEE: Lessee hereby represents
and warrants to Lessor that on the date hereof and on the date of execution of
each Schedule:
(a) Lessee has full power, authority and legal right to enter into
and to perform its obligations under this Lease and all related documents
(collectively the "Documents"), is in good standing under the law of its
jurisdiction of incorporation and is duly qualified to do business and in good
standing wherever necessary to carry on its present business and operations,
including the jurisdiction(s) where the Equipment is or is to be located.
(b) The Documents have been duly authorized, executed and delivered
by Lessee and constitute valid, legal and binding agreements of Lessee,
enforceable against it in accordance with their terms.
(c) No approval, consent or withholding of objections is required
from any governmental authority or instrumentality, or any person, with respect
to the entry into or performance by Lessee of the Documents except such as have
already been obtained.
(d) The entry into and performance by Lessee of its obligations under
the Documents will not (i) violate any judgment, order, law or regulation
applicable to Lessee or any provision of Lessee's Certificate of Incorporation
or By-Laws; or (ii) result in any breach of, constitute a default under or
result in the creation of any Lien, pursuant to any indenture, mortgage, deed of
trust, bank loan or credit agreement or other instrument to which Lessee is a
party.
(e) There is no existing Event of Default under this Lease or any
existing default in connection with any indenture, mortgage, deed of trust, bank
loan or credit agreement or other instrument to which Lessee is a party.
(f) There are no suits or proceedings pending or overtly threatened
in any court or by any governmental agency against or affecting Lessee, which,
if adversely determined, would have a material adverse effect on the ability of
Lessee to fulfill its obligations under this Lease or its financial condition or
prospects.
(g) Each balance sheet, income statement, and statement of cash flow
delivered to Lessor has been prepared in accordance with generally accepted
accounting principles, and since the date of the most recent such balance sheet,
income statement, and statement of cash flow, there has been no material adverse
change in the financial condition or prospects of Lessee.
(h) The Equipment will at all times be used for commercial or
business purposes.
(i) Lessee has made an assessment of the microchip and computer-based
systems and the software used in its business and based upon such assessment
believes that it will be "Year 2000 Compliant" by January 1, 2000. For purposes
of this paragraph, "Year 2000 Compliant" means that all software, embedded
microchips and other processing capabilities utilized by, and material to the
business operations or financial condition of, Lessee are able to
<PAGE>
-14-
interpret, store, transmit, receive and manipulate data on and involving all
calendar dates correctly and without causing any abnormal ending scenarios in
relation to dates in and after the Year 2000. From time to time, at the request
of Lessor, Lessee shall provide to Lessor such updated information as is
requested regarding the status of its efforts to become Year 2000 Compliant.
21. MISCELLANEOUS, JURY WAIVER, GOVERNING LAW, JURISDICTION VENUE: (a)
Nothing therein contained shall give or convey to Lessee any right, title or
interest in and to any Equipment leased hereunder except as a lessee. Should
Lessor permit the use of any Equipment beyond the specified Term thereof, the
obligations of Lessee hereunder shall continue (including the obligation to pay
the Basic Rent at the highest rate applicable during the Term with respect
thereto) and such permissive use shall not be construed as renewal of the Term
thereof nor as a waiver of any right or continuation of any obligation of Lessor
hereunder. Lessee's obligations pursuant to Sections 11, 12, 13, 14 and 15 shall
survive the expiration or earlier termination of this Lease and Lessee shall
remain liable therefor. Equipment shall at all times remain personal property of
Lessor notwithstanding any affixation to the real estate.
(b) The Equipment subject hereto is and at all times shall be and
remain the sole and exclusive property of Lessor, and Lessee shall have no
right, title or interest therein or thereto, except as expressly set forth in
this Lease. As a precaution, Lessee hereby also grants hereto, Lessor a first
priority continuing lien and security interest in the Equipment subject thereto
and the proceeds thereof to secure any obligation of Lessee under this Lease,
each Schedule hereunder, any other agreement between Lessor and Lessee. Lessee
further agrees that Lessee's obligations hereunder are additionally secured by
all security interests, liens and encumbrances hereto, now or hereafter granted
by Lessee to Lessor under any instrument, whether or not related to this Lease.
Lessee agrees to execute any instrument or instruments necessary or expedient
for filing, recording, perfecting, or notifying of the interest of Lessor in the
Equipment upon request of, and as determined by, Lessor. Lessee hereby
specifically authorizes Lessor to file financing statements not signed by Lessee
or to execute same for and on behalf of Lessee as Lessee's attorney-in-fact,
irrevocably and coupled with an interest, for such purposes.
(c) To the extent permitted by applicable law, Lessee hereby waives
any and all rights and remedies conferred upon a lessee by such applicable law
(including but not limited to Article 2A of the UCC) to: (i) cancel this Lease;
(ii) repudiate this Lease; (iii) reject the Equipment; (iv) revoke acceptance of
the Equipment; (v) recover damages from Lessor for any breaches of warranty or
for any other reason; (vi) a security interest in the Equipment in Lessee's
possession or control for any reason; (vii) deduct all or any part of any
claimed damages resulting from Lessor's default, if any, under this Lease;
(viii) accept partial delivery of the Equipment; (ix) "Cover" by making any
purchase or lease of, or contract to purchase or lease, Equipment in
substitution for that due from Lessor; (x) recover any general, special,
incidental or consequential damages, for any reason whatsoever; and (xi) obtain
specific performance, replevin, detinue, sequestration, claim and delivery or
the like for any Equipment identified to this Lease. To the extent permitted by
applicable law, Lessee also hereby waives any rights now or hereafter conferred
by statute or otherwise which may require Lessor to sell, lease or otherwise use
any Equipment in mitigation of Lessor's damages as set forth in Section 17 of
this Lease or which may otherwise limit or modify any of Lessor's rights or
remedies under Section 17.
<PAGE>
-15-
Any action by Lessee against Lessor for any default by Lessor under
this Lease, including breach of warranty or indemnity, shall be commenced within
one (1) year after any such cause of action accrues. LESSOR AND LESSEE EACH
----------------------
WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY LITIGATION ARISING HEREFROM OR IN
- ---------------------------------------------------------------------------
RELATION HERETO.
- ---------------
(d) All notices hereunder shall be in writing and shall be delivered
by hand, by overnight courier or by certified or registered mail, return receipt
requested, to each party at its address set forth below, as such address may be
changed by such notice. All notices shall be deemed given when received, when
delivery is refused or when the same are returned for failure to be called for.
(e) If Lessee fails to perform any of its obligations hereunder
Lessor may, but shall not be obligated to, perform the same (without such
performance constituting a cure or waiver of Lessee's failure to so perform) and
Lessee will on demand reimburse Lessor for all its costs and expenses incurred
in connection therewith.
(f) THIS LEASE AND THE RIGHTS AND OBLIGATION OF THE PARTIES HEREUNDER
-----------------------------------------------------------------
SHALL IN ALL RESPECTS BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
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INTERNAL LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO PRINCIPLES OF
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CONFLICTS OF LAW, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND
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PERFORMANCE, REGARDLESS OF THE LOCATION OF THE EQUIPMENT OR THE STATE OF
- ------------------------------------------------------------------------
INCORPORATION OR PRINCIPAL PLACE OF BUSINESS OF THE LESSEE, LESSEE (I) CONSENTS
- -------------------------------------------------------------------------------
AT LESSOR'S ELECTION AND WITHOUT LIMITING LESSOR'S RIGHT TO COMMENCE AN ACTION
- ------------------------------------------------------------------------------
IN ANY OTHER JURISDICTION, TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY COURTS
- --------------------------------------------------------------------------------
(FEDERAL, STATE OR LOCAL) SITUATED IN COOK COUNTY, ILLINOIS; (II) WAIVES ANY
- ----------------------------------------------------------------------------
OBJECTION TO IMPROPER VENUE AND FORUM NON CONVENIENS; AND (III) CONSENTS TO
- ---------------------------------------------------------------------------
SERVICE OF PROCESS BY CERTIFIED MAIL, POSTAGE PREPAID, TO LESSEE AT ITS ADDRESS
- -------------------------------------------------------------------------------
AS SET FORTH HEREIN, WHICH SERVICE SHALL BE DEEMED COMPLETE WITHIN TEN (10) DAYS
- --------------------------------------------------------------------------------
AFTER THE DATE OF MAILING THEREOF. If any provision of this Lease shall
- ---------------------------------
contravene or be invalid under applicable law or regulation, such contravention
or invalidity shall not affect the entire Lease, the provisions held to be
invalid to be deemed deleted or modified and the Lease interpreted and construed
as though such invalid provision or provisions were not part hereof or conformed
thereto.
(g) This Lease, together with each Schedule and Rider, constitutes
the entire agreement of the parties with respect to the subject matter hereof,
and supersedes and replaces any prior or contradictory representations,
warranties or agreements by Lessor and Lessee. Unless set forth in a Schedule or
Rider, signed by an authorized manager of Lessor, Lessee shall have no right to
purchase or otherwise acquire title to or ownership of any Item of Equipment. No
agent or employee of any supplier or manufacturer is authorized to bind Lessor
to this Lease or any Schedule, or to waive, alter or add to the terms and
conditions printed herein and in any Schedule.
<PAGE>
-16-
This is a non-cancelable Lease and Lessee's obligations hereunder are absolute
and unconditional. This Lease, any amendments to, variations or modifications of
this Lease, any waiver of its provisions or conditions, any consent hereunder
and all Schedules shall not be valid unless in writing and signed by an
authorized officer or manager of Lessor.
/s/ JBL
____________________________________
[LESSEE'S INITIALS]
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
22nd day of February, 1999.
HELLER FINANCIAL LEASING, INC. ACT MANUFACTURING, INC.
(Lessee)
/s/ Michael G. Nawara /s/ Jeffrey B. Lavin
By:___________________________ By:______________________________
Michael G. Nawara Jeffrey B. Lavin
Name:_________________________ Name:____________________________
Vice President Chief Financial Officer
Title:________________________ Title:___________________________
500 West Monroe Street 2 Cabot Road
Address:______________________ Address:_________________________
Chicago, IL 60661 Hudson, MA 01749
______________________ _________________________
______________________ _________________________
(312) 441-7519 (978) 567-4099
Facsimile No.:________________ Facsimile No.:___________________
<PAGE>
EXHIBIT 10.41
Amplicon Financial Lease
5 Hutton Centre Drive, Suite 500 . Santa Ana, California 92707 Agreement
714.751-7551 . 800.755-5055 . Facsimile 714.751-7557
LESSEE
ACT Manufacturing, Inc.
STREET CITY STATE COUNTY ZIP
2 Cabot Road Hudson MA Middlesex 01749
1. AGREEMENT/LEASE: Amplicon, Inc. ("Amplicon") agrees to lease to Lessee the
hardware, software and/or other equipment ("Property") described on the Lease
Schedule(s) ("Schedule(s)") referencing this Lease Agreement ("Agreement") and
Lessee agrees to lease from Amplicon the Property subject to the terms set forth
herein and on each Schedule(s) that the parties may from time to time enter into
with respect to this Agreement. Each Schedule identified as being a part of this
Agreement incorporates the terms of this Agreement and constitutes a separate
lease agreement and is referred to herein as the "Lease." The Lease is in force
and is binding upon Lessee and Amplicon upon signed acceptance by Amplicon.
2. UNIFORM COMMERCIAL CODE ACKNOWLEDGMENT: Lessee acknowledges that it has
received and approved any written "Supply Contract" covering the Property
purchased from the Supplier for lease and Amplicon has informed or advised
Lessee, either previously or by this Lease, of the following: (i) the identity
of the Supplier; (ii) that Lessee may have rights under the Supply Contract; and
(iii) that Lessee may contact the Supplier for a description of any such rights.
This Lease is a "Finance Lease." (The terms "Finance Lease," "Supply Contract"
and "Supplier" as used in this Lease have the meanings only as ascribed to them
under Division 10 of the California Uniform Commercial Code and have no effect
on any tax or accounting treatment of the Lease.) This provision survives
termination of the Lease.
3. NO WARRANTIES: AMPLICON IS NOT THE MANUFACTURER, DEVELOPER, PUBLISHER,
DISTRIBUTOR, LICENSOR OR "SUPPLIER" OF THE PROPERTY AND MAKES NO EXPRESS OR
IMPLIED WARRANTY OR REPRESENTATION AS TO FITNESS, QUALITY, DESIGN, CONDITION,
CAPACITY, SUITABILITY, VALUE, MERCHANTABILITY, OR PERFORMANCE OF THE PROPERTY OR
THE MATERIAL OR WORKMANSHIP THEREOF OR AGAINST INTERFERENCE BY LICENSORS OR
OTHER THIRD PARTIES, IT BEING AGREED THAT THE PROPERTY IS LEASED "AS IS" AND
THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE. Lessee selected the Property and
represents that all the Property is suitable for Lessee's purposes. Amplicon
assigns to Lessee during the term of the Lease any warranty rights it may have
received from the Supplier as a result of Amplicon's purchase of the Property.
If Lessee has any claims regarding the Property or any other matter arising from
Lessee's relationship with the Supplier, Lessee must make them against the
Supplier. This provision survives termination of the Lease.
4. AUTHORIZATION DATE AND LEASE DURATION: A Schedule commences and rent is
due beginning on the date that Lessee certifies in writing to Amplicon that all
of the Property
<PAGE>
-2-
has been received and accepted by Lessee as installed, tested and ready for use,
and Lessee authorizes Amplicon in writing to disburse payment to the Supplier
("Authorization Date"). Unless and until Lessee provides such written
authorization, Amplicon will not disburse payment to Suppliers. The Term of each
Schedule is reflected on the Schedule and begins on the first day of the
calendar quarter following the Authorization Date. A calendar quarter commences
on the first day of January, April, July and October. Lessee has the right to
use the Property at the specific locations shown on the Schedule throughout the
duration of this Lease in accordance with the provisions of this Lease. The Term
extends for an additional twelve month period ("Extension Term") at the rental
rate delineated on the Schedule unless Lessee provides to Amplicon written
notice of Lessee's election not to extend the Term at least one hundred eighty
days prior to the expiration of the Term.
5. RENTALS: The rent payable is shown on the Schedule(s). The monthly rent is
due to Amplicon, in advance, for each month or portion of a month beginning on
the Authorization Date and continuing for each month that this Lease is in
effect. Rent for portions of a month are based on a daily rental equal to one-
thirtieth of the monthly rent. ALL RENTS SHALL BE PAID WITHOUT NOTICE OR DEMAND
AND WITHOUT ABATEMENT, DEDUCTION OR SETOFF OF ANY AMOUNT WHATSOEVER. THE
OPERATION AND USE OF THE PROPERTY IS SOLELY AT THE RISK OF LESSEE AND THE
OBLIGATION OF LESSEE TO PAY RENT UNDER THE LEASE SHALL BE ABSOLUTE AND
UNCONDITIONAL. TO THE EXTENT PERMITTED BY APPLICABLE LAW, LESSEE HEREBY WAIVES
THE FOLLOWING RIGHTS AND REMEDIES CONFERRED UPON LESSEE BY LAW: (I) RIGHT TO
CANCEL OR TERMINATE THIS LEASE, (II) RIGHT TO REJECT THE PROPERTY, (III) RIGHT
TO REVOKE ACCEPTANCE OF THE PROPERTY, (IV) RIGHT TO RECOVER DAMAGES FROM
AMPLICON FOR ANY BREACH OF WARRANTY, AND (V) RIGHT TO RECOVER ANY CONSEQUENTIAL
DAMAGES WHATSOEVER.
Rents will be paid to Amplicon unless otherwise instructed in writing by
Amplicon or its assignee.
6. INDEMNITY: Lessee assumes liability for, and agrees at its own expense to
indemnify and defend Amplicon, its employees, officers, directors and assigns,
from and against any and all claims, liabilities, losses, damages, and expenses
(including legal expenses) of every kind or nature (including, without
limitation, claims based upon strict liability) arising out of the use,
condition (including latent and other defects, whether or not discoverable by
Lessee or Amplicon), operation or ownership of any items of Property (including,
without limitation, any claim for patent, trademark or copyright infringement)
or for any interruptions of service, loss of business or consequential damages.
These indemnities and assumptions survive the termination of this Lease.
7. PERFORMANCE OF LESSEE'S OBLIGATIONS BY AMPLICON: If Lessee fails to
perform any of its obligation under this Lease, Amplicon may, at its option,
perform them for Lessee without waiving Lessee's default. Any amount paid by
Amplicon, and any expense
<PAGE>
-3-
(including reasonable attorneys' fees) or any other liability incurred by
Amplicon as a result of its performance of Lessee's obligations will be payable
by Lessee to Amplicon upon demand.
8. FURTHER ASSURANCE AND NOTICES: Lessee's signing of this Lease constitutes
a firm offer. In consideration of Amplicon's time and effort in reviewing and
acting on the offer, Lessee agrees that its offer is irrevocable for twenty
business days after Amplicon's receipt of the offer and of all credit
information requested by Amplicon. Amplicon's signing of the Lease, including
the Schedule, constitutes acceptance of Lessee's offer. Lessee agrees to sign
and provide any documents which Amplicon deems necessary for confirmation,
assignment and assurance of performance by Lessee of its obligations under the
Lease or for perfection of this Lease and the Property including, but not
limited, to the signing and filing of Uniform Commercial Code (UCC) Financing
Statements (which Lessee agrees may be signed by Amplicon on Lessee's behalf).
Lessee authorizes Amplicon to insert applicable dates as necessary to complete
all documentation for the Lease. Prior to Amplicon's acceptance of the Lease and
for the duration of the Lease, Lessee agrees to promptly provide Amplicon with
all credit information reasonably requested by Amplicon including, but not
limited to, comparative audited financial statements for the most current annual
and interim reporting periods. Lessee's failure to provide such information to
Amplicon is an event of default under the Lease. ALL NOTICES TO AMPLICON MUST BE
IN WRITING AND SENT CERTIFIED MAIL RETURN RECEIPT REQUESTED TO THE ADDRESS SHOWN
ABOVE OR SUCH OTHER ADDRESS AS TO WHICH LESSEE HAS BEEN NOTIFIED IN WRITING.
9. DEFAULT: If rent or any other amount is not paid within ten days of its
due date, Lessee agrees to pay a late charge equal to five percent (5%) of the
unpaid amount. Each month thereafter, past due amounts remaining unpaid
hereunder shall bear interest at the lesser of one and one half percent (1 1/2%)
per month, compounded monthly or the maximum rate allowed by law. An Event of
Default shall occur if: (a) Lessee fails to pay any rent or other payment under
the Lease when due and the failure continues for ten days; (b) Lessee fails to
perform or observe any of the covenants or obligations in this Lease other than
Lessee's rental obligations, and such failure is not cured within ten days after
written notice has been provided; (c) Lessee makes an assignment for the benefit
of its creditors, files any petition or takes any action under any bankruptcy,
reorganization or insolvency laws; (d) an involuntary petition is filed under
any bankruptcy statute against Lessee or any receiver, trustee or custodian is
appointed to take possession of Lessee's properties, unless such petition or
appointment is set aside or withdrawn within sixty days of said filing or
appointment; (e) Lessee attempts to or does remove, transfer, sell, sublicense,
encumber, part with possession, or sublet any of the Property; (f) Lessee
attempts to assign or transfer this Lease or its interest under the Lease or
moves any of the Property from the location(s) set forth on the Schedule without
Amplicon's prior written consent; or (g) Lessee undergoes a sale, buyout, change
in control, or change in ownership of any type, form or manner which, as judged
solely by Amplicon, results in a material deterioration in Lessee's credit
worthiness.
10. REMEDIES: Upon an Event of Default, Amplicon may exercise at its sole
option any one or more of the remedies permitted by law, including but not
limited to the following: (a) through legal action, enforce performance by
Lessee of the applicable covenants and obligations of this
<PAGE>
-4-
Lease or recover damages for the breach of those covenants or obligations; (b)
terminate the Lease and Lessee's rights under the Lease; (c) by notice in
writing to Lessee, recover all amounts due on or before the date Amplicon
declared this Lease to be in default, plus, as liquidated damages for the loss
of a bargain and not as a penalty, accelerate and declare to be immediately due
and payable all rentals and other sums payable under the Lease without any
presentment, demand, protest or further notice (all of which are hereby
expressly waived by Lessee), at which time the same shall become immediately due
and payable; and (d) take immediate possession of the Property, or any part of
the Property, from Lessee free from claims by Lessee. In the case of Software,
it is agreed that Lessee's unauthorized use, disclosure, or transfer of the
Software will cause Amplicon significant damages which, at the time the parties
enter the Lease, are impossible to quantify or predict. Therefore, if Lessee is
found to be using (in any manner) all or any portion of the Software after the
termination of this Lease, or if Supplier terminates a license of Lessee's right
to use the Software for an alleged breach of the use, disclosure, or transfer
restrictions imposed on Lessee, the parties hereby agree that liquidated damages
shall be payable immediately by Lessee to Amplicon in an amount which is equal
to two times the amount paid by Amplicon for the Software. The exercise of any
of the foregoing remedies by Amplicon will not constitute a termination of this
Lease unless Amplicon so notifies Lessee in writing. If Amplicon repossesses the
Property, Amplicon may rent or sell the Property in such a manner and at such
times as Amplicon may determine and without notice to Lessee. In the event
Amplicon rents the Property, any rentals received by Amplicon for the remaining
Term(s) of the Schedule shall be applied to the payment of: (i) all costs and
expenses (including reasonable attorneys' fees) incurred by Amplicon in
enforcing its remedies under this Lease, and (ii) the rentals for the remainder
of the Term(s) and all other sums then remaining unpaid under this Lease. All
rentals received by Amplicon for the period commencing after the remaining
Term(s) shall be retained by Amplicon. Lessee will remain liable to Amplicon to
the extent that the aggregate amount of the sums referred to in clauses (i) and
(ii) above exceed the aggregate rentals received by Amplicon under such
agreements for the remaining Term(s) applicable to the Property covered by such
agreements. In the event that Amplicon sells the Property, the proceeds will be
applied to the sum of: (1) all costs and expenses (including reasonable
attorneys' fees) incurred by Amplicon in enforcing its remedies under this Lease
and in disposing of the Property, (2) the rentals accrued under this Lease, but
unpaid up to the time of such disposition, (3) any and all other sums other than
rentals then owing to Amplicon by Lessee under the Lease, and (4) the stipulated
value as would be determined in the event of a Casualty Occurrence (as defined
in the terms and conditions to the Schedule) on the date of the Property's
disposition. The remaining balance of such proceeds, if any, will be applied
first to reimburse Lessee for any sums previously paid by Lessee as liquidated
damages (as set forth in (c) above), and any remaining amounts will be retained
by Amplicon. Lessee will remain liable to Amplicon to the extent that the
aggregate amount of the sums referred to in clauses (1) through (4) above
exceeds the proceeds received by Amplicon in connection with the disposition of
the Property. Amplicon's remedies under this Lease shall not be deemed
exclusive. Waiver of any default or breach of this Lease shall not be construed
as a waiver of subsequent or continuing defaults or breaches.
11. DISPUTE RESOLUTION: THE PARTIES AGREE THAT ALL DISPUTES, WHETHER BASED IN
TORT OR CONTRACT, RELATING TO OR ARISING OUT OF THIS LEASE (COLLECTIVELY, "LEASE
DISPUTES") WILL BE SUBMITTED TO
<PAGE>
-5-
THE ORANGE COUNTY, CALIFORNIA OFFICE OF ENDISPUTE, INC., DBA J-A-M-S/ENDISPUTE
("JAMS") FOR A TRIAL OF ALL ISSUES OF LAW AND FACT CONDUCTED BY A RETIRED JUDGE
OR JUSTICE FROM THE PANEL OF JAMS, APPOINTED PURSUANT TO A GENERAL REFERENCE
UNDER CALIFORNIA CODE OF CIVIL PROCEDURE SECTION 638(1) (OR ANY AMENDMENT,
ADDITION OR SUCCESSOR SECTION THERETO) UNLESS AMPLICON OR ITS ASSIGNEE SELECTS
AN ALTERNATIVE FORUM. IF THE PARTIES ARE UNABLE TO AGREE ON A MEMBER OF THE JAMS
PANEL, THEN ONE SHALL BE APPOINTED BY THE PRESIDING JUDGE OF THE CALIFORNIA
SUPERIOR COURT FOR THE COUNTY OF ORANGE. IN THE EVENT THAT JAMS IN THE COUNTY OF
ORANGE CEASES TO EXIST, THEN THE PARTIES AGREE THAT ALL LEASE DISPUTES WILL BE
FILED AND CONDUCTED IN THE CALIFORNIA SUPERIOR COURT FOR THE COUNTY OF ORANGE,
UNLESS AMPLICON OR ITS ASSIGNEE SELECTS AN ALTERNATIVE FORUM. LESSEE AGREES TO
SUBMIT TO THE PERSONAL JURISDICTION OF THE CALIFORNIA SUPERIOR COURT FOR ALL
LEASE DISPUTES. LESSEE WAIVES ITS RIGHTS TO A JURY TRIAL IN ANY ACTION ARISING
OUT OF OR RELATING TO THIS LEASE. If any party to this Lease brings any action
to enforce any of the terms, or to recover for any breach, then the prevailing
part is entitled to recover from the other party reasonable attorneys' fees and
costs, including all JAMS-related costs and costs of collection (including
judgment enforcement and collection costs).
12. MISCELLANEOUS: All agreements, representations and warranties contained in
this Lease, or in any document or certificate delivered pursuant to or in
connection with this Lease, shall expressly survive the termination of this
Lease. If any provision of this Lease is determined by competent authority to be
unenforceable, such determination shall not invalidate the remaining provisions
of the Lease. To the extent permitted by applicable law, Lessee waives any
provision of law which renders any provision hereof prohibited or unenforceable
in any respect. This Lease has been entered into and shall be performed in
California and, therefore, THIS LEASE SHALL BE CONSTRUED IN ACCORDANCE WITH AND
SHALL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA (EXCLUSIVE OF
PRINCIPLES OF CONFLICT OF LAWS). Time is of the essence of this Lease and each
provision thereof.
<PAGE>
-6-
. . . . . . . . . . . . . . . . . . .
THIS LEASE AGREEMENT AND THE APPLICABLE SCHEDULE(S) CONTAIN THE ENTIRE AGREEMENT
BETWEEN AMPLICON AND LESSEE WITH RESPECT TO THE SUBJECT MATTER HEREOF. THE LEASE
CAN ONLY BE MODIFIED IN WRITING, WITH SUCH MODIFICATIONS SIGNED BY A PERSON
AUTHORIZED TO SIGN AGREEMENTS ON BEHALF OF LESSEE AND BY AN AUTHORIZED SIGNER OF
AMPLICON. NO ORAL OR OTHER WRITTEN AGREEMENTS, REPRESENTATIONS OR PROMISES SHALL
BE RELIEF UPON BY, OR BE BINDING ON, THE PARTIES UNLESS MADE A PART OF THIS
LEASE BY A WRITTEN MODIFICATION SIGNED BY AN AUTHORIZED SIGNER OF LESSEE AND
AMPLICON.
LESSEE: /s/ Douglass C. Greenlaw AMPLICON, INC. Michael L. McClendon
-------------------------------- -----------------------
(Signature) (Signature)
This Lease is subject to acceptance by Amplicon's Finance Committee. BY SIGNING
BELOW, THE SIGNER CERTIFIES THAT HE OR SHE HAS READ THIS LEASE AGREEMENT,
INCLUDING THE REVERSE SIDE, HAS HAD AN OPPORTUNITY TO DISCUSS ITS TERMS WITH
AMPLICON, AND IS AUTHORIZED TO SIGN ON BEHALF OF LESSEE. Until this Lease has
been signed by an authorized signer of Amplicon, it will constitute a firm offer
by Lessee.
LESSEE/OFFEROR
OFFER: ACT MANUFACTURING, INC. ACCEPTANCE: AMPLICON, INC.
By: /s/ Douglass C. Greenlaw By: /s/ Michael L. McClendon
--------------------------- -----------------------------
Name: Douglass C. Greenlaw Name: Michael L. McClendon
Title: Vice President of
Strategic Development Title: Senior Vice President
------------------------ --------------------------
Date: 1/8/99 Date: 2/26/99
------------------------- ---------------------------
<PAGE>
EXHIBIT 11.1
ACT MANUFACTURING, INC.
Computation of Net Income (Loss) Per Common Share
Twelve Months Ended December 31, 1998 and 1997
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
Twelve Months Ended
----------------------
1998 1997
---- ----
<S> <C> <C>
BASIC NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) as reported ........................... $1,282 $(4,008)
Weighted average number of common shares outstanding:
Common Stock .......................................... 9,063 8,952
-------- --------
Basic net income (loss) per common share .............. $ .14 $ (.45)
======== ========
DILUTED NET INCOME (LOSS) PER COMMON SHARE:
Net income (loss) as reported ........................... $1,282 $(4,008)
Weighted average number of common shares outstanding:
Common Stock .......................................... 9,063 8,952
Effect of stock options ............................... 136 -
-------- --------
Total ............................................. 9,199 8,952
-------- --------
Diluted net income (loss) per common share ............ $ .14 $ (.45)
======== ========
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
ACT Manufacturing Securities Corporation, a Massachusetts corporation.
Advanced Component Technologies Limited, a company organized under the laws of
Ireland.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-91964 and No. 333-36751 of ACT Manufacturing, Inc. and subsidiaries on Form
S-8 of our report dated February 26, 1999, appearing in this Annual Report on
Form 10-K of ACT Manufacturing, Inc. for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 5,389
<SECURITIES> 0
<RECEIVABLES> 70,546
<ALLOWANCES> 1,151
<INVENTORY> 45,337
<CURRENT-ASSETS> 124,836
<PP&E> 21,146
<DEPRECIATION> 7,657
<TOTAL-ASSETS> 145,369
<CURRENT-LIABILITIES> 54,660
<BONDS> 40,475
<COMMON> 91
0
0
<OTHER-SE> 50,143
<TOTAL-LIABILITY-AND-EQUITY> 145,369
<SALES> 290,529
<TOTAL-REVENUES> 290,529
<CGS> 271,311
<TOTAL-COSTS> 295,998
<OTHER-EXPENSES> (92)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,334
<INCOME-PRETAX> 2,290
<INCOME-TAX> 1,009
<INCOME-CONTINUING> 1,282
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,282
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
